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Non Performing Assets

CHAPTER: 1 EXECUTIVE SUMMARY

DR.J.K.PATEL INSTITUTE OF MANAGEMENT

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A project has been prepared under the title of Non Performing Assets in Baroda. First of all the information regarding the banking industry is given. In that various facts regarding the bank industry is being provided. Also the various types of nonperforming assets. The brief introduction of nonperforming assets is given. In this the definition, various benefits, objective, limitation etc. are mentioned. Then an analysis of data is made. Then the objective of doing the project is mentioned. After that analysis comes. At the last me find Conclusion & Suggestion. Then comes facts and finding part. In this part first of all the details about the non performing assets by me is given. Then a comparison is made among the three companies selected by me on various parameters.

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CHAPTER: 2 RESEARCH METHODOLOGY

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RESEARCH METHODOLOGY
Research is a one kind of process to get knowledge about some topic. Research is done so that systematic analysis can be done and problem can also be solved.

TITLE OF STUDY Here it is NON-PERFORMING ASSETS

BENEFITS FROM THE STUDY

. It helps me to know more about NPA and the situation of NPA in bank. . It helps me to know the strategies adopted by banks to reduce the NPA level and to understand the NPA provisions norms in bank.

RESEARCH PROBLEM NPA always affect the profit of bank and also the prestige of bank. So here the research problem is to identify the causes for the NPA and to identify the action plan to reduce the NPA.

RESEARCH DESIGN Here the research design is exploratory which helps me to explore the NPA problem of bank.

RESEARCH INSTRUMENT As a research instrument I have taken guidance from the manager of Rajkot nagarik sahakari bank and also my faculty of college. DATA COLLECTION Primary Data Secondary Data Hence it is an exploratory research there is not any dependence on primary data. Sources of secondary data 1. Annual report DR.J.K.PATEL INSTITUTE OF MANAGEMENT Page 4

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2. Journals 3. Websites 4. Books

ANALYSIS AND REPORT WRITING Here I have done ratio analysis and used various charts for analysis purpose. And also I have written report on it.

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CHAPTER: 3 OBJECTIVE OF PROJECT

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Some objectives for the selection of this project are as follows
. To study and understand the concept of NPA

. To analyze the banks policy to recover the level of NPA

. To understand the effect of NPA on banks profit and its prestige

. To understand how corrective measures taken by bank for NPA

. To understand RBIS rules and regulations for the control of NPA

. To understand the credit appraisal policy and NPA recovery policy of bank

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CHAPTER: 4 LIMITATION

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LIMITATION OF PROJECT Some times bank officer was hesitant to give all data on NPA. I have selected only one bank for NPA which is very small sample size. I face difficulty in doing proper analysis as I dont have prior experience for making project report.

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CHAPTER: 5 INTRODUCTION OF BANKING INDUSTRY

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DEFINITION OF BANK
An organization, usually a corporation, chartered by a state or federal government, which does most or all of the following: receives demand deposits and time deposits, honors instruments drawn on them, and pays interest on them; discounts notes, makes loans, and invests in securities; collects checks, drafts, and notes; certifies depositor's checks; and issues drafts and cashier's checks.

DEFINITION OF BANKING
In general terms, The business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to earn a profit So we can say that Banking is a company, which transacts the business of banking. The Banking Regulations Acts defines the business as banking by stating the essential function of a banker. The term banking is defined as Accepting for the purpose of leading or investment, deposits of money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise.

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HISTORY OF BANKING IN INDIA
Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dials a pizza. Money has become the order of the day. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below: . Early phase from 1786 to 1969 of Indian Banks .Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms . New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991To make this write-up more explanatory, we divide scenario in Phase I, Phase II and Phase III

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PHASE I
The General Bank of India was set up in the year 1786. Next were Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders. In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority.

PHASE II
Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country. Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19th July, 1969, major process of nationalization was carried out. It was the effort of the then City Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were nationalized.

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Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership. The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country: . 1949: Enactment of Banking Regulation Act. . 1955: Nationalization of State Bank of India. . 1959: Nationalization of SBI subsidiaries. . 1961: Insurance cover extended to deposits. . 1969: Nationalization of 14 major banks. . 1971: Creation of credit guarantee corporation. . 1975: Creation of regional rural banks. . 1980: Nationalization of seven banks with deposits over 200 crore. Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions.

PHASE III
This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalization of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money. The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. DR.J.K.PATEL INSTITUTE OF MANAGEMENT Page 14

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This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure.

RESERVE BANK OF INDIA (RBI)


The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the beginning. The Government held shares of nominal value of Rs. 2, 20,000 Reserve Bank of India was nationalized in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government appointed for a term of four years to represent territorial and economic interests and the interests of co-operative and indigenous banks. The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank. The Bank was constituted for the need of following: regulate the issue of banknotes to maintain reserves with a view to securing monetary stability and . To operate the credit and currency system of the country to its advantage
. To

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ORGANISATION STRUCTURE OF RBI THE BANKING SYSTEM
Almost 80% of the business is still controlled by Public Sector Banks (PSBs). PSBs are still dominating the commercial banking system. Shares of the leading PSBs are already listed on the stock exchanges. The RBI has given licenses to new private sector banks as part of the liberalization process. The RBI has also been granting licenses to industrial houses. Many banks are successfully running in the retail and consumer segments but are yet to deliver services to industrial finance, retail trade, small business and agricultural finance. The PSBs will play an important role in the industry due to its number of branches and foreign banks facing the constraint of limited number of branches. Hence, in order to achieve an efficient banking system, the onus is on the Government to encourage the PSBs to be run on professional lines.

BANKING SECTORS IN INDIA


BANKS

Public

Private

Co-operative bank

Regional Rural bank

Foreign bank

Sector bank sector bank

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CO-OPERATIVE BANKS
The Co-operative banks have a history of almost 100 years. The Co-operative banks are an important constituent of the Indian Financial System, judging by the role assigned to them, the expectations they are supposed to fulfill, their number, and the number of offices they operate. The co-operative movement originated in the West, but the importance that such banks have assumed in India is rarely paralleled anywhere else in the world. Their role in rural financing continues to be important even today, and their business in the urban areas also has increased phenomenally in recent years mainly due to the sharp increase in the number of primary co-operative banks. Some of the co-operative banks are quite forward looking and have developed sufficient core competencies to challenge state private sector banks. According to NAFCUB the total and

deposits & landings of Co-operative Banks is much more than Old Private Sector Banks & also the New Private Sector Banks. This exponential growth of Co-operative Banks is attributed mainly to their much better local reach, personal interaction with customers, and their ability to catch the nerve of the local clientele. Though registered under the Co-

operative Societies Act of the Respective States (where formed originally) the banking related activities of the co-operative banks are also regulated by the Reserve Bank of India. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

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CO-OPERATIVE BANKS FINANCE RURAL AREA AS UNDER
. Farming . Cattle . Milk . Hatchery . Personal finance

CO-OPERATIVE BANKS FINANCE URBEN AREA AS UNDER


. Self-employment . Industries . Small scale units . Home finance . Consumer finance . Personal finance

FACTS ABOUT CO-OPERATIVE BANK


. Some cooperative banks in India are more forward than many of the state and private sector banks. . According to NAFCUB the total deposits & landings of Cooperative Banks in India is much more than Old Private Sector Banks & also the New Private Sector Banks. . This exponential growth of Co operative Banks in India is attributed mainly to their much better local reach, personal interaction with customers, and their ability to catch the nerve of the local client.

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CHAPTER: 6 INTRODUCTION OF RAJKOT NAGARIK SAHAKARI BANK LTD

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INTRODUCTION OF BANK
Rajkot Nagarik Sahakari Bank is a leading Co-Operative Bank in Gujarat State, India. Bank was established on 5th October 1953 With a small Capital Of Rs. 4890 and Membership of 59 persons under the leadership of Late Keshavlal Amrutlal Parekh as a Chairman, and Late Janmashankar Antani as a M.D. Bank has made tremendous & real progress, Bank became pride of saurashtra region & achieved new heights in banking as well as Co.Operrative sector under the leadership of former Chairman Late Shri Arvindbhai Maniar. During past years bank has played vital & leading role for the development of industries, business & Economy of Rajkot City, Development and nursing of Co-operative movement in the Saurashtra region of Gujarat State. Bank was the first co-operative institute to start functioning in the erstwhile state of Saurashtra. Bank was inaugurated by "SAHAKAR MAHARSHI"late Shri Vainkunthbhai Metha. Bank has developed in manifolds with the time. Membership (Share Holder) of bank is ounting towards 2,50,000 which is a record by itself & provides an example of how a mass movement can be turned into the instrument for social upliftment. To day Bank has more than 7, 20, 000+ deposit accounts with a deposit base of 1141.60+ Crores; And 40000+ Establishments/Individuals enjoy the facility of Rs 760.42+ Crores of Advances. Being in the service sector, with a vision of current & future trends, Bank started automation & modernization way back in 1987 and by 1995 all the Branches were computerized. Bank is enjoying the SCHEDULE BANK Status Since 1989. In year 2001 Bank was registered UNDER MULTI-STATE CO-OPERATIVE SOCIETY ACT. With this Bank has opened a Branch in Mumbai, Economic Capital of India and become MULTI-STATE SCHEDULE COOPERATIVE BANK.

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SOCIAL OBLIGATIONS Rajkot nagarik sahakari bank does not lag behind in offering contribution for the social activities, particularly in the field of education and medicines. Out of activities particularly in the field of education and medicines, Out of the substantial profits earned by the Rajkot nagarik sahakari bank every year after the year, several goodwill gestures are made such as, .a free of cost cricket coaching camp was organized this year as higher too and almost 1600 children took part in the camp. . Appreciation of bright student a total of 803 bright student where felicitated by the bank by giving them various mementos & prizes. Besides two board topper were accorded scholarship. Social activity: . (1)
(2) (3) (4) (5) (6). (7). Donation to Educational Institutions and Hospitals. Fodder Supply to Cattle Camps. Promotion of Sports Activities. Loans to Educationally Unemployed Youth. Help to Earthquake Victims by Providing Soft Loans. Rajkot Nagarik Sahakari Bank Prerit VVP Engg. Collage. Indubhai Parekh School of Architecture was Sponsored by BANK.

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BANKS SERVICES
Locker facility

To Provide Security for the valuables bank offers Locker Facility at very economical charges & nominal deposit. This Facility is available at all the Branches except Bhupendra Road, Bhuj & Surendranagar Branches. MT/TT Services Bank is offering speediest Transfer Of Funds Through Mail Transfer / Telephonic Transfer. List Of Our Branches AHEMDABAD, BHUJ, DHORAJI, JASDAN, JETPUR, MORBI, PADADHARI, SURAT, SURENDRANAGAR, UPLETA, WANKANER, JUNAGADH, GANDHIDHAM, JAMNAGAR, KALBADEVI (MUMBAI), UNJHA, VADODARA O.B.C. & R.T.G.S. Bank is offering speediest collection of outstation Cheques/Bills at following Outstation locations at very reasonable charges. Our R.N.S.B. Branches are:AHEMDABAD, BHUJ, DHORAJI, JASDAN, JETPUR, MORBI, PADADHARI, SURAT, SURENDRANAGAR, UPLETA, WANKANER, JUNAGADH, GANDHIDHAM, JAMNAGAR, UNJHA, BARODA

Demand Draft

DRAFTS ISSUED TO OUR CUSTOMER AT FOLLOWING LOCATIONS AHEMDABAD, BHUJ, DHORAJI, JASDAN, JETPUR, MORBI, PADADHARI, SURAT, SURENDRANAGAR, UPLETA, WANKANER, JUNAGADH, GANDHIDHAM, JAMNAGAR AT THE FOLLOWING LOCATION WE ISSUE DRAFT Agra, Ahmednagar, Ajmer, Akola, Allahabad, Ambala, Amritsar, Anand, Aurangabad, Banglore, Bardoli, Bharuch, Bhatinda, Bhavnagar, Bhiwadi, Bhopal, Bhubaneshwar, Bhuj, Calcutta, Calicut, Cuttack, Chandigarh, Chennai, Cochin / Ernakulam, Coimbatore, Dahanu, Daman, Dehradun, Delhi, Durgapur W.B., Erode, Faridabad, Gandhidham, Gandhinagar, Ghaziabad etc..

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N.R.I. SERVICES NRI PRODUCT NRI HELPDESK FOREIGN EXCHANGE N.R.I. PRODUCT NRI saving account NRI FD Account Currency Exchange Encashment Of Traveler Cheque

N.R.I. HELPDESK Education Guidance Property Guidance Medical Guidance Tourism Guidance

FOREIGN EXCHANGE SERVICE Foreign Currency Exchange Foreign Currency Demand Draft Traveler's Cheques Wire Transfer (Inward and Outward Remittance)

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BOARD OF DIRECTORS NO. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 NAME Shri. Kalpakbhai maniar Shri. Tapubhai limbasia Shri. Chandrakantbhai pavagadhi Shri. jyotidra Mehta Shri. Dayabhai delawala Shri.pravinbhai Bhatt Shri. Shashikantbhai mandlia Shri. Arjunbhai shingala Shri. Jayshreeben Talati Shri. Arjanbhai makwana Shri. Girishbhai devliya Shri. Jivanbhai Patel Shri. Haribhai dolia Shri. Bavanjibhai mataliya Shri. Dilipbhai trivedi DESIGNATION Chairman Vice Chairman Director Director Director Director Director Director Director Director Director Director Director Director Director

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ORGANISATION STRUCTURE

BOARD OF DIRECTOR

CHAIRMAN

VICECH AIR MAN

GENERAL MANAGER

ASST.GEN.MAN AGER (HR&ADMIN)

ASST.GEN.MAN AGER (CREDIT)

ASST.GEN.MAN AGER (BANKING)

CHIEF MANAGER (REGIONAL MANAGER)

DEPUTY MANAGER (STAFF RELATION)

DEPUTY MANAGER (BANKING)

DEPUTY MANAGR (HR& IR)

DEPUTY MANAGER (ACCOUNT)

ADDITIONAL MANAGER (BRANCHES)

ADDITIONAL MANAGER (ESTATE)

ADDITIONAL MANAGER (SECRETARIAL)

ADDITIONAL MANAGER (DEMAT)

ADDITIONAL MANAGER (RECOVERY)

ADDITIONAL MANAGER (I.T)

ADDITIONAL MANAGER (ACCOUNT)

SENIOR OFFICER (DEPARTMENT VISE)

SENIOR OFFICER DEPATMENT VISE)

SENIOR OFFICEER DEPARTMENT VISE

SENIOR OFFICER DEPATMENT VISE

SENIOR OFFICER DEPATMENT VISE

SENIOR OFFICER DEPARTMENT VISE

SENIOR OFFICER DEPARTMENT VISE

JUNIOR ECECUTIVEC

JUNIOR ECECUTIVEC

JUNIOR ECECUTIVEC

JUNIOR ECECUTIVEC

JUNIOR ECECUTIVEC

JUNIOR ECECUTIVEC

JUNIOR ECECUTIVEC

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BALANCE SHEETs
(Rs. in lacs)

Liabilities
Share Capital Reserve Profit & Loss a/c Deposits Borrowing Other Liab. & Prov. Bill for collection Branch adjustment Overdue interest reserve Interest payable

2010
2958.40 31762.18 0.00 134412.26 71.68 304.36 250.70

2011
3330.96 30405.11

Assets
Cash & Bank

2010
9272.40 7396.34 500.00 54971.05 91369.04 0.00 250.71 0.00 6738.51 4857.75 0.00

2011
11177.85 8954.48 300.00 54931.47 111217.60 74118.35 161.25 0.00 9641.37 3388.64 0.00

Balance with other bank 2832.46 Money at call & short notice 158309.65 investment 30.64 357.50 161.25 67.42 Advances Interest receivable Bill receivable Branch adjustment Fixed Assets Other Assets Non banking assets acquired in satisfaction of claim Profit & loss A/C

187.89 0.00 978.066

7411.84 1060.17

0.00 175355.81

0.00` 273891.04

175355.81

273891.04

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PROFIT & LOSS ACCOUNT
(Rs. in lacs)

Income
Interest & discount Comm., brokerage, exchange Subsidies & donation Non banking income Other receipt Loss (if any)

2010
13300.48 662.59 0.00

2011
15745.36 776.42 0.00

Expenses
Interest paid Salaries ,allowances and provident fund Directors fees and committee member allowances Rent, tax & lighting Insurance exp. Law charges Postage , telegram, telephone charges Auditors fees depreciation Repairs & maintanance Stationary & printing Advertisement & publicity Other expenditure Provision & contingencies Profit carried to balance sheet

2010
9160.84 1432.55 0.14

2011
9329.63 1569.67 0.07

0.00 325.09 1572.14

0.00 224.72 1879.01

121.74 121.61 31.25 33.47

138.30 124.09 33.51 42.26

13.70 122.41 89.69 64.41 22.31 474.09 797.18 1802.88 14288.17

17.13 223.08 102.23 81.81 42.11 811.47 1398.41 2832.46 16746.51

14288.17

16746.51

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BRANCHES
Rajkot nagarik sahakari bank ltd having a total 29 branches in different state and cities. The Rajkot nagarik sahakari bank ltd is multi state bank. Bank having branches in Maharashtra, Gujarat which shall be extended to Rajasthan, madhyapradesh, New Delhi, West Bengal & Tamilnadu as and when Permission granted by RBI. BRANCHES IN DIFFERENT STATE GUJRAT

Branch/Department

Address

Head Office & Registered Office

Nagarik Bhavan No 1 Dhebarbhai Road Rajkot

Para Bazar

Nagarik Bhavan No 1 Dhebarbhai Road Rajkot

Udyog Nagar

Nagarik Bhavan No 2 Dhebarbhai Road Rajkot

S.V.P. Road

S.V.P. Road,Kenal Raod, Rajkot

Junction Plot

Junction Plot Main Road Rajkot

Bedi Para

Parevadi Chowk Opp. Deluxe Cinema Rajkot

Dr.Yagnik Road

Yagnik Road Nr. Jagnath Temple Rajkot

Mobile

Mobile

Sorathiya Wadi

80 feet Road Nr. Sorathiyawadi Chawk Rajkot

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Mavdi Plot Near Mavdi Plot Rly Crossing Rajkot

Bhupendra Road

"Zara Niketan" Bhupendra Road Opp.Balaji Hanuman Temple, Rajkot

Kalawad Road

Kotecha Chowk, Kalawad Road, Rajkot

Raiya Road

Sadguru Tirthdham, Raiya Road, Rajkot

Wakaner

Nr. Post Office Market Chawk Wankaner 363621 Dist ; Rajkot

Jetpur

Kanakia Plot Jetpur 360370 Dist:Rajkot

Dhoraji

Jetpur Road,Gov. girls highschool , Dhoraji -360410 Dist: Rajkot

Upleta

Rajmarg, Aadarsh Gali, Upleta, Dist-Rajkot, 360490

Morbi

Nagarik Bhavan #5 Nr. Zanana Hospital Morbi-363641 Dist: Rajkot

Padadhari

Main Bazar Padadhari -360110 Dist: Rajkot

Jasdan

Tower Chawk Rezent Street Jasdan - 360050 Dist: Rajkot

Ahmedabad

Nagrik Bhavan Mithkhali 6 Roads Nr. Jain Derasar Ahemdabad

Surendranagar

Mahatma Gandhi Road,Main Bazar,Nr.Satta Bazar

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Surendranagar-363001

Bhuj

Hospital Road, Vijaynagar Char rasta, Opp. Bhuj English school, Bhuj

Surat

Opp. Kinnari Cinema Ring Road Surat-395001

Kalbadevi Road(Mumbai)

41- Devkaran Mention Opp. Mangaldas Market Princess Street, Kalbadevi Mumbai.

Junagadh

M.G. Road, Nr. PGVCL

Gandhidham

Sindhu-2,vord No B-12,Nr. Dr.C.G.Gidvia Highschool

Jamnagar

4-Digvijay Plot, Near Khambhadiya Gate, Jamnagar

Unjha

Opposite marketing yard, Near Railway crossing, Unjha384170

Baroda

LG1,Conqured Complex, ground floor, R.C.Datt Road, Alkapuri, Baroda-390005

Share Dept. (Udyog Nagar)

Nagarik Bhavan No 2 Dhebarbhai Road Rajkot

Gold Loan Dept. (Udhyog Nagar)

Nagarik Bhavan No 2 Dhebarbhai Road Rajkot

Demat Dept.

Arvindbhai Maniar Bhavan, Dhebarbhai Road, Rajkot360001

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CHAPTER: 7 INTRODUCTION OF NON-PERFORMING ASSETS

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NON-PERFORMING ASSETS
. MEANING An asset becomes non-performing when it ceases to generate income for the bank. Earlier an asset was considered as non performing asset based on the concept of past due. . DEFINITION A NPA was defined as credit in respect of which interest and/or installment of principal has remained past due for a specific period of time. The specific period of time was reduced in a phased manner as under:

Year ended March,31 1993 1994 1995 2004

Specific Period 4 Quarters 3 Quarters 2 Quarters 1 Quarters

An amount is considered as past due, when it remains outstanding for 30 days beyond the due date. However, with effect from March31, 2001 the past due concept has been dispensed with and the period is reckoned from the due date of payment.

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. NORMS FOR IDENTIFICATION OF NPA

With an intense to use the international best practice and to ensure greater transparency, 90 days overdue norms are accepted for the identification of NPA from the year ended March 31, 2004.

With effect from March 31, 2004, a NPA shall be counted on loan and advances where:

A. Interest and / or installment of principal remain overdue for a period of more than 90 days in respect of a term loan. B. The account remains out of order for a period of 90 days, in respect of an Overdraft/ Cash Credit (OD/CC). C. The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted. D. Any amount to be received remains overdue for a period of more than 90 days in respect of any other accounts.

Tier 2 bank like all the Urban Co-Operative Banks (UCBs) other than the Tier 1 bank i.e. Unit bank shall classify their loan accounts as NPA as per 90 day norm as hitherto.

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FACTORS RESPONSIBLE FOR NPA


. Improper selection of borrowers activities . Weak credit appraisal system . Industrial problem . Inefficiency in management of borrower . Slackness in credit management & monitoring . Lack of proper follow up by bank . Recession in the market . Due to natural calamities and other uncertainties

INDIAN ECONOMY AND NPA


Gross NPAs (non-performing assets) in Indian banking sector have declined sharply to close to 3.0 per cent in 2006 (15.7 per cent at end-March 1997). Net NPAs of the banking sector are now at close to one per cent and the gap between the gross and net NPAs has narrowed over the years. Recovery of dues is also more than the fresh slippages. The decline in NPAs is particularly significant as income recognition, asset classification and provisioning norms were tightened over the years. For instance, banks now follow 90-day delinquency norm as against 180-day earlier. Banks are also required to make general provisioning (0.40 per cent) for standard advances. According to Reserve Bank of India, improved profitability, underpinned by robust macroeconomic environment and upturn in interest rate cycle, has enabled banks To reduce the backlog of NPAs.

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NARSIMHAN COMMITTEE

. FIRST COMMITTEE

The committee on financial system, also known as Narsimhan Committee, under the chairmanship of Shri M. Narsimhan, appointed by the RBI recommended the introduction of these prudential accounting norms by Indian Banks in its report submitted in December 1991. The committee was of view of that

A. If banks want to know the true and fair financial health of bank then they should observed the prudential accounting norms while making balance sheet and profit & loss account. B. Classification of assets has to be done on the basis of objective criteria. C. Provisioning should be made on the basis of classification into four different categories.

The income recognition, Assets Classification and provisioning norms also known as Prudential Accounting Norms, provided that a bank should not show profit which is merely a book profit by resorting to practice like debiting interest to a loan account irrespective of its chance of recovery and booking the same as income or by not making provisions towards loan losses. . NARSIMHAN COMMITTEES RECOMMENATIONS

@. Committee has suggested that banks should operate on the basis of financial autonomy and operational flexibility. @. It has recommended Capital Adequacy Norm of 8% @. These norms are applicable to all UCBs from 1st April, 1992.

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. SECOND COMMITTEE

The first committee had made recommendations in 1991, which had resulted in basic changes in the matter of treatment of income, assets classification and provisioning norms, etcit was considered necessary for government to continue the improvement with striker rules in future also and for that second committee was made to continue changes with certain modifications. The second committee includes the following points: 1. If bank is working in foreign countries at presently then for them the Capital Adequacy Norm is 9% which was 8% earlier. 2. Banks cant classify the account as NPA which are guaranteed by the Central / State government, effective from the year 2000-2001. 3. As per the existing norms, no provisions for standard assets but from March 31st 2000, there is a norm of 0.25 percent on standard assets.

4. Banks have to make a provision of 2.5% on their investment in Government securities with effect from the year ending 31st March, 2000. In future, this provision is likely to be raised to 5%. 5. The present norm is of 180 days for the account to be treated as NPA but after 31st March, 2000, this period is reduced to 90 days only. 5. Banks have been asked to reduce the level of NPA to 5% of their total advances till 31st March, 2000. The percentage has to be brought down to less than 3% with effect from 31st March, 2002.

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ASSETS CLASSIFICATION
. CHART OF ASSETS CLASSIFICATION

ASSETS

PERFORMING ASSETS OR STANDERED ASSETS

NON-PERFORMING ASSETS

SUB-STANDERED ASSETS

DOUBTFUL ASSETS

LOSS ASSETS

LESS THAN 1 YEAR

1 TO 3 YEARS

ABOVE 3 YEARS

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. DEFINITION AS PER THE CLASSIFICATION OF ASSETS

Reserve Bank of India (RBI) has issued guidelines on provisioning requirement with respect to bank advances. In terms of these guidelines, bank advances are mainly classified in to following categories: 1. STANDARD ASSETS: Standard assets are one which does not carry any problems and which does not carry more than normal risk attached to the business. Such assets should not be an NPA. 2. SUB-STANDARD ASSETS: These assets involved the two types of view as follows In respect to the norms of March 31, 2005 an asset would be classified as Sub standard if it remained NPA for a period less than or equal to 12 months. An assets where the terms of the loan agreement regarding interest & principal have been regenerated or rescheduled after commencement of production, should be classified as substandard and should remain in such category for at least 12 months of satisfactory performance under the re-negotiated terms. 3. DOUBTFUL ASSETS: In respect to the norms of March 31, 2005 an asset is required to be classified as doubtful, if it has remained NPA for more than 12 months. A loan which is classified as doubtful has all the weaknesses inherent as that classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently known facts, conditions and values, highly questionable and improbable. Some types of these assets are
Less than 1 year 1 to 3 year

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3 year and above

4. LOSS ASSETS A loss asset is one where loss has been identified by the bank or internal or external auditors or by the Co-operation department or by the RBI inspection but the amount has not been written of, wholly or partly.

READY RECKONER FOR ASSET CLASSIFICATION

NO.

WHEN FALLS?

DATE

OF

NPA ASSET

CLASSIFICATION

AS ON 31-03-2007 Sub-Standard assets

1.

Between 1-10-2010 & 31-032011 Between 1-10-2009 & 30-0920010 Between 1-10-2007 & 30-092006 On or before 30-09-2007 No NPA date No security or salvage value of security is less than 5% Chance of realization of dues

2.

Doubtful up to 1 year Doubtful asset of 1 year to 3 year Doubtful asset of more than 3 year Loss asset

3.

4. 5. 6.

7.

from all available sources is practically negligible or zero.

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GUIDELINES FOR CLASSIFICATION OF ASSETS
The guidelines are as follows 1. BASIC CONSIDERATION: In simple terms the classification of assets should be done by considering the well defined credit weaknesses & extent of dependence on collateral security for realization of dues. In accounts where there is a potential threat to recovery on account and existence of other factor such as fraud committed by borrowers it will not be prudent for bank to classify that account first as sub-standard and then as doubtful. Such account should be straight away classified as doubtful asset or loss asset, as appropriate, irrespective of the period for which it has remained as NPA. PACKAGES:

2. ADVANCES GRANTED UNDER REHABILITATION

Banks are not permitted to do classification of any advances in respect of which the term have been re-negotiated unless the package of re-negotiated terms has worked satisfactory for a period of one year. A similar relaxation is also made in respect of SSI units which are identified as sick by banks themselves and where rehabilitation packages programs have been drawn by the banks themselves or under consortium arrangements. 3. INTERNAL SYSTEM FOR CLASSIFICATION OF ASSETS AS NPA: Banks should establish appropriate internal systems to eliminate the tendency to delay or postpone the identification of NPAs, especially in respect of high value accounts. The banks may fix a minimum cut-off point to decide what would constitute a high value account depending upon their respective business levels. The cut-off point should be valid for the entire accounting year. DR.J.K.PATEL INSTITUTE OF MANAGEMENT Page 41

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Responsibility and validation level for proper assets classification may be fixed by bank. The system should ensure that doubts in asset classification due to any reason are settled through specified internal channels within one month from the date on which the account would have been classified as NPA as per extant guidelines.

INCOME RECOGNITION POLICY


According to the act of 1st April, 1992 the income recognition policy is as follows The policy of income recognition has to be objective and based on the record of recovery. Income from non-performing assets is not recognized on accrual basis but is booked as income only when it is actually received. Therefore, banks should not take to income account interest on non-performing assets on accrual basis. However, interest on advances against term deposits, NSCs, IVPs, KVPs, and Life policies may be taken to income account on the due date, provided adequate margin is available in the accounts. Fees and commissions earned by the banks as a result of re-negotiations or rescheduling of outstanding debt should be recognized on an accrual basis over the period of time covered by the re-negotiated or rescheduled extension of credit. If Government guaranteed advances becomes overdue and there by NPA, the interest on such advances should not be taken to income account unless the interest has been realized.

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PROVISIONING NORMS
According to the norms the provisions should be made on the nonperforming assets on the basis of classification of assets as we have already discussed. Taking in to account this provisioning norms the banks have to make provision on different assets like Loss Assets, Doubtful Assets and Standard Assets as below :->

( | ). LOSS ASSETS The entire assets should be written off after obtaining necessary approval from the competent authority and as per the provisions act of C0-operative society Act. If the assets are permitted to remain in the books for any reason, 100% of the outstanding should be provided for. If expected salvage value of the loss asset is negligible then 100% provision should be made on it.

( || ). SUB-STANDARD ASSETS A general provision of 10% on the total outstanding should be made on the advances given.

( ||| ). DOUBTFUL ASSETS On doubtful assets provision is made from 20% to 100% as per the period of asset. The table below shows the provision on doubtful assets.

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Period for which the advance has remained in doubtful category Up to one year One to Three year

Provision Requirement 20% 30% - 50% as on March 31, 2011

More than Three year ( | ) Outstanding NPA as on March 31,2011

- 60% as on March 31, 2012 - 75% as on March 31, 2013 - 100% as on March 31, 2014

( || ) Advances classified as doubtful for more than three years on or after April1, 2011

-100%

(|V). STANDARD ASSETS From the year ended March 31, 2000, the banks should make a general provision of a minimum of 0.25% on the standard assets. However, Tier 2 banks are required to do higher provisioning on standard assets as under:A. General provisioning requirement is 0.40% from the present level of 0.25%. But in case

of agriculture or in SME investors the provisioning rate is required to be 0.25%.

(V|). HIGHER PROVISIONS There is no objection if the banks create bad and doubtful debts reserve beyond the specified limits on their own or if provided in the respective State Co-operative Societies Acts.

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MANAGEMENT OF NPA
It is very necessary for bank to keep the level of NPA as low as possible. Because NPA is one kind of obstacle in the success of bank so, for that the management of NPA in bank is necessary. And this management can be done by following way:

1.

Framing reasonably well documented loan policy and rules.

2.

Sound credit appraisal on well-settled banking norms.

3.

Emphasizing reduction in Gross NPAs rather than Net NPAs

4.

Pasting of sale notice/ wall posters on the house pledged as security.

5.

Recovery effort starts from the month of default itself. Prompt legal action should be taken.

6.

Position of overdue accounts is reviewed on a weekly basis to arrest slippage of fresh account to NPA. 7. Half yearly balance confirmation certificates are obtained from the borrowers regularly.

8.

A committee is constituted at Head Office, to review irregular accounts.

9.

Due to lower credit risk and consequent higher profitability, greater encouragement is given to small borrowers.

10. Recovery competition system is extended among the staff members. The recovering highest amount is felicitated.

11. Adopting the system of market intelligence for deciding the credibility of the borrowers

12. Creation of a separate Recovery Department with Special Recovery Officer appointed by the RCS

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RECOVERY OF NPA
. IMPORTANCE OF RECOVERY:

1. Increase in the income of bank.

2. Increase in the trust of share holder in bank.

3. Level of NPA reduces as the recovery done.

4. Decrease in provisioning requirements.

. STEPS TAKEN BY GOVERNMENT TO RECOVERING NPA:

1. SECURITIZATION ACT

@. Now this act is also applicable to all Urban Co-Operative Banks. @. According to this act Bank can take direct possession of the movable and immovable property mortgages against loans and sell out the same for such recovery, without depending on legal process in the court.

2. Gujarat state has also by amending under co-op soc, act empower co-op bank to appoint their staff as recovery officer on getting order from the board of nominees.

Above both act are benefited to bank for the recovery of NPA.

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CHAPTER: 8 RAJKOT NAGARIK SAHAKARI BANK & NON-PERFORMING ASSETS

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CREDIT APPRAISAL POLICY AT RNSB
. INTRODUCTION At the time of registration of bank, Loan rules were framed and approved by the DRCS, Rajkot. Thereafter with the approval of Board, loan rules were changed considering guidelines issued by RBI from time to time. Now in view to increasing branch network in numbers of geographically also, one common document viz. Appraisal policy is framed.

. POLICY ON PRE-SANCTION
1. Application for loan should be in standardized form as devised by the bank. 2. Branch to collect all the papers/information/documents as suggested in the respective application form. 3. Branch to visit the borrowers office/factory/residence and to satisfy themselves before recommending any loan to higher authority and to keep record of such visit. 4. If applicant maintains loan/current/saving account with any other bank/financial institutions, branch to verify such account statement and to satisfy them. 5. Branch to ascertain the promptness of applicant in making payment of Power bill/Property Tax/LIC Premium/Existing loan interest or installment, before recommending the proposal to higher authority.

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. APPRAISAL

A. WORKING CAPITAL FACILITY 1. Working capital requirement to be assessed properly considering past performance, holding period for debtors as also for inventory at various level, sales, etc 2. Working capital facilities is given at 30% of last turnover of entity and the debt-equity ratio of the entity is not more than 1:4 and current ratio should be 1:15. 3. Margin for CC against stock be 70% and for receivables 50% . B. TERM FINANCE 1. term loan limit to be arrived @ 25% margin in respect of Machinery/Equipment and Vehicles while 50% against land & building, electrification, furniture fixtures. 2. Sources for margin money to be ascertained. 3. Repayment capacity, considering existing earning to be ascertained. 4. Moratorium period to be fixed considering time required going in for commercial production. C. GENERAL 1. Credit facilities should not exceed segment wise, individual as also group exposures. 2. In case of switch over from other bank, branch to obtain credit information report from the concerned bank. 3. In case of existing borrower/group borrower, branch to satisfy themselves about their dealing with the bank.

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. EXPOSURE

As per the RBI guidelines per party exposure is restricted to 15% of share capital and Free Reserves and group exposures it is 40%. RBI has given liberty to recalculate the exposure on the basis of profitability of September half. However irrespective of these it is restricted at lower level i.e. Rs.1.55 core for individual and Rs.3.50 cores for group.

SANCTIONING AUTHORITY

1. BM Rs.2.00 lace for all types of fresh loan except staff loan and also grant loan against FDR/LIC/GOVT SEQURITY. In case of FDR the margin is 10% and in case of LIC/GOVT SEQURITY margin is 30% of policy value.

2. AGM & CM(CREDIT MANAGER) Loan for all types of fresh loan including staff housing loan with the consultation of DCM/RM and HR manager.

3. DCM The deputy manager have authority to grant all type of fresh loan up to Rs.10.00 laces except loan against FDR/LIC/GOVT. security and staff housing loan as also renewal of all working capital facilities irrespective of limit.

4. Chairman/Vice Chairman/Founder Chairman All type of fresh loan up to 50.00 laces and more than this limit they can grant loan but the post facto sanction should obtain in the next board meeting and any ado request.

5. BOARD All types of loan within exposure ceiling for individual and group borrower.

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DISBURSAL FORMALITIES

Bank offers sanction letter to the applicant in duplicate copy and refuse or accept second copy of the sanction latter dully signed by applicant having accepted all the term and condition.

Than actually procedure of disbursal formalities will start


The documentation as per the type of loan is carried out by loan officer the applicant with guarantors have to remain present for execution of document and various agreement in the bank premises and the mostly following document are executed.
1) Promissory note 2) Hypothecation agreement (for machinery & cash credit loan) 3) Letter of guarantee to be executed by guarantor 4) Letter of general lien 5) Undertaking in respect of maintain the capital and unsecured deposit of family in the form 6) TTO form in case of vehicle loan 7) Property mortgage, equitable mortgage deed in case of construction loan for house, factory or for collateral securities. 8) PDC (post dated cheques) are obtaining for installment or securities.

POST SANCTION

A. TERM FINANCE 1. On installation of machineries branch to inspect the unit and to ensure that machineries as per sanction is received & place the inspection report on record. 2. in case of purchase of machinery original bills , receipt are obtain from the borrower, insurance of the hypothecated machinery and or stocks to be taken with the name

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B. WORKING CAPITAL 1. No finance to be considered against inter-firm receivable and for the receivables of more than 90 days. 2. Drawing power to be arrived at regularly every month on the basis of stock statement/book debt statement submitted by the party. 3. Branch to ensure that receipt and payment through CC/OD accounts represent genuine business transactions. 4. Branch to carry out inspection of the unit at least on quarterly basis.

Renewal of working capital facility

1. Personal balance sheet of proprietor/partner/directors is also to be obtained.

2. Branch to submit the renewal papers along with memorandum for renewal to higher authority for renewal, with its comments on performance with the bank, financial performance viz. sales, profit etc

3. If financial performance does not justify the limit at current level, branch to persuade the party to reduce the limit.

4. Where the accounts are statutorily required to be audited, branch to obtain audited accounts at the time of renewal.

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NPA NORMS OF RNSB


CLASSIFICATION:

1. SUB STANDARD ASSETS Overdue of 90 days and for all loan NPA up to 12 months remain in sub standard assets.

2. DOUBTFUL ASSETS NPA for more than 12 months is doubtful assets. PROVISION: 1. STANDARD ASSETS 0.25% of standard assets in SME and direct agriculture advances. 0.40% in case of all other standard loans 1.00% for personal loan, Commercial Real Estate Loan, Loan against shares

2. SUB STANDARD ASSETS


10% of sub standard assets(secured asset) 20% of sub standard assets(unsecured assets)

3. DOUBTFUL ASSETS NPA from 13 months to 24 months provisioning is 20%


100% for shortfall in value of security

NPA from 25 months to 48 months provisioning is 30%


100% for shortfall in value of security

NPA from 49 months and above provisioning is 50%


100% for shortfall in value of security

For loss assets provisioning is 100%

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RECOVERY POLICY AT RNSB


BANKS POLICY: Recovery policy is prepared by the recovery department and finalize by the board of director of the bank as per the guidance and directives of the RBI in respect of NPA. THE CONTENT IS GENERALLY AS FOLLOWS: TERM LOAN In case of term loan every account verifies & monitor by concern officer and checked and care is taken by him that no account should have default of more than 3 installments. In case of default in term loan for 1or 2 installments the simple notice can be issued by the bank to the borrower and guarantor to settle the account and regularized the installment. Personal visit to borrower for recovery of installment is carried out by recovery department along with the concern branch officer. In case of non supportive action by borrower or default more than 3 months of installment the recovery department issues notice under SEARFASI ACT 2002.and further action is carried as per said Act by the RBI.

CASH CREDIT & OVER DRAFT In case of CC and OD in every account the charge interest of the previous month to be recovered in the next month before any further debit to the account.

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EFFECTS OF NON PERFORMING ASSETS : Credit risk stands out as the most detrimental risk to which banking business is exposed to. Nonperforming Assets (NPA) in the loan portfolio affect the operational efficiency which in turn influences profitability, Liquidity and solvency position of co-operative banks.
1. They have to maintain and increase viability by generation of more products in order to meet capital adequacy norms and make provision against NPA. 2. A crisis in liquidity occurs when the funds deployed by the banks get locked up as NPAs, which reduce the profitability and liquidity, indirectly affect the solvency position of the banks.

3. The presence of NPAs in the bank balance sheet corrodes the average earnings from loan assets and total assets (Toor, 1998).

4. The interest spread, an indicator of the operating profitability declines due to NPAs, since the interest income on NPAs cannot be accrued due to prudential regulations and provision also has to be created for NPAs from the operating profits. 5. A large amount of managerial time and manpower would have to be spent on monitoring the accounts in default, adding avoidable costs to transaction costs of lending operations, increasing the burden of the bank. Thus the profit margin would be reduced further.

6. The presence of NPAs leads to increase in real interest rates (Roy, 2001). The real interest rate (the difference between nominal rate of interest and the expected rate of inflation, at a realistic level) has to be kept low so that borrowers do not pay a high price and depositors have an incentive to save, as a measure of deregulation. 7. Lending capacity of the banks is adversely affected due to their inability to recycle the resources or to raise more resources from higher financing agencies. Any liquidity crisis in co-operative banks will subsequently hinder capital formation in agriculture which will decelerate economic development (Georgekutty, 2000), since they play a major role in rural lending.

If any single account its become NPA it affect not only to the tune of the profit out of the said assets but many fold multiplicity negative effect is much more rather than the profit of that assets.

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GUIDELINES FOR BRANCH/RECOVERY STAFF: All the branches of RNSB have to follow the following guidelines

1. Branch to continuously inform the borrower about the due date of repayment schedule. Recovery efforts to starts from the first month of default itself.

2. Position of overdue account to be reviewed on the monthly basis to arrest slippage of fresh accounts to NPA category.

3. If the branch does not get response from the borrower for paying the amount, they have to visit the unit and meet with the borrower. During visit to customers place for collection of dues, decency and decorum would be maintained and customers privacy would be respected as far as practicable.

4. If the branch does not get any favorable response, during personal visit, they should write a notice letter to borrower.

5. If borrower still behaves irresponsible, they should meet the guarantor and ask guarantor to peruse the borrower. Guarantor must be informed about legal complication to arise if borrower fails to repay the dues.

6. On failure of all the recovery steps, branch to contact Area office/Control centre.

7. Area office/Control centre to call the borrower along with guarantor and try to find out the reason for overdue. If borrower is in genuine difficulty, problem to be resolved in a mutually acceptable and in an orderly manner.

8. If party behaves indifferent, legal actions must be initiated. In such case prompt legal action and seizure action to be taken. Preference to be given for steps under Securitization Act rather than go for filling a case in the court of Board of Nominees. DR.J.K.PATEL INSTITUTE OF MANAGEMENT Page 56

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9. Reasonable notice would be given before Repossession of Security and its realization, unless the borrower is about to dispose of/remove the whole or any part of the security from the locality where it ordinarily remained or by whom it is used or caused to be remained or used, as the case may be, at the time of creation of security.

10. The aim of possession under Securitization or State co-op. Act will be to recover the dues and will not be aimed at whimsical deprivation of the property. The bank shall resort to repossession of the security only when the collection/recovery of dues is not forthcoming in spite of request made and the policy for repossession shall be in accordance with the terms and conditions of the loan documents and within the legal framework. The policy fairness and transparency in repossession, valuation and realization of security.

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CHAPTER: 9 ANALYSIS OF DATA

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CLASSIFICATION OF TOTAL ADVANCES

(RS. IN LACS)

2008
TOTAL NPA

2009

2010

2011

2012
8123.67

10751.74 11675.41 11600.29 9962.86

STANDARD ASSETS

52186.14 64366.59 79768.75 101254.7

142277.64

TOTAL ADVANCES

62937.88 76042.00 91369.04 111217.60 149406.77

6 5 4 3 2 1 0 2008 2009 2010 YEAR 2011 2012 Total advances STANDART ASSETS NPA

DR.J.K.PATEL INSTITUTE OF MANAGEMENT

PERCENTAGE

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YEAR WISE GROSS NPA AT RNSB
. YEAR (RS. IN LACS) YEAR 2008 2009 2010 2011 2012 TOTAL Amount 10751.06 11675.41 11600.29 9962.86 8123.67 52113.29 %of Total 20.63 22.40 22.26 19.18 15.59 100%

GROSS NPA
21.50% 21.00% 20.50% 20.00% 19.50% 19.00% 18.50% 18.00% 17.50% 17.00% 16.50% 16.00% 2007 2008 2009 YEAR 2010 2011

PERCENTAGE

GROSS NPA

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YEAR WISE NET NPA AT RNSB

YEAR 2008 2009 2010 2011 2012 TOTAL

Amount 0.00 0.00 0.00 1848.49 894.54 2743.03

%of Total 0.00% 0.00% 0.00% 1.79% 0.63% 100%

NET NPA
2 1.8 1.6 1.4 PERCENTAGE 1.2 1 0.8 0.6 0.4 0.2 0 2008 2009 2010 YEAR 2011 2012 NET NPA

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RATIO ANALYSIS

To analyzed the NPA situation in bank and from that to know about the banks credit appraisal system and level of risk in bank I have done the ratio analysis. Ratio analysis is the tool which will help us to do financial analysis of bank. Some names of ratio are as follows:

1. GROSS NPA RATIO. 2. NET NPA RATIO. 3. PROBLEM ASSETS RATIO. 4. SHAREHOLDERS RISK RATIO. 5. PROVISION RATIO.

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1. GROSS NPA RATIO Gross NPA is the sum of the total assets which are classified as the NPA by bank at the end of every year. Gross NPA is the ratio of Gross NPA to Gross Advances. It is expressed in percentage form.

Gross NPA Ratio =

Gross NPA

* 100 Gross Advances (RS. IN LACS) GROSS NPA RATIO (%) 17.08% 15.35% 12.70% 8.96% 5.44%

YEAR

GROSS NPA

GROSS ADVANCES 62937.88 76042.00 91369.04 111217.60 149406.77

2008 2009 2010 2011 2012

10751.06 11675.71 11600.29 9962.86 8123.67

GROSS NPA RATIO


18 16 14 PECENTAGE 12 10 8 6 4 2 0 2008 2009 2010 YEAR 2011 2012 GROSS NPA RATIO

. ANALYSIS DR.J.K.PATEL INSTITUTE OF MANAGEMENT Page 63

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Gross NPA ratio shows the banks credit appraisal policy. High Gross NPA ratio means bank have liberal appraisal policy and vice-versa.

In RNSB this ratio was 17.08% in March-2008 and it has been decreased from year 2008 to 2012 from 17.08% to 5.44%. because bank is less liberal appraisal policy in last years. However it is revels from the chart that banks Gross NPA ratio is continuously decreasing which is positive trend for bank and we can say that bank have good appraisal system.

1. NET NPA RATIO The Net NPA Ratio is the ratio of net NPA to Net Advances. This ratio shows the degree of risk in banks portfolio. Net NPA ratio can be obtain by Gross NPA minus the NPA provisions divided by Net advances.

Net NPA Ratio =

Net NPA Net Advances

*100

YEAR 2008 2009 2010 2011 2012

NET NPA 0.00 0.00 0.00 1848.49 894.54

NET ADVANCES 52186.14 64366.59 79768.75 101254.7 142277.64

(RS. IN LACS) NET NPA RATIO (%) 0.00% 0.00% 0.00% 1.79% 0.63%

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NET NPA RATIO


2 1.8 1.6 1.4 PERCENTAGE 1.2 1 0.8 0.6 0.4 0.2 0 2008 2009 2010 YEAR 2011 2012 NET NPA RATIO

Net NPA = Gross NPA Provision for NPA Net Advances = Gross advances Provision for NPA

. ANALYSIS Net NPA ratio shows the degree of risk in portfolio of bank. High net NPA ratio means banks dont have enough fund to do provision against the Gross NPA.

In RNSB Net NPA ratio was 0.00%in year March-2008 to march -2010 which shows that in that year bank had enough fund for provisions. But after that from March2010 to March-2011 and 2012 Net NPA ratio is 1.79% 0.63% and which shows that bank has now not enough provision capacity. So, here the degree of risk is less than previous year.

RNSB has done more provision every year which is good at one side but at other side it also reduces the profit of bank. And shareholder will get fewer dividends.

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When all bank will do provision then Net NPA will become zero but if we want to know the true and fair situation of bank we must consider the Gross NPA of bank. PROBLEM ASSETS RATIO

This ratio is also known as the Gross NPA to Total Assets ratio. This ratio shows the percentage of risk on the total assets of the bank. High ratio means high risk for bank.

Problem Assets Ratio =

Gross NPA Total Assets

*100

(RS. IN LACS) PROBLEM YEAR GROSS NPA TOTAL ASSETS ASSETS RATIO (%) 2008 2009 2010 2011 2012 10751.06 11675.71 11600.29 9962.86 8123.67 176251.96 208593.73 175355.81 273891.04 341415.75 6.99% 5.59% 6.61% 3.64% 2.37%

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PROBLEM RATIO
8 7 6 PERCENTAGE 5 4 3 2 1 0 2008 2009 2010 YEAR 2011 2012 PROBLEM RATIO

. ANALYSIS

This ratio shows the percentage of risk on the assets of bank. It shows the level of risk on banks assets. High ratio shows the high risk on liquidity.

In RNSB this ratio was 6.99% in March-2008 and after that it has been decreased from 6.99% to 2.37% in March-2012.these shows that bank having a less liquidity in following years and is well maintain their liquidity. This ratio is continuously decreasing in bank except in March-2010 But overall this ratio is good for bank which indicates the level of risk is low in bank.

SHAREHOLDERS RISK RATIO


It is the ratio of Net NPA to Total capital and reserve of bank.

Shareholders risk Ratio =

Net NPA Total Capital & Reserve

*100

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(RS. IN LACS) SHAREHOLDERS RISK RATIO (%) 0.00% 0.00% 0.00% 5.48% 2.67%

YEAR 2008 2009 2010 2011 2012

NET NPA 0.00 0.00 0.00 1848.49 894.54

TOTAL CAPITAL & RESERVE 28027.69 34297.86 34720.58 33736.86 33438.94

S.H.RISK RATIO
6 5 PERCENTAGE 4 3 2 1 0 2008 2009 2010 YEAR 2011 2012 S.H.RISK RATIO

. ANALYSIS This ratio shows the degree of risk with share holders investment. High ratio means high ratio with the investment. DR.J.K.PATEL INSTITUTE OF MANAGEMENT Page 68

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In RNSB this ratio was 0.00% in year March-2008 to march-2010 which shows that which shows that Bank have enough capacity for provision and the risk on investment is nil. After word in year 2012 this ratio was 2.67% which is not that much high but in 2011 the shareholder has a risk on their investment.

As we know that this ratio is 0.00% show the risk is nil but on the other side because of more provision the profit will decrease and the shareholder will get less dividends.

2. PROVISION RATIO
Provisions are to be made against the Gross NPA of bank. As bank make provision for NPA it directly affects the profit of bank. This ratio shows the relation of total provision to Gross NPA.

Provision Ratio =

Total Provision Gross NPA

*100

YEAR

TOTAL PROVISION 10905.60 11840.40 11890.60 8091.20 7729.13

(RS. IN LACS) PROVISION GROSS NPA RATIO (%) 10751.06 11675.71 11600.29 9962.86 8123.67 101.44% 101.41% 102.50% 81.21% 95.14%

2008 2009 2010 2011 2012

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PROVISION RATIO
120.00% 100.00% PERCENTAGE 80.00% 60.00% 40.00% 20.00% 0.00% 2008 2009 2010 YEAR 2011 2012 PROVISION RATIO

. ANALYSIS

Provision ratio shows the degree of provision that is made against the Gross NPA of bank. As bank made the provision it directly affect the profit of bank and also the dividend payout ratio of bank too.

If Provision ratio is less then it means that bank has make under provision and if provision is more then it means that it is over provision.

In RNSB they have made 101.44% provision in March-2008 which shows that it was over provision. in March-2009 and March-2010 it is 101.41% and 102.50% respectively which indicate that provision was nearer to total amount of Gross NPA but in March-2011and March-12 the provision ratio is 81.219% and 95.14% which indicate that it is under provision and bank not has enough funds for provisioning. RNSB should make the provision in the range of 100% to 115%. The provision in March-2011 is quite less than the previous year so try to make provision according to gross NPA. DR.J.K.PATEL INSTITUTE OF MANAGEMENT Page 70

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3. SUB-STANDARD ASSETS RATIO


Sub-standard Assets Ratio = Total Sub-standard Assets Gross NPA *100

YEAR 2008 2009 2010 2011

SUB-STANDARD ASSETS 189.75 143.60 156.65 12.24

GROSS NPA 10751.06 11675.71 11600.29 9962.86

(RS. IN LACS) SUB-STANDARD ASSETS RATIO (%) 36.41% 32.24% 35.92% 5.42%

. ANALYSIS

This ratio shows the percentage of Sub-Standard assets in the Gross NPA of bank. High Sub-Standard ratio means more proportion of Sub-Standard asset in the Gross NPA.

High ratio shows that there is a chance of recovery of assets is high.

As the level of Sub-Standard assets are more the chances of recovery of NPA are high.

4. DOUBTFUL ASSETS RATIO


It is the ratio of total doubtful assets to Gross NPA of the bank.

Doubtful Asset Ratio =

Total Doubtful Assets *100 Gross NPA (RS. IN LACS)

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YEAR 2008 2009 2010 2011 1139.25 1065.95 TOTAL DOUBTFUL ASSETS GROSS NPA 10751.06 11675.71 11600.29 9962.86 DOUBTFUL ASSETS RATIO (%)

. ANALYSIS

This ratio shows the percentage of Doubtful assets in the Gross NPA of bank. High Doubtful assets ratio means more proportion of Doubtful asset in the Gross NPA.

More Doubtful assets means Bank should take action through recovery policy to reduce the level of Doubtful assets.

As the Doubtful assets ratio is high which shows that bank should take quick action to reduce that level.

This ratio should be less for the bank.

5. LOSS ASSETS RATIO


It is the ratio of Total loss assets to Gross NPA of bank.

Loss Assets Ratio =

Total loss Assets Gross NPA

*100 Page 72

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(RS. IN LACS) LOSS ASSETS RATIO (%) 2.81% 2.43% 0.24% 0.00%

YEAR 2008 2009 2010 2011

TOTAL LOSS ASSETS 14.64 10.84 1.04 0.00

GROSS NPA 10751.06 11675.71 11600.29 9962.86

. ANALYSIS

This ratio shows the percentage of loss assets in the Gross NPA of bank. High loss assets ratio means more proportion of loss asset in the Gross NPA.

This should be less in bank. The high ratio indicates that bank has more fraudulent account and it is bad for bank. The bank must take necessary action to reduce the level of loss assets. Hence, bank should take some action to reduce the level of loss assets from the total NPA.

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FINDINGS FROM RATIO

As I have already analyze the ratio and from that I can say that banks financial condition is good. Hence, there is correction in the ratio of year 2011. And this correction is because of resection From ratio I am able to find the following findings 1. The Gross NPA ratio of bank is 17.08% in the year 2008 after then it reaches to 5.44% in the year 2011. Hence, the idle gross NPA ratio is 5.00% and bank has not far from that. we can say that banks financial condition is good. 2. Banks Net NPA ratio is 0.00% in the previous years but in 2011 its1.79% and in 2012 its 0.63% which is positive for bank.

3. The Problem assets ratio was 6.099% in the year 2008 which was the highest ratio and from that year it is decrease to 2.37% in the year 2011 which is good for bank.

4. Provision ratio for the year 2008 is 101.44 which show that there was enough profit for provision in bank but in year 2011 and 2012 this ratio is 81.96% and 95.14% which shows that bank not have enough profit for the provision.

5. It will be considered good if the Sub-standard assets ratio is high. For RNSB this ratio is 36.41% in the year 2008 which is good but it reaches to 5.42% in the year 2011 which is very bad for banks health.

6. Doubtful assets ratio should be low for the good health of bank and in RNSB this ratio is 94.58% in the year 2008 which is very bad but in year 2011 this ratio decrease to 48.03% which is positive for bank.

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7. Loss assets ratio should be zero and bank have 0.00% in the year 2010which is good but in year 2011 this ratio reaches to 29.67% which is very rapid change within a one year. And it is also bad for bank.

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CHAPTER: 10 CONCLUSION & SUGGESTION

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CONCLUSION
Now as we know that NON-PERFORMING ASSETS is like a black spot on diamond. They affect the profit of bank and also the financial health of bank. This NPA have number of effects on banks working.

During my training in bank I gathered as much as possible information about NPA from bank and on the basis my experience I conclude the following points: Rnsb net NPA level is nil in previous year by year which good for bank.

The Gross NPA ratio of bank is 17.08% in the year 2008 after then it reaches to 5.44% in the year 2012. Hence, the idle gross NPA ratio is 5.00% and bank have 5.44% which is nearer to idle. So, we can say that banks financial condition is very good. Banks Net NPA ratio is 0.00% in the year 2008 to 2010 is positive for bank. But in 2011 its 1.79% which is not good for bank. In 2012 bank has 0.63% net NPA which so that bank recover its NPA account faster. RNSB has sound credit appraisal system and also sound recovery policy. RNSBs NPA level is decreasing year by year and because of that RNSB is being considered very good bank by citizens of saurashtra region.

Hence in present time the position of NPA in bank is much better than the past position. In year 1997 in India the Gross NPA was 15.7% but now it is 3.00% in the year 2011. This is very favorable to Indian economy and also banking sector of India. Governments act and also the Norseman committee on NPA are very useful to reduce the level of NPA. DR.J.K.PATEL INSTITUTE OF MANAGEMENT Page 77

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So, I can conclude that level NPA in any bank is important parameter to analyze the health of bank.

SUGGSTIONS

1. RNSBs NPA level is decreasing year by year which good for bank but bank should follow the recovery policy strictly. 2. In year 2011 RNSBS NPA is very low compare to previous year but Net NPA is
1.79% which shows that bank not having a enough fund for provisioning. So should maintain an adequate fund for NPAs.

3. In RNSB there is special recovery department so bank should well manage the department for the fastest recovery of NPA.

4. Bank should motivate the staff to do fast recovery NPA.

5. Bank have more NPA in Small Scale Industry so, they should try to reduce that level of NPA.

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CHAPTER: 11 BIBILIOGRAPHY

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JOURNALS
Co-Operative Bankers Diary 2008 -by John Dsalve Annual Report of RNSB -year, 2008, 2009,2010,2011,2012 Periodical circular and statement of RBI regarding to NPA managing and UCBs

WEBSITES
http://finance.indiamart.com/investment_in_india/banking_in_india.html http://www.rbi.org.in/Home.aspx http://www.banknetindia.com/banking/cintro.htm http://www.investorwords.com/ http://www.indiabankassociation.com/

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