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The present study at Karnataka Vikas Grameen vikas Bank, Dharwad is conducted for the study of disbursement and recovery procedure of loans. The Karnataka Vikas Grameen Bank that emerged after the amalgamation of the four erstwhile Grameen Banks with its area of operation spread over nine districts, now caters to 1/3 of the geographical area of the State and therby has earned the opportunity of serving a large section of rural populace. The basic objective of any financial institution is to maximize wealth. In order to achieve this objective the bank must earn sufficient amount of profit. The amount of such profits largely depends upon the magnitude of loans assisted and the recovery of those loans. Each component of recovery has two dimensions, time and money. When it comes to recovery of loans “Time is Money”. A study of recovery procedure which I have chosen as the topic of my project in KVG Bank, Dharwad is the main and the key recovery department, which plays an important role in the collection of the sources of funds for the bank which in turn will be used for refinancing for the industrial and agricultural concern.
TITLE OF THE STUDY “Recovery and disbursement Procedure of Credit”, with reference to Karnataka Vikas Grameen Bank, Head office, Dharwad. OBJECTIVES OF THE STUDY
To appreciate the concept of recovery.
To highlight the different procedures of recovery of loan.
To study the various schemes of the bank. To offer the solution for arriving at an appropriate method of recovery of loan.
To study the present system of disbursement and recovery of the bank.
It was found that almost all Borrowers of KVG Bank preferred KVG Bank because of low rates of interest and various schemes provided by the bank.
It was found that many of the clients or borrowers are satisfied with the services provided by KVG Bank.
It was also found that KVG Bank has provided financial assistance almost all only to those who have good experience in their project.
o The Bank should take measures to sanction financial assistance by taking less processing time so as to eliminate delay in implementing the project.
The bank has to conduct meetings with the borrowers and should try to solve the problems faced by the bank.
LIMITATIONS OF THE STUDY
Since the Project was undertaken in Hubli-Dharwad area only the limited industrial concerns were interviewed and interacted for the purpose of collection of data. The industrial concern people or the proprietors of the unit were very busy so was very difficult to get appointment from them. CONCLUSION
The basic objective of any Bank is to maximize the wealth. The amount of such profits largely depends upon the magnitude of loans assisted and the recovery of those loans. Each component of recovery has two dimensions Time and Money when it comes to recovery of loans “Time is Money”.
INDUSTRY OVERVIEW: BANKING INDUSTRY IN INDIA
Banking in India originated in the first decade of 18th century with The General Bank of India coming into existence in 1786. This was followed by Bank of Hindustan. Both these banks are now defunct. The oldest bank in existence in India is the State Bank of India being established as "The Bank of Bengal" in Calcutta in June 1806. A couple of decades later, foreign banks like Credit Lyonnais started their Calcutta operations in the 1850s. At that point of time, Calcutta was the most active trading port, mainly due to the trade of the British Empire, and due to which banking activity took roots there and prospered. The first fully Indian owned bank was the Allahabad Bank, which was established in 1865. By the 1900s, the market expanded with the establishment of banks such as Punjab National Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai - both of which were founded under private ownership. The Reserve Bank of India formally took on the responsibility of regulating the Indian banking sector from 1935. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers.
At the end of late-18th century, there were hardly any bank in India in the modern sense of the term. At the time of the American Civil War, a void was created as the supply of cotton to Lancashire stopped from the Americas. Some banks were opened at that time which functioned as entities to finance industry, including speculative trades in cotton. With large exposure to speculative ventures, most of the banks
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opened in India during that period could not survive and failed. The depositors lost money and lost interest in keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century. At the beginning of the 20th century, Indian economy was passing through a relative period of stability. Around five decades have elapsed since the India's First war of Independence, and the social, industrial and other infrastructure have developed. At that time there were very small banks operated by Indians, and most of them were owned and operated by particular communities. The banking in India was controlled and dominated by the presidency banks, namely, the Bank of Bombay, the Bank of Bengal, and the Bank of Madras - which later on merged to form the Imperial Bank of India, and Imperial Bank of India, upon India's independence, was renamed the State Bank of India. There were also some exchange banks, as also a number of Indian joint stock banks. All these banks operated in different segments of the economy. The presidency banks were like the central banks and discharged most of the functions of central banks. They were established under charters from the British East India Company. The exchange banks, mostly owned by the Europeans, concentrated on financing of foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency banks, and the exchange banks. There was potential for many new banks as the economy was growing. Lord Curzon had observed then in the context of Indian banking: "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments."
Under these circumstances, many Indians came forward to set up banks, and many banks were set up at that time, and a number of them set up around that time continued to survive and prosper even now like Bank of India and Corporation Bank, Indian Bank, Bank of Baroda, and Canara Bank. During the Wars The period during the First World War (1914-1918) through the end of the Second World War (1939-1945), and two years thereafter until the independence of India were challenging for the Indian banking. The years of the First World War were turbulent, and it took toll of many banks which simply collapsed despite the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in India failed during the years 1913 to 1918 as indicated in the following table:
Years Number of banks Authorised capital Paid-up Capital that failed (Rs. Lakhs) (Rs. Lakhs) 12 42 11 13 9 274 710 56 231 76 35 109 5 4 25
1913 1914 1915 1916 1917
The partition of India in 1947 had adversely impacted the economies of Punjab and West Bengal, and banking activities had remained paralyzed for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included: In 1948, the Reserve Bank of India, India's central banking authority, was nationalized, and it became an institution owned by the Government of India. In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an existing bank may be opened without a license from the RBI, and no two banks could have common directors. However, despite these provisions, control and regulations, banks in India except the State Bank of India, continued to be owned and operated by private persons. This changed with the nationalization of major banks in India on 19th July, 1969.
By the 1960s, the Indian banking industry has become an important tool to facilitate the development of the Indian economy. At the same time, it has emerged as a large employer, and a debate has ensued about the possibility to nationalize the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalized the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9th August, 1969. A second dose of nationalisation of 6 more commercial banks followed in 1980. The stated reason for the nationalisation was to give the government more control of credit delivery. With the second dose of nationalisation, the GOI controlled around 91% of the banking business of India. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.
In the early 1990s the then Narasimha Rao government embarked on a policy of liberalization and gave licences to a small number of private banks, which came to be known as New Generation tech-savvy banks, which included banks such as UTI Bank (the first of such new generation banks to be set up), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, kick started the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 49% with some restrictions. The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. 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.
Currently (2007), overall, banking in India is considered as fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. Even in terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets-as compared 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 stated policy of the Bank on the Indian Rupee is to manage volatility-without any stated exchange rate-and this has mostly been true. 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. M&As, takeovers, asset sales and much more action (as it is unraveling in China) will happen on this front in India. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them.
Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively. STRUCTURE OF THE ORGANISED BANKING SECTOR IN INDIA
FINANCIAL SYSTEM The growth of output in the economy depends upon the increase in the proportion of savings\investment to a nation’s
output of goods and services. The financial institutions help in the diversion of rising current income into savings\investment. A financial system may be defined as a set of institutions, instruments and markets which faster savings and channels them to their most efficient use. The system consists of individuals (savers), intermediaries, marketers and users of savings. Economic activity and growth are greatly facilitated by the existence of a financial system developed in terms of the efficiency of the market in mobilization savings and allocating them among competing users. The financial system performs the following inter-related functions that are essential to a modern economy.
It provides a payment system for the exchange of goods and services. It enables the pooling of funds for undertaking largescale enterprises.
It provides a way for managing uncertainty and controlling risk. It provides a mechanism for spatial and temporal transfer of resources. It generates information that helps in coordinating decentralized decision making.
It helps in dealing with the problem of informational asymmetry
Financial markets are those places where the financial transactions take place. A financial transaction involves creation or transfer of financial instruments, claims and services. The financial market in India is broadly classified into a. Unorganized market b. Organized marked
Moneylenders, indigenous bankers, chit funds etc constitute unorganized market. The RBI does not directly control the activities of these markets. The financial instruments, which operate in these markets, are not standardized.
These markets will operate wit6hin the rules and regulation set by the RBI or other regulatory bodies. Financial instruments in these markets are also standardized.
The organized market can be further classified into two types. a. Capital market. b. Money market.
The capital market is the market for financial assets that have long or indefinite maturity. It deals with long-term securities. Which have a period of the above one-year. Capital markets can be further divides into: 1. Industrial securities market. 2. Government securities market and 3. Long term loans market.
INDUSTRIAL SECURITIES MARKET
Industrial securities market is a market where industrial\Corporate securities such as equity shares, preference
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shares, debentures and bonds are traded. An industrial concern may raise capital or debt by issuing appropriate instruments.
GOVERNMENT SECURITIES MARKET
Debt securities issued by the central government, semigovernment authorities, autonomous institutions like port trusts, electricity boards, all India and state level financial institution and public sector enterprises are broadly referred to as guilt-edge or government securities. There are long term and short term securities. Long-term securities are traded in capital market while short-term securities are traded in the money market.
LONG TERM LOANS MARKET
Long-term loan market can be further classified into term loans market, mortgages market and financial guarantees market. In India the government both at the national level and regional levels to supply long term and medium term loans and other services to industrial concerns has created many industrialfinancing institutions.
Money market deals in short term financial assets instruments, which have a maturity period of up to one year. The money market may be further classified into 4 types. They are: • Call money market • Commercial bill market • Treasury bills market • Short-term loan market
CALL MONEY MARKET:
The call money market is a market for extremely short-term loans that is 1 to 14 days. The loans are repayable on demand at the option of either the lender or the borrower. So, it is highly liquid. The call money markets characterized by the fluctuations of interest rates which are a result of demand and supply function.
COMMERCIAL BILL MARKET:
The commercial bill market is a marked where bill of exchange arising out of trade is traded. In the case of credit
TREASURY BILL MARKET:
A treasury bill is a promissory note issued by the government. It is highly liquid because government guarantees its repayment. It is an important instrument of short term borrowing for the government. It is man important instrument of short term harrowing for the government. There are two type of treasury bills namely, ordinary\regular and adhoc treasury bills. Treasury bills have a maturity period of 91\82\364 days only.
SHORT-TERM LOANS MARKET:
It is a market where short-term loans are given to corporate customers for meeting their working capital requirements. Commercial Bank provide short-term loans in the form of cash credit, overdraft etc.
India, when it got its independence in the year 1947, was characterized by low industrialization, unemployment, poverty and low per capita income. There were only few industries and the only way to bring down high unemployment rate and poverty was through industrialization. At that time, there was a good network of commercial banking in the country and these were providing only short-term loans. They were not providing long-term financial assistance to the entrepreneurs who were willing to set up new industries. The long – term investment was mainly need by the existing industries to meet their reconstruction program. Modernization and expansion\diversification program. The long-term financial assistance was also need to set up new industries. Sop, the need from such financial institutions felt which would provide long term financial assistance and relatively more additional functions to bring a planned economic development in India, a chain of development banks\ financial institutions came into being.
OBJECTIVES OF DEVELOPMENT BANKS IN INDIA:
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The objectives of development banks include• Support industry • Rural development • Support to agriculture • Development of back ward areas • Speeding up of economic growth • Entrepreneurial development • Project finance • Infrastructure development • Infrastructure development • Refinance etc. Since independence a number of financial institutions some operating on all India basis others functioning within their respective states have been established to render financial assistance and other related services to Indian industries large, medium and also those in small scale sector. A brief introduction to some of the financial institutions is given below.
Industrial Finance Corporation of India (IFCI)\
The IFCI is the first, all India term lending institution, which was set up in the year 1049 with the primary objective of providing medium and long-term credit to industry this was set up under the industrial finance corporation Act of 1948. The sources of funds for IFCI are paid-up capital, reserves, repayment of loans, market borrowings, loans from the government of India, advances from IDBI and Foreign lines of credit and others.
Promotional assistance in the form of technical consultancy services risk capital assistance entrepreneurial development, management development, development of technology.
INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI)
The IDBI was established in 1964 as a Subsidiary of RBI. It has been designated as the principal financial institution of the country for coordinating in conformity with national priorities the working of institutions engaged in financing, promoting and developing industry. The resources of IDBI consist of paid-up capital, reserves, repayment of loans, market borrowings within and outside the country, temporary credit from the RBI, foreign lines of credit and others.
Objectives And Functions:
The main objective of IDBI is to serve as apex institution for term, finance for industry in India. The bank has been assigned special role in Planning, promoting and developing industries to fill gaps in industrial structure
Coordinating the work of institutions engaged in financing, promoting and developing industry and assisting in the development of such institutions.
Providing technical and administrative assistance for promotion, management or expansion of industry and,
Undertaking market and investment research and survey as also techno economic studies in connection with development of industry.
INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA (ICICI)
The ICICI was founded in 1995. It mainly provides assistance to units in the private sector mainly in the form of rupee and foreign exchange loans. The resources of ICICI consist of paid-up capital, reserves repayment of loans, borrowings from government of India, advances from IDBI, market borrowing and foreign lines of credit and others ICICI has made important contributions to capital markets and industrial development by setting up institutions lime CRISH., SCICI, TDICE and ICICI bank.
To assist in the creation, expansion and modernization of industrial enterprises in the private sector. To encourage and promote the participation of private capital both internal and external in such enterprises. To encourage and promote industrial investment and expansion of the investment market.
In order to achieve above objectives, it performs the following functions: Providing finance in the form of loans Underwriting \ subscription to shares and debentures of public and private issues of industrial establishments Providing loan assistance in the foreign currencies for repayment of imported capital equipment and technical services
Furnishing managerial, technical administrative services to Indian, industry
Providing lease financing merchant banking services, trustee services etc.,
INDUSTRIALRECONSTRUCTION BANK OF INDIA (IRBI)
The IRBI was set up mainly to provide reconstruction and rehabilitation assistance to seek industrial units, which have potential to come out of sickness and earn profit, IRBI assumes the role of reconstructing\restructuring the management of industrial
unit by providing managerial and technical guidance. It also provides rehabilitation package to sick industries units through financial assistance for the modernization, diversification expansion etc. The IRBI grants financial assistance by way of loans land advances, underwriting stocks, shares, bonds and debentures and guaranteeing loans\deferred payments. In addition to providing financial assistance IRBI also performs development activities, including provision of infrastructure facilities, raw materials etc, renders consultancy, managerial and merchant banking services and provides equipment leasing and hire purchasing facilities for the purpose of reconstruction and development of industrial concerns.
Other All India Institutions:
In addition to the above, there are several other all India level institutions like Export-Import bank of India (an agency to provide and import finance), the Shipping Credit and Investment Corporation of India (a shipping finance corporation) and technology development and information corporation of India (a venture capital organization) and two insurance corporations. Life Insurance Corporation of India and General Corporation and Unit Trust of India etc.
STATE FINANCIAL CORPORATION (SFC)
State financial corporation is a statutory body duly established under the state financial corporations Act. 1951 (Central Act LXIII of 1951) in order to provide medium and long term credit to industrial under takings which fall outside the normal activities of commercial bank with special powers for the
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enforcement of its claims and recovery of the dues. Karnataka State Financial Corporation (hereinafter referred to as “The Corporation”) was established under the said act by the Government of Karnataka in the year 1959. This corporation has to follow the provisions of law, rules and regulations, which are in force form time to time relating to its functions. The main functions of the Corporation are as authorized under section 25(1) of the SFC’s Act. The corporation’s business activities are guided and governed by the provisions of the SFC Act. 1951. The permitted business of the corporation is controlled by Sec.25 of the SFC Act. The corporation has extended its operations not only to the direct advance or loans beings granted to the industrial concern. Functions Of SFC’S: 1. Granting loans and advances 2. Subscribing to debentures\shares 3. Guaranteeing loans\deferred payments of industrial concerns 4. Undertaking the issue of stocks, shares, debentures or bonds
The Karnataka Vikas Grameen Bank that emerged after the amalgamation of the four erstwhile Grameen Banks, with its area of operation spread over nine districts,now caters to 1/3 of the
geographical area of the state, and thereby has earned the opportunity of serving a large section of rural populace.
One of the successful experiments of the banking sector in India has been the formation of the Regional Rural Banks (RRBs). Experts in the field have acknowledged the fact taking into account the recent enormous progress achieved by the RRBs, which have traveled a long way in the last 30 years, on a journey that can best be described as arduos. Close on the heels of nationalization, when the focus shifted form Class Banking to MassBanking, the RRBs emerged as a low cost Bank designed to cater to the needs of Small Marginal Farmers, Rural Artisans, Petty Traders etc, who operate in Rural Areas.
The initial period was marked with innumerable challenges as the RRBs had to deal with illiterate, superstitious people, not exposed to the changing world scene. It was indeed an uphill task, as they were expected to play the role of not just a Banker, but also that of a friend, philosopher and guide, leading them on the path of development.
Malaprabha Grameen Bank, Bijapur Grameen Bank, Varada Grameen Bank and Nethravati Grameen Banks were the four RRBs, Sponsored by Syndicate Bank, in the State of Karnataka. When the above RRBs were established without much ado way back in the 1970/80s, people may not have had the slightest idea about the ripple that these RRBs would create in the banking
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industry and the impact that they would have on the rural scene. In the formative years, the main concern was to reach out to the rural poor through its strong network of branches. The banks were playing a pivotal role in bringing about a metamorphosis in their respective areas of operation through its implementation of the various schemes and programmes tailored to suit the requirements of their customers. As part of the measures which will lead to strong, efficient and vibrant Banking System, the mergers and reconstruction phase of the recommendations of the Narsimhan Committee is now being implemented and thus the four RRBs sponsored by Syndicate Bank in the State of Karnataka were amalgamated to form the KARNATAKA VIKAS GRAMEEN BANK by a Government of India notification dated 12/09/2005. The combined business level of this Bank was Rs 3263.73 crores with Deposits of Rs.1620.46 crores and advances of Rs 1643.27 crores as on 12/09/2005.
The Banks have come a long way from those initial years and after amalgamation the Bank has a network of 403 branches cutting across the length and breadth of the nine districts forming its area of operation. Surmounting the initial problems of bringing about uniformity in the working of these Branches after amalgamation, the Bank was able to record a growth of 22.24% as
on 31/03/2006 in comparison to the combined figures of the four RRBs put together as on 31/03/2005. The Bank plans to achieve business level of Rs 4500 crores by the end of March 2007. As at the close of December 2006 the total business is Rs 4050 crores comprising Deposits of Rs1957 and advances of Rs 2093 crores recpectively.
Apart from conducting the Banking business, the Bank is intricately involved in the social fabric of the people it serves. The activities undertaken are –
Recognising that health is a neglected sector among the rural people, the Bank has been organizing various health camps free of cost. Also in association with the District Blindness Eradication Centre, it has conducted free Eye Check-up Camps followed by cataract surgery and implantation of IOL. Bank also runs a free clinic at one of the villages in its area of operation.
When the river Krishna was in spate, thousands of families were rendered homeless. Bank was quick to respond by distributing rugs at a relief camp and donating a day’s salary of the Staff to the Chief Minister’s Relief Fund.
Responding positively to a news item in the local daily, a village situated close to the Dharwad town was gifted solar light. This village had no electricity till the Bank took it upon itself to provide it.
Bank has adopted several balawadies run by the Akshara Foundation in the slum areas, adopted a rural school for overall development, donated steel plates to the children of Government Schools at many places, recognises meritorious rural students by awarding cash prizes etc., etc.
KARNATAKA VIKAS GRAMEEN BANK: Board of Director
Mr. Dhananjaya Mr. K. Raghuram Bhandari Mr. R. Sekar Mr. P. S. Mohanan
Chairman Special officer, Institutional Finance Govt. of Karnataka AGM, RBI, Bangalore DGM, NABARD, Bangalore
Mr. Murali Mohan Belgaum
Regional Manager, Syndicate Bank,
Mr. Abhayu Singh Mr. N. R. Sadananda Hubli
CEO, Zilla Panchayat, Dharwad Regional Manager, Syndicate Bank,
BRANCH NETWORK :
In its pursuit to make available Banking facility in unbanked places within the Bank’s command area, 5 new Branches were opened during the financial year, taking the total tally of Branches to 392. Two branches Kannada District and one each in the districts of Dharwad, Haveri, Belgaum during the financial year. The details of the districtwise branch network as at the end of the reporting year is as under.
Spread of Branch Network Sl No 1 2 3 4 5 6 7 8
District Dharwad Haveri Gadag Belgaum Bijapur Bagalkot Uttara Kannada Dakshina
Region Dharwad Haveri Haveri Belgaum Bijapur Bijapur Kumta Kumta
Rura Semi Urban Total l Urban 31 4 18 53 41 6 2 49 25 7 3 35 90 13 6 109 38 4 2 44 39 8 47 20 11 31 8 4 1 11
Kannada Udupi Kumta Total
SHARE CAPITAL RESERVES AND SURPLLUS:
After amalgamation, the Bank started functioning with a Capital base of RS.400.00 Lakh by absorbing the paid up Capital of the amalgamated four RRBs subscribed by the Government of India,Government of Karnatak and Syndicate Bank in the Ratio of 50:15:35. Apart from the above the Bank also has an additional equity base of Rs.1997.32 lakh in the form of Share Capital Deposit, being the additional Share Capital infused by Government of India, Government of Karnataka and Syndicate Bank in the same Ratio of 50:15:35 to strengthen Regional Rural Banks. Thus the equity base of the Bank, which stood at Rs.2397.32 lakh at the end of March 2006, remains uncharged. Apart from the statutory requirements, a sound floating provision is held, by which the Bank has shown its strength by accumulating the Reserves to the tune of Rs.42857.37 lakh.
There was a moderate increase in deposits till the end of the 3 quarter. However, with momentum picking up in the 4th quarter, higher growth was witnessed. The total deposits reached a level of Rs.2230.38 Crores on 31-03-2007,
registering a net increase of Rs.313.24 Crores over Rs.1917.14 Crores attained as at 31-03-2007 vis-a-vis previous year is as under: (Rs. In Crores) Sl. No 1 2 3 Category of Deposits Savings Deposits Other March = March = 2006 2007 Amount Amount Bank 884,1 1075. 9 Demand 7 918.7 8 Total 114.1 74 1006. 9.56 16.34 59 1917.14 2230.38 05 148. 30.28 % of Growth 21,58
Deposits Term Deposits
Special attention was given to mobilize more Low Cost Deposits so as to contain the cost of deposits. The percentage of Demand Deposits to Total Deposits is 54.86%. This resulted in reduction of Average Cost of Deposits to 4.40% from 4.69% of previous year. Per Branch and Per Employee Deposits increased to a level of Rs.5.69 Crores and Rs.1.02 Crores respectively over the corresponding figures of previous year at Rs. 4.95 Crores and Rs.0.09 Crores respectively. Families destabilize on the sudden demise of the principal bread earner-keeping such untoward incidents in sight so as to extend a helping hand. Bank had introduced an
insurance linked Savings Bank scheme called Jeevan Prabha SB a\c, during November 2005. This novel scheme conceived by the Bank brought succour at the hour of need, to 25 families during 2007-07. Attracted by this scheme, about 44,000 customers have joined the Jeevan Prabha SB scheme during the financial year 2006-07. Bank had introduced a deposit product called ‘Vikas Tax Ulitaya’, during the year, in tune with Reserve Bank of India guidelines, for the benefit of custome4rs who keep upto Rs.1 lakh deposits for five years to avail of Tax exemption under Sec 80c of the Income Tax Act.
Even after many decades of social banking, the need to outreach banking services is still felt. Keeping this in view, coupled with Reserve Bank of India guidelines, Bank had launched a ‘No Frill SB Account’ in January 2006 under the brand name vikas Janata SB a\c, thus adding another product to its’ repository of deposit products. Maintenance of ‘Zero’ balance and unrestricted accessibility has induced new customers to enter the banking fold. As at 31-03-2007, Bank had 360436 ‘No Frills SB Accounts” with an outstanding balance of Rs. 16.92 Crores, thus taking the Bank to the hidden fortune at the bottom of the CUSTOMER’S PYRAMID. Bank had also successfully achieved percent financial inclusion of 213578 household in 600 villages falling under the command area of 106 branches in the districts of Bagalkot, Haveri and Udupi and family survey was also undertaken in the above villages.
BORROWINGS AND REFINANCE:
Borrowing and Refinance are usually planned according to the leading programme under the Credit Plan, keeping in mind the demand for credit. Bank availed of the refinance facility made available by NABARD and Sponsor Bank under the various types of Refinance Schemes. These refinance facilities are monitored as per NABARD\Sponsor Bank guidelines. The repayments were made as per time schedule. The details of refinance sanctioned are furnished in the following table: (Rs. In Crores) Sl. Institution and Limits No. Times of Sanctioned Refinance I NABARD: 1 ST-SAO 108.40 2 ST-OPP 0.00 3 ST-OSAO 0.00 4 MT-Convt. 0.00 (ARTL) 5 MT0.00 SCHEMATIC TOTAL 108.40 II SYNDICATGE BANK 1 ST-SAO 100.00 2 ST-OSAO 0.00 TOTAL 100.00 GRAND TOTAL 208.40 Limits Outstanding Availed 108.40 216.60 0.00 2.70 0.00 0.00 0.00 90.50 12.97 59.47
121.37 369.47 100-00 0.00 100.00 221.37 0.17 0.00 0.17 369.64
Management of funds of the Bank was of prime importance amongst its other key areas of performance obligations ever since the RRBs were permitted to invest their Surplus funds in Securities, Bonds and Debentures within the parameters of directive guidelines issued by RBI\NABARD, FROM TIME TO TIME, With a system of monitoring the inflow and out flow of funds on day-to-day basis, the Bank has been able to gauge the availability of surplus funds for the purpose of short term as well as long term investments or even for pre-payment of refinances. Looking to downward movements in interest rates (coupon) of rated non SLR papers and also keeping in view the advice of Sponsor Bank, not to go in for investment beyond 40% of Deposit base, a conscious decision was taken to restrict and reduce the investment port folio. The total investments increased to Rs. 62213.13 lakh as on 31-03-2007 from Rs.53315.55 lakh as on 31-0302006 with a marginal increase in I.D. Ration from 27.81% to 27.89%:
THE DETAILS OF THE OUTSTANDING SLR AND NON SLR INVESTMENTS ARE AS UNDER:
Rs. In Crores)
Sl. No. I. II
Particulars SLR Funds Non SLR Funds TOTAL
As on 31-032006 472.03 61.13 533.16
As on 31-03-2007 544.79 77.34 622.13
REGIONAL RURAL BANKS
The institution of Regional Rural banks (RRBs) was created to meet the excess demand for institutional credit in the rural areas, particularly among the economically and socially marginalized sections. Although the co-operative banks and the commercial banks had reasonable records in terms of geographical coverage and disbursement of credit, in terms of population groups the co-operative banks were dominated by the rural rich, while the commercial banks had a clear urban bias. In order to provide access to low –cost banking facilities to the poor, the Narasimhan Working Group (1975) proposed the establishment of a new set of banks, as institutions which “combine the local feel and the familiarity with rural problems which the co-operatives possess and the degree of business organization, ability to mobilize deposits, access to central money markets and modernized outlook which the commercial banks have”. The multi-agency approach to rural credit was also to subserve the needs of input intensive –intensive agricultural strategy (Green Revolution) which had initially focused on betting on the strong but by the mid-seventies was ready to spread more widely through Indian countryside. In addition, the potential and the need for diversification of economic activities in the rural areas had begun to be recognized, and this was a sector where the RRBs could play a meaningful role. The RRBs
35 KLES’s IMSR
Act, 1976 succintly sums up this overall vision to sub-serve both the developmental and the redistributive objectives: The RRBs were established “with a view to developing the Dec.1975 Dec.1980 Dec.1985 Mar.1990 Banks 6 85 188 196 Branches 17 3,279 12,606 14,443 rural economy by providing, for the purpose of development of agricultural, trade, commerce, industry, and other productive activities in the rural areas, credit and other facilities, particularly to small and marginal farmers, agricultural labourers, artisans and small entrepreneurs, and for matters connected therewith and incidental thereto.”
Source : NABARD Reports
The following one-and-a-half decades saw large-scale efforts to the number of banks, bank branches, and disbursements nationwide. By 1991, there were 196 RRBs with over 14,000 predominantly rural branches in 476 districts with an average coverage of three villages per branch. These banks had disbursed over Rs. 3,500 crore in credit and mobilized over Rs. 4,100 crore in deposits. The bulk of the loans from RRBs were to the priority sectors, which accounted for over 70% of the total. Agriculture and allied activities took up more than 50% of the total advances. In addition, the RRBs were instrumental in extending credit for poverty alleviation schemes _______________________
The year 1990 marks the end of the expansion phase of regional banking, beyond which there has been no growth in the number of Regional Rural Banks (including branches).
(e.g., IRDP) and disadvantaged area (drought-pronr regions and deserts) development programmes. The expansion phase of the late seventies and the eighties while focused on outreach was not devoid of a blueprint for viability of the RRBs, unlike what the mainstream academia and press claim to be the case. It was understood that the RRBs to survive as credit institutions could not remain unviable for a long time, though the RRB might not remain unviable in the initial years. This expectation was, however, tempered by the prevalent situation on the field and the ultimate objectives for which these specialized institutions were created. It was realized early that the question of viability of the RRBs could not be the same as other business ventures. A business unit has all the freedom to take decisions on many matters such as opening branches, deploying its resources, staff recruitment, its purchases, methods of rending services etc. But the RRBs could not be flexible in many of their affairs; even their clientele was specific, scattered , remote and not assisted by anyone. Keeping in view the objectives of the RRBs, these institutions could certainly not be evaluated on the basis of mere financial viability. There was a general agreement that the viability of the RRBs had to be assessed in terms of a composite criteria including increase in business per branch recovery rate, productivity of staff, cost effectiveness of operations, closer monitoring, socio-economic upliftment and improvements in the standards of living of the clientele. Again in respect to the time dimention. It was estimated that the RRBs would need about seven years to become viable, though for the RRBs with a large number of infant branches even this period might not be adequate. Between 1980 and 1987, while the number of RRBs increased more than four-fold. It was not totally unexpected
therefore that by the end of the 1980s several of these banks were showing losses on their books.
Purposewise Advances of RRbs, Outstanding(end of sept,1990) Rs in Crores 1 2 3 4 5 6 7 8 Short term (Crop Loan) Term Loan and Agriculture Activities Allied Activities Rural Artisans, Village And Cottage Industries Retail Trade And Self Employment Consumption Loan Other Purposes Indirect Advances TOTAL 615 669 555 277 1052 54 290 43 3555
SCHEMES OF THE KVG BANK
a) Credit Policy : The Bank continued to accord prime importance to the Loans and Advances portfolio with it’s multi dimensional utilitarian aspects. Considering the vast area of operation of the Bank covering Nine potential Districts in the State Bank has adopted a Credit Policy as per the guidelines issued by RBI\NABARD and sponsor Bank. The Credit Policy is
aimed at increasing high quality and high yielding advances with special thrust on advances to investment credit in agriculture sector, credit linkage to SHGs\JLGs and also to augment credit flow to SME Sector. b) Policy for extending Relief measures: Occurrence of drought, flood pest attack and other natural calamities caused wide spread damage to economic pursuits of our borrowers. It is felt necessary to have a set of guidelines to provide relief by the Branches to calamity affected persons without delay. Hence, Bank adopted a Policy for extending relief measures to the borrowers affected by natural calamities, in tune with NABARD directives. c) Crop loans at reduced rate of interest: As envisaged in the Union budget 2006-07, during the year 2006-07, Crop loans up to Rs. 3 lakhs were sanctioned with interest @ 2% provided by NABARD. With this, total crop loans disbursed during the year 2006-07 was at Rs. 540.10 Crores. d) Tie up arrangements: During the previous years, the Bank had entered into Tie-up arrangements with 6 Tractor\vehicle manufacturing Companies for supplying Tractors\Two\Three\Four wheelers to our customers, providing free Registration\Insurance of Vehicle at dealers cost, additional free servicing of the vehicles etc. This year the Bank had executed fresh MOU with Eicher Tractors & Sonalika Tractors, hence, now our
customers will have choice of 8 Tractor\vehicle manufacturing Companies, providing additional benefits. e) Coverage of collateral free loans under Credit Guarantee scheme of CGTSI: To have a better coverage of risk on the collateral free loans sanctioned to SMEs, Bank has proposed to cover such collateral free loans up to Rs. 25 lakhs sanctioned to SMEs, under the Credit Guarantee scheme of CGTSI. Bank has been already enrolled as MLI with CGTSI for the purpose. f) Provision for ;inclusion of Education expenses in KCC: As suggested by Sponsor Bank to encourage education among the family members of the farmers, Branches are permitted to include expenses for Education up to Rs.1,000\in the KCC limits sanctioned to the farmers.
g) Enhancement in project cost under KVIB MMS loans: Till last year KVIB was considering projects with cost up to Rs.10 lakhs for grant of Margin Money Subsidy (MMS). However, the KVIB has enhanced the maximum permissible cost of the project up to Rs. 25 lakhs for grant of
MMS, hence the Branches are permitted to consider Project with total cost up to Rs. 25 lakhs, under KVIBMM scheme. h) Introduction of PAIS for Swarojgar Credit Card holders: As suggested by NABARD, Swarojgar Credit Card holders were brought under coverage of Personal Accident Insurance Scheme (PAIS) for a sum assured up to Rs. 50,000\- with United India Insurance Company Ltd. i)Credit Rating of ;high value NFS loan a\cs: In order to ensure healthy credit portfolio and also to assess the creditworthiness of the applications \ borrowers. Credit Rating System was introduced for Borrowers having \ proposed cumulative credit limits of Rs.20.00 lakhs & above. Credit Rating charts as adopted by the Sponsor Bank were prescribed for the purpose.
j) Package of Relief measures in Distgress district: Govt. of India has identified Belgaum district in our Area of operation and extended Package of Relief measures to be implemented in the Distress districts. Under the scheme, interest on the eligible lover due loans of Farmers as on 01-07-2006 was waived, the loan a\cs were to be restructured and fresh finance made available to such
41 KLES’s IMSR
borrowers. Bank waived eligible overdue interest, for which, claim was submitted to NABARD. Restructuring of the loan a\cs is being done and fresh finance is being made available to the needy farmers. k) Interest subvention of Poultry loan a\cs: Considering the loss of income to the poultry units due to out break of Avian Flu during February 2006. Govt. of India had announced one time interest subvention of 4% to the poultry units affected by avian Flu. Accordingly Bank had passed on the eligible interest subvention to 75 eligible loan a\cs and reimbursement of the same was received. l) Loan Schemes Launched during the year: In terms of the directives issued by RBI\NABARD \ Sponsor Bank, land also considering the genuine needs of our customers, the following new loan schemes were launched during the year:
Sl. Name of the Features No. Scheme 01 Loans for Cold A scheme for financing construction Storage Units of Cold Storage units under Capital Investment Subsidy Scheme, which provides subsidy up to 25% of the fixed investments was formulated. 02 Loans for A scheme for development of Developments of Commercial Horticulture under Commercial Capital investment subsidy Scheme Horticultre of National Horticulture Board 9NHB) which provides Bank ended subsidy up to 20% of the Capital Investment made was formulated. Loans for A scheme for establishment of Commercial Commercial production units of production of Organic Inputs, under National Organic Inputs Project on Organic farming was formulated. The scheme provides subsidy up to 25% of the capital Investments made. Loans for Technology up gradation of SSI units A scheme for
Technology up – gradation of SSI units under Credit Linked Capital subsidy scheme, which provides subsidy up to 15 % of the Capital made, Crore with for a maximum cost Investments ceiling of of upRs.1.00
gradation was formulated.
43 05 KLES’s IMSR Loans for
Agri A scheme for establishment of Agri Clinics \ Agri clinics\agri business Centres under business Centres: Credit linked Capital subsidy
m) Brand Equity Names: During the year, Bank had launched following new loan schemes with “Brrand Equity” names for an easy identification of products by the customers. Salient features of the schemes are as folows. i)VIKAS UDYAM – Loan to SMEs: scheme for financing Small & Medium Enterprises (SMEs) to double the flow of credit to the SME Sector within 5 years. The scheme provides Collateral free loans for fixed investments as well as working capital requirements of SMEs repayable in 7 years. ii) VIKAS BAHUMUKHA – Multipurpose\Composite Credit to Farmers: A scheme for financing Multipurpose\Composite credit needs of Farmers, including investment credit requirements, contingencies, consumption needs, etc., with hassle free credit assessment based on the genuine credit needs and repayment capacity of the Farmers, up to 50% of the value of the Agricultural land given as security or Rs. 5.00 lakhs which ever is less, repayable in 7 years. n) Doubling of Agricultural Credit: In order to double disbursement of Agriculture Credit, the Bank had taken steps to increase leading to farmers under production as well as investment credit by conducting special campaigns and credit camps, in the operational area.
The Bank had provided relief to the farmers in distress, by extending fresh loans and restructuring their earlier loans. In all, the Bank had disbursed Rs. 645.70 Crores towards Agricultural Activities during the Financial Year showing a growth of 48 % over the previous year.
o) Kisan Credit Card (KCC): In addition to the existing kisan Credit Card Scheme, Bank had introduced KISAN SAMRUDHI CREDIT CARD Scheme as per the guideline issued by NABARD, to provide investment credit to the Farmers, apart from the production credit, During the year, the Bank had issued 86851 Kisan Credit Cards by disbursing Rs. 540.10 Crores. Apart from this 1427 Kisan Samrudhi Credit Cards issued by disbursing Term Loans of Rs. 9.54 Crores. All eligible lfarmers are covered under KCC Scheme. The Bank has also implemented PERSONAL ACCIDENT INSURANCE SCHEME (PAIS) for KCC\KSCC holders, and covered 100% of the KCC\KSCC holders under the PAIS with United India Insurance Company Ltd. By virtue of the above measures, the outstanding level of Loans and Advances reached a level of Rs. 2168.40 Crores
as at the end of March 2007 as against Rs. 1749.96 Crores as on 31-03-2006. Of the total loans outstanding, the share of Target Group stood at Rs. 882.71 Crores constituting 40.70% as on 31-03-2007 as against Rs. 785.39 Crores constituting 44.88 % as on 312-03-2006. The CD ratio stood at 97.22 % as on 31-03-2007 as against MOU target of l95.13%
p) Participation Particulars
Physical Achievement % of Target during 2006- Achievement 2006-07 07 01 SGSY 688 663 96.36 02 SC\ST Schemes 175 147 84.00 03 Minorities 382 194 50.78 04OtherGovt.Sponsored,Schemes 442 170 38.46 Programmes from 01-04-2006 to 31-03-2007: While the Bank had continued to maintain a certain level of Non-Priority Sector Advances from the profitability point of view, the Bank’s concern\\commitment under various social obligations and Agricultural Finance\Poverty Alleviation Programmes of the Government could be evident from the facts and figures given below:
KVG Bank bases the methodolgy adopted in the present study on the disbursement and recovery procedure of SSI, MSI and other units.
Tools for the data collection
The primary data is obtained by visiting various industrial concerns in both Hubli and Dharawad by interviewing and interacting with them. The secondary data was collected from various journals, brochures and annual report obtained Dharwad. from Karnataka Vikas Grameen Bank,
SCOPE OF STUDY
The study is confined to various method of recovery of loans from the borrowers of KVG Bank.
DISBURSEMENT OF CREDIT Release of funds or loans
The loan can be released only after the borrower fulfills or complies with all the terms and conditions stipulated in the loan sanction sanction letter. In the event of loan to be released deferring some conditions of loan sanctioned. The competent authority has to approve such relaxation in the compliance of conditions.
Effect disburse of funds depends basically on taking the right steps at various stages of project implementation. Any delay either by the corporation or by the enterprises will delay the overall project implementation, which can eventually results in both opportunity losses as well as financial losses to the project.
The activities involved in the loan disbursement function are classified into two broad categories. 1) Actions to be taken by the bank independently.
2) Action to be taken in response to specify requests by the borrower. The first step of functions is very critical to take appropriate timely actions for loans disbursements without losing sight of any critical steps or causing any delay.
a) Whether legal clearance and documentation has been completed as per norms of the Bank. b) To check whether the project has obtained appropriate license or permission from various authorities. c) To take up inspection of the project or site to assess the present status of implementation.
d) To verify whether the borrower has brought in his contribution as per first investment clause (FIC)
LOANS AND ADVANCES; OUTSTANDING & DISBURSEMENT
Credit is the major item on the assets side of balance sheet and its contribution to aggregate revenue was significant in the form of interest income. The Bank continued to maintain its dominance in the field of advances by increased djeployment of fund in the form of Loans and Advances and the growth of advances as at 31-032007 was as under:
PURPOSE WISE CLASSIFICATION OF ADVANCES AS ON 31-03-2007 VIS-A-VIS THE PREVIOUS YEAR
(Rs in Cores) Sl. N o 1. 2 3 4 Agriculture Sector Small scale Industries Tertiary Sector Others TOTAL 31-032006 31-032007 % of % to Gro total wth Advan ces 32.30 61.96 24.94 2.22 14.96 18.80 14.96 18.80 23.91
1015.49 1343.59 38.57 48.19 341.32 368.99 354.58 407.63 1749.96 2168.40
BENEFICIARY-WISE CLASSIFICATION OF ADVANCES AS ON31-03-2007 VIS-A-VIS THE PREVIOUS YEAR
(Rs. In Crores) Sl. No 1 2 Particulars Target group Non-Target group TOTAL SC\ST Beneficiaries Minority beneficiaries SF\MF\AL Beneficiaries SGSY beneficiaries Other Govt. Spon. Scheme. Women 31-032006 785.39 964.57 1749.96 73.69 130.47 692.67 26.05 24.17 152.64 31-032007 882.71 128569 2168.40 86.96 144.32 749.68 27.42 24.91 218.90 % of Growth 12.39 33.29 23.91 18.01 10.62 8.23 5.26 3.06 43.41 % to total Advances 40.71 59.29
3 4 5 6 7 8
4.00 6.65 34.57 1.26 1.14 10.10
During the year under report the Bank had disbursed credit of Rs.1100.19 Crores under all sectors as against Rs.845.22 Crores disbursed during the previous year, with a growth of 30% Bank had also satisfactorily paln target by achieving 108.92% of its allotted targets. Of the total loans disbursed, the Bank had deployed Rs. 859.10 Crores to priority sector and Rs. 241.09 Crores to Non-priority sector during the year under report as against Rs. 647.82 Crores and Rs. 197.40 Crores respectively during the previous year.
The following table shows the Sector-wise Disbursements of Credit for the Year 2006-07 vis-a-vis the Previous Year
(Rs. In Crores) Sl. No. A Sector Actuals 2005-06 SAP Actuals Target 2006-07 For 200607 560.77 20.58 32.33 222.49 836.17 173.96 1010.13 632.19 13.51 26.31 187.09 859.19 241.09 1100.19
Priority Sector i) Agriculture ii) Allied Activities iii) SSI\RA iv) Trade & Service Total of Priority Sector Non Priority Sector Total Disbursement
428.40 7.31 24.73 187.38 647.82 197.40 845.22
Introduction: Collection of amount due is termed as recovery. The Bank lends money to industrial concerns for establishment or expansion of projects. While sanctioning the loans based on certain assumptions, the profitability will be worked out and the moratorium period and repayment period are fixed. The repayment period generally caused to 5-7 years with a moratorium period of six months to one year for sound viable projects. Interest earned is the income for the Bank. This should meet interest, payments all the expenses and plough back requirements. Therefore recovery of money is one of the major sources of funds for the Bank. The health of the bank is judged by the extent or recovery that it can affect.
The other sources of funds to the Bank are:
The sources of funds for RRBs comprise of: 1) Owned Funds 2) Fixed Deposits from Public 3) Borrowings:
53 KLES’s IMSR
From NABARD From sponsor banks 4) Other sources including SIDBI and National Housing Bank.
The owned funds of RRBs comprising share capital, share capital deposits received from the stake holders toward recapitalization support and the reserves appropriated by the profit making RRBs stood at Rs.7291.99 crore as on 31 March 2007 as against Rs.6646.59 crore as on 31 March 2006 and Rs.6181.26 crore as on March 2004-05. The increase in owned funds to the tune of Rs.645 crore during 2006-07 was mainly due to accretion to the reserves out of profits made by 56 RRBs having no accumulated losses. 2) Fixed Deposits form Public Deposits of RRBs increased by Rs.11556.52 crore and reached to the level of Rs.82885.35 crore as on 31 March 2007 as against Rs.71328.83 crore as on 31 March 2006. The deposit growth was found to have increased to 16.20% in 2006-07 from 14.78% in 2005-06 and 10.28% in 2004-05. Deposit mobilisation of RRBs has been growing steadily. 3) Borrowings The RRBs borrowed Rs.9652.35 crore as on 31 March 2007 as against Rs.7302.59 crore as on 31 March 2006. NABARD remained to be the primary organization from whom RRBs borrowed maximum as refinance to the extent of
78% of total borrowing. The borrowing from the Sponsor Banks and others accounted for about 19.7% and 2.3% respectively of total borrowing of RRBs.
Plough back of funds in to the system is emerging as one of the very important sources of funds in the total resources mix. Therefore, systematic follow-up and recovery of loans play a significant role in bank’s operations. Essential good recovery depends on good portfolio of loans. Good loans portfolio means, low default ratio, higher % of recoveries to recoverable amount, lesser rescheduling, lower waivers\write offs, and this leads to less number of cases taken over. This means shift has to be made towards viable and quality lending by shedding to some extent the development role.
ROLE OF THE FIELD OFFICERS
Then role of Field Officers is to render full complained of services to the loans through out the period of recovery. He acts as an intermediary between the loanee and the Bank and keep the pulse of the venture and protects interest of the Bank. He is supposed to extend a helping and in sorting out the various problems faced by the industrial units and suggest proper residual measures to come out of the problems he would also help the loaners in getting other facilities available from various government organization, corporate bodies, bank etc, he also keeps a close watch of the venture throughout the period of recovery.
Over the years, the bank has developed procedures for follow up and recovery of loans and close monitoring of, assisted units. It has evolved strategies for tackling chronic default units etc.
RECOVERY OF LOANS
The recovery of loans is done by the personal contacts of a banker and the loanee. When the loans are advanced to the customers of the bank certain moratorium period is fixed for the purpose of recovering the loans. If the said loans are not recovered within the due date or within the moratorium period then certain procedure is followed by the bank for the recovery of those loans. That procedure may be termed as loan recovery procedure. In case the customer to whom the bank has advanced the loans, defaults to pay the interest as well as the principal within the due date then the bank will take certain actions on such defaulting customers. In case of general loans other than agricultural loans, the provisions laid down in the Securitisation and Reconstrution of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002) is followed. In case of agricultural loans, the Karnataka Agricultural Credit Operations and Miscellaneous Provisions Act, 1974. (KACO MP Act, 1974) is followed.
SARFAESI Act, 2002
For the purposes of recovery of loans by the Banks or the Banking Companies or financial institutions, the Parliament has passed plethora of laws. The Government has established a legal mechanism. Accordingly the banking companies and financial institutions have to follow the provisions of various laws, rules and regulations. The most important of those laws are the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002, The Security Interest Enforcement Rules 2002, The Recovery of Debts Due to Banks and Financial Institutions Act, 1993, etc. Among the laws mentioned above, the most important and the most recent law is the SARFAESI Act 2002. This Act incorporates the recommendations of Narasimhan committee 1 and 2 and Andhyarujina Committee, acting on their recommendations the said Act was promulgated to regulate Securitization and Reconstruction of Financial Assets and Enforcement of Security Ordinance 2002, was promulgated on 21st June, 2002 to regulate securitization and reconstruction of financial assets and enforcement of security interest and for matter connected thereto or incidental thereto. The provisions of the ordinance would enable banks and financial institutions to realize long-term assets, manage problem of Liquidity, asset liability mismatches and improves recovery or reconstruction. And above all the banks can take possession of the securities and sell them without the intervention of the court. LOAN RECOVERY PROCEDURE Any security interest created in favor of any secured credit may be enforced without the intervention of the Court by such creditor. NOTICE
57 KLES’s IMSR
A secured creditor can issue notice to the borrower u/s 13(2) of SARFAESI Act demanding the discharge of the full liabilities of the secured creditor within 60 days from the date of notice. There must be a security agreement under which the liability has to arise; Further the secured creditor must make default in repayment of either secured debt or any intelligent. The final condition is that the account of the borrower must have been classified as nonperforating assets. The notice should give details of the amount payable by the borrower and the second assets intended to be enforced by the secured creditor if the secured debts are not paid by the borrower. If and when the borrower receives the notice he gets a final chance. He gets a final chance to repay his debt. Therefore the borrower can make any representation objection and that representation or objection will be considered by the secured creditor. If the secured creditor considers those objectives as not acceptable or tenable he will have to communicate within a week the reasons for such non acceptance of his objections to the borrower. Even at this stage the borrower will not get any right to file an application before the DRT or District Judge. The Secured creditor can take any of the following measures if the borrower fails to repay the loan. Take possession of the secured assets and object of the borrower. Along with the possession the borrower will also get the right to transfer by way of lease, assignment or sale for realizing the secured assets.
Take over the management of the business of the borrower. This will again include the right of transfer by way of lease, assignment or sale for realizing the secured assets.
But the above said right of transfer should be exercised only when the substantial part of the business of the borrower is held as a security for the debt. If the business of the borrower is severable, the secured creditor has to take over the management of such business which is relatable to the security for the debt. Appoint any person to manage the secured assets; the possession of which has been taken over by the secured creditor such person is called manager. If any particular person has borrowed from the borrower and from whom any money is due then the secured creditor may issue notice to that person and ask him to pay. So much of the money as is sufficient to pay the secured debt. If the person above mentioned pay any amount to the secured creditor then a valid discharge will be given to him as if he has paid to the borrower. The management of a business of a borrower is taken over by a securitisation company or reconstruction company; the secured creditor may appoint its agents to look after the business. If the borrower is a company then the secured creditor can appoint as many persons as it wishes to be the directors of that borrower. If the borrower is entity other than the company then the secured
creditor can appoint any person to be the administrator of the business of the borrower. The appointment of the persons above mentioned can be announced through the publication of the notice in English newspaper as well as in a newspaper published in an Indian language in circulation in the place where the principal office of the borrower is situated. The directors or the administrator appointed as mentioned above or entitled to take such steps as may be necessary to take into there custody or under their control or the property effects and actionable claims to which the business of the borrower is entitled. The direction of appointed are deemed to be the directors of the company of the borrower. And such director or the administrators are alone entitled to exercise all the power of the directors such as superintendence, direction and control of the business of the borrower.
PROCEDURE AFTER ISSUE OF NOTICE
If the amount mentioned in the demand notice is not paid within the specified time. The authorized officer can adepts any one or more of the measures which are as follows:
Where the possession of the secured assets to be taken by the secured creditor are movable property in possession of the borrower, the authorized officer shall take possession of such movable property in the presence of two witnesses after Panchnama.
After taking possession as mentioned above, the authorized officer shall make or cause to be made an inventory of the property
60 KLES’s IMSR
and deliver or cause to be delivered, a copy of such inventory to the borrower or to any person entitled to receive on behalf of the borrower. The authorized officer shall keep the property taken possession as mentioned above either in his own custody or in the custody of any person authorized or appointed by him, who shall take as much as of the property in his custody as owner of ordinary prudence would, under the similar circumstance take of such property. If such property is subject to speedy or natural delay, or the expense of keeping such property in custody is liable to exceed its value, the authorized officer may sell it at once. The authorized officer shall take steps for preservation and protection of secured assets and insure them, if necessary till they are sold or otherwise disposed off. In case any secured asset is:A share, in a body corporate; other movable property not in the possession of the borrower except the property deposited in or in the custody of any court or any like authority; the authorized officer shall obtain possession or recover the debt by service of notice as under:If it is a debt the borrower will be prohibited from recovering the debt and making the debtor to pay the debt to the authorized officer.
If the secured asset is shares in a company, then borrower will be directed to transfer them to the secured creditor. If secured asset is movable property then the borrower and the person in possession will be called upon to hand over the property to the authorized officer. After taking possession the authorized officer should obtain the estimated value of the movable secured assets and in consultation with secured creditor fix the reserve price of the assets. The authorized officer may sell the movable secured assets or more lots by adopting any of the following methods to secured maximum sale price for the assets, to be sold.
obtaining quotations from parties dealing in the secured assets or otherwise interested in buying such assets; or
ii. inviting tenders from the public; or iii. holding public auction; or iv. by private treaty. The authorized officer shall serve to the borrower a notice of thirty days for sale of the movable secured assets, if the sale of such secured assets is being, effected by either inviting tenders from the public or by holding public auction, then the secured creditor shall cause a public notice in two leading newspapers, one
in vernacular language, having sufficient circulation in that locality by setting out the terms of sale, which may include:
a) details about the borrower and the secured creditor; b) reserve price and the time and manner of payment; c) description of movable secured assets to be sold with identification marks or numbers; d) time and place of public auction e) depositing earnest money as may be stipulated by the secured creditor; RECOVERY OF DEBT DETERMINED BY TRIBUNAL
MODES OF RECOVERY OF DEBTS:-
The Recover officer will, on receipt of the copy of the certificate, proceed to recover the amount of debt specified in the certificate by me or more of the following makes namely:a) attachment and sale of the movable or immovable property of the defendant; b) arrest of the defendant and his detention is prison; c) appointing a receiver for the management of the movable or immovable properties of the defendant.
Other modes of Recovery:Where a certificate has been issued to the Recovery officer, the recovery officer can recover the amount of debt by any one or more of the modes provided. If any amount is due from any person to the defendant, the Recovery Officer may require such person to deduct from the said amount, the amount of debt due from the borrower and such person shall comply with any such requisition and shall pay the sum so deducted to the credit of the Recovery Officer.
KACO MP Act, 1974
THE KARNATAKA AGRICULTURAL CREDIT OPERATIONS AND MISCELLANEOUS PROVISIONS ACT, 1974. (Received the assent of the President on the Thirteenth day of February 1975) (As amended by Karnataka Acts 34 of 1978, 26 of 1984) An Act to make provisions to facilitate flow of credit for purposes of agricultural production and development through credit agencies. WHEREAS it is expedient to make provisions to facilitate flow of credit for purposes of agricultural production and development through credit agencies and for matters connected therewith or incidental thereto ; BE it enacted by the Karnataka State Legislature in the Twentyfifth Year of the Republic of India as follows :-
CHAPTER I PRELIMINARY 1. Short title, extent and commencement.- (1) This Act may be called the Karnataka Agricultural Credit Operations and Miscellaneous Provisions Act, 1974. (2) It extends to the whole of the State of Karnataka. (3) It shall come into force in such areas on such 1[date]1 as the State Government may, by notification, appoint, and different dates may be appointed for different provisions of the Act and for different areas. 2. Definitions.- In this Act, unless the context otherwise requires,1[(a) 'agriculture' or 'agricultural purposes' includes making land fit for cultivation, cultivation of land, improvement of land including development of sources of irrigation, raising and harvesting of crops, horticulture, forestry plantation(including tree crops), cattle breeding, animal husbandry, dairy farming, seed farming, pisciculture including 2[the development of fisheries both inland and marine and]2 catching fish and all activities connected therewith or incidental thereto, apiculture, sericulture, piggery, poultry, farming and such other activities as are generally carried on by agriculturists, dairy farmers, cattle breeders, poultry farmers and other categories of persons engaged in similar activities, including processing, marketing, storage and transport of agricultural produce and the acquisition of drought animals, implements and machinery in connection with such activities and such other purposes as the State Government may specify in this behalf. (b) ''agriculturist'' means a person who is engaged in agriculture;
(c) ''Agro-Industries Corporation'' means the Karnataka State Agro-Industries Corporation, a company registered under the Companies Act, 1956; (d) ''co-operative society'' means a co-operative society registered or deemed to be registered under the Karnataka Co-operative Societies Act, 1959, the object of which is to provide financial assistance as defined in clause (f) of this section to its members and 6 includes a Co-operative Land Development Bank; (e) ''Credit Agency'' means,(i) a banking company as defined in the Banking Regulation Act, 1949; (ii) the State Bank of India constituted under the State Bank of India Act, 1955; (iii) Subsidiary Bank as defined in the State Bank of India (Subsidiary Banks)Act, 1959; (iv) a corresponding new bank constituted under the Banking Companies(Acquisition and Transfer of Undertakings) Act, 1970; (v) the Agricultural Refinance Corporation constituted under the Agricultural Refinance Corporation Act, 1963; (vi) Agro-Industries Corporation as defined in clause (c); (vii) the Agricultural Finance Corporation Limited, a company incorporated under the Companies Act, 1956; and 1[(vii-a) the regional rural banks constituted under the Regional Rural Banks Act,1976 (viii) any other financial institution notified by the StateGovernment as a credit agency for the purpose of this Act; (f) "financial assistance'' for the purpose of this Act means, assistance granted 1[whether before or after the commencement of this Act]1 by way of 2[loan, advance, guarantee]2 or otherwise for agricultural purposes. CHAPTER II
ALIENATION OF LAND OR INTEREST THEREIN BY AGRICULTURISTS 3. Removal of restrictions on alienation.- Notwithstanding anything contained in any law for the time being in force or any custom or usage having the force of law, it shall be lawful for an agriculturist to alienate the land or his interest therein whether or not a charge or mortgage is subsisting on such land or such interest, by creation of charge or mortgage of such land or interest therein in favour of a credit agency as security for the financial assistance given to him by such credit agency. 4. Vesting agriculturists not having alienable rights with rights of alienation.Notwithstanding anything contained in the Karnataka Bhoodan Yagna Act, 1963(Karnataka Act 34 of 1963) the State Government may, by notification, vest Bhoodan tenants with rights of alienation, including the right to create a charge or mortgage in such land or interest in favour of a credit agency for the purpose of obtaining financial assistance from the credit agency subject to such restrictions as may be specified in such notification. 5. Charge on crops and other movable property.- (1) It shall be lawful for an agriculturist to 1[create, by way hypothecation or otherwise, a mortgage]1 of or a charge on,(a) movable property, owned by him; or (b) crops standing or otherwise, raised by him on his own land or land held by him as a tenant including other produce raised by him on such land to the extent of his interest in such crops or produce, in favour of a credit agency as security for the financial assistance given to him. (2) Notwithstanding anything contained in the Karnataka Cooperative Societies Act, 1959 or any other law for the time being in force, no charge in respect of financial assistance given by a cooperative society to an agriculturist shall have priority over charge on the crop raised by him, standing or otherwise, or any other
movable property in respect of any financial assistance given to him by a credit agency: Provided that the financial assistance given by the credit agency is prior in point oftime to that of any loan advanced to him by the cooperative society. (3) A credit agency may distrain and sell through an official designated in this behalf by the State Government the crops or other produce or other movables charged to that credit agency to the extent of the agriculturists interest therein and appropriate the proceeds of such sale towards all moneys due to the credit agency from that agriculturist. 6. Creation of charge on land or interest therein in favour of a credit agency by a declaration.- Notwithstanding anything contained in any law for the time being in force,(i) any agriculturist given financial assistance by a credit agency may by a declaration in the prescribed form charge the land or any other immovable property owned by him or where he is a tenant of any land, his interest in such land, as security for the amount of such financial assistance and interest payable thereon. Such declaration shall be filed along with the application seeking financial assistance and shall state that the charge created thereunder shall be for the amount of financial assistance then sought for and also for all future financial assistance which the credit agency may give him, (ii) a declaration made under clause (i) may, with the consent of the credit agency concerned, be varied by the agriculturist at any time. 7. Priority of charges and mortgages over certain claims.- 1[(1) Notwithstanding anything contained in any law for the time being in force, but subject always to the paramount charge in respect of arrears of land revenue,(a) no charge or mortgage created on any land or interest therein after the commencement of this Act in favour of the State
Government or a co-operative society shall have priority over a charge or mortgage created on such land or interest by an agriculturist in favour of a credit agency as security for financial assistance given to him by such agency after the commencement of this Act and prior to the creation of the charge or mortgage in favour of the State Government or the co-operative society; and (b) any charge or mortgage created on any land or interest therein in favour of a credit agency as security for financial assistance given to an agriculturist by that credit agency shall have priority over any other charge or mortgage that may have been created over such land or interest in favour of any person other than the State Government, a co-operative society or any other financial institution prior to the date on which the charge or mortgage was created in favour of the credit agency. (2) Where different charges or mortgages over the same land or any interest therein have been created or executed by an agriculturist in favour of,(i) the State Government; or (ii) a co-operative society; or (iii) one or more credit agency, such charges or mortgage out of them as is created or executed as security for the financial assistance given as term loan for development purposes shall have priority over the other charges or mortgages: Provided that prior notice thereof had been given to, and concurrence had been obtained of the State Government or the cooperative society or the credit agency, as the case may be. (3) Where more than one charge or mortgage had been created or executed as security for the financial assistance given as term loan for development purposes, the charges or mortgages shall have priority in accordance with the dates of their creation or execution. Explanation.- For the purposes of this section, ''term loan for development purposes'' means financial assistance which would
generally lead to improvement of agricultureand or building up of assets in agriculture but shall not include financial assistance for meeting working capital expenses, seasonal agricultural operations and marketing of crops.
KVG Bank’s Recovery of Loans
During the DCB year 2005-2006 i.e. end of June 2006 the Bank had achieved a recovery rate of 73.52% to Demand as against the corresponding ratio was Rs. 758.68 Crores. This achievement was possible due to various recovery strategies adopted by the Bank as well as the involvement of staff at all levels. The recovery steps adopted include visits of recovery squad from Head Office, Regional Office, Group Approach for recovery involving staff of neighboring Branches, seizing of hypothecated assets, seeking cooperation of the Government Officials and “Spandana” Programme to create awareness among borrowers and fixed day visits of Officers to villages to enable the officials to contact the rural clients etc.
SECTORWISE DCB POSITION AS ON 30-06-2006 (Amount in Crores)
Balance Less than 1 year
1 to 3 years
3 to 5 years
5 to 8 years
Above 8 years
Total over Dues
% of OD
Crop Loans Agri Term Loans Allied Activity General Loans Others (JL\LD\ODD\ NNPS loans to public, CDLF, Staff loans etc.) Total
Amt 708.64 267.95 47.89 415.74 337.18
Amt 453.75 75.30 12.52 250.10 240.20
Amt 320.33 51.75 7.93 185.26 193.40
Amt 74.27 8.64 1.19 23.74 14.52
Amt 36.56 8.27 1.65 25.06 19.57
Amt 3.49 1.45 0.70 8.03 6.88
Amt 1644.33 273.82 75.80 489.74 310.18
Amt 2.67 2.44 0.28 3.10 2.74
Amt 133.42 23.55 4.58 64.84 46.80
29.40 31.27 36.60 25.92 19.48
It was found that almost all Borrowers of KVG Bank preferred KVG Bank because of low rates of interest and various schemes provided by the bank.
It was found that many of the clients or borrowers are satisfied with the services provided by KVG Bank.
It was also found that KVG Bank has provided financial assistance almost all only to those who have good experience in their project.
It was found that the documentation procedure in KVG Bank is very long and difficult to follow and some times too risky also.
The recovery period for the loan taken from the KVG Bank was very short and due to this some of the proprietors are finding difficulty in proper repayment of the loan amount to the proprietors or the borrowers of the bank.
KVG Bank has to maintain quality
2. The Bank should take measures to sanction financial assistance by taking less processing time so as to eliminate delay in implementing the project.
The bank has to keep continuos contact with the borrowers, which will help the bank in quick disbursement and improves customer relationship. The bank has to conduct meetings with the borrowers and should try to solve the problems faced by the bank.
5. The recovery policy adopted by the KVG Bank should be improved, continuos interaction and follow-up definitely helps the bank to increase the ratio of recovery.
KVG Bank should implement computerization to a large extent and surplus staff should be removed by modifying the Organization Structure. Targets should be set to the recovery officers and special incentives should be provided to those officers who achieve their objectives.
CONCLUSION The basic objective of any Bank is to maximize the wealth. The amount of such profits largely depends upon the magnitude of loans assisted and the recovery of those loans. Each component of recovery has two dimensions Time and Money when it comes to recovery of loans “Time is Money”. A study of Recovery Procedure, which I have chosen as the topic of my project in Karnataka Vikas Grameen Bank, Head office Dharwad, is the main and the key department, which plays a vital role in collection of the sources of funds for the Bank which in turn will be used for refinancing for the industrial concern. Thus in the bank this department should work at its best level to make the bank a profitable one. A good recovery depends on good portfolio of loans and good loan portfolio means, low default ratio, higher percentage of recoveries to recoverable amount, lesser rescheduling, lower waivers\write offs.
BIBLIOGRAPHY www.kvgbank.com www.NABARD.com www.syndicatebank.com www.rbi.org.in www.google.com
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