Non Performing Assets
-
Upload
prashanth-banu -
Category
Documents
-
view
141 -
download
8
description
Transcript of Non Performing Assets
NON-PERFORMING ASSETS
Page 1
NON-PERFORMING ASSETS
INDIAN FINANCIAL SYSTEM
The economic development of a nation is reflected by the progress of the various economic
units, broadly classified into corporate sector, government and household sector. While
performing their activities these units will be placed in a surplus/deficit/balanced budgetary
situations.
There are areas or people with surplus funds and there are those with a deficit. A financial
system or financial sector functions as an intermediary and facilitates the flow of funds from the
areas of surplus to the areas of deficit. A Financial System is a composition of various
institutions, markets, regulations and laws, practices, money manager, analysts, transactions and
claims and liabilities.
Financial System;
The word "system", in the term "financial system", implies a set of complex and closely
connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities
in the economy. The financial system is concerned about money, credit and finance-the three
terms are intimately related yet are somewhat different from each other. Indian financial system
consists of financial market, financial instruments and financial intermediation. These are briefly
discussed below;
FINANCIAL MARKETS
Page 2
NON-PERFORMING ASSETS
A Financial Market can be defined as the market in which financial assets are created or
transferred. As against a real transaction that involves exchange of money for real goods or
services, a financial transaction involves creation or transfer of a financial asset. Financial Assets
or Financial Instruments represents a claim to the payment of a sum of money sometime in the
future and /or periodic payment in the form of interest or dividend.
Money Market- The money market ifs a wholesale debt market for low-risk, highly-liquid, short-
term instrument. Funds are available in this market for periods ranging from a single day up to a
year. This market is dominated mostly by government, banks and financial institutions.
Capital Market - The capital market is designed to finance the long-term investments. The
transactions taking place in this market will be for periods over a year.
Forex Market - The Forex market deals with the multicurrency requirements, which are met by
the exchange of currencies. Depending on the exchange rate that is applicable, the transfer of
funds takes place in this market. This is one of the most developed and integrated market across
the globe.
Credit Market - Credit market is a place where banks, FIs and NBFCs purvey short, medium and
long-term loans to corporate and individuals.
The functions performed by these Banks are
1. Commercial Banks
Commercial Banks perform all the business transactions of typical Bank. Commercial Banks
accept three types of deposits, like Saving Bank Deposits, Fixed Deposit and Current Deposits.
They provide funds of short-term needs of trade of commerce.
2. Investment or Industrial Banks
Page 3
NON-PERFORMING ASSETS
Investment Banks are those Banks, which provide fund for long-term
industries. These Banks have specialized in providing long term loans to industries with a view
to buy plant and machinery. The investment Banks obtain funds through share capital plus,
debentures and long term deposits from public.
3. Exchange Banks
These Banks are known as foreign exchange Banks. They provide exchange for import trade.
Their main function is to make international payment through purchased Bank of exchanges
Bills.
4. Co-operative Banks
They are promoted to meet the Banking requirements of consumers. They established not only in
the urban areas but also in the rural areas. In the rural areas these Banks supply finance to
agriculture while in these urban areas they provide finance to consumer goods.
5. Land Mortgage Banks
Whenever agriculturist requires 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. Central Banks
Central bank is an apex bank in the country, which keeps the entire Banking system unified,
controlled and regulated. It regulates the note issue. RBI is the Central Bank of India.
FINANCIAL INSTRUMENTS IN INDIA
Page 4
NON-PERFORMING ASSETS
We took a look at the players in the financial markets earlier. Let us now look at the Financial
Instruments these players have. They van be broadly classified into Government securities and
Industrial securities.
Government Securities( G-Sec ) :
In India G- Sacs are issued by the Central Government, State Governments and Semi
Government Authorities such as municipalities, port trusts, state electricity boards and public
sector corporations. The Central and State Governments raise money through these securities to
finance the creation of new infrastructure as well as to meet their current cash needs. Since these
are issued by the government, the risk of default is minimal. Therefore, interest rates on these
securities often serve as a benchmark for the level of interest rates in the economy. Other issuers
may price their offerings by `marking up’ this benchmark rate to reflect the credit risk specific to
them.
These securities may have maturities ranging from five to twenty years. These are fixed income
securities, which pay interest every six months. The Reserve Bank of India manages the issues
of the securities. These securities are sold in the primary market mainly through the auction
mechanism. The RBI notifies issue of a new tranche of securities. Prospective buyers submit
their bids. The RBI decides to accept bids based on a cut off price.
The G -sacs are primarily bought by the institutional investors. The biggest investors are
commercial banks who invest in G-sacs to meet the regulatory requirement to maintain a certain
percentage of Statutory Liquidity Ratio (SLR) as well as an investment vehicle. Insurance
companies, provident funds, and mutual funds are the other large investors. The Primary Dealers
perform the function of market makers through buying and selling activities.
The Government of India also borrows short term funds for up to one year. This is through the
issue of Treasury Bills which are sold at a discount to the face value and redeemed at the full
Page 5
NON-PERFORMING ASSETS
face value.
Industrial Securities:
These are securities issued by the corporate sector to finance their long term and working capital
requirements. The Major Instruments that fall under Industrial Securities are.
Debentures,
Preference Shares And
Equity Shares
Debentures
Debentures have a fixed maturity and pay a fixed or a floating rate of interest during their
lifetime. The company has an obligation to pay interest and the principal amount on the due
dates regardless of its profitability position. The debenture holders are not members of the
company and do not have any say in the management of the company. Since these carry a
predefined rate of return, there is no scope for any major capital appreciation. However, in case
of fixed rate debentures, their market price moves inversely with the direction of interest rates.
The debenture issues are rated by the professional credit rating agencies regarding the payment
of interest and the repayment of the capital amount. Apart from the `plain vanilla’ variety of
debentures (periodic payment of interest during their currency and repayment of capital on
maturity), a number of variations have been devised. For example, zero coupon bonds are issued
at a discount to their face value and redeemed at the full face value. The difference constitutes
return for the investor.
Preference Shares
Preference Shares carry a fixed rate of dividends. These carry a preferential right to dividends
over the equity shareholders. This means that equity share holders cannot be paid any dividends
unless the preference dividend has been paid in full. Similarly on the winding up of the
company, the preference share holders get back their capital before the equity share holders. In
case of cumulative preference shares, any dividend unpaid in past years accumulates and is paid
Page 6
NON-PERFORMING ASSETS
later when the company has sufficient profits. Now all preference shares in India are
`redeemable’, i.e. they have a fixed maturity period. Thus, preference shares are sometimes
called a `hybrid variety’ – incorporating features of debt as well as equity.
Equity Shares
Equity Shares are regarded as high return high risk instruments. These do not carry any fixed
rate of return and there is no maturity period. The company may or may not declare dividend on
equity shares. Equity shares of major companies are traded on the stock exchanges. The major
component of return to equity holders usually consists of market appreciation.
Call Money Market:
The loans made in this market are of a short term nature – overnight to a fortnight. This is
mostly inter-bank market. Those banks which are facing a short term cash deficit, borrow funds
from the cash surplus banks. The rate of interest is market driven and depends on the liquidity
position in the banking system.
Commercial Paper (CP) and Certificate of Deposits (CD) :
CPs is issued by the corporate to finance their working capital needs. These are issued for short
term maturities. These are issued at a discount and redeemed at face value. These are unsecured
and therefore only those companies who have a good credit standing are able to access funds
through this instrument. The rate of interest is market driven and depends on the current
liquidity position and the creditworthiness of the issuing company. The characteristics of CDs
are similar to those of CPs except that CDs are issued by the commercial banks.
RESERVE BANK OF INDIA
Page 7
NON-PERFORMING ASSETS
The central bank of the country is the Reserve Bank of India (RBI). It was established in April
1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton
Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which
was entirely owned by private shareholders in the beginning. The Government held shares of
nominal value of Rs. 2, 20,000.
Reserve Bank of India was nationalized in the year 1949. The general superintendence and
direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor
and four Deputy Governors, one Government official from the Ministry of Finance, ten
nominated Directors by the Government to give representation to important elements in the
economic life of the country, and four nominated Directors by the Central Government to
represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New
Delhi. Local Boards consist of five members each Central Government appointed for a term of
four years to represent territorial and economic interests and the interests of co-operative and
indigenous banks.
The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of
1934) provides the statutory basis of the functioning of the Bank.
The Bank was constituted for the need of following:
To regulate the issue of banknotes
To maintain reserves with a view to securing monetary stability and
To operate the credit and currency system of the country to its advantage.
Functions of Reserve Bank of India
Page 8
NON-PERFORMING ASSETS
The Reserve Bank of India Act of 1934 entrust all the important functions of a central bank the
Reserve Bank of India.
Bank of Issue Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to
issue bank notes of all denominations. The distribution of one rupee notes and coins and small
coins all over the country is undertaken by the Reserve Bank as agent of the Government. The
Reserve Bank has a separate Issue Department which is entrusted with the issue of currency
notes. The assets and liabilities of the Issue Department are kept separate from those of the
Banking Department. Originally, the assets of the Issue Department were to consist of not less
than two-fifths of gold coin, gold bullion or sterling securities provided the amount of gold was
not less than Rs. 40 crores in value. The remaining three-fifths of the assets might be held in
rupee coins, Government of India rupee securities, eligible bills of exchange and promissory
notes payable in India. Due to the exigencies of the Second World War and the post-was period,
these provisions were considerably modified. Since 1957, the Reserve Bank of India is required
to maintain gold and foreign exchange reserves of Ra. 200 crores, of which at least Rs. 115
crores should be in gold. The system as it exists today is known as the minimum reserve system.
Banker to Government The second important function of the Reserve Bank of India is to act as
Government banker, agent and adviser. The Reserve Bank is agent of Central Government and of
all State Governments in India excepting that of Jammu and Kashmir. The Reserve Bank has the
obligation to transact Government business, via. To keep the cash balances as deposits free of
interest, to receive and to make payments on behalf of the Government and to carry out their
exchange remittances and other banking operations. The Reserve Bank of India helps the
Government - both the Union and the States to float new loans and to manage public debt. The
Bank makes ways and means advances to the Governments for 90 days. It makes loans and
advances to the States and local authorities. It acts as adviser to the Government on all monetary
and banking matters.
Bankers' Bank and Lender of the Last Resortthe Reserve Bank of India acts as the bankers' bank.
According to the provisions of the Banking Companies Act of 1949, every scheduled bank was
Page 9
NON-PERFORMING ASSETS
required to maintain with the Reserve Bank a cash balance equivalent to 5% of its demand
liabilities and 2 per cent of its time liabilities in India. By an amendment of 1962, the distinction
between demand and time liabilities was abolished and banks have been asked to keep cash
reserves equal to 3 per cent of their aggregate deposit liabilities. The minimum cash
requirements can be changed by the Reserve Bank of India.The scheduled banks can borrow
from the Reserve Bank of India on the basis of eligible securities or get financial accommodation
in times of need or stringency by rediscounting bills of exchange. Since commercial banks can
always expect the Reserve Bank of India to come to their help in times of banking crisis the
Reserve Bank becomes not only the banker's bank but also the lender of the last resort.
Controller of CreditThe Reserve Bank of India is the controller of credit i.e. it has the power to
influence the volume of credit created by banks in India. It can do so through changing the Bank
rate or through open market operations. According to the Banking Regulation Act of 1949, the
Reserve Bank of India can ask any particular bank or the whole banking system not to lend to
particular groups or persons on the basis of certain types of securities. Since 1956, selective
controls of credit are increasingly being used by the Reserve Bank.
The Reserve Bank of India is armed with many more powers to control the Indian money
market. Every bank has to get a license from the Reserve Bank of India to do banking business
within India, the license can be cancelled by the Reserve Bank of certain stipulated conditions
are not fulfilled. Every bank will have to get the permission of the Reserve Bank before it can
open a new branch. Each scheduled bank must send a weekly return to the Reserve Bank
showing, in detail, its assets and liabilities. This power of the Bank to call for information is also
intended to give it effective control of the credit system. The Reserve Bank has also the power to
inspect the accounts of any commercial bank.
As supreme banking authority in the country, the Reserve Bank of India, therefore, has the
following powers:
(a) It holds the cash reserves of all the scheduled banks.
(b) It controls the credit operations of banks through quantitative and qualitative controls.
(c) It controls the banking system through the system of licensing, inspection and calling for
Page 10
NON-PERFORMING ASSETS
information.
(d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks.
Custodian of Foreign Reserves
The Reserve Bank of India has the responsibility to maintain the official rate of exchange.
According to the Reserve Bank of India Act of 1934, the Bank was required to buy and sell at
fixed rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed
was Re. 1 = sh. 6d. Since 1935 the Bank was able to maintain the exchange rate fixed at lsh.6d.
Though there were periods of extreme pressure in favor of or against the rupee. After India
became a member of the International Monetary Fund in 1946, the Reserve Bank has the
responsibility of maintaining fixed exchange rates with all other member countries of the
I.M.F.Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the
custodian of India's reserve of international currencies. The vast sterling balances were acquired
and managed by the Bank. Further, the RBI has the responsibility of administering the exchange
controls of the country. Supervisory function In addition to its traditional central banking
functions, the Reserve bank has certain non-monetary functions of the nature of supervision of
banks and promotion of sound banking in India. The Reserve Bank Act, 1934, and the Banking
Regulation Act, 1949 have given the RBI wide powers of supervision and control over
commercial and co-operative banks, relating to licensing and establishments, branch expansion,
liquidity of their assets, management and methods of working, amalgamation, reconstruction,
and liquidation. The RBI is authorized to carry out periodical inspections of the banks and to call
for returns and necessary information from them. The nationalization of 14 major Indian
scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the
growth of banking and credit policies towards more rapid development of the economy and
realization of certain desired social objectives. The supervisory functions of the RBI have helped
a great deal in improving the standard of banking in India to develop on sound lines and to
improve the methods of their operation. Promotional functions with economic growth assuming
a new urgency since Independence, the range of the Reserve Bank's functions has steadily
widened. The Bank now performs a variety of developmental and promotional functions, which,
Page 11
NON-PERFORMING ASSETS
at one time, were regarded as outside the normal scope of central banking. The Reserve Bank
was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and
establish and promote new specialized financing agencies. Accordingly, the Reserve Bank has
helped in the setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation in
1962, the Unit Trust of India in 1964, the Industrial Development Bank of India also in 1964, the
Agricultural Refinance Corporation of India in 1963 and the Industrial Reconstruction
Corporation of India in 1972. These institutions were set up directly or indirectly by the Reserve
Bank to promote saving habit and to mobilize savings, and to provide industrial finance as well
as agricultural finance. As far back as 1935, the Reserve Bank of India set up the Agricultural
Credit Department to provide agricultural credit. But only since 1951 the Bank's role in this field
has become extremely important. The Bank has developed the co-operative credit movement to
encourage saving, to eliminate moneylenders from the villages and to route its short term credit
to agriculture. The RBI has set up the Agricultural Refinance and Development Corporation to
provide long-term finance to farmers.
Classification of RBIs functions:
The monetary functions also known as the central banking functions of the RBI are related to
control and regulation of money and credit, i.e., issue of currency, control of bank credit, control
of foreign exchange operations, banker to the Government and to the money market. Monetary
functions of the RBI are significant as they control and regulate the volume of money and credit
in the country. Equally important, however, are the non-monetary functions of the RBI in the
context of India's economic backwardness. The supervisory function of the RBI may be regarded
as a non-monetary function (though many consider this a monetary function). The promotion of
sound banking in India is an important goal of the RBI, the RBI has been given wide and drastic
powers, under the Banking Regulation Act of 1949 - these powers relate to licensing of banks,
branch expansion, liquidity of their assets, management and methods of working, inspection,
amalgamation, reconstruction and liquidation. Under the RBI's supervision and inspection, the
working of banks has greatly improved. Commercial banks have developed into financially and
operationally sound and viable units. The RBI's powers of supervision have now been extended
to non-banking financial intermediaries. Since independence, particularly after its nationalization
1949, the RBI has followed the promotional functions vigorously and has been responsible for
Page 12
NON-PERFORMING ASSETS
strong financial support to industrial and agricultural development in the country.
RESERVE BANK OF INDIA ADDRESS
Reserve Bank of India,
Central Office,
Shamed Braga Singh Road,
Mumbai - 400 001.
INTRODUCTION TO CO-OPERATIVE BANK
The Co-operative Banks in India started functioning almost 100 years ago. The Co-operative
Bank is an important constituent of the Indian financial system, judging by the role assigned to
Co-operative, the expectations the Co-operative is supposed to fulfill, their number, and the
number of offices the Co-operative Bank operates. India plays an important role even today in
rural financing. The business of Co-operative Bank in the urban areas also has increased
phenomenally in recent years due to the sharp increase in the number of primary Co-operative
Banks.
Co-operative Banks in India are registered under the Co-operative societies act. The Co-
operative Bank is also regulated by the RBI. They are governed by the banking regulations Act
1949 and Banking laws. At the end of March, 2000 in the states in there were 28,708 Co-
operatives of different types with the membership of 1.51 crores. Their working capital was Rs.
16,868.45 crores and total deposits were Rs.9356.50 crores.
HISTORY OF THE CO-OPERATIVE MOVEMENT
Page 13
NON-PERFORMING ASSETS
Co-operation dates back as far as human beings have been organizing for mutual benefit. Tribes
were organized as Co-operative structures, allocating jobs and resources among each other, only
trading with the external communities. Post-industrial European is home to the first Co-
operatives from an Industrial context.
In 1761, the Fenwick weaver’s society was formed in Fenwick, East Artier, and Scotland to sell
discounted oatmeal to local workers. Its services expanded to include assistance with savings and
loans, emigration and education. In 1810, Welsh social reformer Robert Owen, from Newtown in
mid-Wales, and his partners purchased New Lanark mill from Owens’s father-in –law and
proceeded to introduce better labor standards including discounted retail shops where profits
were passed on to his employees.
The Rockdale Society of Equitable Pioneers, founded in 1844, is usually considered the first
successful Co-operative enterprise used as a model for modern co-pox, following the Rockdale
principles’. A group of 28 weavers and other artisans in Rochdale, England set up the society to
open their own store selling food items they could not otherwise afford. Within ten years there
were over 1,000 co-operative societies in the United Kingdom.
Other events such as the founding of a friendly society by the Tolpuddle Martyrs in 1832 were
key occasions in the creation of organized labor and consumer movements.
FEATURES OF CO-OPERATIVE BANK
Page 14
NON-PERFORMING ASSETS
Some distinguishing characteristics of the Co-operative Bank are as follows:
i. They function on “no profit, no loss” basis.
ii. They are organized and managed on the principles Co-operation, self-help and mutual
help. They function with the rule of “1 member, 1 vote”.
iii. Co-operative Bank performs all the main banking function on deposits, mobilization of
funds.
iv. Co-operative Bank perhaps the 1st government sponsored financial agency in India.
v. Co-operative Bank belongs to the money market as well as to capital market.
vi. Co-operative Bank does banking business mainly in the agriculture and rural sector.
vii. Co-operative Bank is subject to CRR and liquidity requirements as other scheduled and
non-scheduled banks.
EVOLUTION OF CO-OPERATIVES IN INDIA
The co-operative movement in India owes its origin to agriculture and allied sectors. Towards
the end of 19th century, the problems of rural indebtedness and the consequent conditions of
farmers created an environment for chit funds and co-operative societies.The farmers generally
found the co-operative movement an attractive mechanism for pooling their major resources for
solving common problems relating to credit, suppliers of inputs and marketing of agricultural
produce.The experience gained in the working of co-operatives led to the enactment of co-
operative societies Act was enacted.This Act, provided for the creation of the post of register of
co-operative societies and registration of co-operative societies for various purposes and audit.
Under the Montague Chelmsford reforms of 1919, co-operative became a provincial subject and
the provisions were authorized were treated as a provincial subject. The term “Co-operative
societies” is a state subject under entry no.32 of the state list of the constitution of India.The co-
operative societies were first started in India in august 1906 with the object of providing finance
to the agriculture for production and commercial purposes of low rates of interest and there by
relieving them from the clutches of the money lenders. Many number of agriculture credit
societies were set u in the village under co-operative Act of 1906.
The co-operative act of 1912 contributed to the established of central co-operative banks and the
state co-operative banks to provide refinance to the primary credit societies. That could not
Page 15
NON-PERFORMING ASSETS
mobilize funds by their own efforts by facilitating the formation of central co-operative banks
and state co-operative banks. The co-operative society’s act of 1912 gave a stimulus to the co-
operative credit movement in India. The co-operative banks are promoted to meet the banking
requirements of consumers. They are established not only in urban areas but also in rural areas.
The co-operative banks functions like commercial banks receiving deposits and lending money.
In rural areas, these banks supply finance to agriculture. While in urban areas, they have started
to provide finance to buy consumer goods. They provide short term and long-term loans. They
are formed on the co-operative principles.
The banks provide credit at lower rates of interest to the people of small
cultivators and artisans, petty shopkeepers etc. the bank performs several functions connected
with agriculture, industry, trade, transport, etc. they provide crop loan to agriculturists in order to
purchase seeds, fertilizers etc. they also arrange for warehousing, grading and marketing .Co-
operative banks is an important constituent of Indian financial system, judging, by the role
assigned to them, the expectations, they are supposed to fulfill, their number, and the number of
offices they operate.The co-operative movement originated in the crust, but the importance that
such banks have assumed in India is rarely paralleled anywhere else in the world. their role in
rural financing continues to be important even today, and their business in the urban area also
have increased in recent years mainly due to the sharp increase in the number of primary co-
operative banks. Co-operative banks were an integral part of the institutional framework of
community development and extension services, which are assigned the important role of
delivering the fruits of economic planning of gross root levels.Today co-operative banks
continue to be a part of the set of institutions, which are engaged in financing rural and
agriculture development. This set up compromise the RBI, NABARD, Commercial Banks,
Regional Banks, and Co-operative Banks.
The relative importance of co-operative banks in financing agriculture and rural
development has undergone some changes over the year until 1969. They increasingly
substituted the informal sector after the nationalization of banks and the creation of RRB’s and
NABARD.
INTRODUCTION TO NPA (NON-PERFORMING ASSETS)
Page 16
NON-PERFORMING ASSETS
The very crucial factor that decides the performance of bank and the financial
institution.Nowdays is the spotting of NPA, Banks are now required to recognize such loans
periodically and then classify of banks advance in several categories stated in the early 1990’s
but at that time the terminology of NPA’S did not exist. It was in the early 1990’s when Anglo
American models which had system of their own. However this accounting system is not in
conformity with international standard. NPA is a part of banking through the world. It is not
peculiar to public sector banks and financing institutions in India. Incidence of NPAS is higher in
public sector bank is in comparison to private sector bank and foreign banks in India.
TRADITIONAL AND MODERN CONCEPT
Earlier to 1991 there is no such word NPA’S in India financial system. Before 1991, the Indian
financial institution followed traditional way of accounting procedures in respect of various
accounts sticky or otherwise. The system pertaining to repayment of principal amount and
periodical interest are as under.
First the bank of financial institution use to credit the interest account and debit the borrowers
account on a particular date or given pre-specified period (monthly / quarterly / half yearly /
yearly), irrespective of whether the borrowers paid the interest or not. There were no prompt
actions during those days for recovery of principal / installment and the interest. Recovery
actions for interest and principal amount normally initiated either at the end of financial year or
at the time of expiry of documents.
All borrowers’ accounts were treated in same manner till recovery procedures were initiated like
filing suits for recovery of outstanding interest and loan installment. Once the cases/suit is filed,
then advances were categorized as protested bills account (here protested bills mean all the loans
where the suit are filed for recover , due to this it becomes very difficult to find out the actual
amount realized by the way of interest or principal for a given period of time during the year.
Another problem in traditional concept was limitation period i.e. debt instruments expires once
in 3 years if timely action are not taken then the financial institution and banks have to incur the
losses. Traditional concept of assets classify was absent before 1991 and it affects the health of
financial institution.
MODERN CONCEPT OF NPAS (NON-PERFORMING ASSETS)
Page 17
NON-PERFORMING ASSETS
NPA came into Indian financial system consequent to introduction of prudential accounting
norms as per Narasimhah committee. An era of taking profits (even unrealized) was changed to
providing for expected loss. Days of “counting the chickens before the eggs hatch” are over.
From the financial year 1991-1992 the new system of accounting came into existence. More and
more new reforms were introduced in this year. New accounting systems for classification of
loan and interest came into effect. The financial institution and banks adopted income
recognition rules. RBI also took keen interest in this regard and laid guidelines.
As a result the method of asset classification came into force while introducing of basic
committee recommendations were also taken into consideration. Due to all these efforts the
assets were classified as follows:
Performing assets / standard assets
Non- performing assets
Asset Classification
Bank should classify their assets in to the following four groups are:
1. Standard Assets
2. Sub-standard Assets
3. Doubtful Assets
4. Loss Assets
Standard Assets:
Standard asset is one which does not disclose any problems and which does not carry more than
normal risk attached to the business. Such an asset should not be an NPA.
Sub-standard Assets
Page 18
NON-PERFORMING ASSETS
With effect from March 31st, 2005, an assets would be classified as sub-standard if it remain
NPA for a period less than or equal to 12 months. An asset, which has remained overdue for a
period not exceeding 3 year in respect of both agriculture and non-agriculture loans are treated as
sub-standard.
Doubtful Assets
An asset which has remained overdue for a period exceeding year in respect of both agriculture
and non-agriculture loans should be treated as doubtful.
Loss Assets
A loss asset is one where loss has been identified by the bank or internal or external auditor or by
the Co-operation department or by the reserve bank of India inspection but the amount has not
been written of wholly or partly.
NPA- COMPLIANCE TO 90 DAYS DELINQUENCY NORMS In pursuit of moving towards
international best practices and ensuring greater transparency. “90 days” “overdue” norms for
identification of NPA. Are adhered to with as per RBI guidelines stated below.
A NPA shall be a loan or advance (other than those given to direct agriculture) where
i. Interest and installments of principal remain overdue for a period of more than 90
days in respect of a term loan.
ii. The amount remains ‘out of order’ as indicated below in respect of an overdraft/cash
credit.
PROVISIONING NORMS ON THE BASIS OF ASSET CLASSIFICATION
Page 19
NON-PERFORMING ASSETS
Considering different categories of assets, provisions are to be made by the bank or financial
institutions as based on by RBI regulations In respect of various NPA in Tumkur grain
merchants Co-operative Bank, the provisions made on various categories of assets are mention
below:
Substandard Assets
A general provision of 10% on total outstanding should be made without making any allowance
for DICGC/ECGC guarantee cover and securities available.
Doubtful Assets
A provision should be for 100% of the extent to which the advance is not covered by the
realizable value of the security to which the bank has a valid recourse should be made and the
realizable value is estimated on a realistic basis.
In regard to secured portion, provision may be made on the following basis, at the rates ranging
from 20% to 100% of the secured portion depending upon the period for which the asset has
remained doubtful
secured Assets
A provision of 100% is made on this category.
Loss Assets
A provision of 100% of outstanding should be provided.
Page 20
NON-PERFORMING ASSETS
FACTORS RESPONSIBLE FOR HIGH LEVEL OF NPA
The NPA may be high on account of defective loan policies and procedures of the bank
such as predominance of loans for unproductive purposes which do not generate the
necessary repaying capacity.
Sanctioning of loans in excess of the repaying capacity of the borrowers.
Lack of proper verification of the geniuses of purposes for which loans are advanced,
misutilisation of loans, granting of fresh loans to those already in default in adequate
security etc.,
The NPAs may also be high on account of lack of timely action and adequate efforts for
recovery.
ADVERSE EFFECTS OF NPA
NPA directly affects the profitability
NPA effects on productivity
NPA effects on recycling of funds
NPA effects on rating
NPA effects on capital restructuring
NPA effects on image of banks
NPA effects on interest rates
NPA effects on capital adequacy issues
NPA affects investors confidence
Time/ effort / money wasted
Page 21
NON-PERFORMING ASSETS
TITLE OF THE PROJECT
Page 22
NON-PERFORMING ASSETS
“A study on The Management of Non-Performing Assets in Tumkur Grain Merchants Co-
operative Bank”.
INTRODUCTION
A banking company in India has been defined in the Banking Companies Act 1949 as “One
which transacts the business of banking which means the accepting of the purpose of sending or
investment of deposits of money form the public repayable on demand or otherwise and
withdraw able by cheque, draft order or otherwise”.
An efficient financial management is becoming inevitable for every manager in today’s
corporate world. From a traditional aspect of raising funds whenever needed the importance has
shifted to day to day financial decision making and problem solving. When initially the stress
was on the internal analysis of the firm, procurement of funds, management of assets and
allocation of capital, the present importance has shifted to decision making within the firm. With
the modern aspect of finance function the responsibilities of the finance manager has also
increased. In the process of making optional decision, he makes use of certain analytical tools in
the analysis, planning and control activities of the firm. Financial analysis is an essential
prerequisite for making sound financial decisions.
.STATEMENT OF THE PROBLEM
The level of NPA will have a direct impact on the banks profitability and growth of the bank.
NPA are always a burden to the bank since no income is derived from it. Banks tries to minimize
NPA due to their negative impact on the performance of the bank.Many banks have incurred
losses due to NPA’S. Hence there is need to study the causes of such NPA’S and steps to be
taken by banking institutions to avoid and downsize such NPA’S.
NEED FOR STUDY:
Page 23
NON-PERFORMING ASSETS
To get a practical knowledge about the various aspects related to the non performing assets.
To enhance my knowledge with respect to the non performing assets.
To analyze various non performing assets which are managed by TGMC Bank.
Objectives
To evaluate the TGMC Bank’s asset quality.
To identify the effectiveness of the risk management system, undertaken by the bank.
To know the how nonperforming assets are managing in the TGMC Bank
SCOPE OF THE STUDY:
The scope of the study here was confined to the organization only.
The study covers to find out the strategy required to reduce the NPAs
METHODOLOGY OF THE STUDY:
PRIMARY DATA
Primary data is a data, which is collected in fresh or first hand, and for the first time which is
original in nature. It will collected through personal interview, questionnaire etc.
SECONDARY DATA
Collection of data through bank annual reports, bank manuals and other relevant documents.
Collection of data through the literature provided by the bank.
Websites (www.TGMC.com & www.google.com )
LIMITATIONS OF THE STUDY
Page 24
NON-PERFORMING ASSETS
The study is mainly based on the secondary data provided by the bank. As such it is subject
to the limitations of the secondary data.
The study is based on the data given by the officials and reports of the bank. The
confidentiality of some facts and figures is a limitation.
The non-availability of relevant information is one of the limitations.
The study is done only for the limited period of 8 weeks.
SAMPLING DESIGN:
A sample size of 50 numbers will be chosen for the purpose of conducting the survey. This
sample size will be representing the population and in chosen on the basis of convenience
randomness. Stratified random sampling method will be adopted for the study.
CHAPTER SCHEME
CHAPTER 1: INTRODUCTION
In this chapter, we look into the general background of the study. Introduction of Finance and
introduction of nonperforming assets is included in this chapter.
CHAPTER 2: COMPANY PROFILE
In this chapter, a brief idea about the co- operative TGMC bank. In this, its origin, history,
mission and vision, various products produced, its growth and its future plans is included.
CHAPTER 3: RESEARCH METHODOLOGY
n this, the methodology followed for the study, the scope, need and importance, objectives,
sources and methods of data collection used, tools and analysis of data used and limitations of
the study of this project is included.
CHAPTER 4: DATA ANALYSIS AND INTERPRETATIONS
Page 25
NON-PERFORMING ASSETS
It includes, analyzing the collected data by using charts and graphs and interpreting the analyzed
data.
CHAPTER 5:
This chapter includes
Findings- meaning what has been found through this project.
Suggestions- it includes suggestions for the company to improve if any.
Conclusions- the over all summary about the project.
Bibliography – it includes the references that has been used to complete the study successfully.
Annexure - questionnaires, sample filled questionnaires are included under this head.
Glossary
Page 26
NON-PERFORMING ASSETS
Page 27
NON-PERFORMING ASSETS
Profile of Tumkur Grain Merchant’s Co-operative Bank Ltd .,
Original of TGMC Bank Ltd:-
Tumkur Grain merchants co-operative bank ltd., was registered on 16.09.1963 by register of co-
operative societies, mysore state with a registration No.270.
In 1950’s and 60’s Tumkur city has been developed as a major business center of Karnataka
State. In that period, the city has so many industries and merchant class. In this substantial
growth time the merchants of the city were facing the lack of proper banking facilities and
services, as in those days a few – public sector banks were functioning in the city and that too
having lot of imbalances in their service to customers.
By observing this pathetic condition, the leading merchants of Tumkur Sri. A.K.A
Paradhwanath, Sri. T.N. Kempahonnaiah, Sri. Gubbi Huchappa, Sri. D.S. Siddappa,
Sri.P.G.Srinivasasetty, Sri.G.B.Chidanand, Sri H.N. Thammaiah, Sri. C.L. Shekarappa.
Sri.Y.Chandfa Shekarappa and Sri. N.R. Jagadish and other leading merchants discussed and
decided to open an Urban Co-operative Bank in the city.
By an inspiration form Grain Merchants Co-operative Bank Ltd., Bangalore by the providing
Banking facilities and service to the business people of the city.
For this Sri. A.K.A.Pershwamath was elected as the Chief Promoter and the Bank was registered
on 16.09.1963 and the bank was started its business on 13.12.1963.
Page 28
NON-PERFORMING ASSETS
The financial position of the bank as on 30.6.1964 at the end of the First year was as under:
Particulars Amount (In Rs.)
No. of members 257
Share Capital 1,35,400
Deposits 1,24,600
Borrowings 86,584
Loans and Advances 3,45,344
Investments 25,000
Net Profit 967
In the following years, the bank has marked its substantial growth in the Co-operative Banking
Sector along with the objective. Since its inception, the bank has been recording its social
obligation. In the year 1987 the bank has got its license form the reserve bank of India, Mumbai.
Present Situation of the Bank:-
The Tumkur Grain Merchant’s co-operative bank Ltd., Tumkur is one of the best managed co-
operative Bank in the Karnataka State. Bank celebrated its Silver Jubilee on 31.10.1992 and 40 th
anniversary in the year 2003. The Bank has successfully completed 44 years of service in the
banking.Sector, now serving in Tumkur Bangalore Urban, Bangalore Rural, Mysore and
Chamarajanagar Districts. Bank started operating profit from the first year of functioning if
growing to greater heights over since, gaming the glory of being adjudged the “Best Managed
urban co-operative Bank in the State “for the year 2005-06.
TGMC Banks Area of Operation:-
1. Tumkur District
2. Bangalore Urban District
3. Bangalore Rural District
Page 29
NON-PERFORMING ASSETS
4. Mysore District
5. Chamarajanagar District
Planning to Extend the Area of Operation to the Following Neighboring Districts:-
1. Chitra Durga
2. Hassan
3. Chikkamagalur
4. Mandya and
5. Kolar
Network of TGMC Bank Ltd:-
Tumkur Grain merchants co-operative bank head office
B.H. Road
Tumkur – 572103
Phone no: 0816 – 2255905, 6541902, 6531903
Fax no: 0816 – 2257636
Email: [email protected]
Board of Management of the Bank
Page 30 18 Board of Management
NON-PERFORMING ASSETS
Page 31
NON-PERFORMING ASSETS
The Bank has full-time Chief executive officer. All the Board of Directors including president
and Vice-President of the bank are serving as honorary. Board of Management who provide
necessary vision, Decision makers and policy formulation. C.E.O, and Assistant C.E.O. for team
formulation and implementation of strategies.
Board of Management of TGMC Bank Ltd, for the Year 2007-2007
1. Sri N.R. Jagadeesh – Industrialist President of the Bank.
2. Sri. K.Y. Shivanna –Vice President
3. Sri R.J. Anantha rajaih – DIRECTOR
4. Sri. H.M. Divyananda Murthy – DIRECTOR
5. Sri. M.S. Jinesh Jain – DIRECTOR
6. Sri. D.D. Basavaraju – DIRECTOR
7. Sri. M.P. Mahesh – DIRECTOR
8. Sri. K.V. Srinath – DIRECTOR
9. D.S.Rudramuniyappa – DIRECTOR
10. K.C. Srikantaiah – DIRECTOR
11. T.S. Ravi Kumar – DIRECTOR
12. C.R. Nataraj – DIRECTOR
13. T.S.Guruprasad – DIRECTOR
14. V.K. Rajashekariah – DIRECTOR
15. S.R. Venkatarama Setty – DIRECTOR
16. G.V. Shanthish Jain – DIRECTOR
17. Dr .G. Sachidananda – DIRECTOR
Page 32
NON-PERFORMING ASSETS
18. G.V. Rohini – DIRECTOR
19. Sudhir kumar Yaragatti– CHIEF EXECUTIVE OFFICER
Various Committees of TGMC Bank Ltd:-
The following sub committees are formed to carry out administrative affairs of the bank.
President N.R. Jagadish and Vice president K.Y . Shivanna are part of it. The bank has framed 3
sub-committees are as follows:-
1. Joint Loan / Hypothecation loan and pledge loan sub-committee
2. Loan on mortgage of property / machinery loan sub-committee
3. Branch control / Recruitment / Investment / audit Sub-committee
Vision Statement:
“ WORKING FOR YOUR GROWTH ”.
Mission Statement:-
“YOUR TRUST IS OUR ASSET”
Strategic Alliance:
T.G.M.C. Bank has a strategic alliance with the Karnataka State Co-operative Apex Bank under
Inland mutual arrangement scheme under the alliance providing DD & cheques collections
facilities all over India with the help of ICICI bank, Bangalore.
Department/Section in TGMC Bank Ltd:-
The various Department and section at the branch level comprising of
1. Deposit Section
2. Loans and Advance Section
3. Bills/clearing/D.D./Pay order Section
Page 33
NON-PERFORMING ASSETS
4. Cash Section
5. Savings Bank / Current Account.
At the level of Administrative Office:-
Administrative Section, Establishment Section – Looks after conducting Board meeting Sub-
committee meeting and staff meeting
Shares Section
Accounts Section
Internal Control and Inspection Section
M.I.S. & M.I.P.D. Section
Planning and Development
Recovery Section
E.D.P. Section
Stores Section
Inward & outward section
P.R.O Section
Funds management section
Treasury Section
Human Resources management Section.
Each departments/section function under the control of Chief executive Officer, who ensures
effective functioning of their respective duly assisted by D.G.M.A.G.M. and H.O. Manager etc.
Main Strategies of T.G.M.C.N. Bank Areas:
Page 34
NON-PERFORMING ASSETS
Core Banking Solution (CBS)
The Banking is already entered MOU with M/s C- Edge Technologies Ltd., towards the upgrade
the technology which is State of the art technology is called core Banking Solutions. C-Edge
technology Enterprises Ltd., is jointly developed by M/s TCS and S.B.I Product name is called
C-edge which is exclusively developed for Urban Co-operative Banks. TGMC Bank is the first
urban Co-operative Bank in the Karnataka state to implement core banking solutions among 297
UCB’S. After implementation of the CBS to a Branch, the Bank is planning to provide the
following services to its esteemed customers:
ATM Facility
Tele Banking
Mobile Banking
Retail Banking
Internet Banking
R.T.G.S. Facility
E.F.T. Facility
7days Banking for all branches.
Structure:
Page 35
NON-PERFORMING ASSETS
The bank has typical organizational structure. The board of directors heads the organization.
1. Shared Values:
Page 36
President
Vice President
Board of Directors
Sub - Committees
Joint Loan/ Hypothecation Loan/ Pledge Loan
Staff Recruitment, Audit, and Investment &
Loan on Mortgage of Property & Machinery loan
GM/CEO
DGM/CEO
AGM/A.C.E.O
Manager
Deputy Manager
AST. Manager
Senior Assistant
Junior Assistant
Staff/ Attenders
NON-PERFORMING ASSETS
This is the vision statement, which determines the goal of the organization. The vision of the
T.G.M.C. Bank is “ To become leader among 297 urban co-operative banks in the Karnataka
State in terms of profitability, Innovation, Quality, better services to its customers and to obtain
schedule status form the reserve bank of India, Mumbai
Statement of the Bank:
“Invest your money with us for better safety, security, Identity and Profitability”
Awards to the Bank:
The best managed urban co-operative bank in the Karnataka State “for the year 2002-03.
The best urban co-operative bank in the Karnataka state “for the year 2005-06.
Functions of TGMC Bank Ltd:-
1. Accept the deposits from its members, Associate members, nominal members, and general
public , for the purpose of the meeting the credit requirements of the bank’s members.
2. Provide credit facilities to its members, Associate members and nominal members as short
term loans, Medium term loans and long term loans to various vital role in finance.
3. Besides the above functions, they also carry an ordinary banking operations are collection of
D.D./Bills/Cheque, issue of pay orders/ demand drafts.
Issue of cuff cheques, safe deposit lockers, issue of bank Guarantee and an arrangement of letter
of credit facilities.
Accounting System at T.G.M.C. Bank Ltd:-
Accounts are maintained under double entry system of book keeping. Ledger is maintained to
record each transaction. The Bank is using “PENTA BANK SOFTWARE” “Ailment Software”
and now they are implementing core banking solutions from M/s C- Edge enterprise
technologies Ltd., which is jointly developed from urban co-operative Banks. This is the first
Urban Co-operative Bank in the Karnataka State to implement state of the art technology is core
banking solutions (CBS).
Page 37
NON-PERFORMING ASSETS
Each Branch/ Department function under the control of Chief executive Officer who ensure
effective functioning of their respective Branch/ Department duly assisted by the branch
managers/ managers etc.,
Auditing System of the Bank:
The bank has good auditing control system. The bank has appointed 2 internal Auditors to check
the internal discrepancies and to strengthen the internal affairs of the Bank accordance with
Reserve bank of India’s circulars, guidelines, norms, directions and system and procedures.
Agency, con current audit is done by external audit the EC who are professionally qualified as
charted accountancy, CISA and system audit and control, they will issue a report as.
Quarterly basis, whatever objections raised by auditors, concerned branch manager and will give
compliance then and there itself. Statutory audit is done by charted accountants those who are
enrolled as panel auditors in the Reserve Bank of India and statutory Auditors will be appointed
by Director of Co-operative Audit, Department of co-operation, Bangalore.
Associated Institution of TGMC Bank Ltd:
Grain merchants Association – parent body.
Grain merchants charitable Trust
G.M.A. Educational trust
Sri. Mahalakshmi Temple Trust
Raising of funds of the bank:
The bank will raise its funds by the following ways, when there is need. They are as follows:-
Issue of Shares
Accepting deposits of various kinds and by issue of cash certificates
Entrances fees
Any other means permitted under the act.
Page 38
NON-PERFORMING ASSETS
Salient Features of the Bank:-
1. Very attractive interest rates on all types of deposits. Which are more than commercial and
nationalized banks.
2. Safe Deposit lockers facilities are available.
3. All Deposits up to Rs 1,00,000 is guaranteed by Deposits insurance scheme in DICGO.
4. Prompt Quick and efficient service.
5. Continuous increases in net profits.
6. Rapid development in the state of the art technology at a faster pace.
7. All deposits having nomination facilities.
8. Tailor made deposits schemes to all classes of people in the society.
9. Gold loan facility available.
10. NRO/NRE Accounts are accepted.
11. Quick cheque collection facility.
12. Easy procedure and documentation to avail loans.
13. Total banking transactions are fully computerized with core banking solutions.
14. All types of loans and advances given at competitive rate of interest.
15. Working hours extended for 7 days a week
16. One of the leading urban co-operative banks in the Karnataka state.
Aims and Objectives of the Bank:-
To reduce cost of deposits.
Page 39
NON-PERFORMING ASSETS
To expand area of operation.
To increase customer satisfaction.
To provide A.T.M. Facilities to customers.
To provide retail banking.
To increase net profit.
To maintain personal integrity.
To prove versatile banking services.
To focus on recovery.
To focus on NPA.
Products of the Bank:-
The bank is offering its customers most of all the facilities of the banking industry
The products or services of the bank can be classified into two broad ways
1. Deposit Accounts.
2. Loans and Advances Accounts.
3. Other special services.
Deposit Account:-
The deposits are the back bone of the bank. Any bank will sustain in the industry and comply in
the market only up to that period, where the depositors having believe about the bank. If any
bank losses believe in the minds of the depositors, if will not be having any more life in future,
there are five types of deposit products, which are briefed below:
a. Current Accounts:-
Page 40
NON-PERFORMING ASSETS
An account to take care of all business requirements with ‘ Any branch Banking’ facility. These
deposits contribute major portion of the bank circulating media of exchange. Bank does not pay
any interest for these deposits. Rs 50 will be charged for those deposits as bank charges for every
half year and also charge Rs 2/- for every cheque leaf. In this account, the customers should have
to maintain a minimum balance of Rs 1,000/-
b. Savings Bank Accounts:-
People with steady monthly income and serve their earnings through this account. Bank pays
interest at a nominal rate @ 3.5% and minimum balance is Rs 500/-
c. Fixed Deposit Account:-
Money is accepted for a fixed period. The rate of interest is higher than other accounts.
Minimum period is 15 days and maximum period is 10 years. Interest can be withdrawn on
monthly/ quarterly or half yearly, the longer the period the higher interest.
d. Mangala Cash Certificate:-
In this scheme the deposit will earn every quarterly on compounding interest. Interest will
accumulate quarterly minimum period is 15 months and maximum period of deposit is 10 years.
Only mature of date interest can be withdrawn on mature date. Interest can be withdrawn along
with principal amount and accumulated compound interest.
e. Cumulative Term Deposit:-
All you need to do is to deposit a fixed amount every month, which will turn into handsome
returns at the end of the tenure.
Small fixed account of savings every month can be invested on C.T.D. Ideally suited for salaried
officials, Retail traders, savings, needed Housewives etc., any time you need your money back,
before the due date, will be paid with least formalities and in quick time. Minimum deposit
period is months and maximum deposit period is 10 years.
f. Non Resident Accounts:-
Page 41
NON-PERFORMING ASSETS
Non – Resident Indians can open Saving Bank Account, fixed deposit Account and Mangala
cash certificate account at the designated Branches.
Attractive Interest Rates on Deposits:-
Sl.N
o
Period Rate of Interest
1 15 days to 90days 6%
2 91 days to 90 days 7%
3 181 days to 1 year 8%
4 Above 1 year to 3 years 10%
5 Above 3 years 9%
1% additional interest will be paid for Senior citizen, charitable trusts, widows, and physically
handicapped persons for above one year deposits.
2 . Loans and Advances:-
The borrowers art the Heart of every Bank. The key persons to generate the profit of the bank are
the borrowers. Today banks are not completing for attracting the depositors, but they are
competing for attracting the prompt borrowers. Non – performing asset (NPA) norms of Reserve
Bank of India is the main cause for today’s healthy competition. This is helpful in through out
the dusty loan accounts.
The bank is offering different types of loans and advances on its members. The bank has
classified its loans and advances in 3 broad categories, on the basis of tenure of the loan. They
are as follows:
Sl.no. Particulars Tenure
Page 42
NON-PERFORMING ASSETS
1 Short term loans and advances Below 1 year
2 Medium term loans and advances 1 year to 5 year
3 Long term loans and advances Above 5 years
1. Short Term Loans and Advances:-
a. Joint loan and Installment joint loan:-
Joint loan is given to member of the bank who is having the voting right with a surety of another
member. A member can get this loan only up to Rs 25,000\- share amount margin should be
maintained 5% on sanctioned loan amount. Maximum loan limit of Rs 25,000/- and the tenure of
this loan is 5 months.
The installment joint loan is also is also same like joint, but here the borrower has to repay the
loan amount in 10 equal installments.
b. Over Draft/ Cash credit facilities:-
The bank is also giving advances traders, businessmen, industries etc in the form of over draft.
Cash credit facilities to their remaining account maintained with the bank. This loan will be
given to meet the working capital need of the traders, businessmen, industries, on security of
stocks and the immovable property, this facility will be sanctioned after considering the working
capital requirement and the security and also the transactions made in their accounts. The tenure
of this facility will be given for a period of 1 year, if the transactions are satisfactory to the bank
and the reserve bank of India norms. As per the RBI s norms transactions should be made at least
6 times of sanctioned OD. / C.C. limit amount. The account for every day and charged on every
month.
Page 43
NON-PERFORMING ASSETS
c. Gold Loan:-
To avail this Lon, the borrower has to pledge his/her gold ornaments to the bank. They will give
the loan only after its valuation by its authorized gold smith appraiser sanction of loan only upto
50% of its market value and tenure of the loan will be maximum 1 year.
d. Pledge Loan:-
This loan can be availed by the traders, merchants, business men, industrialists etc., this loan will
be given by pledging the goods and stocks of the borrowers, which are related to their
trade/business. Goods will be stored in their own go downs, under the custody of the bank and
goods will be stored at central/ Karnataka state ware housing go downs. Proper lien will be noted
form the concerned authorities then only loan will be sanctioned. The loan will be sanctioned by
70% of the value of the stock, after its inspecting the quality and quantity of the stock. This loan
will be sanctioned for a period from 3 months to maximum 6 months.
e. Bills discounting:-
Bank is discounting the cheques issued by the reported corporate/organizations in favor of the
account holders of the bank. This facility is given only to the required customers of the bank. To
avail this facility, the customers should have to get prior sanction from the bank for a limited
amount. In this case, the bank is discounting the cheques presented in the clearing, by charging
the interest at the rate of 18% p.a. up to the period of the realization of the cheques.
f. Loan on NSC and LIC bonds:-
Any person holding NSC and LIC Bonds can be availed this loan, by pledging certificates and
Bonds, loan will be sanctioned against LIC Bonds only on surrender value certificate loan will be
sanctioned.
From 70% to 80% on the face value of the certificates loan tenure will be given maximum of 1
year.
Page 44
NON-PERFORMING ASSETS
g. Deposit Loans:-
Deposit loans can be availed by any depositor of the Bank, by its lien in the bank, A depositor
can avail the loan up to 90% of this deposit, interest will be charged 1% of interest more than
their deposit interest rates.
2. Medium Term Loans and Advances:-
a. Loan on mortgage of property:-
This loan will be given for the purpose of the business by mortgaging the immovable property of
the Borrower, after considering lot of legal aspects, security repayment capacity, credit
worthiness and fulfilling required documentation procedures. Normally, this loan will be given
50-60% of the value of the property. Valuation should be done by the banks approved panel
valuator only. In this loan the borrower should have to repay the loan in equal installments.
b. Hypothecation loan for vehicles:-
Hypothecation loan will be sanctioned to purchase a new or an old (old not more than 3 years)
vehicle, by hypothecating the same and register the hypothecation in the R.T.O. Normally, this
loan will be sanctioned for new vehicles form 70% to 75% on Invoice price and for the old
vehicles depends upon the vehicle condition, engine condition, age of the vehicle etc., for old
vehicles loan will be should be done by the authorized valuators and for old vehicles, loan will
be sanctioned form 50% to 60% of the valuation report. In this loan the borrower should has to
repay the loan in equal installments. Tenure of the loan form new vehicles will be 36 months to
60 months and for old vehicles will be 36 months only, collateral security will be insisted by the
bank for better security.
c. Machinery Loans:-
The bank is promising the small scale industries. Medium scale industries and large scale
industries also, by sanctioning loan for purchase of new or old machineries. Additional collateral
security is rendered for this loan. 75% on the invoice value of the new machinery and 50% on
the valuation of the old machinery loan will be sanctioned. Loan tenure will be given from 36
Page 45
NON-PERFORMING ASSETS
months to 60 months. In this loan the borrower should has to repay the loan in equal
installments.
d. Consumable article Loan:-
The bank is promoting the small businessmen, salary earning persons and low income group
persons for purchase of consumable articles like, television refrigerator, washing machine,
computer laptop, and other electronic equipment’s Normally 60 to 75% on the value of the
invoice loan will be sanctioned. Loan tenure will be from 1 year to 3 years.
e. Housing Loan:-
The bank is also interested in promoting the housing sector, by granting the loans for purchase or
builds a house for the purpose of reliance; normally this loan will be sanctioned from 50% to
60% on the project cost/estimated cost. In this loan the borrower should has to repay the loan in
equal installments. Loan tenure will be 60 months.
f. Staff Advances:-
To encourage the work interest of the employees, the bank is grating loans to the staff for
different purpose viz: purchase / build the house purchase of vehicles, consumable articles,
education, and marriage and or for other personal necessities. Normally, this loan will be given
form 1 year and 3 years and loan will be repaid by an equal installments.
Installments will be deducted from the salary fo the employees. For this loan the rate of interest
will be charged at the maximum deposit rate of the bank. i.e. now it is 10% P.A.
Apartment from this the employees are eligible to get festival advance, up to maximum for Rs
2,000/- to meet the expenses on the occasion of festivals, only. This advance is free of interest
with repayment in 10 equal installments.
Page 46
NON-PERFORMING ASSETS
Sl.N
o
Particulars Rate of interest
1 Pledge loan 11.0%
2 Gold Loan and Housing loan 12.50%
3 Joint Loan, term loan and machinery 12.50
4 Hypothecation loan (commercial)
New vehicle
Old vehicle 13.50%
5 Hypothecation loan (personal/private
New vehicle 12.50%
Old vehicle 13.00%
6 Loan on mortgage of property consumable articles
loan, over draft, cash credit loan, NSC/LIC
Bonds/shares/ Bonds and other loans
13.00%
3. Other special services:
Apart from the above products, bank is also offering other services which may attracts some
bank charges. They are as follows:
a. Issue of pay orders and demand drafts
b. Issue if gift cheques
c. Cheques collection facility
d. Safe deposit lockers
Page 47
NON-PERFORMING ASSETS
e. Bank guarantees and letter of credit.
ANALYSIS OF DATA
Page 48
NON-PERFORMING ASSETS
Analysis and Interpretation
The analysis is based on the study of the existing level of NPA in Tumkur Grain Merchants Co-
operative Bank classified in the form of tables and charts, to identify the causes and problems for
the incurrence of NPA. To highlight the existing policies of the bank of controlling NPA and to
offer findings and suggestions based on the analysis.
Table – 1
TABLE SHOWING TOTAL DEPOSITS
PARTICULAR 2007 2008 2009 2010
Total Deposit 19 23 28 29
Trend (%) 100 121 147.37 152.63
Increase
Growth
0 +21 +26.37 +5.26
ANALYSIS AND INTERPRETATION
Above table depicts that the deposits is consistently increased from the year 2008 to 2010 by
21% and 26.37% and in the year 2010 the trend increase in slightly decreased by 5.26% however
there is good improving progression of total deposits, in all the years without more fluctuation
due to increase in fixed deposits.
Page 49
NON-PERFORMING ASSETS
GRAPH – 1
GRAPH SHOWING TOTAL DPOSITS
100
121
147.37
152.63
2007200820092010
Page 50
NON-PERFORMING ASSETS
TABLE – 2
TABEL SHOWING THE TOTAL ADVANCES TO GROSS NPA
(Rs. In crores)
Particular Advances Gross NPA % of NPA on
advance
Incremental
Gross
Growth
2007 57 4 7.10% 100% -
2008 87 7 8.04% 114.69% 14.67
2009 93 13 13.97% 117.28% 84.59
2010 92 8 8.69% 123.96% -7532
ANALYSIS AND INTERPRETATION
From the above table the % of NPA is increased in the year 2007 to 2009 by 14.67 and 84.59 in
the year 2010, it was decreased to the extent of 123.96% due to the decrease in the advances
hence, it affects on gross NPA. The performance of the NPA is 2010 is good so there is decrease
in the NPA.
Page 51
NON-PERFORMING ASSETS
GRAPH -2
GRAPH SHOWING THE TOTAL ADVANCES GROSS NPA
100.00%
114.69%
117.28%
123.96%
2007200820092010
Page 52
NON-PERFORMING ASSETS
TABLE -3
TABEL SHOWING THE ANALYTICAL POSITION OF NPA
(Rs. In crores)
PARTICULAR 2007 2008 2009 2010
Total Deposit 4 7 13 8
Trend (%) 100 175% 325% 200%
Increase
Growth
0 +75 420 -125
ANALYSIS AND INTERPRETATION
From the above table the % of gross NPA has increased in the year 2009 when compared to the
year 2008 by the extent 450 and slightly it was decreased in the year 2008 by the extent of 125%
due to the high credit rating and step, taken for recovery of NPA.
Page 53
NON-PERFORMING ASSETS
GRAPH – 3
GRAPH SHOWING THE TOTAL POSITION OF NPA
2007 2008 2009 2010
-500
0
500
1000
1500
2000
2500
PARTICULARTotal DepositTrend (%)Increase Growth
Page 54
NON-PERFORMING ASSETS
TABLE -4
TABLE SHOWING THE SSI NPA AS COMPARED TO TOTAL NPA
Rs. In crores)
PARTICULAR 2007 2008 2009 2010
NPA 4022 7272 13237 8837
NPA of SSI 396 1406 2337 596
% of SSI to Total
NPA
9.84% 19.33% 17.65% 6.74%
Increased Growth - 9.49 1.68 10.90
ANALYSIS AND INTERPRETATION
From the above table the % of SSI to total NPA has increased in the year 2008 compared to 2007
and consistently decreased from the year 2009 to 2010 by 10.90% which shows the good sign
due to the less granting of the advances to the SSI more steps all taken to recover the NPA from
SSI in year 2009 – 2010.
Page 55
NON-PERFORMING ASSETS
GRAPH – 4
GRAPH SHOWING THE SSI NPA AS COMPARED TO TOTAL NPA
9.84%
19.33%
17.65%
6.74%
2007200820092010
Page 56
NON-PERFORMING ASSETS
TABLE – 5
TABLE INDICATING Tumkur Grain Merchants Co-Operative Bank NPA AS
COMPARED TO TOTAL NPA
Rs. In crores)
PARTICULAR 2007 2008 2009 2010
NPA 4022 7272 13237 8837
NPA of AGR 310 1923 4200 2306
% of NPA of
AGR to NPA
7.70% 26.44% 31.72% 26.08%
Increasable
Growth
- 18.74 5.28 -5.63
ANALYSIS AND INTERPRETATION
The trend NPA OF % o Tumkur Grain Merchants Co-operative Bank f total NPA is increased
from the year 2007 and 2009 by 19% and 5% but in 2010, it was reduced to the extent of 26.08%
which shows the positive symbol more formulating in granting the loans and effective
implementation of recovery policy from Tumkur Grain Merchants Co-operative Bank loans.
Page 57
NON-PERFORMING ASSETS
GRAPH – 5
GRAPH INDICATING Tumkur Grain Merchants Co-operative Bank NPA AS
COMPARED TO TOTAL NPA
7.70%
26.44%
31.72%
26.08%
2007200820092010
Page 58
NON-PERFORMING ASSETS
TABLE – 6
TABLE SHOWING % of NPA of AGR to TOTAL
(Rs. In crores)
PARTICULAR 2007 2008 2009 2010
NPA 4022 7272 13237 8837
NPA of AGR 1817 1589 1420 1420
% of NPA of
AGR to NPA
45.17% 21.85% 10.72% 16.06%
Increasable
Growth
- -23.32 -11.13 5.34
ANALYSIS AND INTERPRETATION
From the above table the % of agriculture to NPA was decreased from the year 2007 to 2010 by
11.13% but in the year 2010 it was shifty increased by 5.34% when compared to 2010. Hence the
NPA of agriculture is showing decreasing trend due to slightly reduction in providing advances
to the farmers.
Page 59
NON-PERFORMING ASSETS
TABLE – 6
GRAPH SHOWING % of NPA of AGR to TOTAL
45.17%
21.85%
10.72%
16.06%
2007200820092010
Page 60
NON-PERFORMING ASSETS
TABLE -7
TABLE SHOWING PERSONAL NPA TO TOTAL NPA
(Rs. In crores)
PARTICULAR 2007 2008 2009 2010
NPA 4022 7272 13237 8837
NPA of
Personal
1316 2195 4912 4465
% of Personal
NPA of AGR to
NPA
32.72% 30.18% 37.10% 50.52%
Increasable
Growth
- -25.54 6.92 13.42
ANALYSIS AND INTERPRETATION
From the above table, percentage of personal NPA to total NPA is decreased from the year 2007
to 2009 by 2.54% but however from there after the considered increase by the extent of 13.42%
till the year 2010.
Due to the increase in the advances and may be poor collection efforts by the bank from the
personal loan borrows.
Page 61
NON-PERFORMING ASSETS
GRAPH -7
GRAPH SHOWING PERSONAL NPA TO TOTAL NPA
32.72%
30.18%
37.10%
50.52%
2007200820092010
Page 62
NON-PERFORMING ASSETS
TABLE – 8
TABLE SHOWING YEAR WISE DETAILS OF SSI AND NPA
(Rs. In crores)
PARTICULAR 2007 2008 2009 2010
NPA of SSI 396 1406 2337 596
% of Trend
Changes
100 355 590 150
Increasable
Growth
- 255 235 - 440
ANALYSIS AND INTERPRETATION
The trend percentage of NPA from SSI was increased from the year 2007 to 2010 to the extent of
590% but in the year 2010 it was reduced by a very good extent 440%. However proportion of
grant in the advance to the SSI is considerably high which raised the indirect problems on next
financial improvement. Hence it was reduced in 2010 as precautionary step to avoid the future
financial problem.
Page 63
NON-PERFORMING ASSETS
GRAPH – 8
GRAPH SHOWING YEAR WISE DETAILS OF SSI AND NPA
100
355
590
150
2007200820092010
Page 64
NON-PERFORMING ASSETS
TABLE -9
TABLE SHOWING YEAR WISE DETAILS OF SBF NPA
(Rs. In crores)
PARTICULAR 2007 2008 2009 2010
NPA of TGMC 310 1923 4200 2306
% of Trend
Changes
100 620 135 744
Increasable
Growth
- 520 734 -610
ANALYSIS AND INTERPRETATION
From the above table the % of NPA of TGMC was very highly increased from the year 2007 to
till 2009 by 734% and nearly in the same proportion decreased by 610% in the year 2010. Hence
there is a full controlled action taken by management to recover the NPA of in the Tumkur
Grain Merchants Co-operative Bank year 2010.
Page 65
NON-PERFORMING ASSETS
GRAPH -9
GRAPH SHOWING YEAR WISE DETAILS OF SBF NPA
100
620
135
744
2007200820092010
Page 66
NON-PERFORMING ASSETS
TABLE -10
TABLE SHOWING DETAILS OF YEAR WISE PERSONAL NPA
Rs. In crores)
PARTICULAR 2007 2008 2009 2010
NPA of SBF 1316 2195 4912 4465
% of Trend
Changes
100 166 373 339
Increasable
Growth
- 66 207 -34
ANALYSIS AND INTERPRETATION
The trend % of NPA from personal was progressively increased in the year 2008-2009 by the
extent of 2010 but it was slightly reduced by 34% in the year 2010 however the bank was
incurred losses from the year 2007 to 2009 due to the year high aggressions in granting the loans
to personal.
Page 67
NON-PERFORMING ASSETS
GRAPH -10
GRAPH SHOWING DETAILS OF YEAR WISE PERSONAL NPA
100
166
373
339
2007200820092010
Page 68
NON-PERFORMING ASSETS
TABLE – 11
TABLE SHOWING TOTAL PERCENTAGE OF RECOVERY OF NPA
(Rs. In crores)
PARTICULAR 2007 2008 2009 2010
NPA of SBF 1874 322 1571 6711
% of Trend
Changes
100 17 84 358
Increasable
Growth
- -83 67 274
ANALYSIS AND INTERPRETATION
From the above table the percentage of total recovery of NPA was decreased as compared to the
year 2007 to 2008 by 83% but from the year 2009 and 2010 it was very much increased by 67%
to extent 358% hence the bank recovery policies was very effectively implemented by the
management which shows the very good sign.
Page 69
NON-PERFORMING ASSETS
GRAPH – 11
GRAPH SHOWING TOTAL PERCENTAGE OF RECOVERY OF NPA
100
17
84
358
2007200820092010
Page 70
NON-PERFORMING ASSETS
TABLE – 12
TABLE SHOWING THE DETAILS OF RECOVERY OF NPA FROM SSI
(Rs. In crores)
PARTICULAR 2007 2008 2009 2010
Recovery of
NPA from SSI
248 42 608 1741
% of Trend
Changes
100 17 245 702
Increasable
Growth
- -83 22 457
ANALYSIS AND INTERPRETATION
The trend % NPA recovery from SSI was decreased by 83% in the 2008 but it has progressively
increased from the year 2009 by to 228% & 457% hence the credit rating & motivation of the
bank is showing the good sign. For the repayment of loan by the SSI.
Page 71
NON-PERFORMING ASSETS
GRAPH – 12
GRAPH SHOWING THE DETAILS OF RECOVERY OF NPA FROM SSI
10017
245
702
2007200820092010
Page 72
NON-PERFORMING ASSETS
TABLE – 13
TABLE SHOWING THE RECOVERY OF NPA FROM SBF
(Rs. In crores)
PARTICULAR 2007 2008 2009 2010
SAFE recovery 1010 120 659 2782
% of Trend
Changes
100 12 65 275
Increasable
Growth
- -88 53 210
ANALYSIS AND INTERPRETATION
From the above table % of the SBF recovery NPA is reduced from the year 2007 to 2008 to the
extent of 12% & when compare to 2009 to 2008 it was increased to any very good extent 275%
hence the management of bank is given movie importance on SBF for the recovery of NPA in
the year 2009 and 2010.
Page 73
NON-PERFORMING ASSETS
GRAPH – 13
GRAPH SHOWING THE RECOVERY OF NPA FROM SBF
100
12
65275
2007200820092010
Page 74
NON-PERFORMING ASSETS
TABLE – 14
TABLE SHOWING THE RECOVERY OF NPA FROM AGR
(Rs. In crores)
PARTICULAR 2007 2008 2009 2010
AGR recovery 443 30 169 -
% of Trend
Changes
100 17 38 0
Increasable
Growth
- 93 31 -38
ANALYSIS AND INTERPRETATION
The trend % NPA recovery from SSI was decreased by 83% in the 2008 but it has progressively
increased from the year 2010 by to 228% & 4457% hence the credit rating & motivation of the
bank is showing the good sign. For the repayment of loan by the SSI.
Page 75
NON-PERFORMING ASSETS
GRAPH – 14
GRAPH SHOWING THE RECOVERY OF NPA FROM AGR
100
17
38
2007200820092010
Page 76
NON-PERFORMING ASSETS
TABLE – 15
TABLE SHOWING THE RECOVERY OF NPA FROM PERSONAL
(Rs. In crores)
PARTICULAR 2007 2008 2009 2010
Personnel
recovery
120 130 69 1870
% of Trend
Changes
100 108 57 1558
Increasable
Growth
- 8 -51 1501
ANALYSIS AND INTERPRETATION
The percentage of personal recovery of NPA was increased in the year 2008 by 8% and reduced
by 51% in the year 2009 but in the next year 2010 there is an complete hike to the extent of
1558% hence the performance of the NPA recovery team work is very specially concentrated
towards the recovery of personal loan to recover the previous year losses.
Page 77
NON-PERFORMING ASSETS
GRAPH – 15
GRAPH SHOWING THE RECOVERY OF NPA FROM PERSONAL
100108 57
1558
2007200820092010
Page 78
NON-PERFORMING ASSETS
TABLE – 16
TABLE SHOWING CATEGORY WISE YEARLY RECOVERY OF THE NPA
(Rs. In crores)
PARTICULAR
2007 2008 2009 2010
Amount % Amount % Amount % Amount %
Trade
50 3% - - 31 22% - -
In SSI
248 13% 42 13% 608 39% 1741 26%
SSF
1010 54% 120 37% 659 42% 2782 41%
AGR
443 24% 30 10% 169 11% - -
Personnel
120 6% 130 40% 69 4% 1870 28%
Misec 1 - - - 35 2% 318 5%
Total 1872 100 322 100 1571 100 6711 100
Page 79
NON-PERFORMING ASSETS
% % % %
ANALYSIS AND INTERPRETATION
Above table indicates that the recovery of the NPA was decreased when compared of the year
2007 and 2008 but in the year 2009 and 2010, it was in good increasing trend, due to
considerable recovery from the SSF and the SSI. And in all the year agriculture recovery of loans
has in decreasing trend to a very negative sign due to the various changes in the state cost
policies and schemes of agricultural loans. The personal loan recover in the year 2007 and 2009
is decreased but in the year 2008 and 2010 is accepted when compared to offer recoveries.
GRAPH – 16
GRAPH SHOWING CATEGORY WISE YEARLY RECOVERY OF THE NPA
12000%6%
13000%
40%6900
%4%
187000%
28%
Personnel
2007200820092010
Page 80
NON-PERFORMING ASSETS
TABLE – 17 TABLE SHOWING THE CLASSIFICATION OF THE NPA
(Rs. In crores)
PARTICULAR
2007 2008 2009 2010
Amount % Amount % Amount % Amount %
SSA
2478 61% 3143 43% 5865 44% 1867 21%
D-1
776 19% 2185 30% 3427 26% 2711 31%
D-2
256 6% 654 9% 2241 17% 1068 12%
D-3
19 1% 349 5% 356 3% 1569 18%
LA
496 13% 941 13% 1348 10% 1622 18%
Total 4025 100% 7272 100% 13237 100% 8837 100%
Page 81
NON-PERFORMING ASSETS
ANALYSIS AND INTERPRETATION
Above table shows that the % of SSA classification of NPA is having the highest position in all
the years but it is slightly having decreasing trend from the year 2007 to 2010 upto 21% and the
loss asset is maintained consistent in year 2007 to 2006 but increased in 2009 and 2010 by 8%
and doubtful asset 3 is not having the huge fluctuation by increasing only upto 15% however
doubtful asset 1 and 2 is not showing the abnormal variation and maintaining the considerable
consistency.
GRAPH – 17
GRAPH SHOWING THE CLASSIFICATION OF THE NPA
49600% 13%
94100%
13%134800%
10%
162200%
18%
LA
2007200820092010
Page 82
NON-PERFORMING ASSETS
TABLE – 18
TABLE SHOWING THE TOTAL NPA AMOUNT WRITTEN HALF TEARLY WISE
(Rs. In crores)
PARTICULAR 2007 2008 2009 2010
Amount written
half
58 - 1035 1950
% of Trend
Changes
100 0 1784 3362
Increasable
Growth
- 100 1784 1578
ANALYSIS AND INTERPRETATION
From the above table the total written half NPA was completely nil in the year 2007 and it has
increased to an huge extent in the year 2008 and 2009 by 1578% due to the high increase in the
not recovery of NPA completed to the total advances.
Page 83
NON-PERFORMING ASSETS
GRAPH– 18
GRAPH SHOWING THE TOTAL NPA AMOUNT WRITTEN HALF TEARLY WISE
100
1784
3362
% of Trend Changes
2007200820092010
Page 84
NON-PERFORMING ASSETS
TABLE – 19
TABEL SHOWING THE CASH RECOVERY OF NPA YEARLY WISE
(Rs. In crores)
YEAR Recovery Trend Incremental
Growth
2007 1014 100 -
2008 322 32% -68
2009 485 48% 16
2010 2906 286% 238
ANALYSIS AND INTERPRETATION
Above table produces cash recovery of the NPA was increased from the year 2007 and 2008 upto
32% but it has increased in the next year 2009 and 2010 by 16% and 238%. Hence cash recovery
is showing good sign in year 2010 which improves the liquidity position of the bank of financial
statement.
Page 85
NON-PERFORMING ASSETS
GRAPH – 19
GRAPH SHOWING THE CASH RECOVERY OF NPA YEARLY WISE
2007 2008 2009 20100
10
20
30
40
50
60
70
80
90
100
10000%
32% 48% 286%
Trendseries
Page 86
NON-PERFORMING ASSETS
TABLE – 20
TABLE SHOWING THE BREAK UP OF PERFORMING AND NON-PERFORMING
ASSETS
(Rs. In crores)
PARTICULAR 2007 2008 2009 2010
Amount % Amount % Amount % Amount %
Performing 565981 99% 80187 92% 80000 86% 83785 90%
Non –
Performing
4022 1% 7272 8% 13237 14% 8837 10%
Total 570003 100% 87459 100% 93560 100% 92622 100%
ANALYSIS AND INTERPRETATION
Above table presents the increasing trend with out more variation of total advances. From the
year 2007 and 2010 of the performing assets was slightly decreasing in the year 2008 and 2009
upto 86% but it is increased in year 2010 to the extent of 90% and the non performing assets is
shown the increasing trend till year 2009 to the extent of 14% but reduced by 4% in the year
2010 however the overall variation in performing and non performing assets in negligible with in
10% which shows the good consistency in performing assets.
Page 87
NON-PERFORMING ASSETS
GRAPH – 20
GRAPH SHOWING THE BREAK UP OF PERFORMING AND NON-PERFORMING
ASSETS
56598100%99%
8018700%
92%
8000000%86%
8378500% 90%
Performing
2007200820092010
Page 88
NON-PERFORMING ASSETS
TABLE – 21
TABLE SHOWING THE AMOUNT FOR UP GRADUATION OF NPA
(Rs. In crores)
PARTICULAR 2007 2008 2009 2010
Amount % Amount % Amount % Amount %
Up Graduation 700 17% 0 0 51 3% 1855 20%
Opening
balance of NPA
4022 100% 7272 100% 13237 100% 8837 100%
ANALYSIS AND INTERPRETATION
Above table discloses the % of up graduation of opening NPA is became nil in the year 2008 and
increased from the year 2009 and 2010 up to the extent and 20% hence the NPA up graduation
was considerably improved.
Page 89
NON-PERFORMING ASSETS
GRAPH – 21
GRAPH SHOWING THE AMOUNT FOR UP GRADUATION OF NPA
70000%
17%5100%
3%
185500%
20%
Up Graduation
2007
2008
2009
2010
Page 90
NON-PERFORMING ASSETS
TABLE – 22
TABLE SHOWING THE NPA WRITTEN HALF
(Rs. In crores)
PARTICULAR 2007 2008 2009 2010
Amount % Amount % Amount % Amount %
Written Half
Amount
58 14% - 0% 1035 8% 1950 22%
Opening
balance of NPA
4022 100% 7272 100% 13237 100% 8837 100%
ANALYSIS AND INTERPRETATION
Above table shows that % of written half to the total NPA is not occupying more percentage but
slightly increasing from the year 2009 and 2010 up to extent of 22% however considerably it is
good sign from not writing of NPA without recovery.
Page 91
NON-PERFORMING ASSETS
GRAPH – 22
GRAPH SHOWING THE NPA WRITTEN HALF
5800% 14%
103500%
8%
195000%
22%
Written Half Amount
2007200820092010
Page 92
NON-PERFORMING ASSETS
TABLE – 23
TABLE SHOWING THE CLASSIFICATION OF DOUGHTFUL ASSETS
(Rs. In crores)
PARTICULAR 2007 2008 2009 2010
Amount % Amount % Amount % Amount %
D-1 776 74% 2185 67% 3427 57% 2711 51%
D-2 256 24% 654 21% 2241 37% 1068 20%
D-3 19 2% 349 12% 356 6% 1569 29%
Total 4025 100% 7272 100% 13237 100% 8837 100%
ANALYSIS AND INTERPRETATION
The total doubtful asset shows the increased trend till 2009 and decreased in the year 2010 and
doubtful asset 1 is having the highest position of % in all the four years by showing decreasing
trend upto the extent of 51% and the asset classification doubtful asset 2 is having the 2nd highest
% position and doubtful assets 3, the next below percentage position in total doubtful asset which
shown the good sign in the improvement of early recovery of NPA without more delay.
Page 93
NON-PERFORMING ASSETS
GRAPH – 23
GRAPH SHOWING THE CLASSIFICATION OF DOUGHTFUL ASSETS
77600%74%
218500%
67%342700%
57%
271100%
51%
D-1
2007200820092010
Page 94
NON-PERFORMING ASSETS
TABLE – 24
TABLE SHOWING THE LOSS ASSETS OF NPA
(Rs. In crores)
PARTICULAR 2007 2008 2009 2010
LA 496 941 1348 1622
Trend % 100 190 272 327
Increasable
Growth
- 190 82 55
ANALYSIS AND INTERPRETATION
From the above table the loss asset of NPA was showing the high increasing trend from the year
2007 to 2010 by 90%, 82% and 55% respectively to the extent of 327% due to the high level of
advances and NPAs.
Page 95
NON-PERFORMING ASSETS
GRAPH – 24
GRAPH SHOWING THE LOSS ASSETS OF NPA
496
941
1348
1622
LA
2007200820092010
Page 96
NON-PERFORMING ASSETS
TABLE -25
TABLE SHOWING THE ADDITION TO THE NPA
(Rs. In crores)
YEAR 2007 2008 2009 2010
Addition to
NPA
288 3362 7536 2311
Trend % 100 1167 2616 802
Increasable
Growth
- 1067 1449 -1814
ANALYSIS AND INTERPRETATION
Above table discloses the % of addition to the NPA was enormously increasing from the year
2007 to 2009 by 1449% but in the year 2010 it has decreased in the some proportionate of
1814% with out any consistency due to the less non recovery of the actual and written half NPA.
Page 97
NON-PERFORMING ASSETS
GRAPH -25
GRAPH SHOWING THE ADDITION TO THE NPA
2883362
7536
2311
Addition to NPA
2007200820092010
Page 98
NON-PERFORMING ASSETS
Page 99
NON-PERFORMING ASSETS
FINDINGS:
Risk of loss is present in every business both profit and loss are the faces of same coin. Banks are
above not exceptional it is not a sin to increase such losses. To day NPA loss become major
problem for the banks. They are turning the banks from profit making to loss incurring.
The position of NPA was increased in the year 2008 which was the due to drought condition
in the short.
Total deposits are increased in the year 2008-2007 due to increase in the personal domestic
deposits to the bank.
Non – performing assets of SSI small scale industries has increased in the year 2009 due to
slow down of industrial sectors and in next years it is improving.
The NPA of agriculture is high in 2004 became of the more unseasonable climate to the
farmers.
The personnel non performing assets who increased in the year 2008 because of more
lending of advances to the personal.
The NPA of small scale industries is reduced in 2009 due to good working condition of the
production and marketing strategies.
The personnel NPA loss reduced in the year 2009 due to the effective up graduation of
accounts.
The total recovery of the NPA is increased in the year 2009 due to effective bank recovery
policies towards SSI and personnel loans.
The agricultural recovery of NPA has became nil in the year 2009 because of high changes in
the table cost policies.
The bank advances towards trade in competitively very less due to the move defaulters.
The sub-standard asset is losing the high position in all the four years in decreasing trend due
to increase of doubtful asset.
Loss asset is slightly increased in the year 2009 due to recovery in agriculture and
miscellaneous which effects the liquidity position of bank.
Page 100
NON-PERFORMING ASSETS
The written of NPA is very high in the year 2009 and it has nil in the year 2007 due to
fluctuation in NPA and recovery.
The cash recovery is improved in 2009 compared to all four years.
The performing assets are improving from year to year due to the very considerable changes
in the NPA.
The up-graduation of assets is nil in the year 2007 and slightly increased in 2009.
The doubtful asset is decreased in 2009 because of doubtful asset 2 and 3 is slightly
increasing which affection current asset of the bank.
The addition to NPA is decreased in 2009 due to good recovery and credit rating.
In general analysis made if is found that the working results of Tumkur Grain Merchants Co-
operative Bank for the year ended is satisfactory.
In general analysis made it is found that this bank lend loans viz., primary seconding and
territory sectors.
Page 101
NON-PERFORMING ASSETS
SUGGESTIONS AND RECOMMENDATIONS
Page 102
NON-PERFORMING ASSETS
The Tumkur Grain Merchants Co-operative Bank” Limited is financial institutions provide loans and advances to a needy persons. Based on the analysis of study, following are the suggested measures towards effective management of Non-performance assets such as,
The following suggestions will enable the bank to reduce NPA if implemented.
Bank has to ensure quality of advances and obtain sufficient securities and the time of
sanctioning loan.
Branches of TGMC has to constantly observe the borrower accounts and if there is any signs
of an account becoming NPA like bouncing cheques and brought to the notice of higher ups.
Serious attempts should be made to recover the amount when it is suspected as full due.
The properties of the willful defaulters must be confiscated or attached in order to realize the
dues to the banks.
The political – cum – bank defaulters must be imposed at least 10 times higher penalty. Fine
and imprisonment than ordinary. Defaulters this will enhance the creditability of banking
system as well as the ethical values in the society.
Suitable amendments to the existing laws must be made to enable the bankers to initiated
legal proceedings against the willful defaulters. Eg: Indian penal code, criminal procedure
code, Indian evidence act, Hindu laws constitution of India etc.
Fast track courts must be established to nab the corporate criminals especially. Institutional
defaulters in the criminal courts.
Term for repayment of loan must be increased so that the installment comes down and
customers can pay their loan regularly.
Bank has to explore the possibilities of obtaining insurance covers of the life of the borrower
so that in case of death of the borrower the entire loan amount or the portion of the loan
amount can be adjusted through the insurance claim.
A very close report should be maintained with customers so that banks can access the
financial strength.
Page 103
NON-PERFORMING ASSETS
Compromises strategies should not be introduced to all kinds of loans because it may push
even the capable borrowers who can afford to repay to compromise.
Credit rating by senior staff of the bank in all branches has to be made and recovery officers
regarding identification and recovery of debts should be made.
Targets for recovery and reduction of NPA should be given to the staff and their efforts must
be suitably rewarded by way of incentives.
A separate department called project appraisal departments should be set up in each branch.
Highly qualified professional who has expertise knowledge in that field should head it so that
potential NPA’s can be avoided.
Page 104
NON-PERFORMING ASSETS
CONCLUSION:
The commercial banks have already realized that a strong capital ratio. By itself may not ensure
future profitability which depends significantly on the quality of assets an improvement in assets
quality is fundamental to strengthening the working of banks and improving their financial
viability. Keeping in mind this review, the RBI initiated a series of measures to reduce the NPA
Page 105
NON-PERFORMING ASSETS
which yielded a very little result during the last decade. 2007-2009 however the government
needs to take a proactive role by reducing legal bottlenecks involved in NPA recoveries
strengthening debt recovery tribunals and considering its policies on priority sector lending.
The Tumkur Grain Merchants Co-operative Bank is performing effectively in spite of facing
competition from other public sector and private sector banks, The Tumkur Grain Merchants Co-
operative Bank initiatives to bring down NPA have yielded substantial results and a suit more
little efforts, can help it to have nil NPA.
Page 106
NON-PERFORMING ASSETS
ANNEXURE
INTERVIEW SCHEDULE
1. According to you what are the losses for the occurrence of non performing assets in the
bank?
Page 107
NON-PERFORMING ASSETS
2. What are the ways to present NPA before it could occur, if it is occurred what are the steps to
be taken to control them?
3. What is the amount of cash recovery made on non performing assets?
4. What is the amount of NPA written it?
5. How is the credit reeling of the advances are helpful in controlling the non performing
assets?
6. Which sector wise classification of advances consists of highest non performing assets?
a. Agric
b. SSI
c. C & IS
7. What are the reasons for the increase the non performing assets in the year 2007?
8. What are the steps taken to recover NPA by the bank?
9. How effective in the local data, asset reconstruction agencies or companies?
10. What is the rate of interest of different sector?
QUESSIONNAIRE
Name of the Bank: ____________________________________
Address of the Bank: _____________________________________________________
Page 108
NON-PERFORMING ASSETS
_____________________________________________________________________________
_________________________________________________________________
1. Does your Bank have Non Performing Assets (NPA)?
Yes No
2. What is the percentage of NPA’s in the year?
2007____________ 2008____________
2009____________ 2010____________
3. What are the reasons for NPA’s? (Chose which ever is appropriate).
Non recovery of loans High Interest Rates
Low collateral Poor Credit Appraisal
4. What measures have you undertaken to manage NPA’s?
Recovery through Recovery through
legal actions one time settlement
Securitization Credit Market
5. Which type of loans contributes to the majority of loan amount?
Industrial Loans Trade Loans
Personal Loans
Page 109
NON-PERFORMING ASSETS
6. Which type of Loans mostly results to NPA’s?
Industrial Loans Trade Loans
Personal Loans
7. What are the effects of NPA’s on profitability?
High Moderate Low
8. What are the effects of Autonomy?
High Moderate Low
9. What are the effects of NPA’s on Balance Sheet?
High Moderate Low
10. What are the effects of NPA’s on Interest rate?
High Moderate Low
11. Are you aware of the steps taken by RBI to control of increasing NPA’s?
Yes No
Page 110
NON-PERFORMING ASSETS
11. What are the implications of NPA’s on the overall functioning of Bank?
Reduction in interest Income High Level of Provisioning
Stress on Profitability Capital Adequacy
12. Have you approached any of these for the recovery of NPA’s?
Asset reconstruction
Corporate Dept. Restructuring
Dept Recovery Tribunals
Others (specify)
13. Please give suggestion to reduce NPA in Co-operative Bank?
___________________________________________________________________
___________________________________________________________________
BIBLIOGRAPHY
BOOKS:
TITLE AUTHOR PUBLISHER
Page 111
NON-PERFORMING ASSETS
Advanced financial B.S. Ramaiah Writhed Publisher
Accounting
Banking theory and Dr. P.K. Srineshe Himalaya Publishing
Profile
JOURNALS
RBI bulletin
INTERNET
www.originofbankingsystem.com
www.RBI.com
www.bankofindia.com
www.indiabankingsystem.com
Page 112