Canara Bank

Analysis of NPA with special reference to SSI Sector

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A dissertation submitted in partial fulfillment of the requirement of Post Graduate Degree in Master of Business Administration of Bangalore Univeristy

Submitted by :
SUDHEENDRA .B.S.

Register no. :
03XQCM6105

UNDER THE GUIDANCE OF
Prof. B.K. Ramaswamy
2004 – 2005

MP BIRLA INSTITUTE OF MANAGEMENT
Associate Bharatiya Vidya Bhavan

BANGALORE – 560 001.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

PRINCIPAL’S CERTIFICATE This is to certify that the project entitled “An analysis of Non performing assets with special reference to SSI Sector – a study at Circle office, Canara Bank, Bangalore” has been prepared by Mr.Sudheendra .B.S. of 4th Semester, MBA bearing register No. 03XQCM6105 under the guidance of Prof. B.K. Ramaswamy.

Place : Bangalore Date:

Dr. Nagesh .S. Malavalli Principal

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Canara Bank

Analysis of NPA with special reference to SSI Sector

GUIDE’S CERTIFICATE
This is to certify that the project entitled “An analysis of Non performing assets with special reference to SSI Sector – a study at Circle office, Canara Bank, Bangalore” has been prepared by Mr.Sudheendra .B.S. of 4th Semester, MBA bearing register No. 03XQCM6105 under my guidance.

Place : Bangalore Date:

Project Guide Prof. B.K. Ramaswamy.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

DECLARATION I declare that this dissertation entitled “An analysis of Non performing assets with special reference to SSI Sector – a study at Circle office, Canara Bank, Bangalore” is an original and bonafide work carried out in partial fulfillment of the requirement for the award of MBA degree of Bangalore University. I also declare that no part of this representation has been previously published or submitted as a project representation for any degree or diploma of Bangalore University or any other University

Place : Bangalore Date:

Mr. Sudheendra .B.S. Reg. No. 03XQCM6105

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Canara Bank

Analysis of NPA with special reference to SSI Sector

ACKNOWLEDGEMENT GEM
The completion of the project would have been impossible without the valuable contributions of people from the industry, academics and friends I wish to thank Mr. Ramanand Kukilaya, Senior Manager, Staff manan Selection Workmen, who permitted to do a project in the circle office. I would also like to thank Mr. Srinivas Gota (Manager, NPA cell), Mr.Prakash Hudar, Mr. Venugopal and Mrs. Chitra without whose help r.Prak Hu enu itr this project would not have been possible. I would like to thank Prof. B.K. Ramaswamy, and also my Prof. swa academic guide whose guidance and feedback laid the frame work for this project. I would also like to thank faculty Kashi Nagarajan and Santhanam MPBIMS, for his help in the area of Research methodologies. antha Lastly I thank my friends whose support and guidance has meant a lot to me personally and also for the completion of the project.

SUDHEENDRA B.S.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

ABSTRACT The incidence of Non Performing Assets is affecting the performance of the Bank both financially and psychologically which has been reflecting ultimately on the Balance Sheet of the Bank. With the increase of concern towards the Circle Office's Non Performing Asset, with special reference to SSI sector, the study was undertaken to Analyse the reasons for Non Performing Assets. Attempts are also made analyze the movement of NPA in SSI sector. Primary data form the Circle Office constituted the previous four years data relating to NPA. And also a survey was conducted to understand the perception of Managers/Officers of various branches on Non Performing Assets. A structured questionnaire was prepared to undertake the survey. The primary data collected from the Bank were found out to be interesting. Usually, Non Performing assets are more in the Agriculture sector. Now, it is not agriculture in which Non Performing Asset is more, but it is more in SSI sector and non priority sector and to some extent in other priority sector. This has been concluded from the data which was analysed through calculating the growth rate for the previous four years The recovery has been not effective in some of the Regional Offices. Finally all the analysis done has been arranged in a summary table, which tells the performance of the Circle Office during the previous four years related to SSI.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

Another objective of the study was to study all the NPA accounts during the previous four years were gone through and an ABC Analysis was made. The findings were that few accounts of the total NPA accounts, having amount more than one crore constitute the major chunk of the total NPA. It was also found out that Debt Recovery Tribunal (DRT) which was set up just for recovering bank dues form the defaulters has not been effective. The average time taken to give a decree is one year and it is more than a year in some cases. There are also many formalities to be followed while referring a case to DRT. All these findings were supported by the data got through the survey Manager/Officers' perception about the repayment form the customers vis-avis with respect to SSI sector and the ineffectiveness of functioning of DRT matched with the above findings. Recommendations are made in the area of lending and recovery. New tools like credit Derivatives and setting up of Asset Reconstruction Company are suggested. Instead of referring the cases to DRT, it has been recommended to the Bank to take more rigorous steps in recovering the due amount from the defaulters. More power should be given to the Branch managers to attach the property of the defaulter and in certain case to sell the property, like what cooperative banks do.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

LIST OF ABBREVIATIONS NPA PA CO RO SLR CRR ARC NBFC BIFR ECGC ARDR DRT DRAT LPD OTS Non Performing Assets - Performing assets - Circle Office - Regional Office - Statutory Liquidity Ratio - Cash Reserve Ratio - Asset Reconstruction Company - Non Banking Finance Companies - Board of Industrial and Financial Reconstruction - Export Credit Guarantee Corporation - Agricultural and Rural Debt Recovery - Debt Recovery Tribunal - Debt Recovery Appellate Tribunal - Loan Past Due - One Time Settlement

DICGC - Deposit Insurance and Credit Guarantee

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Canara Bank

Analysis of NPA with special reference to SSI Sector

TABLE OF CONTENTS

Executive summary Abbreviation List of tables List of graphs CHAPTER I – INTRODUCTION OF THE TOPIC

I II III IV 

Introduction  Committee Report
CHAPTER II – DESIGN OF THE STUDY

1 9 

         

Problem of statement Objectives of the study Scope of the study Sample of the study collection of data tools for collection of data Data Collection mode Methods for Analysis limitations of the study Operational Definition Chapter overview

16 16 16 17 17 17 18 18 18 19 21

CHAPTER III – PROFILE OF THE RESPONDENT 

Background of Canara Bank  Current performance of the Bank
CHAPTER IV – ANALYSIS OF THE STUDY

22 30 

Analysis of the study  Interpretation

34 39

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Analysis of NPA with special reference to SSI Sector 

  

NPA and recovery management Impact of RBI guidelines Role of DRT Survey Analysis

52 56 57 59

CHAPTER V - SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS 

Findings  Conclusions  Recommendations References  Annexure  Questionnaire

78 81 83

CHAPTER -1 INTRODUCTION
Banking system which constitutes the core of the financial sector plays a crucial role in transmitting monetary policy impulses to the economic system. Therefore its efficiency and development are vital for enhancing growth and improving the chances for stability. During the recent past, profits of the bank came under pressure due to rise in interest rates, decrease in non interest income and increase in provisions and contingencies. The biggest ever challenge that the industry facing is the management of Non Performing Assets.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

High level of Non Performing Assets calls for provisioning for the same, thus profitability and operations are severely affected, which makes further lending increasingly difficult. The most crucial factor that governs the performance of the bank is spotting their NPA. The incidence of Non Performing Assets is affecting the performance of the credit institutions both financially and psychologically. For the sake of uniformity and proper running RBI has given many guidelines to the banks in respect of NPAs. Before understanding the various committee recommendations on NPAs, the following concepts need to be understood. RBI has classified all the assets of a bank as performing assets and non performing assets, which are explained below.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

ASSET CLASSIFICATION: All loan assets are broadly classified as performing assets or standard assets (PA) and Non-performing Assets (NPA). The classification is based on the record of recovery of interest/principal in these accounts. Performing Assets - Standard Assets: Performing Assets are standard assets which do not disclose any problem and which do not carry more than the normal risk attached to the business. The Performing Asset is one which generates income for the Bank. An account is considered to be a Standard asset when it is !n order or where the overdue amount is within a period of 180 days and in respect of Direct Agricultural advance if the amount overdue is less than two Harvest seasons but for a period not exceeding two Half years. For the purpose of Balance Sheet as at 31sl march 2002, the following accounts can be classified as Standard Assets. a) b) Fresh running limits availed on or after 31.10.2001. Fresh loans (including Term Loans) availed where date for payment falls on or after 3.10.2001. c) Fresh Bills limit availed where due date for payment falls on or after 3.10.2001. d) Advances guaranteed by the State Government to the extent of guarantee cover available. e) Advances guaranteed by the State Government to the extent of guarantee cover available, if not invoked.
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Canara Bank

Analysis of NPA with special reference to SSI Sector

f) g)

Advances to staff members except cases mentioned elsewhere. Loans/Advances against the Banks Term Deposits, LIC Policies, NSCs, IVPs and KVPs.

h)

Existing loans and advances where interest/installment due on or up to 3.10.2001 have been paid,

i)

Advances granted to Direct Agricultural purpose except allied activities where amount is overdue less than two Harvest seasons but a period not exceeding two Half years.

Non Performing Assets: An amount is to be treated as Non Performing Asset when it ceases to generate income for the Bank. Such Non Performing Asset shall have well defined credit weaknesses, which jeopardize the liquidation of the debt and characterized by distinct possibility that the bank would sustain same loss, if the deficiencies are not corrected. Non Performing assets are further classified as Sub standard assets, Doubtful assets and Loss assets. In respect of loan amount if any amount is overdue for a period of more than 180 days from the due date, the account should be classified as Sub Standard Assets, provided it is covered by adequate securities i.e. where erosion in securities is less than 50% of the value of securities (Value of securities means the value as assessed by the bank previously accepted by Reserve Bank of India at the time of last inspection). Such Non Performing asset accounts can remain in Sub Standard category for a maximum period of 18 months. An account which has completed 18 months in Sub Standard category and which is covered by securities/ECGC/CGTJI cover where

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Analysis of NPA with special reference to SSI Sector

the realizable value is less than 10% of the value of security assessed earlier and the available value of securities is more than 10% of the outstanding liability should be classified as Doubtful Asset. It is not necessary that there should be any gestation period to classify an account as Loss Asset. A Loss Asset is one where the loss has been identified by the Bank or the Internal/External Auditors or the Reserve Bank of India inspectors, but the amount has been written off wholly or partly. In other words, such an asset is considered uncollectible with salvage or recovery value. Further, if the realizable value of the security as assessed by the Bank/approved valuers /RBI is less than 10% of the outstanding in the borrowal accounts, such accounts should be classified as Loss Assets. Further accounts where there is a potential threat of recovery on account of erosion in the value of security or non availability of security and existence of other factors such as fraud, Bill discounted with fake documents, etc, should be classified as Doubtful Assets (where erosion in the value of securities is more than 50% of the value of securities assessed earlier and realizable value being more than 10% of the outstanding liability) or Loss Asset (where realizable value of securities is less than 10% of the outstanding liability), irrespective of the period it has remained as Non Performing asset. In the annual accounts of the public sector bank according to the directives of RBI, two sets of NPA figures should be shown i.e. the gross NPA and the net NPA. Gross NPA refers to the percentage of bad loans on the total advances whereas net NPA is calculated after deducting from the gross NPA provisions and the claims received from the Deposit

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Insurance and Credit Guarantee Corporation (DICGC). The RBI wants these two NPAs for analyzing the performance of the banks because a lower NPA level depicts the fundamental strength of a bank. Until 1992 there was no system of classification of assets, based on their income earning capacity. The debiting of interest used to be continued till the date on which the accounts were transferred to LPD and the entire interest so debited would have been accounted as income. The amount of provision required for each asset was decided based on the availability and value of securities. The above system gave room for subjectivity. In order to standardise and introduce common norms to all the banks, Government of India had appointed a committee headed by Mr. Narasimhan. Based on the recommendation of the Narasimhan committee, the prudential norms relating to income recognition, Asset Classification and Provisioning were introduced by RBI from 1.4.92. Over the years, refinements in the norms have been brought about to take care of the changing requirements. The above norms have three main criteria i.e. Asset Classification, Income Recognition and Provisioning. INCOME RECOGNITION: The income recognition is linked to the concept of performance of the assets. In other words the income from performing assets only is to be recognised. The income from Non-performing Assets is recognised only to the extent of actual recovery made during the accounting year. Interest is not at all debited to all NPAs from the day on which they are first recognised as Sub-Standard, Doubtful or Loss assets. Branches are also

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Canara Bank

Analysis of NPA with special reference to SSI Sector

required to note in the required to note in the ledger the date from which interest is not debited to these accounts. PROVISIONING: The amount of provision required to be created for each assets depends on the classification of the asset, availability/value of security, amount of ECGC/other Guarantee available, the age of the NPA etc. GENERAL From the foregoing, it may be observed that the prudential Norms have twin effect on the profitability of the Banks. One, the income from the Non-performing Assets cannot be recognised (except to the extent of actual recovery). Two, Bank is required to create provision for the Nonperforming Assets. Both these have a negative impact on our profitability. Hence, the endeavor of the Bank should be to prevent the loan accounts from slipping to NPA category. In case any asset becomes NPA, appropriate steps are to be initiated to upgrade the assets. However, if up gradation is not at all possible, immediate recovery steps are to be initiated. The Branches are also to be guided by the Circulars issued by the HO from time to time in this regard. BORROWER-WISE CLASSIFICATION The Asset Classification into performing and non performing is borrower wise and not account/facility wise. Accordingly, if one account of the borrower is NPA, the other accounts which are otherwise performing should be classified as NPA and such PA are called Deemed NPAs.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

"If the borrower is having more than one account and if anyone of the account is to be classified as doubtful, all other accounts of the borrower should be classified as Doubtful, though such account may qualify for classifying as standard and /or sub-standard asset." Since the Asset Classification is borrower-wise, the total liability of the borrower and the securities available therefore should be considered/aggregated for Asset Classification and Provisioning. REHABILITATION/ NURSING PACKAGE: Nursing Program is sanctioned either as per the directives of BTFR or Team/other institutions/Banks. In such cases: a) The existing facilities shall continue to be classified under category of Asset Classification before sanctioning of the package. b) Additional limits sanctioned as per the package alone can be classified as Standard Asset and hence there is no need for making any Provision for a period of one year from the date of disbursement of additional facilities. NPA with liability. 1) Less than Rs.5 lakhs Appropriate Authority Regional office

2)

Rs. 5 lakhs to 25 lakhs

Circle office

3)

Rs.25 lakhs and above

Corporate Credit Wing / Credit Wing/Recovery Wing, HO

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Canara Bank

Analysis of NPA with special reference to SSI Sector

PROVISIONING REQUIREMENT FOR DOUBTFUL ASSETSREMARKS First year of Doubtful Security Deficit + 20 % of Deficit - (Net Liability minus security available + ECGC Cover) Second or Third year of Doubtful security Deficit + 30 % of Realisable value of tangible should be taken. Borrower/ Guarantor's worth should not be considered. Fourth year Onwards security Deficit + 50 % of Proportionate amount of ECGC cover only to be taken. COMMITTEE REPORTS Several committees were formed to study the NPAs in the Bank. The excepted committees are the Narasimham committee recommendations. The highlights were as follows. NARASIMHAM COMMITTEE- FIRST REPORT-HIGHLIGHTS: c SLR and CRR are to be brought down. c Priority sector redefined and bank finance to be restricted to 10 %. c Interest rate to be deregulated. c Banks to achieve capital adequacy of 8 % by 1996 of Risk Weighted assets c Adoption of uniform accounting practices particularly on income recognition asset classification and provision.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

c Classification of Assets into performing and non performing assets (Sub standard Doubtful and Loss Assets) and interest on non performing Assets not to be recognised. c Provision to be made Sub standard assets Doubtful assets Loss assets 10 % 20 % to 50 % 100 %

c Transparency in Balance Sheet. c Formation of Assets Reconstruction Fund. c Merger and Acquisition of Banks into 4 international banks, 10 national banks, Local, Rural Banks and new Banks. c No more nationalisation of banks. New banks in private sector. No branch licensing and freedom on recruitment, good banks can issue Fresh capital etc. c Greater emphasis on internal Audit and inspection c Improve quality, greater autonomy to Banks, only to control. NARASIMHAM COMMITTEE-SECOND REPORTHIGHLIGHTS:  Capital adequacy to be increased from 8 % to 10 % in stages.  Asset Reconstruction Companies to be set up to issue bonds which would form part of Tier II capital.  Introduction of income recognition norms of 90 days in a phased manner.

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Analysis of NPA with special reference to SSI Sector 

Provision to be made for standard asset and the period for sub standard asset to be reduced to 11/2 years.  Banks should adopt strategic risk management techniques like value-at-risk in respect of balance sheet items.  Actions to be under taken on reducing expenditure through valueat-risk in respect of balance sheet items.  The major parameters for the banks that seek to become international players could be return on equity, return on assets and employees, productivity measured not in terms of business volume but net profit.  Investment decisions should be taken by committee at various levels within the policy framed by the bank.  Accurate and timely information for strategic decisions-identify and provide profitable products to customers.  2 or 3 larger banks with international orientation, 8-10 national banks and large number of local banks proposed.  Minimum shareholding of government should be brought down to 33%  Training systems to address newer areas like product development, marketing skills, modern credit management skills and new internal audit skills.  Need for network of regional data warehouse and credit information bureau.  Transfer of priority sector portfolio between high level and lower level banks.
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Analysis of NPA with special reference to SSI Sector 

Single integrated system of regulation and supervision covering banks, FIs and NBFCs. NPA AND BANK LENDING: Phases of Bank Lending The incidence of non-performing advances is affecting the performance of the banks both financially and psychologically. The successful banker-client relationship in the credit functions of bank involves three important and interlinked phases viz: loan availability, loan utilisation phase and loan repayment phase.  The successful management of the first phase presupposes that the right type and the right amount of credit are given to the right type of the client. This phase involves the following actions before the loan is leased. a) A prospective borrower approaches the bank for seeking financial assistance. b) c) The banker appraises the loan proposal, and The borrower complies with the formalities for the sanction and release of the amount.  The second phase envisages that the borrower makes proper use of the amount received from the bank. This phase involves actions such as mobilisation of non-credit inputs- the right type of technology, other material and inputs, services, and managerial skills and uses them for the initiation and completion of the productive activity for which the loan is taken. It also involves the mobilisation of supplementary financial resources wherever and to

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Analysis of NPA with special reference to SSI Sector

the extent the credit amount is not equal to the project cost. Usually, there is some gap between the credit availability from the banks and the actual financial requirements of the activity/project. This is a deliberate aspect of prudent credit policy so that the borrower has some stake in the project. This gap is usually bridged by the borrower's own funds/or the financial assistance from the government in the form of subsidy in specified cases.  The third phase expects that the borrower repays the outstanding loan along with the interest in time. This phase has two important aspects; a) The project/activity generates enough income in the form of cash surplus which takes care of the borrower's obligation to the bank and his reasonable demands on the income generated by the project. b) The borrower actually repays the cash borrowed from the bank and closes the account. All these three are envisaged in the proper management of any project. However, in reality, things do not happen as they are expected to. That is why, many a time, there are various snags in the smooth banker client relationship Some of them may be the following nature a) The right amount may not have been given to the right borrower for the right activity and at the right time. b) The amount might not have been properly utilized for the purpose or even when it had been used for the right purpose, there may not

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Canara Bank

Analysis of NPA with special reference to SSI Sector

have been a proper match between the credit and the non credit inputs. c) d) The project might not have generated enough income and surplus. Even if the income and the surplus generated by the project are adequate for repayment the borrower may have deliberately defaulted in repayment. In fact the repayment behavior of the borrower in the field can take any of the following patterns. Pattern i ii iii Links involved in the behavior L ----- A ----- P ----- Y ----- R ----- C ----- I L ----- A ----- P ----- Y ----- R R L ----- A ----- P ----- Y C R iv v vi vii viii L C ix x xi L ---------- C L ---------- A L ---------- -A L ----- A ----- P ----- Y ----- C -----I L ----- A ----- P ----- Y ----- I L ----- A ----- P ----- Y ----- C L ----- A ----- P ----- C R

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Canara Bank

Analysis of NPA with special reference to SSI Sector

Notations used : Lending (L); Activity (A); Production (P); Income (Y); Repayment (R); Consumption (C); Investment (I). The first pattern is the ideal situation where the lending leads to activity, which is productive and hence results into production. This production is supported by market infrastructure and hence, it is concerted into income of the borrower. This income is adequate and is judiciously put in for three uses viz., repayment, improvement in consumption of the family members, and further investments in the family economy, which would lead to the future income rise and better standard of living and so on. The second pattern ends with repayment. It proposes a very high repayment ethos on the part of the borrower and/or very strict recovery machinery so that whatever income is generated in the process is used for repayment. The third and the fourth pattern could be considered most prevalent ones where the income generated with the help of bank credit is used for partial repayment and for improving the consumption and/or investment levels of the family. The fifth pattern may be called the diversion of the income for production purposes. In this process the economy may not suffer though the banker is initially a loser. This pattern results in a situation where the priorities of the borrowers differ from that of the bankers. The sixth pattern is a case of clear diversion and default in repayment. This may happen in the situation where the additional income generated with the help of credit supported activity is less than the pressing consumption needs of the family.
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Canara Bank

Analysis of NPA with special reference to SSI Sector

The seventh pattern may result on account of the nature of the activity. There are certain activities, which produce directly consumable items and if their level of production is low enough to meet only the family consumption needs then the borrower directly uses the produce without going to the market and selling the same for repayment. The eighth pattern is a typical example of subsidy oriented credit schemes where the subsidy is prepaid and the loan is consumed. The ninth pattern is a pattern clear cut case of misutilization of loan. The tenth pattern indicates an unfortunate situation of future loans. These patterns are indicative of many snags which are likely to emerge in the repayment behavior of the borrowers. As a result of these snags, the accounts will be termed as overdue and the banks may face a situation of non performing assets. Magnitude of the NPA The level of NPAs in the bank has reached an alarming proportion. In terms of absolute amount, aggregate NPA of the Canara Bank was Rs.956 crores as on March 2004. In relative terms, the magnitude of the problem could be seen from the fact that the NPA as percentage of total advances was 14.5%.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

CHAPTER II DEIGN OF THE STUDY The study was conducted for Circle Office of Canara Bank in Bangalore. The study comprised of analyzing the level of NPA in the SSI sector of the bank. Four years data was collected from the bank and was analyzed. A survey was also conducted to understand the perception of the Branch Managers about NPAs. Statement of the problem The incidence of NPA is affecting the performance of the Bank both financial and psychologically which has been reflecting ultimately on the balance sheet of the bank. Objective of the study  To understand the nature of NPA in SSI  Manager perception about NPA  To analyse the quantum of NPA in SSI sectors.  To know why the level of NPA is increasing in SSI sectors.  To know the change in the movement of NPA in SSI before and after the RBI guidelines.  To know the effect of NPA in SSI to the performance of the Bank. Scope of the study  The study is expected to reveal the hidden reasons for growing NPA level in the SSI sectors.  The study is also reveals the bank perception about NPA.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

Sample of the study Respondents – bank managers and officers in charge of the bank Sample size – 20 respondents Collection of data Primary data  Circle office and Various branches of Canara bank  Questionnaire Secondary data  Websites  Bank journals  Annual reports . TOOLS FOR COLLECTION OF DATA Sources of data The data constituted of both primary data and secondary data. Primary data The primary data was collected from the Circle Office. Four years data was collected for the study. A survey was also conducted using a structured questionnaire to collect the primary data. Secondary data Secondary data was collected from texts, dailes, internet, magazines etc.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

Data collection mode The data collection instrument to be used for obtaining the desired information is questionnaire. The schedules will be designed for the Bankers. The Banker will be approached through personal and telephone interviews in the respondents' bank. METHOD OF ANALYSIS The data from the bank was first analysed by making a comparative study for the previous four years and inferences were drawn . The data obtained from the respondents was edited and valid responses were retained for the purposes of analysis. Analysis involves converting the series of the recorded observations in to descriptive statements and to draw inferences about the perception of NPA and DRT from the respondents. Tabular analysis was carried out. Statistical tools like graphs, tables, etc. were used for analysis. Findings, conclusions and recommendation were derived based on the analysis of the responses. LIMITATION OF THE STUDY c The study is limited to only one commercial bank. c The study is limited to one Circle Office of the Bank. c Limited to only NPA section.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

OPERATIONAL DEFINITIONS Performing assets: Performing Assets are standard assets which do not disclose any problem and which do not carry more than the normal risk attached to the business. The Performing Asset is one which generates income for the Bank. Standard Assets: An account is considered to be a Standard asset when it is in order or where the overdue amount is within a period of 180 days and in respect of Direct Agricultural advance if the amount overdue is less than two Harvest seasons but for a period not exceeding two Half years. Non Performing assets: An amount is to be treated as Non Performing Asset when it ceases to generate income for the Bank. Sub-Standard Assets: lf the loan amount if any amount is overdue for a period of more than 180 days from the due date, the account is classified as Sub Standard Assets, provided it is covered by adequate securities i.e. where erosion in securities is less than 50% of the value of securities (Value of securities means the value as assessed by the bank previously accepted by Reserve Bank of India at the time of last inspection). Such Non Performing asset accounts can remain in Sub Standard category for a maximum period of 18 months. Doubtful assets: An account which has completed 18 months in Sub Standard category and which is covered by securities/ECGC/CGTJI cover where the realizable value is less than 10% of the value of security assessed earlier and the available value of securities is more than 10% of the outstanding liability should be classified as Doubtful Asset.

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Analysis of NPA with special reference to SSI Sector

Loss Assets: A Loss Asset is one where the loss has been identified by the Bank or the Internal/External Auditors or the Reserve Bank of India inspectors, but the amount has been written off wholly or partly. In other words, such an asset is considered uncollectible with salvage or recovery Value. Loan Past Due Accounts(LPD): The account which is in the non performing assets category is passed to LPD accounts, which are then referred to DRT or handled by the recovery team of the bank. Debt Recovery Tribunal: The judicial set up for the purpose of recovering the amount for banks from defaulting customers.

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Analysis of NPA with special reference to SSI Sector

OVERVIEW OF CHAPTERS Chapter - I This chapter contains details about the topic under study. Definitions, causes and reasons for accounts becoming NPA, in general and introduction on Debt Recovery Tribunal are all the part of this chapter. Chapter-II This chapter includes the design of the study - the statement of the problem, objectives and scope of the study, data collection tools and sampling methods. Chapter-III This chapter contains the report on banking industry and the profile of Canara Bank. Profile contains the Banks vision, achievements, performances and community concerns. Chapter - IV Analysis of both the data i.e. data collected from the bank and also the responses from the survey, are included in this chapter. Chapter - V This chapter contains the findings, conclusions and

recommendations part.

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Analysis of NPA with special reference to SSI Sector

CHAPTER - III

CANARA BANK
COMPANY PROFILE
FOUNDING PRINCIPLES: Founded as 'Canara Bank Hindu Permanent Fund' in 1906, by late Sri. Arnmembal Subba Rao Pai, a philanthropist, this small seed blossomed into a limited company as 'Canara Bank Ltd.' in 1910 and became Canara Bank in 1969 after nationalisation. Sound founding principles, enlightened leadership, unique work culture and remarkable adaptability to changing banking environment have enabled Canara Bank to be a frontline banking institution of global standards. BRANCHES & OFFICES: The Bank has a network of more than 2400 branches spread over 22 States/ 4 Union Territories of the country which are administered through • • 13 Circle Offices and 1 International Division 32 Regional Offices.

INTERNATIONAL OPERATIONS: Canara Bank established its International Division in 1976, to supervise the functioning of its various foreign departments, to give required thrust to foreign exchange business, particularly exports and to meet the requirements of NRIs.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

Though small in size, the Bank's presence abroad has brought in considerable foreign business, particularly NRI deposits. The Bank has its presence abroad, as under;  Canara Bank, London, UK ( branch)  Indo Hong Kong International Finance Co. Ltd., Hong Kong (subsidiary)  Canara Bank, Moscow (representative office)  Al Razouki Intl. Exchange Company, Dubai, UAE. (Secondment agreement and DD drawing facility on Canara Bank)  Eastern Exchange Establishment. Doha, Qatar. (Management agreement and DD drawing facility on Canara Bank) In addition, following Exchange Companies have DD drawing arrangement on Canara Bank. • • • • • • • Al Fardan Exchange Company, Abu Dhabi, UAE. UAE Exchange Center, Abu Dhabi, UAE. Leela Megh Exchange Company, Dubai, UAE Thomas Cook Al Rostamani Exchange Co. Dubai, UAE Kuwait Bahrain Intl. Exchange Co. Kuwait Musandam Exchange, Muscat, Oman Laxmi Das Tharia Ved Exchange Co., Muscat, Oman

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Canara Bank

Analysis of NPA with special reference to SSI Sector

HRD PRACTICES: From a small town Bank, started way back in 1906, today Bank has grown to become a frontline Banking Institution of India with sound foundations. It considers its Human Resources as a most valuable asset. Banks workforce has inherited a unique heritage of open and informal family culture. There are a series of people-building HRD initiatives. The emerging challenges of a liberalised economy entails on it a responsibility for developing motivated and knowledgeable workforce to meet the requirements. :

Towards this end, Canara Bank has been a fore runner in establishing its own training system way-back in 1950s itself. Our Apex Level Training College at Bangalore ably supported by 13 Regional Centres spread over length and breadth of the country takes care of the knowledge, skill, and attitudinal development of the employees. Being proactive to the requirements of empowered workforce, the Bank also sponsors individuals to external training programmes both within and outside the country. In order to ensure that a well-motivated workforce contributes towards the growth of the institution, our Bank has made inroads towards establishment of Quality Circle concept among its employees. The growth of this concept can be gauged by the fact that as on date, it has over 700 active quality circles. These quality circles have carved out a niche for themselves at various National and International level competitions and have returned with handsome prizes.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

In the National Convention of Quality Circles organised by QCF1 (Quality Circle Forum of India) at Durgapur during November 1099, 3 of our Quality Circles won the prizes. 1. Best of the Convention - Garden QC of Langford Town, Bangalore

2. Best of the Stream - Parklane QC of M.G.Road, Secunderabad 3. Best of the Session - Surge QC of Thousand Lights, Chennai Banks Quality Circles have been participating in the international Conventions consistently since 1998.  Vision QC of Overseas Branch, Chennai participated in the 1CQCC '98 at Colombo  MIPLADEV QC of Circle Office, Madurai participated in the ICQCC '99 at Mauritius and  Garden QC of Circle Office participated in the ICQCC 2000 held at Singapore during November 2000. In order to ensure that local area specific issues are addressed and redressed, development of HRD Cells/HRD Local Chapters at the local controlling offices of the Bank, viz., Circle Offices and Regional Offices, have boosted the morale and commitment of the workforce. These Cells which have been set-up for giving focused attention towards effective implementation of formal HRD systems of the Bank are really taking the concept of Human Resource Management to the grass-root levels.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

COMMUNITY CONCERNS: Consistent with its philanthropic roots and genuine concerns for the needy, Bank has taken several initiatives including the following:  KPJ Prabhu Artisans Training, Production & Marketing Centre a Jogaradoddi, Bidadi, Bangalore Rural District and C.E.Kamath Institute for Rural Artisans at Karkala provide training for artisans wood carving, stone carving, sheet metal embossing and terra cotton and marketing their products  Rural Women Self Employment Training Institute at Harohalli, Mahila Abhyudaya Yojana Gramina Mahila Jagruthi Kendras Centre for Entrepreneurship Development for Women provide counselling, guidance & training to make women self-reliant.  A D Pai Institute for Rural Development at Vajrahalli and Rural Sel Employment Promotion and Resource Guidance Centre at Holalur Shimoga District provide training to rural youths for self employment.  Rural Clinic Service and Manila Shushrusha Yojana provide medical facilities in remote and backward villages and provide incentives doctors to set up clinics in such areas.  Cangrama Shikshana Kendra Adult education centres, Canara Ban Golden Jubilee Education Fund provide adult literacy and assist "student fraternity by providing books, equipments, sponsoring libraries etc.  Grama Jala Yojana

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Canara Bank

Analysis of NPA with special reference to SSI Sector 

Adarsha Grama Project & Jalayoga Scheme provide safe drinking water facility in backward villages.  Hari Kalyana Yojana, Tribal Counselling Centres, Dr.Ambedkar Self Employment Training Institute at Pudupudur and Subba Rao Pai Self Employment Training Institute at Wandoor train SC/ST and minority youths to take up self-employment training.  Rural Development and Self Employment Training Institutes and Rural Resource Development Centres provide training in adopting appropriate technology.  Computer Training Centre for Urban Poor at Bangalore trains urban poor in the IT field and computers.  Kalagrama - An art village, a complex of 18 houses (at K.P.J. Prabha Artisans Training, Production & Marketing Centre, Jogaradoddi) has been set-up to assist the artisans who have undergone training in traditional arts to pursue and practice art for mutual learning and benefit.  Canara Bank Institute of Information Technology (CBIIT), Alleppy has been set-up with an objective of imparting training to the rural youth of South Kerala in the field of Information Technology. The training is offered free of cost and backed up by post training follow up to ensure credit linkage and settlement.  Canara Bank Institute of Information Technology (CBIIT), Thiruvananthapuram has been set-up with an objective of imparting training in the field of Information Technology to the unemployed youth of Thiruvananthapuram and nearby districts. The training is

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Canara Bank

Analysis of NPA with special reference to SSI Sector

offered free of cost in computer packages with emphasis on self employment/wage employment in the IT field.  Canara Bank Self-Employment Training Institute at Honnavar  The Institute has been set-up with an objective of imparting self employment training in rural development activities to the rural unemployed youth of North Kanara and the neighbouring districts The training is offered free of cost and backed up by post training follow-up to ensure credit linkage and settlement.  The first batch of training programme in Screen Printing Commercial Arts was commenced on 25.02.2002 and 27 candidate are undergoing the training. PRODUCTS & SERVICES DEPOSIT PRODUCTS • • • • • • • • Fixed Deposits Kamadhenu Deposits Recurring Deposits Ashraya- A Deposit Scheme For Senior Citizens Canbank Auto Renewal Deposit (CARD) Canflexi Deposits Savings Bank Account Current Account

RETAIL BANKING PRODUCTS  Cancarry  Cancash

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Canara Bank

Analysis of NPA with special reference to SSI Sector 

Canmobile  Swarna Loan Scheme  Housing Loan Scheme  Home Improvement Loan Scheme  Loan Scheme for Traders & Business Enterprises  Teachers Loan  JnanaGanga  Loan Loans for Senior Citizens  Loans/Advance Against Resurgent India Bonds  Loans/Advance Against Flexi Bonds  Loans to buy Company Shares  Can budget Loan Scheme  Can rent Loan Scheme  Can mortgage Loan Scheme  Vidya Sagar - Educational Loan  For Senior citizens, interest rates on Term Deposits will be 1% over the rates as applicable for less than Rs.15 lacs under domestic category. ANCILLARY SERVICES Depository Services Safe Deposit Lockers Safe Custody Services

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Canara Bank

Analysis of NPA with special reference to SSI Sector

-

Nominations Anywhere Banking 7 Day Banking Extended Banking DD Shoppe Specialised Branches Professionals Branch Gold Deposit Scheme 9% Relief Bonds, 1999

CREDIT CARD SERVICES Cancard (Proprietary) Cancard Mastercard Cancard Visa Cancard International Visa (Gold)

CURRENT PERFORMANCE OF THE BANK 2000  Canara Bank became the first public sector bank to join th MasterCard ATM network. It is planning to set up 60 ATMs.  Canara Bank has launched its gold deposit scheme in Bangalore, offering 3-3.5 per cent interest on the deposits.  The Canara Bank and Bank of India have envinced interest to provide loan to the Rs 6,500 crore joint venture Bharat Oman Refineries project in Madhya Pradesh.

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Canara Bank

Analysis of NPA with special reference to SSI Sector 

Public Sector Canara Bank has hiked prime lending rate and MTLR to 12.25 per cent from 11.75 per cent and 12 per cent respectively with effect from 10th August.  The Bank came up with a vanilla bonds issue of Rs 300 crore to increase the tier-II capital before September 30.  Bangalore - based Canara Bank has set up four corporate service branches in Bangalore, Mumbai, Delhi and Chennai and is likely to covert more branches for specialised services. - Canara Bank, the 100 per cent government-owned public sector bank will be roping in an overseas joint venture partner for its mutual fund subsidiary in the next three months.  Canara Bank has entered into an agreement with the Al Mirza group in Oman for opening an exchange house that will be managed by officer deputed by the bank.  Canara Bank will introduce its voluntary retirement scheme on January 1, 2001.  Canbank Factors Ltd., a subsidiary of Canara Bank, has launched it export-factoring activity and has appointed GE Capital International Finance, SPA as is import factor. 2001  Canbank Factors Ltd., a subsidiary of Canara Bank, has opened it eighth branch in New Delhi.  -The Public Sector Canara Bank has entered into an arrangement with the Infrastructure Development Finance Company for financing core sector projects.

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Canara Bank

Analysis of NPA with special reference to SSI Sector 

Canara Bank has named RV Shastri as its new chairman and Managing Director. PERFORMANCE HIGHLIGHTS  Gross profit increased from Rs. 1131 crore for 2000-01 to Rs.2356 crore in 2003-2004registering a healthy 46.4%) growth.  Net profit shot up to Rs.963 from Rs.585 crore, posting an all-time high growth of 160%.  Profitability, as measured by Return on Assets, increased from 0.43% to 1.02 %.  Business per employee rose from Rs. 1.91 crore to Rs.2.15 crore. Profit per employee moved up from Rs.0.63 lakh to Rs.1.64 lakh.  Capital adequacy ratio went up by two percentage points to 11.88% as compared to 9.84% as at March 2004  Gross NPA declined from Rs.2243 crore to Rs.2155 crore, bringing down the Gross NPA ratio from 7.80% to 6.22% during the year. Net NPA came down from Rs.1345 crore to Rs.1288 crore, reducing the Net NPA ratio from 4.84% to 3.89%.  Global Business of the Bank rose from Rs.86902 crore to Rs.971 57 crore registering a growth rate of 12%.  Global deposits of the Bank rose to Rs.64030 crore compared to Rs.59070 crore as at March 2004:  Advances (net) increased to Rs.33127 crore as at March 2004 vis-àvis Rs.27832 crore as at March 2001, registering a growth rate of 19%.

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Canara Bank

Analysis of NPA with special reference to SSI Sector 

Disbursals under retail lending stood at Rs.1700 crore, taking outstanding retail loans to Rs.3075 crore.  Priority sector advances, at Rs. 10536 crore, formed 41 % of net credit as against the stipulated norm of 40%.  Under Kisan Credit Card Scheme 2.96 lakh cards were issued as against the target of 2.75 lakh, taking the total number of cards issued to 7.4 lakh, with a credit coverage of Rs. 1633 crore.  Foreign business turnover aggregated to Rs.59333 crore.  Number of computerised branches rose to 1564 from 996, covering 65% of branch network and 81% of the Bank's business.  ATM strength rose to 103 from 31.  Bank's subsidiaries/sponsored entities recorded improved

performance during the year.  Number of branches under ISO 9001 certification went up to 122 from 14.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

CHAPTER – IV

ANALYSIS OF THE STUDY
The data collected for the study is data from the bank and the responses from the survey. The sample size was 20.The data collected form the bank is analysed first. Growth rate is calculated for all the four years for each type of assets classified. Then a comparison is made for the year ended 31 March 2004 with the year 31 March 2001. For the sake of clear understanding all the assets are analysed and presented in a pie chart graph. Data SSI is collected for each type of assets classified with respect to the SSI sector to which advances are made and the amount is outstanding in this sector. The data collected from 2001 to 2004 for each type of asset are, 1. Non performing asset 2. Standard asset 3. Sub standard asset 4. Doubt full asset ( LPD) 5. Non LPD Analysis was made on movement of NPA in SSI in past 4 years and analysed information is put in graph and in pie charts. Analysis was also made on impact of RBI guide lines on NPA..

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Canara Bank

Analysis of NPA with special reference to SSI Sector

TABLE-1 STATUS IN SSI FOR THE YEAR 2001 Status of SSI NPA Std assets Sub std assets Doubtful assets Non LPD Percentage 36% 22% 20% 12% 10%

STATUS IN SSI FOR THE YEAR 2001
10% 12%

36%

20%

22% NPA Std assets Sub std assets Doubtful assets Non LPD

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Canara Bank

Analysis of NPA with special reference to SSI Sector

TABLE-2 STATUS IN SSI FOR THE YEAR 2002 Status of SSI NPA Std assets Sub std assets Doubtful assets Non LPD Percentage 40% 18% 16% 12% 14%

STATUS IN SSI FOR THE YEAR 2002
14%

12%

40%

16% 18%
NPA Doubtful assets Std assets Non LPD Sub std assets

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Canara Bank

Analysis of NPA with special reference to SSI Sector

TABLE-3 STATUS IN SSI FOR THE YEAR 2003 Status of SSI NPA Std assets Sub std assets Doubtful assets Non LPD Percentage 44.5% 16% 22.5% 10% 7%

STATUS IN SSI FOR THE YEAR 2003
7% 10%

44.50% 22.50%

16%
NPA Doubtful assets Std assets Non LPD Sub std assets

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Canara Bank

Analysis of NPA with special reference to SSI Sector

TABLE-4 STATUS IN SSI FOR THE YEAR 2004 Status of SSI NPA Std assets Sub std assets Doubtful assets Non LPD Percentage 46.8% 18.6% 22.4% 8% 10%

STATUS IN SSI FOR THE YEAR 2004
10% 8%

46.80% 22.40%

18.60%
NPA Doubtful assets Std assets Non LPD Sub std assets

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Canara Bank

Analysis of NPA with special reference to SSI Sector

INTERPRETATION The level of NPA has increased from 36% to 46.5% from 2001 to 2004. In 2001, 224 SSI cases were taken into consideration for analysis. But in 2004, 593 cases as taken into consideration for analysis. Thus also percentage of NPA increasing. You can see in 2003 the percentage of NPA was 44.5% and in 2004 it is 46.5%. Only 2% is increase in the NPA level. And also STD assets percentage also increased from 16% to 18.6%. This is due to many reasons. It can be explained in next part of analysis from the above graph and detail analysis from the survey.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

Standard assets: There is a growth in all the sectors except in SSI sector. There is a negative growth in the SSI sector. The growth rate as indicated in the graph below is from the year 2001 to 2004. There has been increase in this category of assets since the year 2001, in the non priority sector. The growth rate in this sector is 32.5%. There has been decrease in the amount in the SSI sector. This decrease is marginal in the SSI sector during the past four years. There is also a comparison made in terms of amounts between the year 2001 and the year 2002. The growth is in other non priority sector. It constituted 19% of the total advances in the year 2001 and has grown to about 30 %in the year 2004. . Sub standard assets Amount locked in SUB STANDARD assets can be clearly analyzed from the above. The growth rate in various sectors is calculated. The numbers show a satisfactory performance. There has been negative growth of 9% in number of accounts. The negative growth rate tells that the there is a fall in accounts, classified under this category, from 2001 to 2004. But there is growth of about 8% in accounts under the SSI sector during the last four years. There has been a decrease in the total amount locked in this category of assets. There is a decrease in the amount locked in the agriculture sector from 32 percent to 26 percent and a marginal decrease in SSI sector. It can also be seen that, there is an increase of about 10 percent in the Large and Medium industries sector during the last four years.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

Doubtful assets (LPD) The growth rate is fairly satisfactory. There has been overall decrease in the number of accounts in all the sectors. The growth rate is about 35.7% and the actual number of accounts has decreased from 60,065 to 17,655 but there is a marginal decrease in amount i.e. from Rs. 206.20 crores in the year 2001 to Rs. 195.31 crores in the year 2004. The graphs below shows the amount locked in this asset category in the year 2001 and year 2004. The performance in the agriculture and SSI sectors has been satisfactory. There is a negative growth of 10.8% and 10.5% in the above sectors. This means that the amount in this category of asset has been decreasing since the past four years. Where as the amount in the priority sector has grown by 22% during the past four years. The amount locked in Large and Medium industries sector has decreased from Rs. 109.23 crores in the year 2001 to Rs.60.62 crore year 2004. Loss assets: Unsatisfactory picture in the number of accounts in the loss assets category has been increasing. The danger seems to be more in the SSI and other priority sectors. SSI figures show a poor picture of the bank. The total advances made to all the sector have [shown a marginal growth. There is a growth of about 5.4% in the number of accounts during the last four years and also a growth of 6.5% in terms of total amount in this category of asset. There is an increase in amount locked in agriculture sector by about 23% and in SSI sector by about 15% and in other priority sectors by about 24%. This is reflected in the below graphs.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

TABLE - 5 POSITION OF GROSS NPA (RS in Crores)
RO/BRANCH BANGALORE Operation (TARGET) MYSORE (TARGET) DAVANGERE (TARGET) GULBARGA (TARGET) KOLAR (TARGET) ARM (TARGET) 247.05 44.68 32 32.5 23 58.07 39 31.64 21 137.71 100 230 45.63 37 33.03 24 69.32 44 35.2 24 172.03 106 245 43.95 39 30.35 28 66.99 60 34.23 30 157.85 148 238 45.09 41 42.56 28 70.33 64 32.28 32 154.88 147 138 41.01 35 30.84 23 64.17 51 29.98 25 180.31 178 -14.4566 -2.90342 -1.16021 1.331864 -1.26867 -1.81275 5.205422 -5.2587 1.88764 1.227792 16.74541 31.3.00 307.69 31.3.01 288.33 31.3.02 255.35 30.9.03 302.4 31.3.04 236.57 GROWTH -4.15586

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Canara Bank

Analysis of NPA with special reference to SSI Sector

Bangalore Circle Office shows the highest in the gross NPA position. Actual amount has always been above the targets. The quantum of NPA has decreased by 4% during the last four years. It can also be seen that, even though the target were reduced by about 14%, the actual were reduced by only 4%. There is growth of NPA by 1% in the ARM branch during the last four years and this is inspite of the increase in the targets by 16%. The RO Davangere as shown a growth of 1% in NPA

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Canara Bank

Analysis of NPA with special reference to SSI Sector

TABLE.-6 CASH RECOVERY TARGET/ ACHIEVEMENT
PARTCULARS BIORE CO Operation (TARGET) 65.49 64.89 62.24 65 39.64 54.5 12.97 18.5 38.97 45 -22.2896 -19.6164 31.3.00 31.3.01 31.3.02 30.9.03 31.3.04 GROWTH

MYSORE (TARGET)

4.02 7

4.81 7

6.45 7

2.93 3

6.71 7

2.118405 -8.12395

DAVANGERE (TARGET)

7.37 11.25

6.05 8

8.59 7

3 .0 4 3

9.48 9

3.134491 -4.81948

GULBARGA (TARGET)

6.34 8

8.3 8

10.33 10

4.61 5

11.02 11

0.436394 2.656821

KOLAR (TARGET)

5.01 6

5.63 6

6.6 6

2.56 3

7.151 7

-0.82343 -2.28054

ARM (TARGET)

9.96 31

20.63 30

5.44 25.5

3.49 7.5

21.57 21

-3,05444 -20.4974

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Canara Bank

Analysis of NPA with special reference to SSI Sector

GRAPH-5 CASH RECOVERY
25 20 15 10 5 0
O M YS O R E E R AR M ER G A AR KO G

22.28

Growth RA

2.11

3.13 0.4 0.8

R

-5
G N

-3

E

EN

AL

BA

D

AV

Regional Office

Recovery is satisfactory by the Bangalore Circle Office. The actual amount recovered is nearer to the targets in all the past four years. There is a growth of about 22 percent in cash recovery during the past four years. The growth is not convincing because the targets were also reduced by 19 %. One thing to note is that there was almost 100% recovery in the year ended 2004.

BU

LB

O

LA

C

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Canara Bank

Analysis of NPA with special reference to SSI Sector

MOVEMENT OF NPA The table shows the movement of NPA throughout the year. The data for the year 2000fi, Was not available. Hence the data of three previous years has been analysed for finding out the movement of NPA. TABLE-7 MOVEMENT OF NPA (Amt in crs) Particulars Opening Balance ADD: Additions during the year Total LESS: Reductions during the year Balance at the end of the year 31/03/00 657.17 108 765.17 121.63 643.54 31/03/02 643.54 76 719.54 130 588.72 31/03/03 588.72 59 647.72 64.84 582.88 31/03/04 582.88 132 714

The Movement of NPA tables show that there is decrease in NPA from Rs.643.5 crore in the year 2001 to Rs.582.88 crores during the year 2004. The figure for reduction during the year 2001 was not available. From all the above data, a summary data can be prepared, through which analysis can be easily made. The table below depicts the Banks overall performance during the past four years. The table shows the amount locked in various assets i.e., Standard, Sub Standard, Doubtful and Loss assets. The total amount from the above tables is added without taking the sectors into consideration. The amount locked in various

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Canara Bank

Analysis of NPA with special reference to SSI Sector

sectors and in various asset classification are added and arrived at the following table. TABLE-8 MOVEMENT OF NPA
AS AT AGGT GRS NPA ( TARGET)
31/03/00 31/03/01 31/03/02 31/03/03 31/03/04

GROWTH -1.99757 -4.85965 -26.089 -14.1047 9.095042 8.407969 -7.62078 2.726778 1.11373 -1.13138 7.124783

657.17 470 86.67 12.24 2331.87 139.39 372.78 144.97 558.26 312.58 2988.94

643.54
525

588.72 570 44 12.95 2881.7 72.83 338.97 173.97 531.77 306.22 3467.47

647.54 550

582.88
450

INT SUSP
SLDICGC/ECGC STANDARD SUB-STANDARD DOUBTFUL LOSS NET NPA GROSS NPA(PRIOR) GROSS CREDIT

87.47 16.17
25M.63 123.56 358.95 161.03 539.9 325.8 3225.17

47.81
11.97 2915.35 140.29 324.53 182.72 587.76 325.77 3562.88

31.06
10 3437.4 129.97 279.63 173.28 541.82 307.27 4020.28

% CIRCLE'S GROSS NPA TO ADVANCES TOT OF BORWAL A/CS

22

19.95 394643

16.89 358293

18.17 363906

14.49 355307

-8.48123 -2.95014

409413 144253
96

TOT A/Cs UNDER NPA CASH RECOVERY

135900 108 (127) 76 126 10,11 (10)

119332

115196 29.6

91954 95.26 (100) 132 22.1 (25)

-11.3715 -12.4819 -15.8749 23.44567

(TARGET)
INFLOW REDUCTION REC UNDER LOSS (TARGET)

(145)
108 137

77.05
(110) 59 105 6.81 (30)

(40)
92.54 37.7 5.6

23.99279

-

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Canara Bank

Analysis of NPA with special reference to SSI Sector

ABC Analysis: All the NPA accounts were gone through and then have been arranged in the descending / ascending order. The accounts considered for the sake of convenience were those which were above 5 lakhs. The reason was to have an equal base for al! the three years. The accounts are arranged below. TABLE - 9 ABC Analysis (AMOUNT IN CRORES)
A/C 5Lac-10 Lac 10Lac-50Lac 50Lac-1Cr 1Crs-10Crs > 10Crs TOTAL 195 282 48 73 9 AMOUNT 12.73 69.94 32.80 402.22 208.00 725.71 C B B A A A/C 288 332 35 59 5 AMOUNT 19.63 64.26 25.30 180.32 85.22 374.75 C B A A A A/C 240 286 49 66 6 AMOUNT 17.40 62,38 36.22 191.39 80.20 387.61 C B A A A

A - 15% of the total accounts constitute for 85% of the total NPA amount. B - 30% of the total accounts constitute for 10% of the total NPA amount. C - 55% of the total accounts constitute for 5% of the total NPA amount. The accounts above 1 crore, which account for 15% of the total NPA accounts constitutes about 85% of the total NPA amount. The increase in the NPA is the A category i.e. more number of accounts above 1 crore are becoming NPA.

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Analysis of NPA with special reference to SSI Sector

ABC ANALYSIS (in crores) GRAPH-6

500 Amount 400 300 200 100 0 5Lac- 10Lac- 50Lac- 1Crs10 Lac 50Lac 1Cr 10Crs Amount Range
NPA AND RECOVERY MANAGEMENT – WHY?

2000 2001 2002

> 10Crs

Ever since the introduction of reforms in the financial sector, " Non Performing Asset - NPA" has become one of the dreaded but most talked about phrases in the conferences, seminars, workshops, meetings etc conducted by the economists, bankers, trade associations, big wigs of the industries and of course the Govt. / Semi-Govt. Bodies. After the passage of nearly 8 years time since implementation of Narasimham Committee recommendations ( lst report) the tremors of the after effects of the same are being experienced in the banking sector in the new millennium. The management of NPA is gaining importance more than ever before and hence no neglect can be shown by any hanker lest it will be hazardous and fatal challenging the survival.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

CAUSES OF NPA - IN GENERAL Diagnosis: Before analysing the causes of the incidence of high NPA in public sector banks for evolving remedial measures, one must take care into account the prevailing ground realities in the banking scenario as reported results cannot be examined in isolation. Banks being derivative institutions, the health of the real sector is reflected on the health of banking system. The Banks' health/well being is inextricably linked to the other sections of the economy. If the credit discipline in the real sector is weak and the state intervention is not supportive to the banks then there is every possibility that the banking system will be weak and unsound. Further, lack of experience, expertise, timely and adequate credit delivery and effective monitoring attempt of the banks will also be contributory factors for low recovery and escalation in NPA level in future. Before, drawing a map and blue print for a path to effective NPA management it is desirable to find out the major causes that build up high level of NPA. Some reasons for creation of NPA are BANK RELATED a) Internal Factors c Pre-sanction level - Appraisal c Delay in decision/disbursement c Non compliance of sanction terms c Improper documentation c Ineffective Credit Monitoring and Supervision

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Canara Bank

Analysis of NPA with special reference to SSI Sector

b)

External factors -Legal Systems/BIFR c Interference by External agencies c Genera] Causes c Causes for priority sector NPA c Reasons for slow recovery.

BORROWER RELATED • Internal factors: Finance Production Marketing Management • External factors: Government policy Recession Delay in realization. REASONS FOR SLOW RECOVERY  Unwillingness of borrowers to repay bank dues.  Judicial process meant for recovery of dues is time consuming and cumbersome and less effective.  Lack of proper follow up by banks in certain cases.  Certain securities become obsolete over the period of time, hence become unrealisable.

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Canara Bank

Analysis of NPA with special reference to SSI Sector 

Overall recession in economy has resulted in liquidity crunch for borrowers.  In certain cases, factors such as change in Government Policies, competition, marketability of commodities in which borrower is dealing, law and order situation, civil amenities etc affect the business cycle. Default signals: A borrower may default his repayment obligations due to managerial incompetence, financial inadequacies, product failure, market competition/technological obsolescence, break away of partnership, or natural calamities. Hence, a banker should cautiously monitor/observe the borrower before the accounts turns bad. The following are some of the signals a banker must watch carefully:  Failure of timely payment of installments.  Incorrect stock statements.  Frequent cheque dishonors 

Rising level of inventories/non-moving stocks/zero stocks  Unreasonable/wide fluctuations in sale/receivables  Irregular periodic statements  Large and long outstanding in bill accounts  Steep decline in production figures  Maximum outstanding balances  Willful default.  Diverting/routing of receivables through non lending banks

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Canara Bank

Analysis of NPA with special reference to SSI Sector

Effects of NPA: NPA affects the bank in many ways — Income cannot be booked The capital adequacy ratio gets affected. NPAs require provisioning from post-tax profits

A high level of NPAs affect the image of the bank and it may find difficult to raise funds.

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63

Canara Bank

Analysis of NPA with special reference to SSI Sector

Impact of RBI guidelines NPA in SSI sector at circle office, Bangalore Std. Assets percentage was increased from 18% to 18.6% from 2003 to 2004. This is due to cash recovery was fast in that particular period. This is due to RBI guidelines to the bank. A guideline was very strict and it was directed towards referring of NPA accounts of Bank to recovery team, outside agency, and especially to DPT. The effort was very good in this period. No. of cases referred to DRT increased from 168 to 272 from 2003 to 2004. cash recovery and commission towards effort of DRT was duly settled in this period. Bank recovered cash amount from SSIs which were pending from 2001. Hidden reason for increasing level of NPA in SSIs circle office, Bangalore, after making all details analysis from the survey the reasons for this are 1. 2. 3. 4. 5. 6. 7. 8. Liberal credit Head office instructions for lending No proper follow-up and monitoring of credit. Aiming for super profit Poor Legal action Defect in cash recovery target / achievement. RBI guidelines / granting liberal credit Negligence

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64

Canara Bank

Analysis of NPA with special reference to SSI Sector

DEBT RECOVERY TRIBUNAL The Committee on Financial System (CFS) headed by Shri M. Narasimham had recommended the setting up of special tribunals for speedy realization of dues of credit institutions. Consequently, the Recovery of Debts Due to Banks and Financial Institutions Act, 1933 was enacted on 27.08.1993 to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts (Rs. 10 lakh and above) due to the banks and the financial institutions and for matters connected therewith or incidental thereto. So as per the provisions of the Act, 10 Debts Recovery Tribunals (DRTs) and one Debts Recovery Appellate Tribunal (DRAT) all over the country were established. Subsequently 12 more DRTs and 4 more DRATs were established. The Finance Minister has announced the proposed establishment of a further 7 new DRTs. DRTs have been working for more than 5 years under the stay order granted by the Hon' Supreme Court. The performance of DRTs and DRATs in terms of disposal of cases and recoveries made is reviewed from time to time. 43,244 cases involving an amount of Rs, 74,344 crore were filed before DRTs. Out of these 13,092 cases involving Rs. 8,828 crore have been disposed of. An amount of Rs.2,292 crore has been recovered. Recent data from 22 DRTs in the country show that Banks have recovered Rs. 2,583 crore out of Rs. 10,335 crore involving 14,462 cases. "The Recovery of debts due to Banks and Financial Institution Act 993" was passed by the parliament which came into effect from 24.6.1993 and the provisions are amended by an Ordinance of 17.01.2000.
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65

Canara Bank

Analysis of NPA with special reference to SSI Sector

Highlights of the Act:  The Act for expeditious recovery of debts due to Banks and FIs.  It is envisaged to make endeavors for disposal of cases within 6 months.  The Act does not apply to State level Financial Institutions.  The Act does not repeal any existing Law.  Act provides for establishment of DRT and DRAT (Appellate Tribunal)  First appeal of the orders passed by DRT will be before DRAT and appeal of the orders passed by DRAT will be before High Court.  Cases can be filed only by Banks and Financial Institutions.  Cases involving dues of Rs.10.00 lakh and above only will be decided by DRT at present.  At least 75% of the debt due as determined by the DRT has to be deposited with DRAT by the defendant while making an appeal.  All cases pending before any court with suit claim of Rs.10.00 lakh and above shall stand transferred to DRT on or from the appointed date of the Tribunal.  The act has overriding effect.  The Act applies to whole of India except J&K State.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

ANALYSIS FROM THE SURVEY 1. Financial Products offered to the customers TABLE-10

Products
Loans for cars

Respondents ( in % ) 11.560 11.560 11.560 6.936 11.560 9.826 9.826 4.046 2.890 8.670 11.560

Loans for cars Loans for durable goods
Loans for agriculture Loans for shopkeepers and traders

Loans for student Loans for S.S.I Loans for Medium scale industries Loans for Large scale industries
Loans for transport operators

Personal Loans

It can be concluded from the table that all the banks offer all the types of products. Loan for agriculture and Large scale industries are offered by only few banks.

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67

Canara Bank

Analysis of NPA with special reference to SSI Sector

2.

Customer categories and their repayments.

Excellent: Good customer and good repayment automatically. Good: Good customer and repayment after follow-up. Average: Repayment after strenuous follow-up. Poor: Repayment not forthcoming inspite of rigorous follow-up. TABLE-11 (In percentage) Products Loans for cars Loans for House Loans for durable goods Loans for agriculture Loans for shopkeepers and traders Loans for student Loans for S.S.I Loans for Medium scale industries Large scale Loans for industries transport Loans for operatorsLoans Personal Excellent 75 20 0 0 0 0 0 0 5 0 0 Good 7.93 22.22 23.80 9.52 0 15.87 0 7.93 4.76 7.93 0 Average 0 1.81 9.09 7.27 23.63 10.90 23.63 3.63 1.81 18.18 0 Poor 0 0 0 66.67 0 33.33 0 0 0 0 0

It can be analysed from the table that Excellency of repayment is more in Car Loan customers. The repayment schedule is good in case of Housing loans, Loan for durable goods, and student’s loan. There is equally more number in the average repayment category, in which loan for trader and loan for S.S.I leading followed by loan for transport operators.

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68

Canara Bank

Analysis of NPA with special reference to SSI Sector

3) What is the percentage of NPA to total advances Table 12
N P A as % to to tal a d v an c e s

Respondents ( in % ) 5
5

Less than 5 % 5 % to 8 % 8% to 1 2 % 12% to 15 % Above 15%

70 20 0

Most of the banks NPA in relation to its advances are between 8 % to 12 %, followed by the 12 % to 15 % category. There were no banks whose NPA was above 15 %.

GRAPH-12 PERCENTAGE OF NPA TO ADVANCES
80 70 No. of respondents 60 50 40 30 20 10 0 Less than 5 % 5 % to 8 % 8% to 12% Percentage 12% to 15% 5 5 20 70

0 Above 15%

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Canara Bank

Analysis of NPA with special reference to SSI Sector

4) REASONS FOR NPA TABLE-13 Reasons Business failure Customer unwilling to pay although he is making Profit. Failure due to natural calamities Government policies Head office instructions for lending No proper follow-up and monitoring of credit The main reasons for NPA as recorded by the responses were Business failure Customers unwillingness to repay Government policies instructing banks to lend to priority sectors Head Office instructions - credit policy of the bank. Respondents ( in % ) 38.461 25.641 0 20.512 15.386 0

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70

Canara Bank

Analysis of NPA with special reference to SSI Sector

GRAPH-8

45 40 35 Responses 30 25 20 15 10 5 0

38.461

25.641 20.512 15.386

0 Customer unwilling to pay profit Failure due to natural calamities Business failure Government policies Head office instructions

0 No proper follow-up

Reasons

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Canara Bank

Analysis of NPA with special reference to SSI Sector

5)

PROCEDURES ADOPTED FOR CONTROLLING NPAS TABLE- 14 Procedures Respondents ( in % ) 0 20.202 20.202 20.202 20.202 19.192

Demand notices always sent on time. Telephone calls made to customer if payment not made on due date. Letter to customer waving action. Legal notice Legal action Personal contacts

All the procedures enlisted in the questionnaire were followed by almost all the banks. It was found that the banks even went one step further ahead and made personal contacts with their customers.

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72

Canara Bank

Analysis of NPA with special reference to SSI Sector

Graph-9
25
No. of respondents

20 15 10 5 0 0 Demand notices always sent on time.

20.202

20.202

20.202

20.202

19.192 15.386

0 Letter to customer waving action. Legal action Head office instructions

Procedures

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73

Canara Bank

Analysis of NPA with special reference to SSI Sector

6.

HOW DO YOU MAKE ADVANCE INTIMATION TO CUSTOMERS? TABLE-15 Approaches Respondents ( in %) 58.823 0 23.529 0 0 17.647

Telephoning the customer and reminding of the due.date approaching Sending an advance letter to remind the customer about the due date. Going personally and intimating about the due date. Left to customers wish No intimation is done. Standing instruction

The table depicts that telephone calls and personal contact are the only ways through which banks intimated their customers in advance.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

7.

Do you think DRT is effective? TABLE –16
Performance Highly effective

Respondents ( in % )
0 20

Effective Slightly effective Not effective

35 45

The data concludes that DRT is either effective or slightly effective. None of the banks said that DRT is highly effective. But most of the responses were favoring towards the ineffectiveness of the DRT. GRAPH -10
50 45 40
No. of respondents

45

35 30 25 20 15 10 5 0 0 Highly effective Effective 20

35

Slightly effective
Effectiveness

Not effective

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75

Canara Bank

Analysis of NPA with special reference to SSI Sector

8.

Number of cases referred to DRT out of total NPA accounts till date TABLE-17 Cases Referred Less than 50 cases 50 to 100 cases 100 to 150 cases 150 to 200 cases Above 200 cases. Respondents ( in % ) 63.157 36.842 0 0 0

The numbers of cases referred to DRT were in between 0 to 100 cases, in which most of the banks referred less than 50 cases. GRAPH -11 Cases referred to DRT
70 60
No. of respondents

63.157

50 40 30 20 10 0 Less than 50 cases 50 to 100 cases 0 100 to 150 cases
No. of cases

36.842

0 150 to 200 cases

0 Above 200 cases.

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Canara Bank

Analysis of NPA with special reference to SSI Sector

9.

Time taken for final DRT decision TABLE-18 Average time taken Respondents ( in %) 0 0 0 0 0 65 35

Less than a week Week to Fortnight 15days to 30 days 1month-3month 3month-6month 6month-1year Above 1year

Most of the responses of the banks towards the average time taken by DRT is in between 6 months to one year. About 35 % responded that DRT takes more than one year to make a decree. GRAPH-12
AVERAGE TIME TAKEN
70 60 50 Months 40 30 20 10 0 0 0 0 0 0 3month- 6month6month 1year Above 1year 0 No proper follow-up 35 65

Less than Week to 15days to 1montha week Fortnight 30 days 3month

Time Taken

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77

Canara Bank

Analysis of NPA with special reference to SSI Sector

10.

Decisions favoring the bank TABLE-19 D ecision s L ess than 5 0% 5 0 % to 7 5 % 7 5 % to 10 0 % 100% Respondents (in %) 0 0 0 100

All the respondents revealed that there was 100 % favor towards the bank from the DRTs decree.

DECISIONS FAVOURING THE BANK GRAPH -13

120 Respondents 100 80 60 40 20 0 Less than 50% 50% to 75% 75% to 100% 100%

% of decisions favouring bank

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Canara Bank

Analysis of NPA with special reference to SSI Sector

11.

Recovery is effective through TABLE-20 Modes of Recovery Respondents ( in % ) 37.5 20.833 0 16.667 25

Recovery team Outside agency RR Act DRT Follow-up

Recovery through recovery teams of the bank and the follow-up made by the banker are the ways through which banks make its recovery effectively. Nearly 20% of the respondents revealed that recovery through outside agency is effective and the remaining were in the favour of DRT. RECOVERY IS EFFECTIVE THROUGH GRAPH -14
40 35 No. of respondents 30 25 20 15 10 5 0 Recovery team Outside agency RR Act Recovery modes DRT Follow-up

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Canara Bank

Analysis of NPA with special reference to SSI Sector

12.

Quantum of NPA in your branch TABLE-21

Quantum Less than 1 0 crore
10 crores to 50 crores

Respondents ( in % )
85 15 0 0

50 crores to 100 crores Above 100 crore

Most of the banks NPA quantum is less than 10 crores. About 15 % have NPA in between 10 crores and 50 crores. QUANTUM OF NPA IN YOUR BRANCH GRAPH -15
90 80 No. of respondents 70 60 50 40 30 20 10 0 Less than 10 crore 10 crores to 50 50 crores to 100 Above 100 crore crores crores Quantum

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Canara Bank

Analysis of NPA with special reference to SSI Sector

13.

Debt recovery tribunal

Total Amount in DRT Bangalore Rs.524 crores Total cases filed till date - 569 cases TABLE-22 (Amt in crores)

Prev. years
Cases filed Total Amount
Cases pending 373 524

2000-01 2002-03 2003-04 Total
90 502.39 255 43 6.72 61 495.67 I63 53 0.67 45 66.6 248 60 29 569 466.67 248 321 58

208 165 21.61

Cases Decreed Amount recovered(in cr)

Out of the total cases filed to DRT, only 50% of the cases have been decreed. The amount recovered through DRT is very meager. The amount recovered till date is 58 crores out of the total 524 crores locked in 569 cases.

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81

Canara Bank

Analysis of NPA with special reference to SSI Sector

DEBT RECOVERY TRIBUNAL GRAPH-16

600 500 400 Amount 2000-01 300 200 100 0
Cases filed Total Amount Cases pending Cases Decreed Amount recovered(in cr)

2002-03 2003-04

Year

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Canara Bank

Analysis of NPA with special reference to SSI Sector

14.

Percentage of NPA in SSI sector to total NPA TABLE-23

Particulars
Less than 5% 5% to 25% 25% to50% 50% and above

Respondents ( in % )
0% 0% 100% 0% GRAPH-17

.
100%
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

0%
Less than 5%

0%
5% to 25% 25% to50%

0%
50% and above

Less than 5%

5% to 25%

25% to50%

50% and above

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83

Canara Bank

Analysis of NPA with special reference to SSI Sector

15.

What motivate you to grant the loan to SSI sectors TABLE-24

Particulars
Customer satisfaction Normal profit Super profit Competitions

Respondents ( in % )
5% 35% 47% 13% GRAPH-18

.
13% 5% 35%

47%

Customer satisfaction Super profit

Normal profit Competitions

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84

Canara Bank

Analysis of NPA with special reference to SSI Sector

16.

No. of cases referred to DRT particularly in SSI sectors till date TABLE-25

Particulars
Less than 50 cases 50 to 100 cases 100 to 250 cases 250 and above

Respondents ( in % )
0% 0% 100% 0% GRAPH-19

.
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

100%

0%
Less than 50 cases

0%
50 to 100 cases 50 to 100 cases 100 to 250 cases

0%
250 and above

Less than 50 cases

100 to 250 cases

250 and above

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85

Canara Bank

Analysis of NPA with special reference to SSI Sector

CHAPTER-V FINDINGS
1) All the branches offer almost all the products to the customers. But there are some branches which catered only to retail loans like housing loans and car loans and personal loans. And also there are some branches which catered only to industrial loans. (EG: SSI branches) 2) The result about the repayment by the customers was tricky. Repayment differs according to the type of the loan the bank lends. There is excellency (i.e. the customers make repayment on time) in the repayment of car loans. On the other side the repayment is average (i.e. the customers make repayment only after rigorous follow ups) in case of SSI sector. 3) Most of the branches NPA as a percentage to total advances is between 8 percent to 12 percent. There are also some branches, about 20 percent, respondents whose response for NPA as a percentage to advances was between 12 percent to 15 percent. 4) All the branches followed most of the procedures, mentioned in the questionnaire, for controlling NPAs. But none of the branch sends demand notices on time to the customers. 5) Most of the branches feel that DRT is not effective in its functioning. The average time taken by DRT is around six months to a year and even more than a year in some cases.

M.P. Birla Institute of Management

86

Canara Bank

Analysis of NPA with special reference to SSI Sector

6)

The quantum of NPAs in most of the branches is less than crores. There were also some branches whose quantum was in between 10 to 50 crores.

7)

It can be found out from the survey that bank is too liberal in granting credit to SSI’s.

8)

It can also be said that bank is making mistake in pre-granting period or pre-sanctioning period to SSI’s i.e., in making appraisal of proposal of sanctioning the loan from SSI’s.

9)

Bank is also making mistake in monitoring the loan account and staff of the bank is also responsible for account becoming NPA.

10)

Percentage of granting the loan to SSI’s is 75% to 80% of the proposal amount. It is a major drawback of the bank in sanctioning the loan.

11)

It can also be said that the changes in the movement of NPA in SSI sectors is in increasing level. The percentage of increase is from 36% to 46.5% from 2001 to 2004.

12)

It is also found out that target achievement/ cash recovery is very poor in SSI sectors.

13)

It can also be found out that percentage of NPA in SSI to total NPA is around 25 to 50%. From this we can say that bank is very poor in recovering the loan from the SSI’s.

14)

It can also be said that role of DRT, outside agency, recovery team is very poor in their respective roles.

M.P. Birla Institute of Management

87

Canara Bank

Analysis of NPA with special reference to SSI Sector

15)

The reasons for above or in other words the hidden reason for above all is:  Liberal credit  Credit available in all the branches  Head office instructions for lending  No proper follow up  Aiming for super profit  Poor legal action  Defect in cash recovery target/achievement

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88

Canara Bank

Analysis of NPA with special reference to SSI Sector

CONCLUSIONS

1)

Most of the branches have a high level of NPA, which ultimately has resulted in a high figure in the Circle Office.

2)

The standard assets have been decreasing in various sectors except the other non priority sector. Large and Medium scale industries and SSIs form the major chunk of the total loss assets.

3)

ABC Analysis of the NPAs depict that accounts above Rs. 1 crore hold the major chunk of the total NPA. The 20-80 Rule can be applied in this case also. The accounts above Rs. 1 crore constitute to about 20 % of the total NPA accounts and amounts to 80% of the total amount.

4)

As at the end of March 2004 none of the Regional Offices have brought down NPA to the targeted level. However Circle Office Operations, Regional Office Mysore, Regional Office Gulbarga and Regional Office Kolar have brought down the NPA below their March 2004 level. ARM Branch has achieved the target fixed to their branch. RO Davangere, RO Gulbarga, RO Kolar and ARM Branch have achieved Cash recovery Target. This trend has been maintained since the year 2004, except that the gross NPA in RO Gulbarga and ARM has increased compared to the previous years.

5)

All the branches are not effective in intimating the customers about their due date and also they have no proper schedule to meet their customers. This means that branches are less effective in making the customers repay.

M.P. Birla Institute of Management

89

Canara Bank

Analysis of NPA with special reference to SSI Sector

6)

DRT is not effective. This was also evidenced from the responses from various branches. Most of the branches refer only up to 50 cases to 100 cases to DRT out of the total NPAs and the average time taken by DRT to give a decree is about 6 months to a year and in some cases it is above one year.

M.P. Birla Institute of Management

90

Canara Bank

Analysis of NPA with special reference to SSI Sector

RECOMMENDATIONS
In order to keep up the tempo in recovery. Circle Office can draw the following action plan to achieve this stupendous task. 1) Targets are to all Regional offices and in turn suitable targets must be fixed to all the branches immediately. 2) The major thrust should be given on recovery of hardcore NPAs by way of compromise settlement. Circle has already taken steps for arranging more recovery meets/recovery camps which will accelerate cash recovery especially in case of SSIs. Response from the branches as well as of the A borrowers to recovery camps has been considerably encouraging during the previous year. Many ROs have shown excellent performance under Cash recovery mainly due to intensive recovery camps. The same tempo will be continued during this financial year. 3) A study of the NPA position of the Circle during the last 2 to 3 years indicates that the main cause for increasing trend in the level is fresh accretions to NPA which has more than neutralized the recovery. Therefore further increase in NPA could be checked if the fresh inflow to NPA is contained. In this connection, Circle had identified "watch and special watch" category accounts for close follow up. As a result of intensive follow up Circle could restrict the inflow to a certain extent during the second half year. 4) Where OTS (one time settlement) is already permitted but recovery is not forthcoming as per OTS terms, Branches have to review such cases and take steps for ensuring 100 percent recoveries.

M.P. Birla Institute of Management

91

Canara Bank

Analysis of NPA with special reference to SSI Sector

5)

The branches should be given more power to take decisions about lending and recovery. The Branch Manager, who knows better about his customers, should be allowed to make the first appraisal report when the borrower approaches. Based on this appraisal report the Circle Office should make a detailed report. Branches should be given some autonomy to select and form their recovery team.

6)

The bank needs an integral organization restructuring to face the internal factors affecting the increase in NPA level, use of information technology for better credit administration.

7)

Publications of the names of the defaulters who have settled their dues through compromise. This motivates other defaulters to make compromises. In some cases, gifts must also be given.

8)

Setting up of credit investigation and information agency. Timely report of the borrowers' activities should be prepared and updated. This report should be prepared by a well qualified personal. The report should incorporate all the possibilities of an account becoming sticky. If there arises some signs of default, rigorous follow up should be made

9)

Using Micro credit to stop accounts slipping in to NPA. Small loans or Micro credit as it is followed on a small scale should be followed on a larger scale. The Bank should use this as a weapon to tackle the problem of NPAs. This system should be also followed in other sectors like SSI, other priority sectors and Non priority sectors. Even though the money requirement of these sectors is

M.P. Birla Institute of Management

92

Canara Bank

Analysis of NPA with special reference to SSI Sector

more compared to small borrower, who prefer micro credit, the same concept can be modified to suit the larger borrowers. The other ways are, 10) Personal touch with the borrowers/ Account holders: With the increase in the number of accounts, there has been loss in the personal interaction with the borrowers and account holders. To regain the personal touch with the borrowers. Each branch should have one or more Relationship Manager/Officers, based on the number of accounts, who meets the borrowers continually and evaluate the psyche of the clientele 11) Common Documentation: Documentation contains the terms and conditions of the understanding between the Creditors and the Borrower reduced into writing. It is very significant as it serves the legal purposed 12) Reminder letters should be sent to the borrowers. If there is no response, second and a third reminders should be sent. This sort of reminders will continue until the recovery is made. 13) All the borrowers may not respond to the reminder and therefore it becomes essential to visit them personally. During the visit, the branch staff should enquire about their difficulties in loan payment and request them to cooperate with the branch even by making a small payment. 14) One time settlement in another macro level concern. As the judicial process is time consuming and ineffective, banks have advised defaulting borrowers. This provides scope for willful defaulters becoming eligible candidates for such a settlement.
M.P. Birla Institute of Management

93

Canara Bank

Analysis of NPA with special reference to SSI Sector

15)

“We do not fear to negotiate, but we do not negotiate out of fear” so goes a wise saying. Banks appear to be forced to negotiate with willful defaulters more out of fear of non recovery. The argument in favour of these negotiated settlements is that the present discounted value of future (uncertain) cash flows may be less than what is expected to be received under such settlements. This may be good mathematics but very bad banking. In the long run, banks will find to their dismay that the "one line settlement queue11 lengthening every year. However, one time settlements are perfectly fair practices, with regard to honest borrowers whose units are no longer viable.

16)

Often banks do not display empathy with regard to sick but viable units. A more professional approach on the part of the banks (without involving the B1FR) will prove that rehabilitation of such units will not only reduce the NPA accounts but also create economic prosperity for the nation. Banks need to be innovative and bold to succeed in their endeavor in this regard.

17)

The recovery team should be comprised of well qualified persons, who have strong human relations and can understand the mentality of the people. They should be given timely training about the new ways for making recovery. Targets should be given and incentives should be given for meeting the targets.

M.P. Birla Institute of Management

94

Canara Bank

Analysis of NPA with special reference to SSI Sector

LIST OF GRAPHS
SL NO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 PARTICULARS Graph showing status in SSI 2001 Graph showing status in SSI 2002 Graph showing status in SSI 2003 Graph showing status in SSI 2004 Graph showing cash recovery Graph showing ABC Analysis Graph showing percentage of NPA to total advances Graph showing reason for NPA Graph showing procedure adopted for controlling NPA Graph showing DRT effectiveness Graph showing cases referred to DRT Graph showing time taken for DRT decision Graph showing decision favoring the bank Graph showing recovery Graph showing quantum of NPA Graph showing DRT Graph showing percentage of NPA in SSI to total NPA Graph showing motivation for bank to grant loan to SSI Graph showing number of cases referred to DRT PAGE NO 35 36 37 38 45 51 61 63 65 67 68 69 70 71 72 74 75 76 77

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Canara Bank

Analysis of NPA with special reference to SSI Sector

LIST OF TABLES
SL.NO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 PARTICULARS Table showing status SSI for the year 2001 Table showing status SSI for the year 2002 Table showing status SSI for the year 2003 Table showing status SSI for the year 2004 Table showing position of gross NPA Table showing cash recovery target and recovery Table showing movement of NPA Table showing movement of NPA Table showing ABC analysis Table showing financial product offered to customer Table showing customer category and their repayment Table showing percentage of NPA to total advances Table showing reasons for NPA Table showing procedure adopted for controlling NPA Table showing advance intimation to customer Table showing DRT effectiveness Table showing NO. of cases to DRT Table showing time taken for final DRT decision Table showing decision favoring the bank Table showing recovery is effectiveness Table showing quantum of NPA Table showing DRT cases filed Graph showing percentage of NPA in SSI to total NPA Graph showing motivation for bank to grant loan to SSI Graph showing number of cases referred to DRT PAGE.NO 35 36 37 38 42 44 46 47 49 59 60 61 62 64 66 67 68 69 70 71 72 73 75 76 77

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