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    CHAPTER 1st

    EXECUTIVE SUMMARY

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    1. EXECUTIVE SUMMARY

    1.1 Overview of Project

    Report is prepared on the topic Management of Non-performing Assets at state bank of

    Hyderabad. The purpose behind preparing this report is to study the present situation of

    NPAs and to provide suggestions to reduce it. Initially the information was collected about

    the topic from the organization.

    The concept of Non-Performing Assets was introduced for the first time in the Narasimham

    Committee report that was tabled in parliament on Dec.17 1991.The Committee Studied

    the prevailing financial system, identified its short comings and weakness and made

    various recommendations with regard to non-performing assets, their identification,

    disclosure and the extent of provisioning same. The need was felt because the prevalent

    accounting and disclosure practices did not always reflect the true state of affairs of banks

    and Financial Institutions.

    .

    1.2 Objective

    The Objective behind the project is, to study the concept of Non-Performing Assets, study

    present status of NPAs in Nanded City Region of Bank of State Bank of

    Hyderabad, comparative study of NPA of the Region for 4 Years, Remedial steps taken by

    the Region in order to reduce the NPA, to find out the effect of NPA on the financial health

    of the Region, to make the suggestions to overcome the problems of NPA in Nanded City

    Region of State Bank of Hyderabad.

    1.3Research Methodology

    Exploratory / Formulative Research:-

    Exploratory research is a preliminary study of the subject matter. It aims to delve into the

    nuances of the problem. It is usually a preliminary study and is followed by descriptive,

    experimental research. It does not have a formal and rigid design as the researcher may

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    have to change his focus or direction, depending on the availability of new ideas and

    relationships among variables. It attempts to see what is there, rather than trying to predict

    the underlying relationships. An exploratory study usually involves three steps- a review of

    pertinent literature, an experience survey, and an analysis of insight stimulating cases.

    1.4 Data Collection

    The secondary data has been used during the project for collection of data (information) the

    companies internal records were explored as well as the external sources like electronic

    media (web sites) were used. The Exploratory Type of Research has used in this project.

    Interpreting the Data:

    The data which was analyzed with various Graphs thereafter it have been

    Interpreted with various techniques by taking into consideration the ups & downs ofthe Graphs.

    Mapping potential of the Company:-

    The data which was interpreted with various techniques, thereafter it has been given

    various suggestions for mapping the potential of the company.

    1.5 Data Analysis

    With the help of Annual Report of the State Bank of Hyderabad & figures made available

    for Nanded City Region the present NPA of the Pune City Region are studied and analysis

    has been made in the project. On the basis of that analysis some Findings and Suggestions

    are given at the end of the project.

    1.6Conclusion

    However, the conclusion behind the project is, Bank has to keep tab on fresh additions by

    increasing quality advances and monitoring them. Critical care has to be taken of stressed

    accounts to keep control on fresh additions. Bank has to gear up efforts for upgrading

    S.S.A and recovery in D.A & Loss Assets. Staff in State Bank of Hyderabad has gained

    good experience to fight the menace of NPAs.

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    *******

    CHAPTER 2nd

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    INTRODUCTION

    2.INTODUCTION OF NPA

    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 challenges facing the commercial banks is the disbursement of

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    funds in quality assets (Loans and Advances) or other wise it leads to Non-performing

    assets.

    Since the dawn of independence, Indian financial sector in general and banking in

    particular has leaped giant strides into a systematized growth environment. Indian Banks

    have consolidated their growth year after year. Measures like setting up of Reserve Bank of

    India as the regulator, bank nationalization and other reforms have worked as catalyst in

    the development drive. There was always a need to have regulated, uniform and prudent

    accounting policies for the banks with special reference to the credit risk involved in

    lending activities so that the significant growth in the business volumes of banks was ably

    supported by a well set regulatory norms.

    As per the traditional frame of mind, banks tended to lean towards security-oriented

    approach in assessment of credit proposal as also subsequent classification of the assets in

    their books. Overemphasizing the security interest and other charges debited to a

    borrowers account was taken into income on the basis of accrual irrespective of the fact

    whether such interest and charges accrued earlier were actually realized or not. Such

    income was taken to Profit & Loss Account and dividend was declared on the basis of

    profits so arrived at. Loans were treated as realizable without actually looking into the

    record of recovery. All these resulted in overstating of profit and distorted depiction of the

    state of affairs of the banks in their books of accounts.

    The business of banking eventually is mobilization of low cost deposits and investment and

    making loans, advances and investments at higher rates of interest to generate surplus.

    Deposits are Liabilities and loans and advances are the assets of the bank. Interest on

    deposits is required to be paid by bank in regular period; hence, the assets of the bank must

    also generate a regular income by way of interest earnings. If an asset does not generate

    income at fixed intervals quarterly or half yearly, it becomes a Non-Performing asset. The

    asset is deemed to be performing only if it yields timely returns because time is essence in

    maintaining the liquidity, which enables the bank to make timely payment of interest on

    deposits. It is of poor consolation to know that the asset is fully secured as the availability

    of security does not mitigates the liquidity risk. The imbalance is cash flows due to

    irregular income may necessitate temporary market borrowings at high rate of interest

    cutting in to business profits.

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    PERFORMING ASSETS:-

    An assets can be considered as a performing asset if,

    Prompt realization of interest debited to the advance account at periodical intervals.

    Prompt realization of installments pertaining to the principal amount of the

    advance.

    MEANING:-

    An asset that ceases to generate income for the bank is called Non-Performing Asset.

    NON-PERFORMING ASSETS:-

    NPA are advances that have ceased to perform. An advance asset will cease to be a

    Performing asset and will be deemed to have become a Non-Performing asset when

    there is,

    A default in the payment of interest amounts, which are debited to the advance

    account.

    A default in the repayment of the installments pertaining to the principal amount of

    the advance.

    In initial stages of Income recognition, Assets Classification Guidelines,

    a amount due under any credit facility was treated as Past Due when it has not been 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.

    Accordingly, a from that date, a Non-Performing Asset shell be an advance where,

    (i) Interest and / or installment of principal remain overdue for a period of more

    than 180 days in respect of a Term Loan,

    (ii) The account remains out of order for a period of more than 180 Days, in

    respect of an Overdraft / Cash Credit,

    (iii) The bill remains overdue for a period of more than 180 days in the case of Bills

    Purchased and Discounted,

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    (iv) Interest and / or installment of principal remains overdue for two harvest

    seasons but for a period not exceeding two half in the case of an advance

    granted for agriculture purpose, and

    (v) Any amount to be received remains overdue for a period of more than 180 days

    in respect of other accounts.

    With a view to moving towards international best practices and to ensure greater

    transparency, it has been decided to adopt the 90 days Overdue norm for identification of

    NPAs, form the year ending March 31, 2004. Accordingly with effect form March 31,

    2004, a Non-Performing Asset shell be a loan or an advance where;

    (i) Interest and / or installmen