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I, Mehta Nirmit hereby by declare that the project work entitled “A Study on Different Types of Loans and Loan Procedure” under the guidance of Miss Desai Swati submitted in partial f Fulfillment of the requirement for the award of the degree of Bachelor of Business Administration to Veer Narmad South Gujarat University, Surat is my own work and other matter as a reference has been duly acknowledged.
Place: Surat Date: 07/03/2008 (Nirmit P Mehta)
It is my great pleasure to express my heartily thank to “VEER NARMAD SOUTH GUJARAT UNIVERSITY” who has included Project Work in 6 th semester B.B.A... I m really grateful to the Co-ordinator of Vivekananda College for B.B.A., Surat for allowing me to take the training and also thankful to Mr.Rahul Mishra for directing me during training.
I wish to be grateful to Mr.Sudhir Shah who is the General Manager of The Surat People’s Co-operative Bank Ltd. For permitting me for this Project Work in their bank and me also thanks to Miss.Swati Desai for support and diligent efforts of guiding and counseling me. I owe much to the entire The Surat People’s Cooperative Bank Family and a number of people, both collectively and individually for giving me an opportunity of getting trained in their reputed bank. At last, I would like to say it was really a memorable experience which will definitely help in my future career.
Entering this project, I had little knowledge of types of loans and what is the procedure about loan inside of a bank. I’m thankful that The Surat People’s Co-operative Bank Ltd. gave me an opportunity for Project Work. This was a great and helpful experience.
The Project Work at The Surat People’s Co-operative Bank Ltd. gave me a better understanding of what it’s like in a bank. I learned the history of Prime Co-operative Bank Ltd. and also it’s Loan Scheme.
In India, Co-Operative sector is growing continuously; this growth encourages me to work in a bank. Management is a developing field and it has great demand around the world. The Veer Narmad South Gujarat University, Surat has kept Project Work as part of B.B.A. course. Thus, it’s my obligatory duty to undergo training whole-heartedly.
While starting any business or a project if an individual or a firm does not have sufficient funds for commencing their business then loan proves to be an important option. In global world it is not easy for an individual to select proper loan option as they are available in different schemes and complexity Thus: my motive through this project is to learn and also to educate others about different loan schemes.
” On the topic of “None performing assets” which is situated in Rander. economic.study. He explained me about various aspects of NPAs like. I got knowledge on this topic that is how the bank manage its assets.Executive Summary:- During the training period of 1st January to 1st march. With the help of that study. I had done this trainning as a subject of 6th semester. give me training on my topic. 4 . Surat. It was really a very imaging experience for me to get the training from Rander people’s co-operative bank ltd. Sudhirbhai shah.performing assets. I have taken great experience of the non. Mr. financial. he had also given me one case. technological etc. The managers of the bank help me for whole training. which was appraised by the bank in the past. I had taken the project training in the “Rander people’s co-operative bank ltd. it was easy for me to understand the project appraisal topic.
The main object is known about the proper system of bank for reducing non-performing asset or for conversion of non-performing asset. To know the various and strategies for non-performing asset for the bank. 5 . To learn about how to solve the problem of non-performing asset.OBJECTIVES OF THE STUDY:- To calculate the total non-performing asset and compare with other banks and on the basis to decide the growth rate of different bank.
RESEARCH METHODOLOGY:My topic is non performing assets. Then according to projected balance-sheet. I conclude the summary of the project. Comparative statement on the basis of various ratios and method of appraisal is done. the project appraisal analysis is done on the basis of previous year’s financial data. who were applying for loan. The methodology used in this project is as follows. After the introduction. I collected balance-sheet of the company. 6 . First of all I have the basis studied the basic concept of project appraisal from book. • At last. after annalist the balancesheet and various aspects. I had collected information from bank.
LIMITAION OF STUDY:The bank I have chosen is totally on rural or agricultural bases. the project appraisal is quite a long process and it require more time. so the bank cannot provide some English literature for helping me in project. The time period is also very less. The amount of loans and advances are also limited so it is obvious that the project appraised by this bank were less than the other comparatives banks. which are comparing and with it are not only rural basis so comparison will not made properly. and other banks. It is on rural basis. 7 .
The first bank in India. Indian banking system has reached even to the remote corners of the country. In fact.• INTRODUCTION TO INDIAN BANKING INDUSTRY:Without a sound and effective banking system in India it cannot have a healthy economy. the journey of Indian Banking System can be segregated into three distinct phases. Today. The most striking is its extensive reach. For the past three decades India's banking system has several outstanding achievements to its credit. Not long ago. 8 . From 1786 till today. It is no longer confined to only metropolitans or cosmopolitans in India. Gone are days when the most efficient bank transferred money from one branch to other in two days. New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991. This is one of the main reasons of India's growth process. though conservative. 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. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. Now it is simple as instant messaging or dial a pizza. Money have become the order of the day. 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. he has a choice. an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. was established in 1786.
Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority. There were approximately 1100 banks. the Government of India came up with The Banking Companies Act. mostly Europeans shareholders. Phase I The General Bank of India was set up in the year 1786. Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. was set up in 1894 with headquarters at Lahore. 9 .To make this write-up more explanatory. Reserve Bank of India came in 1935. The East India Company established Bank of Bengal (1809). To streamline the functioning and activities of commercial banks. Canara Bank. Between 1906 and 1913. funds were largely given to traders. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. In 1865 Allahabad Bank was established and first time exclusively by Indians. Bank of India. As an aftermath deposit mobilization was slow. 23 of 1965). Bank of Baroda. Next came Bank of Hindustan and Bengal Bank. Phase II and Phase III. Punjab National Bank Ltd. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Indian Bank. and Bank of My sore were set up. Central Bank of India. mostly small. During those day’s public has lesser confidence in the banks. 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. I prefix the scenario as Phase I. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks. Moreover.
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. major process of nationalization was carried out.Phase II Government took major steps in this Indian Banking Sector Reform after independence. 1959: Nationalization of SBI subsidiaries. In 1955.000%. Mrs. 1969: Nationalization of 14 major banks. It was the effort of the then Prime Minister of India. 1955: Nationalization of State Bank of India. India Gandhi. Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19th July. 1961: Insurance cover extended to deposits. 1975: Creation of regional rural banks. The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country: 1949: Enactment of Banking Regulation Act. 14 major commercial banks in the country was nationalized. 10 . 1969. 1971: Creation of credit guarantee corporation. After the nationalization of banks. 1980: Nationalization of seven banks with deposits over 200 crore. the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11. 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.
In 1991. The financial system of India has shown a great deal of resilience. 11 . under the chairmanship of M Narasimham. The country is flooded with foreign banks and their ATM stations. the capital account is not yet fully convertible. Phase III This phase has introduced many more products and facilities in the banking sector in its reforms measure. Efforts are being put to give a satisfactory service to customers. This is all due to a flexible exchange rate regime. Phone banking and net banking is introduced. Time is given more importance than money.Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions. The entire system became more convenient and swift. and banks and their customers have limited foreign exchange exposure. a committee was set up by his name which worked for the liberalization of banking practices. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. the foreign reserves are high.
ATMs. 12 . American Express Bank Ltd. Dhanalakshmi Bank Ltd. On the other hand the Private Sector Banks in India are witnessing immense progress. ANZ Grindlays Bank. SBI Commercial and International Bank Ltd. The Public Sector Banks (PSBs). Andhra Bank etc. which are the foundation of the Indian Banking system account for more than 78 per cent of total banking industry assets. massive manpower and lack of modern technology. IDBI. ABN-AMRO Bank. Unfortunately they are burdened with excessive Non Performing assets (NPAs). Oriental Bank. Allahabad Bank. mobile banking. phone banking. Vijaya Bank.Present scenario: As far as the present scenario is concerned the banking industry is in a transition phase. On the other hand the Public Sector Banks are still facing the problem of unhappy employees. Banks from the Public Sector include Punjab National bank. Citibank etc are some foreign banks operating in India. They are leaders in Internet banking. UCO Bank. There has been a decrease of 20 percent in the employee strength of the private sector in the wake of the Voluntary Retirement Schemes (VRS). Karur Vysya Bank Ltd. As far as foreign banks are concerned they are likely to succeed in India. Bank of Rajasthan Ltd etc are some Private Sector Banks. Indus land Bank was the first private bank to be set up in India. ING Vyasa Bank.
more particularly in rural areas.TYPES OF BANK OVERVIEW Co-operative movement is quite well established in India. The rural folk had to depend entirely on the money lenders. In 1914 the Maclagen committee envisaged a three tier structure for co-operative banking viz. The first urban co-operative bank in India was formed nearly 100 years back in Baroda. distribution. to provide timely and adequate short-term and long-term institutional credit at reasonable rates of interest. marketing. In the beginning of 20th century. institutional credit. Agricultural and related activities were starved of organized. servicing. Co-operative Institutions are engaged in all kinds of activities namely production. availability of credit in India. Central Co-operative Banks at the district level and State Co-operative Banks at state level or Apex Level. The co-operative banks arrived in India in the beginning of 20th Century as an official effort to create a new type of institution based on the principles of co-operative organisation and management. 13 . Primary Agricultural Credit Societies (PACs) at the grass root level. suitable for problems peculiar to Indian conditions. Co-operative Banks are important cogs in this structure. The first legislation on co-operation was passed in 1904. and banking in India and have vast and powerful superstructure. was almost absent. who lent often at usurious rates of interest. These banks were conceived as substitutes for money lenders. processing.
urban banking sector received tremendous boost and started diversifying its credit portfolio. 14 . The concept of Urban Cooperative Bank was first spelt out by Mehta Banal Committee in 1939 which defined on Urban Co-operative Bank . consumer finance. 1949 (as applicable to Co-operative Societies) defined an Urban Co-operative Bank as a Primary Co-operative Bank other than a Primary Cooperative Society were made applicable in 1966. Provisions of Section 5 (CCV) of Banking Regulation Act.In the formative stage Co-operative Banks were Urban Co-operative Societies run on community basis and their lending activities were restricted to meeting the credit requirements of their members. personal finance etc. small businessmen / industries. house finance. Besides giving traditional lending activity meeting the credit requirements of their customers they started catering to various sorts of customers vessel-employed. With gradual growth and also given Philip with the economic boom.
Primary Agricultural Credit Societies: 3. Land Development Banks: 15 . Primary Urban Co-op Banks: 2. District Central Co-op Banks: 4.CATEGORIES:- The co-operative banking structure in India is divided into following main 5 categories : 1. State Co-operative Banks: 5.
Co-operative bank performs all the main banking functions of deposit mobilization. Co-operative Banks provide limited banking products and are functionally specialists in agriculture related products. do not pursue the goal of profit maximization. UCBs. They function with the rule of "one member. SCBs. The State Co-operative Banks (SCBs). supply of credit and provision of remittance facilities. as a principle.Features:- Co-operative Banks are organized and managed on the principal of cooperation. and metropolitan areas also. however. and CCBs operate in semi urban. The urban and non-agricultural business of these banks has grown over the years. can lend upto Rs 3 lakh for housing purposes. while the commercial banks. Cubs provide working capital loans and term loan as well. The co-operative banks demonstrate a shift from rural to urban. from urban to rural. urban. and mutual help. The UCBs can provide advances against shares and debentures also. no loss" basis. However. one vote". self-help. co-operative banks now provide housing loans also. Co-operative banks. 16 . Function on "no profit. Co-operative bank do banking business mainly in the agriculture and rural sector. However. The scheduled UCBs. Central Co-operative Banks (CCBs) and Urban Co-operative Banks (UCBs) can normally extend housing loans unto Rs 1 lakh to an individual.
The Banking Regulation Act defines the business as banking by stating the essential functions of a banker. repayable on demand or otherwise. The term ‘Banking’ is defined as “Accepting”. draft. Banking Structure In India :- Reserve Bank Of India Foundation :Nationalisation :First Governor :First Indian Governor :Governor Of Present :- 1st April 1935 ( as a private bank ) 1st January 1949 Sir Obsborn Ardsmith ( 1935-19) C. Deshmukh ( 1943-1949 ) Bimal Jalan 17 .D. of deposits of money form the public. which transacts the business of banking in India. for the purpose of lending or investment. It also states the various other businesses a banking company may be engaged in and prohibits certain business to be performed by it.Definition of Banking:- A banking company is defined as a company. order or otherwise. and withdrawal by cheque.
Commercial and Co-operative banks. Regulation on exchange value of rupee. 2. the Imperial Bank Of India was nationalized and renamed as State Bank Of India. it is world’s largest bank with 10. As a commercial bank and view pointing to branches. State Government. a. a.Function Of RBI :- 1. As a bank of Government. Rule currency notes greater than one rupee. 18 . Today it is largest bank of India. 3. As deregulations of India in IMF (International Monetary State Bank Of India :- In 1955. Federation) Monetary regulation.836 branches.
Indian Overseas Bank 7. 1. 3. 5.Nationalized Banks:Below mentioned 14 banks were nationalized on the date of 19th July 1969. 14. 4. 5. Bank Of India 2. 8. 1. Indian Bank Central Bank Canara Bank Syndicate Bank United Commercial Bank Allahabad Bank United Bank Of India Dena Bank Other 6 Bank were nationalized on 15th April 1980. 13. 4. 12. Andhra Bank Corporation Bank New Bank Of India Oriented Bank Of India Punjab & Singh Bank Vijaya Bank 19 . 10. 2. 9. 11. Union Bank Of India Bank Of Maharashtra Bank Of Baroda Punjab National Bank 6. 3. 6.
In October 1993. Types Of Bank :Indian Banks can be classified on the basis of their Working are as follows: Commercial Bank :It provides various kinds of services 20 . the new bank of India and Punjab National Bank were uninfected.
there still exist a number of defects in the organisation. In 1914. the Montague Chelmsford Act made Cooperation a provincial subject. The dawn of this country saw the evolution cooperative movement in India. These societies. However.INTRODUCTION OF CO-OPERATIVE BANK Unlike commercial banks which are engaged in serving the industrial and commercial sectors of the economy. Under the Banking Regulation Act of 1949. Cooperative banks have been brought under the control of the Reserve Bank of Bank. In 1919. however. This led to the enactment of a new act in 1912. Cooperative societies came into being when the Cooperative Societies Act. The Cooperative Societies Act of 1912 provided for starting Central Cooperative Banks with headquarters located in urban centers. could not mobilize enough resources as compared to loans demanded by its members. This has led qualitative improvement to suffer. The state Cooperative Bank is formed by the federation of Central Cooperative Banks functioning at the district level. 22 . separate Cooperative Societies Acts have been passed by all state governments. the cooperative banks. 1904. Since then. Although cooperative banks in India have shown progress since their establishment. on the other hand provide credit and allied facilities to the rural and agricultural sectors.The government appointed the Maclagan Committee to look into and make recommendations for the improvement of a State Cooperative Bank for each State. The Act provided for the formation of cooperative credit societies and a number of small primary credit societies were established in various parts of the country. was enacted. reorganize and promote the growth of cooperative banking in India. The present organisation of the cooperatives in India is based on the recommendation made by the Maclagan Committee. The movement was started with the aim of providing farmers funds with low rates of interest so that exploitation by the village moneylenders is foiled. the Reserve Bank of India took the initiative to revitalize. necessary steps were taken by the then government to strengthen the cooperative movement .
The object of co-operative banks is to offer banking facilities to persons of limited means requiring credit for productive purposes in the use of the land and labor at their disposal. Co-operative banks are best suited for this purpose. Central / district co-operative banks. The co-operative banking structure in India may be divided into three component parts. 23 .State co-operative banks (also called as apex banks) at the top. viz. Primary co-operative credit societies.Farmers in India are scattered all over the country and need short-term small borrowings for agricultural purposes. 1. Therefore. 2. special types of banks are necessary for the financing of agriculture. Land which these farmers can offer to cover bank advances is not generally accepted as security by commercial banks. 3. This need is not fulfilled by commercial banks which are unsuited for financing agriculture.
Here individuals of a particular area meet together inspired by sentiment of co-operation. Since state co-operative bank is an apex bank. MacLean Committee appointed in 1974 recommended establishing at least one state co-operative bank per state.Primary co-operative credit societies: Primary credit society is at the bottom of the three-tier structure of cooperative banks. share capital and deposit of people. 24 . The financial help for co-operative lending activity given by Reserve Bank is also given through state co-operative bank. Every member has to pay his share in a share capital.State Co-operative Banks: This is the apex bank in the three tier structure set up of the country. The functioning of such society is limited. The price of a share is nominal so that even a common man can be a member. its balance and controlling. the central co-operative banks earned much importance the flow of rural advances reach to every farmer's home through this bank via credit society. After the report of all India rural advances inquiry committee in 1945. In reality central co-operative banks were establish to supply financial help to primary credit society. 3. only a few people living within the area of society are admitted as members. To day every state has the state co-operative bank.1. In case of need such society also get finance from central cooperative banks or state co-operative bank? Normally society grants loans to members on individual responsibility. Such a society collects its funds by admission fees. The society normally contacts farmers. Hon-secretary and members of working committee. The society is managed by elected people. 2. its main function is coordination of co-operative lending.District co-operative Bank: This bank is a link joining state co-operative bank with the primary credit society. So.
the managing director. It is in the category of town at that time. And also joint venture with the south Gujarat electricity board and Gujarat gas and made the opportunity to help the people.. Rander. Now he was finished it’s 84 years and come in its 85 th year. For that reason on the day of 1st AUGUST. people use balter system for transaction means they transect service instead of service and things on behalf of the service. This bank had started first “women development” by primary girl’s school and had provided ambulance to THE SURAT MUNICIPAL CORPORATION to facilitate that time people. And they had decided to established bank. was came into existence. was developed as a town instead of village. 25 . And also help to “KURUKSHATRA SMASHANBHUMI”. 1923 THE RANDER PEOPLES CO-OPERATIVE BANK LTD. the chairman of the bank and madhubhai sarang. employees and other directors. That was they have to pay very huge amount for the development. in that situation also with the help of Shree Navnitbhai Patel. After the establishment years the company had faced many difficulties. Before independence of our country. in which this bank was established. They computerized the existence branch and also done air-conditioner in the bank. At that time there was necessities of money for the transaction. situated at jahangirpura and LOKMANYA VIDHYALAYA. they revolution the bank and ring road branch. It was developing very faster compare to other villages.. Money lenders misuse of that situation by getting more interest on the lending money from the poor and illiterate people.HISTORY OF THE RANDER PEOPLES CO-OPERATIVE BANK LTD. At that time the some literate people done long thought for poor and illiterate people against those money-lenders. when there was no banking services invented. During the flood-august 2006.
MORABHAGAL. 26 . with the help of staff member and gurukrupa class they had planned to BLOOD-CAMP to the SURAT BLOOD CENTRE.They had celebrated 85th anniversary of the bank on the 5th AUGUST 2007 between 9:00 am to 12:00 pm at GURUKRUPA COACHING CLASS.
☻ To fulfill social responsibilities. The bank has its following goals to fulfillment☻ To provide education loan facilities to the student. the company got B grade which was C grade in earlier.MISSION OF THE BANK The bank has its following mission: Before two years. but last year it was earned profit. ☻ To provide loans to the people of the society. ☻ To increase social satisfaction towards bank. the bank incurred loses continually for two years. In the 2006-07. 27 . ☻ To provide various camps for society. So the mission of the company to achieve A grade in next years.
LTD. ☻ Demand draft of 10000/.rs without any commission. ☻ Special facilities for sr. citizens. ☻ Locker facilities. ☻ Interest rate on securities. ☻ Collection of bills of SOUTH GUJARAT ELECTRICITY CO.OBJECTIVES OF THE BANK:- ☻ To Computerize and air-conditioner infrastructures and modern facility. LTD. 28 . ☻ Insurance service with the joint venture of the BAJAJ ALLIENCE INSURANCE CO. ☻ Collection of bills of GUJARAT GAS CO. ☻ Faster loan at low rate.
☻ Bills collection of GUJARAT GAS.FACILITIES PROVIDED BY THE BANK:- ☻ Loan facility to the people. ☻ Computerize and air-conditioner infrastructure. ☻ Education loan at low rate. ☻ Loans to business unit.B. ☻ Saving account and current account facility.E. ☻ Bills collection of G. 29 . ☻ Vehicles loan facility. ☻ Locker facility.
Once the borrower receives a notice from the concerned bank and the financial institution. When amount due is less than rs One Lac. i. bank can issue notice to the defaulters to pay up the dues and the borrows will have to clear their dues within 60 days. In order to bring the situation under control. the secured assets mentioned in the notice can not be sold or transferred without the concept of the lenders.e.Introduction:- It’s a known fact that the bank and financial institutions in India face the problem of swelling non performing assets (NPAs) and the issue is becoming more and more unmanageable. the borrow has repaid more than 80% of the principal amount and interest. No action can be taken if : It is agricultural land.some steps have been taken recently.2002 was passed by passed by parliament. The Securitization and Reconstruction of financial Assets and Enforcement of Security Interest Act. which is an important step towards elimination or reduction of NPAs. bank can also take over the management of the company. With the enactment of the Securitization and Reconstruction of financial assets and enforcement security interest Act. Thus the banker under the aforementioned act will have the much-needed authority to either sell the assets of the defaulting companies/person or change their management. When amount due is less than 20% of the principal amount and interest there on. The main purpose of this notice is to inform the borrower either the sum due to the bank or financial institution is paid by the borrow or else the former will take action by way of taking over the possession of assets. 2002. 30 . Besides assets.
• The bill remain over due for a period of more than 180 days in the case of bills purchased and discounted. • The account remains ‘Out Of Order’ for a period of more than 180 days. a non performing assts(NPAs)shell be a loan or an advance.2004. it has been decided to adopt the ’90 days overdue’ norm of identification of NPAs . 31 . However with effect from March 2004. With a view of moving towards international best practices and to ensure greater transparency. A Non Performing Assets(NPAs) shell be an advance where • Interest and/or installment of principal remain over due for a period of more then 180 days in respect of a term loan.default status would be given to a borrows if dues are not paid for 90 days. with effect form March 31. then the bank will have to treat all the advance/credit facility granted to that borrower as non-performing without having any regard to fact that there may still exist certain advance/credit facilities having performing status.Meaning:- An assets is classified as non-performing assets (NPAs) if the borrower does not pay dues in the from of principal and interest for a period of 180 days. • Interest and/or installment of principal remains over due for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose. Accordingly. from the year ending March 31. If any advance or credit facility granted by bank to a borrows becomes non-performing. 2004. and • Any amount to be received remains over due for a period of more than 180 days in respect of other accounts. in respect of an overdraft/cash credit (OD/CC).
they can sell off their bad loans to a company that has those skills. Securitization act: The new law. has three salient points: Bank can now recover their assets by issuing notice to a default to pay up. If the defaulter does not do so within 60 days. restructure them and sell them off. officially called the Securitization and Reconstruction of Financial Assets Enforcement of security interest Law. Since the recovery of bad loans require special skills that banks tend to lack. Loans can be traded between banks. The law provides for the setting up of can asset reconstruction Company (ARC). In terms of this guidelines. bank can take the permission of a magistrate and take over the assets – a factory.An assets becomes non-performing when it cases to generate income for the bank. It will buy up dead loans from banks. A non-performing assets 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. Reserve bank of India (RBI) has issued guidelines on provisioning requirement with respect to bank advances. like bonds and shares. Bank can now and sell loans via ‘securitization ‘. land or machinery – and sell it off. bank advance are mainly classified into: 32 .
2. If a loan is renegotiated after commencement of production that has the effect of artificially upgraded the status of credit. Sub – standard Assets: Those a/c which are identified as NPA for not more than 18 months (it will be reduced up to 12 month from year 2005). 4. In other words. Standard Assets: The loan a/c that do not disclose any problem other than normal risk and which are not NPA. 33 . 3. such a loan will continue to be treated as sub-standard assets.Loss Assets: Here loss is identified by the banks concerned or by internal auditors or by external auditors or by Reserve Bank India (RBI) inspection. such advances would be first classified as a sub-standard one for a period that.1. etc. The status of the account may be upgraded after one year. In terms of RBI guidelines.Doubtful Assets: Assets that has remained NPA for a period exceeding 18 months is a doubtful assets. If the account shows satisfactory performance. as and when an assets becomes an NPA. the account that are NPA for not more than 2 years will be classified as substandard. In case of cash credit. it carries not more than normal risk attached to the business.
there is a potential threat to recovery if there is substantial erosion in the value of security given by the borrower or if borrower has committed Fraud under such a situation it will be prudent to classify the advance as a doubtful or appropriate.Should not exceed 18 month and subsequently as doubtful assets. However. It should be noted that the above classification is only for the purpose of computing the amount of provision that should be made with respect to bank advance and certainly not for the purpose of presentation of advance sheet.2002 directing the defaulter to either pay the dues to the bank or else give the possession of the secured assets mentioned in the notice. loss assets . Bank have started issuing notices under the Securitization Act . as 34 .
Based on this classification. 35 . 1. provision may be made on following bases. 100 percent of out standing should be made. bank makes the necessary provision against these assets. at the rates ranging from 20% to 50% of the secured portion depending upon the period for which the assets at remained doubtful. the bank has to further sub-classify it into Sub-standard. full provision at 100% should be made if expected salvage value of the security is negligible. 2. In respect of an assets identified as a lost assets.Loss Assets: The entire assets should be written of after obtaining necessary approval from the component authority and as per the provision act rules. loss and doubtful assets.Doubtful assets : 100% of the extent to which the advance is not covered by the realizable value of the security to which the bank has a valid resources should be made and the realizable value is estimated on a realistic basis In regard to secured portion.Provision requirements of bank: As and when is classified as an NPA. If the assets are permitted to remain in the books for any reason.
NPAs up to 50% of secured portion should be made by the concerned bank. 36 . for NPAs which are up to 1 year old.Period for which the advances has been considered as doubtful NPA > 18 months and NPA < 30 Months NPA > 30 months and NPA < 54 Months NPA > 54 months Percentage of provision 20% 30% 50% For instance . provision should be made of 20% of secured portion. in case of one-days three year old NPAs up to 30% of the secured portion and finally in case of more than three 3-year-old.
2. the banks should make a provision of minimum of 0. Reserve bank of India (RBI) has merely laid down the minimum provisioning requirement that should be complied with by the concerned bank on a mandatory basis however where there is a substantial uncertainty to recovery.1. 37 . Standard assets: From the year ending 31/03/2000.25 percent on standard assets. Sub-standard assets: A general provision of 10 % on total outstanding shod be made without making any allowance for DICGC/ECGC. higher provisioning should be made by the bank concerned.
pledge). In this case the entire loan outstanding to be treated as NPA. AC\C or O\D facility is NPA.Facility wise criteria to determine whether an advance is NPA or not:- Term Loan Term loans. etc. even if there is default in payment of interest\ installment. housing loans. etc that is. overdrafts against securities/ shares. bridge loans. it will not be treated as NPA. it will be treated as NPA. against government securities. if any amount to be received in respect of the facility remains overdue for 2 quarters.d. bills due. crop loans. personal loan. staff loans.c / Over draft o. advance against duty drawback. loans having fixed due dates of repayment. in case of C\C account if the account remains out of order in last quarter in addition to anyone of the remaining three quarters. educational loans. Cash credit (hypothecation. Admissible grace period or transit\ negotiation period shall only be given in conformity with established banking practices to be given. Bills purchased\ bills discounted Bills purchase \ bills Discount will be treated as NPA if remains overdue and unpaid for 2quarters after the due date. Cash credit c. packing credit. shares\ debentures. demand loans. 38 . etc. in other words if the account is out of order in any two quarter but regular in last quarter. if it is out of order for 2 quarters in a year. Other accounts Advance bills.
Rising level of inventories.Warning signals of NPA:- Following are the warning signals of NPA Continuous irregularities in cash credit \ overdraft account such as inability to maintain stipulated margin on continuous basis or drawings frequently exceeding sectioned limit. water. Frequent return of cheques or bills. Failure to make timely payment of installments of principal and interest on term loans. Steep decline in production figures. 39 . power. Downward trend in credit summation. about nonpayment of bills. Downward trends in sales and fall in profits. this may include large proportion of slow or non-moving items. Non-submission or undue delay in submission or submission of incorrect stock statements and other control statements. Large period of credit allowed on sale documents negotiated through the bank and frequent return by customers of the same as also allowing large discount on sales. Outstanding balance in cash credit account remaining continuously at the maximum. Complaints from suppliers of raw materials. Attempt to divert sale proceeds through account with other bank. periodical interest debited remaining unrealized. etc.
Various steps for reducing NPAs:- Study the problem of NPAs – branch wise. assignment or sale for realizing the secured assets. Create special Recovery cells at Head office/Branch office. 40 . Prepare Loans Recovery Policy and Strategies for reducing NPAs. Identify critical branches for recovery. Take corrective steps whenever found necessary while implementing the action plan and make changes in the original plan if necessary. Take possession of the secured assets of the borrower including the right to transfer by way of lease. Fix target of recovery and draw time bound action plan. amount wise. Select proper techniques for solving the problem of each NPA. and age wise. Monitor implementation of the time bound action plan drawn.
While judging the performance of staff sufficient emphasis\ weight age should be laid on the recovery of loan. As a prudent banker it is always better to follow the proper policy for appraisal. After implementing of these guidelines bank will have to fully vigilant about the different banks to reduce their NPAs. supervision and follow up of advances to avoid NPAs. each bank should evolve a “Loan Recovery Policy” giving details of the strategies to be adopted for recovery of dues period wise targeted level of reduction in NPAs. Reduction in NPAs will necessarily result into improving profitability of banks. Proper monitoring of the policy at periodical intervals is equally necessary. risk attached to lending cannot be completely eliminated. it is necessary to take corrective steps to reduce them. assets classification and financial picture in the balance sheet but also to take corrective steps for improving their loan portfolio.Strategies for reducing NPA:- Guidelines issued by reserve bank of India regarding income recognition. 41 . In the above backdrop. However. if certain advances are converted into NPAs. factors to be taken into consideration. Therefore. The policy framed should be placed before its board for its approval. norms for entering into compromise proposals involving sacrifice\waiver.
14 13.96 0.89 7.56 0.90 5.67 6.67 3. securities machinery loan vehicle loan goods loan goods(hypo) loan loan against book debt loan against fixed deposit housing loan Loan against assets business loan ISL jewelry loan Bills secured Bills unsecured secured loans Total 0.98 56.35 100 42 .87 7.87 0.08 0 0.ANALYSIS:Loan Disbursement at Ring Road Branch: PERTICULARS 2005 loan against govt.13 7.54 3.92 65.89 0.56 2.89 100 YEARS 2006 0.90 12.73 0.06 0.42 0.3 0.72 1.80 6.08 1.78 0 0.43 5.97 58.69 0 4.88 3.84 14.69 2.96 0.12 1.58 0 0.32 100 2007 0.56 5.66 0.76 4.34 2.
58 % 14.00% 13.50% 13.00% 11.50% 14.00% 14.50% 12.42% 3 BUSINESS LOAN 15. 44 .00% 12.69 % 2 13.BUSINESS LOAN PERTICULARS BUSINESS LOAN 1 12. as represented graphically we can see that bank has increased iota disbursement in the area of business loans.50% 1 2 3 PERCENT From the last three years data given in the table as well.
04 0.43% 2006 3.06 0.LOANS AGAINST FIXED DEPOSITS PERPICULARS LOAN AGAINST FIXED DEPOSIT 2005 2.96% LOAN AGAINST FIXED DEPOSITS 0.89% 2007 2. 45 .08 PERSENT 0.02 0 1 2 YEAR 3 4 LOAN AGAINST FIXED DEPOSIT 2007 From the above chart and table we can observe that there was a sufficient increase in the percent loan given against fixed exposit.
90% 3.91% 2005 2006 2007 PERTICULAR MACHINARY LOAN 3.00% 200000.00% 100000.00% MACHINARY LOAN 3.90% 2 3.00% 0.56% 3 3. as the small entrepreneurs have been motivated to go for selfemployment.56% 3.MACHINARY LOAN PERTICULAR MACHINARY LOAN 2005 3.91% 47 .90% 2006 3. 300000.56% 2007 3.91% From the above table we can see there is gradual increase the amount of loan for machinery.91% PERTICULAR 1 3.56% 3.90% 3.
30% The above table represents the NPA occurred in past 5 years.86% 30.which is a dangerous signal for the bank and has to consider the problem very seriously. It is clearly seen that there is a lot of increase in the percentage of NPa.NPA IN RINGROAD BRANCH YEAR 31/3/03 31/3/04 31/3/05 31/3/06 31/3/07 NPA (%) 14.18% 15. Bank should increase their recovery activities and should take care in sanctioning the loan so they can put a check on the increasing NPA. 48 .87% 21.64% 22.
ABC Purpose : housing loan Limit sanctioned Rs.EXAMPLE-1 LOAN A/C No of borrower : : Mr. : 555000 Period Interest rate : 5 years monthly installment : 12% Type of loan : Transportation loan 49 .
00 5000.00 542266.DATE 27/06/05 30/06/05 31/07/05 30/08/05 03/09/05 10/09/05 29/09/05 31/10/06 18/11/06 29/11/06 29/11/06 22/12/06 31/12/06 01/01/07 01/01/07 05/01/07 23/01/07 PERTICULAR To loan To int.00 560492. debit To int.00 490492.00 526099. To charge By cash By cash DEBIT 480000.00 536782.00 631.00 5000.00 5000. panel To transfer By transfer To int. debit To int.00 13.00 8.00 4898. debit To int.00 3000.00 4948.00 5324.00 5000.00 485530.00 50 .00 29000.00 531099.00 480631.00 537612. panel By cash By back date correction By cash To int.00 8600.00 5282.00 22.00 537266. panel By cash By cash To int.00 10000.00 70000.00 5471.00 1120.00 1. panel To int. debit To int.00 CREDIT BALANCE 480000.00 14.00 531492. debit to int.00 517499. panel To int.00 528009. debit To int.00 6607.00 531492.00 532612.
housing loans 600000 500000 400000 300000 200000 100000 0 To int. To int. To int. To int. By cas hBy cas h debit panel debit panel 29/09/05 31/10/06 loa ns 18/11/06 29/11/06 transaction S eries1 S eries2 S eries3 51 .
Realization value of assets 5.00 Rs 481637. Interest suspense 3. Unsecured 7 Provision=[131637+(350000*10%) ] Rs 517499.00 Rs 350000.00 Rs 350000. Bank to providing provision on this a/c as under :- 1. we observe that Loan a/c is irregular and is NPA Date of default is 01/07/05 Date of NPA is 01/01/06 NPA category is SUB STANDARD After NPA.00 Rs 166637 52 .From the above a/c .00 Rs 35862. the interest income of Rs 35862 should not book by the bank and keep it in to separate a/c called as interest suspense.00 Rs 131637. Secured portion 6. bank cannot book in the income from the assets therefore. Net amount 4. Total outstanding 2.
00 454. panel To int. Period installment Interest rate Type of loan : : Mr. we observe that. debit To int. debit To int. debit To int.panel To int.LOAN A/C No of borrower Purpose Limit sanctioned Rs.00 7341. debit To int. 53 .00 79.00 77.00 1.00 2.00 7422.00 7672.00 80. panel To int.00 7263.00 7586. XYZ : jewelry : 7200 : 1 years monthly : 12.00 7505. panel By transfer By back date correction DEBIT 7200.00 63.00 From the above account.00 1.00 7200.00 M0 7572. panel To int.00 81.00 CREDIT BALANCE 7200. debit To int.00 83.00 3.50% : jewelry loan (short term) DATE 27/07/05 30/07/05 31/07/05 10/08/05 27/09/05 10/09/05 29/09/05 31/10/05 18/11/05 PERTICULAR To transfer To int.0 100.00 2. debit To int.
• • • •
Loan a/c is irregular and is NPA Date of default is 30/06/05 Date of NPA is 31/12/05 NPA category is SUB STANDARD
After NPA, bank can not book the income from the assets, therefore, the interest income of Rs 554.00 should not book by the bank, and keep it in to separate account called as interest suspense.
Bank to provide provision on this account as under :-
1. Total outstanding 2. Interest suspense 3. Net amount 4. Realization value of assets 5. Secured portion 6. Unsecured portion 7. Provision = [00+(7200*10%) ] =
Rs 7200.00 Rs 554.00 Rs 6646.00 Rs 7200.00 Rs 7200.00 Rs 7200.00 Rs 720.00
FINDING AND SUGGESTIONS:-
From the study conducted at Rander Peoples Co-Operative Bank LTD. It
was found that the there was a gradual increase in the percent of NPA in the
It has been seen that increase in the NPA for the past two years is
because of the problem occurred in the case of madhvpura Bank Where Rander Peoples Co-Operative Bank had invested a huge amount
in terms of giving them loan. The bank professional (of recovery department) has done a great job by
conducting rigorous recovery programs with the help and support of the top management and the respective branch manager which have kept the check on increasing present of NPA.
Bank has to take almost all precautions during appraisal of loan proposal
that can avoid sanctioning of bad proposal.
After disbursement of loan, bank should monitor account regularly and
take necessary steps for recovery in time, that can help bank regularized the loan accounts.
Bank should study individual accounts, purpose-wise and age wise NPA
account and prepare a strategy looking a local situation for NPA reduction.
Bank should create special recovery cells at Head office/branch Office. Bank should identify the critical branches for recovery and take quick
action against it. Bank should fix target of recovery and draw time bound action plan.
Bank should monitor implementation of time bound action plan drawn.
1 718697.7 13340 8062275.BALANCE SHEET OF RING ROAD BRANCH ON 31-3-2005 CAPITAL AND LIABILITIES 1)Share Capital -Authorized share capital -Issued share capital 2)Reserve Fund and others reserves -Reserve fund -Other reserves 3)Deposits and other account -Fixed deposits 2 -Saving bank deposits 8 -Current deposits 2 4)Borrowings 2 5)Bills for collections 7 6)Branch Adjustment 7)Overdue Interest Reserves -Accumulated -Current year 4 -Overdue interest reserves NPA 3 8)Other liabilities 9)Interest payable 5 10)Profit and loss 6 11)contingent Liabilities 0 TOTAL 280394170. 80476295. 418503123 131883945 AMOUNT 31-03-2005 193540 57 .9 185498139.9 78540891.1 3 1331981 472772.6 117638820 6 3834008.
39 66887339. 58 . 9 78540891.7 357680.7 53199288.1 3 718697.BALANCE SHEET AS ON 31-3-2005 PROPERITERS AND ASSETS 1)Cash a)On hand 9 b)In current deposits 9 2)Balance with other banks a)Current deposits b)Saving bank deposits c)Fixed deposits 3)Money at call & short notice 4)Investment 5)Advances a)Short term loans & overdrafts 8 b)Medium term loans 2 c)Long term loans 2 6)Interest receivable 7)Bills receivable 8)Branch adjustment 9)Premises 10)Furniture & fixtures 11)Other Assets TOTAL 290601.2 AMOUNT 274403 AMOUNT 18526478.6 7 57663897.3 7 426693.4 138613106. 5 290601.9 5 1038562.8 7 280394170.2 9 3101719.
9 33734414.92 338193787.RANDER PEOPLES CO-OPERATIVE BANK LTD BALANCE SHEET AS ON 31-03-2005 31-3-2004 CAPTIAL AND LIABLITIES 1)SHARE CAPTIAL -Authorized share capital -Issued share capital 728919 shares each Rs 100 54shares each Rs 25 2)RESERVE FUND AND OTHER RESERVES -Reserve fund -Other reserves 3)SUB STATE P’SHIP FUND A/C 4)DEPOSITS AND OTHER A/C -Fixed deposits -Saving bank deposits -Current deposits 5)CALL AND SHORT TERM 41599053 10390029 300123774 18086291 104889985 79127682 98019816 6)BILLS FOR COLLECTION 7)BRANCH ADJUSTMENT 8)OVERDUE INTEREST r -Accumulated -Arbitration -Decreed -Overdue interest reserves 59 27008524.4 162929032.5 14145339 127385001.2 AMOUNT 31-3-2005 100000000 74837050 100000000 72893250 72891900 1350 643483909.2 .4 520342931 19950004 540292935 520342931 19950004 137466880 2 629931699 351604223 1211677825.5 295190221.1 3751243.65 510452857.
45 20022979.38 381620663. SBI & state co-operative 2) DEPOSITS IN OTHER BANKS -Current deposits -Saving bank deposits -Fixed deposits 3) MONEY AT CALL AND SHORT NOTICE 4) INVESTMENT 5) INVESTMENT IN SUB P’SHIP AMOUNT 31-03-05 139746983.57 286230927.45 859890348.91 988.89 112924546.3 877170335.9 27000000 643925052 38546252 368570598 460461672 312643399 30605916 104889985 6) ADVANCES -Short term loan -Medium term loan -Long term loan 7) INTEREST RECEIVABLE -On investment -On arbitration 351347610.21105766 8055893 42341671 17295016 339495089 5 9)OHER LIABILITIES 10)INTEREST PAYABLE 11)PROFIT AND LOSS 12)CONTIGENT LIABILITIES TOTAL 7822570 7822570 31568236.89 4886039.4 60 .15 26822436.4 24875967.3 17278997.57 127385001.65 3159108872 31-03-04 149594270 32079879 117514391 818123126 21930088 931 796192107 15000000 768561090 PROPERTIES & ASSETS 1) CASH -On hand -In RBI.
21 3159108872 61 .1 22076502 27885 10)BANK PREMISES 11)PURCHASED ASSETS AGAINST BANK OR 12) FURNITURES 13)OTHER ASSETS TOTAL 20407070.79127682 98019816 42599053 -On decreed -On NPA 8) BILLS RECEIVABLE 9) BRANCH ADJUSTMENT 162929032.2 27008524.9 33734414.71 40995521.76 27885 8083080 36328880 339495089 5 7230601.
BIBLIOGRAPHY I had taken the help of following instrument during my project work. ⇒ ⇒ Internet Books K Aswatthapa for financial management Project analysis book of prasanna Chandra Annual report of the bank Publication of the bank 62 . ⇒ ⇒ 1. 2.
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