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A STUDY ON NON-PERFORMING ASSET -VIJAYA BANK
KARNATAKA STATE OPEN UNIVERSITY Page 1
SECTION-A
NON PERFORMING ASSETS
EVOLUTION:
After nationalization, the entail norms initial mandate that banks were given
was to expand their branch network, increase the savings rate and extend credit to
the rural and SSI sectors. This mandate has been achieved admirably- since the
early 90,s the focus has shifted towards improving quality of assets and better
management. The directed lending approach has given way to more market
driven practices.
The Narashimhan Committee has recommended prudential norms on income
recognition, assets classification and provisioning. In a change from the past,
Income recognition is now not on an accrual basis but when it is actually received.
Past problem faced by banks were to a great extent attributable to this.
Classification of what an NPA is changed with tightening of prudential
norms. Currently an asset non-performing if interest or installments of principal
due remain unpaid for more than I80 days.
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INTRODUCTION:
A Man without money is like a bird without wings, the Rumanian proverb
insists the importance of the money. A bank is an establishment, which deals with
money. The basic functions of Commercial banks are the accepting of all kinds of
deposits and lending of money. In general there are several challenges confronting
the commercial banks in its day to day operations. The main challenge facing the
commercial banks is the disbursement of funds in quality assets (Loans and
Advances) or otherwise it leads to Non-performing assets.
NPAs -MEANING:
An asset which ceases to generate income of the bank is called non-
performing asset. The past due amount remaining uncovered for the two quarter
consequently the amount would be classified as NPA for the whole year. It
includesborrowers defaults or delays in interest or principal repayment.
DEFINITION OF NPA:
NBE [Supervision of Banking Business Directives (Directive No.
SBB/3212002)] defines, the term Non-performing is, Loans or advances whose
credit quality has deteriorated such that full collection of principal and/or interest
in accordance with the contractual repayment terms of the loan or advances is inquestion.
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A loan or lease that is not meeting its stated principal and interest payments.
Banks usually classify as nonperforming assets any commercial loans which are
more than 90 days overdue and any consumer loans which are more than 180 days
overdue. More generally, an asset which is not producing income.
For purposes of this Directive, loans or advances with pre-establishedrepayment programs are non-performing when principal and or interest is due
and uncollectible for 90 days or more beyond the scheduled payment date or
maturity.
For purposes of this Directive, overdraft and roans or advances that do not havea pre established repayment program shall be considered as non-performing
when;
1. The debt remains outstanding for 90 consecutive days or more beyondthe scheduled payment date or maturity.
2. Interest is due and uncollected for 90 days or more or3. For overdrafts, the account has been inactive for 90 consecutive days and
/ or deposits are insufficient to cover the interest capitalized during the
period.
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GENERAL REASONS FOR ASSETS BECOMING NPAs
A multiplicity of factor is responsible forever increasing size of NPAs in
banks. A few prominent reasons for assets becoming NPAs are as under.
Poor credit appraisal system.Lack of proper monitoring.
Reckless advances to achieve the budgetary targets.Change in economic policies/ environment.No transparent accounting policy and poor auditing practices. Banks were
also Lack of sincere corporate culture, inadequate legal provisions on
foreclosure and bankruptcy.
Change in economic policies/environment Banks not in the position to press enough securities to cover the
loans in calls of timings.
Lack of coordination between banks.REASONS FOR NON PERFORMANCE IN LOAN ASSETS:
1.Most of the NPAs have the cover of collaterals by way of EM of landedproperties. But real estate market is depressed & thus impacted
recoveries. Many large corporate borrowers have turned "wish
defaulters" taking shelters under BIFR umbrella.
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2.NBFCs are in doldrums, their recoveries are adversely affected &strictures on accepting deposits has caused further resource crunch
ultimately defaulting the banks, top priority being repayment of deposits.
The bank has the highest exposure under this sector where the incidence
of non performance is higher.
3.Textile industry is plagued by high cost of production & row returns, & isrunning in loss and many units are being closed down.
4.The bank got fairly good exposure in real estate. The depressed realestate market has resulted in poor recovery rate in almost the entiresegment.
5.In agriculture sector poor recovery has been due to various factors-recovery advances has been affected by the sharp fall in rubber prices.
Throughout the country aqua culture miserably failed due to reasons
beyond the control of the borrowers we are not an exception.
6.Poor recovery in schematic loans is mainly due to willful default by theborrowers.
90 DAYS OVERDUE EFFECT:
As a facilitating measure for smooth transition to 90 days norm, banks have
been advised to move over to charging of interest at monthly rests, by April 1,
2002. However, the date of classification of an advance as NPA should not be
changed on account of changing of interest at monthly rests. Banks should,
therefore, continue to classify an account as NPA only if the interest charged
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during any quarter is not serviced fully within l80 days from the end of the quarter
with effect from April l, 2002 and 90 days from the end of the quarter with effect
from 31,2004.
There are two aspects to the adoption of the 90 days, overdue norm for
identification of NPAs. The negative aspect is that NPAs will increase in the short
term. But the positive aspect is that banks will be become pro-active in detecting
smoke signals about an account becoming bad and accordingly initiate remedial
steps.
I. CREDIT INFORMATION BUREAU (CIB):
It is in this context that the facility of credit Information Bureau (CIB)
becomes relevant, A CIB provides an institutional mechanism for sharing of credit
information on borrowers and potential borrowers among banks and FIs. Ii acts as
a facilitator for credit dispensation and helps mitigate the credit risk involved in
lending.
Based on cross-country experiences, initiatives have been taken in India to
establish a credit information bureau. The Bureaus established in these countries
collect information on both individual borrowers (retail segment) and the corporate
sector
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WARNING SIGNALS:
1. Default in servicing periodic installments and interest.2. Accumulation of stock & non-movement of stock.3. Operating loss / net loss.4. Slow turnover of debtors & fall in level of sundry creditors.5. Return of outward bills for collection / return of cheque.6. Labor troubles.7. High turnover of key personnel.8. Loss of critically important customers.9. Court cases against the unit.10.Avoidance of contacts with the bank.11.Delayed submission of financial statements.12.Disputes among partners / promoters.
THE NPA PROBLEM:
1. The origin of the problem of burgeoning NPAs lies in the quality of
managing credit risk by the banks concerned, what is needed is having adequate
preventive measures in place namely, fixing pre-sanctioning appraisal
responsibility and having an effective post-disbursement supervision, Banks
concerned should continuously monitor loans to identify accounts that have
potential to become non-performing.
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2. The performance in terms of profitability is a benchmark for any business
enterprise including the banking industry. However, increasing NPAs have a
direct impact on banks profitability as legally banks are not allowed to book
income on such accounts and at the same time banks are forced t make
provision on such assets as per the RBI guidelines.
3. Also, with increasing deposits made by the public in the banking system, the
banking industry cannot afford defaults by borrowers since NPAs affects the
repayment capacity of banks.
4. Further, RBI successfully creates excess liquidity in the system through
various rate cuts and banks fail to utilize this benefit to its advantage due to the
fear of burgeoning non-performing assets.
CREDIT RISK AND NPA:
Quite often credit risk management (CRM) is confused with managing non-
performing assets (NPAs). However there is an appreciable difference between the
two. NPAs are a result of past action whose effects are realized in the present. i.e.
they represent credit risk that has already materialized and default has already
taken place.
On the other hand, managing credit risk is a much more forward-looking
approach and is mainly concerned with managing the quality of credit portfolio
before default takes place. In other words, an attempt is made to avoid possible
default by properly managing credit risk.
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Considering the current global recession and unreliable information in
financial statements, there is high credit risk in the banking and lending business.
EXCESS LIQUIDITY:
Now banks are faced with the problem of increasing liquidity in the system.
Further, RBI is increasing the liquidity in the system through various rate cuts.
Banks can get rid of its excess liquidity by increasing its lending but, often shy
away from such an option due to the high risk of default.
In order to promote certain prudential norms for healthy banking practices,
most of the developed economies require all banks to maintain minimum liquid
and cash reserves broadly classified in to Cash Reserve Ratio (CRR) and the
Statutory Liquidity Ratio (SLR).
Cash Reserve Ratio (CRR) is the reserve which the banks have to maintain
with itself in the form of cash Reserve or by way of current account with the RBI,
computed as a certain percentage of its demand and time liabilities. The objective
is to ensure the safety and liquidity of the deposits with the banks.
On the other hand, Statutory Liquidity Ratio (SLR) is the one which every
banking company shall maintain in India in the form of cash, gold or
unencumbered approved securities, an amount which shall not, at the close of
business on any day be less than such percentage of the total of its demand and
time liabilities in India as on the last Friday of the second proceeding fortnight, as
the RBI may specify from time to time.
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A rate cut (for instance, decrease in CRR) results into lesser funds to be
locked up in RBIs vaults and further infuses greater funds into a system. However,
almost all the banks are facing the problem of bad loans, burgeoning non-
performing assets, thinning margins, etc. As a result of which, banks are little
reluctant in granting loans to Corporates.
As such, through in its monetary policy RBI announces rate cut but, such
news are no longer warmly greeted by the bankers.
HIGH COST OF FUNDS DUE TO NPA:
Quite often genuine borrowers face the difficulties in raising funds from
banks due to mounting NPAs. Either the bank is reluctant in providing the requisite
funds to the genuine borrowers or if the funds are provided, they come at a very
high cost to compensate the lenders I losses caused due to high level of NPAs.
Therefore, quite often corporate prefer to arise funds through commercial
papers (CPs) where the interest rate on working capital charged by banks is
higher.
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CLASSIFICATION OF LOANS OR ADVANCES:
As per the NBES Directive, banks shall classify all loans and advances into
the following five categories.
A. Pass:
Loans or advances in this category are fully protected by the current
financial and paying capacity of the borrower and or not subject to criticism. In
general, any loans or advance or portion thereof, this is fully secured, both as to
principal and interest, by cash or cash substitutes, shall be classified under this
category regardless of past due status or other adverse credit factors.
B. Special mention:
Any loan or advance part due 30 (thirty) days or more, but less than 90
(ninety) days shall be classified Special Mention.
C. Substandard:
Non-performing loans or advances past due 90(ninety) days or more but less
than 180(one-hundred-eighty days) days shall, at a minimum, is classified sub
standard.
D. Doubtful:
Non-performing loans or advances past due 180 days or more, but less than360 days shall be classified, at a minimum, as doubtful.
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E. Loss:
Non-performing loans or advances past due 360 days or more shall be
classified as Loss.
CLASSIFICATION OF ASSETS:
CATEGORIES OF NPAs:
Banks are required to classify non-performing assets further into the
following three categories based on the period for which the asset has remained
non-performing and the realisability of the dues:
A. Sub-Standard Assets.B. Doubtful Assets.C. Loss Assets.
SUB-STANDARD ASSETS:
A sub-standard asset was one, which was classified as NPA for a period not
exceeding two years. With effect from 3l March 2001, a sub-standard asset is one,
which has remained NPA for a period less than or equal to 12 months. In such
cases, the current net worth of the borrower/guarantor or the current market value
of the security charged is not enough is not enough recovery of the dues to the
banks in full. In other words, such an asset will have well defined credit weaknessthat jeopardize the liquidation of the debt and are characterized by the distinct
possibility that the banks will sustain some loss, if deficiencies are not corrected.
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With effect from 3l March 2005, a sub-standard asset would be one, which has
remained NPA for a period less than or equal to l2 months.
DOUBTFUL ASSETS:
A doubtful asset was one, which remained NPA for a period exceeding two
years. with effect from 3l March 2001, as asset is to be classified as doubtful, if it
has remained NPA for a period exceeding 12 months, A loan classified as doubtful
has the weaknesses inherent in assets that were classified as sub-standard, with the
added characteristic that the weaknesses make collection or liquidation in full, - onthe basis of currently know facts, conditions and values- highly questionable and
improbable.
With effect from 31 March, 2005, an asset to be classified as doubtful if it
remained in the sub-standard category for 12 months.
LOSS ASSETS:
A loss asset is one where loss has been identified by the bank or internal or
external auditors or the RBI inspection but the amount has not been written off
wholly. In other words, such an asset is considered uncollectible and of such little
value that its continuance as a bankable asset is not warranted although there may
be some salvage or recovery value.
It should be noted that the above classification is only for the purpose ofcomputing the amount of provision that should be made with respect to bank
advances and certainly not for the presentation of advances in the bank balance
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sheet. The Third Schedule to the Banking Regulation Act l949, solely governs
presentation of advances in the balance sheet. Banks have started issuing notices
under The securitization Act 2002 directing the defaulter to either pay back the
dues to the bank or else give the possession of the secured assets mentioned in the
notice, However, there is a potential threat to recovery if there is substantial
erosion in the value of security given by the borrower or if borrower has
committed fraud, Under such a situation it will be prudent to directly classify the
advances as a doubtful or loss asset, as appropriate.
UPGRADATION OF LOAN ACCOUNTS CLASSIFIED AS NPAs:
If arrears of interest and principal are paid by the borrower in the case of
loan accounts classified as NPAs, the account should no longer be treated as non-
performing and may be classified as standard accounts.
Asset classification to be borrower-wise and not facility-wise:
I. It is difficult to envisage a situation when only one facility to borrowerbecomes a problem credit and not others, Therefore, all the facilities granted
by a bank to a borrower will have to be treated as NPAs and not the
particular facility or part thereof which has become irregular.
II. If the debts arising out of development of letter of credit or invokedguarantees are parked in a separate account, the balance outstanding in that
account for should be treated as a part of the borrowers principal operatingaccount for the purpose of application of prudential norms on income
recognition, asset classification and provisioning.
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Accounts where there is erosion in the value of security:
I. A NPA need not go through the various stages of classification in cases ofserious credit impairment and such assets should be straightaway classified
as doubtful or loss asset as appropriate, Erosion in the value of security can
be reckoned as significant when the realizable value of the security is less
than 50 percent of the value assessed by the bank or accepted by RBI at the
time of last inspection as the case may be, Such NPAs may be straightaway
classified under doubtful category and provisioning should be made as
applicable to doubtful assets.
If the realizable value of the security, as assessed by the bank/approved
valuers/ RBI is less than l0 percent of the outstanding in the borrowable
accounts, the existence of security should be ignored and the asset should be
straight away classified as loss ass6t, It may be either written off or fully
provided for by the bank..
PROVISIONING REQUIREMENTS:
As and when an asset is classified as an NPA, the bank has to further sub-
classify it into sub-standard, loss and doubtful assets. Based on this classification,
bank makes the necessary provision against these assets.
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Reserve Bank of India (RBI) has issued guidelines on provisioning
requirements of bank advances where the recovery is doubtful. Banks are also
required to comply with such guidelines in making adequate provision to the
satisfaction of its auditors before declaring any dividends on its shares.
In case of loss assets, guidelines specifically require that full provision for
the amount outstanding should be made by the concerned bank. This is justified on
the grounds that such an asset is considered uncollectible and cannot be classified
as bankable asset.
Asset Type Percentage of provision
Sub-Standard (age upto 18 months) 10%
Doubtful 1 (age upto 2.5 Years) 20%
Doubtful 2 (age upto 4-5 Years) 30%
Doubtful 3 (age upto 4-5 Years) 50%
Loss Asset 10%
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GENERAL METHODS OF MANAGEMENT OF NPA
The management of NPA \is the difficult task in practice. Management of
NPAs means, how to settle the NPAS account in the books. In simple it focuses on
the methods of settlement of NPAs account, The methods are differs from bank to
bank. The following paragraph explains some general methods of Management of
NPAs by the banks. The same information is given below:
CompromiseLegal remediesRegular training programWrite offsSpot visitRehabilitation of potentially viable units
Other methods
COMPROMISE:The dictionary meaning of the term compromise is settlement of dispute
reached by mutual concessions. The following are the detailed guidelines for
compromise/negotiated settlements of NPAs.
The compromise should be a negotiated settlement under which the bankshould
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ensure recovery of its dues to the maximum extent possible of minimum
expenses.
Where security is available for assessing the realizable value, proper weightage
should be given to the location, condition and marketable title and
possession of
sub security.
An advantage in settlement cases is that banks can promptly recycle thefundsinstead of resorting to expensive recovery proceedings spread over a long
period.
Proposal for write off/compromise should be first by a committee of seniorexecutives of the bank.
Special recovery cells should be set up at all regional levers.
LEGAL REMEDIES:The legal remedies are one of the methods of management of NPAs. The
banks observed that the borrower is making will full default; no more time should
be lost instituting appropriate recovery proceedings. The legal remedies are filling
of civil suits.
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REGULAR TRAINING PROGRAM:The all levels of executives are compelling to undergrowth the regular
training program on credit and NPA management. It is very useful and helpful to
the executives for dealing the NPA properly.
RECOVERY CAMPS:
The banks should conduct the regular or periodical recovery camps in the
bank premises or some other common places; such type of recovery camps reduces
the level of NPAs in the Banks.
WRITE OFFS:Write offs is also one of the common management techniques of NPAs. The
assets are treated as loss assets, when the bank writes off the balances. The
ultimate aim of the write off is to cleaning the Balance sheet.
SPOT VISIT:The bank officials should visit to the borrowers, business place or borrowers
field regularly or periodically. It is also help full to the bank to control or reduce
the NPAs limited.
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2. Debt Recovery Tribunals: DRTs which have been set up by the Government to
facilitate to speedy recovery by banks /DFIs, have not been able to make much
impact on loan recovery due to a variety of reasons like inadequate number, lack of
infrastructure, under-staffing and frequent adjournment of cases. It is essential that
the DRT mechanism is strengthened and DRTs are vested with a proper
enforcement mechanism to enforce their orders. Non-observance of any order
passed by the Tribunal should amount to contempt proceedings. The DRTs could
also be empowered to sell the assets of the debtor companies and forward the
proceeds to the Winding-up Court for distribution among the lenders. Also, DRTscould be set up in more centers preferably in district headquarters with more
presiding officers. 22 DRTs have been set up in the country during the half last a
decade.
DRTs have not been able to deliver, as they got swamped under the burden of
large number of cases filed with since their inception.
3. Corporate Debt Restructuring: Corporate Debt Restructuring (CDR)
mechanism is an additional safeguard to protect the interest of the creditors and
revive potentially viable units, The CDR system was set up, .in accordance with
the guidelines of RBI evolved in consultation with Government of India. The
objective of the CDR system is to ensure a timely and transparent mechanism for
restructuring of corporate debts of viable entities and to minimize the losses to the
creditors and other stakeholders through an orderly and co-ordinate re-structuring
programme. With CDR, banks can arrest fresh slippage of performing assets into
the magnitude of assets. under the system standard, sub-standard and doubtful
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assets can be restructured. The CDR mechanism is based upon effective coordinate
among banks.
4. Asset Reconstruction companies (ARCs): One of the most effective ways of
removing NPAs from the books of the banks / DFIs would be to move these out to
a separate agency which would buy the assets and make its own efforts for
recovery. on this front, the SRES Act has provided a frame work for setting up to
Asset Reconstruction companies (ARCs) in India. A pilot company called Asset
Reconstruction company (India) Ltd (ARCIL) has been set up under the joint
sponsorship of IDBI, ICICI Bank SBI and other banks which is likely to provide an
effective mechanism for banks to deal with the defaulting companies. RBI has
already issued final guidelines on the regulatory frame work for ARCs in April,
2003.
However, the success of ARCs will again depend upon the legal frame work which
has to be addressed first, Legal provisions are required for transfer of the existing
loan portfolio to the ARCs without the consent of the borrowers, for exercise of the
power of private foreclosure by ARCs, authorizing ARCs to take recourse to the
Debt Recovery Tribunals and granting exemption to ARCs from income-tax in
order to mobilize resources by issue of bonds and exemption to ARCs from
payment of stamp duty on conveyance / transfer of loans assets.
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REDUCTION IN NPAs:
The problem of the existing NPAs is currently being tackled in several ways.
Efforts are made through negotiations and discussions with the borrowers to bring
them around to settle the dues, Such settlements in the form of one-time settlement
(OTS) and Negotiated Settlement (NS) are now being increasingly used by banks
to reduce the level of NPAs, under these schemes banks focus on maximum
payment under the settlements being received up-front, and balance within the
same financial year for quicker realization of locked up proceeds. However,
despite such efforts made by the lenders, many defaulting borrowers exhibit
reluctance to co-operate, leaving the banks no option but, to seek the legal route.
Here lies the importance of a transparent legal system reforms in the existing.
EFFECTIVE APPRAISAL AND MONITORING OF LOANS:
In the present liberalized environment, globalization has a far reaching
impact on the fortunes of the domestic industry and the bankers have to be alert
and equip themselves with the knowledge of the knowledge of the latest global
trends and also study on an ongoing basis its implications on the industries
financed by them. Thus, the appraisal and monitoring mechanism for loans needs
to be revamped for control of NPAs. Banks need a robust end-to-end credit
process. A robust credit process begins with an in depth appraisal focused on risks
inherent in a loan proposal. Along with appraisal close monitoring of the loan
account is equally important. It is a well-known fact that loans often go bad due to
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poor monitoring. An account does not become an NPA over night. Systems should
be in place such that the banker should be alert to catch signals of an account
turning into NPA and quickly react, analyze, and take corrective action.
Banks should have a proper system in place to ensure that to the extent
possible the assets are performing and do not turn into NPAs. ,In cases where the
problems are of a short term nature and borrowers agree to clear the overdues with
in a short time period, temporary deferment is generally granted by the banks. In
cases where the company requires longer time, depending upon the problems faced
and the expected future cash flows, the proposals are considered for restructuring /
re-phasement of the dues.
ASSETS RECOVERY BRANCH:
Assets Recovery Branches are specified branches for recovering NPA. The
personnel in the branches are professionally competent to deal with defaulters and
ensure repayment. It is meant for Sifting the work of high problem loans
recovery of main branches to specialized branches. It gives time to other branches
to concentrate more upon branchs business development activities.
CREDIT APPRAISAL SYSTEM:
Prevention of standard assets from migrating to non performing status is mostimportant in NPA management, This depends on the style of credit Management
Mechanism available in banks. The quality of credit appraisal and the effectiveness
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of post credit appraisal and effectiveness of post credit follow up influences the
asset quality of the banks in a big way
At Pre-Credit Stage:
1. Extensive enquiry about the character and the credit worthiness of theborrower.
2. Viability of the project to be financed is meticulously studied.3.
Adequate coverage of collateral is ensured to the extent possible.
4. Financial statement of the borrower is obtained and poor analysis of theirfinancial strength is done.
5. Apart from the published financial statements independent enquires aremade with previous bankers.
6. Pre-credit inspection of the assets to finance is made.At Post-Credit Stage:
1. Operations in the account are closely monitored.2. Unit visit is done at irregular intervals.3. Asset verification is done on a regular basis.4. Borrowers submit control returns regularly.5. Accounts are periodically to evaluate the financial health of the unit.
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6. Early warning signals are properly attended to.7. Close contract with the borrower is maintained.8. Potential NPAs are kept under special watch list.9. Potentially viable units are restructured.10.Repayment program of accounts with temporary cash flow problem is
rescheduled. Immediate legal action is initiated in cases where the default is
willful and the intention of the borrower is bad.
CREDIT MONITORING:
Credit Monitoring System is for:
1. Preventing the slippage of quality assets through the monitoring of standardassets.
2. Up gradation of quality of impaired loan asset through recoveries by meansof legal or otherwise.
3. Up gradation of loan assets through nursing in deserving and viable cases.
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SECTION-B
IINNDDUUSSTTRRYY PPRROOFFIILLEE::
The word Bank is used in the sense of commercial bank. It is of Germanic
origin though some persons trace its origin to the French word Banqui, and the
Italian word Banca, it referred to a bench for keeping, lending and exchanging of
money or coins in the market place by moneylenders and moneychangers. In fact
the early Jews in Lombardy transacted their banking business by sitting on
benches.
Banking Regulation Act of India, 1949 defines Banking as accepting, for
the purpose of lending or investment of deposits of money from the public,
repayable on demand or otherwise and withdrawal by cheques, draft, order or
otherwise.
HISTORY OF BANKING IN INDIA:
Banking in India originated in the last decades of the 18th century. The
oldest bank in existence in India is the State Bank of India, a government-owned
bank that traces its origins back to June 1806 and that is the largest commercial
bank in the country. Central banking is the responsibility of the Reserve Bank of
India, which in 1935 formally took over these responsibilities from the then
Imperial Bank of India, relegating it to commercial banking functions. After India's
independence in 1947, the Reserve Bank was nationalized and given broader
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powers. In 1969 the government nationalized the 14 largest commercial banks; the
government nationalized the six next largest in 1980.
Currently, India has 88 scheduled commercial banks (SCBs) - 27 public
sector banks (that is with the Government of India holding a stake), 29 private
banks (these do not have government stake; they may be publicly listed and traded
on stock exchanges) and 31 foreign banks. They have a combined network of over
53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a
rating agency, the public sector banks hold over 75 percent of total assets of the
banking industry, with the private and foreign banks holding 18.2% and 6.5%
respectively
Without a sound and effective banking system in India it cannot have a
healthy economy. The banking system of India should not only be hassle free but it
should be able to meet new challenges posed by the technology and any other
external and internal factors.
For the past three decades India's banking system has several outstanding
achievements to its credit. The most striking is its extensive reach. It is no longer
confined to only metropolitans or cosmopolitans in India. In fact, Indian banking
system has reached even to the remote corners of the country. This is one of the
main reasons of India's growth process.
The government's regular policy for Indian bank since 1969 has paid rich
dividends with the nationalization of 14 major private banks of India.
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Not long ago, an account holder had to wait for hours at the bank counters for
getting a draft or for withdrawing his own money. Today, he has a choice. Gone
are days when the most efficient bank transferred money from one branch to other
in two days.
The first bank in India, though conservative, was established in 1786. From
1786 till today, the journey of Indian Banking System can be segregated into three
distinct phases. They are as mentioned below:
Early phase from 1786 to 1969 of Indian Banks:
Nationalization of Indian Banks and up to 1991 prior to Indian banking sector
Reforms.
New phase of Indian Banking System with the advent of Indian Financial &
Banking Sector Reforms after 1991.
To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II
and Phase III.
PHASEI
The General Bank of India was set up in the year 1786. Next came Bank of
Hindustan and Bengal Bank. The East India Company established Bank of Bengal
(1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units
and called it Presidency Banks. These three banks were amalgamated in 1920 and
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Imperial Bank of India was established which started as private shareholders
banks, mostly Europeans shareholders.
In 1865 Allahabad Bank was established and first time exclusively by Indians,
Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore.
Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda,
Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of
India came in 1935.
During the first phase the growth was very slow and banks also experienced
periodic failures between 1913 and 1948. There were approximately 1100 banks,
mostly small. To streamline the functioning and activities of commercial banks, the
Government of India came up with The Banking Companies Act, 1949 which was
later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act
No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the
supervision of banking in India as the Central Banking Authority.
During those days public has lesser confidence in the banks. As an aftermath
deposit mobilization was slow. Abreast of it the savings bank facility provided by
the Postal department was comparatively safer. Moreover, funds were largely
given to traders.
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PHASEII
Government took major steps in this Indian Banking Sector Reform after
independence. In 1955, it nationalized Imperial Bank of India with extensive
banking facilities on a large scale specially in rural and semi-urban areas. It formed
State Bank of India to act as the principal agent of RBI and to handle banking
transactions of the Union and State Governments all over the country.
Seven banks forming subsidiary of State Bank of India was nationalized in
1960 on 19th July, 1969, major process of nationalization was carried out. It was
the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major
commercial banks in the country were nationalized.
Second phase of nationalization Indian Banking Sector Reform was carried out in
1980 with seven more banks. This step brought 80% of the banking segment inIndia under Government ownership.
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The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:
1949: Enactment of Banking Regulation Act.
1955: Nationalization of State Bank of India.
1959: Nationalization of SBI subsidiaries.
1961: Insurance cover extended to deposits.
1969: Nationalization of 14 major banks.
1971: Creation of credit guarantee corporation.
1975: Creation of regional rural banks.
1980: Nationalization of seven banks with deposits over 200 crore.
After the nationalization of banks, the branches of the public sector bank India rose
to approximately 800% in deposits and advances took a huge jump by 11,000%.
Banking in the sunshine of Government ownership gave the public implicit faith
and immense confidence about the sustainability of these institutions.
PHASEIII
this phase has introduced many more products and facilities in the banking sector
in its reforms measure. In 1991, under the chairmanship of M Narasimham, a
committee was set up by his name which worked for the liberalization of banking
practices.
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The country is flooded with foreign banks and their ATM stations. Efforts are
being put to give a satisfactory service to customers. Phone banking and net
banking is introduced. The entire System became more convenient and swift. Time
is given more importance than money.
The financial system of India has shown a great deal of resilience. It is sheltered
from any crisis triggered by any external macroeconomics shock as other East
Asian Countries suffered. This is all Due to a flexible exchange rate regime, the
foreign reserves are high, the capital account is not yet fully convertible, and banks
and their customers have limited foreign exchange exposure.
Before the steps of nationalization of Indian banks, only State Bank of India (SBI)
was nationalized. It took place in July 1955 under the SBI Act of 1955.
Nationalization of Seven State Banks of India (formed subsidiary) took place on
19th July, 1960.
The State Bank of India is India's largest commercial bank and is ranked
one of the top five banks worldwide. It serves 90 million customers through a
network of 9,000 branches and it offers -- either directly or through subsidiaries --
a wide range of banking services.
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Structure
The Indian banking system can be classified into nationalized banks,private banks and specialized banking institutions. The industry is highly
fragmented with 30 banking units contributing to almost 50% of deposits and 60%
of advances. The Reserve Bank of India is the foremost monitoring body in the
Indian Financial sector. It is a centralized body that monitors discrepancies and
shortcomings in the system.
Industry estimates indicate that out of 274 commercial banks operating in
the country, 223 banks are in the public sector and 51 are in the private sector.
These private sector banks include 24 foreign banks that have began their
operations here. The specialized banking institutions that include cooperatives,
rural banks, etc. form a part of the nationalized banks category.
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YEAR OF THE EVENTS:
1980 - The Bank came into existence on 15th April, as a consequence of the
Government of India taking over the undertaking of Vijaya Bank Ltd. The Bank is
engaged in transacts all types of banking business including foreign exchange and
is a Government of India undertaking.
1984 - Capital worth Rs 10 lakhs subscribed by Government.
1985 - The Bank sponsored its first Regional Rural Bank under the name and style
"Visweswaraya Grameena Bank" in March. This Regional Rural Bank would cater
to the needs of the target group belonging to Mandya district of Karnataka State.
- Capital worth Rs 772 lakhs subscribed by Government.
1986 - Capital worth Rs 1000 lakhs subscribed by Government.
1989 - Rs 800 lakhs subscribed by Government.
1991 - Rs 2500 lakhs subscribed by Government.
1992 - Rs 2500 lakhs subscribed by Government.
- The bank has introduced automatic renewal facility up to four times in
respect of short term deposits accepted for periods from forty six days to
one year for the convenience of the stomers.
1993 - Rs 5000 lakhs subscribed by Government.
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- The Bank has installed 68 ALPMs in 25 branches.
1994 - Rs 6500 lakhs subscribed by Government.
- The Bank had entered into the Memorandum of Understanding with the
Reserve Bank of India, undertaking to fulfill definite performance commitments.
- The Bank introduced the new schemes viz. Vijaya Gift Bond Scheme and
Vijaya Service Card for enlarging its services to its business clientele.
1995-- The Bank opened its third exclusive NRI branch at Mapuca (GAO) and
established special NRI Cells at the branches in Tiruvalla, Kottayam, Trivandrum
and Kozhencherry (all in the Kerala State).
- The Bank launched its "V-Invest" Scheme in January. 1995 - Rs 6231 lakhs
subscribed by Government.
- The Bank opened 33 new branches taking the total to 810 branches.
- The Bank entered into strategic alliance with leading private sector banks and
branches of foreign banks in India viz City Bank, N. A. India, Catholic Syrian
Bank Ltd, HDFC Bank Ltd, Centurion Bank Ltd, UTI Bank Ltd, etc.
- The Bank introduced Office Automation by providing state-of-the-art word
processors at 45 branches, 13 Regional Offices and Head office departments.
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1996 - The Bank opened its first subsidiary, VIBANK HOUSING FINANCE LTD
to add impetus to housing finance.
- Vijaya Bank introduced three new loan schemes, namely, 'Vijaya Nivruthi',
'Vijaya Krishi Vikas' and 'Vijaya Mangala' to cater to the credit needs of
pensioners, farmers and working women respectively.
1997 - Vijaya Bank has introduced a novel way to improve customer service.
- The bank has recently introduced a system of rating its branches once in six
months to evaluate the quality of service and the facilities extended to the clientele.
- Vijaya Bank has launched a special agriculture credit plan targeted
specifically at agriculture and other, rural advances.
- The Bank has recently introduced a new `trade finance' scheme.
1998 - Vijaya bank has introduced a jewel scheme under which loans are granted
by the bank to fund the purchase of jewellery by keeping the purchased item as
collateral till the loan has been repaid.
1999 - Vijaya Bank has entered into a Rs 200-crore take-out financing agreement
with the Housing and Urban Development Corporation (HUD co) for funding
infrastructure projects.
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-Vijaya Bank has unveiled a new electronic fund remittance facility
called V-REMIT, under which the bank customers can electronically remit funds
to the account holders in any bank.
-P A Sethi has been appointed as the Executive Director of the Vijaya
Bank.
-Vijaya Bank has signed a Memorandum of Understanding with M/s
National Insurance Company Limited for marketing banc assurance products.
-Vijaya Bank decides to open training centre for employees in Bangalore
-The Union government has bought back Rs 240-crore high-yielding
government securities from Vijaya Bank.
2004 -Vijaya Bank ties up with NIC to offer free insurance policy
-US-based Principal Group enters distributorship tie-ups with Vijaya Bank
-Delhi based Punjab National Bank (PNB) and Bangalore-based Vijaya Bank
enter into a four-way partnership with Principal Financial of the US and Berger
Paints to set up an insurance broking company
-Vijaya bank Housing Finance Ltd. becomes wholly owned subsidiary of
Vijaya Bank
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- Vijaya Bank has entered into a memorandum of understanding (MoU) with
two tractor manufacturers International Tractors and Mahindra Gujarat Tractors to
provide finance on softer terms to farmers for purchase tractors and power tillers
-VIJAYA Bank signs pact with Nabard to co-finance agriculture, agro
processing, hi-tech agriculture and rural development projects.
-Vijaya Bank too enters RTGS bandwagon
-Principal Asset Management Company (AMC) formally relaunches itself
as Principal PNB Asset Management Company in association with Vijaya Bank on
July 2, 2004
-Vijaya Bank launched the bank's second city specific credit card - the
'Hyderabad Card'
2005 -Vijaya Bank ties up with TAFE
-Vijaya Bank sets up new branches
2007 - Vijaya Bank has informed that Shri G B Singh has been nominated as GOI
Nominee Director of the Bank vice Shri Atul Kumar Rai, vide letter dated August
20, 2007 received from Government of India, Ministry of Finance, Department of
Financial Services with immediate effect.
2008 - Vijaya Bank inked a memorandum of understanding with credit rating
agency, Crisil, for rating its corporate customers.
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- Vijaya Bank has inked a pact with Credit Analysis & Research Ltd
(CARE), one of the RBI accredited rating agency, to provide bank loan ratings to
its corporate clients at a concessional fee.
-Vijaya Bank has informed that Shri. Sridhar Cherukuri has been nominated
as part-time non-official Director of the Bank with immediate effect, vide letter
dated July 10, 2008 received from Government of India, Ministry of Finance,
Department of Financial Services.
Vijaya Bank is an India-based bank. During the fiscal year ended March 31,
2008, the Bank opened 73 new branches, upgraded five extension counters into
full-fledged branches. As of March 31, 2008, the Bank had 1,051 branches across
28 states and four union territories. Total credit cards issued by the Bank was 1,
43,000 at March 31, 2008. As of March 31, 2008, it had issued 3,95,000 debit-
cum-automated teller machine (ATM) cards
The organized Banking System in India can be broadly divided into 3
categories, viz., the central Bank of the country known as the Reserve Bank of
India, the commercial banks and the Co-operative banks, The Reserve Bank of
India is the supreme monetary and Banking authority in the country and has the
responsibility to control banking system in the country.
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Commercial banks mobilize savings in urban areas and make them available
to large and small industrial and trading units mainly for working capital
requirements. After 1969 commercial banks are broadly classified into nationalized
banks or public sector banks and private sector banks, The State Bank of India and
its associates banks along with other 20 banks are the public sector banks, The
private sector banks include a small number of Indian scheduled banks.
Which have not been nationalized, and branches of foreign banks operating
in India commonly known as foreign exchange banks.
The Regional Rural (RRBs) banks came into existence since the middle of
1970s with the specific objective of providing credit and deposit facilities
particularly to the small and marginal farmers, agricultural labourers and artesian
and small entrepreneurs. The RRB, are essentially commercial banks but their area
of operation is limited to district.
Primary co - operative credit (or banks) was originally set up in villages topromote thrift and savings of the farmers and to meet their credit needs for
cultivation. To support them, central or District co - operative banks and above
them State co - operative banks were established, The funds of the Reserve Bank
of India meant for the agricultural sector actually pass through the state co -
operative banks and central co - operative credit banks. originally based in the rural
sector, the co - operative credit movement has now spread to urban areas also and
there are many urban co - operative banks coming under state co-operative banks.
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REGULATORY FRAMEWORK:
REGULATORS:
The different segments of the Indian Financial System (IFS) are monitored
and controlled by statutory bodies called regulatory institutions. These institutions
have been given adequate Powers by legal acts or by acts of parliament to enable
them to supervise the segments assigned to them, It is the duty of the regulator to
ensure that the players in the segments work within recognized business
parameters maintain sufficient levels disclosure and transparency of operations anddo not act against national interests. At present, the IFS have 2 regulatory arms that
is:
Reserve Banks of India (for Banks and NBFCs) Security and Exchange Board of India (for capital markets)
THE RESERVE BANK OF INDIA:
Reserve Bank of India, the central bank of the country, is at the heart of the
Indian Financial and Monetary system. It was established on April l, 1935 as a
private shareholders, institution under the Reserve Bank of India Act I934. It was
nationalized in January l949, under the Reserve Bank (Transfer of Public
ownership) of India Act, 1948. This act empowers the central Government, in
consultation with the Governor of the bank; to issue such directions to RBI as
might be considered necessary in the public interest. A Central Board of Directors
with 20 members consisting of the Governor and the Deputy Governors governs
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RBI. The Governors and Deputy Governors of the bank are Government of India
appointees.
Indian Banking has become strong, stable and vibrant following banking
reforms during l99l - 92 and thereafter and it has acquired international standards
with regard to capital adequacy and NPA percentage, Banks have become tech -
savvy and have fine-tuned their risk management policies, The Reserve Bank of
India has taken up the issue of Rear - Time Gross settlements (RTGS) among
various banks. Now banks and regulators have to face the challenges of
consolidation, convergence and competition besides financial inclusion.
GLOBAL DEVELOPMENTS AND NPAS:
The core banking business is of mobilizing the deposits and utilizing it for
lending to industry, Lending business is generally encouraged because it has the
effect of funds being transferred from the system to productive purposes which
results into economic growth.
However lending also carries credit risk, which arises from the failure of
borrower to fulfill its contractual obligations either during the course of a
transaction or on a future obligation.
A question that arises is how much risk can a bank afford to take? Recenthappenings in the business world - Enron, WorldCom, Xerox, Global Crossing do
not give much confidence to banks. In case after case, these giant corporate
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became bankrupt and failed to provide investors with clearer and more complete
information thereby introducing a degree of risk that many investors could neither
anticipate nor welcome. The history of financial institutions also reveals the fact
that the biggest banking failures were due to credit risk.
Due to this, banks are restricting their lending operations to secured avenues
only with adequate collateral on which to fall back upon in a situation of default.
INDIAN ECONOMY AND NPAS:
Undoubtedly the world economy has slowed down, recession is at its peak,
globally stock markets have tumbled and business itself is getting hard to do. The
Indian economy has been much affected due to high fiscal deficit, poor
infrastructure facilities, sticky legal system, cuffing of exposures to emerging
markets by FIs, etc.
Further, international rating agencies like, Standard & Poor have lowered
Indias credit rating to sub-investment grade. Such negative aspects have often
outweighed positives such as increasing forex reserves and a manageable inflation
rate.
Under such a situation, it goes without saying that banks are no exception
and are bound to face the heat of a global downturn. One would be surprised to
know that the banks and financial institutions in India hold non-performing assets
worth Rs. 1,10,000 crores. Bankers have realized that unless the level of NPAs is
reduced drastically
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COMPANY PROFILE IN BRIEF
INTRODUCTION:Vijaya bank has been able to maintain a standard profile since it was born a
Detailed discussion on the profile of the organization is carried on below.
ORIGIN AND GROWTH OF THE ORGANISATION:
Vijaya Bank was founded by late Shri A.B Shetty. He was an ardent
Gandhian and he was closely associated with the Indian freedom movement.
Vijaya Bank was established in the year 1931, in Mangalore, Karnataka. The Bank
commenced its business operations on 23rd October 1931 with an authorized
capital of Rs.5 lakhs and a paid of capital of Rs.8670.
The bank was founded essentially to promote banking habit, thrift and
entrepreneurship among the farming community of Dakshina Kannada district,
Karnataka. The Bank became a scheduled Bank in 1958.Vijaya Bank steadily grew
into a major All India Bank, with nine smaller Banks merging with it during 1963-
1968. The credit for the successful execution of the merger plan should go to late
Shri M Sunder Ram Shetty, who was the then Chief Executive of the Bank. TheBank was nationalized on 15th April 1980. The Bank has built a network of 1027
branches spread over 29 states of the country and 3 union territories. The Bank
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took several initiatives for effective implementation of various Governments
directed lending schemes.
Vijaya Bank has the highest number of branches in its home state,
Karnataka. In recent years the Bank has opened 40 branches that offer specialized
banking for industrial finance, small scale industries, agricultural (hi-tech) finance,
capital market, commercial and personal banking, asset recovery management,
overseas banking, corporate banking and funds transfer.
Presently the Bank has 1027 branches spread over in 29 states of the countryand 3 union territories. Very few banks have spread their branch network in so
many states and union territories. The Bank has highest number of branches in the
state of Karnataka (406). In recent years the Bank has opened as many as 99
specialized branches via Industrial Finance Branch (3), SSI branches (7), Capital
Market Services Branch (4), Specialized Commercial and Personal Banking
Branches (71), Asset Recovery Management Branch (7), Overseas Branch (3),
Corporate Banking Branch (1), Regional Forex cell (2).In line with the prevailing
trends, the bank has been giving greater thrust toward technological up-gradation
of its operations. As on March 2003, 356 branches have been computerized,
covering 78.26% of the Banks total business. Besides this, the Bank has also
installed ATM.s at 18 of its branches.
The Vijaya Bank has diversified its services by entering several new areas
such as credit card, merchant banking, hire purchase, leasing and electronic
remittance services.
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Vijaya Bank is one among the few banks in the country to take up principal
membership of VISA International and Master Card International. The driving
force behind Vijaya Banks every initiative has been its strong dedicated workforce.
INTERNATIONAL BANKING DIVISION
Vijaya Bank has obtained an AD License in 1971 and permanent license
after nationalization in 1980.The branches dealing in foreign business are called
Overseas Branches and are categorized into A,B and C Category Branches. All
the branches have SWIFT connectivity.34 designated branches have Core Banking
System (CBS).The Bank maintains 16 Nostro Accounts in ten currencies. The
vostro accounts are ten in number comprising of six private exchange houses and
four Banks. The Bank has entered in to agency arrangements with 156 Banks in 65
countries. It maintains exchange positions in 8 internationally quoted quotations.
The dealings operations handled at Forex and Treasury Management Division arelocated in the Head Office.
MISSION:
Our mission is to emerge as a prime national backed by modern technology,
meeting
Customers aspirations with professional banking services and sustained growth
contributing to national development
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SERVICES:
When the bank commenced operation in 1931, the banks services primarily
focused on the growth and development of the agricultural sector. Today a variety
of specialized banking services are offered through 43 branches.
The banks expertise now extends to the prime areas of capital market,
corporate banking, Industrial finance, small scale industries and hi-tech agriculture,
apart from personal banking, Funds transfer overseas banking and asset recovery
management. Vijaya bank has been Giving mainly two types of services, those areenlisted below:
1)DEPOSIT SCHEMES:
!) SAVING BANK ACCOUNT:
Save as much as you can. Spend as little as you can. And see your money grow.
!!) CURRENT ACCOUNT:
Pool your cash here, pay conveniently trough cheques.
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!!!) TERM DEPOSITS:
a) recurring deposits save a definite sum every month for handsome gains with an option to vary
The monthly installments.
b) fixed deposits a safe way to high return, the only thing fixed is time
c) Vijaya shree units save lump sum and interest more than simple, stretches when you are in
need
d)jeevan nidhi deposits Helps you to save at your door steps, opens the gate way for bright future.
e)
Vijaya cash certificates Your friend in need when it comes to education marriage of the benefit of
exemption from capital gains income to invest into capital gains account.
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f) Vijaya raksha a life insurance scheme for deposit account holders
g) capital gains accounts scheme Income tax assessee can avail of the benefit of exemption from capital gains
income to invest into capital
h)v-stock invest deposits scheme Earn a handsome return through invest in v-stock scheme as much as you
can
2) RETAIL LENDING SCHEMES
!) Vijaya home loan
Own your dream home/ flat at the lowest interest rate 7.5% p a in thebanking industry
!!) Vijaya wheels
Drive your dream vehicle at the affordable PLR rate
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!!!) v-equip schemes
A friend who can always equip you with your choicest consumer durablesand improve your life style at PLR +1 rate
!v) v- trade scheme
Avail instant bank finance against business assets at the PLR rate (presently11.5%p a) for loans up to Rs 2 lakh and as the of PLR+2 there
v) Jewel loan
a barrower friendly scheme against jewels to meet your urgent needs at thePLR rate
V!) Loans to small road transport operators (SRTOs)
right choice for the transport operators who want to make transport businessa success loans at PLR rate for priority sector and at PLR +1 rate for non
priority sector
\ (presently 12.5%p a)
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V!!) V-rent schemes
Take cash today at the PLR rate against tomorrows rent
V!!!) Education loan
Avail our education loan and draw your wards life line. Loans up to Rs 4lakh at PLR rate .loans above Rs 4 lakh at PLR + 1
!x) v-professionals scheme:
Professional like doctors ,engineers, advocates, chartered accountants, etcwho Wish to set up their practice/business activity, in rural/semiurban
areas can avail Loans up to Rs 15 lakh at 1% in metro urban areas
x) v-kanyadan scheme:
marriages are made in heaven, but v- kanyadan helps to celebrate this onEarth Loans at the lowest affordable interest rate of PLR-1 (presently
10.5%p a)
X!) V-mangala scheme:
Special scheme to fulfill the dreams of working women at the lowest rateThat is PLR -1 (presently 10.5%p a)
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3)OTHER SERVICE:
The bank also offers various services in the areas of credit cards, merchant
Banking, hire purchasing, and leasing and NRI (non-resident Indians) services.
1) For cash paymenta) Trough teller
b) Trough cashier
3 to 8 minutes
8 to 15 minutes
2) Receipt cash 10 to 20 minutes
For issuance of demand
raft/
Traveler cheques/ fixed
deposit receipt
15 to25 minutes
4) Payment of fixed
deposit receipt
15 to 20 minutes
5) Payment of demand
draft
10 to 20 minutes
6) Opening of an account 20 to 25 minutes
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Times-
norms for
various banking
transaction:
7) Retirement of bills 20 to 30 minutes
8) Updating of pass book 5 to 15 minutes
9) Statement of accounts Within 1 days
10) Collection of cheques
Local-
Out station-
1 to 2 days
5 to 7 days
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ORGANISATION CHART
Today living up to the ideals of the founding visionaries is the management
at Vijaya bank. The management includes dedicated professionals, who bring with
then a considerable amount of expertise and experience in the banking industry.
Currently the banks boards of directors consist of 10 directors.
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PRAKASH P MALYA
Chairman and mana in director
T.VALLIAPPAN
ASHOK KUMAR SHETTY ASHOK KUMAR
NISHANK KUMAR JAIN
K.VENKATAPPA G.B.SINGH
R.VAIDYANATHAN
SHANTHARAM SHETTY BRIJMOHAN SHARMA
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FUNCTIONAL DEPARTMENTS OF VIJAYA BANK:
ADMINISTRATION DEPARTMENT
PERSONNEL DEPARTMENT:
The personnel department frames the various policies related to the Recruitment,
training, promotion and transfer. It is also instrumental in managing the various
activities regarding the training of employees with the help of the Officers.
Training college. It also manages the promotion and transfer procedures. It also
helps in the management and control of industrial relations.
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TREASURY MANAGEMENT DEPARTMENT:
Treasury department has two wings- Domestic and Forex treasury. Domestic
treasury handles the security liquidity ratio. Security that is required to maintain
security liquidity ratio is handled by the department. The Forex treasury maintains
banks. Foreign accounts with the foreign banks called nostru accounts. Forex
treasury apart from covering merchant transactions also maintains trade in foreign
currency on behalf of bank. It also maintains mirror account of foreign currency inall restrained bank accounts by the branches of the bank.
GENERAL ADMINISTRATION DEPARTMENT:
General administration department looks after the matters related to
maintenance of head office building and other bank premises owned by bank. It
also deals with furnishing and purchase of furniture and fixtures for the bank
branches. It is also into matters relating to lease agreements of branch premises and
renewal of lease agreements and work related to printing of forms, ledgers,
statements and supply of computer stationary. It also maintains all the vehicles
owned by the bank.
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PLANNING DEPARTMENT:
It prepares vision document for the bank. It also fixes targets to various
regional offices and branches to achieve corporate goals of the bank. For this
purpose the planning department follows a system of performance budgeting.
CREDIT DEPARTMENT:
The credit department has 4 wings- Credit policy, Credit operations, Credit
supervision & monitoring and Credit Review & Recovery. Credit policy
department frames banks. Credit policy inline with the policy laid down by RBI
and Government of India. The Credit Operations department lays down procedures
and rules and also delegates power for sanction of loans by field functionaries.
Credit supervision & monitoring provides offset audit of credit portfolio by
obtaining reports and statements from sanctioning authorities at head office. The
main purpose of the department is to ensure that the credit portfolio of the bank
continues to be healthy. Credit Review & Recovery department handles recovery
matters in respect of nonperforming assets like irregular accounts.
DEPARTMENT OF INFORMATIONAL TECHNOLOGY:
The Bank has created a .Department of Information Technology. at its headoffice. The primary objective of this department is to promote computer literacy
among employees, to upgrade communication and information technology and to
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develop electronic banking capabilities. The Bank has initiated action for
implementing Core Banking solution, Integrated Risk Management System and
Networking of ATMs with addition of 100 ATMs.
RISK MANAGEMENT DEPARTMENT:
The Bank recognizes that management of risk is fundamental to the business
of banking. The Banks approach to risk management is proactive. The primary
goal of risk management is not to avoid or minimize risks inherent in business but
to steer them consciously and actively. The basic objective is to strike a balance
between risk and rewards.
CENTRAL ACCOUNT DEPARTMENT:
Central account department is very instrumental in consolidation of balance
sheet. It is also involved in reviewing the Management, Financial statements with
special emphasis on accounting policies and practices, compliance of accounting
standards and other legal requirements concerning financial statements,
qualifications in the audit report, compliance with stock exchange and legal
requirements concerning financial institutions, related party transactions, etc.
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CENTRAL INSPECTION DEPARTMENT:
Central Inspection Department involves audit, inspection & vigilance.
Inspection of branches is one of the tools for internal control in the Bank. Based on
the finding of the Inspection, every branch is rated on a prescribed rating scale.
The rating of branches also enables the Bank to ensure that sufficient attention is
paid to the performance of those branches that have been awarded unsatisfactory
ratings. The focus of the Vigilance Department has been to constantly intervene
and upgrade the Systems & Procedures of the Bank and prevent intrusions that
spread the malaise of permissiveness.
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REVIEW OF LITERATURE
According to AjitReddy N A:
Non-performing asset (NPA) is a loan or an advance where
Interest or installment of principal remain overdue for a period of more than 90
days in respect of a term loan, The account remains out of order, in respect ofan
Overdraft or Cash Credit. The bill remains overdue for a period of more than 90
days in the case of bills purchased and discounted. A loan granted for short
duration crops will be treated as NPA, if the installment of principal or interest
thereon remains overdue for two crop seasons. A loan granted for long duration
crops will be treated as NPA, if the installment of principal or interest thereon
remains overdue for one crop season.
According to G.P Muniappan:
The NPAs Internal Diversion of funds for expansion/modernisation/setting
up new projects/ helping or promoting sister concerns. Time or cost over run whileimplementing the project. Deficiencies on the part of the banks viz. in credit
appraisal, monitoring and follow-up, Delay in release of limits, delay in settlement
of payments or subsidies by Govt. bodies willful Default or Misappropriation of
funds. Inefficient management, Strained labour relations, Inappropriate technology
or technical problems External Recession in the economy External factors like raw
material shortage, raw material/input price escalation, power shortage, industrial
recession, excess capacity, natural calamities like floods, accidents. Business
failure like product failing to capture market, inefficient management,
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Strike/strained labour relations, wrong technology, technical problems, product
obsolescence, etc. Govt. policies like excise, import duty changes, deregulation,
pollution control orders. Failure, non-payment/overdues in other countries,
recession in other countries, externalisation problems, adverse exchange rate, etc.
According to Sergio :
In a study of non-performing loans in Italy found evidence that, an increase
in the riskiness of loan assets is rooted in a banks lending policy adducing to
relatively unselective and inadequate assessment of sectoral prospects. The study
emphasised that increase in bad debts as a consequence of recession alone is not
empirically demonstrated.
The empirical analysis by Fuentes and Maquieira on the Credit market
examined different factors that may effect loan repayment Limitations on the
access to credit Macroeconomic stability Collection technology Bankruptcy code
Information sharing The judicial system Prescreening techniques Major changes in
financial market regulation.
Impact of NPAs on Banks: NPAs have a deleterious effect on the return on
assets because They erode current profits through provisioning requirements They
result in reduced interest income They require higher provisioning requirements
affecting the capacity to increase good quality assets in future pressure on net
interest margin thereby reducing competitiveness They limit recycling of funds, set
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in asset-liability mismatches, etc Shift in concentration from core banking to credit
risk management.
RESEARCH DESIGN
TITLE OF THE PROJECT
Non-performing asset
(With reference to VIJAYA BANK, BANGALORE)
STATEMENT OF PROBLEM
This particular topic is to analysis Non-performing asset level of
VIJAYA BANK and their impact on the performance of the bank.
Non-performing asset is the major bone for the banks in India, so as in the
case of VIJAYA BANK the study has been undertaken to know the
status, practice and impact of NPAs in the performance of bank, the
problem lies in understanding and analyzing the NPAs.
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OBJECTIVES OT STUDY
To have an overview of the history, growth and development, vision,value schemes and facilities of VIJAYA BANK.
Analyzing the prudential norms on asset classification and incomerecognition.
Understanding the concept of Non-performing asset. To intimate timely steps to identify the Non-performing assets. To know the policies, procedures followed by VIJAYA BANK with
respect to Non-performing asset.
To study the causes for NPA level in the bank. To study the general reasons for asset become NPAs.
SCOPE OF THE STUDY
The study is conducted in the branch of VIJAYA BANK. BANGALORE..
The scope of study stretches from the NPA and its effect on profitability.
The main trusted area of Indian banking is extending credit to the needy.
The qualities of the assets determine the viability of the system. The crucial factors
that decides the performance of the banks and financial institution is spotting NPA.
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The study covers the management of Non-performing asset with respect to
VIJAYA BANK. Study mainly focuses on:
Concept/evolution of NPAs. Status of NPAs Causes of NPAs.
3.4.METHODOLOGY OF THE STUDY
Due to the vastness of the subject an attempt is made to understand the
main spheres of the problem of Non-performing assets and its effects on the
financial stability of the bank. The study is descriptive in nature and is based on the
primary data and secondary data.
Primary Data:Primary source are original source which are collected through direct
interaction with Asst. Manager and employees of the bank. Information is collected
through direct interaction with advisor of VIJAYA BANK BANGALORE,
chiknayakanhalli.
Secondary Data:
Secondary data is collected from the text books, annual reports andinternet.
TOOLS FOR ANALYSIS
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Simple statistical and arithmetic methods are used to analyze the data that
were collected and tabulated.
PLAN FOR ANALYSIS:
The study will be based on the data collected and it will be interpreted in
the way of tables and charts.
LIMITATIONS OF STUDY
The study is conducted on the basis of data which was provided by theVIJAYA BANK, BANGALORE. Only consolidated figures are available.
Access to the information is limited and complete dependency on the annualreport of VIJAYA BANK.
The data are extracted from the records covering a period of only 5 years. The report is prepared and analyzed presuming that the data and information
given are correct
Organizational Structure of VIJAYA BANK Bank
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BOARD OF DIRECTORS
CHAIRMAN
EXECUTIVE MANAGER
DEPUTY GENERAL MANAGER
ASSISTANT GENERAL MANAGER
CHIEF MANAGER
SENIOR MANAGER
MANAGER
OTHER STAFFS
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DATA ANALYSIS AND INTERPRETATION
Table No:1 The movement of NPA for last five years at VIJAYA BANK.
Year Level of NPA (Rs in lakhs)
2007-08 22.80
2008-09 22.00
2009-10 20.00
2010-11 36.10
2011-2012 37.28
ANALYSIS
NPA of the bank is showing decreasing trend, it has decreased by 2.80 lakh
compare to 2007-08, but there is 14.48 lakh increases in NPA in the year 31 March
2012
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Chart no:1 The movement of NPA for last five years at VIJAYA BANK.
INTERPRETATION
Here the bank is good in its recovery, but in 31March 2012 it has increased by
14.28 lakh, So the bank should aim at complete recovery in order to reduce NPA
completely.
0
10
20
30
40
2007-
08
2008-
09
2009-
10
2010-
11
2011-
12
Level of NPA (Rs in lakhs)
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Table No:2. Movement of GNPA & NNPA for last five years at VIJAYA
BANK
year GNPA (Rs in lakhs) NNPA (Rs in lakhs)
2007-08 22.80 22.00
2008-09 22.00 21.27
2009-10 20.00 19.90
2010-11 36.10 36.00
2011-12 37.28 37.00
ANALYSIS
Gross NPA of the bank has been decrease from year to year. But it has
increased fromm 2010 as compared to previous 3 years. NNPA has been decreased
as compared to GNPA.
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Chart no:2 Movement of GNPA & NNPA for last five years at VIJAYA
BANK
INTERPRETATION
From the above analysis we can infer that GNPA is showing decreasing trend
in the year 2008-09 compare to 2007-08, it shows that banks has made less
provisions in the year 2008-09
0
5
10
15
2025
30
35
40
2007-08 2008-09 2009-10 2010-11 2011-12
22.8
22 20
36.1 37.28
22 21.27 19.9
36 37
GNPA(Rs in lakhs) NNPA(Rs in lakhs)
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Table No:3. The percentage change in the Gross NPA to total advances given
at VIJAYA BANK
Year Total advance GNPA GNPA as % to
advance
2007-08 705.33 22.80 3.2325
2008-09 803.19 22.00 2.7390
2009-10 961.25 20.00 2.0806
2010-11 1285.08 36.10 2.8091
2011-2012 1455.42 37.28 2.5614
ANALYSIS
Total advance of the bank has increases Rs 705.33 lakh in 2007-08. GNPA
decreases in 2008-09. In 2011-12 the GNPA increases to 2.085% to total advance
of 1455.42 % which is alarming to the bank
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Chart-3 The percentage change in the Gross NPA to total advances given at
VIJAYA BANK
INTERPRETATION
From the above analysis we can infer that advances of the bank is showing
positive sign and it is showing the growth rate and GNPA of the bank has also
increased and GNPA to total advance of the bank. It shows that bank should take
some measures to reduce its NPA.
0
200
400
600
800
1000
1200
1400
1600
2007-08 2008-09 2009-10 2010-11 2011-12
Total advance
GNPA
GNPA as % to advance