Professional Documents
Culture Documents
A PROJECT REPORT ON
A PROJECT STUDY ON “NPA MANAGEMENT IN
BANKS”
Undertaken At
ALLAHABAD BANK
SUBMITTED BY:-
MANISH KUMAR
July, 2009
TABLE OF CONTENT
ACKNOWLEDGE
PREFACE
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Industry introduction
Industry/Bank performance
Data collection
Statistical analysis
Theoretical interpretations
Findings
Appendix 1: Questionnaire
Appendix 2: Bibliography
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ACKNOWLEDGEMENT
I would like to express my gratitude to all those who gave me the opportunity to
complete this project. I would like to thank my institute authorities and my
internal guide …Renuka verma…… first for providing me the
opportunity to work with one of the prestigious organizations .I want to thank
the
head of Training Department Shobhit yadav for giving me permission to
commence the summer training project in the first instance, to do necessary
research work and to use departmental data and resources.
I would like to thank the company guide …Digvijay singh and other
executives Who gave and confirmed this permission and encouraged me to go
ahead with my training .I am bound to thank other staff for their stimulating
support.
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Preface
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Decisions regarding that what you want to do, how you want to do,
a decision maker that makes project fruitful for those who concern
Used it in my project not for the ease of my but for the ease of
result explanation to those who will read this project. The project
Found not in tandem to the theme then you are welcome with your
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Valuable suggestions.
and reached to 80.24crore in 2002. The only problem that hampers the possible
financial performance of the public Sector Banks is the increasing results of the
non performing assets. The non performing assets impacts drastically to the
working of the banks .The efficiency of a bank is not always reflected only by the
size of its Balance sheet but buy the level of return on its assets. NPAs do not
generate interest income for its Bank, but at the same time banks are required to
make provisions for such NPAs from their current profits.
NPAs have deleterious effect on the return on assets in several
ways: ---
(1) They erode current profits through provisioning requirements
(2) They result in reduced interest income
(3) They require higher providing requirements affecting profits and
accretion to Capital funds recycling of funds, set in asset-liability
mismatches, etc.
The RBI has also tried to develop many schemes and tools to reduce the
non Performing assets the results are not up to the expectations. To
improve NPAs each bank should be motivated to introduce their own
precautionary steps. Before lending the banks must evaluate the feasible
financial and operational prospective results of the borrowing companies
by keeping in Considerations the overall impacts all the factors that
influence the business.
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INDUSTRY INTRODUCTION
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share of foreign banks (numbering 42), regional rural banks and other scheduled
Commercial banks accounted for 5.7 percent, 3.9 percent and 12.2 percent
respectively in deposits and 8.41 percent, 3.14 percent and B12.85 percent
respectively in credit during the year 2000.about the detail
Of the current scenario we will go through the trends in modern economy
Of the country.
Current Scenario:
however opened a Pandora ’s Box and brought about the realization that
all was not well in the functioning of many of the private sector banks.
Private sector Banks have pioneered internet banking, phone banking,
anywhere banking, mobile banking, debit cards, Automatic Teller
Machines (ATMs) and combined various other services and integrated
them into the mainstream banking arena, while the PSBs are still
grappling with disgruntled employees in the aftermath of successful VRS
schemes. Also, following India’s commitment to the W To agreement in LTD.
respect of the services sector, foreign banks, including both new and the
existing ones, have been permitted to open up to 12 branches a year with
effect from 1998-99 as against the earlier stipulation of 8 branches.
Tasks of government diluting their equity from 51 percent to 33 percent
in November 2000 has also opened up a new opportunity for the takeover
of even the PSBs. The FDI rules being more rationalized in Q1FY02 may also
pave the way for foreign banks taking the M& A route to acquire willing Indian
partners. Meanwhile the economic and corporate sector slowdown has led to an
increasing number of banks focusing on the retail segment. Many of
them are also entering the new vistas of Insurance. Banks with their
phenomenal reach and a regular interface with the retail investor are the
best placed to enter into the insurance sector. Banks in India have been
allowed to provide fee-based insurance services without risk
participation, invest in an insurance company for providing
infrastructure and services support and set up of a separate joint venture
insurance company with risk participation.
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1969-99, while bank credit expanded at a Cagr of 16.3 percent per annum.
Banks’ investments in government and other approved securities recorded a Cagr
of 18.8 percent per annum during the same period. In FY01 the economic
slowdown resulted in a Gross Domestic Product (GDP) growth of only 6.0
percent as against the previous year’s 6.4 percent. The WPI Index (a measure of
inflation) increased by 7.1 percent against 3.3 percent in FY00. Similarly, money
supply (M3) grew by around 16.2 percent as against 14.6 percent a year ago. The
growth in aggregate deposits of the scheduled commercial banks at
15.4 percent in FY01 percent was lower than that of 19.3 percent in the
previous year, while the growth in credit by SCBs slowed down to 15.6 percent
in FY01 against 23 percent a year ago.
The industrial slowdown also affected the earnings of listed banks. The
net profits of 20 listed banks dropped by 34.43 percent in the quarter
ended March 2001. Net profits grew by 40.75 percent in the first quarter
of 2000-2001, but dropped to 4.56 percent in the fourth quarter of 2000-
2001.
IDBI BANK LTD.
On the Capital Adequacy Ratio (CAR) front while most banks managed to
fulfill the norms, it was a feat achieved with its own share of difficulties.
The CAR, which at present is 9.0 percent, is likely to be hiked to 12.0
percent by the year 2004 based on the Basle Committee recommendations. Any
bank that wishes to grow its assets needs to also shore up its capital at the same
time so that its capital as a percentage of the risk-weighted assets is maintained
at the stipulated rate. While the IPO route was a much-fancied one in the early
‘90s, the current scenario doesn’t look too attractive for bank majors.
Consequently, banks have been forced to explore other avenues to shore
up their capital base. While some are wooing foreign partners to add to
the capital others are employing the M& A route. Many are also going in
for right issues at prices considerably lower than the market prices to
woo the investors.
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Allahabad Bank, the oldest joint Stock Bank of the country, was set up in the
historic town of Allahabad on April 24, 1865 by a Group of Europeans. At that
juncture, in India, organized industry, trade and banking had just started taking
shape.
The Bank was started with a subscribed capital of Rs. 2 lacks and by the end of
19th century, it had branches at Jhansi, Kanpur, Luck now, Bareilly, Nainital,
Kolkata and Delhi. In the early 20th century, with the start of Swadeshi
Movement, Allahabad Bank witnessed a spurt in deposits and the reserves
increased to over Rs. 30 lacks by 1910.
In 1920, the Bank was taken over by P&O Banking Corporation at a bid price of
Rs. 436 per share. The Head Office and the Registered Office of the Bank were
then shifted to Kolkata in 1923 for business considerations and operational
convenience. In 1927, the Bank went into the fold of Chartered Bank that
acquired the controlling interest in the P&O Banking Corporation.
The Bank passed through the critical period of ‘Great Depression’ during the
early thirties, which caused a general stagnation in the global markets, without
sparing the Indian Banking Industry. The Bank dovetailed its functioning in
accordance with the exigencies of the Five Year Plans, which were started in
1951. In the post independence era, Allahabad Bank maintained a steady growth
and by 1964, the Bank had opened its 100th branch.
On July 19, 1969, along with 13 other major commercial banks, Allahabad Bank
was nationalized. At the time of nationalization, the Bank had a network of 151
branches, deposits of Rs. 114 crore and advances of Rs. 82 crore to its credit.
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With nationalization, the Bank spread its activities in the rural, unbanked and
under-banked areas. At the end of 1979, the branch network of the Bank
increased to 875 with the share of rural branches being 46.40%. Deposits of the
Bank grew to Rs. 735 crore at the end of 1979 while advances rose to Rs. 407
crore.
In order to bolster the rural economy, a plethora of Social Banking Schemes was
introduced. Thus, Lead Bank Scheme (1969), Regional Rural Banks (1975),
Twenty-point Programmed (1975), New 20-point Programme (1981), Integrated
Rural Development Program me (1980) etc. were introduced in the Indian
Banking industry. Directed lending to priority sectors, weaker sections,
Scheduled Castes/ Scheduled Tribes and Other Backward Castes were given a
greater thrust and the Bank responded to this initiative and increased its presence
in these areas also. As on March 31, 2007 the Bank’s priority sector credit stood
at Rs. 16230 crore, forming 38.7% of net bank credit and agriculture credit was
over Rs. 7200 crore constituting 17.2% of net credit. The Bank opened its
1000th. Branch on April 03, 1982. The Bank had also started opening
specialized branches such as Industrial Finance Branches, International
Branches, SSI Finance Branches, Recovery Branches etc. The Bank made a
foray into merchant banking activity in 1984 and subsequently transferred the
merchant banking activities to All Bank Finance Limited, a wholly owned
Subsidiary, in 1991. All Bank Finance Limited was registered as a Category-I
Merchant Banker with SEBI and undertook activities such as project advisory
services, loan syndication, issue management, leasing, trusteeship and portfolio
investment services. Consequent upon the SEBI Rules and Regulations notified
on December 09, 1997 for segregation of Capital Market and fund based
activities into separate entities, the Company surrendered its Merchant Banking
registration with SEBI with effect from July 01, 1998 and got itself registered as
a NBFC with RBI on August 21, 1998. In October 1989, United Industrial Bank
Limited was amalgamated into Allahabad Bank . The Board of Directors of the
Bank had earlier taken a decision to merge the subsidiary company with the
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The growth of the Bank over the years is given in the table below:
( RS IN CRORE)
Year ended NO of Paid- up Deposits Advances
Branches Capital
1865 1 0.02 0.01 0.01
1890 4 0.04 0.70 0.53
1910 15 0.20 5.53 4.66
1930 37 0.36 11.36 5.21
1950 58 0.46 27.16 14.97
1970 211 1.05 140.70 95.95
1989 1509 57.50 4,034.04 1831.77
1999 1884 246.70 15,510.35 7,057.07
2000 1893 246.70 17642.10 8240.06
2001 1903 246.70 20106.02 10315.80
2002 1914 246.70 22665.94 11815.01
2003 1923 346.70 25463.38 13486.94
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PRESENT STATUS
As on June 30, 2007, the Bank had 2107 branches, comprising 979 rural, 389
semi-urban, 441 urban and 298 metropolitan, which formed 46.46%, 18.46%,
20.93% and 14.15% of the total respectively. The branches include 52
specialized branches (i.e. 4 Industrial
Finance Branches, 18 SSI Finance Branches, 6 International Branches, 6
Recovery Branches, 1 NRI Branch, 1 Industrial Finance cum-International
Branch, 2 Specialized Personal Banking Branch, 1 Specialized Savings Bank
Branch, 3 Quick Collection Service Branches and 2 Trading Finance Branches, 1
Specialized commercial agriculture, 1 Forex cum Treasury Management, 3
Agriculture Finance & 3 Regional Processing Centre (Forex) besides 19 Service
Branches. The Bank has 105 Extension Counters. A number of Bank’s branches
and offices are housed in the Bank’s owned premises situated at prime locations
in major cities of the country.
Pursuant to organizational restructuring, the Bank is currently operating with a 3-
tier structure since June 01, 2001 which was further restructured in November,
2004 by reducing the number of Regional Offices from 48 to 44 and renaming
them as Zonal Offices, on account of synergic reasons and improvement in level
of efficiency, reduction in overhead cost and other operating expenditures. Out
of the seven Regional Rural Banks (RRBs) sponsored by the Bank, six RRBs
operating in Uttar Pradesh have been amalgamated into Luck now Kshetriya
Gramin Bank (LKGB) and Triveni Kshetriya Gramin Bank (LKGB) with effect
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from 1st March 2006. Thus the number of sponsored RRBs stand at 3; 2 in Uttar
Pradesh and one in Madhya Pradesh.The Bank has been entrusted with State
Level Bankers’ Committee (SLBC) convener ship in the newly formed state of
Jharkhand.
The Bank is continuing its utmost endeavor for economic uplift-ment of the state
through its various developmental programmes. The Bank has set up a
residential institute in the name of Birsha Munda Institute of Entrepreneurship
Development (BMIED) at Hazaribagh as a part of promotional measures for
enhancement of flow of bank credit in Jharkhand State. The institute has so far
imparted training to 2144 unemployed youths of which 415 trained persons
received financial assistance amounting to Rs. 4.96 crore From our Bank till 31-
03-2007.
The Bank came out with its maiden Equity IPO in the month of October 2002.
The “at par” public issue evolved overwhelming response from the retail
investors. The Bank mobilized more than Rs. 370 crores against the offer size of
Rs. 100 crores. The number of applications from retail investors in the issue
exceeded 2.23 lacs. After the issue, the holding of the Government of India came
Down to 71.16%. Capital Adequacy Ratio improved to 11.15% as on March 31,
2003 due to increase in capital through maiden equity Public issue.
The Bank came out with its follow-on Equity public offer in the month of April
2005 through book building route. The issue Demonstrated a repeated
overwhelming response from the investors. The Bank mobilized more than Rs.
7380 crores against the Offer size of Rs.820 crores. After the issue, the holding
of the Government of India came down to 55.23%. Capital Adequacy Ratio
Improved to 13.80% as on June 30, 2005 due to increase in capital through
follow-on equity public issue.
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The formal banking system in India comprises the Reserve Bank of India,
commercial banks, regional rural banks and the cooperative banks. In the recent
past, private non-banking finance companies also have been active in the
financial system, and are being regulated by the RBI. Today the overall
Commercial banking system in india may be distinguished into:
a. State Bank of India and its associate banks called the state Bank
group.
b. 20 nationalized banks
c. Regional Rural Banks mainly sponsored by Public Banks
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CO-OPERATIVE SECTOR
The Co-operative banking sector has been developed in the country to the
supplement the village money lender. The co-operative banking sector in india is
divided into 4 components.
DEVELOPMENT BANKS
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1. Allahabad Bank
2. Andhra Bank
3. Bank of Baroda
4. Bank of India
5. Bank of Maharashtra
6. Canara Bank
7. Central Bank of India
8. Corporation Bank
9. Dena Bank
10.Indian Bank
11.Indian Overseas Bank
12.Punjab National Bank
13.Punjab and Sind Bank
14.Vijaya Bank
15.United Bank of India
16.Union Bank of India
17.Syndicate Bank
18.Oriental Bank of commerce
19.Uco Bank
20. State Bank of India
21.State Bank of India &Associate
1.State Bank of Hyderabad
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The main object and business of the Bank, as laid down in the Bank
Nationalization Act is as under:
The main object of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970 under which the undertaking of the Bank was taken
over by the Central Government is as under: “An Act to provide for the
acquisition and transfer of the undertakings of certain Banking Companies,
having regard to their size, resources, coverage and organization, in order to
control the heights of the economy and to meet progressively, and serve better,
the needs of the development of the economy, in conformity with national policy
and objectives and for matters connected therewith or incidental thereto”.
The Main Object of the Bank enables it to undertake the activities for which the
funds are being raised and the activities, which it has been carrying on till date.
The Bank shall carry on and transact the business of Banking as defined in
Clause (b) of Section 5 of the Banking Regulation Act, 1949, and may engage in
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1. The Bank shall, if so required by the Reserve Bank of India, act as agent
of the Reserve Bank at all places in India where it has a branch:
2. The terms and conditions on which any such agency business shall be
carried on by the corresponding new Bank on behalf of the Reserve Bank
shall be such as may be agreed upon.
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4. The corresponding new Bank may transact any business or perform any
function entrusted to it under Clause (1) by itself or through any agent approved
by the Reserve Bank.
CORPORATE STRATEGY
The globalization of the economy and financial sector reforms have resulted in
increased competition and thin margins. To achieve the corporate goal, the
following strategies have been planned:
1. Proliferate the Bank’s business
2. Increase the banks' non-fund and non-interest income
3. Offer affable customer service
4. Open more specialized branches and expand personal banking, quick
collection service, retail banking, forex banking, small scale
industrial finance etc.
5. Use technology to boost credit off-take
6. Sharpen efficiency and efficacy
7. Reduction of non-performing assets
MISSION
To ensure anywhere and anytime Banking for the customer with latest state- of-
art technology and by developing effective customer
centric relationship and to emerge as a world-class service provider through
efficient utilization of human resources and Product
innovation.
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VISION
COMPETITIVE STRENGTHS
Many new banks, both private and foreign, have entered the industry and offer
new and innovative products at competitive rates. In this scenario, Allahabad
Bank believes that its competitive advantages are:
a) Rich tradition of more than 142 years
b) Large and loyal customer base
c) Wide branch network
d) Specialized branches to cope with modern demand pattern
e) Diversified product portfolio
f) Committed and experienced work force
g) Technology
Allahabad Bank
CORPORATE FOCUS
Other than the offering traditional banking products such as corporate loans, the
Bank has made its presence felt by introducing certain new products and value
added services while continuing to popularize the existing products. Some of
these new products are:
(a) Retail Banking Boutiques: In the year 2000, Allahabad Bank came out with
a unique strategy for marketing its retail loans by putting in place dedicated
Retail Banking Boutiques at potential centers across the country to act as
exclusive delivery channels of various Retail Finance Schemes. The Bank posted
young & dynamic officers in these boutiques and delegated them with adequate
authority to sanction loan proposals related to the various schemes on the spot.
These officers were also exposed to specialized training not only to serve the
customer better but also to sell the retail products, if need be, by adopting door to
door campaign. Total number of Boutiques was 127 with an outstanding of Rs.
2561.18 crores as on June 30, 2007. During the quarter ended June 2007,the total
disbursement under the various retail finance schemes was Rs. 211.77 crores.
Brief description of the Bank’s retail schemes is as under –
1 Allahabad Bank Personal Loan Loan for purchase of entire range of consumer
scheme durable, purchase of two wheeler any other
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tangible items.
2 Allahabad Bank personal loan Loan for meeting personal needs without
scheme for pensioners assigning any specific purpose.
3 Allahabad Bank personal Loan for any personal purpose including purpose
Loan scheme for doctors including purpose for meeting expenses of
professional requirement.
4 Allahabad Bank Housing Loan for construction of residential house on land
Finance Scheme already owned.
5 Allahabad Bank car Finance For purchase of new as well as pre owned
Scheme multi utility vehicle for personal use.
6 Allahabad Bank Loan against Loan against NSC/ KVP for any business/ personal
NSC/ KVP purpose.
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(b) Loans on Internet: The Bank sanctions educational loans and car loans via
Internet. The educational loan facility granted by the Bank was launched in 1997
and was subsequently made possible via Internet during 1999. Facility to apply
for educational loan on Internet for education loan is available to the students of
leading institutions like IIMs, IITs, Indian Institute of Science Bangalore,
Jamunalal Bajaj Institute of Management Mumbai, XLRI Jamshedpur & Indian
School of Mines Dhanbad. Bank has so far sanctioned 1014 educational loans
amounting to more than Rs. 29.28 crore through Internet.
(d) Kisan Credit Card: The card aims to provide adequate and timely financial
assistance to the farmers for their agricultural activities amongst other
requirements. During the year 2006-07, the Bank issued 176876 cards. The
cumulative KCC numbered 940799 with a credit limit of Rs. 3393.08 crores as
on 31-03-2007 The Bank is also providing Group/Personal Accident insurance
cover to the holders of the Kisan Credit Card. Also on 140th foundation day of
Bank (April 24, 2004) new scheme by name of Kisan Shakti Yojana (KSY) was
launched. The scheme allowed the farmers to have flexibility and choice in
regards to selection of credit for agriculture, allied activities and domestic and
personnel purpose.
Allahabad Bank
The Bank had extended credit facility under the scheme to 43719 Kisan credit
cardholders involving credit limit of Rs. 574.96 crores as on March 31,2007.
Cumulative number of Kishan Credit cardholders financed under the scheme was
138937 involving 1809.28
Crore as on 31-03-2007.
(e) Depository Services: The Bank has had the distinction of being the first
nationalized Bank in the eastern region to be a depository participant of NSDL at
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Kolkata to offer Demat and other related services to its customers in 1998. . The
Bank had further spread its DP services to its customers by opening DP at Luck
now, Kanpur and Varanasi under agreement with CDSL. The bank also opened
its first Branch DP at Mumbai with main DP at Kolkata Main Branch.
The Bank earned an income of Rs. 80.37 lacks from 23913 accounts in financial
year 2006-07 and Rs. 60.08 lacks from 19720 accounts during quarter ending
June 2007.
The Bank is going to start a Branch DP at New Delhi very soon, which will be
connected through Back Office software at Kolkata Main DP.
(f) Flexi- Fix Deposit Scheme: This scheme was launched to provide liquidity
of a savings bank account and higher yield of a fixed deposit.
(g) Banc-assurance: The Bank has entered into tie up arrangement with Life
Insurance Corporation of India for Life Insurance and with National Insurance
Company Limited and ECGC for Non-life Insurance and Export Credit
Insurance for selling of their products through its branches. The Bank is also
providing life insurance cover to the extent of Rs. 1.00 lacks to its depositors in
association with LICI on payment of a very nominal premium. The Bank also
has tie up arrangements with LICI for coverage of housing loans and
Educational loans being provided by our branches. The Bank is providing free
group personal accidental coverage of Rs. 1.00 lacks to SB Account holders
maintaining an average monthly balance of Rs. 5000/- as well as to all its ATM
cardholders.
The bank has earned an income of Rs. 767 lacks from Ban assurance during FY
a 2006-07 and Rs. 100 lacks in the first quarter of current FY i.e. June 2007.
The Bank has entered into tie up arrangement with UTI-AMC, Principal-PNB
AMC, Kotak- Mahindra AMC and Reliance Capital Asset Management Ltd. for
selling of their Mutual Fund Products through our branches. This has generated
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an income of Rs. 62.09 lacks during FY 2006-07 and Rs. 38.19 lacks during first
quarter of current FY.
(h) Other Services: The Bank has also been providing Cash Management
services through its QCS Branches/Centers at Kolkata, New Delhi, Mumbai,
Luck now and Chennai. Under CMS activities, the Bank is providing Local
Cheque collection service, Collect and pay service, assured credit up to day 7 to
various private and other Banks as well as to corporate clients. The bank has
earned an income of Rs. 355.19 lacks during FY 2006-07 and Rs. 94.12 lacks in
the first quarter of current FY.For expansion of CMS business, the Bank is in the
process of opening of Local Cheque Collection Hubs at 18 strategic locations,
which will be linked with existing QCS Branches/Centre’s.
The population group wise break up of branches of the Bank in India is as under:
Population Group Number of Branches % Share to Total
Rural 979 46.46
Semi-Urban 389 18.45
Urban 441 20.93
Metropolitan 298 14.15
Total 2107 100.00
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Kerala 6 0.28
Madhya Pradesh 150 0.19
Maharashtra 86 4.08
Manipur 1 0.05
Meghalaya 1 0.05
Nagaland 4 0.19
Orissa 68 3.23
Pondicherry 1 0.05
Punjab 46 2.18
Rajasthan 48 2.28
Sikkim 1 0.05
Tamil Nadu 32 1.52
Tripura 1 0.05
Uttar Pradesh 673 31.93
Uttaranchal 20 0.95
West Bengal 456 21.64
TOTAL 2107 100.00
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Business
Technological Development
ALLAHABAD BANK
UNAUDITED FINANCIAL RESULTS
For Nine Months ended 31st December 2008
(RS IN LAKH)
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PARTICULARS Quarter Ended Quarter Nine Months Nine Months Ended Year end
(Reviewed) Ended Ended (Reviewed) (Audited)
(Reviewed) (Reviewed)
31.12.2008 31.12.2007 31.12.2008 31.12.2007 31.03.200
The main aim of any person is utilization money in the best manner since the
India is country were more than half of the population has problem of running
the family in the most efficient manner. However Indian people faced large
number of problem till the development of the full-fledged banking sector. The
Indian banking sector came into the developing nature mostly after the 1991
government policy. The banking sector has really helped the Indian people to
utilize the single money in the best manner as they want. People now have
started investing their money in the banks and banks also provide good returns
on the deposited amount. The people now have at the most understood that
banks provide them good security to their deposits and so excess amount are
invested in the banks. Thus, banks have helped the people you achieve their
socio economic objectives.
The banks not only accept the deposits of the people but also provide them credit
Facility for their development. Indian banking sector has the nation in
developing the business and service sectors. But recently the banks are facing
the problem of credit risk.It is found that many general people and business
people borrow from the banks but due to some genuine or other reasons are not
able to repay back the amount drawn to the banks. The amount which is not
given back to the banks is known as non- performing assets which hamper the
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business of the banks. Due to NPAs the income of the bank is reduced and the
banks have to make large number of the provisions that would curtail the profit
of the bank and debtor that the financial performance of the banks not shows
good results.
Primary objective:
➢ To know why NPAs are great challenge to the public sector banks.
Secondary objectives:
➢ To know what steps are being taken by the Indian banking sector to reduce
the NPAs?
➢ To evaluate the comparative ratios of the public sector banks with
concerned to the NPAs.
Research methodology
The research methodology means the way in which we would complete our
prospected task. Before undertaking any task. Before undertaking any task it
becomes very essential for anyone to determine the problem of study. I have
adopted the following procedure in completing my report study.
The research design tells about the mode with which the entire
project is prepared.
My research design for the study is basically analytical. Because
I have utilized the large number of data of the public sector
banks.
The primary data would not be useful until and unless they are
well edited and tabulated. When the person receives the primary
data many unuseful data would also be there. So, I analyzed the
data and edited them and turned them in the unuseful data would
also be there. So, I analyzed the data and edited them and turned
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This is the last step in preparing the project report. The objective
of the report writing was to report the findings of the study to the
concerned authorities.
• Bar Charts
• Pie charts
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• Tables
Bar charts and pie charts are really useful tools for every
research to show the result in a well clear, ease and simple
way. Because I used bar charts and pie charts in project
for showing data in a systematic way, so it need not
necessary for any observer to read all the theoretical
detail, simple on seeing the charts anybody could know
that what is being said.
Mathematical Averages
Standard Deviation
Correlation
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1. Primary Data:
Source: Main source of primary data for the project was Questionnaires which I
got filled by the customers or sometimes filled myself on the basis of discussion
with the customers.
2. Secondary Data:
Secondary data for the base of the project I collected from intranet of
the Bank and from internet, RBI Bulletin, Journal by ICFAI University.
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➢ It was critical for me to gather the financial data of the every bank of the
public sector Banks so the better evaluations of the performance of the
banks are not possible.
➢ Since the Indian banking sector is so wide so it was not possible for me to
cover all the banks of the Indian banking sector.
NON-PERFORMING ASSETS
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to people who are in the need of it. By the way of channelizing money
from one end to another end, Banks earn their profits.
However, Indian banking sector has recently faced the serious problem
of Non performing Assets. This problem has been emerged largely in
Indian banking sector since three decade. Due to this problem many
public sector Banks have been adversely affected to their performance
and operations. In simple words Non Performing Assets problem is one
where banks are not able to recollect their landed money from the
clients or clients have been in such a condition that they are not in the
position to provide the borrowed money to the banks.
The problem of NPAs is danger to the banks because
it destroys the healthy financial conditions of the them. The trust of the
people would not be any more if the banks have the higher NPAs. So,
the problem of NPAs must be tackled out in such a way that would not
destroy the operational, financial conditions and would not affect the
image of the banks, recently,RBI has taken number steps to reduce
NPAS of the Indian banks. And it is also found that the many banks
have shown positive figures in reducing NPAs as compared to the past
years.
MEANING OF NPAS
any regard to the fact that there may still exist certain advances/credit
facilities having performing status.
➢ The bill remains overdue for a period of more than 180 days in
case of bills purchased and discounted.
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CLASSIFICATION OF LOANS
Performing Assets:
INCOME RECOGNITION:
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3 Bill purchased An account should be treated as NPA if the bill remains overdue and
and Discounted unpaid for a period of four quarters during the year ended31st March,
1995 and onwards.
4 Other Any other credit facility should be treated as NPA if any amount to be
Accounts received in respect of that facility remains past due for a period of four
quarters during the year ended 31st March 1993. Three quarters during
the year ended 31st March 1994 and two quarters during the year ended
31st March 1995 and onwards.
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CLASSIFICATION:
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Standard
Agriculture&SME accounts 0.25%
Residential housing Loan 1.00%
beyond RS 20 lakh 2.00%
Loan and advances to capital
market, personal loan, credit
cards, commercial rate state 0.40%
&NBFCS
Other
Sub-Standard (Secured) 10%
Sub-Standard (Sanctioned 20%
originally as secured)
Doubtful(Unsecured portion) 100%
Doubtful-1(Secured) 20%
Doubtful-2(Secured) 30%
Doubtful-3(Secured) 100%
Loss asset 100%
Notes on provisioning
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Internal Factors
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External factors
• Recession
• Input/ power shortage
• Price escalation
• Exchange rate fluctuations
• Accidents and natural calamities, etc\
• Changes in government policies in excise /import duties ,pollution
control orders, etc.
• Liberalization of economy /removal of restrictions/ reduction of
tariffs
A large number of NPA borrowers were unable to compete in a
competitive market in which lower prices and greater choices
were available to consumers. Further, borrowers operating in
specific industries have suffered due to political , fiscal and social
compulsions, compounding pressure from liberalization (e.g.,
sugar and fertilizer industries) .
• Funding mismatch
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There are said to be many cases where loans granted for short
terms were used fund long term transactions.
NPA MANAGEMENT
Legal Measures
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undoubtedly the world economy has slowed down, recession is at its peak,
globally stock markets have tumbled and business itself is getting hard to do.
The Indian economy has been much affected due to high fiscal deficit, poor
infrastructure facilities, sticky legal system, cutting of exposures to emerging
market by FIIs, etc.
Further, international rating agencies like, standard & poor have lowered
India’s credit rating to sub-investment grade. Such negative aspects have often
outweighed positive such as increasing forex reserve and a manageable inflation
rate.
Under such a situation, it goes without saying the banks are no
exception and are bound to face the heat of global downturn. One would be
surprised to know that the banks and financial institutions in India hold non-
performing assets worth Rs 1, 10,000 crore. Bankers have realized that unless
the level of NPAs is reduced drastically, they will find it difficult to survive.
The actual level of Non Performing Assets in India is
around $ 40 billion much higher than government’s estimation of $ 16 billion.
This difference is largely due to the discrepancy in accounting the NPAs
followed by India and rest of the world. The Accounting norms of the India are
less stringent that those of the developed economies.
The Indian banks also have the tendency to extend the past dues. Considering the
GDP of India nearly $470 billion the NPAs are 8% of the total GDP which Was
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better than many Asian countries, the NPA of china was 45% of the GDP< while
JAPAN had NPAs of 25% of the GDP and Malaysia had 42%.
The aggregate level of the NPAs in Asia has increased from
$1.5 billion in 2000 to $2 billion in 2002, looking to such overall picture of the
market, we can say that India is performing well and the steps taken are looking
favorable.
Banks in India are required to reserve a part of their lending for the
priority sector. Broadly this comprises the sub-sector such as
Agriculture, Small scale Industries, and other activities such as small
business, retail trade, small transport operators, professional and self
employed persons, education loans, micro-credit etc. In addition,
certain investments in bonds issued by state finance corporations
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As seen from the chart below, around 23% of the NPA portfolio is in
the priority sector including agriculture, small scale and others. The
balance 77% belongs to NPAs in the non-Priority sector which
includes NPAs pertaining to public sector undertakings, corporate and
retail borrowers. Within the –priority sector, a large proportion of
NPAs (more than 96%) by gross value are in the corporate segment.
The largest proportion among the corporate borrowers is private sector
corporate borrowers.
Since the sect oral segmentation norms are applicable to banks only
the above graph is somewhat skewed (participant lenders included
financial institutions). Given below is the sect oral segmentation in
public sector banks only.
Priority sector NPAs constitutes 46% of the NPA portfolio of
Participant public sector banks by value. In the non-priority sector
corporate borrowers from the largest portion of NPAS.
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Ratio Analysis
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Baroda
4 PNB 18.45 18.19 19.25
5 IOB 11.81 11.35 10.29
6 Indian bank 21.76 17.89 12.39
7 CB of India 16.05 14.70 13.06
8 Corporation 5.40 5.19 5.27
Bank
9 Dena bank 25.34 24.11 17.56
10 Syndicate 7.84 8.35 8.12
bank
11 Union bank of 21.84 18.32 16.36
India
12 United bank 21.84 18.32 12.35
of India
13 Vijay a Bank 10.0 9.36 6.16
14 SBI 12.93 11.95 9.34
15 Uco bank 11.64 9.59 8.24
16 Syndicate 7.87 8.35 8.12
bank
17 Indian bank 21.76 17.89 12.35
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Gross NPA-Provision
NPA ratio= ------------------------------ * 100
Gross advances- Provision
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Bank advances
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Gross NPAs
Problem Asset Ratio= ---------------------*100
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Total Assets
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(RS IN CRORE)
Calculations of ratio
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A report is not said to be completed unless and until the conclusion is given to
the reports. A conclusion reveals the explanations about what the report has
covered and what is the essence of the study. What my project report cover is
concluded below.
The problem on which I focused my study is NPAs the big challenge
before the public sector banks .The Indian Banking sector is the important
service sector that helps the people of the India to achieve the socio economic
objective. The Indian banking sector is developing with good appreciate as
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The bank is also planning to put in place the centralized banking solution (CBS)
by December this year. According to ON Singh, chairman and managing
director, Allahabad Bank: “We are going to be one of the best in the industry in
terms of NPA management. We are targeting gross NPA of 5% and net npa of
less than 1% by March, 2005.”
Incidentally, the net NPA of the bank has already come down to 1.7% or Rs
299.8 crore as in September from a high of 5.2% or Rs 683.4 crore as in
September, 2003. Mr. Singh said the bank was focusing on NPA provision
coverage, the ratio of which went up to 76.6% as in September from 73.8% as in
March and 60% as in September, 2003.
The bank has already crossed the Rs 55,000 crore business mark at Rs 55,330
crore during the second quarter of the current financial year and is confident of
crossing Rs 61,000 crore marks by the end of the fiscal. In March 2008 gross npa
declined to 1.8% from 2.00% .
Recommendations
Through RBI has introduced number of measures to reduce the problem of
increasing NPAS of the bank such as CDR mechanism. One time settlement
schemes, enacted of SRFAESI ACT etc. A lot of measures desired in terms of
effectiveness of these measures. What I should suggest for introducing. The
evolutions of the NPAs of public sector banks as under:--
• Each bank should have its own independence credit rating agency which
should evaluate the financial capacity of the borrower before than credit
facility.
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• The credit rating agencies should regularly evaluate the financial condition
of the clients.
• Special accounts should be made of the clients where monthly loan
concentration report should be made.
• It is also wise for the banks to carry out special investigation audit of all
financial and business truncations and books account of the borrower
company when there is possibility of the diversion on the funds and
mismanagement.
• .Bank should evaluate the swot analysis of the borrower companies.ie how
they would face the environmental threats and opportunities with the use
of their strength and weakness, and what will be their possible future
growth in concerned to financial and operation performance.
• There should be proper monitoring of the restructuring accounts because
there is every possibility os the loan slipping into NPAs category again.
• Proper training is important to the staff of the banks at the appropriate
level either ongoing process. That hoe they should deal the problem of
NPAs and what continues steps should take to reduce the NPAs.
• Willful default of bank loans should be made a criminal offence.
• No loan is to be given to a group whose one or the other undertaking
became a defaulter.
• There should be proper monitoring of the restructured accounts because
there is every possibility of the loans slipping into NPAs category again.
• Independent settlement procedure should be more strict and faster and the
decision made by the settlement committee should be binding both
borrowers and lenders and any one of them failing to follow the decision
of the settlement committee should be punished severely.
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QUESTIONNAIRE
NAME …………………………………………….
AGE ………………………… SEX: MALE/ FEMALE
ADDRESS ………………………………………………..
……………………………………………………………
CITY ………………….. CONTACT NO ……………………
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1. Allahabad bank is a –
Private Bank
Public Bank
Other
1. What is the current NPA of Allahabad Bank?
1.7%
3.7%
2. Name the Bank which comes in your mind at very first AND why?
Yes
No
2. If you will have option against Allahabad Bank you will go for-
SBI
PNB
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Other
1. What is the current EPS of Allahabad Bank?
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Bibliography
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