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Loans have to be paid back one day. Had this been realized by all, how nice life would have been on this Planet. It would not have prompted the poet to say Neither be a Lender, nor a Borrower Be. Alas! Given the realities in life, this could remain at best a wishful thinking. So their business is to lend and lend more. Their proficiency; skill; competency are all tested in how much they lend and how much they RECOVER and how quickly. Suffice it would be to state that this can be likened to the vigour and strength with which one goes about after fully recovering from any ailment. It is agreed by al beyond doubt Recovery is essential and get recovery is very essential. We know right form the appraisal stage up to the actual repayment stage the banks need to be careful. We also know that once the money is in the hands of a borrower, attitudinal changes take place. The borrower, with some few exceptions may be, feels a bit more complacent as after all it is not this own money which is at stake. Therefore an attempt is made here to put all that we know already proper perspective.


At outset, we would like to thank the institutions for having provided us with an opportunity to carry out a project of this magnitude that helped me satisfy my curiosity as far as my area of interest was concerned. The essence of this project, i.e. its contents have been compiled with help of varied sources of secondary database, but we would specially like to acknowledge the support, suggestions and feedback received from my Project Guide1) Mr.K.P.S.Arya AGM, Of RASMECCC State Bank Of India, Rajkot 2) Mr.M.D. Raval Manager of RASMECCC, State Bank of India, Rajkot. 3) Mrs.Jyoti & Mr.Avinash Singh Officer, RASMECCC, State Bank Of India, Rajkot. Also my faculty member Mr. Abhay Raja guide and suggest me about the project. A lot of other people have also contributed directly and indirectly to completion of this project would not have seen light of the day. Our hearts felt gratitude to all of them.


I the undersigned Mr.Mayank S. Shah, a student of MBA (Finance) Semester-III, hereby declare that the project work presented in this report is my original work.

This work has not been previously submitted to any other university for any other examination.

Date: 15 t h July,2008 Place: Rajkot ---------------------(Mayank S. Shah)




The most important problem that the Indian banks are facing is the problem of their NPAs. It is only since a couple of years that this particular aspect has been given so much importance. The banks have to overcome these difficulties properly in order to effectively counter the competition faced by the foreign banks. With the framing of laws as per international standards and setting up of Debt recovery tribunal we can say that steps have been taken in this direction. Banks in India have traditionally been saddled with very high Non-Performing Assets. The banking sector was heading for a crisis in 2001 with NPAs crossing a mammoth 64000 crores. Banks burdened with huge NPAs faced uphill tasks in recovering then due to archaic laws and procedures. Realizing the gravity of the situation the government was quick to implement the recommendations of the Narsimham Committee and Andhuarjuna Committee leading to the enactment of the SRESI ACT 2002.( Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act). This Act gave the banks the much needed teeth to curb the menace of NPAs. The non performing assets (NPAs) of banks have at last begun shrinking. As reported from surveys, it is understood that there has been substantial improvements in non performing assets and this has been because of several measures such as formation of asset reconstruction companies, debt restructuring norms, securitization, provisioning norms and prudential norms for income recognition. The gross NPAs of the banking system are about 16 per cent of the total assets of the nationalized banks as of 2000-01. This is against a global norm of about 5%. Hence there is a long way to go before we can say that the NPAs of our banks are under control. The improvements in NPAs of individual nationalized banks have been in the order of 10% to 20%, thanks to the various schemes and measures introduced. This paper addresses the results we have achieved so far since the measures have been implemented and the thrust on



measures that need to be taken to expedite recovery of NPAs. We also give our suggestions as to how NPA retrieval can be made easy and in what way the NPA scenario is headed. The problem is no doubt about recovery management where the objective is to find out about the reasons behind NPAs and to create networks for recovery. Banks of Rajkot have been considered where 21 executive have been approached with a structured question to elicit information. The crucial factor that decides the performance of banks now days is the spotting of nonperforming assets (NPA). NPAs are those loans given by a bank or financial institution where the borrower defaults or delays interest or principal payments banks are now required to recognize such loans faster and then classify them as problem assts. As far as the study is concerned the following may be summarized. Nearly 10% of the banks in Gujarat responded within a month for loan applications received by them from their corporate clients. If was also found that 67 % of the banks used to appraise loan proposals from their corporate clients with the viewpoint of recovery. In Gujarat region it was found that about 62 % of the banker opined that there was a need to evaluate the loan applications critically. The respondents assigned highest weight to companys current performance and the second highest was assigned to companys past performance. Around 10 % of the banks in Gujarat recovered their dues on time from their corporate clients after maturity in Gujarat. The most preferred measures were pervasion and legal action. The most common suggestion received for improving the recovery system in Gujarat was regarding improving the judicial system and delegating more power and autonomy to the banks.



Preface Acknowledgment Declaration 1. Executive Summery Introduction
Early History of Bank Type of Bank Status wise bifurcation of Banks


Page No.
1 2 3 4 8-15
10 12 14


About SBI
History Awards & Recognition Mission Organization Structure


Survey & Research on NPAs

Research Plan Introduction Debt Recovery Problem NPAs and Their Effects Steps to solve NPAs Tools for Managing NPAs



Strategy for Prevention of NPAs Non Legal Measure

4. 5. 6. 7. 8.




The word bank it derived from the word bancus or banque that is French.



There was other of the opinion that the word bank is originally derived from the German word back meaning joint for which was Italianized into banco. But whatever be the origin of the word bank as Prof. Rramchandra Rao says. It would trace the history of banking in Europe from middle ages. Generally, banks do the business of money they take deposits of moneys from client and give loan to the person who has need of money. But in this age, for the convenience of customer, banks provides some other services to their customer such as bankers cheque, overdraft, internet banking, ATM facility, paying of bills, credit card, telegraphic transfer, insurance, demat etc. For a people, it is difficult to keep a very big amount of money in his house safely. So, people save their money to bank. Bank gives loan to the person who has need of money and gets higher interest on it than the interest of deposit. The margin between the interest of loan and interest of deposit is the income of bank.




As early as 2000 B.C. the Babylonians had developed a banking system. There is evidence to show the temples of Babylon were used as banks. After a period of time, there was a spread of irreligion, which soon destroyed the public sense of security in depositing money and valuable in temples. The priests were longer acting as financial agents. The Romans did minute regulations, as to conduct private banking and to create confidence in it. Loan banks were also common in Rome. From these the poor citizens received loans without paying interest, against security of land for 3 or 4 years. During the early periods, although private individual mostly did the banking business, many countries established public banks either for the purpose of facilitating commerce or to serve the government. However, upon the revival of civilization, growing necessity forced the issued in the middle of the 12 t h century and banks were established at Venice and Genoa. The Bank of Venice established in 1157 is supposed to be the most ancient bank. Originally, it was not a bank in the modern sense, during simply an office for the transfer of the public debt. In India, as early as the Vedic Period, banking, in most crude from existed. The books of Manu contain references regarding deposits, pledges, policy of loans, and rate of interest. True, the banking in those days largely mint money lending and they did not know the complicated mechanism of modern banking. This is true not only in the case of India but also of other countries. Although, the business of banking is as old as authentic history, banking institutions have since TNRCMS MAYANK SHAH 10

than changed in character and content very much. They are developed from a few simple operations involving the satisfaction of a few individual wants to the complicated mechanism of modern banking, involving the satisfaction of capital slowly seeking employment and thus providing the very life blood of commerce.




Regional Rural Bank (RRB) Nationalized Bank State Bank Group Co-operative Bank Private Bank Foreign Bank RESERVE BANK OF INDIA The Hilton-young commission, appointed in 1926 has recommended the necessity of centrally empowered institution to have effective control over currency and financial transaction in the county. Accordingly, the Government had then passed Reserve Bank of India Act, 1934 and established the Reserve Bank of India with effect from 1 s t April 1935. The principal aim behind this was to organize proper control over the currency management in the interest of country benefits and to maintain financial stability. With this, the RBI mainly looks after the following important functions: To keep effective control over creation of credits and currency supply To control the Banking transactions of Central and State Governments. To act as Central administered Authority of all other Banks in the country. To organize control over Foreign Currency Transaction. To assist for improvement in financial aspect of the country. NATIONALISED BANKS




The Banking Company Act establishes it in July 1969 by nationalization of 14 major banks of India. The sent percent ownership of the bank is of government of India. STATE BANK GROUP The State Bank of India was established under the State Bank of India Act, 1955, the subsidiary banks under the State Bank of India (subsidiary Banks) Act 1959. The Reserve Bank of India owns the State Bank of India, to a large extent, and rest of the part is some private ownership in the share capital of State Bank of India. The State Bank of India owns the subsidiary Banks.

OLD PRIVATE BANK These banks are registered under Company Act, 1956. Basic Difference between co-operative banks and private banks is its aim. Co-operative banks work for its member and private banks work for earn profit.

NEW PRIVATE BANKS These banks lead the market of Indian banking business in very short period. Because of its variety services and approach to handle customer and also because of long working hours and speed of




services. This is also registered under the Company Act. 1956. Between old and new private sector bank, there is wide difference. FOREIGN BANKS Foreign Bank means multi-countries bank. In case of India Foreign Banks are such Banks. Which open its branch office in India and their head office is outside of India.





They are divided into two groups: Scheduled Banks Non Scheduled Banks

In first schedule, government of India notifies the Primary Banks, which are licensed and whose demand and time liability are not less than 50 crores in 1987. Government of India notify the Primary banks, which are licensed and whose demand and time liability are not less than 100crores can only qualify to be included in the second schedule since 1993. A bank becomes scheduled when it fulfils the followings: A grade rating from RBI Demand and Time Liability over 100crores. Satisfy the RBI guidelines related to CRR and SLR As per the norms Priority Sector wise landing benefits of being a Scheduled cooperative are described below: RBI would provide Rediscounting facility at nominal rate RBI gives remittance facility at par




The demerits of becoming a scheduled co-operative bank is that the bank will not get 0.5% subsidy from RBI The conferment of scheduled status on the banks has certain advantages like refinance facility, directly industrial finance from Reserve Bank of India. Avail of Reserve Bank of India Remittance facility scheme, accept deposits from local bodies, quasi-government organization, religious, and charitable institutions, guarantees and cheques issued by Banks are accepted by Government Departments. At the same time, it casts greater responsibility on the banks in the maintenance of books of accounts and submissions of returns.

Scheduled banks in India

Scheduled Commercial Bank Scheduled Co-operative Bank

The banks, which are not applicable as per the criteria of Scheduled Banks, are called as a Non-scheduled Banks. These are very small banks.








The origin of the State Bank of India goes back to the first decade of the nineteenth century with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later the bank received its charter and was re-designed as the Bank of Bengal (2 January 1809). A unique institution, it was the first joint-stock bank of British India sponsored by the Government of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the Bank of Bengal. These three banks remained at the apex of modern banking in India till their amalgamation as the Imperial Bank of India on 27 January 1921. Primarily Anglo-Indian creations, the three presidency banks came into existence either as a result of the compulsions of imperial finance or by the felt needs of local European commerce and were not imposed from outside in an arbitrary manner to modernise India's economy. Their evolution was, however, shaped by ideas culled from similar developments in Europe and England, and was influenced by changes occurring in the structure of both the local trading environment and those in the relations of the Indian economy to the economy of Europe and the global economic framework.

Bank of Bengal H.O.




Establishment The establishment of the Bank of Bengal marked the advent of limited liability, joint-stock banking in India. So was the associated innovation in banking, viz. the decision to allow the Bank of Bengal to issue notes, which would be accepted for payment of public revenues within a restricted geographical area. This right of note issue was very valuable not only for the Bank of Bengal but also its two siblings, the Banks of Bombay and Madras. It meant an accretion to the capital of the banks, a capital on which the proprietors did not have to pay any interest. The concept of deposit banking was also an innovation because the practice of accepting money for safekeeping (and in some cases, even investment on behalf of the clients) by the indigenous bankers had not spread as a general habit in most parts of India. But, for a long time, and especially up to the time that the three presidency banks had a right of note issue, bank notes and government balances made up the bulk of the invertible resources of the banks. The three banks were governed by royal charters, which were revised from time to time. Each charter provided for a share capital, four-fifth of which were privately subscribed and the rest owned by the provincial government. The members of the board of directors, which managed the affairs of each bank, were mostly proprietary directors representing the large European managing agency houses in India. The rest were government nominees, invariably civil servants, one of whom was elected as the president of the board.

Group Photograph of Central Board (1921)




Business The business of the banks was initially confined to discounting of bills of exchange or other negotiable private securities, keeping cash accounts and receiving deposits and issuing and circulating cash notes. Loans were restricted to lakh and the period of accommodation confined to three months only. The security for such loans was public securities, commonly called Company's Paper, bullion, treasure, plate, jewels, or goods 'not of a perishable nature' and no interest could be charged beyond a rate of twelve per cent. Loans against goods like opium, indigo, salt woollens, cotton, cotton piece goods, mule twist and silk goods were also granted but such finance by way of cash credits gained momentum only from the third decade of the nineteenth century. All commodities, including tea, sugar and jute, which began to be financed later, were either pledged or hypothecated to the bank. Demand promissory notes were signed by the borrower in favour of the guarantor, which was in turn endorsed to the bank. Lending against shares of the banks or on the mortgage of houses, land or other real property was, however, forbidden.

Indians were the principal borrowers against deposit of Company's paper, while the business of discounts on private as well as salary bills was almost the exclusive monopoly of individuals Europeans and their partnership firms. But the main function of the three banks, as far as the government was concerned, was to help the latter raise loans from time to time and also provide a degree of stability to the prices of government securities.

Old Bank of Bengal




Major change in the conditions A major change in the conditions of operation of the Banks of Bengal, Bombay and Madras occurred after 1860. With the passing of the Paper Currency Act of 1861, the right of note issue of the presidency banks was abolished and the Government of India assumed from 1 March 1862 the sole power of issuing paper currency within British India. The task of management and circulation of the new currency notes was conferred on the presidency banks and the Government undertook to transfer the Treasury balances to the banks at places where the banks would open branches. None of the three banks had till then any branches (except the sole attempt and that too a short-lived one by the Bank of Bengal at Mirzapore in 1839) although the charters had given them such authority. But as soon as the three presidency bands were assured of the free use of government Treasury balances at places where they would open branches, they embarked on branch expansion at a rapid pace. By 1876, the branches, agencies and sub agencies of the three presidency banks covered most of the major parts and many of the inland trade centres in India. While the Bank of Bengal had eighteen branches including its head office, seasonal branches and sub agencies, the Banks of Bombay and Madras had fifteen each.

Bank of Madras Note Dated 1861 for Rs.10




Presidency Banks Act

The presidency Banks Act, which came into operation on 1 May 1876, brought the three presidency banks under a common statute with similar restrictions on business. The proprietary connection of the Government was, however, terminated, though the banks continued to hold charge of the public debt offices in the three presidency towns, and the custody of a part of the government balances. The Act also stipulated the creation of Reserve Treasuries at Calcutta, Bombay and Madras into which sums above the specified minimum balances promised to the presidency banks at only their head offices were to be lodged. The Government could lend to the presidency banks from such Reserve Treasuries but the latter could look upon them more as a favour than as a right.

Bank of Madras

The decision of the Government to keep the surplus balances in Reserve Treasuries outside the normal control of the presidency banks and the connected decision not to guarantee minimum government balances at new places where branches were to be opened effectively checked the growth of new branches after 1876. The pace of expansion witnessed in the previous decade fell sharply although, in the case of the Bank of Madras, it continued on a modest scale as the profits of that bank were mainly derived from trade dispersed among a number of port towns and inland centres of the presidency. India witnessed rapid commercialisation in the last quarter of the nineteenth century as its railway network expanded to cover all the major regions of the country. New irrigation networks in Madras,




Punjab and Sind accelerated the process of conversion of subsistence crops into cash crops, a portion of which found its way into the foreign markets. Tea and coffee plantations transformed large areas

of the eastern Terais, the hills of Assam and the Nilgiris into regions of estate agriculture par excellence. All these resulted in the expansion of India's international trade more than six-fold. The three presidency banks were both beneficiaries and promoters of this commercialisation process as they became involved in the financing of practically every trading, manufacturing and mining activity in the sub-continent. While the Banks of Bengal and Bombay were engaged in the financing of large modern manufacturing industries, the Bank of Madras went into the financing of large modern manufacturing industries, the Bank of Madras went into the financing of small-scale industries in a way which had no parallel elsewhere. But the three banks were rigorously excluded from any business involving foreign exchange. Not only was such business considered risky for these banks, which held government deposits, it was also feared that these banks enjoying government patronage would offer unfair competition to the exchange banks which had by then arrived in India. This exclusion continued till the creation of the Reserve Bank of India in 1935.

Bank of Bombay




Presidency Banks of Bengal The Presidency Banks of Bengal, Bombay and Madras with their 70 branches were merged in 1921 to form the Imperial Bank of India. The triad had been transformed into a monolith and a giant among Indian commercial banks had emerged. The new bank took on the triple role of a commercial bank, a banker's bank and a banker to the government.

But this creation was preceded by years of deliberations on the need for a 'State Bank of India'. What eventually emerged was a 'half-way house' combining the functions of a commercial bank and a quasi-central bank.

The establishment of the Reserve Bank of India as the central bank of the country in 1935 ended the quasi-central banking role of the Imperial Bank. The latter ceased to be bankers to the Government of India and instead became agent of the Reserve Bank for the transaction of government business at centres at which the central bank was not established. But it continued to maintain currency chests and small coin depots and operate the remittance facilities scheme for other banks and the public on terms stipulated by the Reserve Bank. It also acted as a bankers' bank by holding their surplus cash and granting them advances against authorised securities. The management of the bank clearing houses also continued with it at many places where the Reserve Bank did not have offices. The bank was also the biggest tendered at the Treasury bill auctions conducted by the Reserve Bank on behalf of the Government.

The establishment of the Reserve Bank simultaneously saw important amendments being made to the constitution of the Imperial Bank converting it into a purely commercial bank. The earlier restrictions on its business were removed and the bank was permitted to undertake foreign exchange business and executor and trustee business for the first time.




Imperial Bank The Imperial Bank during the three and a half decades of its existence recorded an impressive growth in terms of offices, reserves, deposits, investments and advances, the increases in some cases amounting to more than six-fold. The advances, the increases in some cases amounting to more than six-fold. The financial status and security inherited from its forerunners no doubt provided a firm and durable platform. But the lofty traditions of banking which the Imperial Bank consistently maintained and the high standard of integrity it observed in its operations inspired confidence in its depositors that no other bank in India could perhaps then equal. All these enabled the Imperial Bank to acquire a pre-eminent position in the Indian banking industry and also secure a vital place in the country's economic life.

Stamp of Imperial Bank of India

When India attained freedom, the Imperial Bank had a capital base (including reserves) of Rs.11.85 crores, deposits and advances of Rs.275.14 crores and Rs.72.94 crores respectively and a network of 172 branches and more than 200 sub offices extending all over the country.




First Five Year Plan In 1951, when the First Five Year Plan was launched, the development of rural India was given the highest priority. The commercial banks of the country including the Imperial Bank of India had till then confined their operations to the urban sector and were not equipped to respond to the emergent needs of economic regeneration of the rural areas. In order, therefore, to serve the economy in general and the rural sector in particular, the All India Rural Credit Survey Committee recommended the creation of a state-partnered and state-sponsored bank by taking over the Imperial Bank of India, and integrating with it, the former state-owned or state-associate banks. An act was accordingly passed in Parliament in May 1955 and the State Bank of India was constituted on 1 July 1955. More than a quarter of the resources of the Indian banking system thus passed under the direct control of the State. Later, the State Bank of India (Subsidiary Banks) Act was passed in 1959, enabling the State Bank of India to take over eight former State-associated banks as its subsidiaries (later named Associates).

The State Bank of India was thus born with a new sense of social purpose aided by the 480 offices comprising branches, sub offices and three Local Head Offices inherited from the Imperial Bank. The concept of banking as mere repositories of the community's savings and lenders to creditworthy parties was soon to give way to the concept of purposeful banking sub serving the growing and diversified financial needs of planned economic development. The State Bank of India was destined to act as the pacesetter in this respect and lead the Indian banking system into the exciting field of national development The Bank is actively involved since 1973 in non-profit activity called Community Services Banking. All SBI branches and administrative offices throughout the country sponsor and participate in large number of welfare activities and social causes. SBI business is more than banking because we touch the lives of people anywhere in many ways. SBI commitment to nation-building is complete & comprehensive.




TECHNOLOGY UPGRADATION SBIs Information Technology Programme aims at achieving efficiency in operations, meeting customer and market expectations and facing competition. SBI achievements are summarized below:

All the branches of the Bank are now fully to improvement in customer service.







There are 5290 ATMs on the ATM Network. These ATMs are located in 1721

centers spread across the length and breadth of the country, thereby creating a truly national network of ATMs with an unparalleled reach. Value added services like ATM locator, payment of fees for college students, multilingual screens, voice over and drawl of cash advance by SBI credit card holders have been introduced.

This on-line channel enables customers to access their account

information and initiate transactions on a 24x7, boundary less basis. 2225 branches, covering 555 centers are extending INB service to their customers. All functionalities other than Cash and Clearing have been extended to individual retail customers. A separate Internet Banking Module for Corporate customers has been launched and available at 1305 branches. Bulk upload of data for Corporate, Inter-branch funds transfer for Retail customers, Online payment of Customs duty and Govt. tax, Electronic Bill Payment, SMS Alerts, E-Poll, IIT GATE Fee Collection, Off-line Customer Registration Process and Railway Ticket Booking are the new features deployed.

GOVT. BUSINESS : Software has been developed and rolled out at 7785 fully computerised branches. Electronic generation of all reports for reporting, settlement and reconciliation of Govt. funds is available.




STEPS: Under STEPS, the bank's electronic funds transfer system, the Products offered are eTransfer (eT), eRealisation (eR), eDebit (CMP) and ATM reconciliation. STEPS handles payment messages and reconciliation simultaneously. SEFT: SBI has launched the Special Electronic Fund Transfer (SEFT) Scheme of RBI, to facilitate efficient and expeditious Inter-bank transfer of funds. 241 branches of our Bank in various LHO Centres are participating in the scheme. Security of message transmission has been enhanced. MICR Centre: MICR Cheque Processing systems are operational at 16 centre viz. Mumbai, New Delhi, Chennai, Kolkata, Vadodara, Surat, Patna, Jabalpur, Gwalior, Jodhpur, Trichur, Calicut, Nasik, Raipur, Bhubaneswar and Dehradun.
Core Banking:

The Core Banking Solution provides the state-of-the-art anywhere anytime banking

for our customers. The facility is available at 1012 branches. Trade Finance : The solution has been implemented, providing efficiency in handling Trade Finance transactions with Internet access to customers and greatly enhances the bank's services to Corporate and Commercial Network branches. This new Trade Finance solution, EXIMBILLS, will be implemented at all domestic branches as well as at Foreign offices engaged in trade finance business during the year. WAN : The bank has set up a Wide Area Network, known as SBI connect, which provides connectivity to 4819 branches/offices of SBI Group across 385 cities as at 31st March 2008. This network provides across the board benefits by providing nationwide connectivity for its business applications




Directors on the Bank's Central Board as on 31st December 2008

BOARD OF DIRECTORS Central Board Of State Bank Of India (As on 1st April 2008) Sl.No. Name of Director Shri O.P. Bhatt 1. Chairman Shri S.K.Bhattacharyya 2. MD & CC&RO 3. Shri Suman Kumar Bery 4. Dr. Ashok Jhunjhunwala .5 Dr. Deva Nand Balodhi 6. Prof. Mohd. Salahuddin Ansari 7. Dr.(Mrs.) Vasantha Bharucha 8. Shri Arun Ramanathan Sec. of SBI Act, 1955 19(a) 19(b) 19(c) 19(c) 19(d) 19(d) 19(d) 19(e)

State Bank of India has the following seven Associate Banks (ABs) with controlling interest ranging from 75% to 100%. 1. State Bank of Bikaner and Jaipur (SBBJ) 2. State Bank of Hyderabad (SBH) 3. State Bank of Indore (SBIr) 4. State Bank of Mysore (SBM) 5. State Bank of Patiala (SBP) 6. State Bank of Saurashtra (SBS) 7. State Bank of Travancore (SBT)




As on 31st march, 2008 the financial information of State bank of India is given as under

Financial Details
Capital Borrowings Deposits Investments Advances Profit

RS (in crore)
631.47 51,727.41 5,37,403.94 1,89,301.27 4,16,768.19 6,729.55

Source : balance sheet and profit and loss accounts schedule of state bank of India from annual reports of year ending 31st march, 2008




General Shareholder Information

Number of shareholders as on 30.9.2004 was 5.61 lacs. The shareholding pattern was as under.

SHARE HOLDERS Reserve Bank of India Non-residents (FIIs, OCBs, NRIs) Banks, FIs including insurance companies Mutual funds/UTI Domestic companies/private corporate bodies/trusts Resident individuals

PERCENTAGES 59.73 % 19.83 % 6.21 % 6.47 % 1.79 % 5.97 %

1.79% 5.97% 6.47% 6.21%



Res erve B ank of India Non-res idents (FIIs , O CB s , NRIs ) B ank s , F Is inc luding ins uranc e c om panies M utual funds /UTI Dom es tic c om panies /private c orporate bodies /trus ts Res ident individuals




To retain the Banks Position as the Premier Indian Financial Services Group, with world class standards and significant Global business, committed to excellence in customer, shareholder and employee satisfaction and to play a leading role in the expanding and diversifying financial services sector while continuing emphasis, on its development banking role.
EW DELHI : President A.P.J. Abdul Kalam on Tuesday chalked out a seven-point action plan for the State Bank of India (SBI) while urging the country's premier bank to create a Rs. 5,000-crore venture capital fund and hike lending to the farm sector. In his address at the SBI's Bicentennial Celebrations here, Mr. Kalam noted that within the next three years, the bank should raise the credit to the farm and agro-processing sector from 10 to 20 per cent of its total loan disbursal. Agricultural growth, he said, was lagging behind while sectors such as manufacturing and services were showing robust increases. A higher credit disbursal, he said, was essential to hike farm growth to over four per cent as it was a vital requirement for increasing the overall Gross Domestic Product growth to 10 per cent. Unveiling his plan, Mr. Kalam asked the SBI to allocate Rs. 5,000 crores as venture capital from 2007-08 for the purposes of funding innovative scientists and technologists for speedier societal transformation. This would include the development of ICT products, software development and software services. The President also advised the bank to create and nurture five rural development projects, on the lines of the bio-fuel project and seaweed project, as it had the potential to provide employment to 50 lakh persons in the rural areas at the least.




Mr. Kalam also asked the SBI to adopt and innovatively fund at least one lakh sick units in the small-scale sector to infuse the latest technology and turn them into profitable ventures. Another sector with great potential, Mr. Kalam said, was medical tourism in which the bank could extend funds at competitive interest rates for setting up corporate hospitals which would also serve the rural areas. Likewise, yet another sector for the bank's participation, he said, was infrastructure development, including provision of 50 million quality houses with basic infrastructure in rural areas in association with state and Central entities. Turning to the plight of villagers caught in the ``vicious cycle of borrowing,'' Mr. Kalam asked the SBI to adopt a ``villager-friendly'' banking system to free them from the clutches of money-lenders. Mr. Kalam also lamented that hassle-free loans were being extended by the SBI to students of only the best engineering colleges, medical colleges and business schools. ``I would request the SBI to examine the possibility of providing loans to students who would like to pursue science and commerce as a career," he said. Besides, ways should be found to fund the education of those meritorious students who could not get admission to top engineering, medical and B-schools owing to stringent competition, Mr. Kalam said.




SBI has bagged the awards for Most Preferred Bank and Most preferred brand for home Loan in CNBC Awaaz

Consumer Awards in August 2007

The only Indian Bank to find a place in the Fortune Global 500 List

SBI is placed at 70th in Top 1000 Banks Survey by Banker Magazine, July 2007, (up from 107 last year)

SBI ranked 6 in the Economics Times Market Cap List, (up from 50 last year)


Today, SBI/SBI CAP is the No.1 syndicator of domestic debt in Asia Pacific REGION.

No.1 in mergers & Acquisition Deals (31 Deals of US $ 19.8bn)




SBI is No 1 provider of AGRI Finance and No. 1 in Credit Linking of Rs 9.35 lacs SHGS

SBI is market Leader in financing SSIs with a market share of 29%

Readers digest May 07 Golden Award for being among the two most trusted banks in India

Up gradation of ratings by citi group/ Morgan Stanley Moodyss S&P

3rd in the Economic Times brand Equity Ranking Top 50 most trusted service brands in the service sector

Business Standard has Awarded the Best Banker of the Year Award to Shri O.P.Bhatt for his initiative to reenergize the Bank




CNN IBN network 18 has selected shri. O.P.Bhatt as Indian of the Year Business 2007 for showing how a public sector behemoth can flex its muscle in the ferociously competitive Banking sector

Asian centre for corporate Governance & Sustainability and Indian Merchants Chamber has awarded the Transformational Leader Award 2007 to Shri O.P.Bhatt for leadership, charisma, inspiration and intellectual stimulation for the entire SBI team




DMD (I & MA)
(Located at Hyderabad)









MD & GE (CB)

MD & GE (NB)










State bank of India has been facing great rivalry and major competition with other public sector banks and some of private commercial banks. State bank of India has many banks as art rival. Some of its art rival.

List of major competitors of SBI


ICICI Bank Bank of Baroda Canara Bank Punjab National Bank Bank of India Union Bank of India Central Bank of India HDFC Bank Oriental Bank of Commerce.

Here especially some of the public sector and private sector banks are giving hardcore competition to the state bank of India. So let us have some of the best banks which is also mentioned above and mentioned below in detail.

ICICI bank stands for Industrial Credit and Investment Corporation of India. This ICICI bank is one of the heavyweight banks of private sector of India. It is providing the core competition to the state bank of India. Especially in lending money, Investment. But in profit making state bank of India is standing ahead. And when and where social responsibility of concern state bank of India is heading high than any other banks in India




HDFC stands for Housing Development and Finance Corporation ltd. This is also one of the leading banks of India in private sector. This bank is also providing hardcore competition to all the banks as well as state bank of India But we mention earlier that state bank of India is ahead in banking India. So HDFC bank has to work hard to reach at the milestone achieved by state bank of India.

Bank of Baroda is also one of the leading public sector banks in India. Bank of Baroda is known as BOB. This PSU bank is also providing the tough competition to all other banks in India. The BOB bank is very renowned banks of India today. It is very changed and very professionally working public sector banks BOB has got professional in recent time so. It has to work very hard to achieve position and reputation which are achieved by State Sank of India.






30.32 % 3.01 % 3.05% 3.45 % 4.23 % 5.10 % 5.28 % 6.45 % 6.51 % 10.33 % 22.27 %








10% 7% 6% 5%

3% 3% 3% 5% 4%




Home is where the heart is! At SBI, we understand this better than most the toil and sweat that goes into building/ buying a house and the subsequent pride and joy of owning one. This is why our Housing loan schemes are designed to make it simple for you to make a choice at least as far as financing goes! Eligibility Minimum age 21 years as on the date of sanction Steady source of income Loan Amount

Applicant/ any one of the applicants are aged over 21 years and upto 45 years 60 times Net Monthly Income (NMI) or 5 times Net Annual Income (NAI), subject to aggregate repayment obligations not Exceeding 57.50% of NMI/ NAI

Applicant(s) aged over 45 years of age 48 times NMI or 4 times NAI, subject to aggregate repayment obligations not exceeding 50%of NMI/ NAI

Margin Purchase/ Construction of a new House/ Flat/ Plot of land: 15% Purchase of an existing House/ Flat: 15% Repairs/ Renovation of an existing House/ Flat: 20%




HOUSING LOAN INTEREST RATES: Interest rates Floating interest rates (linked to State Bank Advance Rate SBAR): (SBAR: 12.75%) Tenure Upto 5 years Above 5 and upto 10 years Above 10 and upto 15 years Above 15 and upto 20 years Rate of Interest (p.a.) 2.00% below SBAR Minimum 10.75% 1.50% below SBAR Minimum 11.25% 1.50% below SBAR Minimum 11.25% 1.00% below SBAR Minimum 11.75%

Fixed interest rates: Tenure Upto 5 years Above 5 and upto 10 years Rate of Interest (p.a.)* 11.50% 11.75%

Maximum Repayment Period For applicants upto 45 years of age: 20 years For applicants over 45 years of age: 15 years




Move ahead in life with SBI Car Loans! If you have been putting off purchasing that car, we invite you to go through our Car Loans scheme. Low interest rates, easy repayment options, total transparency, Low processing charges, finance to include vehicle registration charges, insurance and one time road tax. Well, what are you waiting for? Just step in to any of our branches (more than 6000) that offer Car Loans

or our Personal Banking Branches and give wheels to your desire! You can apply for an SBI Car Loan to purchase:
A new car, jeep, Multi Utility Vehicle (MUV) or SUV (any make or model) An old car / jeep / MUV /SUV (not more than 5 years old). (any make or model)

Eligibility To avail an SBI Car Loan, you should be Individual between the age of 21-65 years of age. A Permanent employee of State/Central Government, Public Sector Undertaking, Private company or a reputed establishment A Professionals or self-employed individual who is an income tax assesses or A Person engaged in agriculture and allied activities. Net Annual Income Rs. 75,000/- and above.

Salient Features Loan Amount There is no upper limit for the amount of a car loan. It is limited only by your repaying capacity. A maximum loan amount of 2.5 times the net annual income can be sanctioned. If married, your spouses income could also be considered provided the spouse guarantees the loan The loan amount includes finance for one-time road tax, registration and insurance!




Margin New/used vehicles 10-15% when loan is upto Rs.6 lacs 20-30% when loan exceeds Rs.6 lacs

Repayment You enjoy the longest repayment period in the industry with us. Repayment period for new vehicles: Maximum of 84 months Repayment period for old vehicles: Up to 84 months from the date of original purchase of the vehicle.

SCHEME FOR LOAN FOR TWO WHEELERS Existing Interest Structure w.e.f. 31.03.2008 Floating Rate of Interest Fixed Rate of Interest 12.25% p.a. 12.50% p.a.

Rate Revised Interest Structure w.e.f. 27.06.2008 12.75% p.a. 13.00% p.a.


NOTE: All these interest rates are subject to change, without notice The revised interest rates are applicable only on fresh deposits and renewal of maturing deposits.




A term loan granted to Indian Nationals for pursuing higher education in India or abroad where admission has been secured. Eligible Courses All courses having employment prospects are eligible. Graduation courses/ Post graduation courses/ Professional courses Other courses approved by UGC/Government/AICTE etc.

Amount of Loan For studies in India, maximum Rs. 10 lacs Studies abroad, maximum Rs. 20 lacs

Interest Rate For loans upto Rs. 4 lakh 10.50% p.a. For loans above Rs. 4 lakh 11.50% p.a. Repayment Tenure Repayment will commence one year after completion of course or 6 months after securing a job, whichever is earlier. Place of Study In India Abroad Loan Amount Up to Rs. 7.5 lacs Above Rs. 7.5 lacs Up to Rs. 15 lacs Above Rs. 15 lacs Repayment in Years 5-7 5-10 5-7 5-10 Period




Security Amount Upto Rs. 4 lacs Studies In India No Security Third Party Above Rs. 4 lacs to Rs. 7.50 lacs Guarantee Tangible Collateral Above Rs. 7.50 lacs to Rs. 10 lacs(India)/ security for full Rs. 15 lacs(Abroad) value of loan Rs 15 lacs to Rs. 20 lacs ___ Studies Abroad No Security Third Party Guarantee Tangible Collateral security of suitable value of loan or third party guarantee Tangible Collateral security for full value of loan

Margin o o For loans up to Rs.4.0 lacs : No Margin For loans above Rs.4.0 lacs: Studies in India: 5% Studies Abroad: 15%




(1) Learning & Development Bank has taken up several key initiatives to motivate and retain its manpower. In order to channelize the energy created by the Parivartan campaign, the Bank has launched a Landmark exercise for creation of the new Vision Mission & Values statement which will be in place shortly. Young officers are being encouraged to take-up management education by way of sponsorship tie-up with the S. P. Jain Institute of Management. 50 officers have been enrolled in the programme on a trial basis. Bank is strong in the areas of training & development through 4 apex level training colleges and 45 learning centres across the country. e-learning project has been launched to enable any where, anytime learning. (2) HRMS For leveraging technology in employee management area, the Bank has started automation of its HR processes through SAP-ERP-HRMS software. Once fully implemented, it will not only create a central repository of all employees data but also will make available a variety of services, like online request submission and viewing of individual data etc. to all the employees across the State Bank group on an online real time basis. HRMS will bring efficiency in HR operations and help the Management in making employee related decisions faster. Pensioners of SBI, IBI and Associate Banks will also form a part of this initiative and their pension will be processed through HRMS. (3) Personnel Management The Bank has launched Performance Linked Incentive Scheme for the Branch managers/AGMs(Region)/ DGMs(Module) and Team Incentive Scheme for the staff members of the Branch. The incentive scheme was launched with the aim of enthusing and motivating the staff members of the Branch so that the bank is placed in a position to face the competition unleashed due to liberalization of economy and maintain its lead over others. The scheme has been successful in enthusing the staff and garnering Business for the Bank. (4) Employees Share Purchase Scheme (SBI ESPS-2008) The Bank also launched Employees Share Purchase Scheme along with the Rights issue with the Objective of providing incentive to Eligible Employees, to stimulate their efforts towards the continued success of the Bank and to provide a Means to attract, reward and retain talent in the Bank, to reward eligible employees as also to encourage equity ownership by them. The price was fixed at Rs.1590/- (the face value of 1 share is Rs.10/-) per equity share. The Scheme Opened on 28.03.2008 and closed on 30.04.2008. (5) Industrial Relations TNRCMS MAYANK SHAH 47

A number of HR initiatives such a payment of Performance linked incentives to staff, rationalisation of promotion policies and improvement in various staff loan schemes were taken up during the year. Such initiatives have helped in increasing the motivation level of staff significantly. To meet requirement of staff for an ongoing branch expansion programme, separate recruitment exercises were undertaken to recruit clerical staff for metro/urban centers, rural/semi urban centers and also for marketing. This also helped in reducing the age profile of staff and posting of younger staff at the front line. The process of consultation and discussion with both the staff and officers federations continued during the year. The industrial relations climate of the Bank remained cordial during the year. (6) Staff Strength The Bank had a total strength of 1,79,205 on the 31st March, 2008. Of this, 32.23% are officers, 42.87% clerical staff and the remaining 24.90% were sub-staff. (7) Implementation of Persons with disabilities (PWD) Act 1995 Our Bank provides reservation to persons with disabilities (PWDs) as per the guidelines of the Government of India and section 33 of the PWD Act 1995. The total number of persons with disabilities who were employed as on 31.03.2008 was as follows: (8) Representation of Scheduled Castes and Scheduled Tribes As on the 31st March, 2008, 34802 (19.42%) of the Banks total staff strength, belonged to Scheduled Caste and 11460 (6.30%) belonged to Scheduled Tribes. In order to effectively redress the grievances of the SC/ST employees, Liaison Officers have been designated at all administrative offices of the Bank. Senior officials of the Bank hold regular meetings at periodic intervals with the representatives of SC/ST Welfare Federation and SC/ST Welfare Association at Corporate Centre, LHOs and Zonal Offices. The Bank conducts workshops on reservation policy for SCs/STs/OBCs. So also, pre recruitment and pre-promotion training programmes are conducted by the Bank to enable SC/STcandidates to achieve the prescribed standards to effectively compete with other candidates.







Research Plan
(A) Defining the Problem:

Non performing Assets in banking Industry has become a subject

of intense importance and discussion. It has assumed greater significance in the world of banking and banks. It has become a barometer of the health of banks and discussions on any bank is incomplete without the mention of NPA, NPA has now become heart of the banking Industry, which in turn, is the heart of finance and economy of a nation.
Assets of a bank, generally, consist of cash investment, loans and advances, fixed assets and miscellaneous assets. The resources of a bank are deployed in these assets. The resources consist of capital and reserves, deposits, borrowings and other liabilities. These liabilities are carried at a cost and hence its deployments into various assets should generate enough income to service the cost of the liabilities. In other words, the assets in which the liabilities are deployed should perform in such a way that it generate income to cover the cost of resources and also a surplus, which is a profit of the bank, Thus the performance of assets reflects the health of the banking industry. Earlier, the buzzword in the banking industry was deposits as it is the basic raw material for the banking industry. The status of the bank was, determined on the volume and size of its deposits. The career of bankers used to depend on the level of deposits achieved by him. Banks were not bothered about the performance of their assets. But from 1991, a sea change was made in the way income of banks was recognized. With the first generation economic and finance sector reforms coming into being, the method of income recognition in the banking sector was changed from accrual basis to cash basis. An income will be carried to profit and loss account only of it is realized in cash in 90 days. This was like a bolt from blue for deposit happy bankers. All along, they were simply doing an accounting exercise in debiting a loan account and credit the income account without bothering to see whether it is actually paid TNRCMS MAYANK SHAH 50

by the borrower or not. Thus the performance of an asset was defined for the first time in Indian Banking Industry. This change of income recognition compelled the banks to unrecognized the income if the interest is not received in cash from the borrowers. Not only is this, depending upon the quality of the assets, various provisions now required to be made on such non performing assets. This had compelled many large banks to declare loss for the first time in history of banking. This had ominous portents for the entire banking industry. This also resulted in dwindling flow of credit of trade and industry. Thus NPA has the potential to directly affect the economy of the country. Many big nations like Japan are suffering from this disease of high NPAs. Our country also now having a large portion of bank credit locked in NPAs and hence NPA is receiving greater importance of NPAs , that we thought to select it as a subject for Grand Project.




1 Research Problem
To study the state of recovery management.

2 Research Objective

To identify reasons that lead to Standard assets of the bank becoming NPAs To Suggesting Strategy to recovery Non Performing Assets and prevention of further NPAs

3 Research Methodologies
(1) Sample Design The target population consists of State bank of India of Rajkot. The sample size comprise of Twenty one Executives of State bank of India of Rajkot.

(2) Collection of Data A structured questionnaire was prepared to elicit information form the respondents. Secondary data collection was done through data available from Books, Bank Register and Bank system. (3) Sampling Method The research was done using Simple Random Sampling. (4) Data Analysis The analysis of primary data is done with the help of computerized statistical tools.




The crucial factor that decides the performance of banks nowadays is the spotting of nonperforming assets (NPA). NPAs are those loans given by a bank of financial institution where the borrower defaults of delays interest of principal payments. Banks are now required to recognize such loans faster and then classify them as problem assets. Close to 16 percent of loans made by Indian banks are NPAs-very high compared to 5 percent in advanced countries. Banks are not allowed to book any income from NPAs. Also, they have to provide for these NPAs, or keep money aside in case they cant collect from the borrower, which affects their profitability adversely. Classification of NPAs In April 1992, it was decided to implement the Narsimham Committees recommendations on financial sector reforms in a phased manner over a three-year period commencing from the financial year 1992-93. Income Recognition, Assets Classification and Provisioning (IRAC) norms were introduced with a view to reflect a true picture of financials of Banks on the basis of their booking the income on actual basis than on accrual basis and also classify assets according to the level of risks attached to them. The criteria for classification is : Performing/Standards Assets: Loan assets in respect of which interest and principal are received regularly are called standard or performing assets. Standard assets also include loans where arrears of interest and / or of principal do not exceed 90 days as at the end of a financial year. No provisioning is required for such loans. According to RBI (NPAs) :- Any loan repayment or interest thereof that is delayed beyond 90 days has to be identified as an NPA. NPAs are further sub-classified into sub-standard, doubtful and loss assets:




Sub-standard Assets: Sub-standard assets are those that are non-performing for a period not exceeding two years. Also, in cases where the loan repayment is rescheduled, RBI has asked banks to recognize the loans as sub-standard at least for one year. Doubtful Assets: Loans which have remained non-performing for a period exceeding two years and which are not considered as loss assets are known as doubtful assets. Major portions of assets under this category relate to sick companies referred to the Board for Industrial and Financial Reconstruction (BIFR) and waiting finalization of rehabilitation packages. Loss Assets: A loss asset is one where loss has been identified but the amount has not been written off wholly or partly. In other words, such an asset is considered uncollectible. There may be some salvage value. Provision for NPAs The RBI has also laid down provisioning rules for the non-performing assets. This means that banks have to set aside a portion of their funds to safeguard against any losses incurred on impaired loans. Banks have to set aside 10 percent of sub-standard assets as provisions. The provisioning for doubtful assets is 20 percent and for loss assets it is 100 percent.




Debt Recovery Problems (1) To identify assets and properties of borrowers and guarantors is a difficult exercise. Even when banks get the decrees, execution may be difficult as the exact position of borrowers/ guarantors properties may not be known .i.e. whether it is unencumbered, in good physical and financial condition etc. (2) Constraints of time and adequate staff to supervise and follow-up the large number of accounts that are often scattered over wide areas, also hinders recovery effort. At times inadequate transport and roads also hinders recovery effort. At times inadequate transport and roads also make it difficult to reach borrowers. (3) Despite the good intentions, it will depend on how fast the measures are implemented. Since their introduction in 1994, DRTs have not been able to make a sound impact due to the lethargy on the implementation front. Unless the Government takes concrete and speedy measures to strengthen the Tribunals and streamline the legal systems, the DRTs will amount to deferring the NPA problem. (4) As against 50 to 60 Judges in High Courts, the Act provides for only one presiding Officer for each Tribunal. The appellate Tribunal has suggested that when the number of pending cases exceeds 2000, Government should appoint another Presiding Officer. This suggestion needs to be acted upon quickly to prevent further delay in the settlement of cases. Further, the Tribunals need to have their own permanent staff instead of depending mainly on persons who are on deputation.





Legal Methods-present scenario Delay in disposing of the cases (10 to 20 years) are prohibitive and expensive appeals further delay the process of awarding decree. Also the interest is only 6% p.a. simple on principal.

Suggestions (a) Need for a time frame for disposal of cases. (b) For non payment of bank decretal dues parties to be put in civil imprisonment

without fail. (c) Misuse of hypothecated securities to be treated as an offence punishable on

the lines of Sec 138 of N.I. Act with 2 years rigorous imprisonment.


Statutory powers Empowering banks to acquire assets for disposal without intervention of courts. (sec. 29 of State Financial Act.) This would work as deterrent against intentional defaulters.


Lok Adalats (a) Establishing Lok Adalats in all States. (b) To be made compulsory for both borrowers and banks for settlement of smaller loans (present limit 5. Lac)





BIFR (Board of Infrastructure and finance reconstruction ) (a) Relook into functioning of BIFR- whether objectives achieved since the ratio of cases registered and cases dismissed/winding up was only 49% in 1996. (b) Increase in number of benches-Housing separate benches for major cities like Mumbai, Chennai. (c) Time frame for rehabilitation (6 months). (d) Reference to BIFR should be prerogative of banks. (e) Prevent unscrupulous/dishonest promoters taking shelter under BIFR.


In the case of immovable property, recovery continues to be a problem even where the court decree of certificate has been passed. While the Act provides for attachment and sale of property after the court decree has been issued there is no provision to prevent a borrower from disposing off the property while the suit is still on. DRT Act empowers Recovery Officers to recover the debt through attachment and sale of movable or immovable property of the defendant but does not explicitly mention how to enforce hypothecation, mortgage, etc.


There are instances where the borrower has mortgaged the same property to Several banks and availed facilities with predetermined criminal intention to Cheat the banks with false and fabricated documents.

(11) (12)

Valuation reports of properties are inflated to suit the needs of the borrowers. Several problems have been faced by the banks while obtaining shares as Collateral security. As the shares are not transferred in the name of the Bank, Ultimately the matter has to be taken to the Company Law Board (CLB) for Redressed, which, not to mention, consumes very much time.

Why assets become NPAs?


A several factors are responsible forever increasing size of NPAs in PSBs. The Indian banking industry has one of the highest percent of NPAs compared to international levels. A few prominent reasons for assets becoming NPAs are as under: Poor credit appraisal system. Lack of vision/fore slightness while sanctioning/reviewing or enhancing credit limits. Lack of proper monitoring and follow up measures. Reckless advances to achieve the budgetary targets. Lack of sincere corporate culture. Inadequate legal provisions on foreclosure and bankruptcy. Change in economic policies/environment. Non transparent accounting policy and poor auditing practices. Lack of coordination between Banks/FIs. Directed lending to certain sectors. Failure on part of the promoters to bring in their portion of equity from their own sources or public issue due to market turning unfavorable. Abolition of license raj and tough competition in the liberalized Indian economy.

NPAs and Its Effects




NPAs are drag on profitability of Banks because besides provisioning, Banks are also required to meet the cost of funding these unproductive assets. NPAs reduce earning power of assets. Return on assets (ROA) also gets affected. NPAs carry risk weights of 100% (to the extent it is uncovered). Hence, they block capital for maintaining capital adequacy.

As NPAs do not earn any income, they adversely affect capital adequacy ratio (CAR). No recycling of funds. NPAs also attract cost of capital for maintaining capital adequacy ratio. Capital cost involves dividend for Tier I capital and Interest for Tier II capital. Carrying NPAs require incurring of cost of capital adequacy and cost of funds blocked in NPAs. PSBs are incurring around as high as 11% of their earnings as operating cost for monitoring and recovering NPAs every year.

NPAs demoralizes the operating staff. Regulatory and credit rating agencies abroad are also not comfortable with the high level of NPAs of Indian Banks. New Branch license are also not given to the Banks that have high level of NPAs.




Information of Collecting the Data

Detail of Borrower Reason of Due amount Reason for become NPAs Commitment of Borrowers Utilisation of Fund Awareness of Loan Detail of Loan

We personally contact to each and every defaulter and collect the whole data which mention here for more information we attach Questionnaire here. Collection of data is the essential part of the research. As possible as we collect the more data, view of customer, their opinion their problem and analysis those things and try give them better satisfaction bank as well as customer. Data collect and bifurcate in different category as per their loan, which I mentioned earlier, Home loan, Personal Loan, Education Loan, Vehicle Loan and SBF.




For our Summer Project we got permission in RASMECCC Department of State Bank of India, Rajkot. Our department is a Process department. But our main work is to Survey and Recovery the NPAs. This is a Head Office and they provide us Data of NPAs account. State Bank of India have a 6 Branch in Rajkot. We got a Combine data of whole branch

Six Branch
Jagnath Plot. Bhaktinagar. Marketing Yard Commercial Branch Main Branch Lakhaji Raj

Our Survey on P- Segment of Loan

Education Loan Personal Loan Home Loan Vehicle Loan SBF




I have provided near about 250 Account but only 150 NPAs account person can cover and their list are under. No.Of Borrowe rs 151 Edu.Loan 29 Home Loan 48 Personal Loan 44 Vehicle Loan 17 SBF 13


SBF 13 9% Vehicles Loan 17 11% Per.Loan 44 29%

Edu Loan 29 19%

Home Loan 48 32%

Edu Loan Hom e Loan Per.Loan Vehicles Loan SBF

Here, As per above chart if we see that we find that Home loan having more Defaulter. No. of Borrower in Home Loan is 48 and Percentage is 32 %.




Amount of Loan
No.Of Borrowers

Total Amount Of Loan


Total Amount of O/S



12000000 10000000 8000000 6000000 4000000 2000000 0

Total O/S, 11796076

Recovery, 3088732

Total O/S Recovery

Total O/S


During my Summer Project I recovered Rs.30,88,732 and its a 26 % of the total Debt.

Account Become Regular

NO. of Defaulter 151 Regular 63 % 42%





Edu.Loan 13,80,900 Per.Loan 113.800 Home Loan 7,72,550 Vehicle Loan 3,90,512 SBF 4,30,970 Total


A m ou n t R e co v er
S B F 14% V e hicle s Loan 13% P e r.L o a n 4 % Hom e Loan 25% E d u.L o a n 44%

E d u.L o a n H o m e L o a n P e r.L o a n V e hic le s L o a nS B F

Here, as per above chart more amount in Education loan amount is Rs.13,80,900 and percentage is 44%.




No. of Borrowers 29 Loan Amt. 2,67,41,533 O/s Amt. 27,69,046 Recover Amt. 13,80,900 % 49.86%

No. of Borrowers 48 Loan Amt. 1,94,43,624 O/S Amt. 65,63,936 Recover Amt. 7,72,550 % 11.76%

No. of Borrowers 44 Loan Amt. 31,96,000 O/S Amt. 11,28,844 Recover Amt. 113,800 % 10.08%

No. of Borrowers 13 Loan Amt. 69,37,250 O/s Amt. 11,03,276 Recover Amt. 4,30,970 % 39.06%

No. of Borrowers 17 Loan Amt. 35,69,821 O/S Amt. 7,63,758 Recover Amt. 3,90,512 % 51.11%




As per above show that more amount is recovery from Education Loan Rs.13,80,900 but if we see the recover by more share from vehicles loan that 51.11 %.

What steps have been taken so far to solve NPAs Problems?

Banks need to have better credit appraisal systems so as to prevent new NPAs from occurring. However, once NPAs do come into existence, the problem can be solved only if there is enabling legal structure, since recovery of NPAs often requires litigation and court orders to recover stuck loans. With long-winded litigation in India, debt recovery takes very long time. Banks are now working on utilizing the services of Debt Recovery Tribunals to solve this problem. The government has also mooted the suggestion of an Asset Reconstruction Company, which will be specialized agency set up for rehabilitating revivable NPAs (say, salvaging projects which are inherently sound) and recovering funds out of unrevivable NPAs.

Other Strategies
Fixing up of budgets for profits and recovery rather than for advances. Budget oriented approach, at times leads to release of credit facilities without ensuring compliance of covenants of sanction. A suitable mechanism could be drawn at each Bank level to provide monetary benefits/recognition to the operating staff particularly for recovery in NPAs/write off cases. Project with old technology should not be considered for finance. Large exposure on big corporate/single project should avoid. There is a need to shift in PSBs approach from collateral security to viability of the project and intrinsic strength of promoters.




Up gradation of credit skills of the operating staff working in advances department. Timely sanction/release to avoid time and cost overruns.

A fresh look at Recovery Problem

Basically each branch engaged in lending has to plan for recovery of loans disbursed by it. The manager should be familiar with the prospects of recovery through internal and external factors. Knowledge about willful defaulters is equally important. Thus three pronged strategy is necessary.


(a) Computation of demand
Guidelines suggest that repayment of installments of loans should be fixed in such manner, which will coincide with the harvesting of crops or sale of milk or any other farm output proposed to be produced through the bank loan. The demand for crop loans or for installment of term loans should therefore be computed in a manner conducive to the income flow.

(b) Appraisal of loan application and pre-sanction surveys

During the initial processing of the proposal, it has to be ensured that the repayment program for an item\equipment is fixed in accordance with the guidelines prescribed by R.B.I. Awareness about R.B.I. guidelines should be increased at the branch level.

(c) Recovery camps

The central idea of recovery camp is to bring a maximum number of persons together at one place and repay the loans. The recovery camps in addition to effecting recovery create a proper climate for recovery.

(d) Non-banking business day


This day should be utilized fully for field visits and contact with the borrowers

(e) Compromise proposals

In genuine cases, the banks can consider compromise proposal and a lot depends upon the initiative of the branch manager in utilizing this facility.

(f) Conversions/rescheduling of loans

There are guidelines for the operating staff of the banks for conversion./rescheduling of loans in the areas affected by natural calamities. Crop loans can be made repayable over period of one year in the event of crop loss.

(g) Integration of recovery in branch budgeting

Recovery targets should be fixed at the time of settlement of branch business budget.


Wherever the states have enacted laws on the pattern of the Talwar Model Bill, support of the government machinery can be enlisted accordingly. If the branches prepare village-wise action plans in this regard, it will be still appropriate for the agencies to have a concerted effort towards recovery. The branches may also compile detailed position of defaulters and share the same with the convener banks and government authorities periodically.





To prevent willful default, comprehensive and discrete enquiries, therefore, should be made before disbursing loans to farmers. Some of the banks have already devised systems of maintaining village dossiers, which comprise names of farmers who do not have good reputation. A non-willful defaulter is one who generally follows a good cropping pattern and is co-operative to developmental functionaries. He generally cares for his own farming business. On the other hand, a willful defaulter has an attitude of non-co-operation to developmental functionaries. In present times, when willful default has gained social acceptability, the branches can initiate steps for devising schemes for giving recognition to good borrowers in various meetings or functions organized by the branches. Further the problems of good borrowers can be studied and their credit needs immediately met. By doing so, a culture of prompt repayment may develop in the villages and doing so would simultaneously discourage willful default.





The RBI introduced HCS in banks in 1985-86, this system provide the following information: Regarding the Health of individual advances. The quality of credit portfolio and The extent of doubtful or bad advances in relation to total advances. The RBI, since 1985, requires all commercial banks in India to provide information indicator the quality of individual advances in the following eight categories: 1) Satisfactory: Conduct is satisfactory the account of the borrowing firm is in order in all respect and its safety is not in doubt. 2) Irregular: Occasional irregularity is observed but the safety of the loan is not in question. 3) Sick Viable: Loan to sick units that are under nursing through the revival programmed. The units, though currently sick, are viable. 4) Sick Non Viable: The irregularities continue to persist and there are no immediate chances of accounts becoming regular. 5) Advances Recalled: Such loan accounts where repayment is highly doubtful and nursing is not considered worthwhile, in case of such advances decision is taken to recall them. 6) Suit Filed account: Loan account where the recovery proceedings have been initiated. 7) Decreed Debts: Loan accounts where the recovery proceeding have been completed. TNRCMS MAYANK SHAH 70

8) Bad and Doubtful: Loan accounts where the recovery of dues debts has become doubtful on accounts of shortfall in value of security. The RBI has classified problem loans with the banks in three categories. (i) (ii) (iii) Advances classified as Bad and Doubtful by the bank [ Health Code No. 8] Advances where suits were filed/ decrees obtained. [HC No.6 & 7]. Those advances with Major undesirable features [HC No.4 & 5 ].

EVALUATION OF HCS Though the HCS provide for classification of assets it does not provide what action to take regarding the improvement of quality of such assets. Diversion of funds [as in 1 above] is the single most prominent reason. Moreover, reversionary trends developing during expansion/diversification phase and failure to raise capital/debt from public issue is also an important factor. Internals factors [No.4 above] of business failure, inefficient management etc., are next important in the creation of NPA. External factors [No.3 above] are the next in importance, Time/cost overrun during the project implementation stage leading to liquidity strain. Other factors in their order of prominence are government policy changes, willful default, fraud etc. and lastly deficiencies on the part of banks in the form of delay in release of limits etc. TNRCMS MAYANK SHAH



To tackle chronic NPAs in priority sector RBI had come out with a one time measure constitution of Settlement Advisory Committees (SACs) by banks. This was to promote compromise settlement in small sector viz., SSI small business including trades, agricultural and personal segments, Bankers need to appreciate the fact that compromise settlement is an effective and accepted non legal remedy for recovery in chronic NPA. According the scheme, applicable to NPA accounts which are at least 3 years old at 31-03-1999, was effective up to 30 sept. 2000. There is a case for extending the deadline and matching these guidelines applicable for compromise settlement in medium and large sectors.


1) Settling for a lower payout than the contracted one, scaling down of dues. 2) Releasing assets charged to the bank 3) Saving time, energy and expense on defending the inevitable legal case. 4) Keeping avenues of bank finance open for further development needs. 5) Restoring status/position in the market/society, avoiding stigma of being branded as a borrower who is litigant type.





1) Concept of time value of money i.e. a bird in hand is worth two in bush. The money realized early could be invested/lent to earn. 2) Realisation of securities is difficult stocks, machinery have high incidence of depreciation and obsolescence on taking possession, storage, safety thereof poses a problem and also involves cost for a longer period. Even in cases where court receiver/commissioner is appointed, assets do not realized fast value of mortgaged agricultural land properties located in rural, semi-urban areas is difficult to realize and no bidder comes forward when the property is put to auction. This is precisely the reason why many decrees obtained by the banks have merely remained on paper for want of effective execution thereof. 3) To maintain the image of development banker, compromises, which involve sacrifices, can be pursued only if both the parties to the settlement perceive latent gain in the process of bargain.


A need was felt to create a special agency to facilitate debt restructuring because there has been some hesitancy on the part of banks and financial institutions to implement RBI guidelines on debt restructuring. Recently a three-tier body, viz., CDR has been set up to coordinate corporate debt restructuring programme. It is yet to be operationalised CDR consists of Forum, group and Cell. While the forum evolves broad policy-guidelines the group takes decisions on the proposals recommended by the Cell. Initially the borrower approaches his Lead TNRCMS MAYANK SHAH 73

Bank/ FI with a request to restructure debt, which in then puts up the proposal to the cell. The CDR covers only multiple banking accounts enjoying credit facilities exceeding Rs. 20 crore. Cases of DRT BIFR and willful defaults, doubtful and loss accounts and suit filed cases are outside the purview of the CDR. Thus, standard and Substandard accounts are only eligible to seek CDR Shelter. If 75% of the secured creditors agree to the rehabitation plan, it is lending on the other banks/FIs. The CDR is a voluntary system on debtor creditor agreement and inter-creditors agreement. No banker/ borrower can take recourse to any legal action during the stand-still period of 90180 days. Lastly CDR will observe the RBI Guidelines on Debt Restructuring issued in March 2001. While the arrangements under CDR seem to be feasible from the debt restructuring perspective, its success depends upon the cooperation extended by borrowers and bankers, on one hand, and understanding among banks and FIs on the other. Doubts are raised about the implementation of these agreements taking into the present working of the loan consortium arrangement. CDR though is not directly linked with NPA recovery, is aiming at preserving viable corporate affected by certain internal and external factors, and minimizing the losses to the creditors and other stakeholders through a restructuring programme. Even though the CDR system will be applicable only to standard and sub-standard accounts potentially viable cases of NPA, are also to get priority.


The mechanism will be more effective if accepted by 75 % of term lending institution and 75 % of bank, which provide working capital instead of 75 % of total lenders.




(4) LOKADALATS These are voluntary agencies created by the state government to assist in matter of loan compromise cases involving an amount upto Rs. 5 lakhs may be referred Lok Adalat. The scheme includes all NPA a/cs. Both suit filed and mensuit filled MCS Lokadalats meet at different places for the convenience if banks and borrowers on the given date of the lokadalats meeting, both the banker and borrower should be present. After looking into the evidence and listening to both parties, the lokadalats works out an acceptable compromise. Thereafter, lokadalat issues a recover certificate, which will enable the bank in obtaining decree from the concerned court. This arrangement shortens the period in obtaining a court decree, which is normally awarded after taking a much longer period. Along with this, efforts should be made to give wide publicity to the scheme, besides educating both banks and borrowers about Lokadalats. EVALUATION

Merits There are no court fees involved when fresh disputes are referred to it. It can take cognizance of any existing suit in the court as well as look into and adjudicate upon fresh dispute If no settlement is arrived at the parties can continue with the court proceedings Its decree has legal status and is binding. In view of this unique advantage the government is thinking of strengthening them and raising the monetary limit set for referred cases




Demerits It is observed that banks have not taken adequate advantage of Lokadalats for compromise settlement of their NPAs No cut off date is suggested since Lokadalat is an on going process. But this may contribute to increasing delays in settlement of cases. Most Lokadalats should be set up in different parts of country to set up the recovery procedures.

(5) DEBT RECOVERY TRIBUNALS The MOF has taken a number of steps to strengthen the DRTs. Banks and FIs now can nominate one nodal officer for each DRP. There is a suggestion for setting up co-ordination committees for DRTs a Debt Recovery Appellate Tribunal with representations from major banks and financial institutions. In the context of recovery from NPAs, DRTs are assuming great importance since efforts are to set up mere DRTs during this year and also to strengthen them. Though the recovery through DRTs is at present less than two percent of the claim amount, banks FIs have to depend heavily on them, efforts are as to amend the recovery Act to assign more power to DRT. More importantly, the borrowers tendency to challenge the verdict of the Appellate tribunal in the High court to seek natural justice needs to be checked. Otherwise, early recovery efforts through DRTs would be futile. Secondly, training of residing officers of Tribunals about the intricacies of banking practices is very essential. Further, the number of Recovery officer has to be enhanced in every DRT for effective recovery. Finally, banker




and FIs have to come forward to provide liberal help to DRTs to equip them in terms of infrastructure, manpower,etc.

It has been announced in the Union Budget for 2001-02 that the Govt. has decided to set up 7 more DRTs during 2001-02 in addition to the existing 22 DRTs, 5 Appellate Tribunals to facilitate bank to quickly recover their dues from borrowers. Besides, the Govt. has proposed to bring in legislation for facilitating foreclosure and enforcement of securities in case o default so as to enable banks and financial institutions to realize their dues.

EVALUATION 11 new DRTs are being opened over the last 2 years 7 more DRTs are in pipeline DRTs are facing an uphill task with the number of cases The amount involved is increasing at alarming rate in the value of burgeoning NPA. The cases involving Rs. 7705.32 crore are still pending. In Mumbai DRTs out of the total amount of Rs. 1677.60 crore involved only Rs. 397.43 crore was recovered. There is a huge demand supply mismatch among the DRTs. The requirement is far higher than the number of DRTs available. The number of settlement cases is high in Mumbai and there is shortage of man power in Mumbai DRTs. The RBI guidelines, which stipulates that apresiding officer in a DRT cannot settle more than 800 cases in a year, constraints the operations of DRTs. There is inadequacy of trained staff and their lack of exposure to the judicial system acts as a hindrance. There needs speeding up of recovery procedures.





The RBI has put in place a system for periodical circulation of details of willful defaults of borrowers of banks and financial institutions. This serves as a caution list while considering requests for new or additional credit limits from defaulting borrowing units and also from the directors /proprietors / partners of these entities. RBI also publishes a list of borrowers (with outstanding aggregating Rs. 1 crore and above) against whom suits have been filed by banks and FIs for recovery of their funds, as on 31st March every year. It is our experience that these measures had not contributed to any perceptible recoveries from the defaulting entities. However, they serve as negative basket of steps shutting off fresh loans to these defaulters. I strongly believe that a real breakthrough can come only if there is a change in the repayment psyche of the Indian borrowers.


After a review of tendency in regard to NPAs by the Hon'ble Finance Minister, RBI had advised the public sector banks to examine all cases of willful default of Rs 1 crore and above and file suits in such cases, and file criminal cases in regard to willful defaults. Board of Directors are required to review NPA accounts of Rs.1 crore and above with special reference to fixing of staff accountability. On their part RBI and the Government are contemplating several supporting measures including legal reforms, some of them I would like to highlight.





An Asset Reconstruction Company with an authorised capital of Rs.2000 crore and initial paid up capital Rs.1400 crore is to be set up as a trust for undertaking activities relating to asset reconstruction. It would negotiate with banks and financial institutions for acquiring distressed assets and develop markets for such assets.. Government of India proposes to go in for legal reforms to facilitate the functioning of ARC mechanism.

EVALUATION The ARCs will assist in cleansing the Balance Sheet of the weaker as well as potential weak banks. It will also try to identify possible conceptual glitches and legal infirmities in the arrangement. It is to be noted that given the inadequacies of SICA, BIFR, DRTs foreclosures and other recovery processes, an ARC may find it difficult to lead a viable existence. Therefore, simultaneously it is required to make radical changes in bankruptcy and recovery laws and procedures. Under this scheme the banks liabilities will get transferred from one bank to another. The total liability to the banking system would remain unchanged.


Institutionalisation of information sharing arrangements through the newly formed Credit Information Bureau of India Ltd. (CIBIL) is under way. RBI is considering the recommendations of the S.R.Iyer Group (Chairman of CIBIL) to operationalise the scheme of information dissemination on defaults to the financial system. The main recommendations of the Group include dissemination of information relating to suit-filed accounts regardless of the amount claimed in the suit or amount of credit granted by a credit institution as also such irregular accounts where the borrower has given consent for disclosure. This, I hope, would prevent those who take advantage of lack of system of information sharing amongst TNRCMS MAYANK SHAH 79

lending institutions to borrow large amounts against same assets and property, which had in no small measure contributed to the incremental NPAs of banks.


RBI is examining the recommendation of Kohli Group on willful defaulters. It is working out a proper definition covering such classes of defaulters so that credit denials to this group of borrowers can be made effective and criminal prosecution can be made demonstrative against willful defaulters.


A Consultative Group under the chairmanship of Dr. A.S.Ganguly was set up by the Reserve Bank to review the supervisory role of Boards of banks and financial institutions and to obtain feedback on the functioning of the Boards vis--vis compliance, transparency, disclosures, audit committees etc. and make recommendations for making the role of Board of Directors more effective with a view to minimizing risks and over-exposure. The Group is finalizing its recommendations shortly and may come out with guidelines for effective control and supervision by bank boards over credit management and NPA prevention measures. The report of the group is now published and discussed in another page.


In a recent circular, RBI has suggested to the banks to have a new asset category - `special mention accounts' - for early identification of bad debts. This would be strictly for internal monitoring. Loans and advances overdue for less than one quarter and two quarters would come under this category. Data regarding such accounts will have to be submitted by banks to RBI. TNRCMS MAYANK SHAH 80

However, special mention assets would not require provisioning, as they are not classified as NPAs. Nor are these proposed to be brought under regulatory oversight and prudential reporting immediately. The step is mainly with a view to alerting management to the prospects of such an account turning bad, and thus taking preventive action well in time. An asset may be transferred to this category once the earliest signs of sickness/irregularities are identified. This will help banks look at accounts with potential problems in a focused manner right from the onset of the problem, so that monitoring and remedial actions can be more effective. Once these accounts are categorised and reported as such, proper top management attention would also be ensured. Borrowers having genuine problems due to temporary mismatch in funds flow or sudden requirements of additional funds may be entertained at the branch level, and for this purpose a special limit to tide over such contingencies may be built into the sanction process itself. This will prevent the need to route the additional funding request through the controlling offices in deserving cases, and help avert many accounts slipping into NPA category. Introducing a `special mention' category as part of RBI's `Income Recognition and Asset Classification norms' (IRAC norms) would be considered in due course.


INTRODUCTION: The Corporation has been providing financial assistance to small and medium scale units. While sufficient precaution is being taken at the time of appraisal of projects, disbursement of loans and follow-up, yet some projects fail to generate adequate resources to repay dues and lead to defaults. Some of these units can be revived and rehabilitated with need base relief and concessions by the Corporation. However, at times, units are not in a position to revive due to, long term problems and structural deficiencies. It would be appropriate for Corporation to find an exit route as early as possible. Compromise/ One Time Settlement has been found to be an effective tool of recovery in such stressed cases.





A comprehensive policy of One Time Settlement was approved by the Board of Directors in March, 1999 and the same was implemented by Corporation with effect from 1st April, 1999 vide circular No.A-1 dated 31st March,1999, which contained detailed guidelines and formats. The main purpose of the policy was to liquidate NPAs in time bound manner, which had grown to Rs.597 Crores, and constituted 45.56% of the total loan outstanding of Corporation. Subsequently, a need was felt to revise the policy based on the feed back received from the field functionaries and in order to further accelerate the pace of reduction in NPAs through compromise/ settlement. The policy did not have the provisions for settlement especially in the cases where disbursement was made after 31st March 1995. A revised OTS policy was considered and approved by the Board of Directors in its meeting held on 15th September 2001. The duly approved OTS policy was implemented by the Corporation vide Circular No.37/ 2001-02 dated 9th October, 2001.


The revised policy is designed to provide an effective frame work to tackle old and more chronic cases of D-2 and Loss assets categories, which have been the growing cause of concern for the Corporation. The total NPAs inD-1, D-2 and Loss assets categories are Rs.589.13 Crores, therefore, the target of settling cases of Rs.150 Crores per year for next three years would be the main objective of this OTS policy. The criteria/ basis of calculation of OTS amount in old and chronic cases of D-1, D-2 Assets categories have been revised to encourage the staff to settle more cases under OTS than sale U/s 29 of the SFCs' Act.,. This will considerably reduce the fresh accretion of loss assets, which have shown an increasing trend in last 2 years.




The revised policy will provide an effective tool to settle large number of cases under OTS with special emphasis on settling cases which are in possession of the Corporation for more than 5 years. The operational procedure have been streamlined to remove unnecessary hassles and delays in settling cases. The policy provides more delegation of power to operating staff and to bring transparency in decision making at all levels.

Is evaluating Indian Banks performance a rather straightforward issue? The answer is an absolute No. The Banks performance can judge from the following parameters. Behaviour of their stock prices. NPAs. C/D Ratios ROIC ROCE P/E Ratio ROE Book Value RONW. These parameters can be applied after the bank has posted its financial performance & hence are not preventive or proactive measures. As the traditional tools of NPA management have not proved to be satisfactory on the parameters of credit monitoring, follow up procedures, preventing an assets from becoming non performing as well as timely settlement & recovery of non performing loans, an attempt is made to bring out some untraditional techniques as well as to reengineer the existing practices and improving them so as to bring the performance of Indian Banks in tune with the international practices.




A) Process of Slippage
Any performing assets does not turn into non-performing overnight. The Performing Asset passes through a relatively lengthier period of 2 quarters, in some cases seven-months, after becoming due but before slipping down to the dangerous red band of non performing assets. During this journey, every asset is giving out certain signals for warning the banker that something bad is about to happen.

B) Slippage signals.
Depending upon the type of credit facility and nature of business these distress signals may look like: Non Payment of the very first installment in case of term loans. Non-submission of stock statements in time. Cheque drawn on the account are bouncing. Credits into the cash credit account are not sufficient to meet the debits in the account. The overdue bill is lying unpaid; Installments are irregular. Amount paid is not fully covering the principal and interest debited. No regular operations in the cash credit account. Bank has information that party is not doing the business; Post-sanction inspection report speaks of diversion and misutilization; There has been a natural calamity in the borrowers village.




C) How to act on the Slippage Signals?

Once there signals start to come in, the banker is supposed to act immediately. There is no point in waiting with the feeling that there are few more months for the 2 quarter cut-off and things may turn all right before that, any symptom unattended would lead to major complications. Steps taken at the initial stage itself would help to keep the accounts performing and the costly slippage would never happen. The NPA reduction techniques like replacement; nursing may be attempted while the accounts are still in the performing basket by continuous monitoring of the individual assets. This type of constant & continuous surveillance requires co-operation & attention from all concerned in a branch. Any one-shot measure like recover camps can at best be of supplementary native and may never be a permanent solution.

D) Journey from NPA to PA

While the journey, from the 6-month bottom but within the PA basket- to the top would be easier it would certainly be costly, difficult and time consuming form of NPA to PA. This uphill task usually is very difficult and such assets cannot be brought back to the PA basket immediately; there needs to be an isolation period of one year after which only the asset will become eligible for classification under PA category. During this critical period it has to perform continuously. This is like a patient who has been admitted to the intensive care unit (ICU) is not sent back home immediately after bringing him out of ICU; he will be kept in the non- critical area for further observation, before his final discharge. Hence, the action before Slippage assumes further significance in cases of bringing back the NPA to PA.

E) What if Slippage Management Fails?




Even after careful management of assets before Slippage, if some assets cross the band to become NPA, then there is no other alternative except to arrange for fire-fighting. This post-incidence measure, again, needs to be undertaken on war footing. It will not be prudent to wait any further at this stage as any time lag is going to cost the bank very dearly because some of these assets may become doubtful inviting a more provisioning.



When deregulation is thinning the margins, it is necessary to go in for non-fund based business, which will increase the non-interest income of the branch. Non-fund based business involves no fund at all but a good service and a marketing strategy to capture the customers is needed. It also helps the branch in promoting fund-based business. Non-fund based business activities generally include following services. Safe custody of customers valuables Issuing letters of credit/guarantee Remittance of funds: Mail transfer Credit card related service Gift Cheque/ Travelers Cheque Locker service There are other services also like underwriting, guarantee, merchant banking and other agency services, etc. but for small branches and rural branches increase in volume of these facilities can boost their profile. The problem is that the rural people are not aware of these services but by creating awareness the branch can reap the benefit. At present the noninterest income of the rural branches forms a very insignificant proportion of total income. This can be increased with little efforts.





This will need a well-designed profit plan. It must be ensured that each and every branch of the bank is viable on its won and that is possible when each and every branch starts evaluating each business transaction from profit angle. (A) DEPOSITS The main source of profit comes from remunerative deposits. The deposit portfolio includes savings bank current and time deposits. The deposit mix decides the cost of funds. It is found that in some of the branches the deposit growth is either stagnant or it has a deposit of Rs. 50/60 lacs over a period of 5 to 6 years. To keep the cost of funds low, the efforts should be to canvas low cost current and savings bank deposits. In rural branches agriculture income is seasonal and most of the agriculture based customers keep the money idle and spend only in specific exigencies. If this sector is approached just in time then the savings bank deposits can be mobilized in large volumes. In this contest, one home one account has been a successful strategy to woo the customer. What is more important is the timing for deposit mobilization. But the best way to augment the deposits is by improving customer service. A satisfied customer is the best ambassador of a branch. The customer meets can be utilized to popularize the various deposits schemes so that they could suggest suitable schemes to customers. In addition, special letters cab be sent to customers on regular basis inviting their help to improve the business growth. (B) MANAGEMENT OF ADVANCES PORTFOLIO




Advances portfolio is another vital area for making the branch profitable. The branch has to find out the industry-wise exposure to determine the extent of NPAs in different category. This will help them in concentrating their efforts in the area s where the percentage of NPAs is on the low side. Moreover, it is observed that the advances of Bank are not picking up to the desired level. The branch should concentrate on retail lending i.e. canvassing car loans, consumer durables and housing finance, etc. Earlier the banks were giving small loans for middle/upper class people. Housing finance is one such area where there is tremendous scope and the percentage of NPAs in this sector is negligible. Moreover, the rate of interest is quite attractive which will increase the yields on advances and hence would enhance the profitability. On the whole branch should analyses its credit portfolio and gradually increase credit delivery to earn better profits. It is in the interest of both and banks to stimulate credit delivery.

The deposit mobilization and credit expansion takes place simultaneously. But at the same time credit administration to keep NPAs under control has to be effective. ABC analysis of the over dues by categorizing the overdue accounts should be done according to the quantum of overdue whereby more attention can be paid on such chronic accounts. Segregation of over dues where the quantum of expected recovery is high and the branch is willing.


The RBI has permitted strong banks to adopt the U.S. GAAP mode of accounting to dial with NPAs. The U.S. GAAP follows Discounted Cash flow approach towards valuation of securities while Indian Banks follow Market Value approach in making valuation of secured part of loans. Primary reasons for the differences between U.S. GAAP and Indian method is in provisioning aspects for NPAs .RBI requires banks to determine and report NPAs at book value net of all write-offs and provisions. Under U.S. GAAP norms, banks are require to determine NPAs based on the evaluation of the willingness and ability of the borrower to repay and estimate the realizable part thereof, based on the underlying collateral and /or the underlying cash flows of the borrower. In a move towards internationally best accounting TNRCMS MAYANK SHAH 88

practices and to ensure greater transparency RBI has adopted 90 days NPA norms. Therefore banks are suggested to make provisions for this and chalk out an action plan for this.


This is an approach to manage the credit portfolio and is a proactive approach to requirement of lower CAR as risk weighted assets are reduced. This will reduce the need recapitalization of Indian PSBs and pouring of doles of funds which would otherwise be applied by the Govt. for developmental purpose. NPAs are the legacy of the past and credit risk management is action in the present for the future, it is concerned more with the quantity of the credit portfolio before default. It involves Selection-Borrowers financial condition, profitability cash flows, industry, collateral, etc. Limitation-It ensures that individual or group borrower concentrated is not very large and the regulations or the banks themselves prescribe exposure limits. Diversification- It is related to limitation and is based on the age-old principle of not putting all the eggs in one basket. Following formula is evolved EL = PD X LGDX EAD

EL = expected loss PD = probability of default LGD = loss given default EAD = exposure at default Suppose there is a bank X which has only AAA obligators and a bank Y with BBB obligators in its portfolio. The AAA obligator does not default within a year horizon, so the PD=0 whereas the average PD for a bond issued by a BBB obligor is 0.25% for bank X, the EL are zero for one year. For bank Y, assuming the loss given default to be 50% and the EAD to be Rs. 100 crore, the EL would be 100 x 0.0025 x 0.5 = Rs. 125000. The level of EL could vary from 0 to 250000 on an identical portfolio size depending on the quality of obligators. Thus TNRCMS MAYANK SHAH 89

EL can be viewed as normal cost of doing business and it indicates the average or mean loss on the credit portfolio.

MERITS: The above approach represents international best practices. It is a more disciplined way of analyzing credit risk. Helps in quantifying risk. It captures the risk of entire credit portfolio as contrasted with the Asset by It measures additional risk arising due to increased exposure to a borrower/s. This forces the bank to adopt internal ratings based approach to credit risk

asset or standalone approach.

A more risk sensitive standardized approach towards capital adequacy of Banks is credit derivatives, credit derivatives allow the transfer of risk between the markets participate without the underlying transaction changing hands A credit derivative works much like an insurance policy. If a bank thinks it its over exposed to a particular borrower or to a particular industry it can transfer the credit risk by, purchasing a credit risk derivative. The main credit derivatives products are swaps, options and forwards. In a credit default swap one party (protection seller) receives a premium at pre-set intervals in consideration for guaranteeing defaults in payments as envisaged in the credit contract.




A credit-spread option is and option on the spread between the yields earned on the assets. The option provides a pay off whenever the spread exceeds some level (the strike spread).A credit spread forward is obtained by combining a call option and a put option. It is similar to a normal forward except that the underlying is the spread. In addition to the above financial engineering is used to structure more complicated deals on these basic building blocks. These allow the credit risk manager to achieve specific return profiles and gain value by taking on unlikely risk scenarios. EVALUATION Merits It ensures safety and soundness of banks. Banks can fort the first time earmark explicit capital to cover operational risk. It is possible to unbundled the credit risk from loans, bonds and derivatives and sell different form in market Credit derivative instruments facilitate liquidity, transparency and price discovery of the underlying assets It can open up new business opportunities for the players like credit rating agencies and insurance firms, provides new investments options for institutional investors like mutual funds, investment banks/corporate (both as hedgers and speculators), optimize risk return and capital allocation functions. Demerits Highly complex and sophisticated approach restricts its universal application in the emerging and developing markets kike India where the banks continue to be the major segment in financial intermediaries and would be facing considerable challenges in adopting all the proposals. Non availability of past default data. MAYANK SHAH 91


Difficulties in measuring default probabilities and pricing the derivatives products. Lack of liquid secondary market for audit derivatives. Unresolved regulatory, netting and capital adequacy issues

REQUIREMENTS Easy availability of skilled personnel in both finance and information technology sectors. Experiments with various credit risk modeling techniques for Indian banks. In a nutshell, it is difficult to conceive an integrated risk management

framework for Indian banks without derivative product to hedge against credit risk. The introduction of credit derivatives could make hitherto dormant credit market liquid, vibrant and broad based. Whether or not our banks are able to implement the international norms within the prescribe timeframe (20040, its essential to know the nature and magnitude of credit risks that Indian banks ate now exposed to and the risk capital requirement thereof.


Updating of certain statues: The legal framework within which banks have to

operate and particularly manage the recovery of their dues from the borrowers is far from adequate. For understandable reasons many legal provisions have, infect a positive bias favoring the debtor who has been seen as the weaker party and therefore in need of protection. Unfortunately, these very well intentioned provisions cause an immense load (and backlog of cases) on legal system, making lending a hazardous operation for banks. These provisions need to be amended urgently and some new enactment is called for in order to cater to the requirements of the changed and far more complex current economic and business environment. TNRCMS MAYANK SHAH 92

Legalizations on bankruptcy or foreclosure: Legislation to empower banks to

realize the property charged without court intimation, as in case of State Financial Institutions.

Creditors right to change the management to companies in the event of

default/warring signals : Though this requires certain amendments to existing statues, such a notification should be made to have a far-reaching impact on the health of the industry, as it will enable re-orientation of the management towards the right perspective for turning around the company.

Opening more DRTs and DRATs

Strengthening DRT set-up : Bench of presiding officers, more recovery officers with adequate infrastructure. Mandatory honor of commitment by Government in respect of advances guaranteed by them.


Currently the RBI circulars among banks and financial institution the list of defaulters, which is found useful in avoiding willful defaulters. The RBI has defined a willful defaulter for the first time. It has provided the broad parameters for identification of willful defaulters whose list will be circulated among banks and financial institutions. Auditors of companies have to report in their certificate about diversion of funds if any. In addition, on Jan 30, 2001, credit information Bureau (CIB) was set up to provide critical data required by any credit institution before arriving at credit decision. State Bank Of India, HDFC, Dun and Bradstreet and Trans Union set up CIB jointly, It will collect information from its members and make it available to any credit institution on demand. CIB is yet to be operationalised. Its success depends upon cooperation extended by the members in supplying the required information on timely basis.




Moreover it is also suggested that the banks should publish the list of defaulters in the news paper or blacklist them and circulate the list to all other banks so that no other banks would give any sort of advance to the blacklisted customer. Also this action will generate prompt payment among the defaulters as the information is made public.





Strength Weakness Opportunity Threat

Strength Years of Experience..Century Experienced Employee Large Network Huge ATM Network Government Support




Safety and Security of Money Transparency in Charges Large income from Loan interest Less interest rate of loan with low charges


Lake of Young Employee Rigid work culture Physical environment & Ambience Excessive Documentation Bureaucracy Less knowledgeable employee Less control on employee Poor technology Poor recovery system




Opportunity Constant fear in the minds of customers towards private bank. Even expanding rural, urban & International Market. Fraud and cheating with customer from private banking. Dissatisfy from private banking. So much hidden charges of private banks. Nationalizes bank more reliable and trustworthy. Threats Shifting customers preference towards private banks. Private bank providing more facilities at lower charges. Quick Dynamic employees and greater technological product. Young stare are attract towards private bank because of speedy and
upgrade technology.




Proper Co Ordination and Communication between Bank and Customer Time to time follow up to customer and their Guarantors Properly check all the documents Proper Valuation of their Assets Strict to recovery Steps When first installment will be due at that time Bank have to inform to customer

regarding his due installment

Whole Terms and Condition explain to customer at the time of sanction the TNRCMS MAYANK SHAH 98

Advance reminder for repayment to customer Give target to recover the debt amount. Provide Commission as a motivation to employee who put there effort for

reduce the NPAs.

NPA Reduction Mantra

Banks : Do not give money, lend it. What matter is what for you finance and not what against? Borrower accounts need real time monitoring, not post mortem. An NPA account need out necessarily mean that the borrowing company is Unviable or sick. Try to identify and bridge viability gaps of industrial units. of fresh dose of loans to regain health. be good mathematics but bad Banking. One time Settlement with willful defaulters may Many sick units need nourishment in the form




Always follow basic lending norms. Put credit decisions on fast track.

RBI /Government: Loans failures due to mollified credit decisions warrant fixation of Accountability.adical legal reforms to expedite proceedings. Say no loan waivers. If a unit cant exist let it exits. Facilitate mergers and acquisition involving sick units. The banks also need to conduct a comprehensive review of their advances portfolio and designate all branches which have more than 50 % of their total advances as NPAs as exclusive recovery branches and freeze further lending until the NPAs are salvaged.









Bank has successfully initiated various measures toward widening its SHG network. To list a few examples:

A) Sensitisation of staff: Banks aim is to sensitise the entire staff from Manager to
Messenger working in rural and semi-urban branches towards the programme.

B) Special training programmes in SHGs are being conducted at 54 training centres of the
Bank in the country apart from State Bank Institute of Rural Development, Hyderabad.

C) Close liaison with NGOs: Operating functionaries at branch level and region

level are in close contact with NGOs in their area to take the movement ahead. For the purpose, regular meetings are arranged with the NGOs and their support is solicited.

D) SHG cells: Special SHG cells have been opened at major branches. E) Lending to NGOs / Federations of SHGs: Lending to credible NGOs/ Federations of
SHGs on selective basis for on lending to SHGs is being encouraged.

F) Sahayog Niwas: SBI has launched its Housing Loan product SAHAYOG NIWAS
meant for SHG members. Under the scheme formulated keeping the socio economic conditions of villages insight, housing loans are given to the SHG members without any mortgage of house / land. Response to this product is very encouraging.

G) SBI Life- Shakti: SBI Life, our insurance subsidiary, is the first to introduce a life
insurance scheme, especially designed for SHG members. Special feature of the scheme is that entire premium amount paid by the member is refunded after maturity, i.e., 10 years.

H) Rural training institutes: To help the rural youth to stand on their feet, two RUDSETI
type training institutes have been established at Gulbarga and Gadag in Karnataka State, to impart training in self employment to youth free of cost.




I) SBI staff as SHPI: The main role of formation and nurturing of SHGs have been played
by NGOs who, apart from their fundamental role of social service, also aim to make the poor economically self sufficient. But in SBI, our committed work force is not lagging behind and a number of committed staff members have worked hard to form and nurture SHGs on their own.

J) Appreciation by Government: A number of our branches / Circles have also received

commendation and appreciation from various State Governments for doing excellent job in SHG-Bank Credit Linkage programme.

K) NABARD felicitated 15 SHGs at a function organized in New Delhi on 13th September

2005.The function was presided over by the Honble Union Finance Minister. Out of total 15 SHGs felicitated, 4 were financed by our branches, one each from Orissa, Jharkhand, Madhya Pradesh and Uttaranchal.

L) Samanwita: Bank has sponsored and financially supported NGO SAMANWITA in

collaboration with Government of Orissa for supplementing the process of socio economic upliftment of the tribals and the downtrodden in the poorest and most backward Kandhamal district of Orissa State where 52% of the population is that of tribals. Core activities performed by Samanwita are empowerment of people through promotion of SHGs, especially women SHGs and development of human resources.

M) SHPI status: State Bank of India is the first Commercial Bank to which NABARD has
recently given SHPI status.




SBI has set for itself an ambitious target of credit linking 1 million SHGs up to March 2008. The Bank has started to leverage our vast SHG network for various services beyond credit delivery.


Scheme for Financial Inclusion by extension of banking services through Business Facilitators/ Business Correspondents Objective To extend Micro Finance services for uplifting the poor. To extend banking facilities in untapped / unbanked areas through the use of existing branch network and new technology in combination with outsourcing. 2. Eligible entities a) Business Facilitator Model: NGOs Farmers Clubs Functional cooperatives Community based organizations I.T. enabled rural outlets of corporate entities Well functioning Panchayats Rural Multipurpose Kiosks / Village Knowledge Centers Agri Clinics / Agri Business Centers Krishi Vigyan Kendras KVIC / KVIB units Post Offices Insurance agents Social organizations Any other entity, as may be specified by RBI from time to time. However, it would be desirable to identify such entities which have presence and activity throughout the Circle/State.




b) Business Correspondent Model: NGOs / MFIs set up under the Indian Societies / Trust Acts Societies registered under Mutually Aided Cooperative Societies(MACS) Act or the Cooperative Societies Acts of States Section 25 companies Post Offices 3. Scope of activities a) Business Facilitator Model: The scope of activities to be undertaken by the Business Facilitator will include: Identification of potential customers and activities Collection and preliminary processing of loan applications / account opening forms including verification of primary information / data Processing and submission of loan applications / account opening forms to the Bank Cross-selling of our other financial products (Insurance, etc.) Post-sanction monitoring and follow-up for recovery Promoting and nurturing Self Help Groups (SHGs) / Joint Liability Groups (JLGs) Creating awareness about savings and other products and education and advice on managing money and debt counseling b) Business Correspondent Model: In addition to the activities listed under the Business Facilitators Model, the scope of activities to be undertaken by the Business Correspondents will include: Opening of deposit accounts. Collection and payment of small value deposits and withdrawals (not exceeding Rs.10,000/- in each case). Disbursal of small value loans (not exceeding Rs.10,000/-) and obtaining prescribed documents. Recovery of principal / collection of interest. Furnishing of mini account statements and account information. Selling insurance / mutual fund products / pension products / any other third party product. TNRCMS MAYANK SHAH 105

Receipt and delivery of small value remittances / other payment instruments (not
exceeding Rs.10,000/-). Payment / Receipt in respect of e-governance activities Railway ticketing and Any other service on behalf of the Bank, duly authorized by the appropriate authority


1) New Businesses: The Corporate strategy and New Business Group has been created to focus on emerging opportunities. The Bank plans to enter into the areas of merchant acquisition, payment solutions, Private Equity, Infrastructure Fund, Venture Capital, Pension Funds Management, General Insurance and Financial Planning & Wealth Management. 2) Rural Business :

Plan to credit-link 2.63 lac SHGs thus surpassing our mission of credit- linking 1 million
SHGs by March 2008. Tie-up with around 20,000 internet kiosks during next 24 months. Under Financial Inclusion initiatives, to cover 1 lac villages in 24 months. We plan to issue 10 million SBI Tiny Cards by March 2009. Developing alternate delivery channel through: Business Facilitators Business Correspondents 3) Corporate Accounts Group (CAG): CAG will be focusing more on the fee-based income in future. Institutional Accounts Group formed for focusing on Banks and Financial Institutions. CAG to offer more technology-supported products to meet the market expectations and offer total range of products and services to our corporate customers, under one roof. 4) Treasury Group: Bank in its pursuit to provide better returns to its customers and shareholders is in the process of launching derivative embedded products to help customers utilise the new RBI dispensation to manage their risks and earnings more effectively. The need and demand for these products is expected to grow as more and more sectors become exposed to the global economy. The Bank is in readiness to bring home to its customers the benefit of the new products and opportunities.




Note: As required by RBI vide circular dated 20.4.2007, the Bank has deducted the Loss on Revaluation of Investments from Other Income. This was earlier included in Provisions & Contingencies. Accordingly, previous year figures have been regrouped wherever necessary.





We are happy to getting opportunity to part of State Bank of India and also get opportunity to tackle the NPAs Account. During Our Summer Training we meet 150 clients of bank and get their opinion the their problems. So, According to that duration we would like to conclude that, Account become NPAs in many way sometimes, Sometimes technical problem, Some times personal problem but these all problem will be solved by few precautions which earlier we mentioned. In any financial institution, NPAs are inevitable in the loan portfolio. But efforts should be made to maintain a reasonable level of NPAs. Keeping in mind the RBI plan to introduce the concept of One quarter for identification of NPAs by 2004, it is a high time to go in for recovery drive on a war-footing. While doing so, prevention of NPAs should not be forgotten. These are the major challenges before banks which have gone in for VRS. But sincerity and hard work along with professional approach on the part of bank management may help in the fulfillment of challenges. Towards this end, banks have to go long way. If the nationalized commercial banks desire to stand in competition with the private sector banks and the foreign banks, they should over a period of time, be in a position to bring down NPAs to manageable proportion. Moreover, the government should take measures to facilitate the efforts of the banks in the recovery of the loans which currently taken




inordinately long time. If willful defaulters to delay the repayment of the loan use the BIFR proceedings the relevant legal provision should be appropriately amended. The fact that the NPAs are gradually going down generates hope about the future of the banks, though we should keep in mind another simple fact that in absolute amount, this has not happened.

Web Sites: (Date-30/6/08) (Date - 1/7/08) (Date - 1/7/08)

Books: NGB Business bulletin Indian Financial System (Date-10/7/08) (Date-12/7/08)

Magazine & Journals: The Financial Express (Indias Best Banks) Tata Mc Graw Hill (Date- 6/7/08) (Date- 5/7/08)

(Accounting & Finance 2007-08) TNRCMS MAYANK SHAH 109




General Information
1) 2) 3) Name of the Borrower:-____________________________________________________ Loan A/C No. Address :-____________________________________________________ :-____________________________________________________ ____________________________________________________ ____________________________________________________ Ph.No. (R)_____________________(O)______________________ 4) Education : - Graduate Under Graduate Post Graduate Others :- Business Professional Employee Govt / Non Govt. Others



6) Guarantors Name & Add.:- _____________________________________________________ _____________________________________________________ _____________________________________________________ 7) Amount of Loan 8) Annual Income TNRCMS :-_____________________________________________________ :-_____________________________________________________ MAYANK SHAH 111

9) Name of Salary Disbursing Authority :-______________________________________________________ 10) Other Credit 11) Date of Loan 12) Purpose of Loan :-______________________________________________________ :-______________________________________________________ :-______________________________________________________

Factors of becoming A/c NPA (1) Borrowers Related Factors

13) Installment Amount :-___________________________________________________

14) When Repayment Commence:-Yes/No_____________________________________________ 15) How many Installment 16) Due date of Installment 17) Reason for Due date of Amount 18) Discuss when your First Installment Default :-__________________________________________________ :-___________________________________________________ :-___________________________________________________ :-Yes / No.___________________________________________

Utilization of bank loan

19) Any Notice received for Recovery 20) Personal contribution :-___________________________________________________ : Telephonic contact Personal visit

Awareness of Implications of Non Payment of Installments

21) Do you Know the penal Interest will be Charged for non-payment of installments on Due date :_______________________________________________________ Do you know that the bank can recover the loan by resorting to: Banks right to enforce criminal proceedings. YES/NO Do you know that bank can initiate recovery by sale of mortgaged TNRCMS MAYANK SHAH 112


Property without filing a suit YES/NO Attachment of salary: YES/NO Publication of your name as defaulter: YES/NO sharing of the information among other banks which will affect : your credibility YES/NO

Plan of Action to Regularize the Loan

23) When Will you meet Asset verification official RASMECC Week Month More then Month When will you Repay the due amount Week Month More then Month


(2) Factors Related to Bank

25) 26) Project cost :-_______________________________________________________

Time taken in sanction & Distribution of Loan :-______________________________________________________ Whether Asset Created from bank Loan Income generation From the project


: - Yes /No :-_______________________________________________________ :Yes/No, If yes then ,

28) 29)

Whether reminder Send by bank for the Non payment Notice Telephonic call Personal visit 30) Whether guarantor is Inform about the Default



(3) Other factors


31) 32) 33)

Natural calamities :-___________________________________________ Govt. Policy Personal Hazards :- __________________________________________ :-_________________________________________ __