St. Solider Management and Technical Institute Jalandhar

Submitted to:DR. DIVAKAR JOSHIH.O.D (Management)

Submitted by:Tariq Ahmad WaniMBA 3rd Sem. R.No:- 81403317106

St.soldier management & technical institute Jalandhar.

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ACKNOWLEDGEMENT I would like to acknowledge the invaluable assistance extended by Mr.Reyaz Ahmad Mir; Cluster II head Distt. Baramulla Who gave me his kind permission to successfully complete the project in his organization. I would like to pay my heart full gratitude to Mr. Mohd. Aslam and Mr. Javid Ahmad Of Human Resource Department of J&K Bank who provided me their timely guidance to me at every step and also provided to me all relevant and essential data regarding my project report .I also feel a sense of indebtedness to my reverent teacher Mr.Kishore Luthra Lecturer Research Dept. who encouraged, motivated and guided to complete my project report. Finally I would also like to thank my parents and friends who inspired me and encouraged me to complete my project at J&K Bank in time.

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Tariq Ahmad Wani

Cer tificate -1This is to certify that the Project report Non Performance Asset Management in Jammu and Kashmir bank has been submitted by Tariq Ahmad to the department of management ,St. soldier Management & Technical Institute ,Jalandhar for the fulfillment of the requirement of the degree of M.B.A 3rd sem. and has been carried by his under my supervision.

Training & Placement Officer SSMTI. Jalandhar.

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Table of Contents CONTENTINTRODUCTION TO THE FINANCE & FINANCIAL MGT. INTRODUCTION TO BANKING NON-PERFORMING ASSET(INTRO, MEANING, DEFINITION, CLASSIFICATION FOR MAKING PROVISIONS,CAUSES FOR NPAS) DEFINITION OF SECURITIZATION,MEASURES OF ASSETS RECONSTRUCTION STEPS TAKEN BY RBI TO CURTAIL NPA, RECOVERY TOOLS STATEMENT OF THE PROBLEM,OBJECTIVE,SCOPE,NEED,RESEARCH,DESIGN INTRODUCTION TO J&K BANK HISTORICAL BACKGRODND OF J&K BANK NAME OF BOARD OF DIRECTORS ANALYSIS & INTERPRETATION OF DATA SUMMARY OF FINDINGS CONCLUSION RECOMMENDATIONS QUESTIONNAIRE FOR MANAGERS BIBLIOGRAPHY

Page No 5 8 17 26 27 32 37 38 44 45 62 63 64 65 69

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INDUSTRIAL BACKGROUND: INTRODUCTION TO FINANCE:In our present day of economy, finance is referred as the provision of money at a time when it is required. Every enterprise big, small or medium needs finance to carry on its operation and achieve its targets. In fact, finance is so indispensable that it is rightly said that it is the Life blood of an enterprise. Without adequate finance, an enterprise cant think of its existence. The study of principals, practices, procedures and problems concerning financial management of profit making organization engaged in the fields of industry, trade and commerce is undertaken under the discipline of BUSINESS FINANCE.

BUSINESS FINANCE:The term business finance is composed of two words i.e. business and finance. Thus it is essential to understand the meaning of these two words, which is the starting point to develop the whole concept of finance.

MEANING OF BUSINESS:The word business may be interpreted in one way as State of being busy. All human creative activities which are related to the production and distribution of goods and services for satisfying human needs are known as business.

MEANING OF FINANCE:Finance is referred to as the provision of money at a time when it is required. Finance refers to the management of flow of money through an organization. Having studied the meaning of business and finance, we can develop the meaning of the term business finance as an activity, which is concerned with the acquisitions of funds and distribution of profits by a business firm. Thus business finance deals with the acquisition, application, allocation of funds and financial control.

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DEFINITION OF BUSINESS FINANCE:According to Guttmann and Dougall, business can be broadly defined as the activity concerned with planning, raising, controlling and administering the funds used in the business. Wheeler defines business finance as The activity which is concerned with the acquisition and conservation of capital funds in meeting the financial needs and overall objectives of business enterprise. In simple words, the financial management as practiced by corporate firms can be called as corporate finance or business finance.

FINANCIAL MANAGEMENT: INTRODUCTION:Financial management is concerned with the efficient use of resource, namely capital funds. Financial management refers to that part of the management, which is concerned with the planning and controlling of firms financial resources. It deals with finding out various sources of funds for the firm. The sources must be suitable and economical for the needs of the business. The appropriate use of such funds also forms a part of financial management.

DEFINITION OF FINANCIAL MANAGEMENT:Financial management refers to all those managerial activities or efforts which are concerned with the mobilization of the finance, short term as well as long term finance needed by the firm, determination of the suitable sources under the given circumstances and collection of the funds in time and control over the utilization of funds.

IMPORTANCE OF FINANCIAL MANAGEMENT:The importance of financial management can be expressed as follows: Finance is the lifeblood of business and every business unit needs money to make more money, but money will get more money only when it is managed properly. Financial management is absolutely necessary for every business unit, which is required to make more money. In the words of Collins brooks Bad production and sales management slain hundreds but faulty finance slain thousands. Financial management helps a firm in optimizing the output from given input of funds. 1. Financial management helps a firm in monitoring the effective employment of funds in fixed assets as well as in current assets. 2. Financial management helps in profit planning, capital budgeting, controlling inventories and account receivables.

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OBJECTIVES OF FINANCIAL MANAGEMENT:Objectives of financial management can be classified into two:

1.

BASIC OBJECTIVES:

a) Maintenance of adequate liquid assets in a firm: This objective implies that financial management should ensure that there are always adequate cash in the hands of the firm to meet its obligations.

b) Profit maximization:A business firm is a profit seeking organization. Naturally the profit maximization will be one of the most important objectives of financial management. The earnings or the profits of a firm can increase either by increasing the output or by minimizing the cost of the production for a given output. The objective of profit maximization implies that any financial decisions would be evaluated on the basis of its overall contribution to the profits or earnings of the enterprise.

c) Wealth maximization:Wealth maximization is an appropriate objective of an enterprise. Financial theory asserts that wealth maximization is the single substitute for a stock holders wealth. The individual stock holders can use this wealth to maximizing the stock holders wealth and the firm can operate consistently towards maximizing stock holders utility.

2. OTHER OBJECTIVES:a) Ensuring maximum operational efficiency through planning, directing and controlling ofthe utilization of the funds i.e. through effective employment of funds.

b) Enforcing financial decision in the organization while using financial resources throughcoordination of the operations of the various decisions of the organizations. c) Building up of adequate resources for financing growth and expansion and returns to share holders. ensuring fair

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INRODUCTION TO BANKING:Banking is nothing but a service. Banks are business organizations selling banking services. Banks continuously reassess how a customer views bank services, what are new and emerging customer aspirations and how these can be satisfied.

ORIGIN:Since the banking activities were started in different periods in different countries, there is no unanimous view regarding the origin of the word bank. The word bank is derived from the French word banco or Bancus, which means a bench. Infact the early Jews in Lombardy transacted their banking business sitting on benches. When the business ailed, the benches were broken and hence the word bankrupt came in to vogue.

DEFINITION:The Indian Banking Companies Act, 1949 section 5(b), defines banking as accepting for purpose of lending or investing of deposits from the public, repayable on demand or otherwise and withdrawals by cheque, drafts, and orders or otherwise. Banks are backbone of our society. A bank must meet the financial needs of a customer, by acting as a custodian of his assets, providing credit facilities and assisting him to speedily put through financial transaction of one type or another. Banking when you comer to think of it is people. It is not figures, files and ledgers. Bank services needs considerable improvement on an emergent basis. The time has come for banks to look inward to find out what is the nature and quality of the products they sell, what is the product demanded by the customer. It would be unrealistic today to believe that banks are mere financial institutions, working for profit. Banks essentially are now social organizations, regarding financial services to sub serving the socio-economic objectives of the society.

IN INDIA:India has a system of indigenous banking from very early times, though it was not similar to banking of modern times. There is evidence to show that money lending existed even during the Vedic period. With the advent of the English traders in the seventeenth century and the establishment of trading centers by the East India Company encouraged the establishment of 9

what were known as the agency houses? The trading firms which undertook banking operations for the benefit of their constituents. Some of the houses established during the period were Alexander and Co. and Ferguson & Co. There were also Presidency Banks, Joint stock banks and Exchange banks which took up gradually one after the other.

IMPERIAL BANK:The Presidency Banks referred to above were amalgamated into the Imperial Bank of India, which was brought into existence on 27th January 1921 by the Imperial Bank of India Act 1920. This Act, however, gave the bank no power to issue notes and this left out without control over the currency of the country. But it was allowed to hold Government balances and to manage public debt and clearing houses till the establishment of Reserve Bank Of India in 1935 which apart from taking over all these functions from the Imperial Bank of India, was given the privilege of acting as an agent of the latter in places where it had no branches.

COMMERCIAL BANKS:Amongst the banking institutions in the organized sector, the commercial banks initially were established as corporate bodies with share holdings by private individuals, but subsequently there has been a drift towards central ownership and control. Today 27 banks constitute the strong public sectors in Indian Commercial Banking. Up to late 60s Commercial Banks are mainly engaged in financing organized trade, commerce & industry , since then they are actively participating in financing agriculture, small-scale business ands small borrowers also.

FUNCTIONS OF COMMERCIAL BANKS:Commercial banks perform several crucial functions, which may be classified into two categories:

(a) (b)

Primary functions and Secondary functions

PRIMARY FUNCTIONS:Primary banking functions of the commercial banks include:

I) II) III) IV)

acceptance of deposits from public lending funds use of cheque system and remittance of funds

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SECONDARY FUNCTIONS:Commercial banks perform a multitude of other non banking functions, which may be classified as

(a)(b)

Agency service General utility services

NATIONALIZATION OF COMMERCIAL BANKS:The major historical event in the history of banking in India after independence is undoubtedly the nationalization of the 14 major banks on 19th July 1969. In 1980, six more private sector banks are nationalized extending the public domain further over the banking sector. Nationalization was deemed as a major step in achieving the socialistic pattern of society. The nationalized banks were to increase lending to areas of importance to the government and to use their resources for sub-serving the common good. A detailed scheme of objectives, regulations, management, etc was drawn up for these banks. Nationalization was recognition of the potential of the banking system to promote broader economic objectives. The banks had to reach out and expand their networks so that the concept of mass banking was given importance over class banking.

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THE RESERVE BANK OF INDIA [RBI]:The Central Bank of India called the Reserve Bank of India was constituted under the Reserve Bank of India Act, 1934 to regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of India to its advantage. Amongst its multifarious functions affecting the Indian Financial System, the RBI regulates and prohibits the issue of prospectus or advertisement soliciting deposits of money, regulates the functioning of non-banking institutions and transacts Government business. Its regulatory involvement in the Indian Capital Markets is primarily of debt management through primary dealers, foreign exchange control and liquidity support to market participants. The RBI regulates participants in the securities markets when a foreign transaction is involved. Transactions that include Indian issuers issuing of security outside India, such as GDRs and ADRs, and Financial Institutional Investors (FIIs) or Foreign Brokers selling, buying or dealing in Indian Securities need the permission of RBI. As the central banking authority of India, the Reserve Bank of India performs the following traditional functions of the central bank:

I. It provides currency and operates as the clearing system for the banks. II. It formulates and implements monetary and credit policies.

III. It functions as the bankers bank. IV. It supervises the operations of credit institutions. V. It regulates foreign exchange transactions. VI. It moderates the fluctuations in the exchange value of the rupee. In addition to the traditional function of the central banking authority, the Reserve Bank of India performs several functions aimed at developing the Indian financial system:

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It seeks to integrate the unorganized financial sector with the organized financial sector. It encourages the extension of the commercial banking system in the rural areas. It influences the allocation of credit. It promotes the development of new institutions.

REVIEW OF INDIAN BANKING SCENE:Banking sector reforms have brought about considerable shift in the progress of different banks. Credit has once again gained importance. Technology has brought banking to the very doorstep of customers. With the coming of foreign banks, competition has increased and they are models for the other banks in terms of service level, banking convenience technology and staff productivity. In order to keep them alive in the race for survival and in order to increase profitability, banks have been forced to become active in offering services to customer. In fact globally the dominance of internet and cyber banking has changed the banking scenario.

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ROLE OF BANKS IN ECONOMIC DEVELOPMENT:Commercial banks are playing a crucial role in the economic development of the country. In fact without the development of commercial banks in 18th century, industrial revolution would not have taken place in England at all. It is also true that economic development of country depends entirely on the development of sound commercial banking. Banks provide short term loans which serve as capital for industrial establishment. Without capital it is impossible to start an industry. After starting the industry, the banks provide the industrialists necessary working capital. Thus by providing with investment capital and short term working capital, the banks encourage industrial advancement in the country. Banks extend credit facilities to industry and trade to develop right type of industry and business. Expansion of credit will provide more funds for the entrepreneurs to start new industries, which results in more employment and income. Commercial banks by providing funds encourage production and cause an increase of national income by means of transferring surplus resources obtained from rural sector. Banks promote capital formation by means of pooling savings from the people. They mobilize the idle and dormant capital of the community and provide it for investment. Banks can also influence the economy in so many other ways. Banks can regulate the interest rates in the money market by means of regulating the supply of the funds. A cheap money policy with low rate of interest will tend to stimulate economic activity during the period of inflation. A reverse policy is followed during depression.

BANKING SCENARIO:During the year 2005-2006, the reserve bank of India took several initiatives aimed at improving the prudential regulation. These include stipulating higher provisioning requirement for NPAs included under doubtful for more than three years category effective from March 31, 2006, prohibiting banks from investing in unrelated non-SLR securities, advising banks to maintain capital charge for market risk etc. Further several initiatives were also taken during the year aimed at improving the credit delivery to the agricultural and SSI sector. The govt. announced a comprehensive policy envisaging a 30% increase in agriculture credit in 2005-06 and doubling the credit flow to the agriculture sector in three years.

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LOAN:A loan is a financial transaction in which one party (the lender) agrees to give another party (borrower) a certain amount of money with the expectation of total repayment. The specific terms of a loan are often spelled out in the form of a promissory note or other contract. The lender can ask for interest payments in addition to the original amount of the loan (principal). The borrower must agree to the repayment terms, including the amount owed, interest rate and due dates. Some lenders can also assign financial penalties for missed or late payments, because a loan can contain many hidden costs such as interest payments and finance charges. Many people tend to avoid applying for one until it becomes absolutely necessary. Purchasing a new vehicle or home always necessitates some form of financial loan, whether it is a bank mortgage or a private loan with the seller. Financing a higher education may also require a federally-backed student loan. Interest rates on these types of large loans can be fixed at the time of the application or may vary according to the federal prime interest rate. There is a very important legal difference between a gift and a loan. A very generous relative or friend may give you $ 5000 for car repairs, for example, if there is no expectation of repayment, the money can be considered as a gift. The giver could not sue for repayment later in a civil lawsuit. But if the lender designates the money as a loan and the borrower pays back even one dollar, the money can be considered a legal loan and the lender can demand repayment anytime. Small claims courts spend much of their time determining whether or not a transaction involving money was a gift or loan. This is why paperwork is essential, when making private loans to friends or relatives. Most loan applications are handled by banks or other professional lending institutions. They may use any number of criteria to determine if a potential borrower is eligible for a loan. Past credit history is always considered, along with current income and assets. The purpose of the loan may also be a factor-a proven investment opportunity may have more appeal than an unproven idea for a new restaurant. One important consideration is the income to debt ratio of the borrower. Can the borrower afford to pay the loan back with interest? Professional lenders essentially sell money, so borrowers must realize how much a loan actually costs in terms of real dollars and cents.

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(B) REVIEW OF THE RELATED LITERATURE:An asset becomes Non Performing Asset (NPA) when it ceases to generate income for the bank. Earlier an asset was considered as Non-Performing Asset based on the concept Past Due for a specific period of time. The specific period was reduced in the phased manner as under:

Year March 1993 1994

Ending

31st Specific Period 4 Quarters 3 Quarters2 quarters

1995 onwards

With effect from March 31, 2001, overdue concept is to be used instead of past due for classifying an asset. Accordingly, as from March 31, 2001 a Non-Performing Asset (NPA) shall be an advance where

1. interest and/or installment of principal remain overdue for a period of more than 180 days in respect of a Term Loan, 2. the account remains out of order for a period of more than 180 days, in respect of an Overdraft/Cash Credit (OD/CC), 3. the bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted, 4. interest and/or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purposes, and 5. Any amount to be received remains overdue for a period of more than 180 days in respect of other accounts.An amount is considered as Past Dues, when it remains outstanding for 30 days beyond the due date. However, with effect from 31st march 2004, however gold loans and small loans up

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to Rs.100000 have been exempted from the 90 days norm for recognition of loan impairment, such loans would continue to be governed by 180 days norms for classification as Non performing Asset even after this date Accordingly with effect from 31st march 2004, a non performing asset shall be a loan or van advance where:

Interest/installment of principal remains overdue for a specific period of more than 180 days in respect of a term loan.

1. The account remains out of order for a period of 180 days in respect of overdraft/cash credit. 2. The bill remains overdue for a period of 180 days in case of bills purchased or discounted. 3. Interest/installment of principal remains overdue for two harvest seasons but for a period not exceeding two half year in case of an advance granted for agriculture purpose. 4. Any amount to be received remains overdue for a period of more than 180 days in respect of other accounts.As a facilitating measure for smooth transactions to 90 days norms, banks advised to move over to charging of interest at monthly rests, by April 1, 2002. However the date of classification of an advance as Non-Performing asset should not be changed on account of charging of interest at monthly rest. Banks should, therefore, continue to classify an account as Non-Performing Asset only if the interest charged any quarter with effect from April 1, 2002 and 90 days from the end of the quarter with effect from March 31, 2004.

(C) THEORETICAL BACKGROUND OF THE STUDY: NON- PERFORMING ASSET:17

INTRODUCTION:Its a known fact that the banks and financial institutions in India face the problem of swelling non-performing assets (NPAs) and the issue is becoming more and more unmanageable. In order to bring the situation under control, some steps have been taken recently. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 was passed by parliament, which is an important step towards elimination or reduction of NPAs.

EMERGENCE OF THE WORD NON-PERFORMING ASSET:The issues relating to definition, management or the mismanagement and recommendations calling for spectacular solutions to the problem of non-performing advances of banks are being deliberated at frequent intervals during last decade or so. In late 80s the concept of classification of bank advances in several health code categories took place though the terminology non-performing advances did not exist at that time. This is followed by early 90s Anglo-American model of categorization of bank lending portfolio in several blocks of nomenclature in that included the non-performing advances. The rapid popularity of the phenomenon can be ascribed to the opening up of the Indian economy and consequent pressure from western powers to influence our banking system in the name of international standards of accounting, congruence of banking supervision by Basle committee, and so on.

The sudden shock of guidelines relating to non-performing advances and simultaneous of income recognition made the Indian banking system totter and a number of public sector banks started incurring losses from the mid-nineties. Then came the recommendations of the Narasimham committee with the proposition of creating asset-reconstruction fund for cleaning the balance sheets of the banks of non-performi8ng advances as a one-time measure.

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MEANING OF NPAs:An asset is classified as non-performing asset (NPAs) if the borrower does not pay dues in the form of principal and interest for a period of 180 days. However with effect from March 2004, default status would be given to a borrower if dues are not paid for 90 days, if any advance or credit facilities granted by bank to a borrower become non-performing, then the bank will have to treat all the advances/credit facilities granted to that borrower as nonperforming without having any regard to the fact that there may still exist certain advances/ credit facilities having performing status. In simple words, an asset which ceases to yield is a non-performing asset.

DEFINITION GIVEN BY THE NARASIMHAN COMMITTEE:The committee has defined non-performing assets as advances here, as on the date of balance sheet, 1. In respect of term loans, interest remains past due for a period of more than 90 days. 2. Overdrafts and cash credits accounts remain out of order for more than 90 days. 3. Bills purchased and discounted remain over due and unpaid for a period of more than 90 days.

An amount is considered past due when it remains outstanding for 30 days beyond the due date.

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RBI REGULATION REGARDING INCOME RECOGNITION, ASSETS CLASSIFICATION AND PROVISIONING: INCOME RECOGNITION:RBI has notified regulations concerning the income recognition of banks while accepting the recommendations of the Narasimham committee report. The following is the regulations regarding income recognition of banks:

Interest income should not be recognized until it is realized. A non-performing asset is one when it is overdue for two quarters or more.

In respect of non-performing assets, interest is not to be recognized on accrual basis but it is to be treated as income only when it is actually received. NPAs banks should not charge or take into account the interest.

In overdue bill, interest should not be charged or taken as income unless realized. Interest accrued and credited to prior accounting period in respect of non-performing assets should be reversed or provided for in the current account if such interest still remains uncollected.

CLASSIFICATION PROVISION:

OF

ASSETS

FOR

MAKING

For the purpose of making provisions for bad and doubtful loans and advances, banks need to classify them into the following broad categories:

Performing assets Non-performing asset

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I) PERFORMING ASSETS:Performing assets is also known as standard assets/loans, where the interest or principal are not overdue beyond 180 days at the end of the financial year. Such loans dont carry more than the normal business risk.

II) NON-PERFORMING ASSETS:Any loan the repayment of which is overdue beyond 180 days or two quarters is considered as NPA. It is further classified into:

a. Sub-standard assets b. Doubtful assets c. Loss assets

(a) SUB-STANDARD ASSETS:Sub-standard asset is one which has been classified as NPA for a period not exceeding two years. With effect from 31 March 2001, a sub-standard asset is one, which has remained NPA for a period less than or equal to 18 months. In such cases, the current net worth of the borrower/guarantor or the current market value of the security charged is not enough to ensure weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the bank will sustain some loss, if deficiencies are not corrected.

(b) DOUBTFUL ASSETS:A doubtful asset is one, which has remained NPA for a period exceeding two years. With effect from 31st March 2001, an asset is to be classified as doubtful, if it has remained NPA for a period exceeding 18 months. A loan classified as doubtful has all the weaknesses inherent in that classified as sub-standard with the added characteristic that the weaknesses

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make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

(c) LOSS ASSETS:A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has been written off, wholly or partly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value. The assets, which have been wholly written off should not be reported in BSR-1. however, in case of partly written off assets, the amount of technical write off, if any, should be reduced from the outstanding gross advances.

FUNDAMENTAL CAUSES FOR NPAs:The information collected in the research and the reports regarding performance of various industrial segments indicated that the dues to the banking sector are generally related to the performance of the unit/industrial segment. In a few cases of NPA has been due to internal factors (to the banks) such as weak appraisal or follow-up of loans but more often than not, it is due to factors such as management inefficiency of borrower units, obsolescence, lack of demand, non-availability of inputs, environmental factors, etc. wherever the unit/segment is doing well the credit relationship is generally maintained except in cases of willful default/misappropriation/ diversion of funds. The problems to the unit/segment arising out of various internal/external factors were felt to be originating point for NPAs in banks. Diversion of funds, mostly for expansion/ diversification/ modernization, taking up new projects and for helping/ promoting associate concerns, is the single most prominent reason. Besides being so, this factors like recessionary trends developing during expansion/ diversification/ promotion phase and failure to raise capital/ debt from public issue due to market turning lukewarm. Time/ cost overrun during the project implementation stage leading to liquidity strain and turning NPA is the next factor. NPAs may result due to following reasons:

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I). Willful default:Some borrowers though have the capacity and resources to repay the loan will not do the same. These sorts of people will come under willful defaulters. They will take advantage of the loopholes in the legal system. As per RBI guidelines, willful default broadly covers the following: 1. Deliberate nonpayment of the dues despite adequate cash flow and good net worth. 2. Assets financed have either not being purchased or have been sold and the proceeds have been misutilised. 3. Misrepresentation/ falsification of records. 4. Disposal/ removal of securities without the banks knowledge. 5. Fraudulent transaction by the borrower.

The identification of the willful defaults is to be made keeping in view the track record of the borrower and not on the basis of isolated transaction/ incident. The default to be categorized as willful must be intentional, deliberate and calculated.

II). Failure of a business unit either resulting from lack of its own competitive advantage orgeneric weakness of the industry. Business failure like product failing to capture the market, inefficient management, strike or strained labour relations, wrong technology, technical problems, product obsolescence, etc.

III). Lack of adequate risk assessment and monitoring system within the bank. Absence ofproper credit management system is a very serious issue i.e., in many of the Indian banks particularly state owned ones there are several dimensions to the problem. The most important being the lack of trained manpower i.e. the analysts should be in adequate number to appraise critically the credit worthiness of the potential clients.

IV). Lack of prudential regulation. Risk management practices can be effective only whenfinancial statements present accurate picture of level of risk.

V). Time or cost overrun while implementing the project.

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VI). Internal factors like raw material shortage, raw material/input price escalation, powershortage, industrial recession, excess capacity, natural calamities like floods, accidents, etc.

VII). Failure, non-payment/over dues in other countries, recession in other countries,externalization problems, adverse exchange rates. Etc.

VIII). Deficiencies on the part of the banks viz. in credit appraisal, monitoring and followup, delay in release of limits, delay of settlement of payments or subsidies by govt. bodies etc.

IX). Government or political interference in the working of banking system. Governmentpolicies excise, import duties changes, deregulation, pollution control orders etc.

In conclusion, this means that the management of non performing advances depends on the causes rather than treating the lag indicators which are nothing but symptoms. If all the five causes stated above are taken care of, the problem, at least the intensity of it would have automatically come down. It should be appreciated that the issue on non performing advances is serious as the absence of income stream from this category of assets causes continued deterioration in the health of banks. Taking piecemeal corporate debt recast body will only not solve the problem., but also keep the real issues underground that may cause more damages in future on a long term basis.

CHECK LIST FOR REDUCTION OF NPAs:Early identification:I) Identification of accounts showing early warning signals.

II)

High values NPAs should be given focused attention.

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III)

A systematic review of problems loans should be done. The time norms for the problem loan review should be adhered to. Action plan to be drawn up for each account and follow up.

Recovery:Actual recovery occurs in the accounting in which the total recovery of the dues is warranted. Through regular pre and post sanction monitoring, follow-ups, the NPAs can be eliminated.

Up gradation:The NPA accounts in which part recovery of the total, dues will upgrade the account from NPA to performing asset. Generally the NPA accounts with less than 2 years of the age under NPA are covered. The main characteristic of these accounts is after elimination from NPA, also these accounts continued to be part of advances. Since lending is a main business of the banks up gradation of accounts is preferred. Substandard accounts to be specially targeted for up gradation.

Up gradation strategies would include adjustment of irregularity, repayment of over due interest/installment and up gradation following restructuring/ rehabilitation.

Replacement/re-schedulement of loans should be done in deserving cases promptly. After 1 year of successful implementation, account to be reviewed for up gradation.

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Rehabilitation:Rehabilitation of units should be taken up in deserving cases.

Repayment: Fixing repayment programme for accounts while continued viability is in doubt.

Fixing installments for irregular amount were limits to be continued with reduced exposure.

Compromise:Through compromise the accounts are closed by negotiated settlement with the borrowers as per the compromise policy of the bank. Generally compromises are encouraged in cases of chronic NPA accounts.

Compromise proposals need to be considered where necessary, and in time.

Option of OTS through Lok Adalat should be examined.

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THE

SECURITISATION

AND

RECONSTRUCTION

OF

FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 (SARFAESI ACT):There was an acute need being felt for assistance to the banks and other financial institutions in the recovery of loans, for there were heavy losses being incurred on account of unpaid debts. To regulate securitization and reconstruction of financial assets and enforcement of security interest the president, on 21st day of June 2002 promulgated the securitization and reconstruction of financial assets and enforcement of Security Interest Act.

Definition of securitization:Securitization means acquisition of financial assets by any securitization company or reconstruction company from any originator, whether by raising of funds by such Securitization Company or Reconstruction Company from qualified institutional buyers by issue of security receipts representing undivided interest in such financial assets.

Measures for assets reconstruction:When the borrower fails to repay the loan amount, then according to RBI guidelines the construction company can take following measures: The proper management of business of the borrower, by change in, or take over of, the management of the business of the borrower. The sale or lease of a part or whole of the business of the borrower. Rescheduling of payments of debts payable by the borrower. Enforcement of security interest in accordance with the provisions of this Act. Settlement of dues payable by the borrower. Taking possession of secured assets in accordance with the provisions of the act.

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STEPS OR INTIATVES TAKEN BY RBI TO CURTAIL NPA:Recognizing the fact that the origin of Non-performance could be at the initial stage of loan decision-making, RBI had impressed upon banks from time to time, to strengthen credit appraisal and credit supervision. After sanction and dispersal of credit, banks are required to closely monitor the operation of the borrower units and accounts by way of ostentation of periodic stock/operation statements brought down, end use, etc. in the cases of incipient cases sickness, nursing back the sick units, etc. problem accounts above a certain outstanding balance are required to be monitored individually by designated senior officials of the bank. In respect of accounts where the classification of assets of the banks are required to take prompt steps to recover the dues and staff accountability is required to be examined. Banks have also been advised to take decisions regarding finding of source expeditiously and to effectively follow up the cases of suit filed and decreed accounts. During periodic discussions with bank management, special emphasis is given on monitoring of large NPA accounts at the highest level in the banks and also on reductions of NPA through up gradation, recovery and compromise settlements. RBI has advised and accordingly bank boards have laid down policies in regard to credit dispensation, recovery of credit etc. Banks have constituted recovery cells, recovery branches and NPA management departments and fixed recovery targets. Policies evolved and steps taken in this regard are critically examined during the annual on sight inspection of banks. The off sights returns also provide RBI and insight into the quality of credit portfolio at quarterly intervals. Introduction of prudential norms on income recognition, asset classification , provisioning during 1992-93 and other steps initiated apart from beginning in transparency in the loan portfolio of banking industry have significantly contributed towards improvement of the presanction appraisal and post sanction supervision which is reflected in lowering of the levels of fresh accretion of non-performing advances of banks after 1992. RBI impressed upon the banks to strengthen the credit appraisal and credit supervision. Adoption of 90 days norm for recognition of loan impairment as against the current norm of 180 days effective March 2004.

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Reduction in transition period of sub-standard asset to doubtful category to 12 months as against the current norm of 18 months effective from March 2005. Revision in the CRAR norms in terms of new Basel Capital Accord after 2005.

In cases of incipient sickness, detailed guidelines have been issued to banks to take steps for avoiding sickness, nursing back the sick units etc. During periodic description with bank management special emphasis is given on monitoring of large NPA accounts at the highest level in the banks and also on reduction of NPAs through up gradation, recovery and compromise settlements.

RBI has advised and accordingly banks boards laid down policies in regard to credit dispensation, recovery of credit, etc. Policies evolved and steps taken are critically examined during the annual on sight inspection of banks.

RECOVERY TOOLS AND THEIR EFFECTIVENESS:1. DEBT RECOVERY TRIBUNALS: Lack of expeditious court remedies has been one of the major impediments experienced by banks and financial institutions in the recovery of NPA. On the basis of the recommendation of Tiwari Committee(1981) and Narsimham Committee on financial systems(1991), which emphasized the need for the establishment of special tribunals for banks and financial institutions, the recovery of debts due to banks and financial institutions act was enacted in1993.

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The act applies only to cases where the amount of debt due to banks/financial institution is Rs 10 lakhs or above. Filing of cases at the DRT has been a cause of concern for almost every bank in the country today. One reason for the slow pace is the requisite infrastructure at the respective DRT was inadequate to handle the huge number of cases pending with it. There has been a decision to add about 7 more DRT to the existing 22 DRT and 5 appellate authorities. This enables the banks to settle some of the pending NPAs.

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2. LOK ADALATS: For recovery of smaller loans, the Lok Adalat has proved a very good agency for quick justice and settlement of dues. The Gujarat State Legal Service Authority and the DRT, Ahmadabad have nominated and appointed conciliators to deal with the cases before the Lok Adalat comprising of retired High Court Judge and two members from senior advocates/industrialists/executives of the banks. These Adalats in the state of Gujarat have been found to be useful as supplement to the efforts of the efforts of the recovery by the DRTs. Such agencies should be established in all the states. 3. ASSET RECONSTRUCTION COMPANY: The setting of Asset Reconstruction Company may be another channel to discount the NPAs of the bank to such an agency and to developing the process of securitization of banks loan assets for providing liquidity. Perhaps secondary market of derivatives based on securitized assets could also be developed as in individual countries. 4. REVENUE RECOVERY ACT: In some states, revenue recovery act has been made applicable to banks. Since this is also expeditious process of adjudicating claims, banks may be notified to cover the Act by state. :

(D) CURRENT ISSUES: OPPORTUNITIES AND CHALLENGES: The continued good performance of the Indian economy promises increasing opportunities for business growth. The financial sector is also witnessing far-reaching changes. The new generation private sector banks have become active competitors. The foreign banks are likely to increase their operations. This scenario, though challenging, is leading to improvements in the functioning of the public sector banks as well. They are now in the process of improving their capabilities in information technology. Product innovation and business re-engineering are also gaining the center stage. With competition driving down the interest spread; thrust on 31

business volumes, non-interest income, recovery and cost control are likely to increase further. Technology would further influence customer service, delivery of products and risk management practices. In order to conform to the global best practices in the area of risk management, banks would be increasingly focusing more on new types of risk like operational risks.

INDIAN ECONOMY AND NPAs:Undoubtedly the world economy has slowed down, recession is at its peak, globally stock markets have tumbled and business itself is getting hard to do. The Indian economy has been much affected due to high fiscal deficit, poor infrastructure facilities, sticky legal system, cutting of exposures to emerging markets by FFIs, etc. Further, international rating agencies like, Standard & Poor have lowered Indias credit rating to sub-investment grade. Such negative aspects have often outweighed positives such as increasing Forex reserves and a manageable inflation rate. Under such a situation, it goes without saying that banks are no exception and are bound to face the heat of a global downturn. One would be surprised to know that the banks and financial institutions in India hold non-performing assets worth Rs 110000 crores. Bankers have realized that unless the level of NPAs is reduced drastically, they will find it difficult to survive.

GLOBAL DEVELOPMENTS AND NPAs:The core banking business is of mobilizing the deposits and utilizing it for lending to industry. Lending business is generally encouraged because it has the effect of funds being transferred from the system to productive purposes, which results into economic growth. However lending also carries credit risk, which arises from the failure of borrower to fulfill its contractual obligations either during the course of a transaction or on a future obligation. A question that arises is how much risk can a bank afford to take? Recent happenings in the business world like Enron, WorldCom, Xerox and global Crossing do not give much confidence to banks. In case, these giant corporate became bankrupt and failed to provide investors with clearer and more complete information thereby introducing a degree of risk that many investors could neither anticipate nor welcome. The history of financial institutions also reveals the fact that the biggest failures were due to credit risk. Due to this, banks are restricting their lending operations to secured avenues only with adequate collateral on which to fall back upon in a situation of default.

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STATEMENT OF THE PROBLEM:A study on Non Performing Asset Management The banking industry being as competitive and turbulent as it is now with the entrance of foreign banks and other private banks. The political system being so unstable with constant change in rules and norms and the Reserve Bank of India being monitoring the functioning of banks quite vigilantly than before, managing non-performing assets becomes essential components of the banks strategy in order to survive and grow in the industry. A high level of non-performing assets in the banking systems can severely affect the economy in many ways. Management and financial resources of the banking systems are diverted to resolution of nonperforming asset causing opportunity loss for productive use of resources. Large scale Nonperforming Assets, when loft unattended cause continued economic and financial degradation. These results in a credit crush and generally signals adverse investments climate. This explains why most countries in the grip of systematic financial and economic ceased have attempted system wide clean of non performing asset as a part of reconstruction of their banking system.

(b) OBJECTIVE OF THE STUDY: 1. To study the practice of managing Non Performing Assets in general. 2. To understand how Non- Performing Asset affect the performance of the bank. 3. To understand the extent to which Jammu & Kashmir Bank has been successful in cutting down its Non-performing Asset level. 4. To offer suggestions and recommendations to manage the Non-Performing Asset.

(c) SCOPE OF THE STUDY: The scope of this study is limited only to the study of non performing asset management in Jammu & Kashmir Bank Limited, cluster 2nd north.

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(d) NEED FOR THE STUDY: The need for the study is to identify the banks impact on profitability due Non performing asset to identify the various causes for NPAs and ways to reduce NPA and ways to reduce NPA. The need is to identify NPAs in all branches of Jammu & Kashmir Bank & the methods adopted by Jammu & Kashmir Bank to reduce to the same. (a) RESEARCH DESIGN OF THE STUDY: The conception of the research design plan is a critical step in the research process. The design of the study constitutes the blue print for the collection, measurement and analysis of the data. In other words, the research design is a conceptual structure with in which research is conducted.

(b) SOURCES OF THE DATA: The study includes both primary and secondary data: PRIMARY SOURCE: Primary data is first hand information which is collected a fresh and thus happens to be original in character The primary data was collected by the way of well framed Questionnaire. Questionnaire was administered to gather the information relating to NPA from the managers from all the branches of Bank. SECONDARY SOURCE: Secondary data are those which have already been passed through the statistical process. The data which was pre-essential for this study relating to management of NPA was based on secondary source of data. This data was collected from materials provided by bank, annual reports, management reports, magazines, journals, RBI circulars and some essential books on banking was referred. Some information was also obtained from J&K Bank website.

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(c) SAMPLING PLAN: Population Size: The population size is the managers of Jammu & Kashmir Bank in cluster 2nd north. Sample Size: 10 branches of Jammu & Kashmir Bank Sample Method: Random Sampling is used for all branches of Jammu & Kashmir Bank. (d) LIMITATIONS: Due to time constraint depth analysis could not be made. Some of the information is considered confidential and not available for the study. The data taken for interpretation is for a limited period. The study is confined to only one company that is J&K Bank.

(e) PLAN OF ANALYSIS: The data collected is raw and it is complied, classified, tabulated and then analyzed using financial techniques and statistical tools. Graphs and charts are used to highlight the statistics. Based on these data and analysis, inferences were drawn.

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(f) CHAPTER SCHEME: Chapter-I gives the general introduction to the study. Chapter-II gives the introduction to the problem. Chapter-III shows the research methodology of the study. Chapter-IV gives the profile of the bank, its mission, vision, and Financial details. Chapter-V deals with data analysis and interpretation. Chapter-VI deals with findings of the study. Chapter-VII deals with conclusion and recommendations.

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INTRODUCTION TO THE J & K BANK:Jammu and Kashmir bank was incorporated on 1st October, 1938 and commenced business in July, 1939. From a small beginning the bank has grown to become a giant with a network of 520 branches spread over the length and breadth of the country. The J & K Bank is the first state owned bank of the country and 53% of equity is held by the government of Jammu and Kashmir. The bank has a consistent track record of growth and profitability. It has a unique distinction of being banker to the Jammu and Kashmir state government and has also been appointed by RBI as its agency in J & K, responsible for carrying general banking business of the Central government and collection of taxes pertaining to the Central Board of Direct Taxes. J & K Bank has over the past few years been reporting sustained excellent performance in all the vital areas of business and achieving record-breaking levels in profit generation. However what I feel is more reassuring is that bank is quietly working on a much larger objective of setting a strong foundation that will serve as a launching pad to support the aggressive growth plans in the future. J & K Bank has today acquired significant financial strengths on key bench marks that will give it great confidence in the journey forward. Today the bank has a status of value driven organization and is always working towards building trust with shareholders, employees, customers, borrowers, regulators and other diverse stakeholders. It has adopted a strategy directed to developing a sound foundation of relationship and trust aimed at achieving excellence which of course comes from the womb of good corporate governance. Good governance is a source of competitive advantage and a critical input for achieving excellence in all pursuits. J & K Bank considers good corporate governance as the sine qua non of a good banking system and has adopted a policy based on all four pillars of good governance transparency, disclosures, accountability and value, enabling it to practice trusteeship, transparency, fairness and control, leading to stakeholders delight, enhanced shareholder value and ethical corporate citizenship. It also ensures that bank is managed by an independent and highly qualified Board following best globally accepted practices, transparent disclosure and empowerment of shareholders, besides ensuring to meet shareholder aspirations and societal expectations following the principals of management executive freedom to drive the bank forward without undue restraints but within the framework of effective accountability. The excellence achieved by the bank in its operations stemming from the roots of voluntary and bank has recently bagged three very prestigious award for following fair business practices and commitment to social obligations.

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HISTORICAL BACK GROUND OF J&K BANK:Before independence moneylenders use to perform entire banking in the Jammu and Kashmir state that too on exorbitant interest rates. Punjab National Bank, Imperial Bank of India and Grind lays bank were the banks that use to take deposits but no lending due to their statutory limitations. Money lenders mostly known as Munimji conducted financial transactions in the entire state of Jammu and Kashmir. Under this scenario banks could not ameliorate the financial and social position of the people of the state. To overcome this critical situation, the then Maharaja of the state conceived an idea of setting up of a state bank in the state. After a prolonged exercise and deliberations the assignment for establishment of The Jammu and Kashmir Bank limited was given to the late Sir Sorabji N Pochkhanawala, the then Managing Director of the Central Bank of India. Mr. Pochkhanawala formulated a scheme on 24-09-1930, suggesting establishment of a semi state bank with participation in capital by state and the public under the control of state government. Thus the bank was formally incorporated on the 1st of October 1938 and commenced business from 4th of July 1939 at its registered office Residency road Srinagar, Kashmir. The Jammu and Kashmir bank Limited has been the first of its nature and composition as a state owned bank in the country. The state government besides contributing half of the issued capital also appointed it as its bankers for general banking and treasury business. In its formative years, the bank had to encounter several serious problems particularly around the time of independence when out of its total of ten branches; two branches of Muzaffarabad and Mirpur fell to the other side of the line of control (now Pakistan Administered Kashmir) along with cash and other assets in 1947. However the State government came to its rescue with the assistance of Rs.6.00 Lacs to meet the claims, however the bank fastly over came its difficulties and kept growing. Following the extension of Central Laws to the state of Jammu and Kashmir, the bank was defined as a government company as per the provisions of Indian Companies Act 1956. The bank had its first full time chairman in 1971, following social central measures in banks. The year 1971 was a turning point for the bank on conferment of scheduled bank status and witnessed remarkable progress in all the vital fields of operations. The bank was declared as A class bank by Reserve Bank of India in1976. In recognition of dominant role and exalted performance, Reserve bank of India as its agent for performing the general banking business of the central government especially in maintaining currency chests and collection of taxes.

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FINANCIALS DETAILS:While registering a business turnover of Rs51,975.56 crore during the quarter ended june,2009, the J&K bank recorded an increase of 41% over the corresponding period of the previous year in the operating profit which increased to Rs256 crore. For the said quarter, the bank recorded ante profit of Rs117.05 crore, an increase of 24% over Rs94.56 pertaining to the corresponding period of the previous year. The bank announced the un-audited financial results for the quarter end June 2009,following the approval of its board of directors in a meeting held on July 14.2009 The financial results of the bank speak the performance despite adverse market conditions prevailing in J&K state.Infact, the growing profits vet the renewed strategy where bank has focused on J&K state and banks investment strategy in a declining interest rate scenario,. Further the bank has leveraged technology to maximize efficiency in the system and also to bring down the operating expenses The Gross NPAs and the net NPAs as proportion of gross and net customer assets for the quarter ended June , 2009 were at 2.44% and 0.77% respectively. The NPA coverage ratio, whish is an indicator of safety and shows the level of provision has for its bad assets, has gone up to68.79%from59.53% a year ago. It is now amongst the highest in the industrys result of efficient leveraging of its assets, the bank has been able to bring down its cost to income ratio to32.79% a year ago. The return on assets has improved to 1.29%(annualized)compared to 1.16%a year ago. Dr.Drabu cited productization of financial services, where the bank has tailored a wide range of products to suit various sectors of economy, be it agriculture,horticulture,artisianor industries sector, as a major contributing factor for the healthy performance of the bank. This initiative has resulted in tapping the un explored areas of our economy and enhanced our outreach to unbanked areas in the state he emphasized. Due to improvement in yield on advances from10.37%in financial year20082009 to 11.5% for the current quarter, the interest income on advances went up by 19% on a y on basis. Despite increase in interest expenses by 20%y on y, attributed to rising cost of deposits, bank has been able to maintain its margins at 3.10% due to concurrent increase in the lending rates.

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Operating income(net interest income plus other income) stood at Rs 381.67 crore for the quarter ended June 30,2009 as against Rs291.13crore for the corresponding quarter of last fiscal registering an increase of 31%. The other income of the bank has gone up by 78% to Rs115.68crore from Rs 64.88 crore a year ago, largely on account of trading income. The bank has restructured loans during the quarter to the extent of around Rs100 crore mostly by way of realignment of interest rates. The capital adequacy ratio under the Basel I norms stands at 14.33% at the year ended of June 30,2009 and Tier 1 capital amounted to 13.63 % .Net worth of the bank stood at Rs 2739.91 crore as on June 30,2009 compared to Rs 2403.49 crore a year earlier, registering a growth of 14%.

INNOVATIVE PRODUCTS:To maximize value to its customers, the innovation in products and improving the quality and speed of services is the hallmark of Banks business strategy. In keeping with this objective, the bank has launched several unique and innovative deposit products, which includes Mehendi Deposit Scheme, Recurring plus Deposit Account, Flexi Deposit Scheme, etc. These schemes have flexibility of depositing variable monthly installments as per the convenience of the depositor. In synchronization with the Banks new strategy focus on increasing lending and financial deepening of economy in J & K state, a host of new products customized and tailored to the requirements of customers were designed and launched. Some of these products are: All purpose Agri-Term Loan. JKBank Term Loan for B.Ed/M.Ed Courses. Housing Loan for Leh. Tax Saver Term Deposit Scheme. Smart Saver. Naunihalon Ka Naya Savera. Used-car Loan Value Added Current Accounts. JK Bank Dastkar Finance Scheme JK Bank Khatamband Scheme JK Bank Roshni Finance Scheme 41

DIVERSIFICATION OF BUSINESS:The Bank diversified its business activities into insurance, both life and non-life. The bank not only became the strategic partner of MetLife Insurance India (P) Limited, but also has been acting as corporate agent of the said company for distribution of their life insurance products through network of its branches. The Bank also entered into a tie-up with Bajaj Allianz General Insurance Company for distribution of their non-life insurance products. In view of Banks deep branch network and loyal customer base particularly in Jammu and Kashmir, the Bank has been able to distribute insurance products in deep rural and far flung areas and has made penetration in the new areas thereby adding to its non-interest and fee based income.

CORPORATE SOCIAL RESPONSIBILITY:The Corporate Social Responsibility (CSR) of J&K Bank seeks to recognize obligations towards society and aims to integrate the CSR ideals into its mission for optimizing both business and social performance. It stresses on promoting work life balance, give attention to social and environmental concerns and host of factors that facilitate business pursuits and accomplishment of economic goals. The CSR is not just recognized as promulgating the Banks own values and principals of philanthropy but also the values and principals of all those who have a stake in it or are affected by its operations. By supporting social cause aligned to the mission, the CSR strategy differentiates the Banks brand and enhances its reputation. The Bank besides playing its role in economic development of the state and country contributes significantly towards the social cause. The Bank has established its credentials for the poor and needy by donating generously for various philanthropic activities aimed at ameliorating their sufferings. Be it victims of natural calamity, like fire, flood, snowstorm or tsunami and disabled or patients with serious ailment who lack reliable means of survival. In order to enable socially and economically weaker classes to live a healthy life a healthy life the bank shall endeavor to give financial support to the needy and poor patients, afflicted with dreaded diseases like Cancer, cardiac failure, kidney failure etc. for their treatment/surgery. The bank assists the government in the preservation of historical/religious monuments, development of tourist sites, national

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properties, museums, libraries, protection of environment/ecology, etc

and

sponsoring seminars and awareness camps, art and literary works, social service camps, etc. The Bank has been playing a vital role in the promotion of tourism and it is in this backdrop that the bank has been shouldering the responsibility of registering yatris for the Shree Amarnathji Yatra through its extensive network of branches spread across the country. Apart from above activities the bank has been constructing/developing the public utility service like public parks, bus stands, drinking water posts, lavatories, rain shelters, etc. The glimpses of some programmes of the bank launched for this purpose are as under: Poverty Alleviation Programme (To educate and provide the

underprivileged sections financial services through intervention and community participation). Environment Excellence Programme (To preserve and promote green and pollution free environment). Education For All Programme (To promote education among the employees and the deprived sections of the society). VISION: To catalyze economic transformation and capitalize on growth. Our vision is to engender and catalyze economic transformation of Jammu and Kashmir and capitalize from the growth induced financial prosperity thus engineered. The bank aspires to make Jammu and Kashmir the most prosperous state in the country, by helping create a new financial architecture for the J & K economy, at the center of which will be the J & K Bank. MISSION: The mission of J & K Bank is two-fold: TO provide the people of J & K international quality financial service and solutions and to be a super-specialist bank in the rest of the country. The two together will make J & K Bank, the most profitable bank in the country.

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TECHNOLOGY DRIVEN OPERATIONS: Maintaing a progressive outlook, the J & K bank is keeping pace with the changing technology. The bank continues to leverage information technology as a strategic tool for its business operations. The highlights of information technology initiatives undertaken by the bank during 2008-09 are as under: With computerization of 25 branches (existing and new) during 2008-09, total number of computerized branches has increased to 415, covering over 98% business operations of the bank. Interconnectivity of over 280 branches. Total number of ATMs increased to 191 Number of branches/offices rolled over to Core Banking Solution-33, raising the total number of CBS branches to 161. Number of RTGS enabled branches through Treasury Office Mumbai-12 Number of debit cards issued reached to 2,60,991 Number of Point Of sale Terminals installed increased to 827 Successful implementation of Integrated Computerized Currency Operations and Management System (ICCOMS), Depository Soft5ware (Dpsecure), development and implementation of RCC reporting software, centralized inward clearing, MasterCard and National Financial Switch(NFS) transaction reconciliation System, web based on-line Tax application system, Call tracking for ATM Helpdesk, etc, was achieved during the year.

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NAME OF THE BOARD OF DIRECTORS:1. Haseeb A Drabu 2. M.S.VERMA 3. G.P.Gupta 4. B.B.Vyas 5. Abdul Rauf Fazili 6. Mustaq Ahmad 7. Mohd. Yaseen Mir 8. B.L.Dogra 9.Umar Khurshid Tramboo Chairman & C.E.O Director Director Director Executive Director Executive Director Director Director Director

NEW BUSINESS INITIATIVES:The various new business initiatives taken by Jammu under: Innovative financial products. Monetizing the Banks Branch network. Third party product distribution. Investment banking. Venture capital financing. Channel financing. and Kashmir Bank Limited are as

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Classification and Tabulation of Data:Classification of Data: Classification is the process of arranging. It is done prior to tabulation. Tabulation of Data: After the transcription of data is over, data is summarized ands arranged in compact form for the analysis. This process is known as tabulation. It involves counting of number of cases into each of several categories. It can be done through manually, mechanical or electronic devices. The choice depends upon the size and type of the study, cost considerations and time availability.

ANALYSIS AND INTERPRETATION OF DATA:In this section analysis and interpretation of data collected from the managers of Jammu and Kashmir Bank Limited is made. The data was collected through Questionnaire. The tabulation is shown below. Table 5.1 Showing period of function of branch

Years 2 years 2-3 3-5 5 years & above Total

No of respondents 0 2 3 5 10

Percentage 0 20 30 50 100

Source: Questionnaire.

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Analysis: We can observe that 50% of branches are functioning since 5 years & all other branches are functioning from a minimum period of 2-3 years. Inference: The above table shows that most of the branches of J&K Bank have been functioning since 5 years and above. Hence the management is looking forward for the maintenance of the present branches.

G raph 5.1 Showing period of functioning of Branches60 Percentage 50 40 30 20 10 0ye ar s

50 30 20 0ye ar s ye ar s ab ov e

Percentage

23

35

2

Y ears

Source: Questionnaire

5

ye

ar s

&

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Table 5.2 Showing presence of NPA Years 0-1 1-2 2-3 3-4 5 & above Total Source: Questionnaire Analysis: From the above table it can be interpreted that in nearly 40% of branches NPAs are present since 5 years and above. And in 20% of branches NPAs are present between 3-4 years. And in rest of branches NPAs are present from 3 years. Inference: NPAs are present maximum in those branches which have been performing since 5 years and above, it can also be observed that NPAs are present in all branches of J&K Bank. No of respondents 1 1 2 2 4 10 Percentage 10 10 20 20 40 100

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Graph 5.2 Showing presence of NPAs45 40 35 30 25 20 15 10 5 0 40

Percentage

20 10 10

20

Percentage

Ye ar s

Ye ar s

Ye ar s

Years

5

&

ab ov e

01

23

34

12

Ye ar s

Ye ar s

Source: Questionnaire Table 5.3 showing approximate value of NPAs in branches Amount in lakhs 0-10 10-20 20-30 30-50 50 & above Total Source: Questionnaire No. of respondents 1 2 1 3 4 10 Percentage 10 20 10 30 40 100

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Analysis: From the above table it can be interpreted that in nearly 40% branches NPAs are above 50 lakhs. Another 30% of branches have NPAs of about 30-50 lakhs & in rest of branches NPAs upto 30 lakhs are found. Inference: The branches of the bank have NPAs to quite a large extent. NPAs above 50 lakhs have been found in 4 branches out of 10 branches.

Graph 5.3 Showing Approximate Valuie of NPAs in Branches 45 40 35 30 25 20 15 10 5 0 0-10 10-20 20-30 30-50 50 & above

Percentage

Percentage

Amount in Lakhs

Source: Questionnaire

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Table 5.4 Showing total amount of NPAs in different categories of loan accounts

Type of loan borrowed Personal loan Vehicle loan Agri-term loan Housing loan Total Source: Questionnaire Analysis:

Total 3,06,00,000 60,35,000 2,65,00,000 30,00,000 6,61,35,000

Percentage 46.27 9.12 40.06 4.53 100

We can observe that in personal loan category more NPAs are found i.e. RS 3, 06, 00,000 followed by housing loan with an amount of RS 2, 65, 00,000 than the vehicle loan & others. Inference: It is observed that personal loan is having more NPAs followed by housing loan & vehicle loan.

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Graph 5.4 showing total amount of NPAs in different categories of loan accounts4.53

Personal loan 46.27 40.06 Vehicle loan Agri-term loan Housing loans 9.12

Source: Questionnaire

Table 5.5 showing the main causes of NPAs S.No. 1 2 3 4 5 6 Causes 5 4 0 0 1 1 0 3 3 1 1 0 0 0 0 2 0 3 1 1 0 2 1 2 1 3 1 0 0 Total respondents 4 6 5 3 0 6 Weighted total 10 15 9 7 0 21 Weighted average 2.5 2.2 1.8 2.33 0 3.5

Improper selection of 1 borrowers Deficiency in 1

processing Improper appraisal of 0 assets Lack of supervision in 0 follow up Natural calamities Willful default Source: Questionnaire 0 1

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ANALYSIS: We can observe that the willful default is the major cause of NPA formation with a highest average of 3.5 followed by improper selection of borrowers and deficiency in processing with a weighted average of 2.5 each, and then lack of supervision and follow up with a weighted average of 2.33 and then improper appraisal of assets with weighted average of 1 Rs 10 2 3 Rs 10- Rs 20 2040 1 2 1 0 2 2 4 5 Rs Rs 50 Total 40-50 & respondents above 1 0 6 3 1 0 0 8 6

S.No. Causes 1 2 3

Weighted total 14 22 13

Weighted average 2.33 2.75 2.16

Improper 2 selection of borrowers Deficiency in 2 processing Improper 3 appraisal of assets

4

Lack of 0 supervision and follow p 5 Natural 0 calamities 6 Willful 3 default 1.INFERENCE:

1 0 1

1 0 2

1 0 1

0 0 0

3 0 7

9 0 15

3 0 2.14

It can be observed that willful default is the main cause of NPA formation in the bank followed by improper selection of borrowers. Table 5.6.1 showing NPA encountered for each of these causes Source: Questionnaire

Table 5.6.2 Showing the NPA encountered for each of the causes 53

Causes Improper selection of borrowers Deficiency in processing Improper appraisal of assets Lack of supervision and follow up Natural calamities Willful default Source: Questionnaire

Weighted Average 2.33 2.75 2.16 3 0 2.14

ANALYSIS: We can observe that the Lack of supervision and follow up is the main cause with weighted average of 3, followed by deficiency in processing with a weighted average of 2.75, followed by improper appraisal of assets with weighted average of 2.33.

INFERENCE: It can be observed that Lack of supervision and follow up and deficiency in processing are the main causes for such huge NPAs encountered in the bank.

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G r a p h 5 .6 .2 s h o w in g N P A e n c o u n te r e d fo r e a c h o f th e s e c a u s e s3 .5 3 2 .5 2 1 .5 1 0 .5 0 3 2 .1 6 2 .1 4 W e ig h te d A ve ra g e

2 .3 3

2 .7 5

weighted Average

0 Im p r o p e r Im p r o p e r L a c k o f s e le c tio n D e fic ie n c y p r a is a s o fp e r v is io N a tu r a l W illfu l of ap lu n b o r r o w e r s in a s s e ts a n d fo llo w a la m itie s d e fa u lt c p r o c e s s in g up C ause s

Source: Questionnaire Table 5.7 Showing NPA level controllable Result Definitely Yes Yes Cant say No Definitely No TOTAL Source: Questionnaire No. of Respondents 5 4 1 0 0 10 Percentage 50 40 10 0 0 100

ANALYSIS: From the above table, it can be interpreted that nearly 50% of respondents have told that definitely NPAs can be controlled and another 40% respondents say that NPAs can be controlled, while 10% of respondents could not make any decision.

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INFERENCE: It can be observed that respondents are sure that NPAs can be controlled and reduced.

Graph 5.7 showing NPA level controllable60 50 40 30 20 10 0 50 40 10 Percentage 0 0

Percentage

De fin ite ly

Respondents Response

Source: Questionnaire

De fin N o ite ly No

Ye s Ye C an s t sa y

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Table 5.8 Showing effective measures to reduce the NPAs Measures Constant dialog with the borrowers Perfect documentation Recovery camps Staff involvement SARFAESI Act Lok Adalats Debt Recovery Tribunals Source: Questionnaire ANALYSIS: We can observe that staff involvement is the most effective measure taken by the bank to reduce NPA level with a weighted average of 4.63, perfect documentation is another effective measure with a weighted average of 4.5 and followed by others like constant dialogue with borrowers and Recovery camps with weighted average of 4.42 and 4.33 respectively. INFERENCE: It can be observed that staff involvement is the most effective measure taken by the bank to reduce the NPA level in the Bank.G ra p h 5 .8 s h o w in g e ffe c tiv e m e a s u re s to re d u c e th e N P A s5 4 3 2 1 0 4.42 4.5 4 .33 4 .6 3 3 .6 6 3 2 W e ig h t e d A ve ra g e

Weighted Average 4.42 4.5 4.33 4.63 3.66 3 2

Weighted Average

Recovery camps

Staff involvement

Lok Adalats

Perfect documentation

M e a su re s

SARFAESI Act

Constant dialog with the borrowers

Debt Recovery Tribunals

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Source: Questionnaire Table 5.9 Showing NPAs converted into good assets Result (%) 1 2 3 4 5 >5 TOTAL Source: Questionnaire No. of respondents 0 1 1 2 2 4 10 Percentage 0 10 10 20 20 40 100

ANALYSIS: From the above table, it can be interpreted that 40% of NPA have been converted into good assets to the extent of 5% or more.

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INFERENCE: The Bank is controlling the level of NPA and converting the NPAs into good assets by effective implementation of NPA reduction techniques.

Graph 5.9 showing NPAs converted into Good Assets50 40 Percentage 30 20 10 0 0 1% 2% 3% 4% 5% >5% 10 10 20 20 40

Percentage

Percentage of NPAs converted into Good Assets

Source: Questionnaire Table 5.10 Showing the extent to which profits are affected by NPA % of profit affected by No. of respondents NPA 0-5 5-10 10-20 20 & above TOTAL Source: Questionnaire ANALYSIS: 4 3 2 1 10 Percentage 40 30 20 10 100

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We can observe that 40% of respondents have told that profitability is affected to the extent of 0-5% due to NPA and other 30% respondents think that profitability is affected to the extent of 5-10% while other 20% of respondents think that profitability is affected to the extent of 10-20% and the remaining 10% of respondents think that profitability is affected to the extent of more than 20%. INFERENCE: It is observed that NPAs affect the profitability to a considerable extent.Grap h 5.10 sh o w in g th e exte n t to w h ich p ro fits a re affecte d b y N P A.45 40 35 30 25 20 15 10 5 0 40 30 20 10 P erc entage

Percentage

0-5

5-10

10-20

20 & above

P e rce ntage of profit affe cte d by N PA

Source: Questionnaire

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Table: 5.11 Showing improvement in profitability after adopting NPA reduction techniques. Result Definitely improved Improved Cant Say Not improved Definitely improved TOTAL Source: Questionnaire ANALYSIS: In the above table, it can be interpreted that 50% of respondents say that profitability has been improved after adopting NPA reduction Techniques & 10% of respondents say that profitability has not been improved while the remaining 20% of respondents could not make any decision. No. of respondents 5 3 1 1 not 0 10 Percentage 50 30 10 10 0 100

INFERENCE: The bank successfully reduced the level of NPAs by NPA reduction techniques.

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Graph 5.11 showing improvement in profitability after adopting NPA reduction techniques10 0 10Definitely improved

50

Improved Cant Say

30

Not improved Definitely not improved

Source: Questionnaire

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SUMMARY OF FINDINGS: NPA is observed in all branches of Jammu & Kashmir Bank Limited. The main causes for NPA is willful default, followed by improper selection of borrowers and then lack of supervision and follow up. Personal loan constitutes for nearly 46.27% of the total NPA, Agri-term loan constitutes 40.06%, vehicle loan constitutes 9.12% of the total NPA and Housing loan constitute 4.53%. It can be observed that 50% of respondents agree that NPA can be controlled, & within this 40% are highly confident that NPAs can be controlled. We can observe that majority of respondents say that staff involvement in the processing helps to reduce the NPAs and other respondents feel that proper documentation helps in reducing NPA. The Bank has converted NPA to good assets in few branches. In 4 branches NPA have value more than 50 lakhs and in 3 branches NPA is more than 30 lakhs and in others more than 10 lakhs.

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CONCLUSION:The problem of non-performing assets has been a major issue for the banking industry. The RBI which is the apex body for controlling the level of non-performing assets has been giving guidelines and getting norms for the banks in order to control the incidents of defaults. This study on management of non-performing assets with specific reference to J&K bank was conducted, to find out the reasons for the incidence of non-performing assets and how public sector banks managed it and its effect on performance of the bank.

The NPA of Jammu & Kashmir Bank Limited was studied and it was observed that all branches of bank had NPA. The study revealed that the J&K bank has been successful in controlling its level of Non-performing assets as compared to the recent banking industry trends. The causes for NPA in Jammu & Kashmir Bank Limited were analyzed, the extent to which profitability has been reduced, was also analyzed.

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RECOMMENDATIONS: It is recommended that the proper documentation and verification to be made before sanctioning the loan. Empowering staff to make decisions related to sanctioning of loans. Constant interactions have to be maintained with the customers to keep track of their loan payment. Strict measures have to be taken while issuing or sanctioning the loan. The measures can include verification of job and salary slips, verification of securities and the like. The J&K bank ltd. is trying to reduce NPA through various techniques and it is suggested that these measures have to be continued.

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AnnexureQuestionnaire for Managers A STUDY ON NON PERFORMING ASSET MANAGEMENT A study related to NPA is being carried out for the fulfillment of MBA degree. Your kind cooperation in answering this questionnaire will add value to my project. Branch:_____________________________________________ Address:____________________________________________ Name of respondent:___________________________________ 1. Since how long is the Branch Functioning. 2 Yrs [ ] 2-3 Yrs [ ] 3-5 Yrs [ ] 5 Yrs & above [ ]

2. Since how long the presence of NPA is observed in your branch. 0-1 Yrs [ ] 1-2 Yrs [ ] 2-3 Yrs [ ] >5 Yrs [ ]

3. What is the approximate value of NPA in your Branch (Rs in lakhs)? 1-10 [ ] 10-20 [ ] 20-30 [ ] 30-40 [ ] 50 & Above [ ]

4. For which category the NPA is being observed (please mention in Rs) Personal loan [ Vehicle loan [ ] ] ] Rs.... Rs. Rs.

Housing loan [

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Agri-term loan [ effective. S.No. 1 2 3 4 5 6

]

Rs....

5. Rate the following on a scale of 1-5. Rank 5 being most effective and 1 being least

CAUSES 5 Improper selection of Borrowers. Deficiency in processing (sanctioning and realizing the fund). Improper appraisal of assets. Lack of supervision and follow up Natural calamities. Willful default of the Borrowers.

4

3

2

1

6. What is the NPA encountered for each of these causes (Rs in Lakhs). S.No. 1 2 3 4 5 6 CAUSES Improper selection of Borrowers. Deficiency in processing. Improper appraisal of assets Lack of supervision and follow up. Natural calamities. Willful default of the Borrowers. Rs 10 Rs 20 10- Rs 40 20- Rs 50 40- Rs 50>

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7. Do you think that NPA can be controlled? Definitely Yes [ 8. ] [ Yes ] Cant Say [ ] [ No ] Definitely No [ ]

What measures have been taken to reduce the NPA? Which measures you consider the most effective? Highly Effective Effective Cant Say No Definitely No

Constant dialogue With the Borrowers Recovery camps Self involvement SARFAESI Act Lok Adalats Debt Recovery Tribunals [

[

]

[

]

[

]

[

]

[

]

] [ [ [ [ ] ] ] ]

[ [ [ [ [

] ] ] ] ]

[ [ [ [ [

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[ [ [ [ [

] ] ] ] ]

[

] [ [ [ [ ] ] ] ]

9. To what extent NPA has been converted into good asset. 1% [ ] 2% [ ] 3% [ ] 4% [ ] 5% [ ] >5% [ ] Not converted [ ]

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10. To what extent the Profitability has been affected by NPA 20% [ ]

11. Has the profitability improved after adopting NPA reduction Techniques? Definitely Improved [ ] [ ] [ ] [ ] [ ] Improved Cant Say Not Improved Definitely Not Improved

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BIBLOGRAPHY:(A) TEXT BOOKS 1.) Financial Management by P.N. Reddy, H.R. Appannaiah and B.G.Satyaprasad. 2.) Financial Management by Prassana Chandra (Tata Mc Graw Hill Publications). 3.) Business Research Methods by O.R. Krishnaswami and B.G. Satyaprasad. 4.) Law and Practice of Banking by H.R. Appannaiah, P.N. Reddy and S.Vijayendra. 5.) Greater Kashmir. 6.) Hand book of banking information by N S Tour. (B) WEBSITES 1.) www.jkbank.net 2.) www.banking .com 3.) www.rbi.org

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