NPA PROJECT for Surat Dist Co-op Bank

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1.1> Introduction to co-operative Banks.

1.2> Structure of co-operative banking in India.

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INDUSTRY DETAILS:

A bank is a business that provides banking services for profit. Traditional

bankingservices include receiving deposit of money, lending money and processing

transactions. Some banks (called Banks of issue) issue banknotes as legal tender. Many banks

offer ancillary financial services to make additional profit; for example: selling insurance

products, investment products or stock broking.

Currently in most jurisdictions the business of banking is regulated and banks require

permission to trade. Authorizations to trade is granted by bank regulatory authorities and

provide rights to conduct the most fundamental banking services such as accepting deposits

and making loans.

What is Bank?

“Banking is an establishment which makes to individual, such advances of money as

may be required & safely made to which individuals entrust money when not needed by them

for use”.

- Walter leat

in general sense, banking is writing of supplement, day-books ledger posting, balancing

preparation of pass-books, carrying outstanding instruction, interest calculation, cash

transfers, outward and inward cleaning, etc.

Banks are such places where people can deposit their savings with the assurance that they

will be able to withdraw money from the deposits whenever required. People who wish to

borrow money for business and other purposes can also get loans from the banks at

reasonable rate of interest.

Bank is a lawful organization, which accepts deposits that can be withdrawn on demand.

It also lends money to individuals and business houses that need it.

Banks also render many other useful services – like collection of bills, payment of foreign

bills, safe-keeping of jewelers and other valuable items, certifying the credit-worthiness of

business, and so on. Banks accept deposits from the general public as well as from the

business community. Anyone who saves money for future can deposit his savings in a bank.

Businessmen have income from sales out of which they have to make payment for expenses.

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They can keep their earnings from sales safely deposited in banks to meet their expenses

from time to time. Banks give two assurances to the depositors:

a. Safety of deposit, and

b. Withdrawal of deposit, whenever needed

On deposits, banks give interest, which adds to the original amount of deposit. It is a great

incentive to the depositor. It promotes saving habits among the public. On the basis of

deposits banks also grant loans and advances to farmers, traders and businessmen for

productive purposes.

Thereby banks contribute to the economic development of the country and well-being

of the people in general. Banks also charge interest on loans. The rate of interest is generally

higher than the rate of interest allowed on deposits. Banks also charge fees for the various

other services, which they render to the business community and public in general. Interest

received on loans and fees charged for services which exceed the interest allowed on deposits

are the main sources of income for banks from which they meet their administrative

expenses.

The activities carried on by banks are called banking activity. ‘Banking’ as an activity

involves acceptance of deposits and lending or investment of money. It facilitates business

activities by providing money and certain services that help in exchange of goods and

services. Therefore, banking is an important auxiliary to trade. It not only provides money for

the production of goods and services but also facilitates their exchange between the buyer and

seller. You may be aware that there are laws which regulate the banking activities in our

country. Depositing money in banks and borrowing from banks are legal transactions. Banks

are also under the control of government. Hence they enjoy the trust and confidence of people

.Also banks depend a great deal on public confidence. Without public confidence banks

cannot survive

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History of Banking In India:Without a sound and effective banking system in India it cannot have a healthy

economy. The banking system of India should not only be hassle free but it should be able to

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

For the past three decades India's banking system has several outstanding

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

only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached

even to the remote corners of the country. This is one of the main reasons of India's growth

process.

The government's regular policy for Indian bank since 1969 has paid rich dividends

with the nationalization of 14 major private banks of India.

Not long ago, an account holder had to wait for hours at the bank counters for getting

a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the

most efficient bank transferred money from one branch to other in two days. Now it is simple

as instant messaging or dials a pizza. Money has become the order of the day.

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

today, the journey of Indian Banking System can be segregated into three distinct phases.

They are as mentioned below:

Early phase from 1786 to 1969 of Indian Banks

Nationalization of Indian Banks and up to 1991 prior to Indian banking sector

Reforms.

New phase of Indian Banking System with the advent of Indian Financial & Banking

Sector Reforms after 1991.

To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase

III.

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Phase I:

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan

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

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

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

established which started as private shareholders banks, mostly Europeans shareholders. In

1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National

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

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

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

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

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

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

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

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

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

Authority.

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

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

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

Phase II:

Government took major steps in this Indian Banking Sector Reform after

independence. In 1955, it nationalized Imperial Bank of India with extensive banking

facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of

India to act as the principal agent of RBI and to handle banking transactions of the Union and

State Governments all over India.Seven banks forming subsidiary of State Bank of India was

nationalized in 1960 on 19th July, 1969, major process of nationalization was carried out. It

was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial

banks in the country was nationalized

Second phase of nationalization Indian Banking Sector Reform was carried out in

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

Government ownership.

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The following are the steps taken by the Government of India to Regulate Banking

Institutions in the Country:

1949: Enactment of Banking Regulation Act.

1955: Nationalization of State Bank of India.

1959: Nationalization of SBI subsidiaries.

1961: Insurance cover extended to deposits.

1969: Nationalization of 14 major banks.

1971: Creation of credit guarantee corporation.

1975: Creation of regional rural banks.

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

Banking Overview:

The major participants of the Indian financial system are the commercial banks, the

financial institutions (FIs), encompassing term-lending institutions, investment institutions,

specialized financial institutions and the state-level development banks, Non-Bank Financial

Companies (NBFCs) and other market intermediaries such as the stock brokers and money-

lenders. The commercial banks and certain variants of NBFCs are among the oldest of the

market participants. The FIs, on the other hand, are relatively new entities in the financial

market place.

Historical perspective:

Bank of Hindustan, set up in 1870, was the earliest Indian Bank. Banking in India on

modern lines started with the establishment of three presidency banks under Presidency

Bank's act 1876 i.e. Bank of Calcutta, Bank of Bombay and Bank of Madras. In 1921, all

presidency banks were amalgamated to form the Imperial Bank of India. Imperial bank

carried out limited central banking functions also prior to establishment of RBI. It engaged in

all types of commercial banking business except dealing in foreign exchange.

Reserve Bank of India Act was passed in 1934 & Reserve Bank of India (RBI) was

constituted as an apex bank without major government ownership. Banking Regulations Act

was passed in 1949. This regulation brought Reserve Bank of India under government

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control. Under the act, RBI got wide ranging powers for supervision & control of banks. The

Act also vested licensing powers & the authority to conduct inspections in RBI.

In 1955, RBI acquired control of the Imperial Bank of India, which was renamed as

State Bank of India. In 1959, SBI took over control of eight private banks floated in the

erstwhile princely states, making them as its 100% subsidiaries.

RBI was empowered in 1960, to force compulsory merger of weak banks with the

strong ones. The total number of banks was thus reduced from 566 in 1951 to 85 in 1969. In

July 1969, government nationalized 14 banks having deposits of Rs.50 corer & above. In

1980, government acquired 6 more banks with deposits of more than Rs.200 corer.

Nationalization of banks was to make them play the role of catalytic agents for economic

growth. The Narshimhan Committee report suggested wide ranging reforms for the banking

sector in 1992 to introduce internationally accepted banking practices.

The amendment of Banking Regulation Act in 1993 saw the entry of new private sector

banks.

Banking Segment in India functions under the umbrella of Reserve Bank of India - the

regulatory, central bank. This segment broadly consists of:

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1. COMMERCIAL BANK

2. CO-OPERATIVE BANKS

Commercial Banks:

The commercial banking structure in India consists of:

Scheduled Commercial Banks

Unscheduled Banks

Scheduled commercial Banks constitute those banks which have been included in the

Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those

banks in this schedule which satisfy the criteria laid down vide section 42 (60 of the Act.

Some co-operative banks are scheduled commercial banks albeit not all co-operative banks

are. Being a part of the second schedule confers some benefits to the bank in terms of access

to accommodation by RBI during the times of liquidity constraints. At the same time,

however, this status also subjects the bank certain conditions and obligation towards the

reserve regulations of RBI. This sub sector can broadly be classified into:

1. Public sector

2. Private sector

(1) Public sector banks

In the history of Indian banking, nationalization of imperial bank of India was

considered as a landmark. Another land mark in the history of Indian banking was the

nationalization of 14 large sized commercial banks on 19th July 1969. The nationalized

commercial bank was considered as a separate corporate body’s establishment under the

banking company act of1970. The new 14 banks came to be called public sector banks being

owned managed by government of India.

According to socialist thinkers “financial institution are among the most important

levers that any society has at its command for the achievement of its social and economic

objectives. Public ownership, it was believed, would curb down the tendency open the part of

the banks to provide for speculative and other unproductive purposes.

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(2) Private sector banks

Government of India nationalized private sector banks two times. First time in 1969

and second time in 1980. In 1980 the government nationalized only those banks whose

hundred corer. Those private sectors banks which had deposited less than 2 hundred crore

were left for private management. Those banks which were not nationalized had to function

in conformity with banking regulation acts and the directives issued to the RBI from time to

time. These banks function in the same way as that of private sector banks. The private’s

sector banks enjoy certain amount of freedom in opening branches and providing loans and

advances.

Though they are also required to provide loans and advances to priority sector, they take great

precaution in selecting the beneficiaries. They are better managed than same of the public

sectors banks.

Co-operative banks:

The Cooperative banks in India started functioning almost 100 years ago. The

Cooperative bank is an important constituent of the Indian Financial System, judging by the

role assigned to cooperative, the expectations the cooperative is supposed to fulfill, their

number, and the number of offices the cooperative bank operate. Though the cooperative

movement originated in the West, but the importance of such banks have assumed in India is

rarely paralleled anywhere else in the world. The cooperative banks in India play an

important role even today in rural financing. The businesses of cooperative bank in the urban

areas also have increased phenomenally in recent years due to the sharp increase in the

number of primary co-operative banks.

Cooperative Banks in India are registered under the Co-operative Societies Act. The

cooperative bank is also regulated by the RBI. They are governed by the Banking

Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

Cooperative banks in India finance rural areas under:

Farming

Cattle

Milk

Hatchery

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Personal finance

Cooperative banks in India finance urban areas under:

Self-employment

Industries

Small scale units

Home finance

Consumer finance

Personal finance

1. Primary co-operative credit societies.

2. Central / district co-operative banks.

3. State co-operative banks (also called as apex banks) at the top.

Types of co-operative bank:

1. Primary co-operative credit societies:

Primary credit society is at the bottom of the three-tier structure of co-operative

banks.

The society normally contacts farmers. So, only a few people living within the area of

society are admitted as members. Here individuals of a particular area meet together inspired

by sentiment of co-operation. Every member has to pay his share In a share capital. The price

of a share is nominal so that even a common man can be a member. The functioning of such

society is limited. The society is managed by elected people. Hon-secretary and members of

working committee. Such a society collects its funds by admission fees, share capital and

deposit of people. In case of need such society also get finance from central co-operative

banks or state co-operative bank. Normally society grants loans to members on individual

responsibility.

2. District co-operative Bank:

This bank is a link joining state co-operative bank with the primary credit society.

After the report of all India rural advances inquiry committee in 1945, the central co-

operative banks earned much importance the flow of rural advances reach to every farmer's

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home through this bank via credit society. In reality central co-operative banks were establish

to supply financial help to primary credit society.

3. State Co-operative Banks:

This is the apex bank in the three tier structure set up of the country. Maclegan

Committee appointed in 1974 recommended to establish at least one state co-operative bank

per state. Today every state has the state co-operative bank. This bank especially co-operative

ordinates them and give required guidance. There were approximately 26 state co-operative

banks at the end of 77/78 in India.

Since state co-operative bank is an apex bank, its main function is co-ordination of

co-operative lending, its balance and controlling. The financial help for co-operative lending

activity given by Reserve Bank is also given through state co-operative bank.

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Present Set Up Of Banking Industry In India

RBI

Commercial banks Co-operative banks other institutes

Public Private State Co-operative State land Devilment banks

Foreign banks Other Indian In India banks Central land development

Bank (PLBBI)

Primary Agriculture Credit Urban co-operative bank

Formers Service societies

Governments Public PrivateCorporate bank

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Chapter 2-Company Profile

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INTRODUCTION OF THE SURAT DIST CO-OPERATIVE

BANK LTD:

First decade of 20th century was a very important era in the history of cooperation for entire country and Surat District as well. Many cooperative institutions were initiated during this period. First Coop. Society in Surat District was registered at Degam, Taluka Chikhli on 23-5-1906 (Now in Bulsar District).

In the year 1909, with the efforts of Late Shri B.A.Modi and Late Shri K.G.Desai. The Surat Dist Co.op.(Urban) union Ltd., was registered on 17-6-1909. It was the institution which is later on known as THE SURAT DISTRICT CO.OP. BANK LTD.

In the year 1921, this society had undertaken banking activities in absolute terms. In 1923 The Surat District Co.op. (Urban) union was converted into The Surat District Co.op. Bank Ltd., The work extended to the entire Surat District, which had 21 talukas and a vast working area with geographical variation. The coastal area which included city of Surat and towns like Navasari - Bulsar – Bilimora, the fertile flat land and sizeable tribal area with hills and dense forests.

The Vast Surat District was bifurcated in1965 and district of Bulsar was separated. At present there are 15 talukas in the Surat district, of which 9 are in the tribal area.

Bank is having separate department for agriculture advances since 1944, and become an effective central agency for coordination and smooth flow of finance to cooperative sector in the district. Co-Operative Organizations like :-

The Surat District Milk Producers Co-op. Union Ltd.(SUMUL), The Purushottam Farmers Co-op. Ginning & Pressing Society Ltd., The Surat Distrcit Co-op. Spinning Mills Ltd., The Surat Jilla Sahakari Sale & Purchase Union., The Surat Central Co-op. Stores Ltd., Cotton Co-op Socities of Olpad Taluka,

have since been developed and Bank has provided timely assistance to them. During this period, Forest Labourers Co-op. Societies were also very active in tribal area and were engaged in coop cutting activity for which substantial finance was provided to them.

After 1956 when Shree Khedut Sahakari Khand Udyog Mandali Ltd., Bardoli came into existence, the entire Surat District gradually became a sugar belt. All existing eight sugar factories had toothing financial troubles in the beginning, However, Bank had provided them enough finance as also assisted even for meeting share capital also. By lapse of time Sugar cane has now become principal crop in the district and out of total cultivable area of 490000 hectares 83191 hectares is under sugar cane cultivation. This revolution in agriculture was amply supported by The Surat District Co.op. Bank Ltd., These factories have become main strength of the economic structure of the district, particularly for farmers. All together these factories have a crushing capacity of 35500 tons per day. Annual sugar production exceeds

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Rs.880/- crores. Bank has sanctioned enough financial limits to this sector. Now a days, bank has started financing projects for Drip irrigation, Medicinal crops, Fishery, Green house etc. and would like to escalate the same on substantial extent. As per the instructions/ guidelines of NABARD, of-late, Bank has also started financing to the Non-farm sector including textile industry. Bank has been enjoying privilege of having prominent citizens in fields like Social, Co-operation and Agriculture, on its Board. The present and former members of the Board included outstanding Lawyers, Members of Parliament, District Panchayat Presidents, Mayor of Surat City and Leaders from various walks of life including Ministers.

In the year 1965 The Surat Dist. Co-op. Bank was separated after formation of Bulsar District from old Surat District. After separation bank’s Financial Position is as under.

Deposit scheme (with effective from 16/02/2012):

INVESTMENT PERIOD RATE

From 7 Days to 14 Days (Above Rs. 15 Lacs) 4.50%

From 15 Days to 30 Days 5.50%


From 46 Days To 60 Days 6.25%






1 Year & above but less then 2 Years 8.75%

2 Years & above but upto 3 Years 8.50%

2 Years & above but upto 5 Years 8.50%

5 Years & Above 8.50%

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Recurring Deposit:

SR. MONTHS AMOUNT RATE MATURITY AMOUNT

1 12 100 9.00% 1260

2 24 100 9.50% 2651

3 36 100 10.00% 4208

4 48 100 10.00% 5911

5 60 100 10.00% 7791

BOARD OF DIRECTORS 2012-2013

SR NO.

NAME ADDRESS TELEPHONE NO

1(Chairman)Shree Dilipbhai Bhikhabhai Bhakta

At & Post - BajipuraTal - Valod , Dist - Tapi

(O) (0261) 2475772(R) (02625) 233226

2(Vice Chairman)Shree Amarsinh Zinabhai Chaudhary

At - Jesingpur,Tal - Vyara, Dist - Tapi

(O) (0261) 2470254(R) (02626) 220036

3 Shree Bhagabhai Parbhubhai PatelAt - JokhaTal - KamrejDist - Surat

(0) 0261- 2655524(R)02621-247327

4 Shree Maganbhai Ranchhodbhai PatelAt - VaradTal - BardoliDist - Surat

(02622) 255351

5 Shree Narayanbhai Harjibhai DonwalaAt - Songadh Tal - SongadhDist - Tapi

(02624) 222075(02624) 221110

6 Shree Ramanbhai Ambelal PatelAt - Saniyahemad, Tal - ChoryashiDist- Surat

(02621) 2640331

7 Shree Sharadbhai Shankarbhai PatelAt - PiploadTal - NizarDist - Tapi

(02628) 251039

8 Shree Narendrabhai Dahiyabhai At - (02629) 231287

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SolankiTarsadi(Kosamba)Tal - MangroalDist - Surat

9 Shree Maganbhai Barkiyabhai VasavaAT & Post - ChitpurTal - Uchchhal, Dist -Tapi

(02628) 222125(02628) 222112

10Shree Jaysinhbhai Dungariyabhai Vasava

At - DhanawadTal - Umarpada Dist - Surat

(02629) 253542

11 Shree Kiritbhai Ranchhodji DesaiAt - PalsanaTal - PalsanaDist - Surat

(02622) 265237(0261) 2256092

12 Shree Prabhubhai Nagarbhai VasavaAt & Post- Sathvav, Tal - Mandvi, Dis.- Surat

(O) (02623) 221169(R) (02623) 271188

13 Smt. Dr. Vikashben Kishorbhai Desai1, Sangam Society, Dumas Road,Surat - 395001

(0261) 2227655(0261) 2227259

14 Shree Dhansukhbhai Nathubhai PatelAt - BarbodhanTal - OlpadDist - Surat

(M) 9879522010

15 Shree Balubhai Khushalbhai PatelAt & Post - KoshTal - MahuvaDist - Surat

(M) 9427463739

16 Shree Nayan Naveenchandra BharatiyaPandolni Pol, NanavatDist - Surat

0261 2256928

17Shree Lillachandbhai V. Patel(Bank Nominees)

The. Saraswati Gram Vidhya Peeth,Samod (Gunwada),Tal - ShidhhapurDist - Mehsana

--

18Shree Ajaybhai Janakbhai ShahAdvocate (Professional Director)

Raykavad Street,At - VyaraTal - VyaraDist - Tapi

02626 222157

19District Registrar (Co-Op. Societies Surat)(Registrar's Nominee)

Jila Seva Sadan, A-Block, 1st Floor, In Front of Circut House, Athwa Lines, Surat.

(0261) 2665051(0261) 2666071

20Shree Pradeepsinh Gemalsinh AtodriyaCA (Professional Director)

414, Lalbhai Contractor Complex,Nanpura, Surat

(O) (0261) 2475788(R) (0261) 2233287

21 (Managing Director) At - Athwalines (O) (0261) 2474776

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Shree Indrasinh Chandrasinh MahidaB.Sc, L.L.B(special), PGDLP, C.A.I.I.B, GDC & A

Dist - Surat (R) (0261) 2667064

22(Consultant)Shree Thakorlal Mohanlal ParekhB.Com, L.L.B.(Onars), C.A.I.I.B

Rander RoadDist – Surat

(O )(0261) 2473902(R) (0261) 2784497

23(Auditors)V.J.Amin and Co.(Charter Accountant)

Vadodra

24(Bankers)The Gujarat State Co-Op Bank Ltd.State Bank of India

AhmedabadSurat and Bardoli

(079) 25351970

25Registration No :– S.E/526 OF 1965License No :– RPCD – (AH) 23/2011-12

ORGANIZATION STRUCTURE OF THE BANK:

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(Banking)ASSISTANT GENERAL MANAGER

(Banking)

(Account)GENERAL ASSISTANT MANAGER

(Accountant)

(Accountant)

(Loan)ASSISTANT GENERAL MANAGER

(Loan)

(Develop.)ASSISTAT GENERAL MANAGER

(Devpt.)

MANAGER

ASSISTANT

CLERK

MANAGER

ASSISTANT

CLERK

MANAGER

ASSISTANT

CLERK

MANAGER

ASSISTANT

CLERK

Objectives of the bank:

To encourage thrift and mutual co-operation among its members.

1) To create funds to be lending at moderate of interest to the members of the bank in

accordance with the procedure specified in these byelaws.

2) To give possible help and necessary guidance to traders, artisans etc. who are members of

this bank, in the conduct of their business.

3) To do hundi business -

To lends money on security to its members.

GENERAL MANAGER

MANAGING DIRECTOR

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With the previous permission of the registrar, to purchase any property for the

business of or for the use of the bank, to construct it and / or to make suitable

alternatives as may be necessary and to maintain the same.

To provide safe deposit vault to facilitate safekeeping of ornaments and valuable,

etc.

To perform any function as may deemed lawful for the bank and that as the

Central Government or the States Government may direct.

4) To do every kind of trust and agency business and particularly do work investment of

funds, sale of properties and of recovery or acceptance of money.

- To undertake the management of trust and for that to accept any office of the trustee,

executors or office to perform duties of such of confidence nature either

independently or jointly with some other person as the deems fit.

5) To accept money, documents, securities, valuables articles and goods every description

for keeping them in Safe-Custody or for sending them for one place to the other.

Branches:

Bank’s registered office is at the LalDarvaja,Main road. Near Surat station. Bank’s main

branch is in the Surat city. Bank has other 14 (total Branches) which is located in Surat

district.

Computerization:

All branches of The Surat Mercantile co-operative bank are fully computerized.

Growth Table of The Surat Dist. Co-Op. Bank Ltd:

(Rs. In Lacks)

SHARE

CAPITAL

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YEAR & FUNDS DEPOSITS ADVANCES PROFITS DIVIDENDS

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

Auditors:

The audit of the bank shall be conducted only by the Chartered Accountants from the Panel

approved by NABARD.

The auditors are Bankers:

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The Gujarat State Co-operative ltd. (Ahmadabad)

State Bank of India. (Surat)

Bank Of Baroda(Surat)

I.C.I.C.I. Bank Ltd. (Surat)

H.D.F.C Bank Ltd. (Surat)

IDBI Bank Ltd. (Surat)

AXIS Bank.

Yes Bank.

Union bank of India

Indusence bank limited

Kotak bank limited

Chapter 3-Product Profile

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Product Details:Customer Service Available in The Surat Dist. Co-operative Bank:

Current Account:

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The current accounts with The Surat Mercantile . Co-op. bank Ltd., promises you a

unique banking experience through innovative features and best services for businessmen,

firms, companies, public enterprises etc. that have numerous daily banking transact.

Savings Accounts:

A safe and easy way to save your money is with a bank savings account. Interest will

be earned on the money you have on deposit at the bank.

Fixed Deposit:

Bank fixed deposits are one of the most common savings scheme open to an average

investor. Fixed deposits also give a higher rate of interest than a savings bank account.

Monthly interest facility also available in this scheme.

Recurring Deposit:

Recurring Deposit Scheme is meant for investor who wants to deposit a fixed amount

every month. The scheme, a systematic way for long term savings is one of the best

investment options for the low income group.

Bank Enter In Insurance Sector:

Bank is affiliated with AVIVA LIFE INSURANCE COMPANY INDIA PVT. LTD.

for their customers’ life insurance. Bank is also affiliated with UNITED GENERAL

INSURANCE COMPANY for their customer's general insurance

Loans:

The Surat Mercantile Co-operative Bank provides different types of loan at less interest rate.

The different type of loans as specified below:

a. Loans Against Government Securities:

Facility to get loan or overdraft against government securities like National Saving

Certificates (N.S.C.), KishanVikasPatra (K.V.P.) Interest rate 8% and 9% subsequently.

b. Home consumable Loan:

Loan on purchase of home consumable product like Refrigerator, Washing Machine,

Television etc. 75% to 90% of purchase bill or maximum limit to 1 lakh rupees. 36 to 60

monthly installments. Interest Rate 9.50%.

c. Individual Vehicle Loan:

Up to 75% to 90% of purchase bill. Maximum limit of Rs.1 lakh for two wheeler vehicle

purchase Maximum limit of Rs.10 lakh for heavy vehicle like Car, Jeep, Tempo, Truck,

and Trailer. For 3 to 5 years on interest rate 9.50%.

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d. Loan for higher education studies:

Provides education loan for business education like Medical, Engineering etc. Maximum

limit up to 5 lakh for study in country and up to 15 lakh for abroad study. Interest Rate

9% to 10%.

e. Individual Housing Loan:

Loan available for employee, merchants and farmers for construction of new building

and flats, Construction on their plots. Maximum installment credit is up to 10 years.

Interest rate is 9% to 10%

f. Loan against Fixed Deposit:

Facility to get quick loan/ overdraft for accidental requirement on Fixed Deposit slip for

bank fixed depositor.

g. Business Loan:

Merchants can get cash based on their current product stock.

Interest rate is 9.50% to 11.25%.

h. Loan for small Scale Industrial (S.S.I.) unit:

Loan for individual/partnership firm, company, textile, engineering, printing press unit

etc. Installment limits up to 5 years.

Interest rate is 10% to 11%.

i. Technology Up gradation Fund Scheme:

Scheme by Central Government, valid up to 31 March 2007. Businessmen can get

benefits by taking the scheme as follow:

1) 5% interest subsidiary or 15% Credit licked Capital subsidiary OR

2) 20% Credit licked Capital subsidiary (Maximum investment amount Rs.100 Lakh and

Maximum subsidiary amount Rs.60 lakh).

This loan is applicable to Textile S.S.I. and non S.S.I. Unit.

Procedure of taking loan from banks: The procedure associated with a term loan involves the following principle steps.

Process of loan

26

1. Submission of application

2. Primary assessment

3. Branch head recommendation

4. Final assessment of various level of bank

5. Lending committee

6. Documentation of loan application

7. Disbursement of loan

8. Creation of security

(1) Submission of application

The main & the first step is the submission of the duty filled form or the

loan application it is the choice customer that which types of application he wants to

give depending upon the needs.

(2) Primary assessment

When the application is received, an officer of the recipient institution

reviews it to ascertain whether it is complete for processing. If it is incomplete

the borrower is asked to provide the required additional information. When the

application is considered complete, the recipient institution prepares of flash

report, which is essentially a summarization of the loan application, to be

evaluated at the Senior Executive Meeting (SEM). Once the SEM, on the basis of

its evaluation of the flash report, decides that the project justifies a detail

appraisal, it nominates lead financial institutions. The factors taken in to account

for designating lead institution are: location of the project, prior experience of

institution in handling similar projects, representation of institutions in the state

and promoter group, and existing work load of the institutions.

(3) Branch head recommendation

The appraisal is moving one step ahead that is to analysis the applicants

eligibility as per the norms provided by the considering his gross income after

detecting his liabilities, his actual repayment capacity is checked as per norms.

(4) Final assessment of various level of bank

After referring the application form and appraisal branch head put his

recommended action whether to accept the application or not & send it the corporate

office.

(5) Lending committee

27

At the corporate office the final assessment is to be done & decision is taken to

reject the application is forwarded to the particular branch from where the application

has been received. Before it also lending committee decide whether to give loan or

not.

Example

Loan for more than 10 lack Rs all BOD need to agree for that particular Loan.

Also some of the lending committee is formed by bank in which Directors are

included and they decide whether to give Loan or not.

The branches have the power to take the major decision on the sanctioning of the loan

if it is less than Rs 1 lack.

(6) Documentation of loan application

Once the Loan is Sanction Banks need to check all the document of borrower as

well as guarantor once again and only then and then they can proceed ahead.

(7) Disbursement of loan

If loan is sanction than Bank open the account of borrower in their bank

and issue the check. Before the entire term loan is disbursed the borrowers must fully

comply with all terms and condition of the loan agreement.

(8) Creation of security

The term loans (both rupee and foreign currency) and the differed guarantee

assistance provided by the All-India financial institutions are secured through the first

mortgage, by way of deposit of title deeds of immovable properties and hypothecation

of movable properties. As the creation of mortgage, particularly in the case of land,

tends to be a time consuming process, the institutions permit interim disbursement

against alternate security (institution the form of guarantees provided by the

promoters.

Chapter 4-Theoratical Background

28

NON PERFORMING ASSETS:

Introduction:

“A Man without money is like a bird without wings”, the Rumanian proverb insists the

importance of the money. A bank is an establishment, which deals with money. The basic

functions of Commercial banks are the accepting of all kinds of deposits and lending of

money. In general there are several challenges confronting the commercial banks in its day to

day operations. The main challenge facing the commercial banks is the disbursement of funds

in quality assets (Loans and Advances) or otherwise it leads to Non-performing assets.

NPA’s –means:

An asset which ceases to generate income of the bank is called non-performing asset. The

past due amount remaining uncovered for the two quarter consequently the amount would be

classified as NPA for the whole year. It includes borrowers’ defaults or delays in interest or

principal repayment.

Definition Of Non-Performing:

The term Non-performing is, “loans or advances whose credit quality has deteriorated such

that full collection of principal and /or interest in accordance with the contractual repayment

terms of the loan or advances is in question”.

For purposes of this Directive, loans or advances with pre-established repayment programs

are non-performing when principal and or interest is due and uncollectible for 90 days or

more beyond the scheduled payment date or maturity.

For purposes of this Directive, overdraft and loans or advances that do not have a pre-

established repayment program shall be considered as non-performing when;

The debt remains outstanding for 90 consecutive days or more beyond the scheduled

payment date or maturity.

The debt exceeds the borrower’s approved limit for 90 consecutive days or more.

Interest is due and uncollected for 90 days or more or

For overdrafts, the account has been inactive for 90 consecutive days and / or deposits

are insufficient to cover the interest capitalized during the period.

Classification Of Loans Or Advances:

Banks shall classify all loans and advances into the following five categories.

A. Pass :

29

Loans or advances in this category are fully protected by the current financial and paying

capacity of the borrower and or not subject to critics. In general, any loans or advance or

portion thereof, this is fully secured, both as to principal and interest, by cash or cash

substitutes, shall be classified under this category regardless of past due status or other

adverse credit factors.

B. Special mention :

Any loan or advance part due 30 (thirty) days or more, but less than 90 (ninety) days shall be

classified Special Mention.

C. Substandard:

Non-performing loans or advances past due 90(ninety) days or more but less than 180(one-

hundred- eighty days) days shall, at a minimum, is classified substandard.

Without prejudice to the classification criteria used for the substandard category set out

above, the following non-performing loans and advances shall be categorized as substandard;

ii) Renegotiated non-performing overdraft facilities unless equivalent of all past due interest

is paid by the borrower in cash at the time of renegotiation and the account shows at a

minimum.

Ø A nil balance at least once; or

Ø A turnover rate of once the approved limit.

iii) Renegotiated non-performing merchandise loans unless physical inventory of the

merchandise taken by the bank at the time of renegotiation shows that the outstanding

principal loan and interest thereof are fully covered and the safety margin determined,

following the inventory is at least not lower than the margin stated in the loan contract

entered into by the bank and the borrower at the time of initial extension of the loan.

D. Doubtful:

Non-performing loans or advances past due 180 days or more, but less than 360 days shall be

classified, at a minimum, as doubtful.

E. Loss:

30

Non-performing loans or advances past due 360 days or more shall be classified as Loss.

GENERAL REASONS FOR ASSETS BECOMING NPAs:

A multiplicity of factor is responsible forever increasing size of NPAs in banks. A few

prominent reasons for assets becoming NPAs are as under.

Poor credit appraisal system

Lack of proper monitoring

Reckless advances to achieve the budgetary targets.

There is no or lack of corporate culture in the Bank. In adequate legal provisions on

foreclosure and bankruptcy.

Change in economic policies/ environment.

No transparent accounting policy and poor auditing practices.

Lack of coordination between banks.

Directed lending to certain sectors.

CAUSES OF NPA:

NPA arises due to a number of factors or causes like:

Speculation: Investing in high risk assets to earn high income.

Default: Willful default by the borrowers.

Fraudulent Practices:Fraudulent Practices like advancing loans to ineligible persons,

advances without security or references, etc.

Diversion of Funds: Most of the funds are diverted for unnecessary expansion and

diversion of business.

Internal Reasons: Many internal reasons like inefficient management, inappropriate

technology, labor problems, marketing failure, etc. resulting in poor performance of

the companies.

External Reasons:External reasons like a recession in the economy, infrastructural

problems, price rise, delay in release of sanctioned limits by banks, delays in

settlements of payments by government, natural calamities, etc.

Technical Aspects Of Non-Performing Assets:

31

A major element of the financial sector reform in India has been the introduction of

prudential norms and regulation. These prudential norms and regulation are basically aimed

at ensure the safety and soundness of the financial system; impart greater transparency and

accountability in operation and restoring credibility and confidence in the India financial

system. Prudential norms serve two primary purposes, which are 1. Bringing out the true

position of a bank’s loan profitability, and 2. Help arrest its deterioration.

A proper system for 1. Recognition of income, 2. Classification of assets, and 3. Provisioning

for bad debts on prudential basis is necessary if balance sheet of a bank is to reflect it’s an

actual financial health. The committee on financial system under the chairmanship of Shri M.

Narshimhan had examined this issue, recommended that a policy of income recognition

should be objective, and based on recovery rather than on any subjective consideration.

Similarly, the classification of assets, which would ensure a uniform and consistent

application of norms.

The recommendation of Shri M. Narsimham committee regarding income recognition, asset

classification and provisioning were sought to be implemented by RBI in a phased manner

over a three year period commencing from the year 1992-93. in these regard RBI has issued a

separate guidelines for different category of commercial scheduled banks (in April 1992), all

financial institutions (in April 1992 with some modification considering their functioning)

NBFCs ( in June 1994), RRBs (in March 1996) at a proper time with the adequate

modification, In 1993 all the primary cooperative Banks have been told that they should

comply with prudential norms on income recognition, assets classification, and provisioning

with some modification.

Later on a high power committee on Urban Co-operative Banks constituted in May 1999

under the chairmanship of K. MadhavaRao, was set up to review the performance of Urban

Co-operative Banks and to make necessary changes to strengthen this sector. There was a

need for structural reforms in the complete set up of the co-operative banks.

Income Recognition:

1. Effective form 1 st April 1992:

32

Interest on those loan accounts which have been identified as Non Performance

Assets (NPA) cannot be taken to the income account of the bank unless it is actually

realized. Such unrealized interest on NPA taken to the income account in the earlier

year has to be provided for. In other words, income has to be recognized on the basis

of Actual recovery and not on accrual basis.

2. Accrued interest on NPA:

Interest accrued on NPA should not be debited to borrower accounts, but to “interest

Receivable Account” and credited to “Overdue interest Reserve Account” and shown

on the asset and liability side of the balance sheet respectively. (the amount held in the

Overdue Interest Reserve Account, however, cannot be regarded as a “Reserve” or as

part of the Owned funds of the Bank)

3. Accrued interest on performing assets:

In respect of borrower accounts, which are treated as performing assets, accrued

interest can be debited to the borrower account and taken to the income account. In

cases, where such interest is not actually received before the end of the accounting

year, an amount year, an amount equivalent to the unrealized interest should be

reversed by debiting the profit and loss account and credited to the Overdue Interest

Reversed Account.

4. Partial recovery of interest:

Banks can take partial recovery of interest on NPA to their income account, but it

should be ensured that such recovery is not of fresh/additional credit facilities

sanctioned to the borrowers concerned.

5. Others:

Wherever the state co-operative Societies Act prescribes a more stringent accounting

procedure, it should be followed. Further, where the bank has a more stringent

accounting procedure, it can continent follow such a procedure.

Non-Performing Assets And Exemptions:

33

An asset/account is considered to be nonperforming when it ceases to generate income for

the bank. The criteria a borrower account as NPA depend on the nature of facility / limit

granted and is as under:

1. Term Loans:

Here interest and installment of principal remain overdue for the period of more than 90

days. If the account is regularized before the balance sheet date by repayment of overdue

amounts through genuine sources, the account did not treated as NPA. Banks should,

however, ensure that the account remains in order subsequently and solitary credit entry

made in the account on or before the balance sheet date to adjust the overdue interest or

installment of principal is not reckoned as the sole criterion for treating the account as a

standard asset.

2. Cash Credit and Overdraft Accounts:

An account is treated as ‘out of order’ if the balance outstanding in the account is

continuously in excess of the sanctioned limit or drawing power or where the outstanding

balance in the principal operating account is within the sanctioned limit or drawing

power, but there are no credits continuously for three months as on the date of balance

sheet, or credits are not enough to cover the interest debited the same period.

3. Bill purchased and Discount:

A bill is treated NPA, if it remains overdue and unpaid for period of more than 90 days.

Overdue interest should not be charged and taken to income account in respect of overdue

bills, unless it is realized.

4. Agricultural Loan:

If interest or installment of principal remains overdue for two harvesting season or two

half year whichever is earlier, the loan is treated as NPA.

5. Project finance :

In the case project finance, where moratorium is given for payment of interest, the

respective amounts will become due only after moratorium/ gestation period is over.

Exemptions:

34

1) Advance against Term Deposits, NSCs. And Surrender Value of Life Policies etc:

Advances against fixed and other term deposits, Nation Savings Certificates eligible for

surrender, LIC policies, Indira VikasPatras and KhedutViKasPatras have been exempted

from provisioning requirements. Accordingly, banks need not treat such account as NPAs

and make provision in respect of such advances although interest there on has not been

paid for three quarters as on 31st March 1994. Interest on such advances may also be

taken to income account on the due dates, provided adequate margin is available in the

account.

2) Reversal of Income on Accounts Becoming NPAs:

If any advance including bills purchased and discounted becomes NPAs as the close of

any year, interest accrual and credited to income account in the corresponding previous

year, should be reversed or provided for if the same is not realized. This will apply to

Government guaranteed accounts also.

If interest income from assets in respect of a borrower becomes subject to nonaccrual,

fees, commission and similar income with respect to same borrower that have been

accrued should cease to accrue in the current period and should be reversed or provided

for with to past periods , if uncollected.

3) Interest Application:

In case of NPAs where interest has not been receive for 90 days or more, as a prudential

norm, there is no use in debiting the said account by interest accrued in subsequent

quarters and taking this accrued interest amount as income of the bank as the said interest

is not being received. It is simultaneously desirable to show such accrued interest

separately or park in a separate account so that interest receivable on such NPA account is

computed and show as such, though not accounted as income of the bank for the period.

The interest accrued in respect of performing assets may be taken to income account as

the interest is reasonable expected to received however, if interest is not actually received

for any reason in these cases and the account is to be treated as an NPA as per the

guidelines, then the amount of interest so taken to income should be reversed or should be

provided for in full.

35

Norms Or Criteria For Asset Classification:

Classification of agricultural and non-agricultural loans is required to be done into four

categories, on the basis of age overdue, as under.

Good/standard Assets:

Good asset is one which can not disclose any problem and which does not carry more

than normal risk attached to business. Thus, in general, all the current loans, ST agricultural

and non-agricultural loan which have not become NPA may be treated as standard asset.

Sub-standard Assets:

A non-performing may be classified as sub-standard on the following basis of criteria.

1) An Asset which has remained overdue for a period not exceeding

3 years in respect of both agricultural and non-agricultural loan should be treated

as substandard.

2) In case of all types of loans, where installments are overdue for a

Period not exceeding 3 years, the entire outstanding in term loan should be

treated as substandard.

3) An asset, where the terms and condition of the loans regarding

payment of interest and repayment of principal have been renegotiated

rescheduled after commencement of production, should be classified as

substandard and should remain so in such category for at least two years of

satisfactory performance under the renegotiated terms In other words, the

classification of asset should be upgraded merely as a result of rescheduling

unless there is satisfactory compliance of the above condition.

Doubtful Asset:

A non-performing asset may be classified as doubtful on the basis of following

criteria.

1) An Asset which has remained overdue for a period exceeding 3 years in respect of

both agricultural and nonagricultural loans should be treated as doubtful asset.

2) In case of all type of loans, where installments are overdue for more than 3 years,

the entire outstanding in terms of loans should be treated as doubtful.

Loss Asset:

36

Loss asset are those where loss is identified by the bank inspectors but amount has not

been written off wholly or party. In other words an asset which is considered un

realizable or such little value of its continuance as a doubtful asset is not worthwhile,

should be treated as a loss asset such loss asset will include overdue loans in which

cases-

1) Decreases of executions petitions have been time barred or documents are loss or

no other legal proof is available to claim the debt.

2) Where the members and their sureties are declared insolvent or have died leaving

no tangible assets.

3) Where the members are left the area of operation of the society leaving no

properly and their securities have also no means to pay the dues.

4) Where the loans is fictitious or when gross utilization is notified

5) An amount which cannot be recovered in case of liquidated societies.

37

Chapter 5-Research Methodology

38

Literature Review

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

loans, though it may vary slightly from year to year, is caused by an inevitable number of

‘wrong economic decisions by individuals and plain bad luck (inclement weather, unexpected

price changes for certain products, etc.). Under such circumstances, the holders of loans can

make an allowance for a normal share of non-performance in the form of bad loan provisions,

or they may spread the risk by taking out insurance. Enterprises may well be able to pass a

large portion of these costs to customers in the form of higher prices. For instance, the

interest margin applied by financial institutions will include a premium for the risk of non-

performance on granted loans.

At this time, banks’ non-performing loans increase, profits decline and substantial losses to

capital may become apparent. Eventually, the economy reaches a trough and turns towards a

new expansionary phase, as a result the risk of future losses reaches a low point, even though

banks may still appear relatively unhealthy at this stage in the cycle.

“Non-Performing Assets in co-operative banks” ByK. Ravichandran and R. Mayilsamy (2008)

Non-Performing Assets (NPAs), as a syndrome, though not new to the Cooperative Banking

Structure has been causing trouble and confusion during the recent past. Because NPAs as the

percentage to total recoverable funds acts as a constraint on the efficiency of the lending

institution and their capacity to borrow funds and lend to agriculture. Inordinate delay in

recovery of loan builds up NPAs, which affect the health of Cooperative Banks. The

Committee on Banking Sector Reforms reported that funds blocked in NPAs increase the cost

of financial inter-mediation as banks resort to raising deposits and borrowings at a higher

Costas a measure to minimize the balance between the cash outflow and cash inflow arising

out of the NPAs and the money locked up NPAs are not available for productive uses and to

the extent that banks seek to make provisions for NPAs. This has an adverse impact on the

profitability of the banks both in short and long run.

39

“Non-Performing Assets in commercial banks” By Vibha Jain (2007)

The book provides a comprehensive coverage of the challenges facing the banking industry

in India in tackling the bargaining problem of Non-Performing Assets (NPAs). It traces the

history of growth of NPAs in the banking industry caused initially by directed lending due to

strong government hold on banks. The government control also kept the issue under wraps

for a long time, understanding the enormity of the problem only at the advent of economic

reforms in early nineties. The book elucidates the various measures taken by Reserve Bank of

India to Control NPAs over the last decade and a half and critically analyses the success

obtained in containing the same.

“Management of Non-Performing Assets in Banks and Financial Institutions” By B. Ramachandra Reddy (2008)

Non-performing assets (NPAs) not only eat into profitability and hamper their ability to

recycle funds, but also shake the public confidence which is crucial for existence of any

financial institution. The present trend of NPAs is alarming and calls for rigorous and

concerted efforts by banks and financial institutions as well as government. This book is

based on the selected papers presented by academicians‟ and bankers in a national

seminar which discussed various aspects of the issue in detail

40

RESEARCH DESIGN & METHODOLOGY

Collecting Secondary Data:

Annual report of the Surat Dist Co-operative Bank ltd.

Case Study

Other necessary theoretical requirement

The information has been collected from the other sources to make a project report

effective and informative. That data are collected from various website and financial

management for making concept very clear.

Studying Secondary Data:

After collecting secondary data from various sources, the next steps is to study various data

and finding out relevant information and filtering it to further process.

OBJECTIVES:

The main objective of behind this project is to analysis the actual position of NPA

deeply

To know about the NPA classification and provisioning requirement for non-

performing asset:

To calculate the total non-performing asset and compare with other banks and on the

basis to decide the growth rate of different bank.

The main object is known about the proper system of bank for reducing non-

performing asset or for conversion of non-performing asset.

To know the various and strategies for non-performing asset for the bank.

To learn about how to solve the problem of non-performing asset.

PROBLEM STATEMENT:

41

This project desires to understand the “Non-Performing Asset” at The Surat Mercantile Co- Operative Bank Ltd.

SCOPE:The scope of analysis was last 3 years data (2010, 2011, and 2012).

LIMITATION OF STUDY: Time factor is other limitation in this study, because the bank officials didn’t have

proper time to meet and solve mine queries of NPA.

Some of my recommendations are not for all banks because they are basis on high

cost.

The amount of loans and advances are also limited so it is obvious that the non-

performing of this bank will less than the other comparatives banks.

Non-performing asset cannot be totally converted into performing asset but only these

are some solutions for reducing it.

RESEARCH METHODOLOGY USED:

This project is prepared on Non-Performing Assets. The methodology used in this

project is as follows.

First of all I have the basis studied the basic concept of NPA.

After the introduction, the asset classification is described and the provisioning norms

for it by NAABARD are shown.

Then according to NPA statement the NPA analysis is done on the basis of previous

year’s financial data.

Comparative statement on the basis of various ratios is done.

At, last the recovery part is shown & various reasons, strategies, warning signals,

recovery procedure and steps for reducing NPA are included.

42

Chapter 6-Data Presentation & Analysis

43

Comparative Financial Statement:As the name indicates we simply compare the changes, which have taken place in the

various items of financial statements, in percentage terms. The increase and the decrease in

various items of assets and liability and similarly the changes in the figures of profit and loss

account indicate the effects of a business being conducted during certain period.

THE SURAT DIST CO OP BANK LIMITED:

(Rs.in lakh)

PARTICULARS 2009-2010 2010-2011 2011-2012

Standard Asset

Sub-standard Asset

Doubtful Asset

Loss Asset

Total Provision

Capital & Surplus

Interest Earned

Interest Paid

Total Assets

44

THE SARVODAYA SAHAKARI BANK LIMITED:

(Rs.in lakh)

PARTICULARS 2009-2010 2010-2011 2011-2012

Standard Asset

Sub-standard Asset

Doubtful Asset

Loss Asset

Total Provision

Capital & Surplus

Interest Earned

Interest Paid

Total Assets

Ratio Analysis:A ratio can be worked out to between two variables having either cause and effect

relationship or connected with other in some other manner. These two variables can be

selected either from balance sheet and another from profit and loss account.

Ratios are expressed in mathematical terms, like percentage or the number of time of or in

numbers. Some ratios are better expressed when worked out in percentage like the gross or

operating profit to sales. But certain ratios appear to be more effective when expressed in

number of times like the stocks turnover.

The following ratios are found out for ratio analysis as well as comparative statement

analysis.

Gross NPA Ratio

45

Net NPA Ratio

Problem Asset Ratio

Shareholder’s Risk Ratio

Provisions Ratio

Interest Spread Ratio

Sub-standard Asset Ratio

Doubtful Asset Ratio

Loss Asset Ratio

1. GROSS NPA RATIO:

Gross NPA is sum of all the loan assets that are classified as NPA as per the RBI

guidelines as on the balance sheet data. Gross NPA ratio is the ratio of gross NPA to

gross advantages of the bank. When it is to be expressed in percentage, it is known as

gross NPA percentage.

Gross NPA Ratio = Gross NPAs x 100Gross advances

BANK2009-2010

2010-

20112011-2012

SURAT D DIST

SARVODAYA SAHKARI

46

2009-2010 2010-2011 2011-2012

8.01%

10.24%9.63%

3.43% 3.10%2.22%

GROSS NPA RATIOSURAT MERCANTILE SARVODAYA SAHKARI

Interpretation:

Above table and chart indicates the quality of credit portfolio of the banks. High gross NPA

ration indicates low quality credit portfolio of the bank and vice-versa. We can see from the

above two banks gross NPA ratio that is Mercantile co-operative bank has stable at 8 to 12%

and the sarvodayaSahakari bank ratio has decreasing from the last 3 year. It indicates that the

quality of credit portfolio of The Mercantile co-operativebank is lower.

2. NET NPA RATIO:The net NPA percentage is the ratio of NPA to net advances, whereas the net NPA can be

simply worked out as the gross NPA minus provisions held for NPA account, and net

advances can be simply worked out as the gross advances minus provisions held for the NPA

account.

Net NPA Ratio = Net NPA x 100Net Advances

Net NPA Ratio = Net NPA - provisions x 100Gross advances - provisions

BANK2009-2010

2010-

20112011-2012

SURAT D DIST

SARVODAYA SAHKARI

47

2009-2010 2010-2011 2011-2012

0.07% 0.09% 0.09%

0.56%

0.97%

0.48%

NET NPA RATIOSURAT MERCANTILE SARVODAYA SAHKARI

Interpretation:

Above table and charts indicates the degree of risk in the portfolio of the bank. High

NPA ratio indicates high quantity of the risky assets in the bank for which no provision was

made. Above table of two banks are indicates that the net NPA ration of the

sarvodayaSahakaribank was higher than Mercantile co-operative. It saws that the

sarvodayaSahakari bank consist of risky assets on which no provision has been made.

3. PROBLEM ASSET RATIO:

It is the ratio of gross NPA to total assets of the bank.

Problem asset Ratio = Gross NPAs x 100

Total asset

BANK2009-2010

2010-

20112011-2012

SURAT D DIST

SARVODAYA SAHKARI

48

2009-2010 2010-2011 2011-2012

8.01%

10.24%9.63%

1.43% 1.37% 1.04%

PROBLEM ASSET RATIOSURAT MERCANTILE SARVODAYA SAHKARI

Interpretation:

It has been direct bearing on return of assets as well as liquidity risk management of

the bank. High problem assets ratio means high liquid. Above table shows that the

sarvodayaSahakari bank becomes successful in achieving lower problem asset ratio whereas

mercantile co-operative bank have comparatively higher ratio indicates.

4. SHAREHOLDERS RISK RATIO:

It is the ratio of Net NPA to total of capital and reserve of the bank.

Shareholder’s Risk Ratio = Net NPAs x 100

Total Capital & Surplus

BANK2009-2010

2010-

20112011-2012

SURAT D DIST

SARVODAYA SAHKARI

49

2009-2010 2010-2011 2011-2012

17.22%

22.76%21.47%

11.89% 12.72%

9.21%

SHAREHOLDERS RISK RATIO

SURAT MERCANTILE SARVODAYA SAHKARI

Interpretation:

It indicates the degree of risk associated with the shareholders’ investment. High ratio

means high risk to the shareholder. Above table of two bank are able to reduce the

shareholder’s risk in the last three years while in case of Bank should keep constant eye on

this ratio to maintain and attract the funds of shareholders.

5. PROVISION RATIO:It is the ratio of total provision held in respect to gross NPA of the bank.

Provision ratio = Total Provision x 100

Gross NPAs

BANK 2009-20102010-

20112011-2012

SURAT D DIST

SARVODAYA SAHKARI

50

2009-2010 2010-2011 2011-2012

4.78% 3.56% 3.72%

84.15%

69.49%78.90%

PROVISION RATIO


Interpretation:

It indicates the degree of safety measures adapted by the banks. It has direct bearing

on profitability, dividend and safety of the shareholders fund. If the provision ratio is less, it

indicates that the bank has made under provision. The above table indicates the provision

ratio of two bank’s which saws the SarvodayaSahakari bank has more than 30% of its gross

NPA from last three year which saws over provision of NPA which indicates that bank

believe in top keep higher safety for profitability, dividend and safety of shareholder’s funds.

Mercantile co-operative bank has not more provision ratio so the bank has to improve this

ratio.

6. INTEREST SPREAD RATIO:

This is the excess of total interest earn over the total interest expanded.

(Interest earned during the year-Interest Spread ratio = Interest paid during the year) x 100

Standard Assets

51

BANK 2009-2010 2010-2011 2011-2012

SURAT D DIST

SARVODAYA SAHKARI

2009-2010 2010-2011 2011-2012

11.49% 11.13%

12.84%

8.99%

6.38%

8.75%

INTEREST SPREAD RATIO


Interpretation:

This ratio indicates the efficiency of the bank in managing and marching the interest

expenditure and interest income effectively. Interest spread is critical to a bank’s success as it

exerts a strong influence on its bottom line. The above table shows that Mercantile co-

operative bank is leading in interest spread ratio compare to the sarvodayaSahakaribank and

we can also see that from last one year its interest spread ratio increasing which indicates that

banks earning asset is increasing and non-performing account is rapidly converting in the

performing account.

7. SUBSTANDARD ASSETS:

It is the ratio of total substandard assets to gross NPA of the bank.

Substandard assets = Total substandard Assets x 100

Gross NPAs

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BANK 2009-2010 2010-2011 2011-2012

SURAT D DIST

SARVODAYA SAHKARI

2009-2010 2010-2011 2011-2012

11.89%

3.82%8.35%

28.24%

38.38%

19.14%

SUBSTANDARD ASSETS RATIO


Interpretation:

It indicates the scope of up gradation / improvement in NPA. Above table of different

ratio of substandard shows that the mercantile co-operative bank has not much scope of loan

gradation or improvement as their ratio is very low but sarvodayaSahakari Bank has highest

ratio which means in all NPA’ substandard ratio has major proportion which indicates that

there is the highest scope for advance up gradation on improvement because it will be very

easy to recover the loan as minimum duration of defaults.

8. DOUBTFUL ASSET RATIO:

It is the ratio of total doubtful assets to gross NPA of the bank.

Doubtful Asset = Total doubtful Assets x 100

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Gross NPAs

BANK 2009-2010 2010-2011 2011-2012

SURAT D DIST

SARVODAYA SAHKARI

2009-2010 2010-2011 2011-2012

86.35%

60.56%

90.54%

45.42%

14.13%

31.77%

DOUBTFUL ASSET RATIO


Interpretation:

It indicates scope of compromise of up NPA’s reduction. Above table shows the

Mercantile co-operative bank it remains very stable in last two years while in

theSarvodayaSahakari Bank ratio is considerably decreasing for the last three years, which

implies that it has to go for compromise as its substandard assets consist highest portion in

the total NPA’s.

9. LOSS ASSET RATIO:

It is the ratio of the Total Loss Asset to gross NPA of the bank.

LOSS ASSET RATIO= Total loss Assets x 100

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Gross NPAs

BANK 2009-2010 2010-2011 2011-2012

SURAT D DIST

SARVODAYA SAHKARI

2009-2010 2010-2011 2011-2012

1.76% 1.19% 1.11%

26.34%

47.48% 49.09%

LOSS ASSET RATIO


Interpretation:

It indicates the least chance of recovery by the bank. Loss asset ratio of theMercantile

co-operative bank reduced in2010-2011 and2011-2012 which shows bank’s effort toward

reducing NPA,while inSarvodayaSahakari bank has increased in 2010-2011 and 2011-2012,

which shows that there are least chances of recovery.

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Working Notes:(Surat Dist Co Operative Bank Ltd: (2012-2013)

1. Gross NPA Ratio = 977.18x10010144.08

= 9.63%

2. Net NPA Ratio = 977.18 – 36.43x 10010144.08 – 36.43

= 0.09%

3. Problem Asset Ratio = 977.18 x 10010144.07

= 9.63 %

4. Shareholder’s Risk Ratio = 977.18 x 1004551.33

= 21.47 %

5. Provision Ratio = 36.43 x100977.18

= 3.72 %

6. Interest Spread Ratio = 2083.94 – 1087.93 x 1008676.89

= 11.49 %

7. Sub-standard Asset Ratio = 81.60x100

977.18

= 8.35 %

8. Doubt-full Asset Ratio = 884.77 x100 977.18

= 90.54 %

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9.Loss Asset Ratio = 10.80 x100 977.18

= 1.11 %

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Chapter 7-Findings & Suggestion

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FINDIGS

1) From the gross NPA Ratio of the bank in 2010is 8.01%. Which suddenly increases in

2011 i.e. 10.24% by 2.23%. It is goodfor the bank But in increases in 2012 i.e. 9.63%

by 0.61%, which is bad for the bank.

2) Gross NPA Ratio i.e. Surat mercantilebank has stable 8 to 10 % and Sarvodaya bank

ratio has decreased from the last three years. So quality of credit portfolio of Surat

mercantilebank is lower.

3) Net NPA Ratio of The Sarvodaya Bank was higher than Surat mercantile Bank. It

shows thatSarvodaya Bank consist of risky assets. It will become dangerous in the

long term solvency.

4) The Sarvodaya bank reduce the shareholder’s risk in last three years while in case of

Surat mercantile Bank increased the shareholder’s risk in two years but reduced in last

one year socomparatively Surat mercantile bank performance in these area is

good.

5) Provision ratio find that total provision divided gross NPAs of the bank in 2010 is

84.15% and it decreasing in 2011 i.e. 69.49% by 14.66% and it also increases in 2012

i.e. 78.90% by 9.41% increases. So we can say that Sarvodayacooperative bank

keeps higher safety to compare the Surat mercantile bank.

6) The above table shows that Surat mercantile bank is leading in interest spread in year

2010 is 11.49% it decrease 11.13% by 0.36% increases and also increases 12.84% by

1.71% increases which is comparatively good, then Sarvodayabank. Interest spread

ratio increasing which indicates that banks earning asset is increasing and non-

performing account is rapidly converting in the performing.

7) Substandard Asset Ratio find that total substandard asset upon gross NPAs of the

Surat mercantile bank in 2010 is 11.89% it decreases in 2011 i.e. 3.82% by8.07%

decrease and also increase in 2012 i.e. 8.35% by increase 4.53% in other side

Sarvodaya bank ratio is very highly increases its ratio in each year.

8) Substandard ratio of Sarvodaya bank has much more rather than Surat mercantile

bank, so Sarvodaya bank has scope of loan gradation or improvement.

9) Loss asset ratio indicates the least chance of recovery by the bank. Loss asset ratio of

Sarvodaya bank has increased in 2010-2011 and 2011-2012, which shows that there

are least chances of recovery but Surat mercantile bank reduced in2010-2011

and2011-2012, which shows Surat mercantile bank’s effort toward reducing NPA.

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CONCLUSION

The Indian banking sector is facing a serious problem of NPA. The extent of NPA is

comparatively higher in public sectors banks. To improve the efficiency and profitability, the

NPA has to be scheduled. Various steps have been taken by government to reduce the NPA.

It is highly impossible to have zero percentage NPA. But at last Indian banks can try

competing with foreign banks to maintain international standard.

NPA is a double-edged weapon, which effects bank profitability due to interest income not

being recognized on NPA accounts and loan previously to be created from profit earned. The

bank must adopt structured. NPAs management policy for elimination or reducing the NPAs

in the bank. In general the trend of NPAs CBE are increasing trend, on the same time the

CBC has been adopted very good techniques to control over the NPAS.

SUGGESTIONS

Proper identification of the guarantor should be check by the bank and his/her wealth

also, so that he/she can’t mislead the bank.

In the bank there should be a proper manpower planning for recovering NPA.

The bank must focus on recovery from those borrows who have the capacity to repay

but are not repaying initiation of coercive action a few such borrows may help.

Banks have to be assuring that the collateral security should not be disputed asset and

neither any other loan is taken on that security.

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BIBLIOGRAPHY

Last three years (2010, 2011, 2012) Annual Reports of The Surat mercantile

cooperative bank ltd and Surat Sarvodaya cooperative Bank Ltd.

NABARD guidelines 2010(Norms For NPAs)

Indian bankers, association bulletin, August 2008, August 2010.

NPA PROJECT for Surat Dist Co-op Bank

Documents

Transcript of NPA PROJECT for Surat Dist Co-op Bank