You are on page 1of 84

Canara Bank

1. a. EXECUTIVE SUMMARY

The project is entitled “A study on The Management of Non-Performing Assets in the
Canara Bank’s Loan Portfolio” is done at the Canara Bank, Donimalai Township, Mysore
(Dist), Karnataka State.

INTRODUCTION:

An efficient financial management is becoming inevitable for every manager in today’s
corporate world. From a traditional aspect of raising funds whenever needed the
importance has shifted to day to day financial decision making and problem solving.
When initially the stress was on the internal analysis of the firm, procurement of funds,
management of assets and allocation of capital, the present importance has shifted to
decision making within the firm. With the modern aspect of finance function the
responsibilities of the finance manager has also increased. In the process of making
optional decision, he makes use of certain analytical tools in the analysis, planning and
control activities of the firm. Financial analysis is an essential prerequisite for making
sound financial decisions.
This study is intended to probe into the management of non performing assets in the
Canara Bank’s Loan Portfolio, for the period of 2004-2005 to 2007-2008. The study is
completely based on the analysis and interpretation of the published accounts of the bank
and personal interview of the senior officials of the bank.

OBJECTIVES OF THE STUDY:

 To evaluate the Canara Bank’s asset quality.
 To identify the effectiveness of the risk management system, undertaken by the
bank.

SCOPE OF THE STUDY:

 The scope of the study here was confined to the organization only.

1
The Oxford College of Engineering, Bangalore, MBA Programme

Canara Bank

 The study covers to find out the strategy required to reduce the NPAs.

METHODOLOGY OF THE STUDY:

 Primary data.
 Secondary data.

DATA ANALYSIS AND INTERPRETATION:

When the data collected is completed the data is processed and the relevant information is
obtained. The data collected is analyzed using various statistical tools like frequency
distribution, charts and percentage analysis.

DURATION OF THE STUDY:

This study is intended to probe into the management of non performing assets in the
Canara Bank’s Loan Portfolio, for the period of 2005-2006 to 2006-2007.

FINDINGS:

 The Net NPA ratio of the Canara Bank declined from 1.88% as at March 31 st
2007 to 1.12% as at March 31st 2008.
 Canara Bank has recovered its NPA which is amounted to Rs.865 crore during
2007-2008.
 The Net NPA of the Canara Bank declined from Rs.1454 crore as on 31 st March
2008.
 The Net NPA percentage of Canara Bank has reduced by over 19% during
2007-2008.

2
The Oxford College of Engineering, Bangalore, MBA Programme

Canara Bank

RECOMMENDATIONS:

 Canara Bank should concentrate more on credit appraisal, monitoring, credit risk
management and recoveries.
 Settlement is a better option for the banks wrestling with the problem of non-
performing assets.
 Credit scoring allows lenders to determine whether or not you fit the profile of
the type of customers they are looking for.
 Banks concerned should continuously monitor loans to identify accounts that
have potential to become non-performing.

CONCLUSION:

 Securitization Act will surely help banks in reduction of NPA to a great extent.
 Preventing fresh flow of NPAs to a great extent.
 Exchange of credit information among banks would be of immense help to avoid
possible NPAs.

3
The Oxford College of Engineering, Bangalore, MBA Programme

Canara Bank

1. b. GENERAL INTRODUCTION:

INDUSTRY PROFILE

Banking in one form or another was in existence even in ancient times. The writings of
Manu (the maker of old Hindu Law) and Kautilya (the Minister of Chandragupta
Maurya) contained references to banking.

However, banking as a kind of business i.e., modern banking is of recent origin. It came
into existence only after the industrial revolution. After the industrial revolution, with the
increase in the size of industrial and business units, joint stock company people with
small means to become shareholders of big industrial and business enterprises. Still, there
were certain sections of public who were not prepared to invest their money on the shares
of joint stock companies. However they were willing to part with a little surplus money,
if they were assured of the repayment of their money with a little interest thereon. So
naturally, there arose the need for formation of financial institutions that could collect the
surplus funds of people on terms acceptable to them and make them available to the
needy for productive purpose. Accordingly a large number of financial institutions called
joint stock banks were set up after industrial revolution. As such joint banks or modern
banks are of recent development.

MEANING OF BANKS:
A banking company in India has been defined in the Banking Companies Act 1949 as
“One which transacts the business of banking which means the accepting of the purpose
of sending or investment of deposits of money form the public repayable on demand or
otherwise and withdrawable by cheque, draft order or otherwise”.

STRUCTURE OF BANKING SYSTEM IN INDIA:
Indian Banking System has been categories into two:
1. Scheduled Banks.

4
The Oxford College of Engineering, Bangalore, MBA Programme

They are current deposit. Primary Functions. Public Sector Banks. I. Banks lend money by the way of loans. MBA Programme . 2. 5 The Oxford College of Engineering. a. Lending of Funds: It is also the most important function of Commercial Banks as it fetches the major portions of the income of the banks. saving deposit. Activities of Commercial Banks: The activities undertaken by commercial banks be subdivided into: a. Commercial Banks. Regional Rural Banks. ii. Bangalore. Activities of Commercial Banks. 3. fixed deposit and recurring deposits. b. Commercial Banks. Activities of Central Banks. Other Nationalized Banks. II. Indian Banks are further divided into: 1. SBI and its Subsidies. It accepts various types of deposits. Subsidiary Functions. Canara Bank i. overdrafts. Primary Functions: i. 4. Non-Scheduled Banks: Central Co-operative Banks and Primary Credit Societies. ii. Commercial Banks are further divided into Indian Banks and Foreign Banks. 2. State Co-operative. Acceptance of deposits: It is very important for banks as it forms the basis of all other activities of banks. ACTIVITIES OF BANKS: I. cash credit and discounting of bills.

bills. Advisor to the government. They are: • Banks collect cheque. Custodian of cash reserves of the banks. Canara Bank b. Agency Functions: The services rendered by banks as agent of their customers are called agency services. • Banks acts as trustees. C. D. bank draft. • Banks arranges for remittance of funds from one place to another place. MBA Programme . • Banks sells and purchases securities on behalf of the customers. documents etc for safe custody. • Banks issue travellers cheque. Banks perform a number of functions. Agent. FUNCTIONS AND IMPORTANCE’S OF BANKS: The importance of banks in the modern economy cannot be denied. Banks play a significant role in the economic development. ii. General Utility Services: Services rendered by banks to their customers as well as the general public are called as general utility services. • Banks acts as a reference and supply information about the financial standing of the customers to others. Bangalore. Banker. Subsidiary Functions: i. circular notes etc. Lender of the last resort. • Banks helps exporters and importers in foreign trade. letter of credit. dividends etc on behalf of the customer. Monopoly of Note issue. B. Activities of the Central Bank: A. II. • Banks accept precious articles. executors. They are: 6 The Oxford College of Engineering. interest. representatives of their customers.

Banks direct the flow of funds into production channels. the pace of growth of trade and commerce industry and agriculture would have been very slow. 9. 2. MBA Programme . Banks influence the rates of interest in the money markets. banks provide safety and security to the surplus money of the depositors. 7. Again the use of cheque economies the time and trouble involved in settlement of business obligations. Banks provide a convenient and economical means of transfer of funds from one place to another. the gambler the lair and 7 The Oxford College of Engineering. Banks drafts are commonly used for remittances of funds from one place to another. 4. bank money or bank deposits) banks expert a powerful influence on the interest rates in the money market. Through the supply of money (i. 8. they discriminate in favor of essential activities and against non essential activities. Banks always make it a point to help the industries. banks increases the utility of funds. 3. the punctual and the honest and discourage the dishonest. Bangalore. Again by moving funds from one place to another. While lending money. Canara Bank 1. and make them available for productive purpose. 6. the prudent. The cheque system introduced by banks is convenient form making payments. Banks provide a convenient and economical method of payment. 5. by moving funds. But for the financial assistance provided by the banks. In the sort. Thus they encourage the development of right types of activities which the society desires. banks contribute to the economic development of backward regions.e. Banks mobilize the small scattered and ideal savings of the people. By accepting the savings of the people. the spendthrift. they aid the process of capital formation. Banks help trade and commerce industry and agriculture by meeting their financial requirements. Banks helps the movement of capital from regions where it is no very useful to regions where it can be more usefully employed.

the borrowers or the entrepreneurs). Banks serves as the best financial intermediaries between the saver (i. MBA Programme . corporate bodies. businessmen. KAMADHENU DEPOSITS: Re-investment money multiplier plan. CANFLEXI DEPOSITS: A combination of savings & fixed deposits – high return & instant liquidity. 10.e. SERVICE PROFILE OF THE CANARA BANK: The bank has many financial services and different schemes. CURRENT ACCOUNT: For business operations – trades. CANBANK AUTO – RENEWAL: Higher return in a shorter plan. Thus banks act as public conservators of commercial virtues. Important among them are as follows: DOMESTIC PRODUCTS SAVING BANK DEPOSITS: For individuals & non-trading organizations / institutions. RECURRING DEPOSITS SCHEME: Inculcating saving. 8 The Oxford College of Engineering. the rouge). Bangalore. FLOATING RATE DEPOSITS SCHEME (FRDS): Insures against interest rate fluctuations. ASHRAYA DEPOSITS: Respecting Indian values for senior citizens. FIXED DEPOSITS: Secured way to high returns – individuals and institutions.e. the depositors or lenders) and the investor (i. Canara Bank the knave (i.e. a rewarding & recurring habit.

bonds and debentures held by the clients. for undertaking repairs. professional and salaried class for buying consumer durables and household articles. Bangalore. Insurance companies and MNCs. CANRENT: Provides loans to property owners whenever the property is leased / rented out to PSU’s central / state / semi – government undertakings. 9 The Oxford College of Engineering. The scheme also covers finance for purchase of brand new two wheelers. and creation of additional amenities and for taking over of the HL liability from other recognized housing finance companies and banks. salaried persons and individuals. Reputed corporate banks. joint stock companies. CANMORTGAGE: Designed to meet the financial requirements against security of equitable mortgagee of property (land & building) to professional. CANCASH: Offer assistance for meeting unforeseen contingencies. central / state / semi – government employees and lecturers / professors / assistant professors of colleges / universities and research institutes. upgradation. CANBUDGET: Fulfills the financial needs of confirmed employees of reputed PSU’s. CANCARRY: Provided credit worthy individuals. CANMOBILE: Facilities purchase of new / used cards / jeeps of all make. Canara Bank LOAN PRODUCTS HOUSING LOAN SCHEME: Purchase of a ready built house / flat construction of house. Finance is granted against approved shares. HOME IMPROVEMENT LOANS: Furnishing the house / flat along with bank’s home loans / independently. businessman. MBA Programme . renovations. Financial institutions. purchase of a site and construction of house thereon.

CREDIT CARD OPERATIONS • The first Indian card issuers to bay ISO 9002 certification. medical practitioners and loan for solar water heating / home lighting system. irrigation. small business. master card and visa – international gold are issued through all CANARA BANK branches & 24 CANCARD service centers located at major cities across the country. CANMAHILA: Exclusive loan scheme for women clientele. minor. AGRI – LOAN SCHEME: Various loan schemes for agri-clinic. • Four Indian Banks are in affiliation with the bank for issue of CANCARD VISACARD. classic. the scheme cater to the needs of traders and other business enterprises for smooth flow of business activities. Canara Bank VIDYASAGAR EDUCATIONAL LOAN SCHEME: Renders financial assistance for needy and meritous students for pursuing all type of studies (professionals / general) in India and Abroad. SSI LOAN SCHEME: A host of schemed available for technology up gradation fund in textile and jute industries. LOAN SCHEME TO TRADERS / BUSINESS ENTERPRISES: With hassle – free and minimum terms and conditions. Bangalore. credit linked capital subsidy stand by credit for capital expenditure and margin money scheme of KVIC. 10 The Oxford College of Engineering. • All verstors of CANCARD namely. CANCARD visa. OTHER PRIORITY SCHEME: These include loan for retail traders. MBA Programme . farm development / machinery. plantation crops fishers and for agro-exports. professional / self employed. visa-corporate. CANCARD today as a distinct recognition in the domestic as well as international market.

MBA Programme . • Recommendations of the Goiporia Committee on Customer Service have been implemented by the bank. a value added and tech based product for its niche clients. • First bank to get ISO certification for one of its branches in Bangalore in the year of 1995-1996.contact facility is also available for customers to air their grievances at corporate as well as circles levels. Canara Bank • Launched DEBIT CARD on November 4. 2003. • A 24 hour tele . detailing banker’s duties and customers rights. • The bank has Computerized Information Facilitation Centers (CIFCs) at all circles to look exclusively into customer in a single window framework. Bangalore. CUSTOMER CENTRIC ETHOS • CANARA BANK was the first to articulate the directive principles of good banking. 11 The Oxford College of Engineering.

Moscow. The bank also has international presence in several centers. including London. Planning and Development Wing 9. Inspection Wing 6. In terms of business it is the largest nationalized commercial bank in India with a total business of about Rs. along with 13 other major commercial banks of India. Corporate Credit Wing 3. General Administration Wing 12 The Oxford College of Engineering. Department of Information Technology Wing 7. Hong Kong. MBA Programme . the bank has 2508 branches spread all over India. Personnel Wing 2. Currently (2008). Priority Credit Wing 5. Canara Bank COMPANY PROFILE OF THE CANARA BANK: HISTORICAL TREND: Canara Bank established in 1906 with the name of Canara Bank Hindu Permanent Fund in Mangalore. Marketing and Customer Relationship 8. ORGANISATION STRUCTURE: The bank has fourteen wings in the Head Office. Bangalore. Risk Management Wing 4. by Ammembal Subba Rao Pai. 1. by the Government of India. Shanghai. Recovery Wing 10. Doha. India. and Dubai. Bangalore.2000 billion (about US $43 billion). is one of the oldest and major commercial bank of India. Its name was changed to Canara Bank Limited in 1910. The bank. was nationalized on 19th July. 1969.

• CANARA BANK. MBA Programme . Treasury and International Operation Wing 13. Vigilance Wing OFFICE AND BRANCHES: Canara bank has a network of 2415 branches. Retail Banking and Subsidiaries Wing 14. particularly NRI deposits. UAE According to the latest information. to supervise the functioning of it various foreign department to give the required thrust to Foreign Exchange business. London. Financial Management Wing 12. Bangalore. particularly export and to meet the requirements of NRI’s. spread over 22states/ 4 union territories of the country and overseas branch @ London which are administrated through • Head Office at Bangalore • 13 Circles offices / International Division • 35 Regional offices • 2441 Branches BRANCHES ABORAD: CANARA BANK established its International Division in 1976. Canara Bank 11. Though small in size the Bank’s presence abroad has brought in considerable foreign business. The presence of bank is shown under. both the CANARA BANK and State Bank of India have come into a mutual agreement as to both the banks will be operating as a one unit in the Moscow. 13 The Oxford College of Engineering. UK (Branch) • Indo Hong Kong International Finance Co Ltd Hong Kong (Subsidiary) • AL Razouki International Exchange company . Dubai.

MBA Programme . • Accent on cost control. C. CORPORATE MISSION: • Augmenting low cost deposits. • To set new standards in IT application. Product Innovation. • Toning up asset quality. • Thrust on retail banking.Hi Tech Banking 14 The Oxford College of Engineering. Customer orientation. Profitability an enhanced value for stake holders. • Product innovation and marketing. P.Efficiency. CORPORATE OBJECTIVE: E. • Customer centric focus.Profitability and Productivity. • Leveraging IT for comprehensive MIS. culminating in higher stoke holder value. Bangalore. Customer responsiveness.Organization Effectiveness. efficient service delivery market leadership in profitability.Customers centric H. Canara Bank CORPORATE VISION: • To top as a World Class Bank with best practices in the realms of asset portfolio. Asset quality and profitability. O. • To scale new peaks in respect of IT based banking. • Maximize stockholder’s value.

1496 crore.581 cr for the half year ended September 2007 as against Rs. 396crore as against Rs..75. • Establish well-developed quality circles have participated in many National & International level competitions and have returned with handsome prizes. besides 248 extension counter. Tele Banking & Remote Access Terminals etc.08% (annualized) at a September 2004 to 1. • Return of assets a standard measure of profitability improved from 1. Mumbai & National Stock Exchanges. any where Banking . for 65% of the branches & 81% of aggregated business provided a wide array of services such as Network ATM’s. MBA Programme . CANARA BANK shares are listed & Bangalore.67734 crore a year ago.31%. Bangalore. MATURITY CLASSIFICATION OF VARIOUS ASSETS AND LIABILITIES: 15 The Oxford College of Engineering.948 cr for the first half of the preceding financial. • The Bank operating profit registered an increase of Rs. Computerized branches. • Number of branches moved up to 2441 from 2416 as at September 2004. skills and attitudinal development of employees. up from Rs.548 cr (57. • Global deposits of the Bank aggregated to as Rs.81%) to reach Rs. registered a growth rate of 38. PERRFORMACE HIGHLIGHTS OF 2007-2008 • Canara Bank has posted net profit of s. • Has also taken initiative in the environmental concerns.60%. Canara Bank ACHIVEMENTS: The Bank has already carved a niche in providing IT – based services.419 cr during the corresponding previous half year. The Bank was the first to launch networked ATM’s & obtain ISO certification. year growth being 11.28% (annualized) as at September 2007. • Has set up its own Apex level Training colleges to its employees and thereby takes care of the knowledge.

Bangalore. Canara Bank In respects of the certain Assets and liabilities. Karnataka State. The focus of the study is to determine the non-performing assets of the bank since its inception & to identify the ways in which the performance especially the non-performing assets of the Canara Bank can be improved. embedded options in the basis of past of past data. CANARA BANK have undertaking a behavior study. bank manuals and other relevant documents. MBA Programme . Sandur (TQ). Data Collection Method Discussion with the manager & officers of the bank to get general information about the bank & its activities. Secondary Data  Collection of data through bank annual reports. The type of research used for the collection & analysis of the data is “Historical Research Method”. The main source of data for this study is the past records prepared by the bank. 16 The Oxford College of Engineering.  Collection of data through the literature provided by the bank. 2. RESEARCH DESIGN A study on the Management of Non Performing Assets in the Canara Bank’s Loan Portfolio is done at the Canara Bank Donimalai Township. Bellary (Dist). a. based on which the bank is in a position to decide on the maturities of the asset and liabilities.  Having face to face discussions with the bank officials  By taking guidance from bank guide & departmental guide. The data regarding bank history & profile are collected through “Exploratory Research Design” particularly through the study of secondary sources and discussions with individuals.

OBJECTIVES OF THE STUDY: 17 The Oxford College of Engineering. Secondary Sources 1. discussions more held directly with the manager & officials to get the clear-cut information about the topic and data to be collected for the purpose of analysis. MBA Programme . an efficient credit information sharing system and an appropriate legal frame work pertaining to the banking system so that court procedures can be stream lined and actual recoveries made within an acceptable time frame. SATATEMENT OF THE PROBLEM: A crucial issue which is engaging the constant attention of the banking industry is the alarmingly high level of non performing assets (NPA). Personal Interview 2. Another major anxiety before the banking industry is the high transaction cost of carrying non performing assets in their books. It also compares the position of the Canara Bank with other public sector banks in terms of their NPAs in the last three years and also to study the management of total assets and advances of the Canara Bank among other public sector banks. 1. Bangalore. greater disclosure in the case of defaults. b. Balance Sheets. Personal Interview: In this. 2. Profit & Loss account are used to collect the data. Canara Bank Research Measuring Tool: The tools used for data collection are: 1. b. The resolution of the NPA problem requires greater accountability on the part of the corporate. 2. So the project titled “A study on the Management of Non Performing Assets in the Canara Bank’s Loan Portfolio” looks in to the implications of high NPAs and suggests effective recovery measures for resolving problem loans and thus making the banks NPAs level healthy. Secondary Sources: Annual company reports.

Research Design The type of research used for the collection & analysis of the data is “Historical Research Method”.  To study the management of total assets and advances of the Canara Bank. 18 The Oxford College of Engineering.  To identify the effectiveness of the risk management system. b. Bangalore. suitable methods & measures are to be followed.  The study covers to find out the strategy required to reduce the NPAs. Methodology. In order to conduct the study scientifically. 4.  The data is purely based on the secondary data collected from website and journal. SCOPE OF THE STUDY:  The scope of the study here was confined to the organization only. depends on the nature of the project work. in turn. Canara Bank  To evaluate the Canara Bank’s asset quality. METHODOLOGY: Introduction The quality of the project work depends on the methodology adopted for the study.  The scope is limited to drawn conclusions from analysis and interpretations of the primary and secondary data of the Canara Bank. 3. MBA Programme . b. undertaken by the bank.  The concentration is given only in understanding the NPAs growth with the reference of Canara Bank.  To offer useful suggestions to reduce the NPA in banks. The use of proper methodology is an essential part of any research.  To analyze sector wise non-performing assets.  To compare the position of the Canara Bank with other public sector banks in terms of their NPAs.

The data regarding bank history & profile are collected through “Exploratory Research Design” particularly through the study of secondary sources and discussions with individuals. discussions were held directly with the manager & officials to get the clear-cut information about the topic and data to be collected for the purpose of analysis. Secondary Data  Collection of data through bank annual reports. 2. Bangalore. Canara Bank The main source of data for this study is the past records prepared by the bank. Personal Interview: In this.  Collection of data through the literature provided by the bank. Secondary Sources: 19 The Oxford College of Engineering. MBA Programme . Research Measuring Tool: The tools used for data collection are: 1. bank manuals and other relevant documents. Secondary Sources 1. Personal Interview 2.  Having face to face discussions with the bank officials  By taking guidance from bank guide & departmental guide. The focus of the study is to determine the non-performing assets of the bank since its inception & to identify the ways in which the performance especially the non-performing assets of the Canara Bank can be improved. Data Collection Method Discussion with the manager & officers of the bank to get general information about the bank & its activities.

 The study is done only for the limited past 3 years. Balance Sheets. MBA Programme . As such it is subject to the limitations of the secondary data. b.  The non-availability of relevant information is one of the limitations. LIMITATIONS OF THE STUDY:  The study is mainly based on the secondary data provided by the bank. 5. Profit & Loss account are used to collect the data. Bangalore. Canara Bank Annual company reports. The confidentiality of some facts and figures is a limitation.  The study is based only on NPAs with respect to loans. 20 The Oxford College of Engineering.  The study is based on the data given by the officials and reports of the bank.

as from that date. 21 The Oxford College of Engineering. etc. Due to the improvement in the payment and settlement systems. If any advance or credit facilities granted by bank to a borrower becomes non- performing. default status would be given to a borrower if dues are not paid for 90 days. Bangalore. then the bank will have to treat all the advances / credit facilities granted to that borrower as non-performing without having any regard to the fact that there may still exit certain advances / credit facilities having performing status. The account remains 'out of order' for a period of more than 180 days. with effect from March 31. A ‘non-performing asset’ (NPA) was defined as a credit facility in respect of which the interest and / or installment of installment of principal has remained ‘Past Due’ for a specified period of time. up gradation of technology in the banking system. it was decided to dispense with 'past due' concept. ii. How ever with effect from March 2004. 2001. a Non performing asset (NPA) shell be an advance where i. THEORITICAL OVERVIEW NPA ITS IMPACT AND MAGNITUDE: MEANING OF NPA: An asset is classified as non. An amount due under any credit facility is treated as "past due" when it has not been paid within 30 days from the due date. Interest and /or installment of principal remain overdue for a period of more than 180 days in respect of a Term Loan. recovery climate.performing asset (NPA) if dues in the form of principal and interest are not paid by the borrower for a period of 180 days. Accordingly. MBA Programme . in respect of an overdraft/ cash Credit(OD/CC). Canara Bank 3..

Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts. in respect of an overdraft/ cash Credit(OD/CC). iii. MBA Programme . Interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose. The bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted. a non-performing asset (NPA) shell be a loan or an advance where. and v. The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted. ’90 days’ overdue norm’ With a view to moving towards international best practices and to ensure greater transparency. Canara Bank iii. 22 The Oxford College of Engineering. iv. The account remains 'out of order' for a period of more than 90 days. it has been decided to adopt the '90 days overdue' norm for identification of NPAs. 2004. i. Interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose. form the year ending March 31. Bangalore. ii. and v. with effect form March 31. iv. Accordingly. Any amount to be received remains overdue for a period of more than 180 days in respect of other accounts. 2004. Interest and /or installment of principal remain overdue for a period of more than 90 days in respect of a Term Loan.

2002 and 90 days from the end of the quarter with effect from March 31. but there are no credits continuously for 180 days (to be reduced to 90 days. Asset Type Percentage of Provision Sub standard (age up to 18 months) 10% Doubtful 1 (age up to 2. Internationally income from non-performing assets (NPA) is not recognized on accrual 23 The Oxford College of Engineering. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit / drawing power. by April 1. therefore. continue to classify an account as NPA only if the interest charged during any quarter is not serviced fully with 180 days from the end of the quarter with effect from April 1. ‘Overdue’ Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank. ‘Out of Order’ Status An account should be treated as ‘Out of Order’ if the outstanding balance remains continuously in excess of the sanctioned limit / drawing power.5 years) 20% Doubtful 2 (age 4. the date of classification of an advance as NPA should not be changed on account of charging of interest at monthly rests. Banks should. 2002.5 years) 30% Doubtful 3 (age above 4. Bangalore. However. MBA Programme . Canara Bank As a facilitating measure for smooth transition to 90 days norm. these accounts should be treated as ‘out of order’. bank has been advised to move over to charging of interest at monthly rests. with effect from March 31. 2004. 2004) as on the date of Balance Sheet or credits are not enough to cover the interest debited the same period.5 years) 50% Loss Asset 100% INCOME RECOGNITION-POLICY: The policy of income recognition has to be objective and based on the record of recovery.

fees. Usually no debits are permitted in non performing asset expect unavoidable expenditure like litigation expenses. Canara Bank basis but is booked as income only when it is actually received. 2. provided adequate margin is available in the accounts. In respect of NPAs. interest on advances against term deposits. the interest on such advances should not to be taken to income account unless the interest has been realized. Interest accrued on non performing loan accounts is debited to the respective account and credited to the interest suspense account instead of the profit and loss account. VIPs. balance net of the amount kept in 24 The Oxford College of Engineering. KVPs. However. Fees and commissions earned by the banks as a result of re-negotiations or rescheduling of outstanding debts should be recognized on an accrual basis over the period of time covered by the re-negotiated or rescheduled extension of credit. Interest accrued but not realized. Therefore. Balance as on date of becoming an NPA. This will apply to Government guaranteed accounts also. becomes NPA as at the close of any year. the banks should not charge and take to income account interest on any NPA. THE CONCEPT OF GROSS NPA: Income recognition is not possible once an account becomes NPA. commission and similar income that have accrued should cease to accrue in the current period and should be reversed or provided for with respect to past periods. if uncollected. On balance sheet date banks make provisions for loan losses. This provision is calculated not on the balance outstanding but on the net balance. If Government guaranteed advances become NPA. MBA Programme . should be reversed or provided for if the same is not realized. Bangalore. including bills purchased and discounted. Hence the balance outstanding in an NPA account includes: 1. insurance etc. interest accrued and credited to income account in the corresponding previous year. REVERSAL OF INCOME: If any advance. and Life policies may be taken to income account on the due date. NSCs.

Bangalore. It has made banks more adverse to risks and squeezed genuine Small and Medium Enterprises (SMEs) from accessing competitive credit and has throttled their enterprising spirits as well. The problem of NPA is not a matter of concern to banks and FIs alone. balance outstanding minus balance in interest suspense account. before making the provision for loan losses. The mounting menace of NPAs has raised the cost of credit. unsustainable level of NPAs has eroded current profits of banks and FIs. IMPACT OF NPA: At the Macro level. For evaluation RBI and other rating agencies rely on purpose usually the net NPA balance. Besides this. made Indian business man uncompetitive as compared to their counterparts in other countries. Canara Bank the interest suspense account. This book balance of the net of the interest suspense account is known as Gross NPA. They have led to reduction of interest income and increase in provisions and have restricted and recycling of funds leading to various Asset Liability mismatches. NPAs have chocked off the supply line of Credit of the potential lenders thereby having a deleterious effect on capital formation and arresting the economic activity in the country. At the Micro level. But in cases where guarantee claim is received from credit guarantee corporations like ECGC. Net NPA means: Gross NPA minus balance claim received amount and provision outstanding in that account. 25 The Oxford College of Engineering. to a great extent. MBA Programme . The terminology net NPA indicates the balance in interest suspense account. It is the matter of grave concern to the country and any bottleneck in the smooth flow of credit is bound to create adverse repercussions in the economy. it has led to erosion in their capital base and reduction in competitiveness. Thus Gross NPA means. such claim received is also netted from the gross NPA.

followed by the SBI group. Canara Bank Due to their crippling effect on the operation of the banks.29 Crore. this ratio is less than 4 percent. 4 banks reported “nil” ratio during 2005-2006.412. Such deception of NPA statistics is executed through the following ways.03. 26 The Oxford College of Engineering. Despite various correctional steps administered to solve and end this problem.029. THE MAGNITUDE: Non-Performing Asset (NPA) has emerged since over a decade as an alarming threat to the banking industry in our country sending distressing signals on the sustainability and endurability of the affected banks. Nineteen nationalized banks have underestimated their NPAs by Rs. As per report appearing in a national daily the banking industry has under – estimated its non-performing assets (NPAs) by whopping Rs. Table No. and the all India Financial Institutions. Bangalore. The severity of the problem is however acutely suffered by Nationalized Banks. concrete results are eluding.63883 crore. Asset quality has been considered as one of the most important parameters in the measurement of bank’s performance under the CAMELS Supervisory Rating System of RBI.62 percent followed by Dena Bank of India with 9. It is a sweeping and all pervasive virus confronted universally on banking and financial institutions. As at 31. 1. Further it is revealed that commercial banks in general suffer a tendency to understate their NPA figures. through subtle techniques. The worst offender is the public sector banking industry.4 percent. There is the practice of ‘ever-greening’ of advances. The ratio of net non-performing assets to net advances also declined during 2005-06. The industry is also estimated to have under-provided to the extent of Rs.29 Crore.  Failure to identity an NPA as per stipulated guidelines: There were instances of ‘sub-standard’ assets being classified as ‘standard’. Majority of the banks.3862.2004 the aggregate gross NPA of all scheduled commercial banks amounted to Rs. Punjab and Sind Bank has the highest ratio with 9.1 gives the figures of net NPA for the last three years. The positive results of the chain of measures affected under banking reforms by the Government of India and RBI in terms of the two Narasimhan Committee Reports in this surging threat. MBA Programme . 3.10 Crore as on March 1997.

8. Mis-utilization of loans and subsidies. In Non-Priority Sector Advances: 1. Decrepit legal system. Willful default. throwing prudential norms to the winds. Technology Obsolescence. 2. Cost in-effective legal recovery measures. Bangalore. Diversion of funds. 7. Demand recession. Absence of security. Absence of Bankruptcy and fore-closure loans. 4. 4. classifying a ‘doubtful’ asset as a ‘sub-standard’ asset. 5. 3.  Classifying an account of a credit customer as ‘substandard’ and other accounts of the same credit customer as ‘standard’. Lack of effective follow-up (Post sanction supervision and control) 6. 6. Industrial sickness and labor problems. 2. 7. 9. Directed and pre-approved natures of loans sanctioned under sponsored programmes. Canara Bank  Wrong classification of an NPA: Classifying a ‘loss’ asset as a ‘doubtful’ or ‘sub-standard’ asset. Difficulty in execution of Decrees obtained. 9. 5. Diversion of funds. Slow Legal system. Inadequate credit appraisal. 27 The Oxford College of Engineering. REASONS FOR NPAs: In Priority Sector Advances: 1. 8. 3. Managerial inefficiency. MBA Programme . Political compulsion and corruption.

even though the relative advances are still outstanding in the branch books. The amount is not required to be deposited at the time of filing appeal. When a borrower files an appeal. by evolving appropriate methodology in consultation with their auditors / tax consultants. The DRT can waive or reduce the amount required to be deposited. but appeal will not heard till the amount is 28 The Oxford College of Engineering. MBA Programme . whichever earlier. This stipulation is not applicable to provisioning required to be made as indicated above. amounts set aside for aside for making provision for NPAs as above are not eligible for tax deductions. DEBT RECOVERY TRIBUNAL: Any person aggrieved by any measure taken by secured creditor or his authorized officer may file an appeal to Debts Recovery Tribunal. if an advance is a loss asset. In other words. is taken by the creditor. within 45days from date on which such measure was taken. Canara Bank WRITING OFF NPAs: In terms of section 43(D) of the Income Tax Act 1961. 100 percent provision will have to be made there for. Therefore the banks should either make full provision as per the guidelines or write-off such advances and claim such tax benefits as are applicable. However. In other words. appointing person to manage secured asset etc. it is necessary that provision is made as per the classification accorded to the respective accounts. shall be chargeable to tax in the previous year in which it is credited to the bank’s profit and loss account or received. income by way of interest in relation to such categories of bad and doubtful debts as may be prescribed having regard to the guidelines issued by the RBI in relation to such debts. the borrower deposits 75% of the amount claimed in the notice by secured creditor. Recoveries made in such accounts should be offered for tax purposes as per the rules. takeover of management of business of borrower. the appeal cannot be entertained unless. Bangalore. WRITE-OFF AT HEAD OFFICE LEVEL: Banks may write-off advances at Head Office Level. That is action of taking possession of asset.

If some other aggrieved person (e. The borrower while filing the appeal should also file an application requesting the Debt Recovery Tribunal to admit the appeal without deposit of any amount. OVERALL BANKING AND NPA BANKING REFORMS IN INDIA: The Nationalization of the major commercial banks in the year 1969 and 1980 had brought radical changes in the banking system in India. The 75% deposit is only required if the appeal is filed by the borrower. Bangalore. it can file an appeal to the Appellate Tribunal within 30days from the date of receipt of the DRT order. Thus the bankers under the aforementioned Act will have the much needed authority to either sell the defaulting companies or charge their management. It had brought about major shifts 29 The Oxford College of Engineering. If the DRT orders partial deposit of the amount and the same is not deposited. Once the borrower receives a notice from the concerned bank and the financial institution. banks can issue notices to the defaulters to pay up the dues and the borrowers will have to clear their dues within 60days. Canara Bank deposited. The main purpose of this notice is to inform the borrower that either the sum due to the bank or financial institution be paid by the borrower or else the former will take action by way of taking over the possession of assets. shareholder) files it the deposit is not required.g. MBA Programme . bank can also takeover the management of the company. Besides assets. guarantor. If the DRT or Appellate Tribunal holds that possessions of assets by the secured creditor was wrongful and directs the secured creditor to return asset to concerned borrower. If a person is aggrieved by the order of the DRT. appeal can be dismissed. SECURITIZATION ACT: With the enactment of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002. the borrower shall be entitled to compensation and costs as may be determined by DRT or Appellate Tribunal. the secured assets mentioned in the notice cannot be sold or transferred without the consent of the lenders.

gradually started affecting the financial health of the banking sector in the country. The reforms process includes: 1. Partial deviation from directed lending. asset classification. Thus the Government of India was forced to initiate a process of reforming the financial sector which banks constitute a dominant part. 2. irrational lending under socio political pressures. 6. The prudential norms were revised from time 30 The Oxford College of Engineering. The Reserve Bank of India introduced in a phased manner. Most of the banks were under capitalized and some of them even with negative worth. Commercial banks were not following uniform accounting policies camouflaged the true financial position of banks. 4. Introduction of prudential norms. As per the recommendations of Narasimham Committee. prudential norms for income recognition. For accelerating the socio-economic and rural development process several Governments sponsored programs were launched and lending in the priority sector. Quality of loan asset was not a concern and a high proportion of loan assets started becoming non performing. Thus there was a compelling need for a change and various policy corrections had to be taken with the view of strengthening the economy. Canara Bank in the priorities in the banking operations. mounting levels of bad debts. NARASIMHAM COMMITTEE: The first phase of banking sector reforms was initiated in the year 1992 in pursuance of recommendations of the committee on financial sector reforms headed by Narasimham Committee. branch expansion at non viable centers etc. Deregulation of interest rates. Upgradation of technology. 3. Branch expansion policies of banks were tuned upto meet the banking needs of the people in rural and semi urban centers. Entry of new private sector banks. Transparency in balance sheets. 5. Bangalore. MBA Programme . and provisioning in the year 1998 Narasimham Committee-II came out with more stringent norms for the industry.

the Indian Banking System is becoming increasingly mature in terms of the transformation of business processes and the appetite for risk management. It is widely recognized that as a result of these reforms. technological upgradation and increased market integration have been the key factors driving change in the financial sector. Before the reform process. if interest or installment of principal remains overdue for a period exceeding 180days and that banks and FIs should not take into their income account. The Committee also recommended that Assets be classified into four categories namely Standard. Bangalore. Sub-standard. As a step towards a softer interest rate regime. increasing operational efficiency of banks. The Committee recommended that an asset may be treated as Non- Performing Asset (NPA). the focus of non-going reforms in the banking sector was on soft interest rates regime. MBA Programme . Doubtful and Loss Assets and that certain specified percentage of the same be held as provision there against. A BRIEF HISTORY OF NPA: The concept of Asset Quality on the books of Public Sector Banks (PSBs) and Financial Institutions (FIs) came into being when Reserve Bank of India (RBI) introduced prudential norms on the recommendations of the Narasimham Committee in the year 1992-1993. announce a maximum spread over PLR for all advances other than consumer credit and to review the present maximum spread over PLR and reduce them wherever they are unreasonably high. unless it is actually received or recovered. banks were booking income on an accrual basis and their balance sheets did not 31 The Oxford College of Engineering. strengthening regulatory mechanisms and on technological up-gradation. the interest accrued on such Non-Performing Assets. Deregulation. Canara Bank to time to fall in line with the best accounting practices and for transparency in published accounts. RBI in its Annual Policy Statement had advised banks to introduced flexible interest rate system for new deposits. EMERGING BANKING TRENDS: During the current financial year.

Bangalore. It allows lenders to more easily foreclose on debtors assets or even demand a change in management. Canara Bank reflect their true specified financial health. Thus the profit. which arises from the failure of borrower to fulfill its contractual obligations either during the course of a transaction or on a future obligation. This Act enables the setting up of asset management companies for addressing the problems of non-performing assets of banks and FIs. Within weeks of the law’s passage. Lending business is generally encouraged because it has the effect of funds being transferred from the system to productive purposes which results into economic growth. Due to this. INDIAN BANKING AND NPA: The origin of the problem of burgeoning NPAs lies in the quality of managing credit risk by the banks concerned. 2002 (Also know as the Securitization Act). What is needed is having adequate preventive measures in place namely. The Act is The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act. The law that has been the catalyst for the bad loan clean up passed India’s Parliament in November 2002. The history of financial institutions also reveals the fact that the biggest banking failures were due to credit risk. fixing pre-sanctioning appraisal responsibility and having an effective post- disbursement supervision. banks saw a flood of loans once deemed unrecoverable being repaid in double time. capital and reserves were overstated by them. MBA Programme . banks are restricting their lending operations to secured avenues only with adequate collateral on which to fall back upon in a situation of default. GLOBAL NPA: 32 The Oxford College of Engineering. However lending also carries credit risk. The core banking business is of mobilizing the deposits and utilizing it for lending to industry. a new law lightens the burden of bad loans for Indian Banks. After 10years of NPA terror in the banking industry. “Now the Banks Have Teeth”. Banks concerned should continuously monitor loans to identity accounts that have potential to become non-performing.

Due to this. WARNING: STANDARD & POOR: 33 The Oxford College of Engineering. in the United Kingdom. these giant corporates became bankrupt and failed to provide investors with clearer and more complete information thereby introducing a degree of risk that many investors could neither anticipate nor welcome. In case after case. such as. However lending also carries credit risk. The adoption of such a system points to the usefulness of a structured approach those facilities the supervisor’s ability to analyze and compare banks loan portfolios. India is a better bet than China for investors to pump money into non-performing assets (NPAs) restructuring as it has better environment for recovery. WorldCom. Other countries. Xerox. A country follows varied approaches. according to consulting firm Price water House Coopers (PwC). which arises from the failure of borrower to fulfill its contractual obligations either during the course of a transaction or on a future obligation. It needs to be recognized that prudential norms in respect of loan classification vary widely across countries. Lending business is generally encouraged because it has the effect of funds being transferred from the system to productive purposes which results into economic growth. MBA Programme . Bangalore. Canara Bank The core banking is of mobilizing the deposits and utilizing it for lending to industry. supervisors do not require banks to adopt any particular form of loan classification and either is there any recommendation on the number of classification categories that banks should employ. The history of financial institutions also reveals the fact that the biggest banking failures were due to credit risk. the United States follow a more prescriptive approach. Global Crossing do not give much confidence to banks. Illustratively. A question that arises is how much risk can a bank afford to take? Recent happenings in the business world – Enron. banks are restricting their lending operations to secured avenues only with adequate collateral on which to fall back upon in a situation of default. from the subjective to the prescriptive. wherein loans are classified into several categories based on a set of criteria ranging from payment experience to the environment in which the debtor evolves.

The asset-quality position also has suffered from regulations with respect to lending to priority sectors. Now banks give credit more to unproductive purposes. 34 The Oxford College of Engineering. Banks have improved their credit appraisal system. banks are now giving credit to even non-priority sectors in an aggressive manner. Bangalore. however. housing loans. This reckless lending paves the way to repayment irregularities and more of NPA in the banking system. The weak capital position of the Indian banking system is largely a reflection of growing asset-quality problems stemming from weak underwriting and credit management system. and ever greened loans are included as impaired assets. NPA percentage in City Bank’s Car Loan Portfolio is zero. the inadequate loan loss reserves maintained by the banks to absorb likely losses.. associate director. Banks now give priority to ‘businesses’ and lending schemes also follow the path. and the vulnerabilities of the Indian banking sector to the impact of globalization on the country’s key industry sectors. consumer durables loans and personal loans. of the view that non performing loan levels for Indian banks will be significantly higher at 20%-25% if more conservative classification standards are adopted and restructured. because of the sophisticated credit appraisal system followed by the bank. Canara Bank Standard & Poor’s and The Credit Rating Information Services of India Ltd. together with CRISIL are. But on the others side economy has become buoyant and the borrowers are now in a position to repay the loans even if it is an unproductive loan. Financial Services Rating. LENDING BEHAVIOUR OF BANKS: Due to the excess liquidity in the banking system. Standard & Poor’s. (CRISIL) estimate that India’s schedule commercial banks require between US$11billion- US$13billion in new capital to support losses embedded in impaired assets. “The capital shortfall calculated assumes a significantly higher system non-performing loan level to that reported under Indian regulatory standards. MBA Programme . like car loans. The significant capital shortfall estimated recognizes the existing moderate reported capital position of Indian banks.” said Peter Sikora.

MBA Programme . which has remained NPA for a period less than or equal to 12 months. if deficiencies are not corrected. b) Doubtful Assets. SUB-STANDARD ASSETS: A sub-standard asset was one. With effect from 31March 2001.on the basis of currently know facts. With effect from 31March 2005. the current net worth of the borrower / guarantor or the current market value of the security charged is not enough is not enough recovery of the dues to the banks in full. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub-standard. LOSS ASSETS: 35 The Oxford College of Engineering. which was classified as NPA for a period not exceeding two years. if it has remained NPA for a period exceeding 18 months. Bangalore. which remained NPA for a period exceeding two years. a sub-standard asset is one. In other words. as asset is to be classified as doubtful. with the added characteristic that the weaknesses make collection or liquidation in full. With effect from 31March 2001. an asset to be classified as doubtful if it remained in the sub-standard category for 12 months. such an asset will have well defined credit weakness that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the banks will sustain some loss. DOUBTFUL ASSETS: A doubtful asset was one. With effect from 31March. a sub-standard asset would be one. Canara Bank CLASSIFICATION OF ASSETS: CATEGORIES OF NPAs: Banks are required to classify non-performing assets further into the following three categories based on the period for which the asset has remained non-performing and the realisability of the dues: a) Sub-Standard Assets. conditions and values – highly questionable and improbable. which has remained NPA for a period less than or equal to 18 months. 2005. In such cases. . c) Loss Assets.

However. It should be noted that the above classification is only for the purpose of computing the amount of provision that should be made with respect to bank advances and certainly not for the presentation of advances in the bank balance sheet. Canara Bank A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.2002 directing the defaulter to either pay back the dues to the bank or else give the possession of the secured assets mentioned in the notice. The system should ensure that doubts in asset classification due to any reason are settled through specified internal channels within one month from the date on which the account would have been classified as NPA as per extent guidelines. The banks may fix a minimum cut off point to decide what would constitute a high value account depending upon their respective business levels. as appropriate. Under such a situation it will be prudent to directly classify the advances as a doubtful or loss asset. Banks should establish appropriate internal systems to eliminate the tendency to delay or postpone the identification of NPAs. solely governs presentation of advances in the balance sheet. In other words. The cut off point should be valid for the entire accounting year. The Third Schedule to the Banking Regulation Act 1949. Banks have started issuing notices under The Securitization Act. Responsibility and validation levels for ensuring proper asset classification may be fixed by the banks. MBA Programme . there is a potential threat to recovery if there is substantial erosion in the value of security given by the borrower or if borrower has committed fraud. classification of assets into above categories should be done taking into account the degree of well-defined credit weaknesses and the extent of dependence on collateral security for realization of dues. 36 The Oxford College of Engineering. especially in respect of high value accounts. RBI GUIDELINES FOR CLASSIFICATION OF ASSETS: Broadly speaking. Bangalore.

the account should no longer be treated as non-performing and may be classified as ‘standard’ accounts. If the debts arising out of development of letter of credit or invoked guarantees are parked in a separate account. ii. as the case may be. It may be either written off or fully provided for by the bank. If the realizable value of the security. all the facilities granted by a bank to a borrower will have to be treated as NPAs and not the particular facility or part thereof which has become irregular. MBA Programme . asset classification and provisioning. Asset Classification to be borrower-wise and not facility-wise: i. ii. It is difficult to envisage a situation when only one facility to borrower becomes a problem credit and not others. the existence of security should be ignored and the asset should be straight away classified as loss asset. 37 The Oxford College of Engineering. A NPA need not go through the various stages of classification in cases of serious credit impairment and such assets should be straightaway classified as doubtful or loss asset as appropriate. Accounts where there is erosion in the value of Security: i. Canara Bank UPGRADATION OF LOAN ACCOUNTS CLASSIFIED AS NPAs: If arrears of interest and principal are paid by the borrower in the case of loan accounts classified as NPAs. the balance outstanding in that account for should be treated as a part of the borrower’s principal operating account for the purpose of application of prudential norms on income recognition. Therefore. Erosion in the value of security can be reckoned as significant when the realizable value of the security is less than 50 percent of the value assessed by the bank or accepted by RBI at the time of last inspection. Such NPAs may be straightaway classified under doubtful category and provisioning should be made as applicable to doubtful assets. Bangalore. as assessed by the bank / approved valuers / RBI is less than 10 percent of the outstanding in the borrowal accounts.

the bank has to further sub-classify it into sub-standard. MBA Programme . In case of loss assets. loss and doubtful assets. Following representations from banks that the foregoing stipulations deter the banks from restructuring of standard and sub-standard loan assets were reviewed in March 2001. rescheduling does not entitle a bank to upgrade the quality of advance automatically unless there is satisfactory performance under the rescheduled / renegotiated terms. bank makes the necessary provision against these assets. guidelines specifically require that full provision for the amount outstanding should be made by the concerned bank. Based on this classification. Banks are also required to comply with such guidelines in making adequate provision to the satisfaction of its auditors before declaring any dividends on its shares. c) After commencement of commercial production and after the asset has been classified as sub-standard. In the context of restructuring of the accounts. In the case of sub-standard and doubtful assets also. b) After commencement of commercial production but before the asset has been classified as sub-standard. PROVISIONING REQUIREMENTS: As and when an asset is classified as an NPA. Bangalore. This is justified on the grounds that such an asset is considered uncollectible and cannot be classified as bankable asset. Asset Type Percentage of Provision 38 The Oxford College of Engineering. the following stages at which the restructuring / rescheduling / renegotiation of the terms of loan agreement could take place can be identified: a) Before commencement of commercial production. Reserve Bank of India (RBI) has issued guidelines on provisioning requirements of bank advances where the recovery is doubtful. Canara Bank RESTRCTURING / RESCHEDULING OF LOANS: A standard asset where the terms of the loan agreement regarding interest and principal have been renegotiated or rescheduled after commencement of production should be classified as sub-standard and should remain in such category for at least one year of satisfactory performance under the renegotiated or rescheduled terms.

with increasing deposits made by the public in the banking system. Banks concerned should continuously monitor loans to identify accounts that have potential to become non-performing. However. fixing pre-sanctioning appraisal responsibility and having an effective post- disbursement supervision. Also. increasing NPAs have a direct impact on banks profitability as legally banks are not allowed to book income on such accounts and at the same time banks are forced t make provision on such assets as per the RBI guidelines. 39 The Oxford College of Engineering.5years) 20% Doubtful 2 (age 4-5years) 30% Doubtful 3 (age above 4-5years) 50% Loss Asset 100% THE NPA PROBLEM: The origin of the problem of burgeoning NPAs lies in the quality of managing credit risk by the banks concerned. the banking industry cannot afford defaults by borrowers since NPAs affects the repayment capacity of banks. RBI successfully creates excess liquidity in the system through various rate cuts and banks fail to utilize this benefit to its advantage due to the fear of burgeoning non performing assets. CREDIT APPRAISAL SYSTEM: Prevention of standard assets from migrating to non performing status is most important in NPA management. The quality of credit appraisal and the effectiveness of post credit appraisal and effectiveness of post credit follow up influences the asset quality of the banks in a big way. Bangalore. This depends on the style of Credit Management Mechanism available in banks. The performance in terms of profitability is a benchmark for any business enterprise including the banking industry. Further. MBA Programme . Canara Bank Sub-Standard (age upto 18 months) 10% Doubtful 1 (age upto 2. What is needed is having adequate preventive measures in place namely.

9. CREDIT MONITORING: Credit Monitoring System is for: 1. At Post-Credit Stage: 1. 2. 6. MBA Programme . 7. Potential NPAs are kept under special watch list. 3. 3. 6. Close contract with the borrower is maintained. 5. 10. Unit visit is done at irregular intervals. Preventing the slippage of quality assets through the monitoring of standard assets. Pre-Credit inspection of the assets to finance is made. Apart from the published financial statements independent enquires are made with previous bankers. Bangalore. 8. Adequate coverage of collateral is ensured to the extent possible. Borrowers submit control returns regularly. Financial statement of the borrower is obtained and poor analysis of their financial strength is done. Operations in the account are closely monitored. 4. 4. Immediate legal action is initiated in cases where the default is willful and the intention of the borrower is bad. 5. Accounts are periodically to evaluate the financial health of the unit. Potentially viable units are restructured. Viability of the project to be financed is meticulously studied. Canara Bank At Pre-Credit Stage: 1. 40 The Oxford College of Engineering. Extensive enquiry about the character and the credit worthiness of the borrower. 2. Early warning signals are properly attended to. Asset verification is done on a regular basis. Repayment program of accounts with temporary cash flow problem is rescheduled.

Disputes among partners / promoters. they represent credit risk that has already materialized and default has already taken place. Return of outward bills for collection / return of cheque. an attempt is made to avoid possible default by properly managing credit risk. managing credit risk is a much more forward-looking approach and is mainly concerned with managing the quality of credit portfolio before default takes place. Considering the current global recession and unreliable information in financial statements. Court cases against the unit. Accumulation of stock & non-movement of stock.e. Upgradation of loan assets through nursing in deserving and viable cases. 12. there is high credit risk in the banking and lending business. On the other hand. 7. Bangalore. Avoidance of contacts with the bank. Canara Bank 2. MBA Programme . 3. Labor troubles. Loss of critically important customers. i. WARNING SIGNALS: 1. 4. NPAs are a result of past action whose effects are realized in the present. In other words. 2. However there is an appreciable difference between the two. 41 The Oxford College of Engineering. 10. 9. Delayed submission of financial statements. 8. Slow turnover of debtors & fall in level of sundry creditors. 6. 3. Operating loss / net loss. CREDIT RISK AND NPA: Quite often credit risk management (CRM) is confused with managing non-performing assets (NPAs). 5. Upgradation of quality of impaired loan asset through recoveries by means of legal or otherwise. High turnover of key personnel. Default in servicing periodic installments and interest. 11.

EXCESS LIQUIDITY: Now banks are faced with the problem of increasing liquidity in the system. In order to promote certain prudential norms for healthy banking practices. RBI is increasing the liquidity in the system through various rate cuts. It acts as a facilitator for credit dispensation and helps mitigate the credit risk involved in lending. often shy away from such an option due to the high risk of default. 42 The Oxford College of Engineering. Based on cross- country experiences. as the RBI may specify from time to time. most of the developed economies require all banks to maintain minimum liquid and cash reserves broadly classified in to Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR). On the other hand. initiatives have been taken in India to establish a credit information bureau. Further. The Bureaus established in these countries collect information on both individual borrowers (retail segment) and the corporate sector. an amount which shall not. Bangalore. A CIB provides an institutional mechanism for sharing of credit information on borrowers and potential borrowers among banks and FIs. at the close of business on any day be less than such percentage of the total of its demand and time liabilities in India as on the last Friday of the second proceeding fortnight. Banks can get rid of its excess liquidity by increasing its lending but. The objective is to ensure the safety and liquidity of the deposits with the banks. Canara Bank CREDIT INFORMATION BUREAU (CIB): It is in this context that the facility of Credit Information Bureau (CIB) becomes relevant. gold or unencumbered approved securities. MBA Programme . computed as a certain percentage of its demand and time liabilities. Statutory Liquidity Ratio (SLR) is the one which every banking company shall maintain in India in the form of cash. Cash Reserve Ratio (CRR) is the reserve which the banks have to maintain with itself in the form of Cash Reserve or by way of current account with the RBI.

banks are little reluctant in granting loans to corporates. What banks should ensure is that they should move with speed and charged with momentum in disposing off the assets. burgeoning non-performing assets. This is because as uncertainty increases with the passage of time. But the protection under the said Act only provides a partial solution. The main purpose of this notice is to inform the borrower that either the sum due to the bank or financial institution be paid by the borrower or else the former will take action by way of taking over the management of the company. quite often corporates prefer to arise funds through commercial papers (CPs) where the interest rate on working capital charged by banks is higher. As a result of which. Therefore. MBA Programme . decrease in CRR) results into lesser funds to be locked up in RBI’s vaults and further infuses greater funds into a system. MEASURES FOR NPA CONTAINMENT: MEASURES TO TACKLE NPAs: Seeing the gravity of the situation. through in its monetary policy RBI announces rate cut but. etc. thinning margins. such news are no longer warmly greeted by the bankers. Bangalore. RBI has taken several constructive steps for arresting the incidence of NPAs. Thus the bankers under the aforementioned Act will have the much needed authority to sell the assets of the defaulting companies or charge their management. almost all the banks are facing the problem of bad loans. they come at a very high cost to compensate the lender’s losses caused due to high level of NPAs. Canara Bank A rate cut (for instance. Either the bank is reluctant in providing the requisite funds to the genuine borrowers or if the funds are provided. As such. 43 The Oxford College of Engineering. HIGH COST OF FUNDS DUE TO NPA: Quite often genuine borrowers face the difficulties in raising funds from banks due to mounting NPAs. It has also created a regulatory environment to facilitate the recovery of existing NPAs of banks. However. there is all possibility that the recoverable value of asset also reduces and it cannot fetch good price.

Lok Adalats: Lok Adalats have been set up for recovery of dues in accounts falling in the doubtful and loss category with outstanding balance up to Rs. 2. Debt Recovery Tribunals: DRTs which have been set up by the Government to facilitate to speedy recovery by banks / DFIs. The DRTs could also be empowered to sell the assets of the debtor companies and forward the proceeds to the Winding-up Court for distribution among the lenders. The objective of the CDR system is to ensure a timely and transparent mechanism for restructuring of corporate debts of viable entities and to minimize the losses to the creditors and other stakeholders through an orderly and co-ordinated re- structuring programme. lack of infrastructure. 22 DRTs have been set up in the country during the half last a decade. Non-observance of any order passed by the Tribunal should amount to contempt proceedings. With CDR. in accordance with the guidelines of RBI evolved in consultation with Government of India. have not been able to make much impact on loan recovery due to a variety of reasons like inadequate number. as they got swamped under the burden of large number of cases filed with since their inception. banks can arrest fresh slippage of performing assets into the magnitude of assets. Corporate Debt Restructuring: Corporate Debt Restructuring (CDR) mechanism is an additional safeguard to protect the interest of the creditors and revive potentially viable units. The CDR system was set up. Canara Bank 1. 44 The Oxford College of Engineering. Under the system standard. The CDR mechanism is based upon effective co-ordinate among banks. sub-standard and doubtful assets can be restructured. DRTs have not been able to deliver. under-staffing and frequent adjournment of cases. MBA Programme . Also.5lakh. proved to be quite effective for speedy justice and recovery of small loans. 3. This mechanism has. It is essential that the DRT mechanism is strengthened and DRTs are vested with a proper enforcement mechanism to enforce their orders. by way of compromise settlements. DRTs could be set up in more centers preferably in district headquarters with more presiding officers. Bangalore.

Asset Reconstruction Companies (ARCs): One of the most effective ways of removing NPAs from the books of the banks / DFIs would be to move these out to a separate agency which would buy the assets and make its own efforts for recovery. leaving the banks no option but. SBI and other banks which is likely to provide an effective mechanism for banks to deal with the defaulting companies. Here lies the importance of a transparent legal system. ICICI Bank. despite such efforts made by the lenders. MBA Programme . the SRES Act has provided a frame work for setting up to Asset Reconstruction Companies (ARCs) in India. 5. However. Canara Bank 4. 45 The Oxford College of Engineering. Legal provisions are required for transfer of the existing loan portfolio to the ARCs without the consent of the borrowers. A pilot company called Asset Reconstruction Company (India) Ltd (ARCIL) has been set up under the joint sponsorship of IDBI. On this front. Under these schemes banks focus on maximum payment under the settlements being received up-front. authorizing ARCs to take recourse to the Debt Recovery Tribunals and granting exemption to ARCs from income-tax in order to mobilize resources by issue of bonds and exemption to ARCs from payment of stamp duty on conveyance / transfer of loans assets. Reduction in NPAs: The problem of the existing NPAs is currently being tackled in several ways. Efforts are made through negotiations and discussions with the borrowers to bring them around to settle the dues. to seek the legal route. 2003. and balance within the same financial year for quicker realization of locked up proceeds. RBI has already issued final guidelines on the regulatory frame work for ARCs in April. Reforms in the existing legal system will go a long way in reducing the level and growth of NPAs in the banking system. many defaulting borrowers exhibit reluctance to co-operate. the success of ARCs will again depend upon the legal frame work which has to be addressed first. Such settlements in the form of One-time settlement (OTS) and Negotiated Settlement (NS) are now being increasingly used by banks to reduce the level of NPAs. for exercise of the power of private foreclosure by ARCs. Bangalore. However.

1995. details the rights and responsibilities of transacting parties. High incidence of stamp duties makes securitization transactions unviable. in respect of both immovable property and movable assets which resulted in the enactment of SRFAESI Act 2002. Thus the legal frame work is a key element for limiting moral hazards in Indian Banking. The Committee also considered securitization as an instrument to tackle the NPA problem. 46 The Oxford College of Engineering. which could be put to productive use. Securitization: Securitization enables risk sharing and trading of loans where the bad assets of banks can be securitized and sold at a discount. vary from State to State. stamp duties being a state subject. Every instrument by which property. Legal Reforms: The legal frame work sets standards of behavior for market participants. Bangalore. 7. Canara Bank 6. As early as in 1999 the Andhyarujina Committee set up by Government of India to formulate specific proposals to give effect to the suggestions made by the Narasimham Committee (1998) recommended amending the Recovery of Debts due to the Banks and Financial Institutions Act 1993 and Sick Industrial Companies Act. With securitization the NPAs in a bank’s balance sheet can be cash upfront. Also. The lending institution’s NPAs are hence removed from their balance sheets and are instead funded by investors through negotiable financial instruments. Under statutory assignment. The security is backed by the expected cash flows from the assets. whether movable or immovable. securitization involves transfer of debt. It also recommended a new legislation for banks and Financial Institutions to take possession and sale of securities without the intervention of the Court. which can be effected only by means of an instrument in writing. is transferred attracts as valorem stamp duty. assures that completed transactions are legally binding and also provides the regulators with the necessary teeth to enforce standards and ensure compliance and adherence to law. As the problem of NPAs is closely linked with the issue of legal reforms the Government has taken up initiatives to align the legal set-up with the requirements of the banking system. MBA Programme .

Canara Bank

How they are bad for the economy?
NPAs constitute a real economic cost to the nation in that they reflect the application of
scarce capital and credit funds to unproductive uses. The money locked up in NPAs are
not available for productive use and to the extent that banks seek, to make provisions for
NPAs or to write them off, it is a charge on their profit.
To be able to do so, banks have to charge their productive and diligent customers a higher
rate of interest. It thus becomes a tax on efficiency. It is the customer who uses credit
efficiently that subsidizes the inefficiency represented by NPAs. This also raises the
transaction costs in the system thus denying the diligent credit customers the benefits of
lower rates, which would help them to be more efficient and competitive. NPAs, in short,
are not just a problem for the banks. They are bad for the economy.

RISK MANAGEMENT:
Banking and risk are inseparable and risk management assumes significance as the banks
have to take considerable risks. Analysis of risks also assumes importance as it
determines the pricing for the products. As banking is subject to several types of risks
like market risk, credit risk, liquidity risk, default risk, interest rate risk, investment risk,
transaction risk, forex risk, etc., proper perception and evaluation of risk is extremely
important and any short comings on this score can play havoc on the financial decision.
It has been seen that in banks managing NPAs has been a reactive response rather than a
proactive function. In a market driven environment, volatility and risk have increased
considerably in any credit dispensation. Hence, a proper perception and evaluation of risk
becomes essential along with market intelligence about the industry concerned.

EFFECTIVE APPRAISAL AND MONITORING OF LOANS:
In the present liberalized environment, globalization has a far reaching impact on the
fortunes of the domestic industry and the bankers have to be alert and equip themselves
with the knowledge of the knowledge of the latest global trends and also study on an
ongoing basis its implications on the industries financed by them. Thus, the appraisal and

47
The Oxford College of Engineering, Bangalore, MBA Programme

Canara Bank

monitoring mechanism for loans needs to be revamped for control of NPAs. Banks need
a robust end-to-end credit process. A robust credit process begins with an in depth
appraisal focused on risks inherent in a loan proposal. Along with appraisal close
monitoring of the loan account is equally important. It is a well-known fact that loans
often go bad due to poor monitoring. An account does not become an NPA over night.
Systems should be in place such that the banker should be alert to catch signals of an
account turning into NPA and quickly react, analyze, and take corrective action.
Banks should have a proper system in place to ensure that to the extent possible the assets
are performing and do not turn into NPAs. In cases where the problems are of a short
term nature and borrowers agree to clear the overdues with in a short time period,
temporary deferment is generally granted by the banks. In cases where the company
requires longer time, depending upon the problems faced and the expected future cash
flows, the proposals are considered for restructuring / re-phasement of the dues.
All cases should be reviewed regularly and on the basis of review, ‘stress cases’ are
identified which require more closer and effective monitoring. For these cases it becomes
imperative to keep a close watch on the working of the company by taking up regular
visits, calling for progress reports with greater frequency, engaging the services of
concurrent auditors / technical consultants to exercise proper supervision and to obtain
independent report / assessment.

ASSETS RECOVERY BRANCH:
Assets Recovery Branches are specified branches for recovering NPA. The personnel in
the branches are professionally competent to deal with defaulters and ensure repayment.
It is meant for shifting the work of “high problem loans recovery” of main branches to
specialized branches. It gives time to other branches to concentrate more upon branch’s
business development activities.

90 DAYS OVERDUE EFFECT:

48
The Oxford College of Engineering, Bangalore, MBA Programme

Canara Bank

As a facilitating measure for smooth transition to 90 days norm, banks have been advised
to move over to charging of interest at monthly rests, by April 1, 2002. However, the date
of classification of an advance as NPA should not be changed on account of changing of
interest at monthly rests. Banks should, therefore, continue to classify an account as NPA
only if the interest charged during any quarter is not serviced fully within 180 days from
the end of the quarter with effect from April 1, 2002 and 90 days from the end of the
quarter with effect from March 31, 2004.
There are two aspects to the adoption of the ’90 days’ overdue norm for identification of
NPAs. The negative aspect is that NPAs will increase in the short term. But the positive
aspect is that banks will be become pro-active in detecting smoke signals about an
account becoming bad and accordingly initiate remedial steps.

PROBLEM LOAN IDENTIFICATION:
IDENTIFICATION OF ACCOUNT:
i. Term loan if interest / installments are overdue for four months & above.
ii. Check on overdue, cash credit account if it is out of order continuously for four
months.
iii. In other loans if overdue four months & more.

REASONS FOR NON PERFORMANCE IN LOAN ASSETS:
1. Antiquated legal system in the country & the defaulter taking shelter under this.
2. Even DRT cases are not getting settled the way it was envisaged when tribunals
were set up.
3. Most of the NPAs have the cover of collaterals by way of EM of landed
properties. But real estate market is depressed & thus impacted recoveries. Many
large corporate borrowers have turned “wish defaulters” taking shelters under
BIFR umbrella.
4. NBFCs are in doldrums, their recoveries are adversely affected & strictures on
accepting deposits has caused further resource crunch ultimately defaulting the

49
The Oxford College of Engineering, Bangalore, MBA Programme

Canara Bank

banks, top priority being repayment of deposits. The bank has the highest
exposure under this sector where the incidence of non performance is higher.
5. Textile industry is plagued by high cost of production & low returns, & is running
in loss and many units are being closed down.
6. The bank got fairly good exposure in real estate. The depressed real estate market
has resulted in poor recovery rate in almost the entire segment.
7. In agriculture sector poor recovery has been due to various factors-recovery &
RPDS advances has been affected by the sharp fall in rubber prices. Through out
the country aqua culture miserably failed due to reasons beyond the control of the
borrowers we are not an exception.
8. Poor recovery in schematic loans is mainly due to willful default by the
borrowers.
9. Default in share loans has been due to setback in securities market & sharp
decline in the values of equities.

RECOVERY ROUTE:
i. Lok Adalat.
ii. Compromise route is the most effective and time consuming procedure,
due to the delay in obtaining a favorable decree, further delay in the
execution of the decree, the securities available to bank may get
depreciated or alleviated.

COMPROMISE ROUTE IS POSSIBLE IN THE FOLLOWING CASES:
1. When all the remedies other than filing a suit are exhausted.
2. Activity of the borrower closed / become unviable due to reasons beyond his
control & overdue mounting up due to application of application of interest /
penal interest & other charges & the recovery of the debt has become doubtful.
3. Legal position of the bank is weak.
4. Values of the primary / collateral securities are inadequate.
5. Not a willful defaulter.

50
The Oxford College of Engineering, Bangalore, MBA Programme

Conveyance expenses incurred by such staff members to be reimbursed. At branches where concentration of NPA is more. one of the members of the award staff who is well versed with locality and the borrowers should be spared from other works of the office and asked to facilitate recoveries through personal visits and assisting the recovery officers in the unit / borrower visits. Prevention from further deterioration and recovery of the existing NPAs alone are the two alternatives for us to come out of the present problems. Asset Recovery Department will conduct a study of banks exposure in different sectors. Across the table decisions on compromise proposals submitted at the recovery campus. 3. Therefore the management of NPA calls for a short term and long term strategy. Officials from corporate office who attend such campus to be delegated with powers to arrive at decisions as above. types of advances and other various parameters vis a vis the NPA position and the findings will be communicated to all field functionaries for initiating corrective action. Recovery camps to be conducted at centers identified as having higher concentration of irregular loans in the times of revenue recovery camps. Efforts shall be taken by branches to speed up the disposal of non-banking assets at the possession of the bank. DEALING PROBLEMS LOANS: ASSETS COMING UNDER SMALL VALUE SEGMENTS: 51 The Oxford College of Engineering. Bangalore. MBA Programme . ASSET RECOVERY DEPARTMENT: 1. Asset recovery cells to be strengthened with additional professional man power. 4. 2. The real effect of the continuing menace of NPA will have a cascading effect on the bottom line because of the higher and higher provisions required on such accounts. 2. Canara Bank RECOVERY MANAGEMENT – SSUGGESTIONS FOR IMPROVEMENT: 1.

Hence recovery done by means of:  Personal contacts.00 1. Most of the accounts under this category come under priority sector and primary / collateral securities are not generally available and many borrowers are not even available for contact. MBA Programme . Bangalore. Considering the above facts. No legal actions to be initiated against borrowers coming under the small valued band.  Compromise. 2.10000. go for compromise. we had taken decision to shed such assets coming under priority sector.5000 are identified as small value assets and considering the huge volume of such accounts. Salvage operations are to be intensified for effecting recoveries under loss asset categories and also in cases where we have already shed assets. 3. 2. Now its felt that small value band can be extended upto Rs. the department suggests the following measures for the optimum recovery in the small value band upto Rs.10000. 3. 2. Accounts with net balance up to Rs. 3.  Revenue recovery. 52 The Oxford College of Engineering. Similarly. Services of approved recovery agents can be considered very discreetly in the recovery of small value accounts. Canara Bank 1. there is no such scope for legal action also. In cases of failure of letter personal contact and persuasion fall. small loans identified as loss or doubtful will also have to be shed to give administrative efficiency upto larger NPAs. (Loss and doubtful category only) and regional heads are given delegation to write-off such assets.  Persuasion. non priority sector. Incentive schemes for motivating members of staff are to be built in the recovery policy of the bank. Recovery policies in this segment shall be more flexible and functionaries at regional office shall be given complete freedom in the settlement of such accounts.

The decision of compromise and shedding of loss / doubtful assets will be done through committee approach at the regional offices. If the accounts have become NPA due to cash flow problem the repayment programme must be rescheduled according to the revised cash flow projections. This will enable the bank to maintain asset quality at the same level for 2 years. 2. If the borrower is co-operative the settlement through compromise route to be considered. 5. In cases of sick but viable industries units prospects for rehabilitation are to looked into and nursing programme to be evolved. If no results are forthcoming from the reminders. Send simple reminder letters in installments / interest debited are not serviced on due dates. In case of doubtful / loss assets category and assets already written off. NPA RECOVERY ACTION PLAN: 1. 6. if the repayment is coming as per the redrawn schedule. 5. Bangalore. SUB-STANDARD ASSETS: This segment is more effort elastic in terms of recovery and hence the bank’s recovery policy is to be tuned up for maximizing the recoveries from the sub-standard efforts. if the asset quality can be upgrade after two years. members of the staff can be given incentives including reimbursement of actual experiences incurred restricted to a certain percentage of recovery. If all the above efforts fall the regional heads can use their discretion for shedding such assets.5lakhs and evaluate the reasons for non performance of account and suggest / evolve methods to improve the quality. Officials from the assets recovery cell at the regional office to compulsorily meet the borrower with Rs. meet the borrower in person and persuade them to settle the accounts in persons. 4. 53 The Oxford College of Engineering. 3. MBA Programme . Canara Bank 4. 6.

Canara Bank DOUBTFUL ASSETS: Slippage of assets from sub-standard category to doubtful necessitates higher provisions requirements. and efforts shall be made to bring them to a compromise table for the settlement of the accounts. cases are to be closely followed up with the advocated to ensure that the decree is obtained within a reasonable time. 2. 20% to 50% provision has to made on such assets on the secured portion and 100% provision is required on the unsecured provision. 3. In case of suit filed accounts. 2. Securities are to be inspected at periodic intervals and correct value properly recorded. guarantor. If these assets are shed. Ensure that the securities charged to the bank are in tact and are not alienated. As per loss assets are concerned we have made 100% provision for loan losses. recovery through the RR route is to be resorted to. Even after write-off the branches can continue the recovery efforts thus made and can improve the bottom line of the bank. If recovery in the normal course is difficult. Hence there will not be any further impact on bottom line. Legal remedy is the last resort. co-obligate. Recovery of the doubtful assets in the normal course is difficult. notionally from the books of the bank. Bangalore. 5. 5. Depending on the age of the asset. 4. MBA Programme . Most of the accounts coming under this category are either suit filed or RR initiated. LOSS ASSETS: CHANCES OF RECOVERY IN MOST OF THESE CASES ARE VERY REMOTE: 1. the following strategies can be adopted in handing doubtful assets: 1. 4. 54 The Oxford College of Engineering. Borrowers are to be met in person to get the accounts settled through persuasion. Such notional write-off will help in cleansing the balance sheet. we may have to resort to legal remedies against the borrowers. In case of accounts coming under priority sector. 3. Recovery through legal action is time consuming.

Bangalore. The purpose of financial analysis is to diagnose the information contained in financial statements so as to judge the profitability and financial soundness of the firm. MBA Programme . NON PERFORMING ASSETS RATIO: NET NPA RATIO: It is the most important ratio which measures the NPA as a percentage of advances. profit and loss account other operative data. Canara Bank 4. 55 The Oxford College of Engineering. ANALYSIS & INTERPRETATIONS OF DATA FINANCIAL ANALYSIS: The term financial analysis refers to the process of determining financial strengths and weakness of the firm by establishing strategic relationship between the items of balance sheet.

of branches 2409 2424 2469 Capital 578 410 410 Reserves 2894 3739 4842 Deposits 64030 72095 86345 % Growth 8.4 12. Canara Bank CANARA BANK PROGRESS AT A GLANCE (Amt in Crore) 2003-04 2004-05 2005-06 No.77 Non-Resident Deposits 11358 12482 12909 Foreign Business Turnover 59333 65676 47347 Advances (Net) 33127 40472 47639 % Growth 19. MBA Programme .02 22.71 Advances to Priority Sector 10536 14604 19580 Agriculture 3888 5407 6545 56 The Oxford College of Engineering.6 19.17 17. Bangalore.

64 2.14 Net NPA Ratio 3.63 Book Value (Rs) 57.14 125.89 3.59 2.26 2.56 32.34 Earning Per Share (Rs) 12.84 98. MBA Programme .5 12.88 12.89 Priority Credit to Net Credit 41 42 44 Business per Employee (Rs.83 20.38 2.15 2.64 2.in crore) 2. of Staff 47796 47566 47613 Total Income 7799 8170 9080 Total Expenditure 6143 6173 6221 Operating Profit 1656 1997 2859 Net Profit 741 1019 1338 IMPORTANT RATIOS (%) Capital Adequacy Ratio 11.88 Total No.48 Borrowal Accounts (in Millions) 2.24 1.5 3 Profit per Employee (Rs in Lakh) 1.66 Return on Assets (RoA) 1. Canara Bank Small Scale Industries 3366 3884 4971 Advances under DIR Scheme 18 21 38 Advances to SC/ST 478 598 758 Export Credit 3672 4429 5497 Deposit Accounts (in Millions) 23 23 22.03 1. Bangalore.97 57 The Oxford College of Engineering.

Canara Bank TABLE: 1 Table showing Net NPA Ratio% from 2003-04 to 2005-06 2003-2004 2004-2005 2005-2006 3.5 2 1.89 3.5 4 3. Bangalore.5 1 0.5 3 2.59 2.5 0 2003-2004 2004-2005 2005-2006 NET NPA RATIO% 58 The Oxford College of Engineering. MBA Programme .89 GRAPH: 1 Graph showing Net NPA Ratio% from 2003-04 to 2005-06 4.

As a result Gross NPA ratio of the bank stood at 6.8 11.66 GRAPH: 2 Graph showing Capital Adequacy Ratio from 2003-04 to 2005-06 12.96% a year ago.50 12.6 11. MBA Programme . Primary due to the introduction of new 90 day norms.88 12.46 crore.187.8 12. TABLE: 2 Table showing Capital Adequacy Ratio from 2003-04 to 2005-06 2003-2004 2004-2005 2005-2006 11.3127 crore.2 12 11.1378 crore. Canara Bank Interpretation Prudent asset management was accorded greater emphasis during the year 2005-2006. Net NPA ratio came down to 2.33% compared to 5. Gross NPA of the bank as at March 2006 stood higher at Rs.77 crore and resulting in recovery of Rs. On the recovery front.563 crore a year before. During the year 7107 recovery meets were conducted by the bank leading to statement of 21201 accounts involving compromise amount of Rs.606 crore compared to Rs. Bangalore.274.4 12. the banks performance under cash recovery stood at Rs.6 12.89% from 3.4 2003-2004 2004-2005 2005-2006 Capital Adequacy Ratio 59 The Oxford College of Engineering.59% asset March 2005. While Net NPA of the bank stood at Rs.

the bank raised their 2nd capital worth Rs.6 0. has been proposed by BOD for the year ended March 2006 including an interim dividend of 25% declared after the finalization of account for first half of 2005-06 and fully complying with RBI guidelines on dividend declaration policy.2 0 2003-2004 2004-2005 2005-2006 Return On Assets 60 The Oxford College of Engineering. A dividend of 50% amounting to Rs.24 1.2 1 0. This is as against distributed as dividend for the year 2004-2005. In order to further argument its capital base.03 1. Bangalore.250 crore during 2005-06.1531 crore as against Rs.34 GRAPH: 3 Graph showing Return on Assets (RoAs) from 2003-04 to 2005-06 1. Canara Bank Interpretation The banks owned funds. TABLE: 3 Table showing Return on Assets (RoAs) from 2003-04 to 2005-06 2003-2004 2004-2005 2005-2006 1.205 crore.66% as at March 2005 from 12.8 0.4 1.4024 crore as while the banks capital stood at 410 crore. MBA Programme . as at March 2005 aggregated to Rs.4 0. Capital to Risk weighted Asset Ratio (CRAR) of the bank improved further to 12.05% as at March 2005.

The return on total assets (also return on capital employed or return on investment) is defined as Net Income (Profit) divided by average total assets. Bangalore. Canara Bank Interpretation: This ratio correlates between the total assets and the net profit. it indicates the higher productivity of the total resources / assets and vice verse in adverse cases. if the actual ratio is equal or more than 10 percentage.83 20. As such.56 32. TABLE: 4 Table showing Earning per Share (EPS) from 2003-04 to 2005-06 2003-2004 2004-2005 2005-2006 12.63 GRAPH: 4 Graph showing Earning per Share (EPS) from 2003-04 to 2005-06 35 30 25 20 15 10 5 0 2003-2004 2004-2005 2005-2006 Earning Per Share (EPS) 61 The Oxford College of Engineering. MBA Programme . A return of 10 percentages is considered as ideal ratio.

23 2.32 10.83 9.91 62 The Oxford College of Engineering. Dena Bank 16.65 17.e.87 18. Punjab National Bank 11.80 9. Bangalore. Indian Bank 8.85 12.40 10.98 7.83. 32.70 3. Allahabad Bank 10. Andhra Bank 2.91 2.62 14. Bank of Baroda 5. Bank of Maharastra 5.89 7.02 5.45 4. United Bank of India 7.99 4.e.57 7.06 3.71 11.08 2.89 3.37 2.28 6.No Name of the Banks 2004 2005 2006 I NATIONALISED BANKS 1. UCO Bank 5.40 NIL 13.82 2. MBA Programme .32 5.90 5.36 3.46 6.59 2.37 4.65 1. Bank of India 6. Vijaya Bank 6. It is found out by dividing the amount of profit after tax by the number of shares. Syndicate Bank 4.58 16.26 4.31 1.20 1. Indian Overseas Bank 6.89 9.02 5. TABLE: 5 Non-Performing Assets as Percentage of Advance – Public Sector Banks As on March 31 in percent Net NPA as % to Net Advances Sl.31 11.75 19. 12. Oriental Bank of Commerce 3.72 2.52 3.52 4. Union Bank of India 6. which is good sign of the bank.57 8. The earning per share of the bank has increased drastically in the year 2005-2006 i. Corporation Bank 2.15 2. Canara Bank Interpretation: The ratio measures the profit available to the equity holders on a per share basis.79 0.29 2. Central Bank of India 7. Punjab & Sind Bank 5.93 3.45 1. Canara Bank 3.50 5.02 2.81 4.86 0.98 15.63 compare to 2003-2004 i.61 0.

Canara Bank II State Bank of India [SBI] 5. Name of the Bank 2004 2005 2006 I.39 Interpretation: The ratio of net non-performing assets to net advances also declined during 2005-06.97 3.72 4. Net NPA ratio of the Canara Bank declined from 3.77 3.58 2.40 NIL State Bank of Saurashtra 4. MBA Programme .96 State Bank of Patiala 2. Majority of the banks.48 III ASSOCIATES OF SBI State Bank of Bikaner & Jaipur 5.95 3.No. TABLE: 6 Public Sector Banks: Total Assets As on March 31 Rs.65 State Bank of Indore 3.19 2.36 5.59% as at March 31st 2005 to 2. Dena Bank has the highest ratio with 9.06 1.24 State Bank of Hyderabad 4.13 1.94 1.66 NIL State Bank of Mysore 7.6 percent.89% as at March 31st 2006. NATIONALISED BANK 1 Allahabad Bank 24764 28051 34704 2 Andhra Bank 20937 24678 27009 3 Bank of Baroda 70910 76425 85109 4 Bank of India 69806 76627 84860 5 Bank of Maharastra 21470 24905 32213 6 Canara Bank 72135 82055 99539 7 Central Bank of India 52614 57105 63345 8 Corporation Bank 23604 26272 29154 9 Dena Bank 18842 20162 22160 10 Indian Bank 30263 35375 39154 11 Indian Overseas Bank 35441 41155 47322 12 Oriental Bank of Commerce 32237 33999 41007 13 Punjab National Bank 72915 86222 102332 14 Punjab & Sind Bank 13754 14491 15011 15 Syndicate Bank 31756 34435 47223 16 UCO Bank 31881 34914 43798 63 The Oxford College of Engineering.4 percent followed by Central Bank of India with 5.53 NIL State Bank of Travancore 5. in crore TOTAL ASSETS Sl. Bangalore.50 3.63 4. 4 banks reported “nil” ratio during 2005-06. this ratio is less than 4 percent.25 0.

MBA Programme . Bangalore. ASSOCIATES OF SBI State Bank of Bikaner & Jaipur 15504 18038 20256 State Bank of Hyderabad 22121 26132 30646 State Bank of Indore 9846 11364 13044 State Bank of Mysore 10354 11336 13758 State Bank of Patiala 17373 21289 26897 State Bank of Saurashtra 9370 11453 12837 State Bank of Travancore 16493 19033 24003 Total of 7 Associates 101061 118645 141441 Total of SBI Group 449289 494522 549256 Total of Public Sector Banks 1123641 1285794 1471427 GRAPH: 5 Public Sector Banks: Total Assets 1000000 900000 Total of 19 800000 Nationalised 700000 Banks 600000 SBI 500000 400000 300000 200000 Total of 7 100000 Associates 0 2004 2005 2006 64 The Oxford College of Engineering. Canara Bank 17 Union Bank of India 44358 51060 58317 18 United Bank of India 22776 24269 25843 19 Vijaya Bank 16145 19072 24071 Total of 19 Nationalized Banks 674352 791272 922171 II. State Bank of India (SBI) 348228 375877 407815 III.

794 crore as on 31st March. 14 Banks reported higher growth rate than the average growth rate of the group.4 percent which is higher than the growth rate of 11.99539 crore as on 31st March 2006. Total Assets of the Canara Bank increased from Rs. During the year 2005-06. Syndicate bank recorded the highest growth in total assets with 37. Canara Bank Interpretation: Total Assets of the Public Sector Banks (PSBs) increased from Rs.2 percent of the previous year.No Name of the Bank 2004 2005 2006 I.12.82055 crore as on 31st March 2005 to Rs. 2005 to Rs. in crore Sl.1 percent during 2005-06.8 percent of the previous year. TABLE: 7 Public Sector Banks: Advances st As on March 31 Rs.85.3% which is higher than the growth rate of 13. NATIONALIZED BANKS 1 Allahabad Bank 10482 12544 15342 2 Andhra Bank 9678 11513 12885 3 Bank of Baroda 33663 35348 35601 4 Bank of India 38311 42633 45856 5 Bank of Maharastra 8255 9508 11732 6 Canara Bank 33127 40472 47639 7 Central Bank of India 21288 23159 22804 8 Corporation Bank 10987 12029 13890 65 The Oxford College of Engineering.71.427 crore as on 31st March 2006 showing a growth rate of 14. Bangalore. showing a growth rate of 21. MBA Programme .14.

MBA Programme . State Bank of India (SBI) 120806 137758 157934 III. ASSOCIATES OF SBI 1 State Bank of Bikaner & Jaipur 5883 6778 8597 2 State Bank of Hyderabad 8423 9663 11814 3 State Bank of Indore 4285 5183 6406 4 State Bank of Mysore 4915 5261 6307 5 State Bank of Patiala 8679 10746 13086 6 State Bank of Saurashtra 4111 4649 5240 7 State Bank of Travancore 7436 9171 11132 TOTAL OF 7 ASSOCIATES [III] 43732 51446 62582 66 The Oxford College of Engineering. Canara Bank 9 Dena Bank 7523 8436 9412 10 Indian Bank 10908 12275 14126 11 Indian Overseas Bank 15162 17447 20295 12 Oriental Bank of Commerce 14158 15677 19681 13 Punjab & Sind Bank 5577 5892 6030 14 Punjab National Bank 34369 40228 47225 15 Syndicate Bank 14885 16305 20647 16 UCO Bank 12805 15923 20626 17 Union Bank of India 21883 25515 29426 18 United Bank of India 6823 7352 7963 19 Vijaya Bank 6197 7884 11045 Total of 19 Nationalized Banks 315581 360140 12225 II. Bangalore.

Other banks.49344 crore recording a growth rate of 15. Canara Bank TOTAL OF STATE BANK GROUP [II+III] 164538 189204 220516 TOTAL OF PUBLIC SECTOR BANKS [I+II+III] 480119 549344 632741 GRAPH: 6 Public Sector Banks: Advances 600000 500000 Total of 19 Nationalised 400000 Banks (I) 300000 State Bank of India (SBI) 200000 Total of 7 Associates(III) 100000 0 2004 2005 2006 Interpretation: The rate of growth in advances showed slight improvement during 2005-06 as compared to previous year.9 percent).5 percent).6. MBA Programme .32. UCO Bank (29.1 percent.5.2 percent as against the growth rate of 14.6 percent) and Oriental Bank of 67 The Oxford College of Engineering. Bangalore.5 percent during 2005-06. Total advances increased to Rs.741 crore as on 31 st March.6 percent during 2005-06 as against 15. In the case of nationalized banks there is a marginal improvement in the credit disbursement from 14.1 percent during 2004-05 to 14. State Bank of Bikaner & Jaipur (26. Syndicate Bank (26. 17 banks recorded higher growth in advances than the group average with Vijaya Bank in the top slot with 40.4 percent of the previous year. State Bank Group showed better growth in advances than the nationalized banks group with a growth rate of 16. 2006 from Rs.0 percent of the previous year. which have showed impressive growth in advances were.

5 percent).in crore Gross NPA Sl. NATIONALIZED BANKS 1 Allahabad Bank 2002 1842 1418 2 Andhra Bank 524 581 615 3 Bank of Baroda 4489 4168 3980 4 Bank of India 3722 3804 3734 5 Bank of Maharastra 906 958 954 6 Canara Bank 2112 2475 3127 7 Central Bank of India 3243 3244 3092 8 Corporation Bank 587 657 722 9 Dena Bank 1996 1617 1484 10 Indian Bank 2175 1630 1192 11 Indian Overseas Bank 1819 1896 1576 12 Oriental Bank of Commerce 952 1146 1211 13 Punjab & Sind Bank 1092 1247 1204 14 Punjab National Bank 4140 4980 4670 15 Syndicate Bank 1299 1420 1590 16 UCO Bank 1333 1366 1479 17 Union Bank of India 2420 2288 2347 18 United Bank of India 1216 959 764 19 Vijaya Bank 603 506 390 Total of 19 Nationalized Banks 36630 36884 35549 II. MBA Programme . Bangalore. Central Bank of India recorded a declined growth in advances with 1. The total advances of the Canara Bank increased to Rs.7 percent. ASSOCIATES OF SBI State Bank of Bikaner & Jaipur 585 580 484 State Bank of Hyderabad 899 740 691 State Bank of Indore 320 295 266 State Bank of Mysore 625 562 515 State Bank of Patiala 628 531 503 State Bank of Saurashtra 443 354 200 68 The Oxford College of Engineering. TABLE: 8 Public Sector Banks: Gross NPA As on March 31st Rs.40472 crore as on 31st March 2003 recorded a growth rate of 17. 2006 from Rs.47639 crore as on 31st March. Canara Bank Commerce (25. State Bank of India (SBI) 15486 13506 12667 III.No Name of the Bank 2004 2005 2006 I.5 percent during 2005-06.

MBA Programme .2 percent during 2005-2006. Bangalore.859 crore as on 31st March. 54. Gross NPA of PSBs declined from Rs. Gross NPA declined by 24.18. 69 The Oxford College of Engineering.2005 and 2006 respectively.51.087 crore to Rs. Seven Banks showed higher growth in Gross NPA than the previous Year.866 crore t Rs.537 crore and Net NPA came down from Rs. Canara Bank State Bank of Travancore 728 635 662 Total of 7 Associates 4228 3697 3321 Total of SBI Group 19714 17203 15988 Total of Public Sector Banks 56344 54087 51537 GRAPH: 7 Public Sector Banks: Gross NPA 40000 35000 Total of 19 30000 Nationalised 25000 Banks SBI 20000 15000 10000 Total of 7 5000 Assosiates Banks 0 2004 2005 2006 Interpretation: Various supportive policy measures coupled with consistent efforts on the part of the banks helped to reduce the gross and net non-performing assets of the banks in absolute terms as on 31st March.24. 2006.

Name of the Bank 2004 2005 2006 I. MBA Programme . TABLE: 9 Public Sector Banks: Net NPA As on March 31st Rs.No. Gross NPA increased by 26. Bangalore. State Bank of India (SBI) 6810 6183 5442 III. NATIONALIZED BANKS 1 Allahabad Bank 1160 887 363 2 Andhra Bank 237 206 120 3 Bank of Baroda 1913 1700 1761 4 Bank of India 2304 2286 2062 5 Bank of Maharastra 480 459 288 6 Canara Bank 4288 1454 1378 7 Central Bank of India 1699 1563 1271 8 Corporation Bank 253 198 250 9 Dena Bank 1227 997 884 10 Indian Bank 904 755 383 11 Indian Overseas Bank 958 912 578 12 Oriental Bank of Commerce 454 225 NIL 13 Punjab & Sind Bank 651 639 577 14 Punjab National Bank 1810 1527 449 15 Syndicate Bank 690 700 532 16 UCO Bank 724 697 753 17 Union Bank of India 1338 1253 845 18 United Bank of India 542 406 299 19 Vijaya Bank 373 206 100 Total of 19 Nationalized Banks 22005 17070 12893 II.3127 crore as on 31 st March 2006.3%. in Crore Net NPA Sl. Canara Bank Gross NPA of the Canara Bank increased from Rs. ASSOCIATES OF SBI State Bank of Bikaner & Jaipur 342 282 107 State Bank of Hyderabad 417 315 77 State Bank of Indore 153 138 NIL State Bank of Mysore 362 273 186 State Bank of Patiala 255 161 NIL 70 The Oxford College of Engineering.2475 crore to Rs.

Two banks (Banks of Baroda and UCO Bank) recorded higher growth in Net NPA during 2005-2006 71 The Oxford College of Engineering. State Bank of Indore. Canara Bank State Bank of Saurashtra 204 164 NIL State Bank of Travancore 425 280 154s Total of 7 Associates 2158 1613 524 Total of SBI Group 8968 7796 5966 Total of Public Sector Banks 30973 24866 18859 GRAPH: 8 Public Sector Banks: Net NPA 25.000 SBI 10.000 Total of 19 20.000 Associate Banks Nationalised Banks 15. MBA Programme .000 Associates Banks 0 2004 2005 2006 Interpretation: In the case of Net NPA. Bangalore. four banks (Oriental Bank of Commerce.000 Total of 17 5. State Bank of Patiala and State Bank of Saurashtra) reported “zero” NPAs.

00 Punjab National Bank 53.40 46.96 34.06 55.29 66.17 Bank of Baroda 54.02 58.52 49.91 48.20 United Bank of India 34.1454 crore to Rs.88 44.74 Andhra Bank 52.37 59.67 47.70 52.47 53.21 46.17 Punjab & Sind Bank 44. Net NPA decreased by 5.49 72 The Oxford College of Engineering.25 49. Bangalore.36 Canara Bank 51.68 44.29 Indian Bank 45.23 61.44 46.17 Central Bank of India 45. TABLE: 10 Public Sector Banks Credit – Deposit Ratio Name of the Bank 2004 2005 2006 NATIONALIZED BANKS [I] Allahabad Bank 46.10 52.58 Bank of Maharastra 43.56 Union Bank of India 53.74 57.79 Bank of India 64.1378 crore as on 31st March 2006.45 51.72 Syndicate Bank 52.14 53.69 50.60 53.11 56.79 34.96 State Bank of Hyderabad 48.18 48.32 51.99 Vijaya Bank 42.56 Total of 19 Nationalized Banks [I] 51.59 55.15 64.14 55.70 State Bank of Indore 54.65 46.40 Indian Overseas Bank 47.34 54. Net NPA of the Canara Bank declined from Rs.66 56.38 45. Canara Bank than the previous year.79 Corporation Bank 58.16 45.87 52.99 51.26 48.74 56.56 44.57 ASSOCIATES OF SBI State Bank of Bikaner & Jaipur 50.92 State Bank of India (SBI) [II] 44.26 40.89 Dena Bank 48.15 51.80 52. MBA Programme .18 54.2%.15 42.26 48.92 Oriental Bank of Commerce 49.54 48.48 UCO Bank 47.06 53.

09 State Bank of Travancore 55.8 percent 2005-06.90 State Bank of Patiala 62.58 56.57 50.77 TOTAL OF STATE BANK GROUP [II+III] 46. Canara Bank State Bank of Mysore 57.36 49.65 58.94 TOTAL OF PUBLIC SECTOR BANKS 49.45 TOTAL OF 7 ASSOCIATES [III] 54.2 percent during 2004-05 to 54. MBA Programme .23 State Bank of Saurashtra 54.6 percent followed 73 The Oxford College of Engineering.20 54.87 48.37 56.39 50.57 51. 11 banks recorded higher C/D ratio than the group’s average. Bank of India recorded the highest ratio with 64. Bangalore.07 51.32 54.24 57.24 60.14 58.57 GRAPH: 9 Public Sector Banks: Credit – Deposit Ratio 180 160 140 Total of 19 120 Nationalised Banks(I) 100 State Bank of India 80 60 Total of 7 Associates [III] 40 20 0 2004 2005 2006 Interpretation: Credit Deposit Ratio (C/D) of all Public Sector Banks improved marginally from 54.

08 2.48 1.96 Canara Bank 3.06 1.55 United Bank of India 5. Bangalore.13 State Bank of India (SBI) 4.02 5.04 Bank of Baroda 3.77 32.5 percent and Corporation Bank with 59.27 11.53 Andhra Bank 1.00 Punjab & Sind Bank 10.89 69.91 1.36 48. MBA Programme .62 Bank of India 5.71 30.17%.37 4.67 54.51 Oriental Bank of Commerce 1.80 -0.66 Punjab National Bank 3.44 55.00 State Bank of Indore 2.65 2.Public Sector Banks Name of the Bank Net NPA Net NPA Variation in % Reduction 2005-% 2006-% Net NPA % in Net NPA% Allahabad Bank 7.20 Bank of Maharastra 4.67 State Bank of Bikaner & Jaipur 4.97 State Bank of Patiala 1.29 2.23 42.46 2.82 2.49 100.73 19.72 2. The lowest ratio of 34.04 41.69 2.83 9.60 80.86 48.02 22.65 Corporation Bank 1.40 NIL 1.62 1.39 1.49 NIL 1.15 0.75 1.15 2.25 0.00 State Bank of Travancore 3.37 4.87 16.50 0. TABLE: 11 Comparative NPA Bank Figures.93 Indian Overseas Bank 5.13 1.98 State Bank of Hyderabad 3.57 1. Canara Bank by State Bank of Mysore with 61.65 0.00 Dena Bank 11.65 1.61 Syndicate Bank 4.70 19.89 9.66 100.50 3.89 0.87 2.86 UCO Bank 4.40 2.36 3.24 2.23 2.85 2.00 State Bank of Mysore 5.9 percent.54 Indian Bank 6.58 1.19 2.71 3.88 74.28 Union Bank of India 4.58 74 The Oxford College of Engineering.93 0.70 65.00 State Bank of Saurashtra 3.06 Vijaya Bank 2.45 20.98 2.49 Central Bank of India 7.59 2.38 45.99 0.79 0.71 16.53 NIL 3.66 NIL 2.9 percent was recovered by United Bank of India.86 0.43 20.61 0.53 100.71 66.52 3.40 100. Canara Bank recorded higher credit deposit ratio than the group’s average with 55.91 2.

2005) (31.2004) (31.035 561 1.590 179 171 266 75 The Oxford College of Engineering.667 3. Bangalore.204 91 181 160 Syndicate Bank 1.670 531 500 706 Punjab & Sind Bank 1. Canara Bank Interpretation: There is an increase of 90% in the ratio of Net NPA of the Corporation Bank in March 2006 than previous year.484 259 549 673 Indian Bank 1. The Net NPA percentage of Canara Bank has reduced by over 19%.734 186 212 216 Bank of Maharastra 954 941 1.039 Indian Overseas Bank 1.092 543 635 831 Corporation Bank 722 85 143 107 Dena Bank 1.06) (31.576 356 360 526 Oriental Bank of Commerce 1.559 6.980 836 731 1.144 Canara Bank 3.235 8.192 1.746 6.3.988 4.415 4.067 1.3.668 State Bank of Bikaner & Jaipur 484 228 218 172 State Bank of Hyderabad 691 273 415 425 State Bank of Indore 266 123 166 142 State Bank of Mysore 515 143 170 242 State Bank of Patiala 503 157 239 260 State Bank of Saurashtra 200 98 233 176 State Bank of Travancore 662 309 235 225 TOTAL 15.2006) State Bank of India 12.3. In the case of all other public sector banks the ratio declined during March 2006.211 388 492 436 Punjab National Bank 4.418 280 350 571 Andhra Bank 615 168 155 180 Bank of Baroda 3.039 Bank of India 3. MBA Programme .310 Allahabad Bank 1.127 596 782 865 Central Bank of India 3. TABLE: 12 NPAs and Recoveries of Public Sector Banks (Rupees in Crore) NPAs Recoveries Name of the Bank (31.3.

581 14.3.312 18.347 357 339 716 UCO Bank 1.2006 NPAs Recoveries Interpretation: State Bank of India recorded the highest recovery of NPAs amounted to Rs.3.835 8.418 Grand Total 51.728 GRAPH: 10 NPAs and Recoveries of Public Sector Banks 40000 35000 30000 25000 20000 15000 Total of State Banks 10000 Total of Nationalised 5000 Banks 0 31. Bangalore.077 10.2004 31.668 crore during 2005-2006 followed by Bank of India Rs.537 12.549 7.3.2005 31.479 564 373 357 United Bank of India 764 263 294 340 Vijaya Bank 390 177 182 246 TOTAL 35.3006 31.6. Canara Bank Union Bank of India 2.3. MBA Programme . Canara Bank has initiated 76 The Oxford College of Engineering.1144 crore.

22% 5. in crore] 2150 2112 2475 3127 Percentage of Gross NPA 7.03. MBA Programme .03.96% 6. TABLE: 13 NPA Financial Highlights.865 crore during the year 2005-2006.05 31.03.89% 3.03.06 Gross NPA [Rs. Canara Bank several steps for reduction of NPAs and achieved substantial cash recovery to the extent of Rs.72% 6. Bangalore. in crore] 1345 1288 1454 1378 Percentage of Net NPA 4 84% 3.33% Net NPA [Rs. [Previous Year Rs.59% 2.89% Provision for NPA [in cr] 399 385 476 1239 77 The Oxford College of Engineering.04 31.03 31.782 crore].Canara Bank As on As on As on As on 31.

Gross NPA came down from Rs.72% to 6.03. Canara Bank GRAPH: 11 NPA Financial Highlights – Canara Bank 3500 3000 2500 Gross NPA 2000 Net NPA 1500 1000 Provision for NPA 500 0 31.04 31.2112 crore and as a percentage to total advances from 7. Bangalore.06 Interpretation: During 2003-2004. Net NPA of the bank declined from Rs.03.2150 crore to Rs. MBA Programme .03.1345 crore at 78 The Oxford College of Engineering.03.03 31.22%. the Canara Bank continued to accord top priority to its asset quality and achieved considered success in bringing down volume of its impaired assets.05 31.

Canara Bank March 2003 to Rs.2%.3% during 2005-2006.  Total assets of the Canara Bank increased from Rs.17% which is higher than the group’s average of public sector banks during 2005-2006. Gross NPA increased from Rs.2475 crore to Rs.33%.3127 crore as on 31st March 2006.1378 crore at March 2006.  Net NPA of the Canara Bank declined from Rs. Net NPA of the bank declined from Rs.  The total advances of the Canara Bank increased from Rs.  Gross NPA of the Canara Bank increased from Rs. Gross NPA increased by 26.399 crore).59% to 2.96% to 6.1454 crore to Rs. the Net NPA ratio coming from 4.89%.3127 crore and as a percentage to total advances increased from 5. 2006 from Rs.385 crore (previous year Rs.99539 crore as on 31st March 2006.  The Net NPA percentage of Canara Bank has reduced by over 19% during 2005- 2006.81% to 3. 5.8% of the previous year. Provisions made during the year for NPA amounted to Rs. showing a growth rate of 21. MBA Programme .7%.59% as at March 31 st 2005 to 2.2475 crore to Rs. the Net NPA ratio coming from 3.89% as at March 31st 2006. FINDINGS AND CONCLUSIONS SUMMERY OF FINDINGS:  The Net NPA ratio of the Canara Bank declined from 3.1454 crore at March 2005 to Rs.1239 crore (Previous Year Rs. The provisions made during the year for NPA amounted to Rs.3% which is higher than the growth rate of 13.47639 crore as on 31 st March. Net NPA decreased by 5. During 2005-2006. 79 The Oxford College of Engineering.89%.476 crore).  Canara Bank has recorded a credit-deposit ratio of 55. Bangalore.40472 crore recording a growth rate of 17.1288 crore at March 2004. 82055 crore as on 31st March 2005 to Rs.1378 crore as on 31st March 2006.

1239 crore.33% and the provisions made during the year amounted to Rs. 80 The Oxford College of Engineering. Bangalore. Banks have seized assets of number of borrowers. MBA Programme .  The Canara Bank has taken steps to implement an Integrated Risk Management System. The main concern is the prevention of further slippage of performing accounts into the non performing category in the first instance. it was seen as a panacea to the entire problem of NPAs. CONCLUSION: NPA Act is a fine. Notices were flashed to defaulters. The problem of bad loans could be due to bad intensions or bad financial management or otherwise and also due to several external reasons.865 crore during 2005-2006 (Previous year Rs. The banks were euphoric and they took action swiftly. Preventing fresh flow of NPAs is as important as the recovery of the existing heavy stock of NPAs. comprehensive and an extra-ordinary piece of legislation. When this Act was enacted. The Act empowers banks to change or take over the management or even take possession of secured assets of the borrowers and sell or lease out the assets.782 crore).  The percentage of gross NPA of the Canara Bank during 2004-2006 is 6. covering credit. It is also a reassuring sign of Government’s commitment to reforms. This is for the first time that the banks can take over the immovable assets of the defaulting borrowers without the intervention of the court. Cash recovery became a reality. operational and market risks. Canara Bank  Canara Bank has recovered its NPA which is amounted to Rs. other than Debt Recovery Tribunal. No court. can entertain any appeal against the action taken by Banks and Financial Institutions under this act. They can claim future receivables and supersede the Board of Directors of the defaulting corporates.

this Securitization Act will surely help banks in reduction of NPAs to a great extent. Passing of the law cannot be considered to be synonymous with addressing the underlying problem our legal system has so far failed to enforce contractual obligations and this is hardly likely to cure this fundamental ill. The system will have to provide a mechanism to ensure that the unscrupulous borrowers are unable to play one bank against the other. to enable the act to be more effective and proactive as well. Canara Bank There can not be any quick fix or one short solution to solve the NPA problem. MBA Programme . Bangalore. unless more legal reforms are made and strictly enforced in true letter and spirit. Banks should also be empowered to proceed against the personal assets of the directors of the defaulting units / companies / groups etc. Exchange of credit information among banks would be of immense help to avoid possible NPAs. market for stressed assets are developed. A ‘defaulter’s alert system’ should be introduced to track potential defaulters by diving into their credit history and thus keeping such people aloof from the banking system. The above steps if effectively implemented can result in reduced NPAs. The banking system ought to be so geared that a defaulter at one place is recognized as a defaulter by the system. 81 The Oxford College of Engineering. Once recovery reforms are carried out.

 Banks concerned should continuously monitor loans to identify accounts that have potential to become non-performing.  Banks should create a new model of banking business by giving loans to the credit worthy and persons having clean credit history.  Canara Bank should concentrate more on credit appraisal. credit risk management and recoveries. MBA Programme . What is needed is having adequate preventive measures in place namely. Bangalore. 82 The Oxford College of Engineering. fixing pre-sanctioning appraisal responsibility and having an effective post-disbursement supervision. SUGGESTIONS  The origin of the problem of burgeoning NPAs lies in the quality of managing credit risk by the banks concerned. Canara Bank 6. Canara Bank should timely implement effective risk management system.  Canara Bank should offer rescheduling of loans of those borrowers who were struggling with high interest rates in a falling interest rate environment. monitoring.  There is an ‘urgent’ need for banks to implement risk management systems of global repute.

While getting a court decree for taking over assets may be easy. job and salary with those of previous customers who have paid on time. 83 The Oxford College of Engineering. Canara Bank  Finding out the real reason behind irregular repayments or defaults and if it is not willful then offer good debt management advice to the borrower. the real litigation starts at the time of execution. Many see credit scoring as a quick. fair and best practice. Your score is worked out using a computer-based ‘score card’ which awards your application points.  While lending. lender wants to make sure that the borrower is both able and willing to meet the repayments.  Settlement is a better option for the banks wrestling with the problem of non- performing assets. MBA Programme .  A credit checklist should be prepared for granting a loan and atleast five of the checklist questions should be answered positively. It works by comparing your details such as your previous credit history. It can help the banking personnel to take adequate precaution before granting a loan. Bangalore. according to the lender’s own criteria and lending policy.  Credit scoring allows lenders to determine whether or not you fit the profile of the type of customers they are looking for.

Canara Bank 84 The Oxford College of Engineering. Bangalore. MBA Programme .