Executive Summary Credit Management Can Be Defined As "Management of Loans and

A STUDY ON CREDIT MANAGEMENT AT APEX CO OPERATIVE BANK LTD
EXECUTIVE SUMMARY
Credit Management can be defined as “Management of loans and

advances in banks”.
While business firms would like to sell on cash the pressure of competition
and the force to custom persuade them to sell on credit. Firms grant credit to
facilitate sales. It is valuable to the customers as it augments their resources. It is
particularly appealing to those customers who cannot borrow from other sources
or find it very expensive or inconvenience to do so. Advances comprise a very
large portion of total bank assets and from the backbone of every bank structure.
The strength of the bank is thus primarily judged by the soundness of its advances.
Advances not play an important role in gross earnings of banks, but also promote
the economic development of the country. All type of business activity including
trade, industry, and agriculture depend on bank finance in one form or other.
Banks by channelizing accumulated savings of the nation into productive uses
help both depositors and borrowers.
Loans from the major business activity of a bank and they need to be liquid
and easily realizable as the bank is obligated to repay the depositors as and when
they are due for payment. Major part of the bank’s income is earned from interest
on the advances. So there is a need for the proper management of loans and
advances.
SURANA COLLEGE PG CENTRE, BANGALORE. Page 1

1. INTRODUCTION
1.1 BANKING ON OVERVIEW
The Indian Companies Act defines the term banking as “Accepting” for
the sake of lending or investment of deposits of money from the public,
repayable on demand or otherwise and withdrawals by cheque, draft, or
otherwise.
A banker is a dealer in money and credit. The business of banking consist

of borrowing and lending, Banks acts as financial intermediaries between
savers (lenders) and investors (borrowers) by accepting deposits of money
form a large number of customers and lending a major portion of accumulated
“pool” of money to those who wish to borrow. In this process banks secure
reasonable return for the savers, make funds available to the investors at a cost
and earn a profit for themselves after covering the cost of funds and providing
for corporate taxes to the Government. Thus, the banking institution in a
country mobilizes savings a by accepting monetary deposits from the people,
participate in the mechanism for the exchange of goods and services, and
extend credit while lending money.
HISTORY OF MODERN BANKING IN INDIA
PRE NATIONALIZATION PERIOD:
The history of modern banking in India dates back to the quarter of 18th
century. During this period the English agency houses of Bombay and
Calcutta started banking business in India. They set up the Bank of Hindustan
around 1770 followed by setting up a presidency bank of Madras 1834.

In 1921, all these banks were amalgamated and Imperial Banks was
constituted. In the late 19th and early 20th centuries, Swadeshi movement
inspired to start banks in India. The Indian banks were established during this
period. In 1935, the Reserve Bank o India was established as a Central Bank
for regulating and controlling the banking business in the country. Soon after
independence, the Reserve bank was nationalized in September 1948. The
outlook of Reserve Bank changed after the inception of planning in 1950-51
and the country adopting a socialistic pattern of society.
POST-NATIONALIZATION PERIOD:
On accounts of the top sided growth of the banking system and to bridge
the gap between a few industrial houses and banks, the scheme of the social
control was imposed on banks with effect from February 1, 1969. It resulted in
setting up of a national credit council for more equitable distribution of bank
credit and legislative changes more broad based. Banking Regulation Act for
making the board of the banks more broad based. As a result, the government
resorted to a more radical measure by nationalizing 14 major banks on July
1969.
Later on in April 1980, six more banks were nationalized to achieve the
objective. The objective of nationalization was to control the commanding
height of economy and to meet progressively and serve the needs of the
developing economy in confirming to the national policy and objective.
Another welcome feature of post-nationalization period is setting up of
Regional Rural banks as per the provisions of the Regional Rural Banks Act,
1976. These banks confine in themselves the simplicity of operations as

required by local conditions and the efficiency and business-like approach of

the commercial banks.
At the end of June 1986, there were 194 Regional Rural Banks covering
324 districts. Thus, the banking system during the post nationalization period
has undergone a major structural transformation. There has been a
phenomenal expansion of branchy network particularly the hitherto under-
banked areas.
PRESENT SCENARIO OF BANKING INDUSTRY:
The Indian banking can be broadly categorized into nationalized

(Government oriented) private banks, and specialized banking institutions. The
RBI acts as a centralized body monitoring any discrepancies and shortcoming
in the system. Since the nationalization of the banks in 1969 the public sector
banks or the nationalized banks have acquired a place prominence and has then
seen tremendous progress.
The Indian banking has come a long way from a sleepy business
institution to a highly proactive and dynamic activity. This transformation has
been largely brought by the large dose of liberalization and economic reforms
that allowed banks to explore new business opportunities rather than
generating revenues from conventional streams that is borrowing and lending.
The co-operative banks too have invested in information technology to offer
computerized banking services to its clients.
NEW GENERATION BANKING:
The liberalized policy of Government of India permitted entry of private

sector in banking the industry has witnessed the entry of new generation
private banks. The major parameter that distinguishes these banks from all the

other banks in Indian banking is the level of services that is offered to the
customer. Verifying the focus has always being centered on the customer
understanding his needs and delighting him with various configurations of
benefits of benefits and a wide portfolio of products and services. The
popularities of these banks can be gauged by the fact that in a short span of
time, these banks have gained considerable customer confidence and
consequently, have shown impressive growth sales.
1.2 CLASSIFICATION OF BANKS:
Banks are classified into several types based on the function they
perform.
Generally banks are classifieds into:
1. Investment banks
2. Co-operative banks.
3. Commercial banks.
4. Lands development banks.
5. Savings banks.
6. Central banks.
1. Commercial Banks: Commercial banks perform all the business

transaction of a typical bank. Commercial Banks accept three types of

deposits, Like Savings Bank Deposit, Fixed Deposit and Current Deposit.
They accept these deposit, which are payable on demand or in short notice.
As such they lend or invest only for short duration. They funds for short-
term needs of trade of commerce.
2. Investment or Industrial Bank: Investment Banks are those banks, which

provide funds on long term for industries. These Banks have specialized in
providing long term loans to industries with a view to buy plant of
machinery. The investment Banks obtain funds through share capital,
Debentures and long term deposits from the public. They float bonds for the
sake of mobilizing funds to provide funds for big industries corporations.
These banks also under write or issue new shares of debentures of industrial
concerns.
3. Exchange Banks: Exchange Banks are known as foreign Banks or foreign

exchange Banks. The foreign exchange banks provide exchange for imports
trade. Their main function is to make international payment through
purchased sake of exchange bills.
4. Co-operative Banks: Co-operative Banks are promoted to meet the

banking requirements of consumers. They are established not only in the
urban areas but also in the rural areas. In the rural areas these banks supply
finances to agriculture, while in the urban areas they provide finance to
consumer goods.

5. Land Mortgage Banks: Whenever agriculturist require investment loans,

they have to approach land development Banks. Where loans are given on
long-term basis. They provide loans on the security of the land.
6. Savings Banks: Savings Banks are specialized financial institutions

established to mobilize savings from the people. The primary objective of
the commercial Banks is to promote thrift among the low and middle-
income groups. The Banks also offer interest on these deposits.
7. Central Banks: Central Bank is an apex Bank in the country, which keeps
the entire banking system unified, controlled and regulated. In fact, the
central bank is the Bank, which formulates the monetary policy. It regulates
the notice issue. In India, the Reserve Bank of India is the central Bank of
India.
1.3 FUNCTIONS OF BANKING:

The main functioning under section 5 and 6 banking act is:
1. Borrowing of money in the form of deposits.
2. Lending or advancing of money in the form of different types of

loans.
3. The drawing, accepting, discounting, buying, and selling,

collecting, and dealing in bills of exchange, promissory notes, coupons,
drafts bills of lending railway receipts, warrants, debentures, certificates,
securities, both negotiable and non-negotiable.
4. The granting and issuing of credit, traveler’s cheque etc.
5. The acquiring holding issuing on commission, underwriting,

dealing in stock, funds, share debenture, bonds securities of all kinds.
6. The purchasing and selling of bonds script’s and other forms of

securities on behalf of constituents or others, negotiations or loans and
advances, the receiving of all kinds of bonds or valuables on deposits or
for safe custody or otherwise.
7. Providing safe deposit vaults.
8. Collecting, transmitting of money and securities.
9. Buying and selling of foreign exchange including foreign notes.
SUBSIDIARY FUNCTIONS OF BANKING:
1. Acting as agent’s governments or local authorities or any other

person or persons.

2. Carrying out agency business of any description.
3. Contracting for public and private loans and negotiations and

issuing the same.
4. Carrying on guarantee and indemnity business.
5. Managing to sell and realize any property or any interest in any

such property.
6. This may form the security for any loans and advances made by
the banks.
7. Undertaking and executing of trusts.
8. Granting of pensions and allowances and making payments

towards pension.
1.4 IMPORTANCE OF BANKING
The economic importances of banks are as follows
1. Banks mobilize the small, scattered, and idle savings of the people
and make them available for productive purposes.
2. By accepting savings of the people, banks provide safety and

security to the surplus money for the depositors.
3. By offering attractive interest rates on the savings of the people

with the banks, banks promote the habit of thrift and saving among the
people.

4. Banks influence the rates of interest in the money market. Through

the supply of money, banks exert a powerful influence on the interest rate.
5. Banks provide a convenient and economical means of transfer of

funds from one place to another place.
6. Banks direct the flow of funds into productive channel. While

lending money, they discriminate in favors of essential activities and
against non-essential activities. Thus, they encourage the development of
the right type of activities, which the society desires.
1.5 CO-OPERATIVE BANKING AN OVERVIEW:
The Co-operative credit system was introduced in India in 1904, when

the co-operative credit society Act was passed. The institutional source of
credit for agriculture and related activities was very inadequate at that time.
The money lenders would provide some credit very high rates of interest. The
co-operative banks were expected to substitutes such unorganized money
market agencies and provide short and long term credit at reasonable rates of
interest. It was expected that they would co-ordinate the activities of
unorganized and organized segments of Indian money market.
Subsequent to the adoption of economic planning in 1951, co operative

banks were expected to play a crucial role in achieving agricultural and rural
development. Before the nationalization of commercial banks the co operative
banks were the only substitute for money lenders and other informal sector
lenders, but after nationalization and creation of Regional Rural Banks and
NABARD their relative share declines.

Co-Operative Banks in India have historically played a major role in

mobilization of domestic savings for economic development of the country.
They have provided the farmers and non-farm entrepreneurs with the needed
credit support. These institutions have also contributed significantly to private
capital formation in agriculture an accelerated the pace of distribution of farm
inputs.
Co-Operative Banks are promoted to meet the banking requirements of

consumers. They are established not only in the urban areas, but also in the
rural areas. In rural areas these banks supply finance to agriculture, while in
the urban areas they are started to provide finance to buy consumer goods.
They provided short and medium term loans. They provide loans at a lower
rate comparatively. They are formed on the Co-operative society principles as
such are more service oriented than profit oriented.
DEFINITION AND MEANING OF CO-OPERATIVE BANKS:
In the words of Henry Wolff “Co-Operative banking is an agency which

is in a position, to deal with the small means on his own terms accepting the
security he has and without drawing in the protection of the rich.”
On the analysis of the above definitions, one can say that Co –Operative
banks is a Co-operative organization, where persons voluntarily associate
together as human being on the basis of equality for the promotion of
economics interest of themselves engaged in the banking is an institution,
which performs the banking functions of accepting deposits and borrowing of
funds and lending of credit.

1.6 FEATURES OF CO-OPERATIVE BANK
1. They are organized and managed on the principle of co operation

self help and mutual help. They function with the rule of one member one
vote.
2. Co-operative banks perform all the main banking function of

deposits mobilization, supply of credit, and provision for remittance
facilities.
3. Co-operative banks are perhaps the first Government supported

agency in India.
4. Co-operative belongs to the, money market as well as the Capital

markets.
5. Co-operative banks accept current, savings, fixed and other types

of time deposits from individuals and institutions including banks.
6. Co-operative banks do banking business mainly in agricultural and

rural sector.
7. Some Co-operative banks are schedule co-operative banks while

other is Non schedule co-operative banks.
1.7 STURUCTURE OF CO-OPERATIVE BANKING IN INDIA:
The Co-operative banking is federal in character with three tie linkages

between state, district, and village level institutions. At the state level we have
development banks SLDBs. At the district level the Central Co-operative
Banks (CCBs) or the District central Co-Operative Banks (CLDs), then at the
village level the Primary Land Development Banks (PLDBs). The lower tiers
are the member and shareholders of the immediate higher ties. Besides, there
are urban Co-operative banks (UCBs) or the Primary Co-Operative banks
(PCBs), which are outside this federal structure.
Though federal in its nature the system is integrated vertically on the

basis of functional responsibilities of various components of the system. The
SCBs, CCBs and PACs from the short term and medium term credit structure
and it is the same in all states. The LDBs at various levels make the long term
credit structures, which is not uniform in all states.
The state level co operative banks are said to be the apex institutions in
their federal structure. However, the apex institutions from the point of view
of promotion, supply of resources and supervision are controlled by the
government. NABARD and national co-operative Banks of India, SCBs, and
SLDBs are in the immediate position between the institution just mentioned on
the one hand and the co-operative banks on the other.
The SCBs Co-ordinate and regulate the working of CCBs. They act as
custodians of surplus funds of the CCBs and supplement them by attracting
deposits and by obtaining loans from the RBI. The CCBs mobilize resources
districts to finance their member and they also channelize funds from the SCBs
to primary credit societies.
The PACs (primary Agricultural co-operative society) at the village level

form the base of the Co-operative are baking. Although, they are expected to
be multipurpose societies, they mostly deal in credit. Unlike the short and
medium term credit structure, the arrangements for the provision of long term
and not uniform in all states, however, a majority states have a federal setup for
this purpose also. These states have SLDBs at the state level affiliated to
primary land development banks at the district and Taluk levels. In other states

the operational units below the SLDBs are the branches of SLDBs. The
SLDBs obtain funds by issuing ordinary debenture and special development
debenture. The PDBs obtain funds mainly from SLDBs. The LDBs do not
accept deposits and therefore they are not banks in strict sense. They give long
term loans.
The UCBs (urban Co-operative Banks) are like commercial in their

operations. The banking commission had opened that the UCBs have not been
uniformly and clearly defined in all states. The UCBs are normally restricted
under their bylaws and confines their business to metropolitan, urban, and
semi-urban centers. More than one UCB may function in the same own area.
They cater mainly to the needs of the small borrowers and owners of small
scale units, retail traders, professional, and salaried class. The RBI is licensing
authority for new banks and new branches of the existing banks.
1.8 CREDIT MANAGEMENT AN OVERVIEW
Meaning of credit:
Credit allows the customers to buy goods or commodities now, and pay
for them later. We use credit to buy things with an agreement to repay the
loans over a period of time. Other credit plans include personal loans, home
loans, vehicle loans, student loans, small business loans, etc.
Credit management starts with a reliable credit policy prescribed by bank,

RBI Government from time to time. The bank before granting credit to any firm
is broadly interested in knowing firm’s performance and its financial position.
On the receipt of an application from borrower for credit facility, the bank
conduct proper credit investigation, undertake a careful appraisal to assess the

credit requirement and based on this prepare a comprehensive credit report. Such
credit report contains specific recommendations and this will be submitted to
sanctioning authority to obtain necessary sanction. The bank has a well-equipped
reporting system about performance of borrowers.
This study mainly deals with techniques used by the bank for credit
appraisal and identification of reasons for borrowers default. The credits
management procedure involves sanctioning of a loan to borrower. It also
recommends better ways to managing credit management.
The credit management aims to covering the process of financing and

managing credit. The credit management helps to know the performance of the
borrower in bank, reasons for their default, and practices followed by Bank. The
credit management also helps to know what are the various sources of
information to be gathered for the appraisal of credit and monitoring after
sanctioning of loans.
The business firms would like to sell on cash, the pressure of

competition and the force to custom persuade them to sell on credit. Firms
grant credit to facilitate sales. It is valuable to the customers as it augments
their resources. It is particularly appealing to those customers who cannot
borrow from other sources or find it very expensive or inconvenience to do so.
“Credit allows the customer to buy now pay later” so also credit
constitutes the major business activity of the banks i.e. lending loans advances.
Off all the functions of comprise a very large portion of total banks assets and
form the backbone of every bank structure. The strength of the bank is thus
primarily judged by the soundness of its advances. A wise and prudent policy
is regard to advances is considered an important factor inspiring confidence in
the depositors and the prospective customer of a bank.

Advances play an important role in gross earnings of banks, but also

promote the economic development of the country. All type of business
activity including trade, industry, and agriculture depend on bank finance in
one form or other. Banks by channelizing accumulated savings of the nation
into productive uses help both depositors and borrowers. Banks assists in
creating more avenues of employment and thus helps in raising the standard of
living of the people.
Creditability of a bank is one of the most important criteria in establishing

the edit-worthiness of the bank. Loans and advances constitute leading. Loans
from major sectors business activities of the bank and they need to be liquid
and easily realizable as the bank is obligated to repay the depositors as and
when they are due for the payment major parts of the banks income is earned
from interest on the advances. So there is a need for the proper management of
loans and advances.
FUNDS FOR LENDING
If we examine the balance sheet of a bank, we would observe that the

main source fund available for lending and investment are as follows:
1. Deposits of all types-fixed, current, saving, and recurring.
2. Borrowing from other banks mostly from RBI
3. Undistributed profit
4. Paid-up capital
5. General reserves and other resources.
6. Refinance loans from the IDBI and NABARD.
7. Call loans from other financial institutes.

1.9 FORMS OF BANKS LEADING/CLASSIFICATION OF CREDIT
Banks offer different kinds of borrowing facilities to customer for various

purposes according to security, method of payment, which is highlighted
below:
1. LOANS:
A loan account represents one way of lending money to customer. In case

of loan, banker advances a lump sum for certain period at an agreed rate of
interest. The entire amount is paid either in cash or by credit card to his current
account, which he can draw at anytime. The interest is changed for full amount
sanctioned whether he draws the money from his account or not. To this
extent, loan account borrowing is more costly than overdraft.
2. OVERDRAFT:
Overdraft is an arrangement between a banker and his customer by which

latter is allowed to withdraw over and above his credit balance in the current
account up to an agreed limit. This is only temporary arrangement usually
granted against securities which may be personally or tangible.
3. CASH CREDIT:
A cash credit is an arrangement by which the customer is allowed to

borrow money up to a certain limit. The customer need not draw the
sanctioned amount at once, but draw the amount as and when required and can

save the interest by reducing the debit balance whenever he is in a position to

do so. They are granted against personal security.
4. BILLS DISCOUNTED:
Bills maturing within 90 days is discounted by banks for approved

parties. It constitutes a clean advance against two or more signatures of
independent parties, one that of endorser and the other that of drawer. Banks
rely on credit worthiness, standing and means of the endorser.
5. BILLS PURCAHSED:
Bill’s clean or documentaries are sometimes purchased from approved

customers in whose favor regular limits are sanctioned. In case of
documentary bill the drafts are accompanied by documents of titles to goods
such as railway receipts or bill of lading. Before granting a limit the bankers
satisfy himself as to the credit worthiness of the drawer. Sometimes bank
verify the financial standing of the drawers of the bills particularly when the
amounts are large.
6. TERM LOANS:
Since sometimes, bankers have started lending large amount for fairly
long periods to industries and agriculture on the security fixed asset term loan
basis. Such loans are repayable by installment over a number of years ranging
from 3 to 10 years and sometimes more. Banks extended term loans for
acquiring fixed assets by their customer. Banks normally ask for project to

understand the cost of project, source of finance, funds/ cash flow estimates for
the period.
LENDING PRINCIPLES:
1. SAFETY:
Safety is an important principle of sound lending. Safety advance

means that borrower is in a position to repay the loans with interest
according to the terms borrower invests the money in an unproductive or
speculative venture or if the borrower himself is dishonest, the advance
would be in jeopardy.
2. LIQUIDITY:
It is not just sufficient if advances are safe. Money should come back
on demand in accordance with the repayment programmed. This is
possible only when the borrower has used the funds for the purpose of
which he has borrowed.
3. PROFITABILITY:
Banks must deploy the funds in a profitable way and should maximize
returns through profitability is very important. For the sake of higher
profitability the banker should not grant advances to unsound party,
through they are ready to pay higher rate of interest.

4. PURPOSE:
Advances can be safe a liquid only when it is granted for a productive

purpose and used for the4 purpose it is borrowed. Advances permitted for
speculative purpose even if the borrower is ready to pay higher interest is
against the principle of bank lending.
LENDING POLICY:
The principle of loan policy is to arrive at tradeoff between return and risk
with the broader framework of the strategy plan of the bank. In fact, loan
policy should be such as to maximize returns while minimizing risk. In order
to ensure capital growth the bank has to courage substantially non funded
business.
1. Portfolio consideration:
Aggregate development of funds has done in such a manner that the

sudden change in environment should not affect the funds adversely. The
object of any bank is to maximize safety offends and yield there on in the
process reach acceptable standard for deployment of funds keeping the
long range view.

2. Marketing of funds:
Any approach to lending has to be done from the point of view of

achieving desirable ends. Lending should be done after deciding on new
activities, areas, and types of borrowers.
3. Terms and conditions:
The terms and conditions should create a sense of confidence amount

the borrower and the lender. The terms and conditions have to be
acceptable and advantageous, encompassing the duties of the lender and
the obligations of the borrower. And also must disclose financial
information of borrower and the information must be directed towards the
end use of funds that is utilization of borrowed funds for which it is
obtained.
4. Funds position:
The lending policy of a bank depends on the market conditions,

which reflects on the funds deployment opportunities available to the
bank besides lending over a period of time and deposit mobilization
possibilities during that period.
5. Use of funds by the borrower and security available:
Mostly lending is done against the security of some sort of the other
in the form of tangible assets provided by the borrower.

RISK AND BANKING:
Banks now encounter a whole array of risks, prominent among these

being credit risk, market risk, liquidity risk, currency risk, and interest risk are
relatively new for the Indian banks.
Though risk in business cannot be avoided the banker is doing his business
of banking is expected to take minimum calculated risk.
RISK ASSESSMENT AND MANAGEMENT:
Risk is inherent in banking and for that matter in every business. The task
of asset and liability management though cannot be avoided, it should be as
low as possible and manage it and keep different types of risks with an
acceptable level. The banks is exposing to different risks.
1. Credit risk: It refers to the risk of default on loans and advances

granted by banks when timely repayment of principle an interest or both
is threatened due to inability or unwillingness of the borrower.
2. Liquidity risk: It refers to the risk of meeting the maturing

liabilities and not finding enough maturing assets to meet these liabilities.
This risk arises because bank mobilizes deposits, and for different
maturities in the form of demand and time deposits, and locks them by
lending of different maturities. Liquidity gap also arises due to
unpredictability of deposit withdrawals.
3. Interest rate risk: Refers to the risk of changes in the interest rates
subsequent to creation of assets and liabilities at fixed rates. Freedom is
given to co-operative banks to fix up the interest rates on advances,
regional rural banks and commercial banks, which they need to do
depending on the cost of their deposit.
4. Currency risk: This risk is a result of foreign currency exposure

and changes in the rate of exchange of a given currency in terms of both
the domestic and other foreign currencies. A bank engaged in
international market operations is exposed to such risks.
CREDIT MANAGEMENT IN INDIA:
CREDIT PLANNING:
Credit planning has emerged as a major instrument for planned allocation

of credit among the various sectors and projects that have been considered
necessary for the allocation of scarce resources in accordance with planned
priorities.
The basic objective of credit planning is to guide investment and output

along the lines postulated in the development planning by RBI. The macro
level national credit plan is linked with micro level credit budgets of banks.
For the implementation of national level credit plan formulated at the macro
level, it becomes necessary to disaggregate in terms of its various components

like deposit mobilization, credit expansion, priority sector lending, so that

individual banks should know how exactly know how exactly each bank fits
into the national credit plan.
In fact credit planning is two ways process:
 Individual banks credit plan should feed the process of credit plan
formulated at national level.
 Once the national plan is finalized, individual banks should

implement it in terms of its various components.
Based on their experience and judgment banks formulate their own credit
plan in their prescribed preformed. The implementation of the credit plan is
largely the responsibility of individual banks for the realistic estimation of
available resources for lending mainly in the form of mobilization of deposits.
While preparing the credit plan and making credit allocation, a bank
has to consider all quantitative and qualitative aspects as summarized
below:
1. The resources available for deployment have to be gauged from

expected mobilization of deposits, the charge on such deposit accretion by
way of cash reserve as, statutory requirements, and net funds
availability. , banks has to consider all the quantitative and qualitative
aspects as summarized below:

2. Funds required meeting the statutory obligations deducting the

liquid assets from the total estimated demand and time liabilities we can
find out the funds for lending.
3. In estimating the total credit, funds are allocated for sectoral

employment and the balance should be embarked for different segments
of borrowers like industry, trade, and commerce.
4. Each branch of bank will then prepare the annual credit loan for
deployment credit in each of the villages in its own service area.
5. The annual credit plan should reflect both the needs and
potentialities of the area on the basis of the intimate knowledge gained by
the branch manager through the survey.
6. The branch manager will take a note of the lending programmers,

PLDB’s while finalizing their own credit plan.
7. A list of borrower is to be obtained to avoid double financing and

emphasis has to be on agriculture and allied activities.

CREDIT POLICY:
According to the preamble of RBI act of 1934, the main functions of RBI
are to regulate the issue of bank notes and keeping and of reserves with a view
to secure monetary stability and generally to operate the currency and credit
system of the country to its advantage. Credit policy can be looked upon a
short term policy instrument to make connections in the economy as it
progresses.
It is customary for the Reserve bank to announce the credit policy for the
first half the fiscal year. The credit policy indicates the current economics
scenario while at the same time indicates the area where credit policy
initiatives are required. It also specifies the various policy measures to the
indicated by the reserve bank over the next six months.
The credit policy measures may include some or all of the following
measures depending upon the prevailing situations.
 Reserve banks expectations of deposit growth and to achieve that

targeted growth rate.
 Measures to control liquidity in the banking system may include,

CRR, SLR and, curtailment of the refinance facility.
 Changes in the bank deposit and lending interest rate and their
effect on savings and deposit mobilizations, priority sector lending,
investment, and bank profitability.

 Measures to promote agricultural growth and rural development.
 Changes in refinancing and bills rediscounting facilities.
So also individual banks must also prepare their own credit policy in
confirmation with the guidelines issued by RBI. A bank’s credit policy may
be;
1. Tight or restrictive.
2. Liberal or non restrictive.
The credit policy decision of firm has two broad dimensions.
1. Credit standards.
2. Credit analysis.
CREDIT STANDARDS
If credit standards are relaxed it means more credit will be extended, if

standards or tightened less credit will be extended. The written policy states
the type of loan the bank consider desirable. Desirable loans routinely include
the granting of short term loans to the business customers in the trade area to
extent the resources and opportunities permit. The type of loans to be avoided
should be mentioned. It should indicate both desirable and Un acceptable type
s of collateral.
It should further indicate circumstances in which unsecured lending is

prohibited. The loan policy should established lending limits for all loan
officers and loan comities.

The term credit standard represents the basic criteria for extension of
credit to customers.
That is to say, our aims is to show what happens to trade off when
standards are relaxed or alternatively tightened .The implication of four factors
are elaborated below.
1. Collection cost
The implication of relaxed credit standards are:
 More credit.
 The large credit department to service accounts receivables and

related matters.
 Increasing in collection cost.
2. Average collection period/ or credit period:
The credit period refers to the length of time customers are allowed to pay
for their purchases. It generally varies from fifteen days to sixty days. When
the firm those no extent any credit, the credit period would be zero. If a firm
allows 30 days of credit with discount to induce any early payments, its credit
terms are stated has net 30.
3. Bad debts expenses:

Another factor which is expected to affected by changes in credit

standards is bad debt Expenses. They can be expected to increase with
relaxation in credit standards and vice versa.
CREDIT ANALYSIS:
It is process of assessing the risk of lending to a business or an

individual, so called credit risk must be evaluated against the benefits the bank
expected to derive from making a loan. Credit risk is primarily related to the
quality of banks loan portfolio and banks delivery mechanism. A banks risk
exposure is determined by its portfolio of its assets, liabilities, and capital.
Credit risk is a risk that the counter party will to perform on an obligation to
the bank credit risk constitutes the critical portfolio which has to be managed
well by the banks.
Credit risk management has both quantitative and qualitative

dimension. The qualitative dimensions of risk generally more difficult to
access. The two basic involved in this process are.
1. Obtained credit information.
2. Analysis of credit information.
1. OBTAINING CREDIT INFORMATION:
The first step in credit analysis is obtaining credit information which form
a basis evaluates the credit worthiness of a customer. The sources of
information may be.
a. Internal
b. External.
a. INTERNAL:
Banks usually requires their customer to fill various forms and

documents giving details of its financial operations. They also require
furnishing trade reference with which banks can have contact to judge the
credit worthiness of the customer. Another source of credit information is
derived from the records of the banks contemplating on the extension of credit.
It is likely the particular customer may have enjoyed credit facility in the past.
In that case the bank would have information on the behavior of the customer
in the term of historical payment of pattern. But this type of information may
not be sufficiency and may therefore have to be supplemented by information
from other sources.
b. EXTERNAL:
The second source of information is external. The availability of

information from this source to access the credit worthiness of customers
depends on the development of institutional facilities and industry practices. In
India, the external source of information is not developed has much has
industrially developed countries of the world.
2. ANALYSIS OF CREDIT INFORMATION:
Once the credit information has been collected form different sources it
should be analyzed to determined the credit worthiness of the applicant.

Although these are not established procedure to analyze the information the
fund should cover to aspects.
a. Quantitative
b. Qualitative
a. QUANTITATIVE:
The assessment of quantitative aspect is based on the factual

information available from the financial statements the past records of the firm.
The first step involved in this type of assessment is to prepare ageing schedule
of accounts payable of the applicant as well as calculate average age of the
account payable. The excise will give an insight into the past records of the
customer.
Another step involved in analyzing the credit information is through ratio

analysis of the liquidity, profitability, and debt capacity of the applicant. These
ratios should compare with the industry average. More over trend analysis
over a period of time would reveal the financial strength of the customers.
b. QUALITATIVE:
The qualitative assessment should be complimented by a

qualitative interpretation of the applicant’s credit worthiness. The subjective
judgment covers aspect related to the quality management. Here the reference
from other suppliers, bank reference, and specialist bureau report would from
the basis for the conclusion to be drawn. In the ultimate analysis the decision
whether to grant credit to the applicant and hat amount to extend will depend
upon the subjective interpretation of his credit standing.
NON PERFORMING ASSETS:
Banks provide loans advances subject to borrwoer’s promise for the

payment of principal and interest in the future . In this process, banks are
exposed to various types of risks including credit risk arising form non-
performing of laons and defaults of borrowers. More over with globalization
and diversified ownership where credit rating agencies more over with
globalization and diversifieed owenership where credit rating agencies
constatnly revierw the strenght of the banks, managing the level of NPA’s
assuemes greater importance.
The cost of financial intermediaries by banks is high partly is because of

the cross subsidization of NPA. NPAs badly affect the financial health of the
banks. Hence control and management of NPAs are the threat on the
profitabiloity of bank’s because the anks have not only to make provisions but
they have to meet the cost of fundign the un-remunerative assets.
The level of NPA’s is recognized as a critical indicator for assessing

bank’s credit risk, asset quality and efficiency in allocation of resources to
productive sector. At the international level, several studies have indetified a
range of afactors influencing NPA’s of banks. Some hav eargued that the
problem of NPAs could be due to plain bad luck stributing to the business
cyucle and unanticipatged ahosk such as business failures of propducing firms
and disruption of activities due to various clamities. Another view point is that
the problem of NPAs may be due to bad management by banks.
The central governmetn and RBI have taken several steps to reduce NPAs
in the banking system they are:

 Debt recovery tribunals (DRTs)
 Lokadalats
 Asset reconstruction companes (ARCs)
MEANING OF NPAs:
The concept of NPA’s evolved through the narasimhan Committee

Report 1991, has a critical impact on profit ascertainment of banks. Pay,ment
of interest in time was taken as the criteria for treating a loa as performing or
non performing, A NPA has been defined as credit facility in respect of which
interest hasremained unpaid for a period of 4 quarters past due duringn the year
ended 31-3-93, three quarters past due during the year ended 31-3-94, and two
quartersa durign the year ended 31-3-95 and onwards.
In 2001, RBi tightend this further by removing “the past due concept” .
As a result , NPAs are reconnzed 30 days earler than they were to be before
2001. RBI has now advised banks to move the 90 days norms for recongise
loans as non –performing with efect from 31-3-2004. In ahort, NPAs means
the asest whichdo not genereate any interest income to banks, therefore
afecting the profitality of the banks. In other words, if the parties has not paid
for 3 months i.e., 90 days that accout will be under NPA.
1. Standard assests
2. Sub standard assets
3. Doubtful assets 1
Doubtful asset 2
Doubtful asset 3
4. Loss assets.

The following table gives an overview of NPA classification and provisioning

norms.
SL. LOAN DEFINITION EXTENT OF

NO GROUP PROVISION
REQUIRED
1 Standard They are those which are not NPAs
Assets and do not carry more than normal -
risk attached to the business. They
are performing assets or good
assets.
2. Sub standard Those which have well defined 10% of the
assets credit weaknesses that jeopardize principal
the liquidation of debt and are outstanding
characterized by the distinct; loss. Entire
If deficiencies are not corrected. outstanding
“it is usually a non-performing interest to be
asset for a period less than or equal written off.
to `12 months.
3. Doubtful Asset An asset which has remained non- 20%
1 performing asset fir a period
exceeding 1-2 years will be treated
as doubtful asset 1
4. Doubtful asset An asset which has remain non-
2 performing asset for a period 30%
between 2-3 years will be treated as
doubtful asset 2
5. Doubtful asset An asset which has remain non-
3 performing asset for period 50%
between 3-5 years will be treated as
doubtful asset 3.
6. Loss assets An asset where loss has been 100% or entire
identified
SURANA COLLEGE PG CENTRE, by the bank or the
BANGALORE. asset should be 34
Page
internal or external auditors or the written off.
RBI inspection.
2. RESEARCH DESIGN
2.1 INTODUCTION TO THE STUDY:
The beginning of Co-operative banking in India dates back to 1904. The

Institutional source of credit for agriculture and related activities was very
inadequate at that time. The money lenders would provide some credit at very
high rates of interest. The Co-operative banks were expected to substitute such
unorganized money market agencies and provide short and long term credit at
reasonable rates of interest. It was expected that they would co-ordinate the
activities of unorganized and organized segments of Indian money market.
Subsequent to the adoption of economic planning in 1951, Co-operative

banks were expected to play a crucial role in achieving agricultural and rural
development. Before the nationalization of commercial banks the cooperative
banks were the only substitute for money lenders and other informal sector
lenders. But after nationalization and creation of Regional Rural Banks and
NABARD their relative share declined. Co-operative Banks in India, (with
their network; spread over remote rural areas and a large number of smaller
towns), have historically played a major role in mobilization of domestic
savings for economic development of the country. They have provided the
farmers and non-farm entrepreneurs with the needed credit support. These
institutions have also contributed significantly to private capital formation in
agriculture and accelerated the place of distribution of farm inputs NABARD

2002). Co-operative banks are promoted to meet the banking requirements of

consumers.
2.2 TITLE OF THE STUDY
“A STUDY ON CREDIT MANAGEMENT” at APEX Co-Operative

Bank.
2.3 REVIEW OF LITERATURE
Review of the credit management project of ICICI Bank Hassan

branch, by author name1 HARISH RK
In this project I analyze the icici bank which is credit managing
condition is very good and also the recovering growth condition in much better
compare to other banks. This bank is borrowing the heavy credit to the lenders.
Review of the credit management project of APEX co-operative
bank in NR road branch. By author name2 SAHIR:
In APEX co-operative bank project I analyze the bank recovering
condition is very low, in the year 2003 the bank get huge loss amounted to Rs
3 crore, because of Rehman khan misuse, from there the bank credit rate was
goes down. It effects to the working capital of the bank.
“Loan beneficiaries of public sector bank”, Indian banking finance, Ram Gopal
Agarwal,

In this journal analyze the how to borrow the loan to beneficiaries of

public sector and Indian finance level how it comes under the rural level and
agriculture development purpose providing the credit to the banks from the
Indian banking sectors.
If the relational bank is able to collect valuable private information on
the borrower over the course of time, it will make different credit decisions as
compared to uniformed “arm’s-length” lenders. If a firm is economically
sound, this will in general lead to a decrease in financing restrictions, i.e. less
credit rationing. Again informational privileges lead to a switching cost for the
borrower, thereby enabling the lender to earn rents out of the relationship. As
discussed below, these constitute also parts of the cost of relationship lending.
But as for example suggested by caminal/ Matutes (1997) or Fischer (2000),
switching cost may in turn provide for incentives of the bank to engage in
costly information production. Machuer, Achim/Weber, Martin (2000):
Review of the Annual reports of the bank (2007-08.]
2.4 STATEMENT OF THE PROBLEM
The most important function of modern banking is the lending of funds.

Any money accepted as deposited must be for the purposes of lending or
investment. Income from lending helps banks in recovering their
establishment cost and also to service there deposit liabilities the strength of
banking system primarily depends upon the soundness of its advances. Before
granting credit, the bank has to look at the credit worthiness of the barrowers
because it carries a certain degree of risk.
The objective of bank is to ensure that credit is manage efficiently, the

manner in which the credit repaid by the borrower within the stipulated time

and what are the measures are taken by the bank to recover the loan from the
borrower .
Considering the importance of credit management and problems faced by

a bank in securing funds day to day needs of the concern, so the co-operative
bank should be cautious in managing there credit to need there day to day
commitments.
Thus a detail study and analysis of the policies , procedure and term
followed by APEX co-operative bank ltd., while making advances required to
ensure that the bank does not face any difficulty in recovering the loan.
2.5 OBJECTIVES OF THE STUDY:
1. To study the position of various loans and advances in the bank.
2. To study the manner in which funds are raised and utilized in the bank.
3. To study the non-performing assets (NPAs) in the bank.
4. To study the recovery measures and methods followed by the bank.
5. To identify measure monitor and control risks attached in credit
management.
6. To understand procedures involved in sanctioning of loan to borrower.
2.6 SCOPE OF THE STUDY:
The scope of the study is limited to the study of different types of loans
and advances provided by the bank to its customers and well as business

establishments and the procedure adopted by the bank is recovery of loans and
advances.
2.7 OPERATIONAL DEFINATIONOF CONCEPTS:
 BANKING
The Indian companies act defines the term banking as “accepting

for the sake of lending or investment of deposits of money from the
public, repayable on demand otherwise and withdraw able by cheque,
draft, or otherwise.
 CO-OPERATIVE BANK.
In the words of Henry Wolff “Co-operative banking is an agency

which is in a position to deal with the small means on his own terms
accepting the security he has and without drawing in the protection of the
rich”.
 CREDIT MANAGEMENT:
Credit management can be defined as “management of loans and

advances in banks”
In other words credit management means “successfully managing

the credit by paying the debt obligations on time for the amount required.
 RETURNS:

Returns is the amount or rate of produce, proceeds, gain, fruit and

profit which accurse to an economic agent from an undertaking or
enterprises or investment. It is a reward for and motivating a force behind
a investment, the objective of which is usually to maximize return.
 TERM LIABILITIES OR NON CURRENT LIABILITES:
Any liability which are payable after one year are termed as non
current liability or term liability. It includes debentures not due in that
year, mortgage loans from banks and other institutions, other long term
loans, deposit not due in that year.
2.8 RESEARCH DESIGN
RESEARCH METHODOLOGY
Both primary and secondary data is collected.
 Primary data is collected through direct interview with the bank officers.
 The secondary data is collected through annual reports of the bank, they
are making the annual report once in a two year. The data which mentioned as
per the 33rd and 34th annual report which covers the information by the year
2006-07, & 2007-08.

2.9 LIMITATIONS OF THE STUDY
1. The study is limited only to APEX Co-operative Bank Ltd.

2. The study is limited to information provided by bank.
3. The data is collected only for 5 years.
2.10 CHAPTER SCHEME:
Chapter 1-INTRODUCTION:
This chapter includes an introduction to the broad area of the

topic chosen, like risk and return of equity investment.
CHAPTER 2-RESEARCH DESIGN
This chapter provides a plan of the study which include statement of the
problem, need for study review of the literature, objectives, operational
definition of concepts, scope, methodology, limitation and an overview of
chapter scheme.
CHAPTER 3- Profile of the company
This chapter contains a complete profile including history, nature

for business growth prospectus, vision organization structure and its milestone.
CHAPTER 4-Data analysis and interpretation:

This chapter provides an analysis of the data with required

interpretation. Table’s graph and charts are used wherever necessary.
CHAPTER 5- Summary of findings, Conclusions and Recommendation:
This chapter provides major findings, conclusion and offer

recommendations based on the findings.

3. COMPANY PROFILE
3.1 PROFILE OF APEX CO-OPERATIVE BANK LTD
On 13th January, 1977, Janab Dr. Mumtaz Ahmed khan and Janab K
Rahman Khan founded the APEX Co-operative e bank and within a short
span of 30 years, the bank has attained the status of Karnataka’s first
scheduled Urban Co-operative bank., with a small capital base of Rs 3 lakh,
the bank has a grown to be the largest Urban Co-operative bank in the state
with a deposit of over Rs. 440 crores, working capital of Rs. 505 crores and net
owned funds of Rs. 29.53 crores.
The bank that began with just 3000 members, now boasts of nearly
41000 members. The depositors and account holders, who exceed 2.54 lakhs
in number, are serviced by the 15 branches in the state. Many more branches
are scheduled to open shortly with the aim of extending the area operation in
the state.
APEX co-operative Bank Ltd Offers ATM facility at its branches at

brigade road, Gangenahalli, NR road, Shivajinagar, RV road, ilyaz nagar,
Mangalore and Gulbarga. The bank has stepped in to the new millennium in

corporating the latest development in banking and information technology with

a resolve to make banking with APEX a pleasure.
The microcosm of its objective is “Mass banking” right from its

inceptions. Hence, the major thrust of the bank has been to inculcate the
banking habits among middle and lower data of the society, mostly in hitherto
unbanked/ under banked areas. Keeping this objective in view, APEX bank
opened branches in such areas as which are predominantly decided by middle
or lower income groups and the areas concentrated by minorities and backward
classes to whom, commercial banks are easily assessable. The bank has,
therefore adopted selective policy in the opening of branches by identifying the
centers where there is a good potential for inculcating the habits of savings
amongst the people and at same time, providing much needed finance to these
people, not only to meet there domestic needs but also for developing their
business, and in the process helping them become self sufficient. Keeping this
objective in view, bank has introduced a scheme called ‘micro credit’ for the
benefit poorest among by involving SHGs (Self help groups) and NGOs (Non
Government organization) who are working for the economic upliftment of the
poor. The last decade has seen a meteoric rise of the bank in all spheres which
is reflected in the financial indicators furnished in the table below.
The bank has 419 employees on its role, including 74 officers. Human
resource being the most important assets of the bank, all out effort is made to
enhance the motivational level and efficiency of the employees. In house
capabilities for imparting adequate training to the employees continued to be a

major strength of the bank. Training is being provided to make them more
competitive and customer oriented.
The bank has bagged the best “Best urban Co-operative bank” awarded
for the second successive year form the Karnataka state Co-operative
federation and Karnataka state urban bank’s federation.
The Reserve bank of India conferred the “Scheduled status” on APEX

bank effective from 29th Jan, 2000 and has included the name of the bank in the
second scheduled to the reserve bank of India at, 1934. APEX bank is the first
urban Co-operative bank in Karnataka to be awarded this prestigious status.
The conferment of “scheduled status” will enable it to rendered more service to
the members, client and the society. The past achievement is the source of the
inspiration for future progress and prosperity.
The bank is the first Co-operative banking the state which will be using V-
SAT (very small aperture terminal) technology to link its branches and offers
the facility of “Anywhere banking” to its customers.
The bank has also excelled in the field of sports by winning both the
“inter bank tournament” organized by the Canara bank and the “inter co-
operative banks cricket tournament” in 2000.
3.2 OBJECTIVES OF THE BANK:
1. The main objective is “Mass banking” right from its inception.

2. The major thrust of the bank has been inculcating the banking habits
and savings among middle class and lower class section of the society.
3. Establishing bank’s presence in all the districts of Karnataka.
4. Establishing its presence in all the major cities of the country.
5. Sustained growth, services, and profitability to sustain future

development.
6. To serve the society and act as a catalyst to achieve a balanced socio-

economic growth that is commensurate with national growth pattern.
7. To professionalize the workforce and to meet the challenges ahead.
3.3 FUTURE PLANS AND PROSPECTS
1. Installation of more ATMs for the better customer service.
2. Installation more added services such as home banking, Tele banking,

network service and e-banking.
3. Expansion credit for medium scale industries.
4. Foreign exchanges business.
5. Reduction in the cost of firms and yield of assets to match the industry
level trend.
6. Innovation of scheme and for financial priority sector.
7. Opening of currency chest and small coin deposit.
8. Expansion of credit with proper professional appraisal will be adopted

to reduce the incidents of loan falling in NPA category.

9. Extension of areas of operation of the bank to the entire state of

Karnataka.
10. Opening of “Ladies branches” in minorities concentrated residential

areas.
NEW PRODUCS AND SERVICE OFFERED BY THE BANK.
1. Loan linked deposits schemes.
2. Limit linked deposit.
3. Cumulative fixed deposit.
4. Yearly planning deposit.
5. Gift cheque.
6. Deposit services.
7. Credit cards.
8. Foreign exchange.
9. Internet banking.
10. Networking ATMs.
11. Anywhere banking.
SCHEME OFFERED BY THE BANK
1. ATM facility for round the clock banking service to the customers.
2. Attractive rate of interest.

3. Payment of interest on term deposit at choice of the depositors that is

monthly, quarterly etc.,
4. Facility for immediate withdrawal before maturity in case of needs.
5. On spot loan facility at margin of fifteen percent of deposit.
6. Lucrative schemes suited to client like Rozana bachath, Recurring

deposit term deposits, cash certificates,etc.,
7. Nomination facility for all deposits accounts.
CUSTOMER SERVICE:
The bank is known for its customer friendly approach. The bank it’s
taking a number of measures to improve the quality of customer service. The
branches customer contact programmers’ are conducted. Customer complaints
are redressed without delay.
POLICIES OF THE BANK
1. To deliver quality service to the customer.
2. Committed to the compliance of laws and regulation form by the

government.
3. To frequently supply RBI with essential data.
4. Employees may not accept gifts, entertainment from anyone seeking a

contract.
5. To have a diverse credit portfolio.
6. To provide middle and lower class people with cheaper finance.

7. To keep in view a national policy attached to housing sector and

liberalized the finance for construction, renovation, acquisition of
residential houses based on the repaying capacity of the borrower.
TECHNOLOGICAL UPGRADATION
The bank has created a “department of information technology” at its

corporate office. Earlier it was called “computer department”. The primary
objective of this department is to promote computer literacy among the
employees to upgrade communication and information technology and to
develop electronic banking capabilities. All these branches are computerized
from the late 1980s.
HUMAN RESOURCE DEPARTMENT
The branch has an enlightened an HRM policy. A great deal of emphasis

is given on training. The total strength of the bank is for 440 employees.
Women employees are more than 55% of the total strength. Periodical
discussion is held with the representative of trade union of workers and officers
contributing to healthy industrial relation in the bank.
WORKING RESULTS
The bank has embarked upon several measures to bring about

improvement in the profitability. The bank indicated several actions to setup
deposit mobilization , credit expansion, recovery of NPA, effective supervision
, control over advances, improving funds management etc.,
LOANS AND ADVANCES OFFERED BY THE BANK
Business loan : To traders, workshop, hotels, other business

ventures.

Industrial loan : To start small scale and medium scale industries.
Vehicle loan : 75% loan against the cost of vehicle {two, three,
four wheelers} repayment capacity.
Personal loan : For petty traders, education, housing, marriage, and

other Ceremonial purposes.
Housing loan : For construction or acquisition of homes, repair,

renovation etc.,
Consumer loan : For purchase of house hold article like TV, fridge,
furniture, computer etc
Professional loans : For doctors, engineers, chartered accountants to

setup their offices.
Other loans : against tangible security, gold ornaments, NSC,

LIC, KVP, IVP etc.
FUNTIONAL DEPARTMENTS OF THE BANKS.
The banks has total of eleven functional departments which are as follows.
1. Accounts departments.
2. Credit management department.
3. General administrative department.
4. Human resource department.

5. Investment, treasury, and funds management department.
6. Information technology department.
7. Legal department.
8. Planning and development department.
9. Recovery department.
10. Central clearing department.
11. Inspection department.
STANDARDS OF CONDUCT:
APEX co-operative bank ltd follow certain standards of conduct are

ethical principles that will be enforced equitable at all organization levels.
They are
TOWARDS CUSTOMER:
1. Quality service
2. Error reconciliation.
TOWARDS EMPLOYEES:
1. Equal employment opportunities
2. Good work place employment
3. Employee privacy
4. Open communication
5. Employee development

6. Compensation and benefits.
TOWARDS SHAREHOLDERS.
1. Good return on investment.
2. Protection of assets.
3. Intellectual property.
4. Accuracy of records.
5. Share holder’s communication.
SIGNIFICANT FACTORS OF SUCCESS:
1. Quality of service
2. Low rate of interest.
3. Opening banks in unbanked under banked areas.
4. Various form of deposit and loan offered to suit the needs of different
people.
5. Customer friendly atmosphere maintained in the bank.
6. Providing ATMs and other advanced technologies services.
7. Efficient and well qualified employees.
THE TREND SETTER:
The following are the first its credit.

1. The first urban Co-operative bank in Bangalore to be admitted has a

direct member of Bangalore bankers clearing house.
2. The first urban co-operative banks in Karnataka to computerized all its

operation and introduced wide area network (WAN).
3. The first urban co-operative bank in Karnataka to established its own

staff training college.
4. The first urban co-operative bank in Karnataka to install ATM facility

to its customers.
5. APEX co-operative bank ltd is now the first co-operative bank in

Karnataka to gets schedule status.
BRANCHES:
The bank has a head office at shivajinagar. Its main branch is at N.R road.
Other than the main branch it has 10 branches in Bangalore.
The location of its branches in Bangalore are shivajinagar , Siddiah road,

tannery road, Gangenahalli, BVK avenger road, brigade road, RV road, JJ
nagar , ilyaz nagar, and Austin town.

4. ANALYSIS AND INTERPRETATION
In order to analyze the credit management, Various data of APEX co-

operative bank ltd., has been analyzed by taking 6 years data.
SOURCES OF FUNDS:
The main sources of banks funds are lending loans and advances are:
 Deposits

 Borrowings
 Demand deposit
 Term deposit.
Demand deposits:
These are deposit repayable on demand. Some of such deposits are:
a. Savings bank deposits
b. Current account deposit.
Term deposit:
Term deposit is deposit repayable on the expiry of fixed period of time

and deposit repayable after the expiry of certain period of notice of withdrawal
given to the banker.
Different types of term deposit used by APEX co-operative bank are:
1. Fixed account deposit.
2. Cumulative deposit account.
3. Khushal deposit
4. Rozana bachath deposit.
5. Flexi deposit.
The interest payable under this scheme is related to be period of deposit

which is given below:
Period of Deposit: rate of interest:

Up to 18 month 7.25%
19th month to 24th month 7.50%
61th month and over 8.75%
The above rates are applicable to fresh deposits and renewals of

maturing deposits. There will be additional rate of 1% for Senior Citizens of 60
years and above on all the above maturity period subject to production of proof
of age.
Additional 1% of interest rate is paid to the staff on the above rates.

Interest to be charged on premature withdrawal of Term Deposits at 1% below
the rate applicable for the period deposit has remained with the Bank.
RATE OF INTEREST ON NRE DEPOITS.
6months up to 1 year 6.50%
Above 1 year but up to 2 year 8.50%
Above 2 years 9.50%
APPLICATION OF FUNDS
The main use of bank funds is the sums borrowed by the banker’s
customers which are the largest asset one bank’s as a basic function of bank is
to lend the surplus funds deposited with it. It is the loans and advances that

constitute the core of banks’ earning assets. It is the group of assets that is the
most profitable.
TYPES OF LOANS:
1. Secured loan.
2. Unsecured loan.
SECURED LOANS:
Secured loans are those loans which are granted against the security of
some property. The security arrangement may be hypothecation, pledge, or
mortgage.
The loans are sectioned against the following securities.
 Term deposits
 Gold ornaments
 Vehicles
 Land and building
 Plant and machinery
 Government securities
 Goods
 Warehouse receipts
 Bills purchased and discounted
 LIC policy

 Government supply bills.
The secured loans granted by APEX bank are:
1. Business loan
2. Housing loan
3. Vehicle loans.
4. Machinery loans.
5. Gold loans.
BUSINESS LOANS:
Rules of APEX co-operative bank for granting business loans are as

follows.
1. The person who can avail business loans are traders, workshops,
hotels, and other business ventures.
2. The loan taken also for business improvement either cash credit limit
or over draft requirement
3. To avail this loan the borrower should submit the income proof that is
three year financial statement with tax proof returns license to pursue the
related professional , vat registration etc
4. If everything is favorable they should they security and also

projection should be given
5. The repayment period is 60 monthly installment ,the loan should be

repaid within this period

6. Rate of interest is 13% up to 2, 00,000 and 14% for above 2, 00,000.

After every 12 months it should be return.
HOUSING LOANS:
Rules of APEX Co-operative Bank for granting housing loans are as follows:
1. The person who can avail is individual for the purpose of purchase
of property,
Construction of house, alteration or renovation of house or any addition to
the house.
2. They should keep property as security with the bank which is
purchased or constructed.
3. To avail this loan borrower surely should be given that is income
proof should be given with regular source of income.
4. If the loan is taken for the purpose of purchase of house the sale
agreement should be submitted along with the sanction plan, income
proof, surely etc.
5. If the loan is taken for the purpose of construction, the borrower

should give the estimation for construction from the engineer to the bank.
6. A margin of 50% of the value of property as evaluated by the

approved evaluator is maintained and the sanction of loan is 50%.
7. Period of repayment of loan is up to 120 months. The bank

prepares a suitable repayment schedule for repayment of the loan with in
the overall limit fixed by the Board of Directors.
8. Rate of interest: up to Rs 200, 000- 12%
a. Rs 200, 000 to 500, 000- 13%

b. Above Rs 500, 000- 14%
9. The manager should also see that:
 The borrower has produced all material document of title relating

to the property.
 The original document have the desired off etc.
 Facts and event materials to the title have been satisfactory proved.
 All consents, permissions, no objection certificate for transfer of

property by the identity of the property have been obtained.
 All outstanding encumbrances have been taken care of, and that
there are not encumbrances of doubtful and suspicious nature.
10. The title of the property should be taken as defective if there are:
 Outstanding encumbrance.
 Restrictive covenants i.e. contracts/agreements/
 Party wall notice.
 Notification of intended registration of acquisition.
 A ward charging the owner to contribute to rebuilding of party

wall.
 Right of way.

MACHINERY LOANS
Rules of APEX co-operative Bank for granting machinery loans are as

follows:
1. Business firms avail this loan for the purpose of purchase of

machinery.
2. While granting machinery loan the bank should carefully examine

the financial position, past performance of the borrower, and his financial
statement to know the financial ability to meet the repayment schedule of
loan installment regularly, and profit and earned due to purchase of new
machinery.
3. The machinery loan is given against hypothecation of machinery

as security.
4. Invoice of quotation from dealer should be obtained. In case of

loan granted for purchase of new machinery a minimum margin of 30%
over the invoice price 50% of margin should be maintained and 70% of
invoice value is sanctioned. For collateral security 50% of margin should
be maintained and 50% of sanction of loan amount.
5. Repayment period is 36 to 72 months. Whenever borrower fails to

repay the installment the lapse should be brought to the notice of the head
office immediately of the further action.
6. Rate of interest – up to Rs 2 lacks – 13%
Above Rs 2 lacks – 14%
VEHICLE LOANS:
Rules of APEX Co-operative Bank for granting vehicle loans are as follows:
1. This loans is normally given for the purpose of purchase of

commercial vehicle viz trucks, tractors, cars, tempos, three wheelers, etc
for own use or business purpose.
2. The persons who can avail the vehicle loans and traders, self-
employed, salaried class, and others.
3. The persons who avail the loans are traders, the self-employed ,
salaried class and persons
4. If the loans are taken for business purpose, then business

inspection is done by the bank. The borrower has to submit the financial
statement to know the financial ability to repay the loan. And also
quotation from the dealer should be submitted to the bank.
5. If the loan is taken for personal purpose, then the borrower should
submit his income proof i.e. salary proof and also quotation from the
dealer of vehicle should be submitted to the bank.
6. A minimum margin of 30% over the invoice price should be

maintained and remaining 70% of invoice value is sectioned as loan
amount.
7. Repayment period is up to 36 months and the loan should be

cleared in full and final settlement with in this period.
8. Rate of interest-Up Rs2 lakhs -13%
Above Rs.2 lakhs-14%
9. The vehicle should be hypothecated as security in favor of the

bank and banks charge on the vehicle is registered with the regional
transport authorities and also in the registration book. Certificates to that

affect may be obtained from regional transport authorities and is kept on
the bank’s record.
10. The vehicle should be comprehensively insured and the policies

should be got assigned is favor of the bank.
11. In the event of default of payment by the borrower, the bank will
have the power to the seize the vehicle and arrange for the disposal by
sale or otherwise. For this purpose the borrower should furnish to the
bank a bank transferor from duly signed by him.
12. The following documents should be obtained by the bank:
 Demand promissory note
 Hypothecated deed
 Registration certificate with bank lien
 Blank transfer form
 Loan agreement
 General form
 Letter of authority for pay/ wage deduction
Gold loans
Rules of APEX Co-operative bank for granting gold loans is as follows.

1. This loan is normally given for the purpose of purchase of 18 ct and 22

of gold f.
2. If the borrower purchases 18 ct gold then the bank sanctions Rs.700per

gram as loan amount.
3. If the borrower purchase 22 ct gold , then the bank sanctions Rs.800

per gram as loan amount.
4. The value of gold in the net weight. For example if the net weight of
gold is 100 and there borrower is purchasing 22 ct gold i.e. Rs800 per
gram. Then the bank sanctions Rs.50000 as loan amount to the borrower.
5. The repayment period on the security of the gold ornaments 18 to 36

months.
6. Rate of interest is 12% charged by the bank to the borrowers.
7. When the borrowers fails to repay the loan on the due date in notice
calling upon into repay the loan with in a specific time given and if no
response is there for the notice a reminder may be send by register post
informing that, the ornaments would be auctioned and after adjusting the
sales proceeding against the outstanding dues to the bank, the balance if
any, would be paid to the borrower against his receipt.
OTHER SECURED LOANS.
Rule of APEX co-operative bank for granting other loans are as follows.
1. These loan is granted against tangible security such as NSC,LIC

Policies, KVP (Kisan vikas patra), etc.,

2. The person who avail these loan should have a regular source of
income and the borrower should also submit the income proof to the
bank.
3. A minimum margin of 30% should be maintained by the bank and

70% is sectioned has loan amount by the bank to the borrower.
4. The repayment period on the security of pledge of bonds is up to

36 months.
5. Rate of interest up to 2 lakh 13%
a. Above Rs 2 lakh 14%
All the above loan except gold loan, the application are processed at the
branch level and send it to central office for secritinization and when
everything is fewer able and according to the rule and conditions of the banks,
then the loan is approved and sectioned by the central office and send back to
the branch office and disbursement of the loan is done at the branch level.
Where as in the case of gold loan the processing and disbursement of loan
amount is done at the branch level and it is not send to the central office.
TERM LOAN
Rules of APEX co-operative bank for granting term loans are as follows.
1. This loan is granted to persons in whose name the term deposits

are held in the bank.

2. Advances may not be permitted on the security of the deposit

receipts of the other banks and similarly, advances shall not be granted
against the deposit receipt in the name of third party.
3. Whenever advances are granted against recovering or daily

deposits, the borrower must submit an undertaking in the prescribed form
along with the relative pass book/card/deposit receipt duly discharged.
4. This loan is for fixed period and maximum period is up to 60

months.
5. If the advances taken on the security of term deposits are not

cleared and settled by the borrower before the date of maturity of such
deposits. Such deposit on maturity to whether with interest accrued their
on should invariably be adjusted to the advances without any exception.
6. The deposit should not be renewed without adjusting and clearing

the related loans due of the parties.
7. Soon after making advances, the banks lien should be prominently

noted in the respective deposit registered or ledger and also on the face of
deposit receipt of pass book.
UNSECURED LOAN:
Unsecured loan are those loan which are granted without any security are
which are sanctioned against personal security of one or more members.
Rules of APEX co-operative bank for unsecured loans are as follows:

1. This loan is avail by the petty traders, education, housing, marriage

and other ceremonial purposes.
2. This loan is granted against personal surety of the borrower.
3. The maximum amount of loan granted is up to 50000/- by the bank

to the Borrower.
4. The repayment period is up to 36 months.
5. The borrower should submit income proof along with the income
tax return and financial statement to know the financial ability of the
borrower or surety.
6. Rate of interest is 13% charged by the bank to the borrower.
The unsecured loans include the following:
a. Surety loans
b. Bills discounting or Cheque discounting
c. Clean overdraft or cash credit.
SURETY LOANS:
These loans are sanctioned to only regular members of the bank against
personal security of one or more member. The overall limit of unsecured loan
shall not exceed the limit has prescribed under that directives of RBI from time
to time.

The period of loan shall be 12 to 25 month for the purposes of trade,

commerce, and for productive purposes such as poultry, forming , bee
keeping , and dairy forming etc., and up to 48months for other purposes such
as housing , education ,consumption, and ceremonial purposes etc., repayable
monthly installments together with the interest.
BILL’S DISCOUNTING /CHEQUE DISCOUNTING
As per RBI up to Rs 25000/- bills are discounted. The cheque is

discounted and advanced to the customer till the amount is realized and when
once it is realized the amount is taken back.
CLEAN OVERDRAFT OR CASH CREDIT
It is granted only to regular members of the bank who is engaged in

benefited, trade, commerce, and industries. Cash credit or overdraft may be
allowed for such period has may be fixed by the board of directors in each
case, but not exceeding one year any case. Cash credit or overdraft amount to
be advanced on the security of term deposit shall not exceed 85% of their
deposit. This account is liable to be closed at the discretion for the board of
directors and the step to be taken to recover the dues when the cash credit
account is not operated upon the continuously for three months.
NON FUND BASED ADVANCES
BANK GUARANTEES:
The bank gives the guarantee of its name has the surety. They keep the
property as security. The applicant has to maintain the account in the bank and
depending upon the period they should keep the deposit in the bank. They
should keep 25% to 30% of each cash margin as deposit in the bank account.

SERVICE CHARGES:
Service charges at 1/20 of the 1.50% should be collected on loan amount.
PROCESSING CHARGES:
Processing charges are 9/20 of the 1.50% should be collected on the loan
amount commission of 1.50% per annum for the liability period + additional
period if any with a minimum of Rs.75 per guarantee.
SOLVENCY CERTIFICATE
Government departments ask for the solvency certificate from the bank.
And this certificate is given only a single day. The applicant should have to
the balance either in the or deposit in the bank.
The commission is charged as follows:
AMOUNT CHARGES (rs)
Up to Rs.25000 35
25001to 50000 75
50001 to 100000 125
100001 to above 175
The total advances granted by the bank should be classified under two main
heads.
1. Priority sector

2. Non priority sector.
LENDING TO THE PRIORITY SECTOR
The RBI policy ensures sufficient and timely credit at reasonable rate of
interest to large segment of rural population. It facilitates the broadening of ht
institutional base in the rural sector and the flow of credit through multi-agency
mechanism comprising co-operatives, commercial banks, and regional rural
banks spread through the country. RBI introduced the concept of priority
sector t focus the attention on important economic areas. Such as agriculture,
small scale industry, transport, and weaker section together with poverty
elimination, and employment generation programmers’.
The guidelines issued by RBI with regards to lending to priority sector are as
follows.
 The urban co-operative bank achieve targeted of 60% total of their

total advances for priority sector lending.
 Of the total priority sector advances at least 25% should have been
to weaker section.
TABLE NO: 4.1
1. Growth of fixed, savings bank and current Deposits:
Growth of fixed, savings bank, and current deposits (In percentage)
Year Fixed Saving bank current

deposits deposits deposits
2003 86.70 98.37 108.35
2004 73.90 92.75 122.05
2005 84.08 118.96 100.85

2006 93.46 115.95 146.23

2007 88.52 103.61 97.42
2008 93.71 109.19 101.12
(Sources; annual report)
Growth rate calculated formula:
From above table, it is observed that the percentage growth of total fixed
deposits was 86.70% during the year 2003-04 which is increase to 93.46% by the
year 2007-08. The percentage growth of total saving bank deposit was 93.46%
during the year 2005-06 which was slightly reduced to 88.52% by the year 2006-
07. The percentage growth of current deposit was 108.35% during the year
2003-04, which decreased to 101.12% by the year 2007-08. Overall the growth
rate of all types of deposits, current deposits, is slightly increasing over the year.
GRAPH; 4.1

TABLE NO:4. 2
2. Growth of Components of Saving Bank deposits
Growth of components of Savings Bank Deposits (In percentage).
Year Individuals Other NRE

societies
2003 98.19 70.50 102.20
2004 94.95 50.65 69.07
2005 120.58 122.15 93.05
2006 116.40 425.86 94.07
2007 106.12 56.88 48.29
2008 110.37 74.99 50.71
(Source; annual report)
It is observed from the above table that the percentage growth of

individual savings bank deposit was 98.19% during the year 2002-03 which is
increased to 110.37% by the year 2007-08.
The percentage growth of other societies account was 70.50% during the
year 2002-03 which is increased to 74.99% by the year 2007-08.
The percentage growth of NRE account was 102.20% during the year
2002-03 which reduced to 50.71% by the year 2005-06.
GRAPH; 4.2

TABLE NO:4. 3
3. Growth of components of fixed deposits
The bulk resources employed by a banker consist of borrowed money,

largely deposits which are lend out of profitability and has consistent with
safety. Infect one of the greatest strength in its level of customer deposit
which constitutes the basis for bank lending.
Growth of components of fixed deposits (in %)
Year Individuals Other societies NRE

2003 86.74 72.31 104.28
2004 73.89 73.55 74.62
2005 85.29 72.84 44.62
2006 94.40 81.53 36.18
2007 88.80 81.26 55.02
2008 93.27 138.03 21.04
It is observed from the above table that the percentage growth of individual
fixed deposit was 86.74% during the year 2003-04 which is increased to 93.27%
by the year 2007-08.
year 2002-03 which increased to 138.03% by the year 2007-08.

The percentage growth of NRE account was 104.28 during the year 2002-
03 which reduced to 21.04% by the year 2007-08.
GRAPH: 4.3
TABLE NO:4.4
4. Growth of components Of Current Deposits:
Growth of current deposits (In percentage %)
Year Individuals Other NRE

societies
2003 109.45 164.36 29.94
2004 123.10 47.26 96.52
2005 100.66 135.32 136.05
2006 147.28 97.87 81.45
2007 96.48 207.67 12.45
2008 101.75 39.30 21.42

It is observed from the above table that the percentage growth of

individual current deposits was 109.45% during the year 2002-03 which is
decreased to 101.75% during the year 2007-08.
year 2002-03 which was reduced to 39.30% by the year 2007-08.
The percentage growth of NRE account was 29.94% during the year
2002-03 which is reduced to 21.42% by the year 2007-08.
GRAPH: 4.4
TABLE NO: 4.5

5. Total deposits
The bulk resources employed by a banker consist of borrowed money,

largely deposits which are lend out of profitability and has consistent with safety.
Infect one of the greatest strength in its level of customer deposit which
constitutes the basis for bank lending.

Year Amount Growth rate in

percentage
2003 43965.84 111.21
2004 35390.97 80.51
From the
2005 33213.39 93.84
2006 34866.55 104.78 above table it
2007 33049.53 94.78 is observed
2008 33163.42 100.34 that the total
deposits growth rate was 111.21% during the year 2003-04 which is reduced to
100.34% in the year 07-08
INFERENCE
The reason for decline in total deposits is:
1. The interest capital levied by RBI.
2. The high cost deposits bearing interest rates from 11% to 16.5% by the
bank were pre-
3. Maturely withdrawn to increase the profitability.
GRAPH: 4.5

TABLE NO: 4.6
6. Growth of total Reserve:
Total Reserves (Rs. in lakhs)
Year Amount Growth rate in

percentage
2003 4376.85 111.73
2004 10632.09 242.91
2005 10644.66 100.11
2006 12707.85 119.38
2007 13121.08 103.25
2008 11726.34 89.36
From the above table it is observed that the total growth rate was
111.73% during the year 2002-03 which reduced to 89.36% during the year
2007-08.
Inferences:
 The reasons for decline in total reserve are:
 Decrease in the statutory reserve, staff gratuity reserve of the bank.
 Decrease in the statutory reserve a bad and doubtful debt reserve of the
bank.
GRAPH: 4.6

TABLE NO: 4.7
7. Borrowings of the bank:
These sources of funds are non-depository in nature. Such sources are

necessary and useful when a bank temporarily needs more funds than being
deposited and experiences a shortage of funds.
The borrowing is made out of the following sources.
 NABARD
 Karnataka Minority Development corporation (KMDC)
 Karnataka state co-operative Apex Bank Ltd (KCAB).

Components of borrowings:
Components of borrowings: (Rs. In Lakhs)
Year NABARD KCAB KMDC

2003 608.00 - 6.25
2004 386.91 - -
2005 229.71 229.64 -
2006 - 76.57 -
2007 - 195.58 -
2008 - - -
TOTAL 1224.62 501.79 6.25
From the above table it is observed that the main source of funds for the
bank is the borrowing from NABARD and the second main source is KCAB.
Inference: The bank has repaid a major part of its borrowing in the year
2007-08 GRAPH:4.7
TABLE NO: 4.8
8. Growth of Advances

Growth of advances (Rs. In Lakhs)
Year Amount Growth

2003 23660.17 76.73
00
2004 22291.40 94.21
2005 21511.45 96.50
2006 21361.18 99.30
2007 18900.91 88.48
2008 18011.39 95.29
From the above table it is observed that eh total advances was 76.73%
during the year 2002-03 , which is increased to 95.29% in the year 2007-08.
GRAPH: 4.8
From the above graph we can easily find that the amount of advances
slightly decreased from the year 2003-04 to the year 2007-08

TABLE NO: 4.9

9. COMPARISION OF DEPOSITS AND ADVANCES
YEAR DEPOSITS ADVANCES

2003 43965.84 23660.17
2004 35390.97 22291.4
2005 33213.39 21511.45
2006 34866.55 21361.18
2007 33049.53 18900.91
2008 33163.42 18011.39
TOTAL 213649.7 125736
Form the above table it is observed that the advances was 23660.17 lakh
against the total deposits of Rs. 43965.85 lakh during the year 2002-03, which
decreased to Rs.18011.39 lakh against total deposit of Rs. 33163.42 by the year
2008.

Total advances against total deposits shows decreasing trend due to

decrease in payment of advances level of the bank and will decrease the
interest income of the bank and thereby decrease the profitability of the bank.
GRAPH; 4.9
TABLE NO: 4.10

10. Total investment and deposit:
Investments and deposits (in lakhs)
Year Investments Deposits

2003 11641.26 43965.84
2004 11096.61 35390.98
2005 10291.47 33213.39
2006 9914.33 34898.26
2007 9795.82 33049.52
2008 9724.30 33163.42
(Source: annual report)
Form the above table it is observed that the total investments was
Rs.11641.26 lakh against the total deposits of Rs. 43965.85 lakh during the
year 2002-03, which decreased to Rs.9742.30 lakh against total deposit of Rs.
33163.42 by the year 2008.

Total investment against total deposits shows an decreasing trend due to

decrease in investment level of the bank and will decrease the interest income
of the bank and thereby decrease the profitability of the bank.
GRAPH: 4.10
TABLE NO: 4.11
11. Investment Deposit Ratio:
Investment Deposit Ratio
Year Percentage Increase

Over Previous Year
2003 26.47
2004 31.35
2005 30.98
2006 28.40
2007 29.63
2008 29.32

In the above table the investment deposit ratio is increasing over the
years. The investment deposit ratio was 26.47% during the year 2003, which
increased to 29.32% by the year 2008.
The bank invested more when compare to the deposits which is received
by the bank but in 2008 growth is slightly decreased.
GRAPH: 4.11
TABLE NO: 4.12

12. Statement Of Loans and Advances:
Statement Of loans and Advances (Rs. In lakh).
Year Short term Medium Long term

loan term loan loan
2003 8741.30 6213.73 8705.13
2004 8235.75 5084.32 6263.07
2005 8174.36 4348.25 6263.07
2006 8686.80 3238.97 6355.18
2007 7001.00 2699.31 6355.18
2008 6679.54 2446.41 6355.18
TOTAL 47518.75 24030.99 40296.81
From the above table it is observed that the bank has advanced Rs,
8741.30 lakh in the form of short term loans during the year 2003, which was
reduced to 6679.54 lakh by the year 2006.
It has advanced Rs.6213.73 lakh in the form of medium term loan during
the year 2003, which reduced to 2446.41 lakh by the year 2008.
It has advanced Rs. 8705.13 lakh in the form of long term loan during
the year 2003, which decreased to 6355.18 lakh by the year 2008.
GRAPH: 4.12
13. Cash Bank and Working capital Position.
Cash and working capital position (Rs. In lakhs)

Year Cash Bank Working

capital
2003 3120.69 3195.17 56951.26
2004 3331.91 2255.62 47600.71
2005 2812.46 1266.54 45829.31
2006 3153.66 2792.01 49740.36
2007 3571.22 2268.16 50534.02
2008 3782.22 3202.47 53355.70
(Sources: annual report)
From the abvove table itg is observed tha the position of each balance
during the year 2003 was Rs. 3120.69 , which increased to Rs 3782.22 lakh
by the year 2008.
The position of bank balance during the year 2003 was Rs 3195.17 lakh,
which slightly increase to Rs. 3202.47 by the year 2008.
The position of working capital during the year 2003 was Rs. 56951.26,
which slightly reduced to Rs.53355.70lakh by the year 2008.
Inference:
The reason for increase trend of each balance is as follows.
1. Increase in the liquidity position of the bank.
2. The bank has kept adequate cash to cover deposit,

withdrawals, and to meet emergency expenses.
GRAPH
4.13

TABLE NO 4.14
Investment pattern of the bank:
Year 2003 2004 2005 2006 2007 2008
Central 10300.35 9780.3 9055.2 8678.07 8559.66 8588.04

and state 5 1
govt -ksfc
Other - - - - - -
trustees
Shares in 30 30 30 30 30 30
co
operative
institutions
Other
investment
NSC - -- -- - - -
SRF with - -- - - - -
b)KCAB 998.5 998.5 998.5 998.5 998.5 998.5
b)BUCB 7.76 7.76 7.76 7.76 7.76 7.76
Public 304.65 28 200 200 200 100

sector bank 0
Total 11630.91 11096.61 10291. 9914.33 9795.92 9724.3
5

From the above table it is observe that the total investment is decreasing
over the years. It may be noted that bank has invested les in government
securities and Karnataka state co-operative apex bank ltd.
TABLE NO: 4.15
14. Status of gross and Net NPAs:
Tabel showing status of gross and net NPAs( Rs, in lakhs)
Years Gross NPA Net NPA

2003 12661.61 10681.33
2004 14010.75 12019.20
2005 11403.50 9399.26
2006 14696.67 4866.92
2007 12109.71 2379.96
2008 10759.83 930.08
(Source: annual report)
From the abvo9e table it is observed that the total gross NPAs was Rs.
12661 lakhs during the year 2003, which was decreasd to 10759.83 lakh by the
year 2008. The net NPAs was Rs 10681.33 lakh during the year 2003, which
derceasd to Rs 930.08 by the year 2008 from profit and loss account.
GRAPH:4.14

TABLE NO 4.16
The comparative position of the bank for the last three years is furnished:
SL. PARTICULARS 31/3/2006` 31/3/2007 31/3/2008

NO
1. Paid up capital 583.03 615.85 615.63
2. Reserves 12707.85 13121.08 11726.35
3. Deposits 34898.26 33049.53 33163.42
4. Advances 21362.89 18900.91 18011.39
5. Investment 15860.01 15835.22 16714.01
6. Working capital 49740.36 50534.00 53355.70
7. Operational profit ----------- ----------- 1424.29
8. Accumulated losses 10071.19 11204.10 9779.61
(Sources: annual report)
There has been marginal increase in deposits from the level of Rs.33049.50
lakhs as on 31st mar 2007 to Rs, 33163.42 lakhs as on 31st Mar 2008 with more
than 50% consisting demand deposit which is healthy sign for any banking
industry to reduce cost of deposit.
The bank has posted operational profit of Rs.1424.49 lakhs during the year
2007-08. The accumulated losses have been reducing to Rs.9779.61 lakhs form
Rs.11204.10 lakhs as on 31st Mar 2007.
5. FINDINGS, CONCLUSION, AND SUGGESTIONS
FINDINGS OF THE STUDY
1. It is observed that the total deposits growth rate was 111.21% during the
year 2003-04 which reduced to 100.34% by the year 2007-2008. This was
due to inertest capital levied by RBI and high cost deposit bearing interest
rate from 11% to 16.5% by the bank were prematurity withdrawn to
increase the profitability.
2. It is observed that total fixed deposit percentage growth rate was 86.70%
during the year 2003-2004, which slightly increased to 93.71% by the year
2007-2008. The percentage growth of total savings bank deposit was
98.01% during the year 2003-2004, which increased to 109.19% by the
year 2007-08.

3. It is observed that the percentage growth of individual fixed deposit was

86.01% during the year 2003-04, which increased to 93.27% by the year
2007-08. The percentage growth of other society’s accounts was 72.31%
during the year 2003-04 which increased to 138.03% by the year 2007-08.
The percentage growth NRI accounts was 104.28% during the year 2003-
2004, which reduced to 21.04% by the year 2007-08.
4. It observed that the percentage growth of individual saving s bank deposit

was 98.19% during the year 2003-04, which increased to 110.37 % by the
year 2007-08. The percentage growth of other societies account was
70.50% during the year 2007-08, which slightly increased to 74.95% by the
year 2007-08. The percentage growth of NRE account was 102.20%
during the year 2003-04., which reduced to 50.71% by the year 2007-08.
5. It is found that the percentage growth of individual current deposit was

109.45% during the year 2003-04. This decreased to 101.75% by the year
2007-08. The percentage growth of other society’s accounts was 164.36%
during the year 2003-04, which reduced to 39.30% by the year 2007-08.
The percentage growth of NRI account was 29.94% during the year 2003-
04, which reduced to 21.42% by the year 2005-06.
6. It is observed that the total capital growth rate was 98.99% during the year
2003-04, which slightly increased to 99.96% by the year 2007-08. This is
because of deposits of membership from and bank closure of loan
repayment accounts of members.

7. It is observed that the total reserves growth rate was 111.73% during the
year 2003-04, this reduced to 89.36% by the year 2007-08. This decline is
due to decrease in statutory reserve, staff gratuity reserve, and bad and
doubtful reserve of the bank.
8. It is observed that the main source of fund for the bank is borrowings from
NABARD and the second main source is Karnataka state-operative Apex
banks Ltd (KCAB). The bank has repaid major part of its borrowings in
the year 2007-08.
9. It is observed that the total advances growth rate was 76.73% during the
year 2003-04, which increased to 95.29% by the year 2007-08. This is due
to proper deployment of funds by the bank.
10. It is observed that total credit advanced was Rs.23660.17 lakhs against total
deposit of Rs43965 lakhs during the year 2003, which reduced to Rs18011
lakh against total deposits of Rs 33163.42 lakhs by the year 2008. This is
due to fall in the credit level of the banks and restrictions on the growth of
advances imposed by the RBI.
11. It is found that the total investment was Rs, 11641.26 lakh during the year
2003, which decreased to 9724.30 lakh during the year 2008. This is due to
decrease in investment level of the bank and thereby decreases the
profitability of the bank.

12. It is observed that the investments deposit ratio is increasing over the years.
The investment deposit ratio was 26.47% during the year 2003, which
increased to 29.36% during the year 2008.
13. It is observed that the bank has advanced Rs, 8741.30 lakh in the form of
short term loan during the year 2003, which reduced to Rs.6679.84 lakh
during the year 2008. It is has advanced Rs6213.73 lakh in the form of
medium term loan during the year 2003, Which reduced to 2446.41 lakh by
the year 2008. It has Advanced Rs8705.13 lakh in the form of long term
loan during the year 2003, which reduced to Rs.6355.15 lakh by the year
2008.
14. It is observed that the position of cash balance during the year 2003 was Rs
3120.69 lakh, which increased to Rs 3782.22 lakh by the year 2008. The
position of the bank balance during the year 2003 was Rs 3195.17 lakh,
which increased to Rs 3207.47 lakh by the year 2008. The position of
working capital was Rs 56951.26 lakh during the year 2003, which reduced
slightly Rs 53355.70 lakh by the year 2008.
a. The cash balance is increased to due to increase in the liquidity

position of the bank and bank has kept adequate cash to cover
deposit, withdrawals, and to meet emergency expenses.
b. The bank balance is increased to increase in the fixed deposit of

the bank with the subsidiaries of SBI and notified banks. It is also
due to proper deployment of funds by the bank.

15. It is examined that the total investment is increasing over the years. It may
be noted that the bank has invested more in government securities for
compliance with statutory liquid ratio (SLR) requirements and KCAB
because of less risky and more safety.
16. It is observed that the total gross NPAs were Rs 12661.61 lakhs during the
year 2003, which decreased to 10759.83 lacks by the year 2008. The net
NPA was Rs10681 lakh during the year 2003, which decreased to Rs
930.08 lakh by the year 2008.

SUGGESTIONS AND RECOMMENDATIONS:
The following are the recommendations from the study:
1. The bank should attract new customers in order to increase the deposits,
which will enable the bank to lend more.
2. The bank should provide better service to its customers in terms of

providing loans or interest rates to its savings banks accounts holders and
providing them with better technology in banking services.

3. It should increase the total advances, which will increase the profitability of
the bank.
4. It should be in more ATM centers across the state to facilitate its customer.
5. It is suggested to decrease the investment deposit ratio, which is increasing

over the years.
6. The bank should adopt prudential lending practices and sound banking g
principles to reduce the level of NPAs.
7. The credit management department should be vigilant to detect and prevent

diversion of funds in the post disbursement stage as any failure in this
regard may lead to NPAs.
8. The bank should increase the number of branches in other cities for further
growth and increased customer base.
9. The bank should adopt core banking method to facilitate customers in

carrying out banking transactions.
CONCLUSION

APEX co-operative bank, which was started 30 years ago, has occupied a
prestigious place in Karnataka. It is providing excellent service to 230,000
depositors, 41474 shareholders, 17000 borrowers through its 15 computerized
branches and 430 motivated staff. It is highly appreciative that the youngest bank
has reached this position within a short span.
Overall, the bank is found it be one of the pioneers among the credit co-
operative banks and has become instrumental in the economic development of its
members. But of later the bank is facing the problem of increasing level of NPAs,
decline in total deposit received and total credit advanced over the year which
should be taken care of.
Based on the analysis and interpretation of financial statements of APEX

co-operative bank Ltd., it can be concluded that the bank has reached a satisfactory
performance level during the year, 2003 and 2004 and earned net profits during
the years. However, during the financial year 2004-05 the deposits advances and
total business of the experienced marginal slow down trend. This was due to
binding restrictions imposed by the RBI. As a result, the bank incurred a net loss
during the year 2004-05 and 2005-06 but the bank earned accumulated profits
during the year 2007 and 2008.
PROVISIONAL BALANCE SHEET FOR THE YEAR 2007-08


CAPITLA & 31/3/2008 PROPERTY & 31/3/2008
A LIABILITIES
STUDY ON CREDIT MANAGEMENT AT APEX ASSETS
CO OPERATIVE BANK LTD
Capital 50,00,00,000.00 Cash 37,82,22,567.
17
Reserve fund and 75,33,91,766.90 Balance with other
other reserves banks 32,07,47,881.
08
Principle or ------------- Money at call and
subsidiary state : short notice
Parternership fund ------------
account Investment
Deposits and Investment out of 97,24,30,585.

other accounts 331,63,42,104.4 the principal or 00
4 subsidiary state
Borrowings partnership fund
------------- ------------
Bills for Advances -
collection being
bills receivable as 1,60,69,445.55 Interest receivable
per contra 180,11,39,034.
Bills receivable 92
Branch -----------
adjustment Branch adjustment 164,51,07,305.
69
164,51,07,305. Premises
Overdue interest 69 1,60,69,445.
reserve Furniture and fixture 55
Interest payable 1,34,27,659.17 Other assets 28,99,603.

15
Other liabilities Non banking assets
106,866,760.90 10,25,19,717.
Profit and loss 00
Interest 47,66,81,663.1 account
concessions and 2 82,58,159.
principle waiver Interest concession 73
in OTS and principal waiver
in OTS 10,66,55,326.0
Profit and loss ----------- 2
-------------
97,79,61,834.6
7

47,66,81.663.1
2
GRAND TOTAL 680,86,93,123.1 GRAND TOTAL 680,86,93,123.
0 10

Executive Summary Credit Management Can Be Defined As "Management of Loans and

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Executive Summary Credit Management Can Be Defined As "Management of Loans and

Uploaded by

Copyright:

Available Formats

A STUDY ON CREDIT MANAGEMENT AT APEX CO OPERATIVE BANK LTD

Credit Management can be defined as “Management of loans and

SURANA COLLEGE PG CENTRE, BANGALORE. Page 1

1.1 BANKING ON OVERVIEW

A banker is a dealer in money and credit. The business of banking consist

HISTORY OF MODERN BANKING IN INDIA

PRE NATIONALIZATION PERIOD:

SURANA COLLEGE PG CENTRE, BANGALORE. Page 2

SURANA COLLEGE PG CENTRE, BANGALORE. Page 3

required by local conditions and the efficiency and business-like approach of

PRESENT SCENARIO OF BANKING INDUSTRY:

The Indian banking can be broadly categorized into nationalized

NEW GENERATION BANKING:

The liberalized policy of Government of India permitted entry of private

SURANA COLLEGE PG CENTRE, BANGALORE. Page 4

1.2 CLASSIFICATION OF BANKS:

Generally banks are classifieds into:

4. Lands development banks.

1. Commercial Banks: Commercial banks perform all the business

SURANA COLLEGE PG CENTRE, BANGALORE. Page 5

2. Investment or Industrial Bank: Investment Banks are those banks, which

3. Exchange Banks: Exchange Banks are known as foreign Banks or foreign

4. Co-operative Banks: Co-operative Banks are promoted to meet the

SURANA COLLEGE PG CENTRE, BANGALORE. Page 6

5. Land Mortgage Banks: Whenever agriculturist require investment loans,

6. Savings Banks: Savings Banks are specialized financial institutions

1.3 FUNCTIONS OF BANKING:

SURANA COLLEGE PG CENTRE, BANGALORE. Page 7

The main functioning under section 5 and 6 banking act is:

1. Borrowing of money in the form of deposits.

2. Lending or advancing of money in the form of different types of

3. The drawing, accepting, discounting, buying, and selling,

4. The granting and issuing of credit, traveler’s cheque etc.

5. The acquiring holding issuing on commission, underwriting,

6. The purchasing and selling of bonds script’s and other forms of

7. Providing safe deposit vaults.

8. Collecting, transmitting of money and securities.

9. Buying and selling of foreign exchange including foreign notes.

SUBSIDIARY FUNCTIONS OF BANKING:

1. Acting as agent’s governments or local authorities or any other

SURANA COLLEGE PG CENTRE, BANGALORE. Page 8

2. Carrying out agency business of any description.

3. Contracting for public and private loans and negotiations and

4. Carrying on guarantee and indemnity business.

5. Managing to sell and realize any property or any interest in any

7. Undertaking and executing of trusts.

8. Granting of pensions and allowances and making payments

1.4 IMPORTANCE OF BANKING

The economic importances of banks are as follows

2. By accepting savings of the people, banks provide safety and

3. By offering attractive interest rates on the savings of the people

SURANA COLLEGE PG CENTRE, BANGALORE. Page 9

4. Banks influence the rates of interest in the money market. Through

5. Banks provide a convenient and economical means of transfer of

6. Banks direct the flow of funds into productive channel. While

1.5 CO-OPERATIVE BANKING AN OVERVIEW:

The Co-operative credit system was introduced in India in 1904, when

Subsequent to the adoption of economic planning in 1951, co operative

SURANA COLLEGE PG CENTRE, BANGALORE. Page 10

Co-Operative Banks in India have historically played a major role in

Co-Operative Banks are promoted to meet the banking requirements of

DEFINITION AND MEANING OF CO-OPERATIVE BANKS: