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TABLE OF CONTENTS

Chapters

1. INTRODUCTION

Rationale behind the study

Objectives behind the study

Hypothesis of the study

Research Methodology

Limitation of the study

2. INTRODUCTION TO CO-OPERATIVE BANKING

Origin of the Co-Operative Banking

Structure of the Co-Operative Banking

The PACS

State Co-Operative Banking

The NABARD

3. THE PROFILE OF THE ORGANIZATION

Establishment of the BSCB

Organizational Set-up

Operational Efficiency and future program

Types of Loans given by the bank

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4. NPA AND ITS MANAGEMENT WITH REFERENCE TO BSCB

About the NPAS

Income Recognition concept

Asset Classification

Provisioning

NPAS in BSCB

Reasons for NPAS in banks

Steps for preventing NPAS

5. ANALYSIS AND INTERPRETATION OF DATA

Financial position of the Bank

Year wise NPA of the Bank

Data at a glance

6. CONCLUSION AND SUGGESTIONS

Conclusion

Suggestion

BIBLIOGRAPHY

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RATIONALE BEHIND THE STUDY

A strong banking sector is important for flourishing economy. The

failure of the banking sector may have an adverse impact on other

sectors. NPAS reflect the performance of banks. A high level of NPAS

suggests high probability of a large number of credit defaults that affect

the profitability and net-worth of banks and also erodes the value of the

asset. The NPA growth involves the necessity of provisions, which

reduces the over all profits and shareholders value. The problem of

NPAS is not only affecting the banks but also the whole economy. In

fact high level of NPAS in Indian banks is nothing but a reflection of the

state of health of the industry and trade NPA is one of the foremost and

the most formidable problems that have shaken the entire banking

industry in India like an earthquake. At macro level, NPAS have chocked

off the supply line of credit the potential borrowers, thereby having a

deleterious effect on capital formation and arresting the economic activity

in the country. At micro level, the sustainable level of NPAS has eroded

the profitability of banks through reduced interest income and

provisioning requirements, besides restricting the recycling of funds

leading to serious asset liability mismatches.

On 16th March, 1914 The Bihar State Co-Operative Bank was

established to meet the difficulties arising out of the absence of banking

facilities in this region and help agriculture, industry and in general the

progress of the region.

The Bihar State Co-Operative Bank is one of the largest Banks in

India. The Bank has adopted a prudential approach to the valuation of its

assets and is focusing on bringing down the level of its non-performing

assets.

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NPAS should be controlled and necessary steps should be taken to

earn more profit. The main aim behind making this report is to know

how The Bihar State Co-Operative Bank is operating their business and

how NPAS play its role to the operations of the Public Sector Banks. The

report NPAS are classified according to the sector, industry, and state

wise. The present study also focuses on the existing system in India to

solve the problem of NPAS.

That’s why the study of NPAS become necessary due to the below

mentioned reasons:

They erode current profits through provisioning requirements.

They result in reduced interest income.

They require higher provisioning requirements affecting profits and

accretion to capital funds and capacity to increase good quality risk

assets in future, and

They limit recycling of funds, set in asset-liability mismatches, etc.

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OBJECTIVES OF THE STUDY

Primary Objective

To find out trend of NPAS of The Bihar State Co-Operative Bank.

Secondary Objectives

To ascertain the reasons for advance becoming NPAS.

To explore the strategies, how to manage minimum NPAS in Bank.

To analyze the growth rate of the Bank.

To analyze the NPA and its relation with operating profit of the

bank.

To study the general reasons for assets become NPAs.

What are the methods adopted by the bank to look after NPA

management.

HYPOTHESIS OF THE STUDY

These are the hypothesis behind the management of NPAS:-

NPAS in banks is increasing day by day.

NPAS Management has the vital role in the profitability of

the Bank.

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RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the

research problem; it may be understood as a science of studying how

research is done scientifically. So, the research methodology not only

talks about the research methods but also considers the logic behind the

method used in the context of research study.

Data Collection

Primary sources: The Primary sources were preferred through

direct discussion from the Executives of the organization.

Secondary sources: The secondary sources were adopted

wherever possible. It will include financial data obtained mainly

form the;

a) Annual Reports

b) Newspapers & Journals

c) Websites

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LIMITATIONS OF THE STUDY

The limitations of the training were as follows:

Non-availability of rare data.

The analysis and interpretation are based on secondary data

contained in the annual reports of the Bank.

The study of financial performance & NPAS can be only a means

to know about the financial condition of the bank and can’t show

the through picture of the activities of the Bank.

Time is an important limitation. The period of training is six

weeks, which is not sufficient to carry out proper interpretation and

analysis.

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A co-operative bank is a financial entity which belongs to its members,

who are at the same time the owners and the customers of their bank. Co-

operative banks are often created by persons belonging to the same local

or professional community or sharing a common interest. Co-operative

banks generally provide their members with a wide range of banking and

financial services (loans, deposits, banking, accounts…). In India Co-

operative banks are regulated with the RBI and governed by Banking

Regulations Act 1949 and Co-operative societies Act, 1965. Having

made significant strides in the field of rural credit through its short and

the long-term structures, it continues to play a crucial role in

dispensation of credit for agriculture and rural development. Though

commercial banks after nationalisation and later on RRBs have entered

the rural areas, but cooperative banks still continue to enjoy an important

place in the rural credit scenario. The cooperative credit societies at the

grassroots level are intended not only to cater to the creditor requirements

of the members but also to provide several credit linked services like

input supply, storage and marketing of produce, supply of consumer

goods etc. Keeping in view the importance of cooperative banks and

credit societies, several committees, from the All India Rural Credit

Survey Committee to the latest Vaidyanathan Committee, have stressed

the need for major role of cooperatives in providing credit and allied

services in the rural sector.

The process of economic reforms began in India during 90’s

and the cooperative banking though being the integral part of the

financial system of the country, was kept insulated from the effects of

these reforms. Realising that a healthy financial system being the pre-

requisite for the success of globalisation process, Govt. of India

initiated several steps to reform the financial system by appointing

Narsimhan Committee and implementing its recommendations. But

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the cooperative banking was left out of the gambit of this process.

However, the financial discipline such as the recommendation of

Basel Committee on Bank Supervision, prudential norms, NPA norms

Capital Adequacy norms etc. were expected to be complied with on

par with other commercial banks. In case of cooperative banking

System also attempts were made for its reform by appointing Kapoor

Committee, Vikhe Patil Committee and Vyas Committee but no serious

attempts were made to implement the recommendations of these

committees. Keeping in view, the distinct nature of cooperative banking,

it is the need of the hour to assess the regulatory, structural,

operational and financial requirements to restore their growth and

development on sound lines in the competitive business environment.

HISTORY

The bank was formed in 1872 in the city Manchester in UK. The co-

operative banks in INDIA have a history of almost 100 years. The Co-

operative banks are an important constituent of the Indian Financial

System. 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 (Co-operative societies) Act, 1965. These banks were

conceived as substitutes for money lenders.

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ESTABLISHMENTS

Co-operative bank performs all the main banking functions of

deposit mobilization, supply of credit and provision of remittance

facilities.

Co-operative Banks belong to the money market as well as to the

capital market.

Co-operative Banks provide limited banking products and are

functionally specialists in agriculture related products. However,

co-operative banks now provide housing and other loans also.

UCBs provide working capital loans term loan as well.

FEATURE

Customer-owned entities: In a Co-operative bank, the needs of

the customers meet the needs of the owners, as Co-operative bank

members are both.

Democratic member control: Co-operative banks follow the

principle of “one person, one Vote”.

Profit allocation: Profit is usually allocated to members which is

related to the number of shares subscribed by each member.

Co-operative Banks are organized and managed on the principal of

co-operation, self-help, and mutual help. They work on the basis

of “no profit no loss”. Profit maximization is not their goal.

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Co-operative bank do banking business mainly in the agriculture

and rural sector. However, UCBs, SCBs, and CCBs operate in

semi urban, urban, and metropolitan areas also.

The State Co-operative Banks (SCBs), Central Co-operative Banks

(CCBs) and Urban Co-operative Banks (UCBs) can normally

extend housing loans upto Rs 1 lakh to an individual. The

scheduled UCBs, however, can lend up to Rs 3 lakh for housing

purposes. The UCBs can provide advances against shares and

debentures.

Finance Function:

1. Co-operative banks in India finance rural areas under-

Farming

Cattle

Milk

Personal finance

2. Co-operative banks in India finance urban areas under-

Self-employment

Industries

Small scale units

Home finance

Consumer finance

Personal finance

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CLASSIFICATION

Some co-operative banks are scheduled banks, while others are

non-scheduled banks. For instance, SCBs and some UCBs are scheduled

banks but other co-operative banks are non- scheduled banks. Co-

operative Banks are subject to CRR and liquidity requirements.

However, their requirements are less than commercial banks.

Sr. no Category of bank Minimum SLR holding in Government

and other approved securities as

percentage of Net Demand and Time

Liabilities(NDTL)

1. Scheduled Banks 25%

2. Non Scheduled Banks

a) with NDTL of

Rs. 25 crore &

above

b) with NDTL Of

less than 25

crore

15%

10%

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RECENT DEVELOPMENTS

Over the years, primary (urban) co-operative banks have registered

a significant growth in number, size and volume of business handled. As

on 31st march, 2003 there were 2,104 UCBs of which 56 were scheduled

banks. About 79% of these are located in five states, - Andhra Pradesh,

Gujarat, Karnataka, Maharashtra and Tamil Nadu. According to sources

the total deposits & lending’s of Co-operative Bans in India are much

more than Old private sector banks & also the New Private Sector Banks.

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The PACS

The Primary Agricultural Credit Societies (PACS) constitute the `hub’ of

the Indian co-op movement. Every fourth co-operative in India is a

primary credit society. The main objectives of a PACS are:

To raise capital for the purpose of giving loans and supporting the

essential activities of the members.

To collect deposits from members with the objective of improving

their savings habit.

To supply agricultural inputs and services to members at

remunerative prices.

To arrange for supply and development of improved breeds of

livestock for the members.

To make all necessary arrangements for improving irrigation on

land owned by members.

To encourage various income-augmenting activities such as

horticulture, animal husbandry, poultry, bee-keeping, pisciculture

and cottage industries among the members through supply of

necessary inputs and services.

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The DCCBs

The PACS are affiliated to the District Central Co-operative Banks

(DCCBs) who perform the following functions.

o Serve as balancing centre in the district central financing

agencies

o Organise credit to primaries

o Carry out banking business

o Sanction, monitor and control implementation of policies

State Co-Operative Banking (SCBs)

The DCCBs in turn are affiliated to State Co-operative Banks (SCBs),

which perform the following functions.

o Serve as balancing centre in the States

o Organise provision of credit for credit worthy farmers

o Carry out banking business

o Leader of the Co-operatives in the States

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Network of Agricultural Co-operative Societies

(Production Credit)

National Federation Of State

Cooperative Banks

State Cooperative Banks

(31)

District Cooperative Banks

()

Farmers

service Co-

operative

Societies

Primary

Agricultural

Co-operative

Societies

Large Size

Multi-

Purpose

Coop

The National Federation of State Co-operative Banks

The NCUI information brochure lists the following functions for the

National Federation of State Co-op Banks.

Provides a common forum to the member banks.

Promotes and protects the interests of the member banks.

Co-ordinates and liaison with GOI, RBI, National Banks and

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Provides research and consultancy inputs to the member banks.

Organises conferences/seminars/workshops/meetings.

The NABARD

However, the refinance of all the constituents in the above organ gram

(except the National Federation of State Co-operative Banks) is done by

the National Bank of Agriculture and Rural Development (NABARD),

which was set up in 1982 by the Government of India with the following

mandate.

To serve as a refinancing institution for all kinds of production and

investment credit to agriculture, small scale industries, cottage and

village industries, handicrafts and rural crafts and rural artisans and

other allied economic activities with a view to promoting

integrated rural development;

To provide short-term, medium-term and long-term credits to state

Co-operative Banks (SCBs), RRBs, LDBs and other financial

institutions approved by RBI;

To give long-term loans (upto 20 years) to the State Governments

to enable them to subscribe to the share capital of co-operative

credit societies;

To give long-term loans to any institution approved by the Central

Government or contribute to the share capital or invest in securities

of any institution concerned with the agriculture and rural

development;

Responsibility of coordinating the activities of Central and State

Governments, the Planning Commission and other All-India and

State Level Institutions entrusted with the development of Small

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Scale Industries, Village and Cottage Industries, Rural Crafts,

Industries, in the tiny and decentralized sectors etc.;

Responsibility to inspect RRBs and co-operative banks, other than

primary co-operative banks; and

To maintain a research and development fund to promote research

in agriculture and rural development to formulate and design

projects and Programme to suit the requirements of different areas

and to cover special activities.

OVERVIEW:

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OUT REACH OF COOPERATIVES:

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Bihar State Co-operative Bank Ltd., Patna

Information about the Bank

1. Establishment:

The Bank was registered under the Co-operative Societies Act II of 1912 on

16.03.1914. Its registration no. is 267/1913-14. Its founder members were as

follows:

Maharaja Bahadur Guru Mahadev Sharan Prasad Shahi (Hathua)

Raja Bahadur Kritya Nand Sinha, (Banaili)

Rai Bahadue Harihar Prasad Narayan Singh (Dumraon)

Raja P.C.Lal (Purnea)

The Banking Regulation Act, 1949 was made applicable to this Bank on

01.03.1966 like other Co-operative Banks.

The Bank was included in the second schedule of RBI like some other

Commercial and Nationalized Banks in the month of July 1966. Thus this Bank

is a scheduled Bank.

2. Organizational Set-up:

(i) Board:

In terms of amended Bihar Co-operative Societies Act, 2002, total no. of Board

of Directors is 17. Against the above 17 members, 2 posts are reserved for SC

members, 2 for Backward and 2 for women. Three are ex-officio members i.e.

RCS, CGM, NABARD, Regional Office and Managing Director of the Bank.

Out of above 17, 4 posts are vacant under reserve category.

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Existing Board of Directors:

Sl. No. Elected/Co-opted Members

1 Shri Satyendra Narain Singh Chairman

2 Shri Vishal Kumar Director

3 Shri Ram Chandra Prasad,M.L.C. Director

4 Shri Suresh Chaudhary,Advocate Director

5 Shri Vinay Kumar Shahi Director

6 Shri Madan Mohan Yadav Director

7 Smt.Manorma Devi Director

8 Shri Shailendra Kumar Director

9 Shri Navendu Jha Director

10 Shri Sheonarayan Pd Mishra Director

Ex-Officio Members

11 Registrar, Co-operative Societies, Bihar Director

12 Managing Director of BSCB Director

13 C.G.M.,NABARD, Regional Office, Patna Director

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Administrative & Organisational Structure of Cooperative Department.

Secretary

Addl. Secretary/Joint Secretary

RegistrarCooperative Societies

Dy. Secretary Head Quarter

Field Offices

Addl. Registrar/ Joint Registrar, CS

Dy. RCS, CS Public Relation Officer

Dy. Director (Statistics)

AccountsOfficer

Div. Joint Registrar (Audit) Dy. Chief Auditor CS

Div. Joint Registrar, CS

Dist. Coop. Officer

MD, DCC Bank

Dist. Audit Officer

Sub. Div. Audit Officer

Sr. Audit Officer

Dy. Director Stat.

Statistical Officer.

Asst. Registrar, CS

Coop. Extension Off.

General Manager

Under Secretary

Spl. Officer (Consumer)

Assistant Registrar

PATNA

(ii) Staffing Pattern:

Officers of the Bank have been re-designated in terms of RCS letter no. 3261

dated 23.03.1988 like Commercial Banks i.e. General Manager, Dy. Gen.

Manager, Asstt. Gen. Manager, Manager, Deputy Manager, Asstt. Manager and

Staff Officer. Besides above there are Assistants and Class IV employees i.e. peon,

Night Guards and Drivers etc.

There is acute shortage of hand especially in the higher cadre. As against

the total sanctioned strength of 264, the existing no. of regular employees are 181.

Besides above regular employees, a total no. 50 employees have been taken on

deputation and contractual basis.

(iii) Number of branches:

There are altogether 16 branches of the Bank out of which 11 are located in the

Bihar State jurisdiction and 5 are located under the jurisdiction of Jharkhand State.

(iv) Affiliated DCCBs:

Previously, 34 DCCBs were affiliated with the Bank out of which one under the

jurisdiction of Jharkhand State i.e. Daltanganj and three under the jurisdiction of

Bihar State i.e. Chapra, Darbhanga and Madhepura have been bound up by the

RBI.

Accordingly, these DCCBs are presently under liquidation as per the order

of RCS. Thus there are only 30 DCCBs functional at present, affiliated to this

Bank. Out of 30, 22 DCCBs are under the jurisdiction of Bihar State and 8 DCCBs

are under the jurisdiction of Jharkhand State. Out of 22 DCCBs functional in the

Bihar State, 18 DCCBs are not complying with the provisions regarding minimum

capital requirement i.e. Section 11 (1) of B.R.Act.

Four DCCBs which are complying with the provisions of Section 11(1) of

B.R.Act are Arrah, Patliputra, Bhagalpur and Gopalganj. Out of 18 DCCBs not

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complying with the provisions of Section 11 (1), 11 DCCBs namely Purnea,

Rohika, Aurangabad, Magadh, Sasaram, Katihar, Vaishali, Bettiah, Siwan and

Muzaffarpur have been issued Show-Cause notice by the RBI as to why their

license application should not be rejected.

3. Operational Efficiency and future programs:

Bank has improved its operational efficiency during the last 2-3 years. The

employees of the Bank are being sent to BIRD and other training institutions, for

imparting training. Some new recruitment on contractual basis have also been

made of the persons having technical qualification like MBA, MCA, BCA etc. to

improve the operational efficiencies.

Some other efforts have also been made by the Bank for improvement in the

present efficiencies of the Bank viz:

Premises of Head Office as well as all the seven branches located at Patna

have been renovated and modernized. Modernization of the other outstation

branches are also under process.

Computerization of all its branches except Motihari and Bihat have been

finalized. Computerization of above two remaining branches as well as

Head Office is under process.

The Bank has also started Government security trading to increase its

profitability.

The Bank has a proposal to install ATM at some inside/off-site location at

Patna.

4. Constraints:

(i) Shortage of Manpower:

There is a shortage of manpower especially in the higher cadre of the Bank

affecting the efficiency and progress of the Bank adversely. The vacancy in the

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higher cadre has to be filled up by promotion for which roster clearance is

essential. The Bank has already made a correspondence for the same.

In the mean time, Bank has a proposal to fill up the vacancy under higher

cadre i.e. Dy. Gen. Managers by taking officers on deputation basis from the

State Government for which also the correspondence has been made.

TYPES OF LOAN GIVEN BY THE BANK:

CURRENT RATE OF INTREST

SI.NO NAME OF THE SCHEME RATE

1. CONSUMER LOAN 12%

2. PERSONAL LOAN 12%

3. CASH CREDIT/TERM LOAN 12.50%

4. OVER DRAFT LOAN 14%

5. CAR LOAN 11%

6. HOUSING LOAN 8.50%

7. SMALL ROAD TRANSPORT OPERATOR LOAN 12%

8. GOLD LOAN 11%

9. EDUCATION LOAN 12%

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TYPES OF ADVANCE ACCOUNTS MAINTAINED BY BRANCH PATNA

1. Cash Credit/ Overdraft

2. Advance Against the security of deposits

3. Advance Against approved security of National Savings certificate/

Indra Vikas patras/ Kissan Vikas Patras.

4. Installment payment scheme

5. Demand Loan

6. Housing Loan

7. Staff Loan

a) Festival Loans

b) Demand Loans

c) Housing Loans

d) Consumer Loans

e) Vehicle Loans

f) Office Furniture Loans

8. Consumer Loan

9. Educational Loan

The Loan accounts are classified under the two heads namely.

i. Secured Advances

ii. Unsecured Advances

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CLASSIFICATION OF ADVANCES

As far as advance portfolio is concerned there has been steady growth

since 1993 onwards. The advances accounts are classified according to the

norms laid down into priority sector Advances andA Non-Priority sector

Advances.

PRIORITY SECTOR ADVANCE:

The priority sector advances includes the following category of advance

accounts:

1. Agriculture and Allied Activities

2. Small Scale Industries(SSI)

3. Road & Water Transport Operators(RTO)

4. Retail Traders(RT)

5. Small Business(SB)

6. Professional & Self Employed(P&S)

7. Housing Finance(HF)

NON-PRIORITY SECTOR ADVANCES:

It included the following category of advance accounts:

1. Non Priority Agriculture

2. Medium & Large Industries

3. Traders & Businessman

4. Leasing & Hire Purchase Companies

5. Akbari Contractors

6. Other Contractors

7. Shares/Debentures

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8. Against Deposits

9. Against approved securities(like NSC, LIC, Govt. securities, UTI)

10.Housing Finance

11.Real Estate

12.Consumer Loans

13.Others

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ABOUT THE NPA

An asset is classified as Non-performing Asset (NPA) if due in the form of

principal and interest are not paid by the borrower for a period of 90 days. If

any advance or credit facilities granted by banks to a borrower become non-

performing, then the bank will have to treat all the advances/credit facilities

granted to that borrower as non-performing without having angry regard to

the fact that there may still exists certain advances/credit facilities having

performing status.

Though the term NPA connotes a financial asset of a commercial

bank, which has stopped earning an expected reasonable return, it is also a

refection of the productivity of the unit, firm, concern, industry and nation

where that asset is idling. Viewed with this perspective, the NPA is a result

of an environment that prevents it from performing up to expected levels.

The definition on NPAs in Indian context is certainly more liberal with two

quarters norm being applied for classification such assets. The RBI is

moving over to one-quarter norm from 2004 onwards.

NPAs MEANING:

o A NPA is a loan or an advance where Interest and/or installment

of principal remain overdue for a period of more than 90 days in

respect of a term loan.

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o The debt remains outstanding for 90 consecutive days or more

beyond the scheduled payment date or maturity.

o The debt exceeds the borrower’s approved limit for 90

consecutive days or more.

o Interest is due and uncollected for 90 days or more, or

o For overdrafts, the account has been inactive for 90 consecutive

days and/or deposits are insufficient to cover the interest capitalized

during the period.

HOW NPA GET PLACE IN BANKING SYSTEM

A committee was set up under the chairmanship of Mr. M.

Narsimham, Dy. Governor Reserve Bank Of India, to examine the existing

structure of the financial system and its various components and to make

recommendation for improving the efficiency and effectiveness of the

system with particular reference to the economy of operation, accountability

and profitability of the commercial bank and financial institutions.

In pursuance of the RBI’s decision to accept, with certain

modification, the recommendation of Narsimham Committee’s report of

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“Financial System” RBI has issued on 27th April 1992 the guideline on

Income Recognized taking into the prospectus of reliability of the security.

Bank creates asset for earning income from their loans and advances

and this forms a major part of bank’s asset. These assets generate income in

the form of interest on them. An asset which generates income is said to be

performing asset and the one which does not generate income is called NPA.

The realization of either will make the account NPA. An asset will be

considered Non Performing if interest on such asset remains past dues for a

period non exceeding 90 days as per prudential norms in Income

Recognition as stipulated by RBI.

The prudential norms for loans and advances can be divided into 3

parts.

They are as follows:

a) INCOME RECOGNITION

b) ASSET CLASSIFICATION

c) PROVISIONING

INCOME RECOGNITION

INCOME GENERATION:

Bank creates asset for earning from them.

Loans and advances from a major part of bank assets. This performance one

expects from an asset is the generation of income. As asset which generates

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income is said to be a performing asst and the one which does not generate

income is therefore, called NPA.

RECOVERY BASIS:

Debiting of interest in the account is not he same

as generation of income. In order to consider the debited interest as income

in its true sense, credit to the account, enough to cover the debited interest is

necessary. In other words, interest can be considered as income only when it

is realized.

ACCURUAL BASIS:

Banks debit interest to loans and advances

regularly at a fixed periodicity. The interest so debited to the account does

under ordinary circumstances get credited to the bank’s income head in

profit and loss account. The interest so debited to the account gets remitted

subsequently in accordance with the term and conditions of the loan

agreement. Here the crediting of interest to the income account takes place

before the interest gets realized.

NON PERFORMANCE:

When credits reduces to a trickle or stop

altogether, leaving the debited interest uncovered or unrealized, the account

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may soon come to stage where the account can no more be considered as

generating income. In other words, the account is therefore known as NPA.

The realization of interest as well as the realization of principal

amount is equally important. For an account to be considered performing,

but interest and principal have to be realized as per the term of agreement,

non-realization of either will make the account non-performing.

The RBI in their prudential norms of Income Recognition have

stipulated the period of default as two quarters during which the accounts to

be treated as performing assets on completion of which the account will be

treated as non-performing if the non-payment persists.

NON PERFORMING ASSET (NPA)

A credit facility should be

treated as NPA if interest or installment of Principal has remained past due

for a period 90 days. As per norms of Income Recognition the total fund

based credit facilities as divided 3 broad groups. They are as follows:

1) TERM LOAN

2) CASH CREDIT/ OVERDRAFT

3) OTHER ACCOUNT

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The three types of account are different from each other in many aspects,

especially in disbursement as well as repayment. In order to solve the

deficiency of the general definition of NPA the RBI has given different

groups. They are as follows:

TERM LOANS:

Term loans cover all those credit facilities where

repayment is scheduled in periodical installments. A term loan should be

treated as NPA if interest or installment of principle has remained past due

for 90 days. The stipulation that if interest or installment of principle is in

arrears for any 90 days of the four quarter the credit facilities should be

treated as NPA although the default may not be continuously for two

quarters during the year have been relaxed by RBI vide circular dated 29 th

January 1997, according if the account is regularized on the balance sheet

date, the account need not be treated as NPA for a major part of the financial

year. Identification of NPA for a major part of the financial year.

Identification of NPA is to be done on the basis of the position as on the date

of balance sheet.

APPROPRIATION OF CREDIT:-

There are several options for appropriating of a credit in a term loan.

They are as follows:

PRIORITY:-

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The bank has the discretion to decide the priority at which a credit is

to be appropriated towards interest, installment and other dues. Fees,

commission and such other non interest income get the lowest priority as

default of these items will not an account Non-Performing Assets.

OPTION:-

The credit can be appropriated towards interest as well as installments

according to the chronological order in which they fell due for payment.

The date on which an interest or installment fell due for payment, will

determine the priority it gets in the appropriation of a credit.

Another option is to appropriate the credit first towards interest and

after extinguishing all the dues of interest, towards installments which are

due.

Yet another option is to appropriate the credit first towards due of

installment and then towards due of interest and last towards the non-interest

income.

However, in a term loan which is already treated as Non-Performing

Asset any credit ought to be appropriated first towards interest and then

towards installments, unless the credit is sufficient to bring the account of

NPA status, in which case, the credit should be brought out of Non-

Performing status.

CASH CREDIT/ OVERDRAFT:

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A cash credit or overdraft will be

treated as NPA if the account remains “OUT OF ORDER” for a period of 90

days.

The RBI vides their circular no. B.P.B.C 3/21-04.048/97 dated

29.01.1997 has clarified that a cash credit/overdraft account need not be

classified as NPA merely due to the existence of some deficiencies, which

are of temporary nature such as non-availability of adequate drawing power,

balance exceeding the limit, non-submission of stock statement and on

renewal of doubt, then it should be classified as NPA.

In the light of the above mentioned amendment made by RBI over

cash credit/overdraft account will be considered as NPA when the

outstanding balance remains continuously in excess of the sanctioned limit/

drawing power but there are not credits continuously for six months or credit

are not enough to cover the interest debited during the same period.

It is on the Balance Sheet (and on any date before it) that a cash

credit/ over draft account is to be treated as out of order if there are no

credits during the six months period as on the date of Balance sheet, or if the

credit are not enough to cover the interest debited during the same period.

OTHER ACCOUNT:

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There are other credit facilities which can be

converted into NPA according the stipulation that particular advances made

by the bank.

TERM LOAN- Term loan has been financed SIDBS. The

payment of term is 18 months. This can be refinanced by that institution.

MEDIUM TERM LOAN- This loan is financed for up to 3

years and its installment should be paid within 3 crop session otherwise it

would come into the preview of NPA.

SHORT TEM LOAN- It is financed to 1 crop year and is

recoverable to within crop season.

CATEGORIES EXEMPTED FROM PRUDENTIAL NORMS

Advances against the following items are not treated as NPA:-

1. Term Deposits

2. National Savings Certificates Eligible For Surrender

3. Indra Vikas Patras

4. Kissan Vikas Patras

5. Life Insurance Policies

The Bank making advances against the security of aforesaid items are

exempted from provisioning requirements. Even if interest is not paid for 90

days the account need to be treated as Non-Performing Assets. Interest on

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such accounts can be taken to the income account on accrual basis, on the

due dates, provided adequate margin is available.

Industrial projects where moratorium/repayment-holiday/gestation

period is available for payment of interest as well as installment, such

amount of interest do not become “past due” with reference to the date of

debit interest. In such cases interest need not be considered “past due” from

the first quarter onwards. Such loans need to be classified as NPA where

there is default in payment of interest or installment on the due date. The

due date for payment of interest or installment is the date as agreed upon in

the loan agreement.

A government guaranteed account is exempted from the norms of

Asset Classification and Provisioning, but is not exempted from the norms

of Income Recognition.

In the case of Housing Loan to staff members, it becomes past due

only on the dates as agreed upon in the loan agreement, after repayment of

the principal because the interest is payable only after the principal is repaid.

Such interest need to be treated as past due only if it remains unpaid 30 days

beyond its due date as per the loan agreement.

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ASSET CLASSIFICATION

The Banks have to classify all their loans and advances into four broad

groups as under:-

1) STANDARD ASSETS: - Standard Assets is one which does not

disclose any problems and which does not carry more than the normal risk

attached to the business. Such an asset is not a NPA.

2) SUB-STANDARD ASSETS: - Sub-Standard Assets are one which

has been classified as NPA for a period exceeding 2 years. In such cases,

the current net worth of the borrower/guarantor of the current market value

of the security charged is not enough to ensure recovery of the dues to the

bank.

3) DOUBTFUL ASSETS: - A doubtful asset is one which has remained

NPA for a period exceeding 2 years.

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4) LOSS ASSETS: - Where loss has been identified by the bank or

internal or external auditors or the RBI inspection but amount has not been

written off wholly. It is an asset identified by the bank, auditors or by the

RBI inspection as a loss asset. It is an asset for which no security is

available or there is considerable erosion in the realizable value of the

security.

PROVISONING

The provisioning norms are formulated taking into account the time lag

between an accounts becoming doubtful of recovery, its recognition as such,

the realization of the security and the erosion over time in the value of

security charged to the banks. Banks should make provision against sub-

standard asset, doubtful assets and loss assets.

PROVISION FOR LOSS ASSETS:

The entire assets should be written off. If the assets are permitted to

remain in the books for any reasons, 100% of the outstanding should be

provided for.

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PROVISION FOR DOUBTFUL ASSETS:

100% of the extent to which the advance is not covered is not by

realizable value of the security to which bank has a valid recourse and the

realizable value is estimated on realistic basis.

Depending on the period for which the asset has remained doubtful, a

certain percentage of the secured portion (i.e. estimated realizable value of

the outstanding) on the following basis:-

Period for which the advance -

has been considered as doubtful % of the provision

Up to one year 20%

One to Three year 30%

More than Three years 50%

PROVISION FOR SUB-STANDARD ASSETS:-

A general provision of 100% of total outstanding is to be made.

Availability of security DICGC/ECGC guarantee etc should be taken into

account while making provision for sub-standard assets.

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NPAS IN BSCB

(RS. IN LACS)

S.NO PARTICULARS 31.03.2004 31.03.2005 31.03.2006 31.03.2007 31.03.2008

1. N.P.A 25263.17 16123.11 16402.32 26710.75 23014.05

2. % of N.P.A to loan

o/s

51.56 28.67 30.33 42.51

3. Total demand

(30.06)

48744.04 5269.83 53864.63 47861.80

4. Total Collection

(30.06)

24785.58 22800.67 27636.31 17889.56

5. Net Worth as per

Bank’s Assessment

(+)2185.17 (+)15251.74 (+)20434.76 14837.83 (+)16000.00

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There is a decreasing trend in the position of NPA of the Bank. The

NPA of the bank which was 51.56% of the loan outstanding as on

31.03.2004 has come down to 30.33% as on 31.03.2006. It has further at

42.5% as on 31.03.2007 due to reversal of adjustment made in the loan

account of BISCOMAUN.

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CROP INSURANCE:

Season/year No. of

farmers

insured

Sum Assured NO. of farmers

benefited with

claim through

C0-op. Banks

Amount of claim

received by Co-op

Bank

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Rabi 2003-04

Kharif 2004

Rabi 2004-05 48100

Kharif 2005 83252

Rabi 2005-06 59810

Kharif 2006 166150 1903430129.59 60051 267635148.90

Co-Operative Bank has made appreciable achievement under Crop

insurance and receipt of claim under Crop insurance during the last 4-5 years

which will be evident from the following data:

CROP LOAN ADVANCEMENT:

Crop loan financed by Co-Operative Banks and refinanced by

NABARD during the last four years is given below:

(RS. IN LACS)

YEARS FINANCED BY DCCBS REFINANCE BY BSCB REFINANCE BY NABARD

2004-05 27469.02 23307.34 361.00

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2005-06 23460.74 11876.99 475.00

2006-07 30299.54 15578.40 1801.50

2007-08 35580.97 17752.30 1857.11

THERE ARE SEVERAL GENERAL REASONS FOR AN ACCOUNT

BECOMING NPA

INTERNAL FACTORS:

1) Funds borrowed for a particular purpose but not use for he said purpose.

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2) Project not completed in time.

3) Poor recovery of receivables.

4) Excess capacities created on non-economic costs.

5) In-ability of the corporate to raise capital through the issue of equity or

other debt instrument from capital markets.

6) Business failures.

7) Diversion of funds for expansion\ modernization\ setting up new

projects\ helping or promoting sister concerns.

8) Willful defaults, siphoning of funds, fraud, disputes, management

disputes, miss-appropriation etc.

9) Deficiencies on the part of the banks viz. in credit appraisal, monitoring

and follow-ups, delay in settlement of payments\ subsidiaries by government

bodies etc.

EXTERNAL FACTORS:

1) Sluggish legal system

Long legal tangles

Changes that had taken place in labor laws

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Lack of sincere effort.

2) Scarcity of raw material, power and other resources.

3) Industrial recession.

4) Shortage of raw material, raw material\ input price escalation, power

shortage, industrial recession, excess capacity, natural calamities like floods,

accidents.

5) Failures, non payment\ over dues in other countries, recession in other

countries, externalization problems, adverse exchange rates etc.

6) Government policies like excise duty changes, Import duty changes etc.

UNDERLYING REASON FOR NPAs IN INDIA

An internal study conducted by RBI shows that in the order of prominence,

the following factors contribute to NPAs.

Internal factors

Diversion of funds for-

Expansion/ diversification/ modernization

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Taking up new projects

Helping/ promoting associate concerns time/ cost overrun during the

project implementation stage

Business (product, marketing, etc.)

Inefficiency in management

Slackness in credit management and monitoring

Inappropriate technology/ technical problems

Lack of co-ordination among lenders

External factors

Recession

Input/ power shortage

Price escalation

Exchange rate fluctuation

Accidents and natural calamities, etc.

Changes in Government Policies in excise/ import duties, pollution

control orders, etc.

A brief discussion is provided below:-

Liberalization of economy/ removal of restrictions/ reduction of

tariffs- A large number of borrowers were unable to compete in a

competitive market in which lower prices and greater choices were available

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to consumers. Further, borrowers operating in specific industries have

suffered due to political, fiscal and social compulsions, compounding

pressures from liberalization (e.g., sugar and fertilizer industries)

Tax monitoring of credits and failure to recognize early warning

signals- It has been stated that approval of loan proposals is generally

thorough many levels before approval is granted. However, the monitoring

of sometimes-complex credit files has not received the attention it needed,

which meant that early warning signals were not recognized and standard

assets slipped to NPA category without banks being able to take proactive

measures to prevent this. Partly due to this reason, adverse trends in

borrowers’ performance were not noted and the position further deteriorated

before action was taken.

Over optimistic promoters- Promoters were often optimistic in

setting up large projects and in some cases were not fully above board in

their intentions. Screening procedures did not always highlight these issues.

Often projects were set up with the expectation that part of the funding

would be arranged from the capital markets subsequently crashed, the

requisite funds could never be raised, promoters often lost interest and

lenders were left stranded with incomplete/ unviable projects.

Directed lending - Loans to some segments were dictated by

Government’s policies rather than commercial imperatives.

Highly leveraged borrowers - Some borrowers were undercapitalized

and over burdened with debt to absorb the changing economic situation in

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the country. Operating within a protected market resulted in low

appreciation of commercial/ market risk.

Funding mismatch - There are said to be many cases where loans

granted for short terms were used to fund long term transactions.

High Cost of Funds - Interest rates as high as 20% were not

uncommon. Coupled with high leveraging and falling demand, borrowers

could not continue to service high cost debt.

Willful Defaulters - There are a number of borrowers who have

strategically defaulted on their debt service obligations realizing that the

legal recourse available to creditors is slow in achieving results.

STEPS FOR PREVENTING NPAs

1. Internal Checks and Control - Since high level of NPAs dampens the

performance of the banks identification of potential problem accounts and

their close monitoring assumes importance. Though most banks have Early

Warning System (EWS) for identification of potential NPAs, the actual

processes followed, however, differ from bank to bank. The EWS enable a

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bank to identify the borrower accounts which show signs of credit

deterioration and initiate remedial action. Many banks have evolved and

adopted an elaborate EWS, which allows them to identify potential distress

signals and plan their options beforehand, accordingly. The early warning

signals, indicative of potential problems in the accounts, viz. Persistent

irregularity in accounts, delays in servicing of interest, frequent devolvement

of L/Cs, units financial problems, market related problems, etc. are captured

by the system.

The major components/ processes of a EWS followed by banks

in India as brought out by a study conducted by Reserve Bank Of India at

the instance of the Board of Financial Supervision are as follows:-

Designating Relationship Manager/ Credit Officer for monitoring accounts

Preparation of ‘know your client’ profile

Credit rating system

Identification of watch-list/ special mention category accounts

Monitoring of early warning signals

Relationship Manager/ Credit Officer- The Relationship Manager/ Credit

Officer is an official is an official who is expected to have complete

knowledge of borrower, his business, his future plans, etc. The Relationship

Manager has to keep in constant touch with the borrower and report all

developments impacting the borrow able account. As a part of this contact

he is also expected to conduct scrutiny and activity inspections. In the credit

monitoring process, the responsibility of monitoring a corporate account is

vested with Relationship Manager/ Credit Officer.

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Know your Client’ profile (KYC)- Most banks in India have a system of

preparing ‘know your client’(KYC) profile/ credit report. As a part of

‘KYC’ system, visits are made on clients and their places of business/ units.

The frequency of such visits depends on the nature and needs of relationship.

Credit Rating System- The credit rating system is essentially one point

indicator of an individual credit exposure and is used to identify measure

and monitor the credit risk of individual proposal. At the whole bank level,

credit rating system enables tracking the health of banks entire credit

portfolio. Most banks in India have put in place the system of internal credit

rating. While most of the banks have developed their own models, a few

banks have adopted credit rating models designed by rating agencies.

Early Warning Signals- It is important in any early warning system, to be

sensitive to signals of credit deterioration. A host of early warning signals

are used by different banks for identification of potential NPAs. Most banks

in India have laid down a series of operational, financial, transactional

indicators that could serve to identify emerging problems in credit exposures

at an early stage. Further, it is revealed that the indicators which may trigger

early warning depend not only on default in payment of installment and

interest but also other factors such as deterioration in opening and financial

performance of the borrower, weakening industry characteristics, regulatory

changes, general economic conditions, etc. Early warning signals can be

classified into five broad categorizes viz.

(a) Financial

(b) Operational

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(c) Banking.

(d) Management and

(e) External Factors.

2. Legal and Regulatory Regime

A. DEBT RECOVERY TRIBUNALS-

DRTs are set up under the Recovery of Debts due to Banks and

Financial Institution Act, 1993. Under the Act, two types of Tribunals were

set up i.e. Debt Recovery Tribunal (DRT) and Debt Recovery Appellate

Tribunal (DRAT). The DRTs are vested with competence to entertain cases

referred to them, by the banks and FIs for recovery of debts due to the same.

The order passed by a DRT is appeal able to the Appellate Tribunal but no

appeal shall be entertained by the DRAT unless the applicant deposits 75%

of the amount due from him as determined by it. However, the Affiliate

Tribunal may, for reasons to be received in writing, waive or reduce the

amount of such deposit. Advances of Rs. 1 million and above can be settled

through DRT process. An important power conferred on the Tribunal is that

of making an interim order (whether by way of injunction or stay) against

the defendant to debar him from transferring, alienating or permission of the

Tribunal. This order can be passed even while the claim is pending. DRTs

are criticized in respect of recovery made considering the size of NPAs in

the country. In general, it is observed that the defendants approach the High

Country challenging the verdict of the Appellate Tribunal which leads to

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further delays in recovery. Validity of the Act is often challenged in the

court which hinders the progress of the DRTs.

B. LOKADALATS-

The institution of Lokadalat constituted under the Legal Services

Authorities Act, 1987 helps in resolving disputes between the parties by

conciliation, mediation, compromise or amicable settlement. It is known for

effecting meditation and counseling between the parties and to reduce

burden on the court, especially for small loans. Several people of particular

localities/ various social organizations are approaching Lokadalats which are

generally presided over by two or three senior persons including retired

senior civil servants, defense personnel and judicial officers. They take up

cases which are suitable for settlement of debt for certain consideration.

Parties are heard and they explain their legal position. They are advised to

reach to some settlement due to social pressure of senior bureaucrats or

judicial officers or social workers. If the compromise is arrived at, the

parties to the litigation sign a statement in presence of Lokadalats which is

expected to be filed in court to obtain a consent decree. Normally, if such

settlement contains a clause that if the compromise is not adhered to by the

parties, the suits pending in the court will proceed in accordance with the

law and parties will have a right to get the decree from the court. In general,

it is observed that banks do not get the full advantage of the Lokadalats. It is

difficult to collect the concerned borrowers willing to go in for compromise

on the day when the Lokadalat meets. In any case, se should continue our

efforts to seek the help of the Lokadalat.

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C. ENACTMENT OF SRFAESI ACT-

“The securitization and Reconstruction of Financial Assets and

Enforcement of Security Interest Act” (SRFAESI) provides the formal legal

basis and regulatory framework for setting up Asset Reconstruction

Companies (ARCs) in India. In addition to asset reconstruction and ARCs,

the Act deals with following largely aspects,

Securitization and Securitization Companies

Enforcement of security Interest

Creation of a central registry in which all securitization and asset

reconstruction transactions as well as any creation of security interests has to

be filed.

D. INSTITUTION OF CDR MECHANISM-

The RBI has instituted the Corporate Debt Restructuring (CDR)

mechanism for resolution of NPAs of viable entities facing financial

difficulties. The CDR mechanism instituted in India is broadly along the

lines of similar in the UK, and Thailand, Korea and Malaysia. The objective

of the CDR mechanism has been to ensure timely and transparent

restructuring of corporate debt outside the purview of the Board for

Industrial and Financial Reconstruction (BIFR), DRTs or other legal

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proceedings. The framework is intended to preserve viable corporate

affected by certain internal/ external factors and minimize losses to

creditors/ other stakeholders through an orderly and coordinated

restructuring programme. RBI has issued revised guidelines in February

2003 with to the CDR mechanism. Corporate borrowers with borrowings

are eligible under the CDR mechanism. Accounts falling under standard,

sub-standard or doubtful categories can be considered for restructuring.

CDR is a non-statutory mechanism based on debtor obligations for bankers

with the cash flow projections as reassessed at the time of restructuring.

Therefore it is critical to prepare a restructuring plan on the lines of the

expected business plan along with projected cash flows.

E. COMPROMISE SETTLEMENT SCHEMES

One Time Settlement Schemes

NPAs in all sectors, which have become doubtful as on 31st march

2000. The scheme also covers NPAs classified as sub-standard as on 31st

march 2000, which have subsequently become doubtful or loss. All cases on

which banks have initiated action under the SRFAESI Act and also cases

pending before Courts/DRTs/BIFR, subject to consent decree being obtained

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from the Courts/DRTs/BIFR are covered. However cases of willful default,

fraud and malfeasance are not covered. As per the OTS scheme, for NPAs

up to Rs. 10 Crores, the minimum amount that should be recovered should

be 100% of the outstanding balance in the account.

Negotiated Settlement Schemes

The RBI/Government has been encouraging banks to design and

implement policies for negotiated settlements, particularly for old and

unresolved NPAs. The broad framework for such settlements was put in the

place in July 1995. Specific guidelines were issued in May 1999 to public

sector banks for one-time settlements of NPAs of small scale sector. This

scheme was valid until September 2000 and enabled banks to recover Rs.

6.7 billion form various accounts. Revised guidelines were issued in July

2000 for recovery of NPAs of Rs. 50 million and less. These guidelines

were effective until June 2001 and helped banks recover Rs. 26 billion.

F. INCREASED POWERS TO NCLTs AND THE PROPOSED REPEAL OF

BIFR-

In India, companies whose net worth has been wiped out on account

of accumulated losses come under the purview of the Sick Industrial

Companies Act (SICA) and need to be referred to BIFR, once a company is

referred to the BIFR (and even if an enquiry is pending as to whether it

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should be admitted to BIFR), it is afforded protection against recovery

proceedings from its creditors. BIFR is widely regarded as a stumbling

block in recovering value for NPAs. Promoters systemically take refuge in

SICA – often there is a scramble to tile a reference in BIFR so as to obtain

protection from debt recovery proceedings. The recent amendments to the

Companies Act vest powers for revival and rehabilitation of companies with

the National Company Law Tribunal (NCLT), in place of BIFR, with

modifications to address weakness experienced under the SICA provisions.

The NCLT would prepare a scheme for reconstruction of any sick company

and there is no bar on the lending institution of legal proceedings against

such company whilst the scheme is being prepared by the NCLT. Therefore,

proceedings initiated by any creditor seeking to recover monies from a sick

company would not be suspended by a reference to the NCLT and,

therefore, the above provision of the Act may not have much relevance any

longer and probably does not extend to the tribunal for this reason.

However, there is a possibility of conflict between the activities that may be

undertaken by the ARC, e.g. change in management, and the role of the

NCLT in restructuring sick companies.

G. CREDIT INFORMATION BREAU (INDIA) LTD. (CIBIL)

Taking cognizance of the utility of an effective institutional

mechanism for sharing of information on borrowers/potential by banks,

CIBIL was set up in 2001. Banks were advised to go for parallel reporting of

data on suit filed accounts to both the RBI and CIBIL upto march 31, 2003

and switch over such reporting t the CIBIL effective from April 1, 2003.

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Banks have been urged to make persistent efforts in obtaining consent

form all their borrowers in order to establish an efficient credit information

system which would help in enhancing the quality of credit decisions and

improving the asset quality of banks, apart from facilitating faster credit

deliver. Further, with a view to strengthening the legal mechanism and

facilitating credit information on borrowers of bank/FIs, a draft credit

information companies Regulation Bill, 2004 covering registration,

responsibilities of the bureaus, rights and obligations of the credit

institutions and safeguarding of privacy rights is under active consideration

of the Government.

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ANALYSIS AND INTERPRETATION OF DATA

The study was done in Branch Patna of the Bihar State Co-Operative Bank

Ltd. Mainly to know about the ‘Non-Performing Assets’ and the measure

taken by the bank as whole and the steps taken by bank in reducing the level

of Non-Performing Assets.

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Now a days Non-Performing Assets in banking industry has become a

key factor and paramount thrust is given by banks to reduce Non-Performing

Assets to the maximum extent possible around which all other business

parameters revolves.

The Non-Performing Assets is the subject matter to be dealt

exclusively by the management of the bank at all levels. Now it has become

prime duty of every bank manager to see that the advance accounts does not

go out of order. A proper follow up of all advance accounts, following the

prudential norms for NPA and Asset Classification and follow up of

instructions meticulously contained in the circular released from Head

Office.

The data was collected form the different types of advance accounts

with consultation with senior Manager. The data was collected from the

monthly, quarterly, half yearly and annual statements submitted by bank to

its head office.

The bank has a prudent approach to the valuation of its assets and is

focusing on bringing down the level of NPA. The level of NPA has been

engaging the Bank’s close attention, although these are within manageable

limits.

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Bihar State Co-operative Bank Ltd., Patna - 4Financial Data

(Rs. In Lakh)S.N. Particulars 31.03.2003 31.03.2004 31.03.2005 31.03.2006 31.03.2007 31.03.2008 31.03.2009 31.03.2010

1 Share Capital 2030.98 1861.61 1809.52 1829.12 1829.12 1838.26 1870.81 1881.08

2 Reserves 24475.52 19500.61 17113.50 15466.95 22817.02 30848.85 3865.91 5415.42

3 Provisions 8438.20 5431.64 3677.35 2914.72 4051.07 3533.31 30745.36 32956.49

4 Undisbursed Profit 0.00 1702.43 8543.27 13621.17 8661.35 3232.15 3207.15 0.00

5 Owned Fund 25685.71 28496.29 31143.64 33831.96 37358.56 39452.57 39689.23 40252.99

6Owned Fund as per Revised Defination

Not Applicable

Not Applicable 15251.72 20434.76 14837.83 13316.91    

7 Deposit 73033.46 75136.17 93917.81 77540.27 89960.77 83801.89 115905.59 150569.73

8 Borrowings 10159.12 6923.23 10904.77 5177.33 2902.78 5294.62 6239.38 11874.36

9 Other Liabilities 11920.07 10532.82 11727.84 19866.02 27404.42 12430.04    

10 Working Fund 130057.35 121088.51 147694.06 122794.36 144914.11 140578.80 177550.30 222979.86

11 Cash & Bank Balance 3268.10 4557.71 10398.09 5793.78 9099.84 7473.48    

12 Investment 50621.35 52492.87 68947.09 52762.13 61125.34 52302.93 86769.41 132406.72

13 Loans & Advances O/S 54004.95 48997.61 56236.88 54080.02 62829.61 69294.77 61479.29 64157.08

14 Accumulated Loss 9258.99 ___ ___ ___ ___ ___ ___ ___

15 Other Assets 12903.96 15040.32 12112.00 10158.43 11859.69 11507.62    

16 Profit during the year 126.07 11401.96 6840.84 5077.90 637.47 2594.67 1220.02 2896.48

17 Loan issued (Total) 12937.06 19141.96 28946.64 25113.27 23750.69 17774.30    

  (i) Agriculture 8491.00 13062.59 22680.34 12149.20 14705.40 17774.30    

  (ii) Non-Agriculture at H.O. 29.71 80.47 35.95 10042.87 5597.29 1500.00    

 (iii) Non-Agriculture at Branches 4416.35 5998.90 6230.35 2921.20 3448.00 0.00    

Financial Position:

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financial position of the bank for the last eight years is given below.

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1. Reserve:

The Reserve which was at Rs. 3865.91(lacs) as on 31.03.2009. It was

increased by Rs. 1549.51 & reached upto 5415.42 as on 31.03.2010. This

increase was due to shifting of undistributed profit i.e. 3207.15(lacs) as on

31.03.2009. Now some portions of undistributed profit was shifted in

Reserves and rest of fund used on other activity. Now as on 31.03.2010

undistributed profit is nil.

2. Deposit:

The deposit of bank which was at Rs. 115905.59(lacs) as on

31.03.2009 it was increased and reached upto 150569.73 as on 31.03.2010.

This increase reflects a good sign of the management of the BSCB.

3. Borrowings:

The borrowings of the bank which was at Rs. 6239.38(lacs) as on

31.03.2009 it was increased and reached upto 11874.36 as on 31.03.2010.

The above increase was due to increase in the borrowing from NABARD.

4. Working Fund:

The working fund of the bank which was at Rs.177550.30 as on

31.03.2009 it was increased and reached upto 222979.86 as on 31.03.2010.

This increase is due to increase in borrowings.

5. Net Worth:

Net Worth of the bank as on 31.03.2009 is Rs. 155915016238 it is

increased and reached upto Rs. 1965333837.54 as on 31.03.2010. It shows

strong financial position of the bank.

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BRANCH VIZ NPA-

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The Bihar State Co-operative Bank Ltd.,Ashok Rajpath, Patna

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BALANCE SHEET AS ON 31st March. 2010

CAPITAL & LIABILITIES Schedule No.

As on 31.03.2010

(Current Year)As on

31.03.2009   Amount (Rs.) Amount (Rs.)

Capital 1 188107650.00 187080650.00

Reserve and Surplus 2 1777226187.54 1372069512.38

Deposits 3 15056973138.11 11590558999.43

Borrowings 4 1187436494.76 613938133.81

Other Liabilities and provision 5 4088242058.80 3991382740.31

Total (Rs.)   22297985529.21 17755030035.93

ASSETSCash and balance with Reserve Bank of India 6 628329688.37 863969297.27

Balance with Banks and money at call and short notice 7 10231758691.73 6670600019.37

Investments 8 3556930100.00 2684199100.00

Advances 9 6415708101.66 6147929368.62

Fixed Assets 10 636919545.79 638393702.48

Other Assets 11 828339401.66 749938548.19

Total (Rs.)   22297985529.21 17755030035.93

BALANCE SHEET DETAILS-

BALANCE SHEET DETAILS:The Bihar State Cooperative Bank Ltd.,Ashok Raj Path,Patna

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SCHEDULE 1Capital

As on 31.03.2010

(Current Year)As on

31.03.2009 Amount (Rs.) Amount (Rs.)

Share CapitalAuthrised Capital of 2000000 shares of Rs.500/=each 1000000000.00 1000000000.00

Subscribed Share Capital of Rs.500/= each(a) Central Cooperative Banks 128619550.00 127592550.00(b) Cooperative Societies 11688100.00 11688100.00(c) State Government 47800000.00 47800000.00

Total :- 188107650.00 187080650.00

SCHEDULE 2Reserve & Surplus

As on 31.03.2010

(Current Year)As on

31.03.2009 Amount (Rs.) Amount (Rs.)

i Statutory Reserve 541541867.53 386591064.23ii Agriculture Credit Stablisation Fund 463126230.75 385163828.75iii Building Fund 51754871.46 38754871.46iv Bad & Doubtful Debt Reserve 265501785.80 201801632.14v Investment Depreciation Fund 51827527.50 44827527.50vi Capital Redemption Fund 39900.00 39900.00vii Staff Benefit Fund 15707938.27 15707938.27viii Administrative Fund Reserve 378060.85 378060.85ix Risk Fund 900000.00 900000.00x Building Depreciation Fund 18286367.68 18286367.68xi Fund for Contigency Interest 3320935.17 3320935.17xii Reserve for Contigency Expenditure 51113010.55 51113010.55xiii Development Fund 5300000.00 5300000.00xiv Capital Reserve Fund 59406716.78 59406716.78xv Cooperative Education Development Fund 124510487.60 80238829.50xvi Equity Redemption Fund 124510487.60 80238829.50

Total :- 1777226187.54 1372069512.38

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SCHEDULE 3Deposits

As on 31.03.2010

(Current Year)As on

31.03.2009 Amount (Rs.) Amount (Rs.)

1 Fixed DepositC.C.Banks 8636392665.03 6941136088.67Societies 1617118883.85 1223677590.85Individual 822899755.93 802419785.42

Total11076411304.8

1 8967233464.942 Savings Bank Deposit

C.C.Banks 9206337.84 8749093.34Societies 1058702972.96 523798024.11Individual 897057105.34 882301751.07Total 1964966416.14 1414848868.52

3 Current DepositC.C.Banks 640400510.92 213612201.81Societies 78676257.33 614801890.77Individual 103804309.32 72096363.80Total 822881077.57 900510456.38

4 Short Term Deposit / Call depositC.C.Banks 970511856.35 19783742.35Societies 21961595.67 123405211.67Individual 68774954.33 59013374.33Total 1061248406.35 202202328.35

5 Daily Deposit SchemeIndividual 131465933.24 105763881.24

Total :-15056973138.1

111590558999.4

3

SCHEDULE 4Borrowing

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As on 31.03.2010

(Current Year)As on

31.03.2009 Amount (Rs.) Amount (Rs.)

1 Reserve Bank of India u/s section 17(4)(a)

2 NABARDi u/s 21(1)(i) r/w 21(2)(i) Pledge loanii u/s 21(1)(i) r/w 21(4) 1115392000.00 539273000.00

3State Bank Of India against pledge of Govt. security

4 Overdraft from S.B. I / Other Banks 70130.43 2690769.48

5 State Govt.i Short Term Loanii Medium Term Loaniii Long Term Loan 20.00 20.00iv Borrowing from State Govt. for A.C.S.F. 71974344.33 71974344.33

Total :- 1187436494.76 613938133.81

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CONCLUSION

With the introduction of strict prudential norms for income

recognition asset classification and provisioning in the Banking industry

based on the recommendations of the committee on Financial System the

chairmanship of Shri M Narasimham, the profitability of the banks came

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under heavy pressure. The transparency in balance sheet started exposing

the real health of the banks. Even the entire worth of some of the leading

public sector banks was eroded. Banks were forced to redefine its priorities

and fine tune the mechanism of asset management.

In the end of the financial year the focus is on the performance of the

Banking Industry. In the recent years Banking Industry as a whole have

undergone huge changes. The Banking Industry is now passing thorough a

complex situation which is created out of the changes in the policy outlook

of the monetary authorities, Central Government and the presence of

multinationals.

Since the launch of the banking sector reforms, the ration of none

performing of advances as a percentage to total advances of the public sector

banks has come down from 27% in 1990-91 to 21% in 1994-95. The level

of Non Performing Assets in the Co-Operative Banks Ltd has been engaging

the close attention, although these are within the manageable limits. As on

31st March, 1997 net Non-Performing Assets constituted. As on 31st march,

1997 net Non-Performing Assets continued 4.87 of the net credit portfolio

slightly higher than the 3.94 a year conduct party because of various external

factors impacting on the performance and financial health of he borrowers

concerned.

Though the level of Non-Performing Asset in the Bihar state Co-

Operative Bank is much below the industry level and within the prescribed

limit the trend in the recent past is quite perturbing.

Unless the bank takes effective measure for containing the NPAs within the

tolerable limits, the bank have to present a dismal performance in the near

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future. It is high time that the bank have a proper strategies and action plans

for better asset management. The problem loans are to be properly tackled

and the level of NPAs brought down to the barest minimum level possible.

SUGGESTION

Certain facts gleaned from the findings of the survey may prove to be

effective if properly implemented in improving the profitability of the Co-

Operative Bank Limited. Though the level of Non-Performing Assets in the

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C0-Operative Bank is within the prescribed limit but the percentage of NPA

to total advance of the Branch Patna is very much on higher side.

The regulatory framework governing the operations of the bank is

undergoing significant changes. Only those banks with sustained

profitability records, capital adequacy of 8% and over and with low Non-

Performing level will be allowed greater freedom of operation.

The profitability should be the main concern of all banks around

which all other business parameters should revolve. The pricing of liability

has to keep in sharp focus the asset creation at acceptable spreads. Thus

asset management will be one of the major planks of our device towards

sustaining profitability. Quality of assets is one of the biggest challenges

that would continue to hurt the banks in the near terms.

Paramount thrust should be give to reduce the non-performing assets

to the maximum extent possible thereby augmenting profitability and

eagling recycling of funds. The following strategies are suggested for better

results in the management of NON PERFORMING ASSETS:-

1. PROBABLE NPA ACCOUNTS-

The accounts which escaped NPA status as on last balance sheet date

but showing symptoms of sickness are to be short-listed and branded as

probable NPAs. It should ensured that adequate recovery is made in all such

accounts so that they will not cross over to NAP and this is possible only by

constant vigil on all advances accounts by a regular system of review of all

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advances accounts at the branch level and remodel taken if deficiencies are

noted in the quality of assets.

2. RESCHEDULING OF LIMITS-

It should be ensured that adequate cushion period is sought

for/granted at the time of forwarding/sanctioning advance proposal by

looking at the various parameters of the proposal and suggest suitable

cushion period. It is felt that there will be time over run in project

implementation; immediate steps are to be taken for rescheduling the

repayment programme and moratorium period suggested for servicing the

interest.

3. BORROWS WITH MULTIPLE LIMITS-

If any one limit out of the multiple credit facilities enjoyed by the

borrower becomes NPA, all the other performing assets are also classified as

NPA. Therefore, more vigilant is required to see that all the accounts are

kept performing.

4. PROPER ASSET CLASSIFICATION-

Classifying the assets appropriately is another thrust area in NPA

management. A proper understanding of the norms is essential in managing

NPAs. Any mistakes in the recognizing the date will result in wrong

creation of provision and non recognition of revenue.

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5. WRONG VALUATION OF SECURITY-

Any laxity in keeping the updated records on valuation of securities

both primary and collateral will force the bank to make higher provisions

and can result in avoidable strain on the profitability of the bank. To keep

the record up to date the following guidelines must be followed:-

Ostentation of stock statements of regular intervals and record the

realizable value and if the same is not submitted unit inspection has to

be conducted and value is to be recorded.

Revalue immovable properties offered as collateral securities once in

three years.

Apportionment of value of common collateral securities among all

limits on prorate basis in case of multiple limits.

Securities should be insured for the full value.

6. RECOVERY MANAGEMENT-

Recovery of overdue installments and interest will have direct impact

on the profitability of the bank. The recovery management of NPAs to the

find tuned to ensure better results strategic recovery drivers.

7. REVIEW/RENEWWAL OF ACCOUNTS-

Timely review/renewal of advance accounts will help us to prevent

the accounts turning into NPA.

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8. Suits and executing of decrees are to be pursued expeditiously and

negotiated settlements arrived at in deserving cases within the framework

of the guidelines prescribed by Reserve Bank of India.

9. With a view to motivate its employees in recoveries and management of

Non-Performing Assets the bank should formulate schemes for award of

cash prizes, certificates of merits and trophies to branches showing

outstanding performing this respect.

10. Management of Non-Performing Assets should become one of the key

performance areas in the performance appraisal of officials of the banks.

Recovery of NPA ought to be foremost in the mind of the

functionaries while striving to recover NPAs every effort must be made to

prevent account from turning into NPA. All would well to remember the

age old proverb, “prevention is better than cure” which is as relevant in

the matter of NPAs as anywhere else.

BIBLIOGRAPHY

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i. BIHAR STATE CO-OPERATIVE BANK ANNUAL REPORT

ii. BSCB JOURNALS

iii. BOOKS

MANAGEMENT OF INDIAN FINANCIAL INSTITUTION,

SRIVASTAVA R.M & NIGAM DIVYA, 10TH EDITION,2010,

HIMALYA PUBLISHING HOUSE, GURGAON MUMBAI

FINANCIA INSTITUTION AND MARKETS, BHOLE L.M, 5TH

EDITION,2009, TATA Mc GRAW- HILLS,7 WEST PATEL

NAGAR, NEW DELHI

iv. WEBSITE

www.biharbank.bih.nic.in

www.rbi.gov.in

www.google.com

v. NEWSPAPER

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