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 nonperforming 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

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

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

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

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

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

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

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

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

UAE According to the latest information.Canara Bank 11. to supervise the functioning of it various foreign department to give the required thrust to Foreign Exchange business. • • • CANARA BANK. UK (Branch) Indo Hong Kong International Finance Co Ltd Hong Kong (Subsidiary) AL Razouki International Exchange company . Treasury and International Operation Wing 13. Vigilance Wing OFFICE AND BRANCHES: Canara bank has a network of 2415 branches. MBA Programme . particularly NRI deposits. 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. 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. Dubai. London. Retail Banking and Subsidiaries Wing 14. The presence of bank is shown under. Though small in size the Bank’s presence abroad has brought in considerable foreign business. 13 The Oxford College of Engineering. particularly export and to meet the requirements of NRI’s. Financial Management Wing 12. Bangalore.

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

Canara Bank ACHIVEMENTS: The Bank has already carved a niche in providing IT – based services. Return of assets a standard measure of profitability improved from 1. year growth being 11. besides 248 extension counter.81%) to reach Rs. Has also taken initiative in the environmental concerns.75.60%. MATURITY CLASSIFICATION OF VARIOUS ASSETS AND LIABILITIES: 15 The Oxford College of Engineering..08% (annualized) at a September 2004 to 1. The Bank was the first to launch networked ATM’s & obtain ISO certification. for 65% of the branches & 81% of aggregated business provided a wide array of services such as Network ATM’s. Global deposits of the Bank aggregated to as Rs. • • • • The Bank operating profit registered an increase of Rs. Has set up its own Apex level Training colleges to its employees and thereby takes care of the knowledge. skills and attitudinal development of employees. CANARA BANK shares are listed & Bangalore.28% (annualized) as at September 2007. • • • Establish well-developed quality circles have participated in many National & International level competitions and have returned with handsome prizes.419 cr during the corresponding previous half year. registered a growth rate of 38. Number of branches moved up to 2441 from 2416 as at September 2004. any where Banking . up from Rs. PERRFORMACE HIGHLIGHTS OF 2007-2008 • Canara Bank has posted net profit of s. Bangalore. MBA Programme .581 cr for the half year ended September 2007 as against Rs.31%. Computerized branches. 396crore as against Rs.67734 crore a year ago.948 cr for the first half of the preceding financial. Tele Banking & Remote Access Terminals etc.1496 crore. Mumbai & National Stock Exchanges.548 cr (57.

Canara Bank In respects of the certain Assets and liabilities. The main source of data for this study is the past records prepared by the bank. Secondary Data  Collection of data through bank annual reports. a. bank manuals and other relevant documents. 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. embedded options in the basis of past of past data.   Having face to face discussions with the bank officials By taking guidance from bank guide & departmental guide. MBA Programme . CANARA BANK have undertaking a behavior study. Karnataka State. 16 The Oxford College of Engineering. The data regarding bank history & profile are collected through “Exploratory Research Design” particularly through the study of secondary sources and discussions with individuals.  Collection of data through the literature provided by the bank. 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. Bellary (Dist). Bangalore. Data Collection Method Discussion with the manager & officers of the bank to get general information about the bank & its activities. based on which the bank is in a position to decide on the maturities of the asset and liabilities. 2. Sandur (TQ). The type of research used for the collection & analysis of the data is “Historical Research Method”.

greater disclosure in the case of defaults. 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.Canara Bank Research Measuring Tool: The tools used for data collection are: 1. 2. 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. Another major anxiety before the banking industry is the high transaction cost of carrying non performing assets in their books. Profit & Loss account are used to collect the data. Personal Interview 2. OBJECTIVES OF THE STUDY: 17 The Oxford College of Engineering. 2. The resolution of the NPA problem requires greater accountability on the part of the corporate. 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. Bangalore. Personal Interview: In this. 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. Balance Sheets. Secondary Sources 1. b. b. Secondary Sources: Annual company reports. MBA Programme . 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).

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

2. Secondary Data  Collection of data through bank annual reports. The data regarding bank history & profile are collected through “Exploratory Research Design” particularly through the study of secondary sources and discussions with individuals.   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. Research Measuring Tool: The tools used for data collection are: 1. Secondary Sources: 19 The Oxford College of Engineering. Personal Interview 2. 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.Canara Bank The main source of data for this study is the past records prepared by the bank.  Collection of data through the literature provided by the bank. bank manuals and other relevant documents. Personal Interview: In this. Bangalore. MBA Programme . Secondary Sources 1. Data Collection Method Discussion with the manager & officers of the bank to get general information about the bank & its activities.

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

The account remains 'out of order' for a period of more than 180 days. THEORITICAL OVERVIEW NPA ITS IMPACT AND MAGNITUDE: MEANING OF NPA: An asset is classified as non. 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. ii. 21 The Oxford College of Engineering. MBA Programme .Canara Bank 3. Interest and /or installment of principal remain overdue for a period of more than 180 days in respect of a Term Loan. it was decided to dispense with 'past due' concept. Accordingly. 2001. up gradation of technology in the banking system.performing asset (NPA) if dues in the form of principal and interest are not paid by the borrower for a period of 180 days. 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. in respect of an overdraft/ cash Credit(OD/CC). recovery climate. as from that date. etc. How ever with effect from March 2004. a Non performing asset (NPA) shell be an advance where i. 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. with effect from March 31.. If any advance or credit facilities granted by bank to a borrower becomes nonperforming. Due to the improvement in the payment and settlement systems.

in respect of an overdraft/ cash Credit(OD/CC). Any amount to be received remains overdue for a period of more than 180 days in respect of other accounts. 22 The Oxford College of Engineering. with effect form March 31. ’90 days’ overdue norm’ With a view to moving towards international best practices and to ensure greater transparency. Interest and /or installment of principal remain overdue for a period of more than 90 days in respect of a Term Loan. iv. i. and v. Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts. 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. iii. 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. and v. 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. MBA Programme . ii. Accordingly. The bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted.Canara Bank iii. Bangalore. 2004. 2004. form the year ending March 31. The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted. iv. a non-performing asset (NPA) shell be a loan or an advance where.

Bangalore. However. 2002 and 90 days from the end of the quarter with effect from March 31. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit / drawing power. Asset Type Sub standard (age up to 18 months) Doubtful 1 (age up to 2. MBA Programme Percentage of Provision 10% 20% 30% 50% 100% . 2004.5 years) Doubtful 2 (age 4.Canara Bank As a facilitating measure for smooth transition to 90 days norm. Banks should. therefore. bank has been advised to move over to charging of interest at monthly rests. 2004) as on the date of Balance Sheet or credits are not enough to cover the interest debited the same period. ‘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. by April 1. these accounts should be treated as ‘out of order’. but there are no credits continuously for 180 days (to be reduced to 90 days. 2002. ‘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) Loss Asset INCOME RECOGNITION-POLICY: The policy of income recognition has to be objective and based on the record of recovery. 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. with effect from March 31. Internationally income from non-performing assets (NPA) is not recognized on accrual 23 The Oxford College of Engineering.5 years) Doubtful 3 (age above 4. the date of classification of an advance as NPA should not be changed on account of charging of interest at monthly rests.

Canara Bank basis but is booked as income only when it is actually received. NSCs. However. becomes NPA as at the close of any year. 2. interest accrued and credited to income account in the corresponding previous year. MBA Programme . fees. On balance sheet date banks make provisions for loan losses. insurance etc. THE CONCEPT OF GROSS NPA: Income recognition is not possible once an account becomes NPA. the interest on such advances should not to be taken to income account unless the interest has been realized. Interest accrued but not realized. VIPs. If Government guaranteed advances become NPA. should be reversed or provided for if the same is not realized. 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. 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. Therefore. KVPs. 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. Usually no debits are permitted in non performing asset expect unavoidable expenditure like litigation expenses. REVERSAL OF INCOME: If any advance. Hence the balance outstanding in an NPA account includes: 1. Bangalore. In respect of NPAs. balance net of the amount kept in 24 The Oxford College of Engineering. and Life policies may be taken to income account on the due date. provided adequate margin is available in the accounts. the banks should not charge and take to income account interest on any NPA. This provision is calculated not on the balance outstanding but on the net balance. Balance as on date of becoming an NPA. This will apply to Government guaranteed accounts also. interest on advances against term deposits. if uncollected. including bills purchased and discounted.

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. MBA Programme . it has led to erosion in their capital base and reduction in competitiveness. Bangalore. 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. This book balance of the net of the interest suspense account is known as Gross NPA. unsustainable level of NPAs has eroded current profits of banks and FIs. Besides this. At the Micro level. Net NPA means: Gross NPA minus balance claim received amount and provision outstanding in that account. 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. The mounting menace of NPAs has raised the cost of credit. 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. The terminology net NPA indicates the balance in interest suspense account.Canara Bank the interest suspense account. The problem of NPA is not a matter of concern to banks and FIs alone. made Indian business man uncompetitive as compared to their counterparts in other countries. But in cases where guarantee claim is received from credit guarantee corporations like ECGC. Thus Gross NPA means. balance outstanding minus balance in interest suspense account. such claim received is also netted from the gross NPA. 25 The Oxford College of Engineering. IMPACT OF NPA: At the Macro level. before making the provision for loan losses. For evaluation RBI and other rating agencies rely on purpose usually the net NPA balance. to a great extent.

through subtle techniques. There is the practice of ‘ever-greening’ of advances. MBA Programme . 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.2004 the aggregate gross NPA of all scheduled commercial banks amounted to Rs. Bangalore.62 percent followed by Dena Bank of India with 9. Majority of the banks.4 percent. Further it is revealed that commercial banks in general suffer a tendency to understate their NPA figures. 26 The Oxford College of Engineering. and the all India Financial Institutions.03.29 Crore.412. Table No. 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. The worst offender is the public sector banking industry. 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. concrete results are eluding. 1. this ratio is less than 4 percent.10 Crore as on March 1997.29 Crore.  Failure to identity an NPA as per stipulated guidelines: There were instances of ‘sub-standard’ assets being classified as ‘standard’. Despite various correctional steps administered to solve and end this problem. followed by the SBI group. As at 31. The severity of the problem is however acutely suffered by Nationalized Banks.029.63883 crore.3862. The industry is also estimated to have under-provided to the extent of Rs. 3. Punjab and Sind Bank has the highest ratio with 9. As per report appearing in a national daily the banking industry has under – estimated its non-performing assets (NPAs) by whopping Rs. 4 banks reported “nil” ratio during 2005-2006.1 gives the figures of net NPA for the last three years. The ratio of net non-performing assets to net advances also declined during 2005-06.Canara Bank Due to their crippling effect on the operation of the banks. Nineteen nationalized banks have underestimated their NPAs by Rs. It is a sweeping and all pervasive virus confronted universally on banking and financial institutions. Such deception of NPA statistics is executed through the following ways.

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

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

banks can issue notices to the defaulters to pay up the dues and the borrowers will have to clear their dues within 60days.g. Once the borrower receives a notice from the concerned bank and the financial institution. bank can also takeover the management of the company. If the DRT orders partial deposit of the amount and the same is not deposited. 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. Thus the bankers under the aforementioned Act will have the much needed authority to either sell the defaulting companies or charge their management. guarantor. If a person is aggrieved by the order of the DRT. MBA Programme . Bangalore. the secured assets mentioned in the notice cannot be sold or transferred without the consent of the lenders.Canara Bank deposited. If some other aggrieved person (e. 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. 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. The 75% deposit is only required if the appeal is filed by the borrower. Besides assets. SECURITIZATION ACT: With the enactment of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002. it can file an appeal to the Appellate Tribunal within 30days from the date of receipt of the DRT order. It had brought about major shifts 29 The Oxford College of Engineering. appeal can be dismissed. shareholder) files it the deposit is not required. the borrower shall be entitled to compensation and costs as may be determined by DRT or Appellate Tribunal.

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

banks were booking income on an accrual basis and their balance sheets did not 31 The Oxford College of Engineering. technological upgradation and increased market integration have been the key factors driving change in the financial sector. strengthening regulatory mechanisms and on technological up-gradation. increasing operational efficiency of banks. RBI in its Annual Policy Statement had advised banks to introduced flexible interest rate system for new deposits. The Committee also recommended that Assets be classified into four categories namely Standard. 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. As a step towards a softer interest rate regime. the Indian Banking System is becoming increasingly mature in terms of the transformation of business processes and the appetite for risk management. MBA Programme . Sub-standard. Before the reform process. It is widely recognized that as a result of these reforms. 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. Doubtful and Loss Assets and that certain specified percentage of the same be held as provision there against. The Committee recommended that an asset may be treated as NonPerforming Asset (NPA). 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. the focus of non-going reforms in the banking sector was on soft interest rates regime.Canara Bank to time to fall in line with the best accounting practices and for transparency in published accounts. EMERGING BANKING TRENDS: During the current financial year. the interest accrued on such Non-Performing Assets. Bangalore. unless it is actually received or recovered. Deregulation.

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

according to consulting firm Price water House Coopers (PwC).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. such as. in the United Kingdom. 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. Xerox. The history of financial institutions also reveals the fact that the biggest banking failures were due to credit risk. MBA Programme . A question that arises is how much risk can a bank afford to take? Recent happenings in the business world – Enron. from the subjective to the prescriptive. 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. 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. WorldCom. A country follows varied approaches. 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. Illustratively. Other countries. WARNING: STANDARD & POOR: 33 The Oxford College of Engineering. 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. Due to this. It needs to be recognized that prudential norms in respect of loan classification vary widely across countries. which arises from the failure of borrower to fulfill its contractual obligations either during the course of a transaction or on a future obligation. Bangalore. the United States follow a more prescriptive approach. In case after case. banks are restricting their lending operations to secured avenues only with adequate collateral on which to fall back upon in a situation of default. However lending also carries credit risk. Global Crossing do not give much confidence to banks.

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

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. With effect from 31March. With effect from 31March 2001. SUB-STANDARD ASSETS: A sub-standard asset was one. an asset to be classified as doubtful if it remained in the sub-standard category for 12 months. with the added characteristic that the weaknesses make collection or liquidation in full. a sub-standard asset would be one. With effect from 31March 2005. as asset is to be classified as doubtful.on the basis of currently know facts. With effect from 31March 2001. In such cases. which has remained NPA for a period less than or equal to 18 months. which has remained NPA for a period less than or equal to 12 months. if it has remained NPA for a period exceeding 18 months. a sub-standard asset is one. DOUBTFUL ASSETS: A doubtful asset was one. Bangalore. 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.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. c) Loss Assets. if deficiencies are not corrected. which remained NPA for a period exceeding two years. conditions and values – highly questionable and improbable. which was classified as NPA for a period not exceeding two years. 2005. MBA Programme . b) Doubtful Assets. . In other words. LOSS ASSETS: 35 The Oxford College of Engineering. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub-standard.

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. However. as appropriate. MBA Programme . 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. Under such a situation it will be prudent to directly classify the advances as a doubtful or loss asset. 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. solely governs presentation of advances in the balance sheet. The banks may fix a minimum cut off point to decide what would constitute a high value account depending upon their respective business levels.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. Bangalore. The Third Schedule to the Banking Regulation Act 1949. Banks should establish appropriate internal systems to eliminate the tendency to delay or postpone the identification of NPAs. 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. In other words.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. Banks have started issuing notices under The Securitization Act. The cut off point should be valid for the entire accounting year. 36 The Oxford College of Engineering. RBI GUIDELINES FOR CLASSIFICATION OF ASSETS: Broadly speaking. especially in respect of high value accounts. 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. Responsibility and validation levels for ensuring proper asset classification may be fixed by the banks.

Such NPAs may be straightaway classified under doubtful category and provisioning should be made as applicable to doubtful assets. asset classification and provisioning. It may be either written off or fully provided for by the bank. ii. as the case may be. the existence of security should be ignored and the asset should be straight away classified as loss asset. It is difficult to envisage a situation when only one facility to borrower becomes a problem credit and not others. 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.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. Accounts where there is erosion in the value of Security: i. If the debts arising out of development of letter of credit or invoked guarantees are parked in a separate account. Therefore. Asset Classification to be borrower-wise and not facility-wise: i. Bangalore. 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. 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. ii. MBA Programme . the account should no longer be treated as non-performing and may be classified as ‘standard’ accounts. 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. as assessed by the bank / approved valuers / RBI is less than 10 percent of the outstanding in the borrowal accounts. 37 The Oxford College of Engineering. If the realizable value of the security.

Bangalore. c) After commencement of commercial production and after the asset has been classified as sub-standard. the bank has to further sub-classify it into sub-standard. 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. Asset Type Percentage of Provision 38 The Oxford College of Engineering. b) After commencement of commercial production but before the asset has been classified as sub-standard. In the case of sub-standard and doubtful assets also. In case of loss assets. In the context of restructuring of the accounts. 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. 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. MBA Programme .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. Based on this classification. loss and doubtful assets. This is justified on the grounds that such an asset is considered uncollectible and cannot be classified as bankable asset. PROVISIONING REQUIREMENTS: As and when an asset is classified as an NPA. guidelines specifically require that full provision for the amount outstanding should be made by the concerned bank. 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.

The performance in terms of profitability is a benchmark for any business enterprise including the banking industry. CREDIT APPRAISAL SYSTEM: Prevention of standard assets from migrating to non performing status is most important in NPA management. 10% 20% 30% 50% 100% 39 The Oxford College of Engineering. the banking industry cannot afford defaults by borrowers since NPAs affects the repayment capacity of banks. 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. Further. Also. fixing pre-sanctioning appraisal responsibility and having an effective postdisbursement supervision.5years) Doubtful 2 (age 4-5years) Doubtful 3 (age above 4-5years) Loss Asset THE NPA PROBLEM: The origin of the problem of burgeoning NPAs lies in the quality of managing credit risk by the banks concerned. 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. This depends on the style of Credit Management Mechanism available in banks. Banks concerned should continuously monitor loans to identify accounts that have potential to become non-performing.Canara Bank Sub-Standard (age upto 18 months) Doubtful 1 (age upto 2. However. 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. What is needed is having adequate preventive measures in place namely. Bangalore. MBA Programme . with increasing deposits made by the public in the banking system.

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

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

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

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

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

5. MBA Programme . Reforms in the existing legal system will go a long way in reducing the level and growth of NPAs in the banking system. Legal provisions are required for transfer of the existing loan portfolio to the ARCs without the consent of the borrowers. 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. many defaulting borrowers exhibit reluctance to co-operate. However. Reduction in NPAs: The problem of the existing NPAs is currently being tackled in several ways. Here lies the importance of a transparent legal system. leaving the banks no option but. ICICI Bank. 45 The Oxford College of Engineering. On this front. and balance within the same financial year for quicker realization of locked up proceeds. 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. the success of ARCs will again depend upon the legal frame work which has to be addressed first. for exercise of the power of private foreclosure by ARCs. despite such efforts made by the lenders. 2003.Canara Bank 4. A pilot company called Asset Reconstruction Company (India) Ltd (ARCIL) has been set up under the joint sponsorship of IDBI. SBI and other banks which is likely to provide an effective mechanism for banks to deal with the defaulting companies. the SRES Act has provided a frame work for setting up to Asset Reconstruction Companies (ARCs) in India. However. to seek the legal route. 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. Efforts are made through negotiations and discussions with the borrowers to bring them around to settle the dues. RBI has already issued final guidelines on the regulatory frame work for ARCs in April. Bangalore.

securitization involves transfer of debt. which could be put to productive use. 1995. High incidence of stamp duties makes securitization transactions unviable. The security is backed by the expected cash flows from the assets. With securitization the NPAs in a bank’s balance sheet can be cash upfront. Thus the legal frame work is a key element for limiting moral hazards in Indian Banking. It also recommended a new legislation for banks and Financial Institutions to take possession and sale of securities without the intervention of the Court. whether movable or immovable. 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. Every instrument by which property. Legal Reforms: The legal frame work sets standards of behavior for market participants. MBA Programme . which can be effected only by means of an instrument in writing. is transferred attracts as valorem stamp duty. details the rights and responsibilities of transacting parties. in respect of both immovable property and movable assets which resulted in the enactment of SRFAESI Act 2002. Also. 7. Under statutory assignment. vary from State to State. stamp duties being a state subject. Bangalore. 46 The Oxford College of Engineering.Canara Bank 6. Securitization: Securitization enables risk sharing and trading of loans where the bad assets of banks can be securitized and sold at a discount. The Committee also considered securitization as an instrument to tackle the NPA problem. 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. The lending institution’s NPAs are hence removed from their balance sheets and are instead funded by investors through negotiable financial instruments. 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.

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. ii. iii. Term loan if interest / installments are overdue for four months & above. Check on overdue, cash credit account if it is out of order continuously for four months. 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. ii. Lok Adalat. 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

At branches where concentration of NPA is more. 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. 4. Asset Recovery Department will conduct a study of banks exposure in different sectors. MBA Programme . Prevention from further deterioration and recovery of the existing NPAs alone are the two alternatives for us to come out of the present problems. Conveyance expenses incurred by such staff members to be reimbursed. Efforts shall be taken by branches to speed up the disposal of non-banking assets at the possession of the bank. 3. Asset recovery cells to be strengthened with additional professional man power. Therefore the management of NPA calls for a short term and long term strategy. Recovery camps to be conducted at centers identified as having higher concentration of irregular loans in the times of revenue recovery camps.Canara Bank RECOVERY MANAGEMENT – SSUGGESTIONS FOR IMPROVEMENT: 1. Bangalore. Across the table decisions on compromise proposals submitted at the recovery campus. 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. 2. DEALING PROBLEMS LOANS: ASSETS COMING UNDER SMALL VALUE SEGMENTS: 51 The Oxford College of Engineering. 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. ASSET RECOVERY DEPARTMENT: 1. Officials from corporate office who attend such campus to be delegated with powers to arrive at decisions as above.

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. Bangalore. 2. 2. Services of approved recovery agents can be considered very discreetly in the recovery of small value accounts. the department suggests the following measures for the optimum recovery in the small value band upto Rs.  Compromise. In cases of failure of letter personal contact and persuasion fall. we had taken decision to shed such assets coming under priority sector.  Persuasion. 2.  Revenue recovery.5000 are identified as small value assets and considering the huge volume of such accounts. 3. Similarly.00 1.Canara Bank 1. No legal actions to be initiated against borrowers coming under the small valued band. 3. Hence recovery done by means of:  Personal contacts. Considering the above facts. (Loss and doubtful category only) and regional heads are given delegation to write-off such assets.10000.10000. non priority sector. there is no such scope for legal action also. 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 . Incentive schemes for motivating members of staff are to be built in the recovery policy of the bank. go for compromise. Salvage operations are to be intensified for effecting recoveries under loss asset categories and also in cases where we have already shed assets. small loans identified as loss or doubtful will also have to be shed to give administrative efficiency upto larger NPAs. 3. Accounts with net balance up to Rs. Now its felt that small value band can be extended upto Rs. 52 The Oxford College of Engineering.

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. Bangalore. 4. If the borrower is co-operative the settlement through compromise route to be considered.5lakhs and evaluate the reasons for non performance of account and suggest / evolve methods to improve the quality. If no results are forthcoming from the reminders. 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. meet the borrower in person and persuade them to settle the accounts in persons. In case of doubtful / loss assets category and assets already written off. In cases of sick but viable industries units prospects for rehabilitation are to looked into and nursing programme to be evolved. The decision of compromise and shedding of loss / doubtful assets will be done through committee approach at the regional offices. Send simple reminder letters in installments / interest debited are not serviced on due dates. NPA RECOVERY ACTION PLAN: 1. This will enable the bank to maintain asset quality at the same level for 2 years.Canara Bank 4. 5. if the repayment is coming as per the redrawn schedule. If the accounts have become NPA due to cash flow problem the repayment programme must be rescheduled according to the revised cash flow projections. 3. 2. if the asset quality can be upgrade after two years. 6. 53 The Oxford College of Engineering. 5. 6. MBA Programme . Officials from the assets recovery cell at the regional office to compulsorily meet the borrower with Rs.

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

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. profit and loss account other operative data.Canara Bank 4. 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. Bangalore.

Bangalore.77 12909 47347 47639 17.6 12482 65676 40472 22. MBA Programme .Canara Bank CANARA BANK PROGRESS AT A GLANCE (Amt in Crore) 2003-04 No. of branches Capital Reserves Deposits % Growth Non-Resident Deposits Foreign Business Turnover Advances (Net) % Growth Advances to Priority Sector Agriculture 2409 578 2894 64030 8.17 14604 5407 2005-06 2469 410 4842 86345 19.02 10536 3888 2004-05 2424 410 3739 72095 12.4 11358 59333 33127 19.71 19580 6545 56 The Oxford College of Engineering.

03 12.14 2.34 32.88 47613 9080 6221 Operating Profit Net Profit IMPORTANT RATIOS (%) Capital Adequacy Ratio Return on Assets (RoA) Earning Per Share (Rs) Book Value (Rs) Net NPA Ratio Priority Credit to Net Credit Business per Employee (Rs.89 41 2.66 1.5 2.88 1. MBA Programme .63 125.83 57.38 47796 7799 6143 3884 21 598 4429 23 2.15 1.in crore) Profit per Employee (Rs in Lakh) 1656 741 1997 1019 2859 1338 11.89 44 3 2.97 57 The Oxford College of Engineering.56 98.5 1. of Staff Total Income Total Expenditure 3366 18 478 3672 23 2.59 42 2.84 3.26 12. Bangalore.14 3.Canara Bank Small Scale Industries Advances under DIR Scheme Advances to SC/ST Export Credit Deposit Accounts (in Millions) Borrowal Accounts (in Millions) Total No.64 12.24 20.64 47566 8170 6173 4971 38 758 5497 22.48 2.

5 0 2003-2004 2004-2005 NET NPA RATIO% 2005-2006 58 The Oxford College of Engineering. Bangalore.5 3 2.5 4 3.89 GRAPH: 1 Graph showing Net NPA Ratio% from 2003-04 to 2005-06 2004-2005 3.5 1 0.59 2005-2006 2.89 4.5 2 1. MBA Programme .Canara Bank TABLE: 1 Table showing Net NPA Ratio% from 2003-04 to 2005-06 2003-2004 3.

274.6 11. Net NPA ratio came down to 2.6 12. During the year 7107 recovery meets were conducted by the bank leading to statement of 21201 accounts involving compromise amount of Rs. MBA Programme .8 12. TABLE: 2 Table showing Capital Adequacy Ratio from 2003-04 to 2005-06 2003-2004 11.77 crore and resulting in recovery of Rs.46 crore.187.33% compared to 5.1378 crore.66 59 The Oxford College of Engineering. Bangalore. On the recovery front.Canara Bank Interpretation Prudent asset management was accorded greater emphasis during the year 2005-2006. As a result Gross NPA ratio of the bank stood at 6.2 12 11. Gross NPA of the bank as at March 2006 stood higher at Rs.89% from 3.88 GRAPH: 2 Graph showing Capital Adequacy Ratio from 2003-04 to 2005-06 12.563 crore a year before.8 11.4 12.3127 crore.606 crore compared to Rs. Primary due to the introduction of new 90 day norms.96% a year ago.59% asset March 2005. the banks performance under cash recovery stood at Rs. While Net NPA of the bank stood at Rs.4 2003-2004 2004-2005 Capital Adequacy Ratio 2005-2006 2004-2005 12.50 2005-2006 12.

2 0 2003-2004 2004-2005 Return On Assets 2005-2006 60 The Oxford College of Engineering. 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.1531 crore as against Rs.05% as at March 2005. MBA Programme .34 Graph showing Return on Assets (RoAs) from 2003-04 to 2005-06 1.205 crore.4024 crore as while the banks capital stood at 410 crore. the bank raised their 2nd capital worth Rs. Bangalore. This is as against distributed as dividend for the year 2004-2005.250 crore during 2005-06.4 1. A dividend of 50% amounting to Rs.4 0.8 0.Canara Bank Interpretation The banks owned funds.6 0. TABLE: 3 Table showing Return on Assets (RoAs) from 2003-04 to 2005-06 2003-2004 1. In order to further argument its capital base.66% as at March 2005 from 12.2 1 0. as at March 2005 aggregated to Rs.24 2005-2006 1.03 GRAPH: 3 2004-2005 1. Capital to Risk weighted Asset Ratio (CRAR) of the bank improved further to 12.

Canara Bank Interpretation: This ratio correlates between the total assets and the net profit.56 2005-2006 32. TABLE: 4 Table showing Earning per Share (EPS) from 2003-04 to 2005-06 2003-2004 12. if the actual ratio is equal or more than 10 percentage. it indicates the higher productivity of the total resources / assets and vice verse in adverse cases. As such. MBA Programme . Bangalore.63 35 30 25 20 15 10 5 0 2003-2004 2004-2005 Earning Per Share (EPS) 2005-2006 61 The Oxford College of Engineering.83 GRAPH: 4 Graph showing Earning per Share (EPS) from 2003-04 to 2005-06 2004-2005 20. 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. A return of 10 percentages is considered as ideal ratio.

7.52 5.06 6.90 6.89 5. 3. 10. 18.71 2.91 5.72 5.31 8.23 1. MBA Programme .83 6.87 3.08 1.26 7. 19. 32.61 in percent Net NPA as % to Net Advances 2006 2.63 compare to 2003-2004 i.02 2005 7.80 9.65 2.93 2.62 0. 5. 12.31 16.46 2.02 5.75 0.20 5.45 6. 4.29 4.52 2. Name of the Banks NATIONALISED BANKS Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharastra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank 2004 10.98 2.40 2.45 5.No I 1. Bangalore.e. 12.70 4.50 2. 17.65 11.37 4.32 3.98 2.32 11. 9. 11.79 3.86 4. 14.82 3.37 0.40 10.89 7.Canara Bank Interpretation: The ratio measures the profit available to the equity holders on a per share basis. which is good sign of the bank. 2.15 5.99 4.58 3.59 7. 16. 8.02 1. 6.57 2. 13. 15.57 1. The earning per share of the bank has increased drastically in the year 2005-2006 i.e.89 3. TABLE: 5 Non-Performing Assets as Percentage of Advance – Public Sector Banks As on March 31 Sl.85 NIL 9. It is found out by dividing the amount of profit after tax by the number of shares.28 6.36 4.91 62 The Oxford College of Engineering.83.81 3.

48 1. Net NPA ratio of the Canara Bank declined from 3.72 4.36 2. Majority of the banks.No.63 5. Name of the Bank I.77 4.96 NIL NIL 1.6 percent.97 3. in crore TOTAL ASSETS 2006 34704 27009 85109 . Dena Bank has the highest ratio with 9. TABLE: 6 Public Sector Banks: Total Assets As on March 31 Sl.4 percent followed by Central Bank of India with 5.40 3.94 4. MBA Programme Rs.58 7.39 Interpretation: The ratio of net non-performing assets to net advances also declined during 2005-06.24 0.19 1.89% as at March 31st 2006.53 3. Bangalore.Canara Bank II III State Bank of India [SBI] ASSOCIATES OF SBI State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Saurashtra State Bank of Travancore 5. 4 banks reported “nil” ratio during 2005-06.95 5.25 2.06 3.13 3.65 NIL 2.66 5.59% as at March 31st 2005 to 2. this ratio is less than 4 percent. 1 2 3 4 84860 5 6 7 8 9 10 11 12 13 14 15 16 NATIONALISED BANK Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharastra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab National Bank Punjab & Sind Bank Syndicate Bank UCO Bank 2004 24764 20937 70910 69806 21470 72135 52614 23604 18842 30263 35441 32237 72915 13754 31756 31881 24905 82055 57105 26272 20162 35375 41155 33999 86222 14491 34435 34914 2005 28051 24678 76425 76627 32213 99539 63345 29154 22160 39154 47322 41007 102332 15011 47223 43798 63 The Oxford College of Engineering.50 4.

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

2005 to Rs.Canara Bank Interpretation: Total Assets of the Public Sector Banks (PSBs) increased from Rs. Syndicate bank recorded the highest growth in total assets with 37.No I. MBA Programme .427 crore as on 31st March 2006 showing a growth rate of 14.71. Total Assets of the Canara Bank increased from Rs. showing a growth rate of 21. 1 15342 2 12885 3 35601 4 45856 5 11732 6 47639 7 22804 8 13890 st Rs. 14 Banks reported higher growth rate than the average growth rate of the group.82055 crore as on 31st March 2005 to Rs.14.3% which is higher than the growth rate of 13.85.12. During the year 2005-06.794 crore as on 31st March.4 percent which is higher than the growth rate of 11. Bangalore.2 percent of the previous year.8 percent of the previous year. in crore 2004 10482 9678 33663 38311 8255 33127 21288 10987 2005 12544 11513 35348 42633 9508 40472 23159 12029 2006 Name of the Bank NATIONALIZED BANKS Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharastra Canara Bank Central Bank of India Corporation Bank 65 The Oxford College of Engineering.1 percent during 2005-06.99539 crore as on 31st March 2006. TABLE: 7 Public Sector Banks: Advances As on March 31 Sl.

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

1 percent. Other banks.6 percent during 2005-06 as against 15. Total advances increased to Rs.2 percent as against the growth rate of 14. which have showed impressive growth in advances were. In the case of nationalized banks there is a marginal improvement in the credit disbursement from 14.Canara Bank TOTAL OF STATE BANK GROUP [II+III] 220516 TOTAL OF PUBLIC SECTOR BANKS [I+II+III] 632741 GRAPH: 6 164538 480119 189204 549344 Public Sector Banks: Advances 600000 500000 400000 300000 200000 100000 0 2004 2005 2006 Total of 19 Nationalised Banks (I) State Bank of India (SBI) Total of 7 Associates(III) Interpretation: The rate of growth in advances showed slight improvement during 2005-06 as compared to previous year.9 percent).5 percent). Bangalore. Syndicate Bank (26. UCO Bank (29.1 percent during 2004-05 to 14. MBA Programme .4 percent of the previous year.5 percent during 2005-06.49344 crore recording a growth rate of 15.5.0 percent of the previous year.6. 2006 from Rs.6 percent) and Oriental Bank of 67 The Oxford College of Engineering. State Bank of Bikaner & Jaipur (26.32. 17 banks recorded higher growth in advances than the group average with Vijaya Bank in the top slot with 40. State Bank Group showed better growth in advances than the nationalized banks group with a growth rate of 16.741 crore as on 31 st March.

Bangalore.Canara Bank Commerce (25. III.7 percent. MBA Programme . 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 2347 18 19 II.in crore Gross NPA 2004 2002 524 4489 3722 906 2112 3243 587 1996 2175 1819 952 1092 4140 1299 1333 2420 1216 603 36630 15486 585 899 320 625 628 443 959 506 36884 13506 580 740 295 562 531 354 2005 1842 581 4168 3804 958 2475 3244 657 1617 1630 1896 1146 1247 4980 1420 1366 2288 764 390 35549 12667 484 691 266 515 503 200 68 2006 1418 615 3980 3734 954 3127 3092 722 1484 1192 1576 1211 1204 4670 1590 1479 Name of the Bank NATIONALIZED BANKS Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharastra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank Total of 19 Nationalized Banks State Bank of India (SBI) ASSOCIATES OF SBI State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Saurashtra The Oxford College of Engineering. TABLE: 8 As on March 31st Sl. 2006 from Rs.47639 crore as on 31st March.40472 crore as on 31st March 2003 recorded a growth rate of 17.5 percent during 2005-06. Public Sector Banks: Gross NPA Rs.5 percent). Central Bank of India recorded a declined growth in advances with 1.No I. The total advances of the Canara Bank increased to Rs.

537 crore and Net NPA came down from Rs.51.24.Canara Bank State Bank of Travancore Total of 7 Associates Total of SBI Group Total of Public Sector Banks GRAPH: 7 728 4228 19714 56344 635 3697 17203 54087 662 3321 15988 51537 Public Sector Banks: Gross NPA 40000 35000 30000 25000 20000 15000 10000 5000 0 2004 2005 2006 Total of 7 Assosiates Banks Total of 19 Nationalised Banks SBI 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. Seven Banks showed higher growth in Gross NPA than the previous Year.866 crore t Rs.2 percent during 2005-2006.18.087 crore to Rs. 54.859 crore as on 31st March. Gross NPA declined by 24. Bangalore. MBA Programme . 69 The Oxford College of Engineering. 2006.2005 and 2006 respectively. Gross NPA of PSBs declined from Rs.

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

State Bank of Indore.000 Total of 17 Associates Banks 5. Two banks (Banks of Baroda and UCO Bank) recorded higher growth in Net NPA during 2005-2006 71 The Oxford College of Engineering. four banks (Oriental Bank of Commerce.000 0 2004 2005 2006 Interpretation: In the case of Net NPA.000 15. Bangalore.000 10.Canara Bank State Bank of Saurashtra State Bank of Travancore Total of 7 Associates Total of SBI Group Total of Public Sector Banks 204 425 2158 8968 30973 164 280 1613 7796 24866 NIL 154s 524 5966 18859 GRAPH: 8 Public Sector Banks: Net NPA 25.000 Total of 19 Associate Banks Nationalised Banks SBI 20. MBA Programme . State Bank of Patiala and State Bank of Saurashtra) reported “zero” NPAs.

40 54.23 2006 48.14 45.88 56.18 50.36 55.52 51.79 64.10 44.06 53. MBA Programme .11 2005 49.66 53.91 56.80 57.Canara Bank than the previous year.17 48.15 45.26 54.70 61.25 52.89 51.92 55.96 48.20 34.29 43.68 53.54 52.37 51.58 44.96 46.72 48.79 42. Net NPA decreased by 5.32 46.44 47. TABLE: 10 Public Sector Banks Credit – Deposit Ratio Name of the Bank NATIONALIZED BANKS [I] Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharastra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank Total of 19 Nationalized Banks [I] State Bank of India (SBI) [II] ASSOCIATES OF SBI State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore 2004 46.18 46.99 52.69 53.99 45.56 58.06 48.02 34.40 48.57 54.26 55.74 56.14 47.47 64.17 44.29 46.1378 crore as on 31st March 2006.34 54.15 42.15 51.67 49.79 59.49 72 The Oxford College of Engineering.65 50.70 44.92 49.1454 crore to Rs.87 52.74 34.60 52.59 44.26 66.45 48.56 53. Bangalore.21 51.00 53.2%. Net NPA of the Canara Bank declined from Rs.48 52.38 47.17 40.56 51.16 58.74 45.

57 GRAPH: 9 Public Sector Banks: Credit – Deposit Ratio 180 160 140 120 100 80 60 40 20 0 2004 2005 2006 Total of 7 Associates [III] Total of 19 Nationalised Banks(I) State Bank of India Interpretation: Credit Deposit Ratio (C/D) of all Public Sector Banks improved marginally from 54.45 54.65 62.87 49.57 58. 11 banks recorded higher C/D ratio than the group’s average.Canara Bank State Bank of Mysore State Bank of Patiala State Bank of Saurashtra State Bank of Travancore TOTAL OF 7 ASSOCIATES [III] TOTAL OF STATE BANK GROUP [II+III] TOTAL OF PUBLIC SECTOR BANKS 57.57 56.94 51.90 58.24 54.8 percent 2005-06.39 50.37 60.77 50. Bangalore.32 46. Bank of India recorded the highest ratio with 64.09 56.23 49.20 48.6 percent followed 73 The Oxford College of Engineering. MBA Programme .24 54.36 57.58 54.2 percent during 2004-05 to 54.14 51.07 55.

70 1.06 65.66 2.65 2.49 20.00 11.49 State Bank of Saurashtra 3.04 19.25 State Bank of Indore 2.83 Indian Bank 6.00 42.91 United Bank of India 5.89 Punjab National Bank 3.28 41.88 1.38 1.67 69.29 UCO Bank 4.5 percent and Corporation Bank with 59.62 16.00 100.53 48.51 100.27 2.98 80.66 State Bank of Mysore 5.23 Oriental Bank of Commerce 1.71 2.48 1.40 2.66 74.55 32.39 Variation in % Reduction Net NPA % in Net NPA% 4.71 0.02 2. Bangalore.61 30.46 2.53 1.99 4.86 Syndicate Bank 4.71 2.23 1.13 State Bank of Hyderabad 3. The lowest ratio of 34.80 9.24 0.08 Andhra Bank 1.00 20.Public Sector Banks Name of the Bank Net NPA 2005-% Net NPA 2006-% 2.61 State Bank of India (SBI) 4.65 NIL 2.98 2.93 45.86 16.87 3.82 Canara Bank 3.65 Dena Bank 11.65 0.44 2.58 74 The Oxford College of Engineering.97 100.69 NIL NIL 1.77 1.37 Bank of Maharastra 4.89 2.79 Bank of Baroda 3.43 3.73 0.20 48.87 2.9 percent.40 Punjab & Sind Bank 10.54 55.71 0.50 State Bank of Bikaner & Jaipur 4.52 Vijaya Bank 2.15 2.59 Central Bank of India 7.04 1. MBA Programme Allahabad Bank 7.15 Indian Overseas Bank 5.36 0.93 2.06 .19 State Bank of Patiala 1.00 54.60 2.36 Union Bank of India 4.49 3.86 0.02 Corporation Bank 1.75 0.50 2.00 100.53 State Bank of Travancore 3.67 66.62 0.85 NIL 9.17%.89 5.9 percent was recovered by United Bank of India.40 1.Canara Bank by State Bank of Mysore with 61. TABLE: 11 Comparative NPA Bank Figures.70 1.72 Bank of India 5.58 3. Canara Bank recorded higher credit deposit ratio than the group’s average with 55.37 0.13 22.57 1.91 3.45 -0.96 19.

In the case of all other public sector banks the ratio declined during March 2006.418 615 3.3.667 484 691 266 515 503 200 662 15.067 782 635 143 549 561 360 492 500 181 171 (31.2006) 6.980 3.3.035 356 388 531 91 179 Recoveries (31.039 526 436 706 160 266 75 The Oxford College of Engineering.235 350 155 731 212 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.670 1.144 865 831 107 673 1.734 954 3.310 571 180 1.559 218 415 166 170 239 233 235 6.668 172 425 142 242 260 176 225 8.06) 12.039 216 1.092 722 1. MBA Programme .484 1.192 1. Bangalore.3.590 (31.127 3.415 228 273 123 143 157 98 309 4. The Net NPA percentage of Canara Bank has reduced by over 19%.2004) 3.3. TABLE: 12 NPAs and Recoveries of Public Sector Banks (Rupees in Crore) NPAs Name of the Bank State Bank of India State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Saurashtra State Bank of Travancore TOTAL Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharastra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab National Bank Punjab & Sind Bank Syndicate Bank (31.204 1.211 4.746 280 168 836 186 941 596 543 85 259 1.988 1.2005) 4.576 1.

835 12.3.3.312 716 357 340 246 10.479 764 390 35.077 14.3.537 357 564 263 177 7.6.668 crore during 2005-2006 followed by Bank of India Rs.549 51.Canara Bank Union Bank of India UCO Bank United Bank of India Vijaya Bank TOTAL Grand Total 2.2006 0 Total of State Banks Total of Nationalised Banks NPAs Recoveries Interpretation: State Bank of India recorded the highest recovery of NPAs amounted to Rs.581 339 373 294 182 8.3006 31.2005 31.418 18.347 1. Canara Bank has initiated 76 The Oxford College of Engineering.3.1144 crore. Bangalore.728 GRAPH: 10 NPAs and Recoveries of Public Sector Banks 40000 35000 30000 25000 20000 15000 10000 5000 31.2004 31. MBA Programme .

03.89% 385 As on 31.782 crore].96% 1454 3.05 2475 5. in crore] Percentage of Gross NPA Net NPA [Rs.03.89% 1239 77 The Oxford College of Engineering.33% 1378 2.04 2112 6. MBA Programme .03 Gross NPA [Rs.03. [Previous Year Rs. Bangalore.Canara Bank several steps for reduction of NPAs and achieved substantial cash recovery to the extent of Rs.59% 476 As on 31.22% 1288 3.06 3127 6.Canara Bank As on 31. in crore] Percentage of Net NPA Provision for NPA [in cr] 2150 7.03. TABLE: 13 NPA Financial Highlights.72% 1345 4 84% 399 As on 31.865 crore during the year 2005-2006.

Gross NPA came down from Rs.2112 crore and as a percentage to total advances from 7.05 31.72% to 6.03.03. Net NPA of the bank declined from Rs.03 31.1345 crore at 78 The Oxford College of Engineering.06 Gross NPA Net NPA Provision for NPA Interpretation: During 2003-2004.04 31.03.03. the Canara Bank continued to accord top priority to its asset quality and achieved considered success in bringing down volume of its impaired assets.2150 crore to Rs.Canara Bank GRAPH: 11 NPA Financial Highlights – Canara Bank 3500 3000 2500 2000 1500 1000 500 0 31. MBA Programme .22%. Bangalore.

1288 crore at March 2004.47639 crore as on 31 st March.2475 crore to Rs. Provisions made during the year for NPA amounted to Rs.17% which is higher than the group’s average of public sector banks during 2005-2006. Bangalore.3127 crore as on 31st March 2006. 5.7%.1239 crore (Previous Year Rs. 79 The Oxford College of Engineering.89% as at March 31st 2006.3127 crore and as a percentage to total advances increased from 5. Gross NPA increased from Rs. the Net NPA ratio coming from 3.99539 crore as on 31st March 2006. Net NPA of the bank declined from Rs.2%.385 crore (previous year Rs. The provisions made during the year for NPA amounted to Rs. MBA Programme .3% which is higher than the growth rate of 13.1454 crore to Rs.89%.Canara Bank March 2003 to Rs.  Total assets of the Canara Bank increased from Rs.476 crore).  The total advances of the Canara Bank increased from Rs. FINDINGS AND CONCLUSIONS SUMMERY OF FINDINGS:  The Net NPA ratio of the Canara Bank declined from 3.399 crore).1454 crore at March 2005 to Rs.33%.  Net NPA of the Canara Bank declined from Rs. the Net NPA ratio coming from 4.59% as at March 31 st 2005 to 2. 2006 from Rs.8% of the previous year. 82055 crore as on 31st March 2005 to Rs.2475 crore to Rs.40472 crore recording a growth rate of 17.  Canara Bank has recorded a credit-deposit ratio of 55. During 2005-2006.59% to 2.  Gross NPA of the Canara Bank increased from Rs. Net NPA decreased by 5. showing a growth rate of 21.96% to 6.89%.81% to 3.1378 crore at March 2006.  The Net NPA percentage of Canara Bank has reduced by over 19% during 20052006. Gross NPA increased by 26.1378 crore as on 31st March 2006.3% during 2005-2006.

Notices were flashed to defaulters. Cash recovery became a reality. CONCLUSION: NPA Act is a fine. other than Debt Recovery Tribunal. 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. The problem of bad loans could be due to bad intensions or bad financial management or otherwise and also due to several external reasons. It is also a reassuring sign of Government’s commitment to reforms. MBA Programme . comprehensive and an extra-ordinary piece of legislation.33% and the provisions made during the year amounted to Rs.  The Canara Bank has taken steps to implement an Integrated Risk Management System. Bangalore. Banks have seized assets of number of borrowers. can entertain any appeal against the action taken by Banks and Financial Institutions under this act. Preventing fresh flow of NPAs is as important as the recovery of the existing heavy stock of NPAs. covering credit. operational and market risks.  The percentage of gross NPA of the Canara Bank during 2004-2006 is 6.Canara Bank  Canara Bank has recovered its NPA which is amounted to Rs.782 crore). They can claim future receivables and supersede the Board of Directors of the defaulting corporates. When this Act was enacted. The main concern is the prevention of further slippage of performing accounts into the non performing category in the first instance. No court. 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. 80 The Oxford College of Engineering.1239 crore. The banks were euphoric and they took action swiftly.865 crore during 2005-2006 (Previous year Rs. it was seen as a panacea to the entire problem of NPAs.

The system will have to provide a mechanism to ensure that the unscrupulous borrowers are unable to play one bank against the other. 81 The Oxford College of Engineering. Exchange of credit information among banks would be of immense help to avoid possible NPAs. Banks should also be empowered to proceed against the personal assets of the directors of the defaulting units / companies / groups etc. market for stressed assets are developed. unless more legal reforms are made and strictly enforced in true letter and spirit.Canara Bank There can not be any quick fix or one short solution to solve the NPA problem. to enable the act to be more effective and proactive as well. The above steps if effectively implemented can result in reduced NPAs. Bangalore. 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. Once recovery reforms are carried out. MBA Programme . 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. this Securitization Act will surely help banks in reduction of NPAs to a great extent. The banking system ought to be so geared that a defaulter at one place is recognized as a defaulter by the system.

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

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

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

Sign up to vote on this title
UsefulNot useful