PROJECT SYNOPSIS

ON

NON-PERFORMING ASSETS OF

Karnataka State Co-Operative

Apex Bank Limited

COMPANY PROFILE
The Karnataka State Co-Operative Apex Bank Limited has been playing a very significant
role in the dispensation of production, credit to the farmers. It is to the credit of Karnataka,
that the first co-operative credit institution in the entire country was established way back in
the year 1904 in a village called Kanaginahal now at Gadag district. Primary Agricultural
Credit Society (PACS) at the village level federated later to District Central Co-Operative
Banks (DCCBs) at the district level. These DCC banks federated themselves at the state
level to form Apex Bank.

The Karnataka State Co-operative Bank was established in the year 1915 and the late
Varadaraja Iyengar has been its founder president. It made a humble beginning with a
working capital of Rs.1.80 lakh comprising of Rs.1.26 lakhs as deposits. Over 90 years, the
institution has grown by leaps and bounds and today its working capital is Rs.4718.28
crores with deposit level of Rs.2264.14 crores and own fund of Rs.265.91 crores. The bank
has earned Rs.13.35 crores.

Apex bank is a pioneer in agriculture finance and allied activities. Apex bank is ranked as
one of the premier state co-operative banks in the country. The main objectives of the bank
are to serve the farmers in the state by providing short term and long term agricultural loans,
general banking business and function as a leader of the co-operative banks in the state.

NATURE OF BUSINESS

The business carried by the bank is generally related with providing short term and long
term agricultural loans. It also accepts deposits from the public. Apex bank also provides
cash credit loans to processing, marketing and consumer co-operatives as well as sugar
factories in Karnataka and working capital loans to state level and national level institutions.

OBJECTIVES OF BANK:
The Apex Bank is a pioneer in agricultural finance and allied activities in Karnataka. The
Bank, thanks to its broad spectrum of activities and a proven track record, is ranked as one
of the premier State Cooperative Banks in the country. The Banks main objectives are to
serve the farmers in the State by providing Short and Medium term agricultural loans, carry
on general Banking business and function as a leader of Co-operative Banks in the State.

The Bank also provides Cash Credit loans to agro processing and marketing activities,
consumer cooperatives and sugar factories in Karnataka. It provides term loans to sugar
factories under consortium arrangements and working capital loans to state level and
national level co-operative institutions.

HISTORY:
The Bank was registered on 10th November 1915 under the name and style of The Mysore
Provincial Cooperative Bank Limited, under the Mysore Co-operative Societies Act of
1905. Then , the Bank was not an Apex institution, as it was not exclusively meant for
financing the co-operatives in the then State of Mysore. Another Bank called the Bangalore
Central Co-operative Bank Limited, Bangalore (which was later converted into an urban
bank), which was registered in 1905, was also financing the co-operatives. The bank owes
its origin to Sri. M.A. Narayan Iyengar, B.A., B.L., who was the Registrar of Co-operative
Societies at that time.
The Bank was founded with the objective of financing, inspecting and supervising the cooperative societies in the Mysore State. Subsequently, several district co-operative central
banks with the jurisdiction of a district were registered. Five such district central banks were
started. But their working was not satisfactory and they became defunct. As such, the
provincial bank started financing the societies directly. Besides granting of loans, the Bank
served as an outlet for investment of the surplus finds of the co-operative societies in the
State. The Bank thus acts as the balancing centre of the Co-operative Movement in the
State, safeguarding its interests.

INTRODUCTION TO TOPIC:

A Non-performing asset (NPA) is defined as a credit facility in respect of which the

interest and/or installment of principal has remained past due for a specified period of
time.
NPA is a classification used by financial institutions that refer to loans that are in jeopardy
of default. Once the borrower has failed to make interest or principle payments for 90 days
the loan is considered to be a non-performing asset. Non-performing assets are problematic
for financial institutions since they depend on interest payments for income. Troublesome
pressure from the economy can lead to a sharp increase in non-performing loans and often
results in massive write-downs.
With a view to moving towards international best practices and to ensure greater
transparency, it had been decided to adopt the 90 days overdue norm for identification of
NPA, from the year ending March 31, 2004. Accordingly, with effect from March 31, 2004,
a non-performing asset (NPA)is a loan or an advance where;

Interest and/or installment of principal remain overdue for a period of more than 90

days in respect of a term loan,

The account remains out of order for a period of more than 90 days, in respect of an

Overdraft/Cash Credit (OD/CC),

The bill remains overdue for a period of more than 90 days in the case of bills

purchased and discounted,

Interest and/or installment of principal remains overdue for two harvest seasons but

for a period not exceeding two half years in the case of an advance granted for agricultural
purposes, and

Any amount to be received remains overdue for a period of more than 90 days in

respect of other accounts.

Non submission of Stock Statements for 3 Continuous Quarters in case of Cash

Credit Facility.

No active transactions in the account (Cash Credit/Over Draft/EPC/PCFC) for more

than 90 days.

Classification
Banks are required to classify non-performing assets further into the following three
categories based on the period for which the asset has remained non-performing and the
realisability of the dues:
1.

Sub-standard assets: a sub standard asset is one which has been classified as NPA for

a period not exceeding 12 months.

2.

Doubtful Assets: a doubtful asset is one which has remained NPA for a period

exceeding 12 months.
3.

Loss assets: where loss has been identified by the bank, internal or external auditor or

central bank inspectors. But the amount has not been written off, wholly or partly.
Sub-standard asset is the asset in which bank have to maintain 15% of its reserves. All those
assets which are considered as non-performing for period of more than 12 months are called
as Doubtful Assets. All those assets which cannot be recovered are called as Loss Assets.

Reasons for Occurrence of NPAs

NPAs result from what are termed Bad Loans or defaults. Default, in the financial
parlance, is the failure to meet financial obligations, say non-payment of a loan installment.
These loans can occur due to the following reasons:

Usual banking operations /Bad lending practices

A banking crisis (as happened in South Asia and Japan)

Overhang component (due to environmental reasons, business cycle, etc)

Incremental component (due to internal bank management, like credit policy, terms of

credit, etc)

The Problems caused by NPAs

NPAs do not just reflect badly in a banks account books, they adversely impact the national
economy. Following are some of the repercussions of NPAs:

Depositors do not get rightful returns and many times may lose uninsured deposits.

Banks may begin charging higher interest rates on some products to compensate Nonperforming loan losses

Bank shareholders are adversely affected

Bad loans imply redirecting of funds from good projects to bad ones. Hence, the

economy suffers due to loss of good projects and failure of bad investments

When bank do not get loan repayment or interest payments, liquidity problems may

ensue.

Result of NPAs on an organization

1. They decrease profitability.
2. They reduce capital assets and lending limits.
3. They increase loan loss reserves.
4. They bring unwanted attention from government regulators.

OBJECTIVES OF THE STUDY:

To have an overview of history, growth and development, functioning, schemes and

facilities available at Apex bank.

To study the prudential norms an asset classification and income recognition.

To Study the concept of non-performing assets and to intimate timely steps to identify it.

To know the policies, procedures followed by the Apex bank with respect to non-

performing assets management.

To know the need and nature of various strategies for reducing NPA level through

recovery mechanisms.

Research Methodology
The quality of the project work depends on the methodology adopted for the study.
Methodology, in turn, depends on the nature of the project work. The use of proper
methodology is an essential part of any research. In order to conduct the study scientifically,
suitable methods & measures are to be followed.

Research Design
The type of research used for the collection & analysis of the data is Historical Research
Method.
The main source of data for this study will be the past records prepared by the bank. The focus
of the study will be to determine the non-performing assets of the bank since its inception & to
identify the ways in which the performance especially the non-performing assets of the Apex
Bank can be improved.
The data regarding bank history & profile will be collected through Exploratory Research
Design particularly through the study of secondary sources and discussions with individuals.

Conclusion Oriented Research: Research designed to assist the decision maker in the situation. In other words it is a research
when we give our own views about the research.
Exploratory Research: A type of conclusive research which has as its major objective to Investigation or problem
which provides insights to the researcher.

Sample Design: Sampling can be defined as the section of some part of an aggregate or totality on the basis of
which judgement or an inference about aggregate or totality is made. The sampling design helps
in decision making in the following areas:-

Universe of the Study:

Universe means the area or the limits in which the study is to be conducted. The universe of the
study will be Bangalore city.
Sample Size: Sample size is the number of elements to be included in a study. The total sampling size will be
200 employees.
Sample Unit: Sampling unit is the basic unit containing the elements of the universe to be sampled. The
sampling unit of the study will be the employees of the banks.

Sampling Techniques: The sampling techniques used will be convenience technique.

Methods of Data Collection

Research work is exploratory in nature. Information will be collected from both Primary and
Secondary data.

Secondary Sources: Secondary data are those which have already been collected by someone else which already
had been passed through the statistical process. Secondary data will be collected from Internet,
books and journals.

Primary sources: Primary data are those, which are collected are fresh and for the first time and thus happen to be
original in character. Primary data will be collected by conducting surveys through
questionnaire, which include close-ended questions.

Tools of Analysis and Presentation: To analyze the data obtained with the help of questionnaire, following tools will be used:.

Weighted Avereage Score: - This will be used to calculate highest and lowest rank.

Tables: - This will be a tool to present the data in tabular form.

Percentage and Pie Charts: - These tools will be used for analysis of data.

QUESSIONNAIRE

Name.

Age..

Gender

Income..

Occupation

1. Do you classify NPA at branch level?

If yes then, which of the following classifications you do
(a)

Sub standard assets

(c)

Other

(b) Doubtful asset

(c)

Loss assets

2. What is the percentage of NPA in your branch every year ?

(a) 1%- 2%

(b) 2%- 3%

(d) 4%-5%

(e) 5% & above

(c) 3%-4%

3. Loan provided by banks which may become non -performing assets?

(a) Housing loans

(b) Motor vehicles

(c) Personal loans

(d) Agriculture loans

(e) Others
4. Which security bank requires against such loans?
(a) Property

(b) Gold

(c) Fixed deposits

(d) others

5. If there any auditing department for checking NPAs?

(a) Yes

(b) No

If yes, then is it,

Internal

External

6. What is the effect of NPAs on banks?

(a) High cost
(b) Excessive focus on credit risk management
(c) Goodwill decrease
7. Do you follow any legal procedure for recovery of NPAs ?
(a) Yes

(b) No

8. What are the mechanism to control NPAs ?

(a) Proper field investigation
(b) Effective credit appraisal
(c) Strict follow up
(d) Funding limits
9. Which government machinery /Act helps you for reducing or managing NPA?
(a) Compromise settlement schemes
(b) Lok adalats

(c)Credit information bureau

(d) DRT Act
(e) SRFAESI Act
10.What are the follow up activities taken up by the banks for checking the NPA level?
Activities

Very
Important

Personal
visits
Telecalling
Mails
Emails
Notices sent
Others

Important

Indifferent

Not
Important

very

Least
Important