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INDIAN FINANCIAL SYSTEM
The economic development of a nation is reflected by the progress of the various economic units, broadly classified into corporate sector, government and household sector. While performing their activities these units will be placed in a surplus/deficit/balanced budgetary situations. There are areas or people with surplus funds and there are those with a deficit. A financial system or financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus to the areas of deficit. A Financial System is a composition of various institutions, markets, regulations and laws, practices, money manager, analysts, transactions and claims and liabilities.
The word "system", in the term "financial system", implies a set of complex and closely connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities in the economy. The financial system is concerned about money, credit and finance-the three terms are intimately related yet are somewhat different from each other. Indian financial system consists of financial market, financial instruments and financial intermediation. These are briefly discussed below;
NON-PERFORMING ASSETS FINANCIAL MARKETS
A Financial Market can be defined as the market in which financial assets are created or transferred. As against a real transaction that involves exchange of money for real goods or services, a financial transaction involves creation or transfer of a financial asset. Financial Assets or Financial Instruments represents a claim to the payment of a sum of money sometime in the future and /or periodic payment in the form of interest or dividend. Money Market- The money market ifs a wholesale debt market for low-risk, highly-liquid, shortterm instrument. Funds are available in this market for periods ranging from a single day up to a year. This market is dominated mostly by government, banks and financial institutions. Capital Market - The capital market is designed to finance the long-term investments. The transactions taking place in this market will be for periods over a year. Forex Market - The Forex market deals with the multicurrency requirements, which are met by the exchange of currencies. Depending on the exchange rate that is applicable, the transfer of funds takes place in this market. This is one of the most developed and integrated market across the globe. Credit Market- Credit market is a place where banks, FIs and NBFCs purvey short, medium and long-term loans to corporate and individuals. The functions performed by these Banks are 1. Commercial Banks Commercial Banks perform all the business transactions of typical Bank. Commercial Banks accept three types of deposits, like Saving Bank Deposits, Fixed Deposit and Current Deposits. They provide funds of short-term needs of trade of commerce.
2. Investment or Industrial Banks Investment Banks are those Banks, which provide fund for long-term
industries. These Banks have specialized in providing long term loans to industries with a view to buy plant and machinery. The investment Banks obtain funds through share capital plus, debentures and long term deposits from public. 3. Exchange Banks These Banks are known as foreign exchange Banks. They provide exchange for import trade. Their main function is to make international payment through purchased Bank of exchanges Bills. 4. Co-operative Banks They are promoted to meet the Banking requirements of consumers. They established not only in the urban areas but also in the rural areas. In the rural areas these Banks supply finance to agriculture while in these urban areas they provide finance to consumer goods. 5. Land Mortgage Banks Whenever agriculturist requires investment loans, they have to approach land development Banks, where loans are given on long term basis. They provide loans on the security of the land. 6. Central Banks Central bank is an apex bank in the country, which keeps the entire Banking system unified, controlled and regulated. It regulates the note issue. RBI is the Central Bank of India.
NON-PERFORMING ASSETS FINANCIAL INSTRUMENTS IN INDIA
We took a look at the players in the financial markets earlier. Let us now look at the Financial Instruments these players have. They van be broadly classified into Government securities and Industrial securities. Government Securities( G-Sec ) : In India G- Sacs are issued by the Central Government, State Governments and Semi Government Authorities such as municipalities, port trusts, state electricity boards and public sector corporations. The Central and State Governments raise money through these securities to finance the creation of new infrastructure as well as to meet their current cash needs. Since these are issued by the government, the risk of default is minimal. Therefore, interest rates on these securities often serve as a benchmark for the level of interest rates in the economy. Other issuers may price their offerings by `marking up‟ this benchmark rate to reflect the credit risk specific to them. These securities may have maturities ranging from five to twenty years. These are fixed income securities, which pay interest every six months. The Reserve Bank of India manages the issues of the securities. These securities are sold in the primary market mainly through the auction mechanism. The RBI notifies issue of a new tranche of securities. Prospective buyers submit their bids. The RBI decides to accept bids based on a cut off price. The G -sacs are primarily bought by the institutional investors. The biggest investors are commercial banks who invest in G-sacs to meet the regulatory requirement to maintain a certain percentage of Statutory Liquidity Ratio (SLR) as well as an investment vehicle. Insurance companies, provident funds, and mutual funds are the other large investors. The Primary Dealers perform the function of market makers through buying and selling activities.
The Government of India also borrows short term funds for up to one year. This is through the issue of Treasury Bills which are sold at a discount to the face value and redeemed at the full face value. Industrial Securities: These are securities issued by the corporate sector to finance their long term and working capital requirements. The Major Instruments that fall under Industrial Securities are. Debentures, Preference Shares And Equity Shares
Debentures Debentures have a fixed maturity and pay a fixed or a floating rate of interest during their lifetime. The company has an obligation to pay interest and the principal amount on the due dates regardless of its profitability position. The debenture holders are not members of the company and do not have any say in the management of the company. Since these carry a predefined rate of return, there is no scope for any major capital appreciation. However, in case of fixed rate debentures, their market price moves inversely with the direction of interest rates. The debenture issues are rated by the professional credit rating agencies regarding the payment of interest and the repayment of the capital amount. Apart from the `plain vanilla‟ variety of debentures (periodic payment of interest during their currency and repayment of capital on maturity), a number of variations have been devised. For example, zero coupon bonds are issued at a discount to their face value and redeemed at the full face value. The difference constitutes return for the investor. Preference Shares Preference Shares carry a fixed rate of dividends. These carry a preferential right to dividends over the equity shareholders. This means that equity share holders cannot be paid any dividends unless the preference dividend has been paid in full. Similarly on the winding up of the Page 6
company, the preference share holders get back their capital before the equity share holders. In case of cumulative preference shares, any dividend unpaid in past years accumulates and is paid later when the company has sufficient profits. Now all preference shares in India are `redeemable‟, i.e. they have a fixed maturity period. Thus, preference shares are sometimes called a `hybrid variety‟ – incorporating features of debt as well as equity. Equity Shares Equity Shares are regarded as high return high risk instruments. These do not carry any fixed rate of return and there is no maturity period. The company may or may not declare dividend on equity shares. Equity shares of major companies are traded on the stock exchanges. The major component of return to equity holders usually consists of market appreciation. Call Money Market: The loans made in this market are of a short term nature – overnight to a fortnight. This is mostly inter-bank market. Those banks which are facing a short term cash deficit, borrow funds from the cash surplus banks. The rate of interest is market driven and depends on the liquidity position in the banking system. Commercial Paper (CP) and Certificate of Deposits (CD) : CPs is issued by the corporate to finance their working capital needs. These are issued for short term maturities. These are issued at a discount and redeemed at face value. These are unsecured and therefore only those companies who have a good credit standing are able to access funds through this instrument. The rate of interest is market driven and depends on the current liquidity position and the creditworthiness of the issuing company. The characteristics of CDs are similar to those of CPs except that CDs are issued by the commercial banks.
NON-PERFORMING ASSETS RESERVE BANK OF INDIA
The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the beginning. The Government held shares of nominal value of Rs. 2, 20,000. Reserve Bank of India was nationalized in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government appointed for a term of four years to represent territorial and economic interests and the interests of co-operative and indigenous banks. The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank.
The Bank was constituted for the need of following:
To regulate the issue of banknotes To maintain reserves with a view to securing monetary stability and To operate the credit and currency system of the country to its advantage.
NON-PERFORMING ASSETS Functions of Reserve Bank of India
The Reserve Bank of India Act of 1934 entrust all the important functions of a central bank the Reserve Bank of India. Bank of Issue Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the Government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the Banking Department. Originally, the assets of the Issue Department were to consist of not less than two-fifths of gold coin, gold bullion or sterling securities provided the amount of gold was not less than Rs. 40 crores in value. The remaining three-fifths of the assets might be held in rupee coins, Government of India rupee securities, eligible bills of exchange and promissory notes payable in India. Due to the exigencies of the Second World War and the post-was period, these provisions were considerably modified. Since 1957, the Reserve Bank of India is required to maintain gold and foreign exchange reserves of Ra. 200 crores, of which at least Rs. 115 crores should be in gold. The system as it exists today is known as the minimum reserve system. Banker to Government The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser. The Reserve Bank is agent of Central Government and of all State Governments in India excepting that of Jammu and Kashmir. The Reserve Bank has the obligation to transact Government business, via. To keep the cash balances as deposits free of interest, to receive and to make payments on behalf of the Government and to carry out their exchange remittances and other banking operations. The Reserve Bank of India helps the Government - both the Union and the States to float new loans and to manage public debt. The Bank makes ways and means advances to the Governments for 90 days. It makes loans and advances to the States and local authorities. It acts as adviser to the Government on all monetary and banking matters.
Bankers' Bank and Lender of the Last Resortthe Reserve Bank of India acts as the bankers' bank. According to the provisions of the Banking Companies Act of 1949, every scheduled bank was required to maintain with the Reserve Bank a cash balance equivalent to 5% of its demand liabilities and 2 per cent of its time liabilities in India. By an amendment of 1962, the distinction between demand and time liabilities was abolished and banks have been asked to keep cash reserves equal to 3 per cent of their aggregate deposit liabilities. The minimum cash requirements can be changed by the Reserve Bank of India.The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible securities or get financial accommodation in times of need or stringency by rediscounting bills of exchange. Since commercial banks can always expect the Reserve Bank of India to come to their help in times of banking crisis the Reserve Bank becomes not only the banker's bank but also the lender of the last resort. Controller of CreditThe Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume of credit created by banks in India. It can do so through changing the Bank rate or through open market operations. According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask any particular bank or the whole banking system not to lend to particular groups or persons on the basis of certain types of securities. Since 1956, selective controls of credit are increasingly being used by the Reserve Bank. The Reserve Bank of India is armed with many more powers to control the Indian money market. Every bank has to get a license from the Reserve Bank of India to do banking business within India, the license can be cancelled by the Reserve Bank of certain stipulated conditions are not fulfilled. Every bank will have to get the permission of the Reserve Bank before it can open a new branch. Each scheduled bank must send a weekly return to the Reserve Bank showing, in detail, its assets and liabilities. This power of the Bank to call for information is also intended to give it effective control of the credit system. The Reserve Bank has also the power to inspect the accounts of any commercial bank. As supreme banking authority in the country, the Reserve Bank of India, therefore, has the following powers: (a) It holds the cash reserves of all the scheduled banks.
(b) It controls the credit operations of banks through quantitative and qualitative controls.
(c) It controls the banking system through the system of licensing, inspection and calling for information.
(d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks.
Custodian of Foreign Reserves
The Reserve Bank of India has the responsibility to maintain the official rate of exchange. According to the Reserve Bank of India Act of 1934, the Bank was required to buy and sell at fixed rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed was Re. 1 = sh. 6d. Since 1935 the Bank was able to maintain the exchange rate fixed at lsh.6d. Though there were periods of extreme pressure in favor of or against the rupee. After India became a member of the International Monetary Fund in 1946, the Reserve Bank has the responsibility of maintaining fixed exchange rates with all other member countries of the I.M.F.Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the custodian of India's reserve of international currencies. The vast sterling balances were acquired and managed by the Bank. Further, the RBI has the responsibility of administering the exchange controls of the country. Supervisory function In addition to its traditional central banking functions, the Reserve bank has certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction, and liquidation. The RBI is authorized to carry out periodical inspections of the banks and to call for returns and necessary information from them. The nationalization of 14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realization of certain desired social objectives. The supervisory functions of the RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to Page 11
improve the methods of their operation. Promotional functions with economic growth assuming a new urgency since Independence, the range of the Reserve Bank's functions has steadily widened. The Bank now performs a variety of developmental and promotional functions, which, at one time, were regarded as outside the normal scope of central banking. The Reserve Bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and establish and promote new specialized financing agencies. Accordingly, the Reserve Bank has helped in the setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation in 1962, the Unit Trust of India in 1964, the Industrial Development Bank of India also in 1964, the Agricultural Refinance Corporation of India in 1963 and the Industrial Reconstruction Corporation of India in 1972. These institutions were set up directly or indirectly by the Reserve Bank to promote saving habit and to mobilize savings, and to provide industrial finance as well as agricultural finance. As far back as 1935, the Reserve Bank of India set up the Agricultural Credit Department to provide agricultural credit. But only since 1951 the Bank's role in this field has become extremely important. The Bank has developed the co-operative credit movement to encourage saving, to eliminate moneylenders from the villages and to route its short term credit to agriculture. The RBI has set up the Agricultural Refinance and Development Corporation to provide long-term finance to farmers.
Classification of RBIs functions:
The monetary functions also known as the central banking functions of the RBI are related to control and regulation of money and credit, i.e., issue of currency, control of bank credit, control of foreign exchange operations, banker to the Government and to the money market. Monetary functions of the RBI are significant as they control and regulate the volume of money and credit in the country. Equally important, however, are the non-monetary functions of the RBI in the context of India's economic backwardness. The supervisory function of the RBI may be regarded as a non-monetary function (though many consider this a monetary function). The promotion of sound banking in India is an important goal of the RBI, the RBI has been given wide and drastic powers, under the Banking Regulation Act of 1949 - these powers relate to licensing of banks, branch expansion, liquidity of their assets, management and methods of working, inspection, amalgamation, reconstruction and liquidation. Under the RBI's supervision and inspection, the working of banks has greatly improved. Commercial banks have developed into financially and Page 12
operationally sound and viable units. The RBI's powers of supervision have now been extended to non-banking financial intermediaries. Since independence, particularly after its nationalization 1949, the RBI has followed the promotional functions vigorously and has been responsible for strong financial support to industrial and agricultural development in the country.
RESERVE BANK OF INDIA ADDRESS
Reserve Bank of India, Central Office, Shamed Braga Singh Road, Mumbai - 400 001.
INTRODUCTION TO CO-OPERATIVE BANK
The Co-operative Banks in India started functioning almost 100 years ago. The Co-operative Bank is an important constituent of the Indian financial system, judging by the role assigned to Co-operative, the expectations the Co-operative is supposed to fulfill, their number, and the number of offices the Co-operative Bank operates. India plays an important role even today in rural financing. The business of Co-operative Bank in the urban areas also has increased phenomenally in recent years due to the sharp increase in the number of primary Co-operative Banks. Co-operative Banks in India are registered under the Co-operative societies act. The Cooperative Bank is also regulated by the RBI. They are governed by the banking regulations Act 1949 and Banking laws. At the end of March, 2000 in the states in there were 28,708 Cooperatives of different types with the membership of 1.51 crores. Their working capital was Rs. 16,868.45 crores and total deposits were Rs.9356.50 crores.
NON-PERFORMING ASSETS HISTORY OF THE CO-OPERATIVE MOVEMENT
Co-operation dates back as far as human beings have been organizing for mutual benefit. Tribes were organized as Co-operative structures, allocating jobs and resources among each other, only trading with the external communities. Post-industrial European is home to the first operatives from an Industrial context. In 1761, the Fenwick weaver‟s society was formed in Fenwick, East Artier, and Scotland to sell discounted oatmeal to local workers. Its services expanded to include assistance with savings and loans, emigration and education. In 1810, Welsh social reformer Robert Owen, from Newtown in mid-Wales, and his partners purchased New Lanark mill from Owens‟s father-in –law and proceeded to introduce better labor standards including discounted retail shops where profits were passed on to his employees. The Rockdale Society of Equitable Pioneers, founded in 1844, is usually considered the first successful Co-operative enterprise used as a model for modern co-pox, following the Rockdale principles‟. A group of 28 weavers and other artisans in Rochdale, England set up the society to open their own store selling food items they could not otherwise afford. Within ten years there were over 1,000 co-operative societies in the United Kingdom. Other events such as the founding of a friendly society by the Tolpuddle Martyrs in 1832 were key occasions in the creation of organized labor and consumer movements. Co-
NON-PERFORMING ASSETS FEATURES OF CO-OPERATIVE BANK
Some distinguishing characteristics of the Co-operative Bank are as follows: i. ii. They function on “no profit, no loss” basis. They are organized and managed on the principles Co-operation, self-help and mutual help. They function with the rule of “1 member, 1 vote”. iii. Co-operative Bank performs all the main banking function on deposits, mobilization of funds. iv. v. vi. vii. Co-operative Bank perhaps the 1st government sponsored financial agency in India. Co-operative Bank belongs to the money market as well as to capital market. Co-operative Bank does banking business mainly in the agriculture and rural sector. Co-operative Bank is subject to CRR and liquidity requirements as other scheduled and non-scheduled banks.
EVOLUTION OF CO-OPERATIVES IN INDIA
The co-operative movement in India owes its origin to agriculture and allied sectors. Towards the end of 19th century, the problems of rural indebtedness and the consequent conditions of farmers created an environment for chit funds and co-operative societies.The farmers generally found the co-operative movement an attractive mechanism for pooling their major resources for solving common problems relating to credit, suppliers of inputs and marketing of agricultural produce.The experience gained in the working of co-operatives led to the enactment of cooperative societies Act was enacted.This Act, provided for the creation of the post of register of co-operative societies and registration of co-operative societies for various purposes and audit. Under the Montague Chelmsford reforms of 1919, co-operative became a provincial subject and the provisions were authorized were treated as a provincial subject. The term “Co-operative societies” is a state subject under entry no.32 of the state list of the constitution of India.The cooperative societies were first started in India in august 1906 with the object of providing finance to the agriculture for production and commercial purposes of low rates of interest and there by relieving them from the clutches of the money lenders. Many number of agriculture credit societies were set u in the village under co-operative Act of 1906.
The co-operative act of 1912 contributed to the established of central co-operative banks and the state co-operative banks to provide refinance to the primary credit societies. That could not mobilize funds by their own efforts by facilitating the formation of central co-operative banks and state co-operative banks. The co-operative society‟s act of 1912 gave a stimulus to the cooperative credit movement in India. The co-operative banks are promoted to meet the banking requirements of consumers. They are established not only in urban areas but also in rural areas. The co-operative banks functions like commercial banks receiving deposits and lending money. In rural areas, these banks supply finance to agriculture. While in urban areas, they have started to provide finance to buy consumer goods. They provide short term and long-term loans. They are formed on the co-operative principles. The banks provide credit at lower rates of interest to the people of small cultivators and artisans, petty shopkeepers etc. the bank performs several functions connected with agriculture, industry, trade, transport, etc. they provide crop loan to agriculturists in order to purchase seeds, fertilizers etc. they also arrange for warehousing, grading and marketing .Cooperative banks is an important constituent of Indian financial system, judging, by the role assigned to them, the expectations, they are supposed to fulfill, their number, and the number of offices they operate.The co-operative movement originated in the crust, but the importance that such banks have assumed in India is rarely paralleled anywhere else in the world. their role in rural financing continues to be important even today, and their business in the urban area also have increased in recent years mainly due to the sharp increase in the number of primary cooperative banks. Co-operative banks were an integral part of the institutional framework of community development and extension services, which are assigned the important role of delivering the fruits of economic planning of gross root levels.Today co-operative banks continue to be a part of the set of institutions, which are engaged in financing rural and agriculture development. This set up compromise the RBI, NABARD, Commercial Banks, Regional Banks, and Co-operative Banks. The relative importance of co-operative banks in financing agriculture and rural development has undergone some changes over the year until 1969. They increasingly substituted the informal sector after the nationalization of banks and the creation of RRB‟s and NABARD. Page 16
NON-PERFORMING ASSETS INTRODUCTION TO NPA (NON-PERFORMING ASSETS)
The very crucial factor that decides the performance of bank and the financial institution.Nowdays is the spotting of NPA, Banks are now required to recognize such loans periodically and then classify of banks advance in several categories stated in the early 1990‟s but at that time the terminology of NPA‟S did not exist. It was in the early 1990‟s when Anglo American models which had system of their own. However this accounting system is not in conformity with international standard. NPA is a part of banking through the world. It is not peculiar to public sector banks and financing institutions in India. Incidence of NPAS is higher in public sector bank is in comparison to private sector bank and foreign banks in India.
TRADITIONAL AND MODERN CONCEPT
Earlier to 1991 there is no such word NPA‟S in India financial system. Before 1991, the Indian financial institution followed traditional way of accounting procedures in respect of various accounts sticky or otherwise. The system pertaining to repayment of principal amount and periodical interest are as under. First the bank of financial institution use to credit the interest account and debit the borrowers account on a particular date or given pre-specified period (monthly / quarterly / half yearly / yearly), irrespective of whether the borrowers paid the interest or not. There were no prompt actions during those days for recovery of principal / installment and the interest. Recovery actions for interest and principal amount normally initiated either at the end of financial year or at the time of expiry of documents. All borrowers‟ accounts were treated in same manner till recovery procedures were initiated like filing suits for recovery of outstanding interest and loan installment. Once the cases/suit is filed, then advances were categorized as protested bills account (here protested bills mean all the loans where the suit are filed for recover , due to this it becomes very difficult to find out the actual amount realized by the way of interest or principal for a given period of time during the year. Another problem in traditional concept was limitation period i.e. debt instruments expires once in 3 years if timely action are not taken then the financial institution and banks have to incur the losses. Traditional concept of assets classify was absent before 1991 and it affects the health of financial institution. Page 17
MODERN CONCEPT OF NPAS (NON-PERFORMING ASSETS)
NPA came into Indian financial system consequent to introduction of prudential accounting norms as per Narasimhah committee. An era of taking profits (even unrealized) was changed to providing for expected loss. Days of “counting the chickens before the eggs hatch” are over. From the financial year 1991-1992 the new system of accounting came into existence. More and more new reforms were introduced in this year. New accounting systems for classification of loan and interest came into effect. The financial institution and banks adopted income recognition rules. RBI also took keen interest in this regard and laid guidelines. As a result the method of asset classification came into force while introducing of basic committee recommendations were also taken into consideration. Due to all these efforts the assets were classified as follows: Performing assets / standard assets Non- performing assets
Bank should classify their assets in to the following four groups are: 1. Standard Assets 2. Sub-standard Assets 3. Doubtful Assets 4. Loss Assets
Standard asset is one which does not disclose any problems and which does not carry more than normal risk attached to the business. Such an asset should not be an NPA.
NON-PERFORMING ASSETS Sub-standard Assets
With effect from March 31st, 2005, an assets would be classified as sub-standard if it remain NPA for a period less than or equal to 12 months. An asset, which has remained overdue for a period not exceeding 3 year in respect of both agriculture and non-agriculture loans are treated as sub-standard.
An asset which has remained overdue for a period exceeding year in respect of both agriculture and non-agriculture loans should be treated as doubtful.
A loss asset is one where loss has been identified by the bank or internal or external auditor or by the Co-operation department or by the reserve bank of India inspection but the amount has not been written of wholly or partly. NPA- COMPLIANCE TO 90 DAYS DELINQUENCY NORMS In pursuit of moving towards international best practices and ensuring greater transparency. “90 days” “overdue” norms for identification of NPA. Are adhered to with as per RBI guidelines stated below. A NPA shall be a loan or advance (other than those given to direct agriculture) where i. Interest and installments of principal remain overdue for a period of more than 90 days in respect of a term loan. ii. The amount remains „out of order‟ as indicated below in respect of an overdraft/cash credit.
NON-PERFORMING ASSETS PROVISIONING NORMS ON THE BASIS OF ASSET CLASSIFICATION
Considering different categories of assets, provisions are to be made by the bank or financial institutions as based on by RBI regulations In respect of various NPA in Tumkur grain merchants Co-operative Bank, the provisions made on various categories of assets are mention below:
A general provision of 10% on total outstanding should be made without making any allowance for DICGC/ECGC guarantee cover and securities available.
A provision should be for 100% of the extent to which the advance is not covered by the realizable value of the security to which the bank has a valid recourse should be made and the realizable value is estimated on a realistic basis. In regard to secured portion, provision may be made on the following basis, at the rates ranging from 20% to 100% of the secured portion depending upon the period for which the asset has remained doubtful
A provision of 100% is made on this category.
A provision of 100% of outstanding should be provided.
FACTORS RESPONSIBLE FOR HIGH LEVEL OF NPA
The NPA may be high on account of defective loan policies and procedures of the bank such as predominance of loans for unproductive purposes which do not generate the necessary repaying capacity. Sanctioning of loans in excess of the repaying capacity of the borrowers. Lack of proper verification of the geniuses of purposes for which loans are advanced, misutilisation of loans, granting of fresh loans to those already in default in adequate security etc., The NPAs may also be high on account of lack of timely action and adequate efforts for recovery.
ADVERSE EFFECTS OF NPA
NPA directly affects the profitability NPA effects on productivity NPA effects on recycling of funds NPA effects on rating NPA effects on capital restructuring NPA effects on image of banks NPA effects on interest rates NPA effects on capital adequacy issues NPA affects investors confidence Time/ effort / money wasted
TITLE OF THE PROJECT
“A study on The Management of Non-Performing Assets in Tumkur Grain Merchants Cooperative Bank”.
A banking company in India has been defined in the Banking Companies Act 1949 as “One which transacts the business of banking which means the accepting of the purpose of sending or investment of deposits of money form the public repayable on demand or otherwise and withdraw able by cheque, draft order or otherwise”. An efficient financial management is becoming inevitable for every manager in today‟s corporate world. From a traditional aspect of raising funds whenever needed the importance has shifted to day to day financial decision making and problem solving. When initially the stress was on the internal analysis of the firm, procurement of funds, management of assets and allocation of capital, the present importance has shifted to decision making within the firm. With the modern aspect of finance function the responsibilities of the finance manager has also increased. In the process of making optional decision, he makes use of certain analytical tools in the analysis, planning and control activities of the firm. Financial analysis is an essential prerequisite for making sound financial decisions.
.STATEMENT OF THE PROBLEM
The level of NPA will have a direct impact on the banks profitability and growth of the bank. NPA are always a burden to the bank since no income is derived from it. Banks tries to minimize NPA due to their negative impact on the performance of the bank.Many banks have incurred losses due to NPA‟S. Hence there is need to study the causes of such NPA‟S and steps to be taken by banking institutions to avoid and downsize such NPA‟S.
NEED FOR STUDY:
To get a practical knowledge about the various aspects related to the non performing assets. To enhance my knowledge with respect to the non performing assets. To analyze various non performing assets which are managed by TGMC Bank.
To evaluate the TGMC Bank‟s asset quality. To identify the effectiveness of the risk management system, undertaken by the bank. To know the how nonperforming assets are managing in the TGMC Bank
SCOPE OF THE STUDY:
The scope of the study here was confined to the organization only. The study covers to find out the strategy required to reduce the NPAs
METHODOLOGY OF THE STUDY:
PRIMARY DATA Primary data is a data, which is collected in fresh or first hand, and for the first time which is original in nature. It will collected through personal interview, questionnaire etc.
SECONDARY DATA Collection of data through bank annual reports, bank manuals and other relevant documents. Collection of data through the literature provided by the bank. Websites (www.TGMC.com & www.google.com )
LIMITATIONS OF THE STUDY
The study is mainly based on the secondary data provided by the bank. As such it is subject to the limitations of the secondary data. The study is based on the data given by the officials and reports of the bank. The confidentiality of some facts and figures is a limitation. The non-availability of relevant information is one of the limitations. The study is done only for the limited period of 8 weeks.
A sample size of 50 numbers will be chosen for the purpose of conducting the survey. This sample size will be representing the population and in chosen on the basis of convenience randomness. Stratified random sampling method will be adopted for the study.
CHAPTER 1: INTRODUCTION In this chapter, we look into the general background of the study. Introduction of Finance and introduction of nonperforming assets is included in this chapter. CHAPTER 2: COMPANY PROFILE In this chapter, a brief idea about the co- operative TGMC bank. In this, its origin, history, mission and vision, various products produced, its growth and its future plans is included. CHAPTER 3: RESEARCH METHODOLOGY n this, the methodology followed for the study, the scope, need and importance, objectives, sources and methods of data collection used, tools and analysis of data used and limitations of the study of this project is included. Page 25
CHAPTER 4: DATA ANALYSIS AND INTERPRETATIONS It includes, analyzing the collected data by using charts and graphs and interpreting the analyzed data. CHAPTER 5: This chapter includes Findings- meaning what has been found through this project. Suggestions- it includes suggestions for the company to improve if any. Conclusions- the over all summary about the project. Bibliography – it includes the references that has been used to complete the study successfully. Annexure - questionnaires, sample filled questionnaires are included under this head. Glossary
Profile of Tumkur Grain Merchant’s Co-operative Bank Ltd.,
Original of TGMC Bank Ltd:Tumkur Grain merchants co-operative bank ltd., was registered on 16.09.1963 by register of cooperative societies, mysore state with a registration No.270. In 1950‟s and 60‟s Tumkur city has been developed as a major business center of Karnataka State. In that period, the city has so many industries and merchant class. In this substantial growth time the merchants of the city were facing the lack of proper banking facilities and services, as in those days a few – public sector banks were functioning in the city and that too having lot of imbalances in their service to customers. By observing this pathetic condition, the leading merchants of Tumkur Sri. A.K.A Paradhwanath, Sri. T.N. Kempahonnaiah, Sri. Gubbi Huchappa, Sri. D.S. Siddappa, Sri.P.G.Srinivasasetty, Sri.G.B.Chidanand, Sri H.N. Thammaiah, Sri. C.L. Shekarappa. Sri.Y.Chandfa Shekarappa and Sri. N.R. Jagadish and other leading merchants discussed and decided to open an Urban Co-operative Bank in the city. By an inspiration form Grain Merchants Co-operative Bank Ltd., Bangalore by the providing Banking facilities and service to the business people of the city. For this Sri. A.K.A.Pershwamath was elected as the Chief Promoter and the Bank was registered on 16.09.1963 and the bank was started its business on 13.12.1963.
The financial position of the bank as on 30.6.1964 at the end of the First year was as under: Particulars No. of members Share Capital Deposits Borrowings Loans and Advances Investments Net Profit Amount (In Rs.) 257 1,35,400 1,24,600 86,584 3,45,344 25,000 967
In the following years, the bank has marked its substantial growth in the Co-operative Banking Sector along with the objective. Since its inception, the bank has been recording its social obligation. In the year 1987 the bank has got its license form the reserve bank of India, Mumbai. Present Situation of the Bank:The Tumkur Grain Merchant‟s co-operative bank Ltd., Tumkur is one of the best managed cooperative Bank in the Karnataka State. Bank celebrated its Silver Jubilee on 31.10.1992 and 40 th anniversary in the year 2003. The Bank has successfully completed 44 years of service in the banking.Sector, now serving in Tumkur Bangalore Urban, Bangalore Rural, Mysore and Chamarajanagar Districts. Bank started operating profit from the first year of functioning if growing to greater heights over since, gaming the glory of being adjudged the “Best Managed urban co-operative Bank in the State “for the year 2005-06. TGMC Banks Area of Operation:1. Tumkur District 2. Bangalore Urban District Page 29
3. Bangalore Rural District 4. Mysore District 5. Chamarajanagar District Planning to Extend the Area of Operation to the Following Neighboring Districts:1. Chitra Durga 2. Hassan 3. Chikkamagalur 4. Mandya and
5. Kolar Network of TGMC Bank Ltd:Tumkur Grain merchants co-operative bank head office B.H. Road Tumkur – 572103 Phone no: 0816 – 2255905, 6541902, 6531903 Fax no: 0816 – 2257636 Email: email@example.com
Board of Management of the Bank
18 Board of Management
The Bank has full-time Chief executive officer. All the Board of Directors including president and Vice-President of the bank are serving as honorary. Board of Management who provide necessary vision, Decision makers and policy formulation. C.E.O, and Assistant C.E.O. for team formulation and implementation of strategies. Board of Management of TGMC Bank Ltd, for the Year 2007-2007 1. Sri N.R. Jagadeesh – Industrialist President of the Bank. 2. Sri. K.Y. Shivanna –Vice President 3. Sri R.J. Anantha rajaih – DIRECTOR 4. Sri. H.M. Divyananda Murthy – DIRECTOR 5. Sri. M.S. Jinesh Jain – DIRECTOR 6. Sri. D.D. Basavaraju – DIRECTOR 7. Sri. M.P. Mahesh – DIRECTOR 8. Sri. K.V. Srinath – DIRECTOR 9. D.S.Rudramuniyappa – DIRECTOR 10. K.C. Srikantaiah – DIRECTOR 11. T.S. Ravi Kumar – DIRECTOR 12. C.R. Nataraj – DIRECTOR 13. T.S.Guruprasad – DIRECTOR 14. V.K. Rajashekariah – DIRECTOR 15. S.R. Venkatarama Setty – DIRECTOR 16. G.V. Shanthish Jain – DIRECTOR 17. Dr .G. Sachidananda – DIRECTOR Page 32
18. G.V. Rohini – DIRECTOR 19. Sudhir kumar Yaragatti– CHIEF EXECUTIVE OFFICER
Various Committees of TGMC Bank Ltd:The following sub committees are formed to carry out administrative affairs of the bank. President N.R. Jagadish and Vice president K.Y . Shivanna are part of it. The bank has framed 3 sub-committees are as follows:1. Joint Loan / Hypothecation loan and pledge loan sub-committee 2. Loan on mortgage of property / machinery loan sub-committee 3. Branch control / Recruitment / Investment / audit Sub-committee
“ WORKING FOR YOUR GROWTH ”.
Mission Statement:“YOUR TRUST IS OUR ASSET”
T.G.M.C. Bank has a strategic alliance with the Karnataka State Co-operative Apex Bank under Inland mutual arrangement scheme under the alliance providing DD & cheques collections facilities all over India with the help of ICICI bank, Bangalore. Department/Section in TGMC Bank Ltd:The various Department and section at the branch level comprising of 1. Deposit Section 2. Loans and Advance Section 3. Bills/clearing/D.D./Pay order Section Page 33
4. Cash Section 5. Savings Bank / Current Account.
At the level of Administrative Office:Administrative Section, Establishment Section – Looks after conducting Board meeting Subcommittee meeting and staff meeting Shares Section Accounts Section Internal Control and Inspection Section M.I.S. & M.I.P.D. Section Planning and Development Recovery Section E.D.P. Section Stores Section Inward & outward section P.R.O Section Funds management section Treasury Section Human Resources management Section.
Each departments/section function under the control of Chief executive Officer, who ensures effective functioning of their respective duly assisted by D.G.M.A.G.M. and H.O. Manager etc.
NON-PERFORMING ASSETS Main Strategies of T.G.M.C.N. Bank Areas:
Core Banking Solution (CBS) The Banking is already entered MOU with M/s C- Edge Technologies Ltd., towards the upgrade the technology which is State of the art technology is called core Banking Solutions. C-Edge technology Enterprises Ltd., is jointly developed by M/s TCS and S.B.I Product name is called C-edge which is exclusively developed for Urban Co-operative Banks. TGMC Bank is the first urban Co-operative Bank in the Karnataka state to implement core banking solutions among 297 UCB‟S. After implementation of the CBS to a Branch, the Bank is planning to provide the following services to its esteemed customers: ATM Facility Tele Banking Mobile Banking Retail Banking Internet Banking R.T.G.S. Facility E.F.T. Facility 7days Banking for all branches.
NON-PERFORMING ASSETS Structure:
The bank has typical organizational structure. The board of directors heads the organization.
President Vice President Board of Directors Sub - Committees
Joint Loan/ Hypothecation Loan/ Pledge Loan
Loan on Mortgage of Property & Machinery loan GM/CEO
Staff Recruitment, Audit, and Investment &
AST. Manager Senior Assistant
Junior Assistant Staff/ Attenders
NON-PERFORMING ASSETS 1. Shared Values:
This is the vision statement, which determines the goal of the organization. The vision of the T.G.M.C. Bank is “ To become leader among 297 urban co-operative banks in the Karnataka State in terms of profitability, Innovation, Quality, better services to its customers and to obtain schedule status form the reserve bank of India, Mumbai
Statement of the Bank:
“Invest your money with us for better safety, security, Identity and Profitability” Awards to the Bank: The best managed urban co-operative bank in the Karnataka State “for the year 2002-03. The best urban co-operative bank in the Karnataka state “for the year 2005-06.
Functions of TGMC Bank Ltd:1. Accept the deposits from its members, Associate members, nominal members, and general public , for the purpose of the meeting the credit requirements of the bank‟s members. 2. Provide credit facilities to its members, Associate members and nominal members as short term loans, Medium term loans and long term loans to various vital role in finance. 3. Besides the above functions, they also carry an ordinary banking operations are collection of D.D./Bills/Cheque, issue of pay orders/ demand drafts. Issue of cuff cheques, safe deposit lockers, issue of bank Guarantee and an arrangement of letter of credit facilities.
Accounting System at T.G.M.C. Bank Ltd:Accounts are maintained under double entry system of book keeping. Ledger is maintained to record each transaction. The Bank is using “PENTA BANK SOFTWARE” “Ailment Software” and now they are implementing core banking solutions from M/s C- Edge enterprise technologies Ltd., which is jointly developed from urban co-operative Banks. This is the first Page 37
Urban Co-operative Bank in the Karnataka State to implement state of the art technology is core banking solutions (CBS). Each Branch/ Department function under the control of Chief executive Officer who ensure effective functioning of their respective Branch/ Department duly assisted by the branch managers/ managers etc.,
Auditing System of the Bank:
The bank has good auditing control system. The bank has appointed 2 internal Auditors to check the internal discrepancies and to strengthen the internal affairs of the Bank accordance with Reserve bank of India‟s circulars, guidelines, norms, directions and system and procedures. Agency, con current audit is done by external audit the EC who are professionally qualified as charted accountancy, CISA and system audit and control, they will issue a report as. Quarterly basis, whatever objections raised by auditors, concerned branch manager and will give compliance then and there itself. Statutory audit is done by charted accountants those who are enrolled as panel auditors in the Reserve Bank of India and statutory Auditors will be appointed by Director of Co-operative Audit, Department of co-operation, Bangalore. Associated Institution of TGMC Bank Ltd: Grain merchants Association – parent body. Grain merchants charitable Trust G.M.A. Educational trust Sri. Mahalakshmi Temple Trust
Raising of funds of the bank: The bank will raise its funds by the following ways, when there is need. They are as follows: Issue of Shares Accepting deposits of various kinds and by issue of cash certificates Page 38
Entrances fees Any other means permitted under the act.
Salient Features of the Bank:1. Very attractive interest rates on all types of deposits. Which are more than commercial and nationalized banks. 2. Safe Deposit lockers facilities are available. 3. All Deposits up to Rs 1,00,000 is guaranteed by Deposits insurance scheme in DICGO. 4. Prompt Quick and efficient service. 5. Continuous increases in net profits. 6. Rapid development in the state of the art technology at a faster pace. 7. All deposits having nomination facilities. 8. Tailor made deposits schemes to all classes of people in the society. 9. Gold loan facility available. 10. NRO/NRE Accounts are accepted. 11. Quick cheque collection facility. 12. Easy procedure and documentation to avail loans. 13. Total banking transactions are fully computerized with core banking solutions. 14. All types of loans and advances given at competitive rate of interest. 15. Working hours extended for 7 days a week 16. One of the leading urban co-operative banks in the Karnataka state.
NON-PERFORMING ASSETS Aims and Objectives of the Bank: To reduce cost of deposits. To expand area of operation. To increase customer satisfaction. To provide A.T.M. Facilities to customers. To provide retail banking. To increase net profit. To maintain personal integrity. To prove versatile banking services. To focus on recovery. To focus on NPA.
Products of the Bank:The bank is offering its customers most of all the facilities of the banking industry The products or services of the bank can be classified into two broad ways 1. Deposit Accounts. 2. Loans and Advances Accounts. 3. Other special services.
Deposit Account:The deposits are the back bone of the bank. Any bank will sustain in the industry and comply in the market only up to that period, where the depositors having believe about the bank. If any bank losses believe in the minds of the depositors, if will not be having any more life in future, there are five types of deposit products, which are briefed below: Page 40
NON-PERFORMING ASSETS a. Current Accounts:An account to take care of all business requirements with „ Any branch Banking‟ facility. These deposits contribute major portion of the bank circulating media of exchange. Bank does not pay any interest for these deposits. Rs 50 will be charged for those deposits as bank charges for every half year and also charge Rs 2/- for every cheque leaf. In this account, the customers should have to maintain a minimum balance of Rs 1,000/-
b. Savings Bank Accounts:People with steady monthly income and serve their earnings through this account. Bank pays interest at a nominal rate @ 3.5% and minimum balance is Rs 500/c. Fixed Deposit Account:Money is accepted for a fixed period. The rate of interest is higher than other accounts. Minimum period is 15 days and maximum period is 10 years. Interest can be withdrawn on monthly/ quarterly or half yearly, the longer the period the higher interest.
d. Mangala Cash Certificate:In this scheme the deposit will earn every quarterly on compounding interest. Interest will accumulate quarterly minimum period is 15 months and maximum period of deposit is 10 years. Only mature of date interest can be withdrawn on mature date. Interest can be withdrawn along with principal amount and accumulated compound interest.
e. Cumulative Term Deposit:All you need to do is to deposit a fixed amount every month, which will turn into handsome returns at the end of the tenure. Small fixed account of savings every month can be invested on C.T.D. Ideally suited for salaried officials, Retail traders, savings, needed Housewives etc., any time you need your money back, before the due date, will be paid with least formalities and in quick time. Minimum deposit period is months and maximum deposit period is 10 years.
NON-PERFORMING ASSETS f. Non Resident Accounts:Non – Resident Indians can open Saving Bank Account, fixed deposit Account and Mangala cash certificate account at the designated Branches. Attractive Interest Rates on Deposits:Sl.No Period 1 2 3 4 5 15 days to 90days 91 days to 90 days 181 days to 1 year Above 1 year to 3 years Above 3 years Rate of Interest 6% 7% 8% 10% 9%
1% additional interest will be paid for Senior citizen, charitable trusts, widows, and physically handicapped persons for above one year deposits. 2 . Loans and Advances:The borrowers art the Heart of every Bank. The key persons to generate the profit of the bank are the borrowers. Today banks are not completing for attracting the depositors, but they are competing for attracting the prompt borrowers. Non – performing asset (NPA) norms of Reserve Bank of India is the main cause for today‟s healthy competition. This is helpful in through out the dusty loan accounts. The bank is offering different types of loans and advances on its members. The bank has classified its loans and advances in 3 broad categories, on the basis of tenure of the loan. They are as follows:
Sl.no. 1 2 3 Particulars Short term loans and advances Medium term loans and advances Long term loans and advances Tenure Below 1 year 1 year to 5 year Above 5 years
1. Short Term Loans and Advances:a. Joint loan and Installment joint loan:Joint loan is given to member of the bank who is having the voting right with a surety of another member. A member can get this loan only up to Rs 25,000\- share amount margin should be maintained 5% on sanctioned loan amount. Maximum loan limit of Rs 25,000/- and the tenure of this loan is 5 months. The installment joint loan is also is also same like joint, but here the borrower has to repay the loan amount in 10 equal installments.
b. Over Draft/ Cash credit facilities:The bank is also giving advances traders, businessmen, industries etc in the form of over draft. Cash credit facilities to their remaining account maintained with the bank. This loan will be given to meet the working capital need of the traders, businessmen, industries, on security of stocks and the immovable property, this facility will be sanctioned after considering the working capital requirement and the security and also the transactions made in their accounts. The tenure of this facility will be given for a period of 1 year, if the transactions are satisfactory to the bank and the reserve bank of India norms. As per the RBI s norms transactions should be made at least 6 times of sanctioned OD. / C.C. limit amount. The account for every day and charged on every month.
NON-PERFORMING ASSETS c. Gold Loan:To avail this Lon, the borrower has to pledge his/her gold ornaments to the bank. They will give the loan only after its valuation by its authorized gold smith appraiser sanction of loan only upto 50% of its market value and tenure of the loan will be maximum 1 year.
d. Pledge Loan:This loan can be availed by the traders, merchants, business men, industrialists etc., this loan will be given by pledging the goods and stocks of the borrowers, which are related to their trade/business. Goods will be stored in their own go downs, under the custody of the bank and goods will be stored at central/ Karnataka state ware housing go downs. Proper lien will be noted form the concerned authorities then only loan will be sanctioned. The loan will be sanctioned by 70% of the value of the stock, after its inspecting the quality and quantity of the stock. This loan will be sanctioned for a period from 3 months to maximum 6 months.
e. Bills discounting:Bank is discounting the cheques issued by the reported corporate/organizations in favor of the account holders of the bank. This facility is given only to the required customers of the bank. To avail this facility, the customers should have to get prior sanction from the bank for a limited amount. In this case, the bank is discounting the cheques presented in the clearing, by charging the interest at the rate of 18% p.a. up to the period of the realization of the cheques.
f. Loan on NSC and LIC bonds:Any person holding NSC and LIC Bonds can be availed this loan, by pledging certificates and Bonds, loan will be sanctioned against LIC Bonds only on surrender value certificate loan will be sanctioned. From 70% to 80% on the face value of the certificates loan tenure will be given maximum of 1 year.
NON-PERFORMING ASSETS g. Deposit Loans:Deposit loans can be availed by any depositor of the Bank, by its lien in the bank, A depositor can avail the loan up to 90% of this deposit, interest will be charged 1% of interest more than their deposit interest rates.
2. Medium Term Loans and Advances:a. Loan on mortgage of property:This loan will be given for the purpose of the business by mortgaging the immovable property of the Borrower, after considering lot of legal aspects, security repayment capacity, credit
worthiness and fulfilling required documentation procedures. Normally, this loan will be given 50-60% of the value of the property. Valuation should be done by the banks approved panel valuator only. In this loan the borrower should have to repay the loan in equal installments.
b. Hypothecation loan for vehicles:Hypothecation loan will be sanctioned to purchase a new or an old (old not more than 3 years) vehicle, by hypothecating the same and register the hypothecation in the R.T.O. Normally, this loan will be sanctioned for new vehicles form 70% to 75% on Invoice price and for the old vehicles depends upon the vehicle condition, engine condition, age of the vehicle etc., for old vehicles loan will be should be done by the authorized valuators and for old vehicles, loan will be sanctioned form 50% to 60% of the valuation report. In this loan the borrower should has to repay the loan in equal installments. Tenure of the loan form new vehicles will be 36 months to 60 months and for old vehicles will be 36 months only, collateral security will be insisted by the bank for better security.
c. Machinery Loans:The bank is promising the small scale industries. Medium scale industries and large scale industries also, by sanctioning loan for purchase of new or old machineries. Additional collateral security is rendered for this loan. 75% on the invoice value of the new machinery and 50% on the valuation of the old machinery loan will be sanctioned. Loan tenure will be given from 36 Page 45
months to 60 months. In this loan the borrower should has to repay the loan in equal installments.
d. Consumable article Loan:The bank is promoting the small businessmen, salary earning persons and low income group persons for purchase of consumable articles like, television refrigerator, washing machine, computer laptop, and other electronic equipment‟s Normally 60 to 75% on the value of the invoice loan will be sanctioned. Loan tenure will be from 1 year to 3 years.
e. Housing Loan:The bank is also interested in promoting the housing sector, by granting the loans for purchase or builds a house for the purpose of reliance; normally this loan will be sanctioned from 50% to 60% on the project cost/estimated cost. In this loan the borrower should has to repay the loan in equal installments. Loan tenure will be 60 months.
f. Staff Advances:To encourage the work interest of the employees, the bank is grating loans to the staff for different purpose viz: purchase / build the house purchase of vehicles, consumable articles, education, and marriage and or for other personal necessities. Normally, this loan will be given form 1 year and 3 years and loan will be repaid by an equal installments. Installments will be deducted from the salary fo the employees. For this loan the rate of interest will be charged at the maximum deposit rate of the bank. i.e. now it is 10% P.A. Apartment from this the employees are eligible to get festival advance, up to maximum for Rs 2,000/- to meet the expenses on the occasion of festivals, only. This advance is free of interest with repayment in 10 equal installments.
Sl.No Particulars 1 2 3 4 Pledge loan Gold Loan and Housing loan Joint Loan, term loan and machinery Hypothecation loan (commercial) New vehicle Old vehicle 5 Hypothecation loan (personal/private New vehicle Old vehicle 6 12.50% 13.00% 13.50% Rate of interest 11.0% 12.50% 12.50
Loan on mortgage of property consumable articles 13.00% loan, over draft, cash credit loan, NSC/LIC
Bonds/shares/ Bonds and other loans
3. Other special services:
Apart from the above products, bank is also offering other services which may attracts some bank charges. They are as follows: a. Issue of pay orders and demand drafts b. Issue if gift cheques c. Cheques collection facility d. Safe deposit lockers e. Bank guarantees and letter of credit. Page 47
ANALYSIS OF DATA
Analysis and Interpretation
The analysis is based on the study of the existing level of NPA in Tumkur Grain Merchants Cooperative Bank classified in the form of tables and charts, to identify the causes and problems for the incurrence of NPA. To highlight the existing policies of the bank of controlling NPA and to offer findings and suggestions based on the analysis. Table – 1 TABLE SHOWING TOTAL DEPOSITS PARTICULAR Total Deposit Trend (%) Increase Growth 2007 19 100 0 2008 23 121 +21 2009 28 147.37 +26.37 2010 29 152.63 +5.26
ANALYSIS AND INTERPRETATION
Above table depicts that the deposits is consistently increased from the year 2008 to 2010 by 21% and 26.37% and in the year 2010 the trend increase in slightly decreased by 5.26% however there is good improving progression of total deposits, in all the years without more fluctuation due to increase in fixed deposits.
GRAPH – 1 GRAPH SHOWING TOTAL DPOSITS
100 152.63 2007 2008 2009 121 2010
TABLE – 2 TABEL SHOWING THE TOTAL ADVANCES TO GROSS NPA
(Rs. In crores) Particular Advances Gross NPA % of NPA on Incremental advance 2007 2008 2009 2010 57 87 93 92 4 7 13 8 7.10% 8.04% 13.97% 8.69% Gross 100% 114.69% 117.28% 123.96% 14.67 84.59 -7532 Growth
ANALYSIS AND INTERPRETATION From the above table the % of NPA is increased in the year 2007 to 2009 by 14.67 and 84.59 in the year 2010, it was decreased to the extent of 123.96% due to the decrease in the advances hence, it affects on gross NPA. The performance of the NPA is 2010 is good so there is decrease in the NPA.
GRAPH -2 GRAPH SHOWING THE TOTAL ADVANCES GROSS NPA
100% 2007 2008 114.69%
TABLE -3 TABEL SHOWING THE ANALYTICAL POSITION OF NPA
(Rs. In crores) PARTICULAR Total Deposit Trend (%) Increase Growth 2007 4 100 0 2008 7 175% +75 2009 13 325% 420 2010 8 200% -125
ANALYSIS AND INTERPRETATION From the above table the % of gross NPA has increased in the year 2009 when compared to the year 2008 by the extent 450 and slightly it was decreased in the year 2008 by the extent of 125% due to the high credit rating and step, taken for recovery of NPA.
GRAPH – 3 GRAPH SHOWING THE TOTAL POSITION OF NPA
2500 2000 1500 1000 500 0 2007 -500 2008 2009 2010 PARTICULAR Total Deposit Trend (%) Increase Growth
TABLE -4 TABLE SHOWING THE SSI NPA AS COMPARED TO TOTAL NPA Rs. In crores) PARTICULAR NPA NPA of SSI 2007 4022 396 2008 7272 1406 19.33% 2009 13237 2337 17.65% 2010 8837 596 6.74%
% of SSI to Total 9.84% NPA Increased Growth -
ANALYSIS AND INTERPRETATION From the above table the % of SSI to total NPA has increased in the year 2008 compared to 2007 and consistently decreased from the year 2009 to 2010 by 10.90% which shows the good sign due to the less granting of the advances to the SSI more steps all taken to recover the NPA from SSI in year 2009 – 2010.
GRAPH – 4 GRAPH SHOWING THE SSI NPA AS COMPARED TO TOTAL NPA
2008 2009 2010
TABLE – 5 TABLE INDICATING Tumkur Grain Merchants Co-Operative Bank NPA AS COMPARED TO TOTAL NPA
Rs. In crores) PARTICULAR NPA NPA of AGR 2007 4022 310 2008 7272 1923 26.44% 2009 13237 4200 31.72% 2010 8837 2306 26.08%
% of NPA of 7.70% AGR to NPA Increasable Growth -
ANALYSIS AND INTERPRETATION The trend NPA OF % o Tumkur Grain Merchants Co-operative Bank f total NPA is increased from the year 2007 and 2009 by 19% and 5% but in 2010, it was reduced to the extent of 26.08% which shows the positive symbol more formulating in granting the loans and effective implementation of recovery policy from Tumkur Grain Merchants Co-operative Bank loans.
GRAPH – 5 GRAPH INDICATING Tumkur Grain Merchants Co-operative Bank NPA AS COMPARED TO TOTAL NPA
7.70% 26.08% 26.44% 2007 2008 2009 31.72% 2010
TABLE – 6 TABLE SHOWING % of NPA of AGR to TOTAL (Rs. In crores) PARTICULAR NPA NPA of AGR 2007 4022 1817 2008 7272 1589 21.85% 2009 13237 1420 10.72% 2010 8837 1420 16.06%
% of NPA of 45.17% AGR to NPA Increasable Growth -
ANALYSIS AND INTERPRETATION From the above table the % of agriculture to NPA was decreased from the year 2007 to 2010 by 11.13% but in the year 2010 it was shifty increased by 5.34% when compared to 2010. Hence the NPA of agriculture is showing decreasing trend due to slightly reduction in providing advances to the farmers.
TABLE – 6 GRAPH SHOWING % of NPA of AGR to TOTAL
16.06% 10.72% 45.17% 2007 2008 2009 21.85% 2010
TABLE -7 TABLE SHOWING PERSONAL NPA TO TOTAL NPA
(Rs. In crores) PARTICULAR NPA NPA Personal % of Personal 32.72% NPA of AGR to NPA Increasable Growth -25.54 6.92 13.42 30.18% 37.10% 50.52% 2007 4022 of 1316 2008 7272 2195 2009 13237 4912 2010 8837 4465
ANALYSIS AND INTERPRETATION From the above table, percentage of personal NPA to total NPA is decreased from the year 2007 to 2009 by 2.54% but however from there after the considered increase by the extent of 13.42% till the year 2010. Due to the increase in the advances and may be poor collection efforts by the bank from the personal loan borrows.
GRAPH -7 GRAPH SHOWING PERSONAL NPA TO TOTAL NPA
32.72% 2007 30.18% 37.10% 2008 2009 2010
TABLE – 8 TABLE SHOWING YEAR WISE DETAILS OF SSI AND NPA
(Rs. In crores) PARTICULAR NPA of SSI % of 2007 396 2008 1406 355 2009 2337 590 2010 596 150
Changes Increasable Growth 255 235 - 440
ANALYSIS AND INTERPRETATION The trend percentage of NPA from SSI was increased from the year 2007 to 2010 to the extent of 590% but in the year 2010 it was reduced by a very good extent 440%. However proportion of grant in the advance to the SSI is considerably high which raised the indirect problems on next financial improvement. Hence it was reduced in 2010 as precautionary step to avoid the future financial problem.
GRAPH – 8 GRAPH SHOWING YEAR WISE DETAILS OF SSI AND NPA
TABLE -9 TABLE SHOWING YEAR WISE DETAILS OF SBF NPA
(Rs. In crores) PARTICULAR NPA of TGMC % of 2007 310 2008 1923 620 2009 4200 135 2010 2306 744
Changes Increasable Growth 520 734 -610
ANALYSIS AND INTERPRETATION From the above table the % of NPA of TGMC was very highly increased from the year 2007 to till 2009 by 734% and nearly in the same proportion decreased by 610% in the year 2010. Hence there is a full controlled action taken by management to recover the NPA of in the Tumkur Grain Merchants Co-operative Bank year 2010.
GRAPH -9 GRAPH SHOWING YEAR WISE DETAILS OF SBF NPA
100 744 620
2007 2008 2009
TABLE -10 TABLE SHOWING DETAILS OF YEAR WISE PERSONAL NPA
Rs. In crores) PARTICULAR NPA of SBF % of 2007 1316 2008 2195 166 2009 4912 373 2010 4465 339
Changes Increasable Growth 66 207 -34
ANALYSIS AND INTERPRETATION The trend % of NPA from personal was progressively increased in the year 2008-2009 by the extent of 2010 but it was slightly reduced by 34% in the year 2010 however the bank was incurred losses from the year 2007 to 2009 due to the year high aggressions in granting the loans to personal.
GRAPH -10 GRAPH SHOWING DETAILS OF YEAR WISE PERSONAL NPA
100 339 166 2007 2008 2009 373 2010
TABLE – 11 TABLE SHOWING TOTAL PERCENTAGE OF RECOVERY OF NPA
(Rs. In crores) PARTICULAR NPA of SBF % of 2007 1874 2008 322 17 2009 1571 84 2010 6711 358
Changes Increasable Growth -83 67 274
ANALYSIS AND INTERPRETATION From the above table the percentage of total recovery of NPA was decreased as compared to the year 2007 to 2008 by 83% but from the year 2009 and 2010 it was very much increased by 67% to extent 358% hence the bank recovery policies was very effectively implemented by the management which shows the very good sign.
GRAPH – 11 GRAPH SHOWING TOTAL PERCENTAGE OF RECOVERY OF NPA
100 17 2007 84 358 2008 2009 2010
TABLE – 12 TABLE SHOWING THE DETAILS OF RECOVERY OF NPA FROM SSI
(Rs. In crores) PARTICULAR Recovery NPA from SSI % of Trend 100 17 245 702 2007 2008 42 2009 608 2010 1741
Changes Increasable Growth -83 22 457
ANALYSIS AND INTERPRETATION The trend % NPA recovery from SSI was decreased by 83% in the 2008 but it has progressively increased from the year 2009 by to 228% & 457% hence the credit rating & motivation of the bank is showing the good sign. For the repayment of loan by the SSI.
GRAPH – 12 GRAPH SHOWING THE DETAILS OF RECOVERY OF NPA FROM SSI
TABLE – 13 TABLE SHOWING THE RECOVERY OF NPA FROM SBF
(Rs. In crores) PARTICULAR SAFE recovery % of 2007 1010 2008 120 12 2009 659 65 2010 2782 275
Changes Increasable Growth -88 53 210
ANALYSIS AND INTERPRETATION
From the above table % of the SBF recovery NPA is reduced from the year 2007 to 2008 to the extent of 12% & when compare to 2009 to 2008 it was increased to any very good extent 275% hence the management of bank is given movie importance on SBF for the recovery of NPA in the year 2009 and 2010.
GRAPH – 13 GRAPH SHOWING THE RECOVERY OF NPA FROM SBF
100 12 275 65 2007 2008 2009 2010
TABLE – 14 TABLE SHOWING THE RECOVERY OF NPA FROM AGR
(Rs. In crores) PARTICULAR AGR recovery % of 2007 443 2008 30 17 2009 169 38 2010 0
Changes Increasable Growth 93 31 -38
ANALYSIS AND INTERPRETATION The trend % NPA recovery from SSI was decreased by 83% in the 2008 but it has progressively increased from the year 2010 by to 228% & 4457% hence the credit rating & motivation of the bank is showing the good sign. For the repayment of loan by the SSI.
GRAPH – 14 GRAPH SHOWING THE RECOVERY OF NPA FROM AGR
0 38 2007 17 100 2008 2009 2010
TABLE – 15 TABLE SHOWING THE RECOVERY OF NPA FROM PERSONAL
(Rs. In crores) PARTICULAR Personnel recovery % of Trend 100 108 57 1558 2007 120 2008 130 2009 69 2010 1870
Changes Increasable Growth 8 -51 1501
ANALYSIS AND INTERPRETATION The percentage of personal recovery of NPA was increased in the year 2008 by 8% and reduced by 51% in the year 2009 but in the next year 2010 there is an complete hike to the extent of 1558% hence the performance of the NPA recovery team work is very specially concentrated towards the recovery of personal loan to recover the previous year losses.
GRAPH – 15 GRAPH SHOWING THE RECOVERY OF NPA FROM PERSONAL
2007 2008 2009 1558 2010
TABLE – 16 TABLE SHOWING CATEGORY WISE YEARLY RECOVERY OF THE NPA (Rs. In crores) 2007 Amount PARTICULAR 50 Trade 248 13% 42 13% 608 39% 1741 26% 3% 31 22% % 2008 Amount % 2009 Amount % 2010 Amount %
In SSI 1010 54% 120 37% 659 42% 2782 41%
SSF 443 AGR 120 Personnel Misec Total 1 1872 100 % 322 100 % 35 1571 2% 100 % 318 6711 5% 100 % 6% 130 40% 69 4% 1870 28% 24% 30 10% 169 11% -
ANALYSIS AND INTERPRETATION Above table indicates that the recovery of the NPA was decreased when compared of the year 2007 and 2008 but in the year 2009 and 2010, it was in good increasing trend, due to considerable recovery from the SSF and the SSI. And in all the year agriculture recovery of loans has in decreasing trend to a very negative sign due to the various changes in the state cost policies and schemes of agricultural loans. The personal loan recover in the year 2007 and 2009 is decreased but in the year 2008 and 2010 is accepted when compared to offer recoveries.
GRAPH – 16 GRAPH SHOWING CATEGORY WISE YEARLY RECOVERY OF THE NPA
28% 120 6% 130 40% 4% 2007 2008 2009 1870 2010 69
TABLE – 17 TABLE SHOWING THE CLASSIFICATION OF THE NPA (Rs. In crores) 2007 Amount % 2008 Amount % 2009 Amount % 2010 Amount %
PARTICULAR 2478 SSA 776 19% 2185 30% 3427 26% 2711 31% 61% 3143 43% 5865 44% 1867 21%
D-1 256 6% 654 9% 2241 17% 1068 12%
D-2 19 D-3 496 LA Total 4025 100% 7272 100% 13237 100% 8837 100% 13% 941 13% 1348 10% 1622 18% 1% 349 5% 356 3% 1569 18%
ANALYSIS AND INTERPRETATION Above table shows that the % of SSA classification of NPA is having the highest position in all the years but it is slightly having decreasing trend from the year 2007 to 2010 upto 21% and the loss asset is maintained consistent in year 2007 to 2006 but increased in 2009 and 2010 by 8% and doubtful asset 3 is not having the huge fluctuation by increasing only upto 15% however doubtful asset 1 and 2 is not showing the abnormal variation and maintaining the considerable consistency.
GRAPH – 17 GRAPH SHOWING THE CLASSIFICATION OF THE NPA
18% 496 1622 941 2007 2008 2009 1348 10% 13% 2010 13%
TABLE – 18 TABLE SHOWING THE TOTAL NPA AMOUNT WRITTEN HALF TEARLY WISE
(Rs. In crores) PARTICULAR 2007 2008 2009 1035 2010 1950
Amount written 58 half % of Trend 100
Changes Increasable Growth 100 1784 1578
ANALYSIS AND INTERPRETATION From the above table the total written half NPA was completely nil in the year 2007 and it has increased to an huge extent in the year 2008 and 2009 by 1578% due to the high increase in the not recovery of NPA completed to the total advances.
GRAPH– 18 GRAPH SHOWING THE TOTAL NPA AMOUNT WRITTEN HALF TEARLY WISE
% of Trend Changes
1784 2007 2008 3362 2009 2010
TABLE – 19 TABEL SHOWING THE CASH RECOVERY OF NPA YEARLY WISE
(Rs. In crores) YEAR Recovery Trend Incremental Growth 2007 2008 2009 2010 1014 322 485 2906 100 32% 48% 286% -68 16 238
ANALYSIS AND INTERPRETATION Above table produces cash recovery of the NPA was increased from the year 2007 and 2008 upto 32% but it has increased in the next year 2009 and 2010 by 16% and 238%. Hence cash recovery is showing good sign in year 2010 which improves the liquidity position of the bank of financial statement.
GRAPH – 19 GRAPH SHOWING THE CASH RECOVERY OF NPA YEARLY WISE
100 100 90 80 70 60 50 40 30 20 10 0 2007 2008 2009 2010 32% 48% 286% Trend series
TABLE – 20 TABLE SHOWING THE BREAK UP OF PERFORMING AND NON-PERFORMING ASSETS
(Rs. In crores) PARTICULAR 2007 Amount % Performing Non Performing Total 570003 100% 87459 100% 93560 100% 92622 100% 565981 – 4022 99% 1% 2008 Amount % 80187 7272 92% 8% 2009 Amount % 80000 13237 86% 14% 2010 Amount % 83785 8837 90% 10%
ANALYSIS AND INTERPRETATION Above table presents the increasing trend with out more variation of total advances. From the year 2007 and 2010 of the performing assets was slightly decreasing in the year 2008 and 2009 upto 86% but it is increased in year 2010 to the extent of 90% and the non performing assets is shown the increasing trend till year 2009 to the extent of 14% but reduced by 4% in the year 2010 however the overall variation in performing and non performing assets in negligible with in 10% which shows the good consistency in performing assets.
GRAPH – 20 GRAPH SHOWING THE BREAK UP OF PERFORMING AND NON-PERFORMING ASSETS
86% 92% 80187 565981 99% 80000 2007 2008 2009 2010 90% 83785
TABLE – 21 TABLE SHOWING THE AMOUNT FOR UP GRADUATION OF NPA
(Rs. In crores) PARTICULAR 2007 Amount % Up Graduation Opening balance of NPA 700 4022 17% 100% 2008 Amount % 0 7272 0 100% 2009 Amount % 51 13237 3% 100% 2010 Amount 1855 8837 % 20% 100%
ANALYSIS AND INTERPRETATION Above table discloses the % of up graduation of opening NPA is became nil in the year 2008 and increased from the year 2009 and 2010 up to the extent and 20% hence the NPA up graduation was considerably improved.
GRAPH – 21 GRAPH SHOWING THE AMOUNT FOR UP GRADUATION OF NPA
20% 700 0 17% 0 1855 51 3% 2007 2008 2009 2010
TABLE – 22 TABLE SHOWING THE NPA WRITTEN HALF
(Rs. In crores) PARTICULAR 2007 Amount % Written Amount Opening balance of NPA 4022 100% 7272 100% 13237 100% 8837 100% Half 58 14% 2008 Amount % 0% 2009 Amount % 1035 8% 2010 Amount 1950 % 22%
ANALYSIS AND INTERPRETATION Above table shows that % of written half to the total NPA is not occupying more percentage but slightly increasing from the year 2009 and 2010 up to extent of 22% however considerably it is good sign from not writing of NPA without recovery.
GRAPH – 22 GRAPH SHOWING THE NPA WRITTEN HALF
Written Half Amount
22% 58 0 14% 0% 1035 2007 2008 1950 2009 2010 8%
TABLE – 23 TABLE SHOWING THE CLASSIFICATION OF DOUGHTFUL ASSETS (Rs. In crores) PARTICULAR 2007 Amount % D-1 D-2 D-3 Total 776 256 19 4025 74% 24% 2% 100% 2008 Amount % 2185 654 349 7272 67% 21% 12% 100% 2009 Amount % 3427 2241 356 13237 57% 37% 6% 100% 2010 Amount 2711 1068 1569 8837 % 51% 20% 29% 100%
ANALYSIS AND INTERPRETATION The total doubtful asset shows the increased trend till 2009 and decreased in the year 2010 and doubtful asset 1 is having the highest position of % in all the four years by showing decreasing trend upto the extent of 51% and the asset classification doubtful asset 2 is having the 2nd highest % position and doubtful assets 3, the next below percentage position in total doubtful asset which shown the good sign in the improvement of early recovery of NPA without more delay.
GRAPH – 23 GRAPH SHOWING THE CLASSIFICATION OF DOUGHTFUL ASSETS
51% 776 2711 2185 2007 2008 57% 3427 67% 2009 2010 74%
TABLE – 24 TABLE SHOWING THE LOSS ASSETS OF NPA
(Rs. In crores) PARTICULAR LA Trend % Increasable Growth 2007 496 100 2008 941 190 190 2009 1348 272 82 2010 1622 327 55
ANALYSIS AND INTERPRETATION From the above table the loss asset of NPA was showing the high increasing trend from the year 2007 to 2010 by 90%, 82% and 55% respectively to the extent of 327% due to the high level of advances and NPAs.
GRAPH – 24 GRAPH SHOWING THE LOSS ASSETS OF NPA
496 1622 941 2007 2008 2009 1348 2010
TABLE -25 TABLE SHOWING THE ADDITION TO THE NPA (Rs. In crores) YEAR Addition NPA Trend % Increasable Growth 100 1167 1067 2616 1449 802 -1814 2007 to 288 2008 3362 2009 7536 2010 2311
ANALYSIS AND INTERPRETATION Above table discloses the % of addition to the NPA was enormously increasing from the year 2007 to 2009 by 1449% but in the year 2010 it has decreased in the some proportionate of 1814% with out any consistency due to the less non recovery of the actual and written half NPA.
GRAPH -25 GRAPH SHOWING THE ADDITION TO THE NPA
Addition to NPA
288 2311 3362 2007 2008 2009 7536 2010
Risk of loss is present in every business both profit and loss are the faces of same coin. Banks are above not exceptional it is not a sin to increase such losses. To day NPA loss become major problem for the banks. They are turning the banks from profit making to loss incurring. The position of NPA was increased in the year 2008 which was the due to drought condition in the short. Total deposits are increased in the year 2008-2007 due to increase in the personal domestic deposits to the bank. Non – performing assets of SSI small scale industries has increased in the year 2009 due to slow down of industrial sectors and in next years it is improving. The NPA of agriculture is high in 2004 became of the more unseasonable climate to the farmers. The personnel non performing assets who increased in the year 2008 because of more lending of advances to the personal. The NPA of small scale industries is reduced in 2009 due to good working condition of the production and marketing strategies. The personnel NPA loss reduced in the year 2009 due to the effective up graduation of accounts. The total recovery of the NPA is increased in the year 2009 due to effective bank recovery policies towards SSI and personnel loans. The agricultural recovery of NPA has became nil in the year 2009 because of high changes in the table cost policies. The bank advances towards trade in competitively very less due to the move defaulters. The sub-standard asset is losing the high position in all the four years in decreasing trend due to increase of doubtful asset. Loss asset is slightly increased in the year 2009 due to recovery in agriculture and miscellaneous which effects the liquidity position of bank.
The written of NPA is very high in the year 2009 and it has nil in the year 2007 due to fluctuation in NPA and recovery. The cash recovery is improved in 2009 compared to all four years. The performing assets are improving from year to year due to the very considerable changes in the NPA. The up-graduation of assets is nil in the year 2007 and slightly increased in 2009. The doubtful asset is decreased in 2009 because of doubtful asset 2 and 3 is slightly increasing which affection current asset of the bank. The addition to NPA is decreased in 2009 due to good recovery and credit rating. In general analysis made if is found that the working results of Tumkur Grain Merchants Cooperative Bank for the year ended is satisfactory. In general analysis made it is found that this bank lend loans viz., primary seconding and territory sectors.
SUGGESTIONS AND RECOMMENDATIONS
The Tumkur Grain Merchants Co-operative Bank” Limited is financial institutions provide loans and advances to a needy persons. Based on the analysis of study, following are the suggested measures towards effective management of Non-performance assets such as,
The following suggestions will enable the bank to reduce NPA if implemented. Bank has to ensure quality of advances and obtain sufficient securities and the time of sanctioning loan.
Branches of TGMC has to constantly observe the borrower accounts and if there is any signs of an account becoming NPA like bouncing cheques and brought to the notice of higher ups. Serious attempts should be made to recover the amount when it is suspected as full due.
The properties of the willful defaulters must be confiscated or attached in order to realize the dues to the banks.
The political – cum – bank defaulters must be imposed at least 10 times higher penalty. Fine and imprisonment than ordinary. Defaulters this will enhance the creditability of banking system as well as the ethical values in the society.
Suitable amendments to the existing laws must be made to enable the bankers to initiated legal proceedings against the willful defaulters. Eg: Indian penal code, criminal procedure code, Indian evidence act, Hindu laws constitution of India etc.
Fast track courts must be established to nab the corporate criminals especially. Institutional defaulters in the criminal courts. Term for repayment of loan must be increased so that the installment comes down and customers can pay their loan regularly. Bank has to explore the possibilities of obtaining insurance covers of the life of the borrower so that in case of death of the borrower the entire loan amount or the portion of the loan amount can be adjusted through the insurance claim. Page 103
A very close report should be maintained with customers so that banks can access the financial strength. Compromises strategies should not be introduced to all kinds of loans because it may push even the capable borrowers who can afford to repay to compromise. Credit rating by senior staff of the bank in all branches has to be made and recovery officers regarding identification and recovery of debts should be made. Targets for recovery and reduction of NPA should be given to the staff and their efforts must be suitably rewarded by way of incentives. A separate department called project appraisal departments should be set up in each branch. Highly qualified professional who has expertise knowledge in that field should head it so that potential NPA‟s can be avoided.
The commercial banks have already realized that a strong capital ratio. By itself may not ensure future profitability which depends significantly on the quality of assets an improvement in assets quality is fundamental to strengthening the working of banks and improving their financial viability. Keeping in mind this review, the RBI initiated a series of measures to reduce the NPA which yielded a very little result during the last decade. 2007-2009 however the government needs to take a proactive role by reducing legal bottlenecks involved in NPA recoveries strengthening debt recovery tribunals and considering its policies on priority sector lending.
The Tumkur Grain Merchants Co-operative Bank is performing effectively in spite of facing competition from other public sector and private sector banks, The Tumkur Grain Merchants Cooperative Bank initiatives to bring down NPA have yielded substantial results and a suit more little efforts, can help it to have nil NPA.
ANNEXURE INTERVIEW SCHEDULE 1. According to you what are the losses for the occurrence of non performing assets in the bank? 2. What are the ways to present NPA before it could occur, if it is occurred what are the steps to be taken to control them? 3. What is the amount of cash recovery made on non performing assets? 4. What is the amount of NPA written it? 5. How is the credit reeling of the advances are helpful in controlling the non performing assets? 6. Which sector wise classification of advances consists of highest non performing assets? a. Agric b. SSI c. C & IS 7. What are the reasons for the increase the non performing assets in the year 2007? 8. What are the steps taken to recover NPA by the bank? 9. How effective in the local data, asset reconstruction agencies or companies? 10. What is the rate of interest of different sector?
Name of the Bank:
Address of the Bank: _____________________________________________________ _____________________________________________________________________________ _________________________________________________________________
Does your Bank have Non Performing Assets (NPA)? Yes No
2. What is the percentage of NPA‟s in the year? 2007____________ 2009____________ 2008____________ 2010____________
3. What are the reasons for NPA‟s? (Chose which ever is appropriate). Non recovery of loans Low collateral High Interest Rates Poor Credit Appraisal
4. What measures have you undertaken to manage NPA‟s? Recovery through legal actions Securitization Recovery through one time settlement Credit Market Page 109
5. Which type of loans contributes to the majority of loan amount? Industrial Loans Personal Loans Trade Loans
6. Which type of Loans mostly results to NPA‟s? Industrial Loans Personal Loans Trade Loans
7. What are the effects of NPA‟s on profitability? High Moderate Low
8. What are the effects of Autonomy? High Moderate Low
9. What are the effects of NPA‟s on Balance Sheet? High Moderate Low
10. What are the effects of NPA‟s on Interest rate? High Moderate Low
11. Are you aware of the steps taken by RBI to control of increasing NPA‟s? Yes No
11. What are the implications of NPA‟s on the overall functioning of Bank? Reduction in interest Income Stress on Profitability High Level of Provisioning Capital Adequacy
12. Have you approached any of these for the recovery of NPA‟s? Asset reconstruction Corporate Dept. Restructuring Dept Recovery Tribunals Others (specify)
13. Please give suggestion to reduce NPA in Co-operative Bank? ___________________________________________________________________ ___________________________________________________________________
BIBLIOGRAPHY BOOKS: TITLE Advanced financial Accounting AUTHOR B.S. Ramaiah PUBLISHER Writhed Publisher
Banking theory and Profile
Dr. P.K. Srineshe
JOURNALS RBI bulletin
INTERNET www.originofbankingsystem.com www.RBI.com www.bankofindia.com www.indiabankingsystem.com
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