USHA PROJECT
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Transcript of USHA PROJECT
CONTENTS
CHAPTER – 1: INTRODUCTION OF THE TOPIC
Introduction about banking industry1
Co-operative Banks8
Evolution of Co-operative Banks10
Definition and Features of Co-operative Bank12
Structure of Co-operative Bank14
Non-Performing Assets17
RBI Prudential Norms on the recommendations of the
Narasimham Committee in the year 1992-93 19
Impact of Non0Performing Assets22
General causes of Non- Performing Assets23
Measures to tackle Non-Performing Assets24
Introduction to Securitization Act 200226
Meaning of Securitization27
Objectives of Securitization28
Benefits of Securitization29
Transaction Structures33
Parties involved in the securitization transaction36
Process of securitization38
Summary of Regulatory Framework45
Provisions of the Act46
CHAPTER – 2: DESIGN OF THE STUDY
Title of the Study48
Statement of the Problem48
Needs & Importance of the study49
Objectives of the study49
Scope of the Study50
Assumptions of the study50
Methodology of the study51
Tools for the collection of data51
Limitations of the study52
Reference Period52
Chapter Scheme52
CHAPTER – 3: BANK PROFILE
History of The BCCBL54
Trade mark of the Bank55
Goals & Objectives55
Vision Statement57
Organization chart of the Bank 58
Branches59
Statement showing the Information about the growth
of Bank 60
Awards and Competitors Information 61
CHAPTER – 4: ANALYSIS & INTERPRETATION
Reasons for NPAs in the bank63
Measures for the recovery of NPAs adopted by the
bank 64
Recovery mechanisms are adopted by the bank for
reducing NPAs 66
Issues concern in the implementation of SARFAESIA 66
2002
Analysis and interpretation of the Study 68 - 85
CHAPTER – 5: SUMMARY OF FINDINGS, SUGGESTIONS & CONSLUSIONS
Summary of findings86
Suggestions89
Conclusions90
BIBLIOGRAPHY
ANNEXTURES
Questionnaire
LIST OF TABLES
4.1 Growth of deposits of the bank 68
4.2 Growth of loans & advances as a percentage of deposits 70
4.3 Growth of loans & advances and recovery performance 72
4.4 Gross NPAs as a percentage of Loans & Advances 74
4.5 Net NPAs as a percentage of loans & advances 76
4.6 Status of NPAs & provisions made in the bank 78
4.7 Status of NPAs & recovery performance of the bank 80
4.8 Profit position for both the period 82
4.9 Overall performance of the bank 84
LIST OF GRAPHS
4.10 Growth of deposits of the bank 68
4.11 Growth of loans & advances as a percentage of deposits 70
4.12 Growth of loans & advances and recovery performance 72
4.13 Gross NPAs as a percentage of Loans & Advances 74
4.14 Net NPAs as a percentage of loans & advances 76
4.15 Status of NPAs & provisions made in the bank 78
4.16 Status of NPAs & recovery performance of the bank 80
4.17 Profit position for both the period 82
4.18 Overall performance of the bank 84
CHAPTER – I:
INTRODUCTION
1.1 INTRODUCTION ABOUT BANKING INDUSTRY:
The word bank originated the French word ‘benque’ or
Italian ‘banco’ which means an office for monitory transaction
over the counter. In those days banks or desks were used as
centers for monitory transactions.
During the barter system also, there existed traces of
banking, i.e. people used to deposit cattle and agricultural
products in specified places get loans of some other form in
exchange for these. There is solid evidence found in records
excavated from Mesopotamia, showing some bank existed around
1700 B.C. During this time barley, silver, gold, copper, etc., were
used as a standard for valuation.
1.2 ORIGIN OF BANKING INDUSTRY:
Greece was the first country to introduce a satisfactory
system of coinage. After the invention of coins started, a
meaningful system of banking came into existence taking into
account all the avenue of banking a credit system.
Rome was the first country to start a bank at the
department of state level in the 4th century B.C. with transactions
such as depositing and investments in other forms. In India
ancient records show that banking was popular and money
lending was a common practice among the common people.
In the olden days’ Goldsmith, merchants and money lenders
conducted the business. They had transactions among themselves
by which funds were transferred from one business firm to
another. They had no general or uniform principles of banking,
lending, rate of interest, etc.
1.3 INTRODUCTION TO BANKING IN INDIA
The Indian Companies Act defines the term banking as
“accepting for the purpose of lending or investment of deposits of
money from the public, repayable on demand or otherwise and
withdrawable by cheque, draft or otherwise”.
A Banker is a dealer in money and credit. The business of
Banking consists of borrowing and lending banks acts as financial
intermediaries between savers (lenders) and investors
(borrowers) by accepting deposits of money from a large number
of customers and lending a major position of a accumulated ‘pool’
of money to those who wish to borrower. In this process banks
secure reasonable return for the savers, make funds available to
the investors at a cost and earn a profit for themselves after
covering the cost of funds and providing for corporate taxes to the
government. Thus, the banking institutions in a country mobilizes
savings by accepting monetary deposits from the people,
participate in the mechanism for the exchange of goods and
services and extend credit while lending money.
1.4 HISTORY OF MODERN BANKING IN INDIA
Pre-nationalization period:
The history of modern banking in India dates back to the
last quarter of 18th century. During this period the English agency
houses of Bombay and Calcutta started banking business to India.
They setup the Bank of Hindustan around 1770 followed by setting
up of quasi government banking institutions like presidency bank
of Bombay in 1840 and presidency Bank of Madras in 1873.
In 1921 all these banks were amalgamated and imperial
bank was constituted. In the late 19th and early 20th centuries, the
Swadeshi Movement inspired to start banks in India. The Indian
Banks were established during this period. In 1935 the Reserve
Bank of India was established as a central bank for regulating and
controlling the Banking business in the country. Soon after
independence, the Reserve Bank was nationalized in September
1948. The outlook of Reserve Bank further changed after the
inception of planning in 1950-51 and the country adopting a
socialistic pattern of society.
Post-nationalization period:
On an account of the top-sided growth of the banking
system and to bridge the gap between a few industrial houses and
banks, the scheme of the social control was imposed on banks
with effect from Feb 1, 1969. It resulted in setting up of National
Credit Council for more equitable distribution of bank credit and
legislative changes in the Banking Regulation Act for making the
board of directors of the banks more board based. As a result the
government resorted to a more radical measure by nationalizing
14 major banks on July 1969. Later on in April 1980, six more
banks were nationalized to achieve the objective.
The objective of nationalization was to control the
commanding heights of economy and to meet progressively and
serve he needs of the developing economy in conforming to the
national policy and objectives. Another welcome feature of post –
nationalization period is setting up of regional rural banks setting
up of regional rural banks as per the provisions of the Regional
Rural Bank Act 1976. These banks confine in themselves the
simplicity of operations as required by local conditions and the
efficiency and businesslike approach of commercial banks. At the
end of June 1986 there were 194 regional rural banks covering
342 districts. Thus, the banking system, during the post –
nationalization period has undergone a major structural
transformation. There has been a phenomenal expansion of
branch network particularly the hitherto under banked areas.
Present scenario of banking industry:
The Indian banking can be broadly categorized into
nationalized (government oriented), private banks and specialized
banking institution. The RBI acts as a centralized body monitoring
any discrepancies and shortcoming in the system. Since the
nationalized banks have required a place of prominence and has
then seen tremendous progress.
The need to become highly customer focused has forced
the slow of moving public sector banks to adapt a fast track
approach.
The Indian Banking has come a long way from a sleepy
business institution to a highly proactive and dynamic activity. This
transformation has been largely brought by the large close of
liberalization and economic reform that allowed banks to explore
new business opportunities rather than generating revenue from
conventional stream i.e. borrowing and lending. The Co-operative
banks too have invested heavily in information technology to after
computerized banks services o its clients.
New Generation Banking:
The liberalized policy of government of India permitted
entry of private sector in banking; the industry has witnessed the
entry of new generation private banks. The major parameter that
distinguishes these banks from all the other banks in Indian
Banking is the level of services that is offered to the customer.
Verifying the focus has always being centered on the customer
understanding his needs and delighting him with various
configurations of benefits and a wide portfolio of product and
services. The popularities of these banks can be gauged by the
fact, that in as short span of time, these banks have gained
considerable customer confidence and consequently have shown
impressive growth sales.
1.5 CLASSIFICATION OF BANKS
Banks are classified into several types based on the function
they perform. Generally banks are classified into
1. Investment banks
2. Exchange banks
3. Commercial banks
4. Co-operative banks
5. Land development banks
6. Savings banks
7. Central banks
1.6 FUNCTIONS OF BANKING
A. The main functions are as follows;
1. Borrowing of money in the form of deposits.
2. Lending or advancing of money in the form of different
types of loan.
3. The drawing, making, accepting, discounting, buying and
selling, collecting and dealing in bills of exchange,
promissory notes, coupons, drafts, bills of lading, railway
receipts, warrants, debentures, certificates, securities both
negotiable and non-negotiable.
4. The granting and issuing of credit, travelers cheques, etc.
5. The acquiring, holding, issuing on commission,
underwriting, dealing in stock, funds, shares, debentures,
bonds, securities of all kinds.
6. Providing safe deposits vaults.
7. Collecting transmitting of money and securities.
8. Buying and selling of foreign notes.
9. The purchasing and selling of bonds scripts and other forms
of securities on behalf of constituents or others.
B. The subsidiary functions of banks are:
1. Acting as agents for governments or local authorities or any
other persons.
2. Carrying out agency business of any description.
3. Contracting for public and private loans and negotiation and
issuing the same.
4. Carrying on guarantee and indemnity business.
5. Managing to sell and realize any property or any interest in
any such property.
6. Undertaking and executing of trusts.
7. Granting of pensions and allowances and making payments
towards pensions.
1.7 CO-OPERATIVE BANKS
The Co operative banks in India started functioning almost
100 years ago. The Cooperative bank is an important constituent
of the Indian Financial System, judging by the role assigned to co
operative, the expectations the co operative is supposed to fulfill,
their number, and the number of offices the cooperative bank
operate. Though the co operative movement originated in the
West, but the importance of such banks have assumed in India is
rarely paralleled anywhere else in the world. The cooperative
banks in India play an important role even today in rural financing.
The businesses of cooperative bank in the urban areas also have
increased phenomenally in recent years due to the sharp increase
in the number of primary co-operative banks.
While the co-operative banks in rural areas mainly finance
agricultural based activities including farming, cattle, milk,
hatchery, personal finance etc. along with some small scale
industries and self-employment driven activities, the co-operative
banks in urban areas mainly finance various categories of people
for self-employment, industries, small scale units, home finance,
consumer finance, personal finance, etc.
Co operative Banks in India are registered under the Co-
operative Societies Act. The cooperative bank is also regulated by
the RBI. They are governed by the Banking Regulations Act 1949
and Banking Laws (Co-operative Societies) Act, 1965.
Cooperative banks in India finance rural areas under:
1. Farming
2. Cattle
3. Milk
4. Hatchery
5. Personal finance
Cooperative banks in India finance urban areas under:
1. Self-employment
2. Industries
3. Small scale units
4. Home finance
5. Consumer finance
6. Personal finance
According to NAFCUB the total deposits & lending of
Cooperative Banks in India is much more than Old Private Sector
Banks & also the New Private Sector Banks. This exponential
growth of Co operative Banks in India is attributed mainly to their
much better local reach, personal interaction with customers and
their ability to catch the nerve of the local clientele.
1.8 EVOLUTION OF CO-OPERATAIVE BANK IN INDIA
The Cooperatives were first started in Europe to serve the
credit-starved people in Europe as a self-reliant, self-managed
people’s movement with no role for the Government. British India
replicated the Raiffeisen-type cooperative movement in India to
mitigate the miseries of the poor farmers, particularly harassment
by moneylenders.
The first credit cooperative society was formed in Banking
in the year 1903 with the support of Government of Bengal. It was
registered under the Friendly Societies Act of the British
Government. Cooperative Credit Societies Act of India was
enacted on 25th March 1904. Cooperation became a State subject
in 1919. In 1951, 501 Central Cooperative Unions were renamed
as Central Cooperative Banks. Land Mortgage Cooperative Banks
were established in 1938 to provide loans initially for debt relief
and land improvement.
Cooperatives have played an important role in the
liberation and development of our country. The word Cooperative
has become synonymous for dedicated and efficient management
of rural credit system. Reserve Bank of India started refinancing
cooperatives for Seasonal Agricultural Operations from 1939.
From 1948, Reserve Bank started refinancing State Cooperative
Banks for meeting the credit needs of Central Cooperative Banks
and through them the Primary Agricultural Cooperative Societies.
Only 3% of rural families availed farm credit in 1951.
In 1954, the All India Rural Credit Survey Committee
recommended strengthening of DCC Banks and PACS with State
partnership and patronage to solve the farmers’ woes. Registrar of
Cooperative Societies became the custodian of Cooperatives from
1962 with the enactment of respective State Acts. Reserve Bank
introduced Seasonality and Scale of Finance for crop loans and
provided for conversion, replacement and re-schedulement to
tide over crop loss due to calamities.
The Primary Agricultural Cooperative Societies became
multi-purpose. Reorganization of PACS into viable units, FSCS,
LAMPS started under action programme of RBI in 1964. The
finding of All India Rural Credit Review Committee that coverage
of cooperatives is limited to hardly 30% of farmers led to
nationalization of Banks. However, Cooperatives have played a
key role in meeting the credit needs of weaker sections of
farmers.
The establishment of Regional Rural Banks from 1975 has
not reduced the problems of rural credit as they reached only 6%
of the farmers. Cooperatives have contributed their part in the
implementation of 20-point programme and Integrated Rural
Development Programme. Though the Cooperatives were lagging
behind in rural credit till 1991, they regained their prime place
with 62% share in rural crop loans between 1991 and 2001
1.9 DEFINITION OF CO-OPERATIVE BANKS:
In the words of Henry Wolff “Co-operative banking is an
agency which is in a position to deal with the small means on his
own terms”.
Devine defines “a mutual society formed composed and
governed by working people themselves for encouraging regular
saving and generating miniature loans on easy terms of interest
and repayments”.
1.10 FEATURES OF CO-OPERATIVE BANKS:
1. They are organized and managed on the principles of co-
operation self-help and mutual help. They function with the
rule of “one member one vote”.
2. Co-operative banks perform all the main banking function of
deposit mobilization, supply of credit and provision for
remittance facilities.
3. Co-operative banks belong to the money market as well as the
capital markets.
4. Co-operative banks are perhaps the first government
supported agency in India.
5. Co-operative banks accept current, saving, fixed and other
types of time deposits from individuals and institutions
including banks.
6. Co-operative banks do banking business mainly in the
agricultural and rural sector.
7. Some co-operative banks are schedule co-operative banks
while others are non-schedule co-operative banks.
8. Co-operative banks also required to comply with requirement
of statutory liquidity ratio [SLR] and cash reserve ratio [CRR]
liquidity requirements as other scheduled and non-scheduled
banks.
1.11 STRUCTURE OF COOPERATIVE BANKS
Following are the features of cooperative banks, which make them
hold in integral position in banking sector:
1. The nature of cooperative banks is service oriented. So,
without intention of profit they provide quality service within
reach of common people.
2. Co-operative banks account for 42% of institutional lending in
rural sector and its covers about 65% of rural population.
3. The deposits and credit of these banks are about 15% and 35%
respectively of those of commercial banks.
CO-OPERATIVE BANKS
STATE CO-OPERATIVE BANKS
STATE LAND DEVELOPMENT BANKS
URBAN CO-OPERATIVE BANKS
CENTRAL CO-OPERATIVE
BANKS
PRIMARY AGRICULTURAL
CREDIT SOCIETIES
CENTRAL LAND DEVELOPMENT
BANKS
BRANCHES OF STATE LAND DEVELOPMENT BANKS
PRIMARY LAND DEVELOPMENT
BANKS
4. The government and RBI have taken a number of steps to
improve the health and strength of co-operative banking in
India. In keeping with other financial sector reforms certain co-
operative banking sector reforms have also been carried out
after 1991.
5. The main factor for their increasing role is their local
operations. They mobilize deposits in a local area, which are
used for lending in same locality. Hence with increase in its
branches it contributes to balanced regional development.
6. Co-operative banks operations are of mixed type. Urban co-
operative banks, primary co-operative banks and state co-
operative banks.
7. District cooperative banks have a number of branches subject
to this it can be said that each cooperative institution in a
separate entity with a definite jurisdiction and has an
independent board.
8. Cooperative banks belong to money market as well capital
market. Primary Agricultural credit societies provide short term
and long term loans. Land development banks provide long-
term loans. Urban co-operative banks meet working capital
needs and fixed capital requirements. They also issue
debentures.
1.12 REFORMS IN CO-OPERATIVE BANKS
The field of rural credit is so vast in India the problems so
diverse and complex and the field of experimentation so wise that
only if the important issues and challenges before the rural credit
are taken adequately cooperative banks as major purveyors of
rural credit would be able to make the crucial difference in the
lives of millions of our countrymen in the countryside.
The financial sector reforms 1991 aimed at promoting a
diversified and efficient, competitive financial sector with the
ultimate objective of improving the efficiency of available
resources, increasing the return on investments and promoting an
accelerated growth of the real sector of the economy. In
conformity with this and banking sector reforms gave raise to
reforms in cooperative sector, which is an integral part in delivery
of rural credit and promote its growth.
Reserve Bank of India has over the years put its faith in
cooperative banks as they hold a major share in agricultural credit.
With its number if branches it can percolate to all the corners of
the country. The Indian financial system has undergone several
changes and now comprises of widespread network of financial
institutions. Accordingly the co-operative credit structure has also
grown. Despite the progress reforms are required to bring out
efficiently reduce non-performing assets and increase capital
base.
These reforms aim at improving the financial health and
capabilities by prescribing prudential norms. Prudential norms are
required for cooperative banks to reduce non-performing assets.
Due to the non-performing assets co-operative credit system is
affected as a whole.
1.13 INTRODUCTION TO NON-PERFORMING ASSETS
Indian laws permitted banks to conceal much with the
result that the Balance Sheet and Profit and Loss A/c rarely
revealed the true state of their affairs.
The Narasimhan Committee therefore strongly emphasized
the need for bringing transparency in the financial statements of
the banks and recommended for a new set of formats for Balance
Sheet and Profit and Loss statements which were made effective
from 1991-1992.
Banks provide loan and advances subjects to borrowers
promise for the payment of principal and interest in the future. In
this process banks are exposed to various types of risks including
credit risk arising from non-performing of loans and defaults of
borrowers.
Moreover with Globalization and diversified ownership
where credit rating agencies constantly review the strength of the
banks managing the levels of NPAs assumes greater importance.
The cost of financial intermediation by banks is high partly
because of the cross subsidization of NPA. NPA is inevitable
burden of the banking industry. NPAs badly affect the financial
health of the banks. Hence control and management of NPAs have
assumed serious importance. It s well known fact that NPAs are
the threat on the profitability of the banks because the banks
have not only to make provisions but they have to meet the cost
of funding these unremunerative assets.
1.14 DEFINITIONS OF NON-PERFORMING ASSETS
An asset is classified as non-performing asset (NPA’s) if the
borrower does not pay dues in the form of principal and interest
for a period of 180 days. However with effect from March 2004,
default status would be given to a borrower if dues are not paid
for 90 days.
If any advance or credit facilities granted by bank to a
borrower become non-performing, then the bank will have to
treat all the advances/credit facilities granted to that borrower as
non-performing without having any regard to the fact that there
may still exist certain advances/ credit facilities having performing
status.
In simple words, an asset which ceases to yield is a non-
performing asset.
DEFINITIONS GIVEN BY THE NARASIMHAN COMMITTEE
The committee has defined non-performing assets as
advances here, as on the date of balance sheet,
1. In respect of term loans, interest remains past due for a
period of more than 90 days.
2. Overdrafts and cash credits accounts remain out of order
for more than 90 days.
3. Bills purchased and discounted remain over due and unpaid
for a period of more than 90 days.
An amount is considered past due when it remains
outstanding for 30 days beyond the due date.
1.15 RBI INTRODUCED PRUDENTIAL NORMS ON THE
RECOMMENDATIONS OF THE NARASIMHAM COMMITTEE IN
THE YEAR 92-93.
The above norms have three main criteria:
1. Asset classification
2. Income Recognition
3. Provisioning
1. ASSET CLASSIFICATION:
For the purpose of making provisions for bad and doubtful
loans and advances, banks need to classify them into the following
broad categories;
A. Performing assets: Also known as Standard Assets are the
assets which do not disclose any problem and which do not
carry more than the normal risk attached to the business.
Performing asset is one which generates income for the bank. It
is an asset where the interest and or principal are not overdue
beyond 180 days (modified to 90 days, w.e.f., Mar 2004) at the
end of the financial year.
B. Non-performing asset: An amount is to be treated as non
performing asset when it ceases to generate income for the
Bank. An asset may be treated as Non Performing Asset (NPA),
if interest and /or installment of Principal remain overdue for a
period exceeding 180 days (modified to 90 days w.e.f. Mar
04)and Banks and FIs should not take into their Income
account, the interest accrued on such NPAs, unless it is actually
received/recovered.
NPAs are further classified into:
Substandard Assets: Loans which are non-performing for a
period not exceeding two years, where the current net-worth
of the borrower or the current market value of the security,
against which the loan is taken, is not enough to ensure full
recovery of the debt.
Doubtful Assets: Loans which have remained non-performing
for a period exceeding two years and which are not classified as
loss assets by the management or the internal/external auditor
appointed by RBI.
Loss Assets: Assets where loss has been identified by the
internal/external auditor of the bank or the RBI, but the
amount has not been written-off wholly or partly. These assets
are considered unrecoverable and are of little value to the
lending institution.
2. INCOME RECOGNITION
The income recognition is linked to the concept of
performance of the assets. In other words the income from
performing assets only is to be recognized. The income from non-
performing assets is recognized only to the extent of actual
recovery made during the accounting year.
3. PROVISIONING
The amount of provision required to be created for each
asset depends on the classification of the assets, availability/value
of security, other guarantee available and the age of the NPA etc.
1.16 IMPACT OF NON-PERFORMING ASSSETS
a) Non-Performing Assets are drag on profitability of banks
because besides provisioning banks are also required to meet
the cost of funding these unproductive assets.
b) Non-Performing Assets reduce earning capacity of assets.
Return on assets also gets affected.
c) As Non-Performing Assets not earn any income, they adversely
affect capital adequacy ratio.
d) No recycling of funds.
e) Non-performing assets also attract cost of capital for
maintaining capital adequacy ratio.
f) Non-Performing assets demoralize the operating staff and
stakeholders.
g) It will badly affect the image of the bank concerned.
h) Affect the moral of the employees and decisions making for
fresh loans suffer.
i) Enhances administrative, legal and recovery costs.
1.17 GENRAL CAUSES OF NON-PERFORMING ASSETS
Directed and pre-approved natures of loans sanctioned under
sponsored programmes.
Misutilisation of loans and subsidies.
Diversion of funds.
Absence of security.
Lack of effective follow-up (post-sanction supervision& control).
Absence of bankruptcy and foreclosure laws.
Decrepit legal system.
Cost in-effective legal recovery measures.
Difficulty in execution of decrees obtained.
Lack of marketing support.
Improper and inadequate credit appraisal.
Demand recession.
Frequent changes in Government’s policies.
Industrial sickness and labour problems.
Technology obsolescence.
Incompetence-Management failures.
1.18 MEASURES TO TACKLE THE NON PERFORMING ASSETS
1. LOK ADALATS:
Lok Adalats have been set up for recovery of dues in
accounts falling in the Doubtful and loss category with
outstanding balance up to 5 lakhs, by way of compromise
settlement.
2. CIVIL COURTS
For claims below Rs.10 lakhs, the banks and FIs can
initiate proceedings under the Code of Civil Procedure of 1908,
as amended, in a civil court.
The courts are empowered to pass injunction orders
restraining the debtor through itself or through its directors,
representatives, etc from disposing of, parting with or dealing
in any manner with the subject property.
Courts are also empowered to pass attachment and sales
orders for subject property before judgment, in case necessary.
3. DEBT RECOVERY TRIBUNAL (DRT)
CDR is an non-statutory mechanism institutionalized in
the year 2001 to provide timely and transparent system for
restructuring corporate debts of Rs.20 crores and above, of
viable entities financed by Banks and FIs under consortium or
multiple banking arrangements.
It is a voluntary system based on Debtor - Creditor
Agreement (DCA) and Inters Creditor Agreement (ICA). At
present 10 FIs and 49 Public and Private sector Banks are the
members of the CDR mechanism
4. REVENUE RECOVERY ACT:
In some states, revenue recovery act has been made
applicable to banks. Since this is also expeditious process of
adjudicating claims, banks may be notified to cover the Act by
state.
5. ONE TIME SETTLEMENT SCHEMES (OTSS)
One Time Settlement Schemes launched in
May’99&July’00 has enabled Banks to recover outstanding
amount in default up to 10 crores has been introduced in the
month of Feb’03 its results will be seen in due course
1.
1.19 INTRODUCTION OF SECURITISATION ACT 2002
Securitisation And Reconstruction of Financial Assets and
Enforcement of Security Interest Act (SARFAESIA), 2002 extends
to whole of India including the State of Jammu & Kashmir. The act
is effective from 21.06.2002. It also covers the earlier loans which
are outstanding.
The need for the setting up an Asset Reconstruction
Company for acquiring distressed assets from Banks and FIs with a
view to develop market for such assets was being felt, since long.
Narasimhan Committee 1 &2 and the Verma Committee on
restructuring of weak Banks has strongly recommended the setting
up of Asset Reconstruction Companies (ARCs).
The business of Securitization and Reconstruction is
primarily meant for more than one purpose:
To regulate the business of securitization and reconstruction
of the financial interest.
To regulate enforcement of the security interest and for the
matters connected therewith or the matters incidental
thereto.
The debt securitization is a new concept in the Indian
financial markets and is primarily meant for enhancing the liquidity
of the Banks and FIs which have extended financial assistance to
the borrowers for various purposes. The debt securitization makes
available with these institutions the security papers against the
financial assets which have been created out of the financial
assistance sanctioned and disbursed by these institutions and in
the case of a default by the borrowers the secured creditors can
have a recourse to either the securitization of the financial asset or
the reconstruction of the same.
1.20 MEANING OF SECURITIZATION
Securitization is a process whereby the ‘originator’ of the
various financial assets including loans which are illiquid can
transfer such assets to special purpose vehicles(SPV) which issues
the tradable securities against these loans are issued to the
investors.
It is an acquisition of financial asset by any securitization
company from the ‘originator’ whether by raising of funds by such
securitization company from ‘qualified institutional buyer’ or by
issue of security receipts representing undivided interests in such
financial assets or otherwise.
Thus, there will have to be some sort of understanding
between the QIBs and the securitization company which can be
‘originator’ in the case of the banks and the FIs which has
extended the financial assistance to the ‘obligor’ who is supposed
to repay the financial assistance in installments on some future
dates as per the agreement entered into by it with the bank. This
can be referred to as the ‘security agreement. It is an instrument
or any other document or arrangement under which the ‘security
interest’ is created in favour of the secured creditors including the
creation of the mortgage by the deposit of the title deeds with the
secured creditors.
1.21 OBJECTIVES OF SECURITIZATION
There are two basic objectives of securitization:
To reduce the assets of the originator
To reduce the capital requirement.
To achieve the reduction in demand and time liability.
Once the assets go off the balance sheet the originator can
thus reduce his capital requirement, similarly on the liquidation of
the assets the need for the time assets and the demand liability
comes down as these are subject to the statutory reserves.
1.22 SECURITIZATION AS FINANCIAL PRODUCT
Securitization is considered as financial product and the
bonds/debentures can be issued based on the future installments
against the financial assistance already sanctioned and disbursed
by the banks and financial institutions.
THE ACT DEALS WITH THREE ASPECTS.
1. Enforcement of Security Interest by secured creditor
(Banks/Financial Institutions)
2. Transfer of non- performing assets to Asset Reconstruction
Company, which will then dispose of those assets and
realize the proceeds.
3. To provide a legal framework for securitization of assets.
1.23 BENEFITS OF SECURITISATION
Securitization increases the lending capacity of an FI
without having to find additional capital or deposits.
Securitization facilitates specialization and is gaining wide
acceptance as the most innovative form of asset financing. It
provides capital relief, improves market allocation efficiency,
expands opportunities for risk sharing and risk pooling, increases
liquidity, improves the financial ratios of FIs and banks, creates
multiple streams of cash flows for the investors, is tailored to the
risk profile of a number of customers and facilitates asset-liability
management.
A. BENEFITS TO THE ORIGINATORS
For Banks, securitization is an opportunity offered in the
form of capital relief, capital allocation efficiency, and
improvements in financial ratios.
Lower cost of borrowing: Securitization reduces the total cost
of financing as assets are transferred to a separate bankruptcy-
resistant entity. To that extent Banks need not maintain capital
to maintain their capital adequacy norms. Also, entities with a
riskier credit profile can benefit from lowered borrowing costs.
A source of liquidity: Banks could face a liquidity crunch either
due to their risky credit profile or delayed receivables. The
liquidity provided by securitization acts as a very powerful tool,
that Banks could use to adjust the asset mix quickly and
efficiently. Further, the risks in an asset portfolio can be
identified and apportioned to arrive at an effective asset mix.
Improved financial indicators: Securitization leads to capital
relief that improves the company’s leverage and in turn the
Return on Equity. The repercussions of securitization on the
balance sheet of a company can vary depending on the
strategy for its capital structure and its appetite for increasing
or decreasing leverage.
Asset-Liability Management: Securitization offers the flexibility
in structuring and timing cash flows to each security tranche. It
provides a means whereby customized securities can be
created which helps in matching the tenure of the liabilities
and assets.
Diversified fund sources: By securitizing its receivables, the
instrument of which could be sold to global investors, the
originator has an opportunity to diversify its funding source.
Positive signals to the Capital Markets: Lenders are at times
trapped in a situation where they cannot rollover their debt
due to downgrading of their ratings, possibly due to economic
changes. Under these circumstances, securitization enables
lenders like banks to increase the rating of debt much higher
than that of the issuer through the intrinsic credit value of the
asset. This enables the banks to obtain funding.
An avenue for divestiture: Securitization offers an optimal exit
route for entities that wish to exit a business comprising of
financial assets without going through the mergers and
acquisition route.
B. BENEFITS TO THE INVESTORS
Investors purchase risk-adjusted securities based on its level
of maturity and seniority. For instance, an auto loan or credit card
receivables backed paper carries regular monthly cash flows,
which can match the requirements of investors like mutual funds.
New Asset Class: Securitized products provide new investment
avenues for investors to enhance their return or to diversify
their portfolio. For instance, an investor in the United States
whose investment is predominantly in US assets can diversify
by investing in securities offered by an SPV in Asia.
Risk Diversification: As the underlying pool of receivables is
spread across diverse customers the investors need not have a
thorough understanding of the underlying assets. The investor
is insulated from customer specific event risk.
Customization: Securitization of financial assets allows tailoring
of cash flows to the risk profile of the investors. A certain
stream of cash flow coming from an underlying asset pool can
be broken into tranches and offered as per the investor risk
appetite.
Decoupling with Originator: The investor is insulated from the
credit profile of the Originator. This separation of the
Originator and the investor helps at the time of bankruptcy or
default or credit downgrades.
1.24 TRANSACTION STRUCTURES
STAGE 1:
Initially, an ARC acquires NPA by floating an SPV which acts
as a trust whereby the ARC is a trustee and manager. NPA are
acquired from banks/FIs at fair value based on assessment of
realizable amount and time to resolution. The banks/FIs may
receive cash/bonds/debentures as consideration or may invest in
securities issued by the ARCs.
The trust acquires NPAs from banks/FIs and raises
resources by formulating schemes for the financial assets taken
over. Accordingly, it issues securities to the investors which are
usually QIBs. Securities represent undivided right, title and
interest in the trust fund.
Subsequently, the ARC redeems the investment to the
bank/FIs out of the funds received from the issued securities.
After acquiring the NPA, the trust becomes the legal owner and
the security holders its immediate beneficiaries. The NPAs
acquired are held in an asset specific or portfolio trust scheme. In
the portfolio approach, due to the small size of the aggregate
debt the ARC makes a portfolio of the loan assets from different
banks and FIs. Whereas when the size of the aggregate debt of a
bank/FI is large, the trust takes asset specific approach.
FIRST STAGE
BANK 1BANK 1 BANK 2BANK 2 Bank 2Bank 2
BORROWERBORROWER
FUND / SCHEMEFUND / SCHEME
INVESTORS (BANKS, FIS)INVESTORS (BANKS, FIS)
Payment for subscription of
Instruments
Sale of Instruments
Reconstruction
Purchase Consideration
Sale of distressed loans assets
ASSET RECONSTRUCTION COMPANY (ARC)
STAGE 2:
Thereafter, different fund schemes are pooled together in a
master trust scheme and sold to other investors. The ARC
periodically declares the NAV of respective schemes.
POOLING AT SUBSEQUENT STAGE
INVESTORSINVESTORS
FUND / SCHEMEFUND / SCHEME FUND / SCHEMEFUND / SCHEME
INVESTORSINVESTORS
MASTER TRUST / SCHEME
MASTER TRUST / SCHEME
DISTRESSED ASSET INVESTORS
DISTRESSED ASSET INVESTORS
Instruments Instruments
Pooling of Instruments
InstrumentsPayment for
subscription to Instruments
1.25 PARTIES INVOLVED IN A SECURITISATION TRANSACTION
Primarily there are three parties to a securitization transaction:
The Originator: This is the entity on whose books the assets
to be securitized exist and is the prime mover of the deal.
The entity designs the necessary structures to execute the
deal. In a true sale of the assets, the Originator transfers
both the legal and the beneficial interest in the assets to the
SPV.
The SPV: This entity is the issuer of the bond/security paper
and is typically a low-capitalized entity with narrowly
defined purposes and activities. It usually has independent
trustees / directors. The SPV buys the assets to be
securitized from the Originator, holds the assets in its books
and makes upfront payment to the Originator.
The Investors: The investors could be either individuals or
institutions like financial institutions (FIs), mutual funds,
pension funds, insurance companies, etc. The investors buy
a participating interest in the total pool of assets and
receive their payments in the form of interest and principal
as per an agreed pattern.
Apart from these three primary players, others involved in a
securitization transaction include:
The Obligor(s): The obligor is the Originator’s debtor or the
borrower of the original loan. The credit standing of the
Obligor is very important in a securitization transaction, as
the amount outstanding from the Obligor is the asset that is
transferred to the SPV.
The Rating Agency: The rating process assesses the strength
of the cash flows and the mechanism designed to ensure
full and timely payment. In this regard the rating agency
plays an important role as it assesses the process of
selection of loans of appropriate credit quality, the extent
of credit and liquidity support provided and the strength of
the legal framework.
Administrator or Servicer: Also called as the receiving and
paying agent, it collects the payment due from the
Obligor(s) and passes it to the SPV. It also follows up with
delinquent borrowers and pursues legal remedies available
against defaulting borrowers.
Agent and Trustee: It oversees that all the parties involved
in the securitization transaction perform in accordance with
the securitization trust agreement. Its principal role is to
look after the interests of the investors.
External Credit Enhancements: Underwriters sometime
resort to external credit enhancements to improve the
credit profile of the instruments. There are various types of
external credit enhancements such as surety bonds, third-
party guarantees, letters of credit (LC) etc.
Structurer: Normally, an investment banker is responsible
for bringing together the Originator, credit enhancer, the
investors and other partners to a securitization deal. He also
helps in structuring the deals along with the Originator.
The segmentation of roles of different parties to the securitization
deal helps in building specialization and introducing efficiencies.
The entire process is broken into distinct parts with different
parties concentrating on origination of loans, raising funds from
the capital markets, servicing of loans, etc.
1.26 THE PROCESS OF SECURITIZATION
The bank sanctions and disburses the financial assistance to
the borrower for the purpose of setting up a project or for the
expansion or for the purpose of diversification.
As per the agreement between the above two parties the
amount of financial assistance will be repaid by the borrower to
the bank in installments along with the interest at the rate
specified at the time of sanction.
The borrower offers the various assets as security with the
bank for this purpose. The bank is thus the secured creditor and
has the necessary charge on the property of the borrower which
invariably would be a company.
The bank intends to sell the installments which will fall due
on the loan as they might be in need of the funds at some point of
time before the actual due dates. It is at this point of time that the
process of securitization comes into picture.
1) The bank intends to increase its liquidity on the strength of
the amount of the loan already disbursed to the borrower.
2) The bank will enter into an agreement with the Qualified
Institutional Buyer (QIB) for the purpose of disposing the
asset securitized by it.
3) The bank has to analyze its portfolio of the debts due and try
to classify the dues/borrowers that will be in a position to
pay the dues on time. The essence is that the entire
installments which are proposed to be sold to the QIB
should be repaid with 100% surety level or else the deal may
not fructify.
4) The bank converts these installments into suitable forms of
bonds/debentures as may be required by the QIB.
5) The nature of security, duration, the amount and the rate of
interest etc has to be discussed at length and the deal will
mature only if it fulfills the need of the QIB and the
‘originator’.
6) The borrower is not affected financially or technically by the
decision, He may be required to comply with certain
formalities.
1.27 DIAGRAMMATIC REPRESENTATION OF THE PROCESS OF
SECURITIZATION
In practice there would be a securitization company to
undertake the job of issue of bonds/debentures by first acquiring
the financial assets of the banks i.e. “obligor”.
1.28 DIAGRAMMATIC REPRESENTATION OF THE ROLE OF THE
SECURITIZATION COMPANY
It may be observed from the diagram that the securitization
company is a sort of intermediary company between the bank and
the qualified institutional buyer. The bank intends to sell its
financial assets to the securitization company which in turn
arranges the buyer of the asset.
There may be two specific occasions when the need for the
securitized asset and its transfer may be necessitated so far as the
‘originator’ is concerned:
To increase its liquidity
To handle the non performing assets (NPAs) effectively
The Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 popularly called
the Securitization Act has provided an enabling legal framework
for the setting up of securitization or Reconstruction Company
and the manner of acquisition of financial assets by such
companies.
Securitization Company
Qualified Institutional
The Originator
1.29 ENFORCEMENT OF SECURITY INTEREST:-
Under the Act security interest created in favour of any
secured creditor may be enforced, without the intervention of
court or tribunal, by such creditor in accordance with the
provision of this Act.
Section 13(2),
Where any borrower, who is under a liability to a secured
creditor under a security agreement, makes any default in
repayment of secured debt or any installment thereof , and his
account in respect of such debt is classified by the secured
creditor as non-performing asset, then the secured creditor may
require the borrower by notice in writing to discharge in full his
liabilities to the secured creditor with in sixty days from the date
of notice failing which the secured creditor shall be entitled to
exercise all or any of the rights under sub-section (4).
In case the borrower fails to discharge his liability in full
within the period specified in sub-section(2), the secured creditor
may take recourse to one or more of the following measures to
recover his secured debt, namely:-
a) Take possession of the secured assets of the borrower
including the right to transfer by way of lease, assignment
or sale for releasing the secured asset.
b) Take over the management of the assets of the borrower
including the right to transfer by way of lease, assignment
or sale for releasing the secured asset.
c) Appoint any person to manage the secured assets the
possession of which has been taken over by the secured
creditor.
d) Require at any time by notice in writing, any person who
has acquired any of the secured assets from the borrower
and from whom any money any money is due or may
become due to the borrower, to pay the secured creditor o
much of the money as is sufficient to pay the secured debt.
1.30 COMMENCEMENT OF THE ACT
The Act has been made effective from 21st June 2002, the
date on which the first securitization and reconstruction of
financial assets and enforcement of security interest ordinance,
2002 was promulgated.
This Act has been enacted to help Banks and FIs to tackle the
NPA problem. This Act can be broadly divided into four heads:
Securitization of assets
Enforcement of security interest
Setting up of Central Registry
Establishment of an ARC
The two terms which have been used in the Act which are of special
significance are:
1. The security Interest
2. Financial Asset
1. ‘Security Interest’ means right, title and interest of any kind
whatsoever upon property, created in favour of any secured
creditor and includes any mortgage charge , hypothecation,
assignment other than those specified in section 31.
2. ‘Financial Asset’ means debt or receivable and includes;
A claim to any debt or receivables or part thereof,
whether secured or unsecured.
Any debt or receivables secured by, mortgage of, or
charge on, immovable property.
A mortgage, charge, hypothecation or pledge of movable
property.
Any right or interest in the security, whether full or part
underlying such debt or receivables.
Any beneficial interest in property, whether movable or
immovable, or in such debt, receivables, whether such
interest is existing, future, accruing, conditional or
contingent.
Any financial assistance.
1.31 SUMMARY OF THE REGULATORY/LEGAL FRAMEWORK:
Indian regulation provides for multiple ARCs encouraging
competition thus leading to better pricing and performance.
The advent of Basel II is likely to increase the flow of NPLs to
ARCs.
Government of India has permitted 49% FDI participation in
the ownership structure of the ARC while the rest of the
shareholding will be held by Indian Qualified Institutional
Investors (QIBs), provided no single sponsor may hold more
than 10%.
In addition foreign investors will be allowed to invest in the
securities of the ARC up to 49% through the FII route.
The SARFAESI Act empowers the ARC to do the following after
getting majority (75% by value) consent of the lenders.
Debt Restructuring
Final Settlement of Debt
Enforcement of Security Interest
Business and Management Restructuring of the
borrower (This power is on hold for the present, vide
RBI’s Directive)
1.32 PROVISIONS/HIGHLIGHTS OF THE ACT
The Securitization Act contains provisions to provide for the
following:
a) Registration and regulation of securitization companies or
reconstruction companies by the Reserve Bank of India (RBI).
b) Facilitating securitization of financial assets of banks or
reconstruction with or without the benefit of underlying
securities.
c) Facilitating easy transferability of financial assets by the
Securitization Company or Reconstruction Company to acquire
financial assets of banks and FIs by issue of debentures/bonds
or any other securities in the nature of a debenture.
d) Empowering securitization companies/reconstruction
companies to raise funds by issue of security receipts to
qualified institutional buyers.
e) Facilitating reconstruction of financial assets acquired by
exercising powers of enforcement of securities or change of
management or other powers which are proposed to be
conferred on the banks and FIs.
f) Declaration of any securitization company or reconstruction
company registered with the RBI as a public financial institution
for the purpose of section 4A of the Companies Act, 1956
g) Defining “security interest as any type of security including
mortgage and charge on immovable properties given for due
repayment of any financial assistance given by any bank or FIs.
h) Empowering banks and financial institutions to take possession
of securities given for financial assistance and sell or lease the
same or take over management in the event of default, i.e.
classification of the borrowers account as NPA in accordance
with the directions given or under guidelines issued by the RBI
from time to time.
i) The rights of a secured creditor to be exercised by one or more
of its officers authorized in this behalf in accordance with the
rules made by the Central government.
j) An appeal against the action of any bank or FIs to the
concerned Debt Recovery Tribunal and a second appeal to the
Appellate Debt Recovery Tribunal.
k) Setting up or causing to be set up a Central Registry by the
Central government for the purpose of registration of
transactions relating to securitization, asset reconstruction and
creation of ‘security interest’.
l) Application of the proposed legislation initially to banks and FIs
and empowerment of the Central government to extend the
application of the proposed legislation to non-banking financial
companies and other entities.
m) Non- application of the proposed legislation to security
interests in agricultural lands, loans not exceeding Rs. 1,00,000
and cases where 80% of the loans are repaid by the borrower.
CHAPTER – II:
DESIGN OF THE STUDY
2.1 TITLE OF THE STUDY
“Impact of Securitization & Reconstruction
of Financial Assets and Enforcement of Security
Interest Act, 2002 on NPAs – A study at
Bangalore City Co-operative Bank Ltd”.
2.2 STATEMENT OF THE PROBLEM:
The Banking Industry in India is progressively complying with
the international prudential norms and accounting practices, there
are certain areas like recovery management in which it does not
have a level playing field as compared to other participants in the
International financial markets.
Our existing legal framework relating to the commercial
transactions has not kept pace with the changing times, this
resulted in slow pace of recovery of defaulting loan & mounting
levels of NPA’s in Banks.
The Securitization Act was seen as a panacea to the entire
problem of NPAs.
2.3 NEED AND IMPORTANCE OF THE STUDY
The Banks and Financial Institutions have been burdened
with ever increasing Non Performing Assets.
Till 2002 neither there were any legal provisions for
facilitating Securitization of financial assets of Banks nor there
was any legal framework to take possession of securities and sell
them without the intervention of the court.
The Securitization and Reconstruction of Financial Assets
Act, 2002 was a step in this direction. The Act was bound to create
ripples and at the same time provide a much needed balm to the
banks and financial institutions.
2.4 OBJECTIVES OF THE STUDY
1. To study into the various provisions of the Act with special
emphasis on reduction of NPAs in Banks.
2. To analyze the reasons for NPAs and recovery mechanisms
adopted by the bank.
3. To assess the effectiveness of the Act in realizing the proposed
objectives.
4. To bring out the comparison of Pre-Securitization and Post-
Securitization Act Period.
5. To identify the loopholes in the Act, if any, and to make
suggestions to plug the same.
2.5 SCOPE OF THE STUDY
The study is focus on the impact of Securitization Act on
Non Performing Assets with reference to “The BCCB Ltd.” and how
this act is effective to reduce the non performing assets
The research was also held the comparison of pre-
securitization and post-securitization.
2.6 ASSUMPTIONS OF THE STUDY
Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act 2002 (SARFAESIA -2002) was
established by the Central Government to reduce the Non-
Performing Assets. It is applicable to all the Co-operative Banks
from 28.01.2003.
The Bangalore City Co-operative Bank Limited has adopted
the SARFAESIA-2002 from 20.03.2003.
Therefore the data is collected for 5 years which includes
both the period of Pre-Securitization and Post-Securitization. The
information obtained from the bank during pre-securitization
includes 2 years, i.e. 2001-02 and 2002-03 and the Post-
Securitization consists of three years, i.e.2006-07, 2007-08 and
2008-09 for effective analysis, so considered recent period in post
securitization.
2.7 METHODOLOGY OF THE STUDY
Methodology of literature review encompasses different
facets of information sources concerning Non-performing assets
and the Securitization Act.
2.8 TOOLS FOR THE COLLECTION OF DATA
Sources of data:
The data consisted of both primary data and secondary data
1. Primary data: “Primary data is first hand information which is
collected a fresh and thus happens to be original in character”.
This data is collected through Personal discussions with
the General Manager, Deputy General Manager, Assistant
General Manager and other officers in charge of recovery
department through structured questionnaire were held.
2. Secondary data: “Secondary data are those which have already
been passed through the statistical process”.
These data is collected from RBI/IBA bulletins and
journals, financial magazines, financial statements/Annual
reports and Audited Reports of the Banks, Text books and
Websites.
2.9 LIMITATIONS OF THE STUDY:
1. The study is confined to only one Bank i.e. The Bangalore City
Co-operative Bank Ltd.
2. Due to time constraint depth analysis could not be made.
3. The actual identity of the Banks is kept confidential due to the
sensitive nature of the topic
2.10 REFERENCE PERIOD
Five years annual reports & audited data are considered.
That is Pre Securitization Act period 2001-02 & 2002-03 and Post
Securitization Period includes 2006-07, 2007-08 and 2008-09.
2.11 CHAPTER SCHEME
The project report of The Bangalore City Co-operative Bank
Ltd. has been designed into five chapters.
CHAPTER – I: INTRODUCTION
It explains introduction about the banking industry, origin of
banking industry, functions of banking, introduction and evolution
of co-operative banks, definition, features, structure and reforms
of co-operative banks, introduction of NPAs, definitions, RBI
recommendations, impact, general causes, measures to tackle the
NPAs, introduction of securitization act, meaning, objectives,
process and provisions of the act.
CHAPTER – II: DESIGN OF THE STUDY
It explains title of the study, statement of the problem,
needs and importance of the study, objectives of the study, scope
of the study, some importance concept of securitization,
methodology and tools for the collection of data, limitations,
reference period and chapter scheme.
CHAPTER – III: BANK PROFILE
History of the Bank, Trademark, goals and objectives of the
bank, vision statement, organization structure of the bank,
branches, awards and competitive information of The Bangalore
City Co-operative Bank Ltd.
CHAPTER – IV: ANALYSIS AND INTERPRETATION OF DATA
This chapter explains the analysis and interpretation of data
collected.
CHAPTER–V: SUMMARY OF FINDINGS, SUGGESTIONS AND
CONCLUSIONS.
This chapter includes summary of findings, suggestions and
conclusions of the data analyzed.
CHAPTER – III:
BANK PROFILE
3.1 History of The Bangalore City Co-Operative Bank Limited
“THE BANGALORE CITY CO-OPERATIVE BANK LIMITED” was
the first urban co-operative bank in the country started in April 06,
1907 by Sri.K.Ramaswamy and others.
[Administrative Office: No.3, Pampamahakavi Road, Chamarajpet, Bangalore – 560018.]
The Bangalore City Co-operative Bank Limited was
established under the Co-operative society act bearing
registration number 314/CS, dated 08.04.1907 from the Registrar
of Co-operative Societies in Karnataka and the License was
granted by RBI No.UBD/KA/642, dated 11.11.1986 for conducting
the “Banking Business”. The bank has 12 branches along with one
administration office and all branches have been computerized
under the jurisdiction of Bangalore City Co-operative Corporation,
Bangalore Development Authority and Bangalore urban
&peripheral areas. The operation of the bank is throughout
Bangalore Co-operative Limited.
3.2 Trademark of “The Bangalore City Co-operative Bank Ltd”.:
In consideration of the application submitted to the Govt. of India,
to get registered the above image of godess Lakshmi as
Trademark, as per the Trademark Act of 1959, sec 23(2), rule 62(1)
Trademark No.943843 dated 31-7-2000
the Govt. approved and registered the
above image as a trademark and has been
given letter of approval on 15-03-2008.
3.3 GOALS AND OBJECTIVES OF THE BANK:
The Bangalore City Co-operative Bank Ltd., believes that
every individual from each status of society needs affordable,
relevant and quality services. The goals and objectives of bank are
as follows;
1. To take measures / steps to increase the deposits to Rs.500
crores and loans and advances to Rs.370 crores.
2. To earn more than Rs.9 crores of net profit.
3. To reduce the net non-performing assets to 0%.
4. To give more advantages to customers by converting all the
branches into core- banking system.
5. To take steps to have own building for all the branches.
6. To provide more and more training and development
programmes to increase efficiency of employees.
7. To encourage savings, self help and co-operative principles
among the members and depositors of the bank.
8. To undertake banking transaction and co-operative system
as per direction of RBI, Central Government and State
Government.
9. To reduce the cost of the management through the
honorary services of members and thereby keep the cost of
credit as low as possible.
10.To promote the effectiveness of credit and to reduce the
risk in granting a credit through careful and continuous
supervision of the operations of the borrowing members.
3.4 VISION STATEMENT
OUR VISION IS OUR MISSION
Founded in 1907, this unique financial institution rests on
the pillars of thrift, fellowship, character, accommodation and the
selfless service of all individuals and organizations who wish to
help themselves progress. We see ourselves as a family of honest,
loyal and committed professionals, harmoniously employing
technology, innovation and the human touch to achieve customer
satisfaction and goodwill are the cornerstones of our success and
the focus of all our efforts.
The prosperity of our customer is the engine of our success
and they will find in us a fast, timely, flexible, co-operative and
competitive partner in their progress. We are committed to
approachability, simplicity and transparency in our dealings with
all our stakeholders and shall be a temple of their trust.
`We shall use our employee involvement and sense of
togetherness to generate high levels of teamwork, efficiency,
excellence and profits. We shall mobilize aggressively, invest
wisely, disburse prudently, recover assiduously, reduce costs and
create a learning organization that offers products and services in
tune with and ahead of the time.
3.5 ORGANIZATION CHART OF THE BANGALORE CITY CO-OPERATIVE
BANK LTD.
3.6 BRANCHES:
At the end of the financial year 2008-09, including
administrative office “The Bangalore City Co-operative Bank Ltd” is
having 13 branches throughout the Bangalore City. Its branch wise
deposit, loans & advances and net profit are as follows.
Rs. 000’s
SL. NO.
BRANCHESDATE OF STARTED
TOTAL DEPOSITS
TOTAL LOANS &
ADVANCES
NET PROFIT
1. Main Branch, Chamarajpet.
06-04-2007 906580 819506 33202
2. Vijaynagar 24-02-1980 642129 419626 8777
3. Vijayanagar 9th Block 25.01.1981 396813 173112 302
4. Indiranagar 19-12-1983 571798 182287 1535
5. Chamarajpet West 07-02-1988 163382 248523 14617
6. Shanthinagar 03-09.1992 94564 143545 6492
7. Mahalakshmipuram 07-07-1994 264201 160861 1204
8. Sanjaynagar 11-08-1994 220257 95412 1045
9. Padmanabhanagar 04-09-1995 144098 113703 2157
10. Koramangala 30-10-1996 165431 181855 10849
11. Avalahalli 16-01-2002 154604 210876 10021
12. R.T.Nagar 15-02-2002 57433 159250 9038
13. Jnana Jyothi Nagar 22-03-2009 3019 838 3
3.8 AWARDS:
Since from the opening, the bank has been functioning
effectively. The Bangalore City Co-operative Bank Ltd., was
awarded by “Shri. Kanteerava Narasimha Raja Odeyar Bahadur”
Ex. King of Mysore in 1926, 1927 and 1928 as the “Best Urban Co-
operative Bank”.
In 2001-2002 and 2003-2004 the State Government of
Karnataka awarded as the “Best Urban Co-operative Bank”.
3.9 COMPETITORS INFORMATION:
As The Bangalore City Co-operative Bank Ltd., is the urban
Co-operative Bank, it is facing competition from the commercial
banks. Commercial banks undertake a number of banking
services. Since the urban co-operative banks are localized and do
not have network of bankers they are not in a position to meet all
the banking services. Therefore the institution like Government,
public sector undertakings and the urban co-operative banks are
facing competition from the commercial banks.
CHAPTER – IV:
ANALYSIS AND INTERPRETATION OF DATA
Banking system which constitutes the core of the financial sector
plays a vital role in transmitting monetary policy impulses to the
economic system. Therefore its efficiency and development are vital for
enhancing growth and improving the changes for stability. During the
recent past, profits of the Bank came under pressure due to rise in
interest rates, decrease in non-interest income and increase in provisions
and contingencies.
The Banks and Financial Institutions have also been burdened with
ever increasing Non Performing Assets
The mounting menace of NPAs has raised the cost of credit, made
Indian businessmen uncompetitive as compared to their counterparts in
other countries. It has made Banks more averse to risks and squeezed
genuine Small and Medium enterprises from accessing competitive credit
and has throttled their enterprising spirits as well to a great extent.
Till 2002 neither there were any legal provisions for facilitating
Securitization of financial assets of Banks nor was there any legal
framework to take possession of securities and sell them without the
intervention of the court.
The Securitization and Reconstruction of Financial Assets Act, 2002
was a step in this direction. The Act has provided an enabling legal
framework for setting up of Securitization or Reconstruction Company
and the manner of acquisition of financial Assets by such companies. This
Act has been enacted to help Banks and FIs to tackle the NPAs problem.
The Securitization Act enables the Banks and FIs to sell off/transfer
the NPAs without the intervention of court and the sale proceeds of the
assets are to be used for payment to the secured creditors for the assets
taken over from them. The Act was bound to create ripples in the
corporate sector and at the same time provide a much needed balm to
the banks and financial institutions.
4.1 REASONS FOR NPAs IN THE BANK:
The main reasons for NPAs in The Bangalore City Co-
operative Bank Ltd. are as follows;
1. Improper credit appraisal
2. Willful default
3. Diversion of funds
4. Lack of effective follow up
5. Cost ineffective legal measures
6. Difficulty in execution of decrees
4.2 MEASURES FOR THE RECOVERY OF NPAs ADOPTED BY THE
BANK
The Bangalore City Co-operative Bank follows following
measures to recover those NPAs;
1. Legal Measures
2. Persuasion method
3. Coercion method
4.3 LEGAL RECOVERY MEASURES TAKEN BY THE BANK
1. If the branch people are not able to recover the loan
amount, the file is referred to Legal Department for
arbitration.
2. The legal department will initiate all the steps to recover
the amount, finally E.P (Execution Petition) will be filled.
3. The E.P files are handed by Sale Officer / ARCs who is
appointed from co-operative department. As soon as the
file is received, the sale officer will send the recovery force
to identify the defaulter and his property. After
identification, form no.6 will be issued attaching the
property for sale and to pay the amount within 10days.
4. If the party does not settle the amount with in 10days, then
Form no.8 & 9 (sale date of the mortgaged property) will be
fixed gig one month time.
5. Even tough after issuing of Form No.8 & 9, if the party does
not give fruitful than a paper publication “fixing the sale of
property” will be advertised.
6. Before three days of option, the locality people where the
mortgage property exists and the others are invited to
participate.
7. Then auction of that property will be conducted among the
bidders and the auctions will be confirmed to the highest
bidder.
4.4 RECOVERY MECHANISMS ARE ADOPTED BY THE BANK FOR
REDUCING NPAs
Pre-Securitization Act: The bank use to Filing Arbitration
according to Karnataka Co-operative Societies Act of 1959.
Post Securitization Act: There was heavy pressure, burden or
risk for the bank due to increasing NPAs before Securitization
Act was introduced.
Now Securitization Act is one of the most effective
recovery mechanism adopted by the bank. It helps to recovery
the loans without much delay and difficulty and also reduces
the level of NPAs in the bank.
As most of the respondents said Securitization Act 2002
is one of the effective mechanisms when compared to all the
recovery mechanisms.
4.5 ISSUES CONCERN IN THE IMPLEMENTATION OF SARFEASIA
2002
There are some of the issues concerns for the bank in the
implementation of Securitization Act for the recovery of NPAs.
There are as under
1. Disposal of securitization is difficult without court
intervention
2. Lack of market for such securitization assets
3. Non-commencement of asset reconstruction and
securitization companies.
4. Difficulty in seizing the said property with tenants and
leaseholders occupying the property.
5. Under the Act, the bank has to issue a notice & wait for 60
days before proceeding to take possession of the security
and during this period the borrowers are degrading the
quality of the assets and are rendering them less valuable.
6. Stays from civil courts by the parties against the action
initiated by the banks for seizure.
7. Cost of manufacture to the bank of the seized assets
8. Parties delaying the process by contending in courts / DRTs.
9. Inability to prevent alienation of the said property by the
borrowers during the notice period.
10.Threats from the borrowers to the bankers.
TABLE-4.1:
GROWTH OF DEPOSITS OF THE BANK
YEARDEPOSITS
AMOUNT(Rs. IN LAKHS)
PERCENT (%)
2001-02 21095.74 100.00
2002-03 22348.54 105.94
2006-07 22443.62 106.39
2007-08 28910.54 137.04
2008-09 37863.10 179.48
FIGURE NO. 4.1
ANALYSIS:
From the above data, it can be observed that the deposit of the
bank is increasing year by year. During pre-securitization period, it was
RS.21095.74 lakhs in 2001-02, and then it is increased to RS.37863.10
lakhs @ 179.48 in 2008-09 during post securitization compared to 2001-
02.
INTERPRETATION:
It can be interpreted that, when there was no SARFAESI Act the
deposit was increasing only smaller ratio but after the implementation
of the act the rate of deposit is increased to a greater extent form 2006-
07 to 2008-09 up to 179.48%.
It shows bank offering very good rate of interest to attract the
customer in a recent years.
TABLE-4.2:
GROWTH OF LOANS & ADVANCES AS A PERCENTAGE OF DEPOSITS
YEAR DEPOSITSLOANS & ADVANCES
AMOUNT (Rs. in LAKHS) PERCENTAGE
2001-02 21095.74 13727.84 65.07
2002-03 22348.54 16554.52 74.07
2006-07 22443.62 15017.48 66.91
2007-08 28910.54 23367.95 80.83
2008-09 37863.10 29484.43 77.87
FIGURE NO. 4.2
ANALYSIS:Form the above statistics, it can be analyzed that the loans and
advances as a percentage of deposits is varied from year to year.
In 2001-02, it was RS.13727.84 lakhs @65.07%, in 2002-03 it was
RS.16554.52 lakhs @ 74.07%, in 2006-07 which was decreased to
RS.15017.48 lakhs @ 66.91%, then it is increased to RS.29484.43 @
77.87% but in 2008-09 the same has been decreased to 77.87%.
INTERPRETATION:
It can be interpreted that the loan given is reduced during 2008-
09 because the banker has some fear of crisis so they did not come
forward to lend loans.
The bank is lending more than 65% of the loans on deposits and
the bank also maintaining liquidity position to meet the demand of the
customers.
TABLE-4.3:
GROWTH OF LOANS & ADVANCES AND RECOVERY PERFORMANCE
YEAR LOANS & ADVANCES (AMOUNT Rs.IN LAKHS)
RECOVERY
AMOUNT (Rs.IN LAKHS)
PERCENT (%)
2001-02 13727.84 13159.37 95.86
2002-03 16554.52 15709.90 94.90
2006-07 15017.48 14436.91 96.13
2007-08 23367.95 22858.78 97.82
2008-09 29484.43 28888.17 97.98
FIGURE NO. 4.3
ANALYSIS:
From the above table, it is cleared that the %age of recovery
performance of the bank was decreased from 2001-02 to 2002-03 but
the amount recovered is more i.e. from Rs.13159.37 @ 95.86% to
Rs.15709.90 @94.90%.
In 2006-07 it was Rs.14436.91 lakhs @ 96.13%, in 2007-08
increased Rs.22858.78 @97.82% and in 2008-09 which increased to
Rs.28888.17 @ 97.98%.
INTERPRETATION:
From the above analysis, it is interpreted that during pre
securitization period, the percentage of recovery performance of the
bank was decreased from 2001-02 to 2002-03 because as there was no
strict recovery mechanism adopted by the bank which has to go only
through court.
Recovery performance of the bank was good after the
implementation of SARFAESI Act. In 2008-09, the recovery was increased
to 97.98% even there was economic crisis. Therefore it shows that the
SARFAESIA is helping the bank to recover the loans within a specified
period by giving more power, thereby reduces the level of NPAs of the
bank.
TABLE-4.4:
THE GROSS NPAs AS A PERCENTAGE OF LOANS & ADVANCES
YEARTOTAL LOANS & ADVANCES
GROSS NPAs
AMOUNT (Rs.IN LAKHS)
PERCENT (%)
2001-02 13727.84 1742.10 12.69
2002-03 16554.52 2965.95 17.92
2006-07 15017.48 2339.84 15.58
2007-08 23367.95 2268.83 9.71
2008-09 29484.43 3499.30 11.87
FIGURE NO. 4.4
ANALYSIS:
From the above table, it is observed that the loans and advances
were increased from 12.69% to 17.92% from 2001-02 to 2002-03.
During Post Securitization Act the Gross NPAs as a percentage of
Loans & Advances was gradually decreased from 2006-07 to 2008-09.
During 2006-07, it was 15.58% then it decreased in 2007-08 at 9.71%
and but it is increased in 2008-09 @ 11.87%
INTERPRETATION:
From the above analysis, it is interpreted that the Gross NPAs as a
percentage of loans & advances were increased from 2001-02 to 2002-
03 it is because the controlling measures taken by the bank was not
effective during Pre-Securitization Act.
The level of loans & advances is increasing and the percentage of
NPAs is decreased from 2006-07 to 2007-08 but in 2008-09, then it is
slightly increased because of two reasons;
1. There is increasing in the loans & advances. When the loans &
advances was Rs.15017.48 lakhs the NPAs was @ 15.58% but
when it is increased to Rs.29484.43, the same NPAs was @
11.87%. It is cleared that the loans given during the year 2008-
09 is increased.
2. It is also increased because of the economic crisis in India
during 2008-09.
Therefore it is concluded that the SARFAESIA 2002, is very effective in
the reduction of NPAs.
TABLE-4.5:
THE NET NPAs AS A PERCENTAGE OF LOANS & ADVANCES
YEARTOTAL LOANS & ADVANCES
NET NPAs
AMOUNT (Rs. IN LAKHS)
PERCENT (%)
2001-02 13727.84 1303.28 9.81
2002-03 16554.52 2308.22 14.91
2006-07 15017.48 359.23 2.76
2007-08 23367.95 203.71 0.96
2008-09 29484.43 1332.04 4.88
FIGURE NO. 4.5
ANALYSIS:
From the above table, it is analyzed that the Net NPAs as a
percentage of loans & advances was gradually increased from
RS.1303.28 lakhs @9.81% in 2001-02 to RS.2380.22 lakhs @ 14.91% in
2002-03.
During post securitization period the Net NPAs as a percentage of
loans & advances was decreased from RS.359.23lakhs @2.76% in 2006-
07 to RS.203.71 lakhs @ 0.96% in 2007-08 but it is increasing in 2008-09
for RS.1332.04 lakhs @ 4.88%.
INTERPRETATION:
From the above analysis, it is interpreted that, during pre
securitization period the NPAs as a percentage of loans & advances was
increasing year by year as there was no more power for the bank for the
recovery of loans & advances this leads to increasing of NPAs.
In 2007-08, the amount of NPAs was reduced from to 0.96% from
2.76%. It shows that the profitability position of the bank was increased.
It is because the Securitization Act given more power to the bank for the
recovery of loans.
But in 2008-09, the level of NPAs is increased to RS.1332.04 lakhs
due to the economic crisis. The borrower was not in a position to repay
their loan amount as their income level was low in that period.
TABLE-4.6
STATUS OF NPAs & PROVISIONS MADE IN THE BANK
YEAR GROSS NPAs PROVISIONS MADE NET NPAs
AMOUNT (IN LAKHS)
PERCENT (%)
AMOUNT (IN LAKHS)
PERCENT (%)
AMOUNT (IN LAKHS)
PERCENT (%)
2001-02 1742.10 12.69 438.82 3.20 1303.28 9.81
2002-03 2965.95 17.92 585.73 3.54 2380.22 14.91
2006-07 2339.84 15.58 1980.61 13.19 359.23 2.76
2007-08 2268.83 9.71 2065.12 8.84 203.71 0.96
2008-09 3499.30 11.87 2167.26 7.35 1332.04 4.88
FIGURE NO. 4.6
ANALYSIS AND INTERPRETATION:
From the above analysis it is clear that during Pre-securitization
Act, both Gross NPAs and Net NPAs were gradually increased and the
bank made less provision on NPAs.
During post securitization period the level of NPAs is decreasing
year by year from 2006-07 to 2007-08 i.e. from 15.58% to 11.87% that
means the Securitization Act 2002 is very effective in the reduction of
NPAs. The bank made more provisions on NPAs which leads to much
difference between Gross & Net NPAs of the bank.
In 2008-09, the non-performing assets is increased compared to
the year 2007-08 by 2.16% [11.87% - 9.71%] this is due to the impact of
economic crisis on financial institutions in India because of this the
income level of the borrower was reduced. Therefore the NPAs were
slightly increased in the year 2008-09.
TABLE-4.7
THE NPAs & RECOVERY PERFORMANCES OF THE BANK
Year %age of recovery %age of NPAs
2001-02 95.86 9.81
2002-03 94.90 14.91
2006-07 96.13 2.76
2007-08 97.82 0.96
2008-09 97.98 4.88
FIGURE NO. 4.7
ANALYSIS:
From the above table, it shows that the percentage of recovery on
loans & advances was decreased from 95.86% to 94.90% from 2001-02
to 2002-03 respectively and the percentage of NPAs was increased from
9.81% in 2001-02 to 14.91% in 2002-03.
During post securitization period, the recovery of loans &
advances of the bank was tremendously increased form the year 2006-
07 to 2008-09. i.e. from 96.13% in 2006-07, 97.79% in 2007-08 and again
increased 97.95% in 2008-09 and the non-performing assets of the bank
were fluctuating year by year.
INTERPRETATION:
From the above table, it is cleared that the percentage of recovery
was decreased from 2001-02 to 2002-03 due to increase in the level of
NPAs because the steps taken by the bank for the recovery of loans was
not effective.
From the above analysis, it can be interpreted that the recovery
performance of the bank is very effective as the recovery percentage of
the bank is increasing year to year by reducing the level of NPAs. This
shows that the Securitization Act is working effectively for reducing
NPAs.
TABLE-4.8
PROFIT POSITION OF THE BANK
YEARNET PROFIT
AMOUNT (RS.IN '000)
PERCENTAGE
2001-02 31094.62 100.00
2002-03 30374.22 97.71
2006-07 35549.26 114.36
2007-08 42723.79 137.44
2008-09 51700.06 166.32
FIGURE NO. 4.8
ANALYSIS:
From the above table, it has observed that the profit position was
decreased from the year 2001-02 of RS.31094.62 to RS.30374.22 in
2002-03.
But during Post Securitization Act it has gradually increasing from
the year 2006-07 to 2008-09, that is in 2006-07 it was RS.35549.26 in
2007-08 then it increased to RS.42723.79 and again increased to
RS.51700.06 during 2008-09.
INTERPRETATION:
From the above analysis, it can be interpreted that the profit
position of the bank was decreased during Pre Securitization Act, later
on it start to increasing year by year after the implementation of
Securitization Act.
Therefore the SARFAESIA is very powerful and effective
mechanism in reducing the level of NPAs and gives power for the bank
to the recovery thereby improves the profitability position of the Bank.
TABLE-4.9
OVERALL PERFORMANCE OF THE BANK
Year
Deposits Loans & Advances
Recovery Net NPAs
Amount (in Lakhs)
Percent (%)
Amount (in Lakhs Percentage
Amount (RS. in Lakhs
Percentage (%)
Amount (in Lakhs)
Percent (%)
2001-02 21095.74 100.00 13727.84 65.07 13159.37 95.86 1303.28
9.81
2002-03 22348.54 105.94 16554.52 74.07 15709.90 94.90 2308.22
14.91
2006-07 22443.62 106.39 15017.48 66.91 14436.91 96.13 359.23 2.76
2007-08 28910.54 137.04 23367.95 80.83 22529.85 97.82 203.71 0.96
2008-09 37863.10 179.48 29484.43 77.87 28498.69 97.98 1332.04
4.88
FIGURE NO.-4.9
ANALYSIS AND INTERPRETATION:
From the above table, it is cleared that the overall performance of
the bank is good and the SARFAESIA 2002 is very effective in reducing
NPAs.
The deposit ratio of the bank is increasing every year, loans &
advances was also increased but in 2008-09 it is decreased because the
banker has not come front to give loans to the customers due to
economic crisis. Even though the loan was decreased in 2008-09, the
recovery performance was not at all decreased after the enactment of
SARFAESIA.
Finally, the NPAs of the bank was so much during pre SARFAESIA
but it is decreased to a greater extent in post securitization period up to
2007-08, but in 2008-09 it is increased due to economic crisis, the
borrower was not having money in their hand to repay their loan
amount.
CHAPTER – V:
FINDINGS, SUGGESTIONS AND CONCLUSIONS
SUMMARY OF FINDINGS:
1. PRE SECURITISATION ACT PERIOD:
a. Deposit ratio of the bank was increased year by year and loans
advances given only by keeping some liquid money with them to
meet the demand of the customers.
b. The NPAs of the bank was increased and Recovery Performance
was decreased from the year 2001-02 to 2002-03 as there was
bank having less power to recover the loans.
c. In 2002-03, the Profit position of the bank was decreased due to
the increasing in the level of Non-performing Assets.
2. POST SECURITIZATION ACT PERIOD
a. Deposit ratio for the period was increased to 179.48% in 2008-09
and the loans & advances during the same year was reduced
because the banker did not provide loans liberally to customers
as there was a economic crisis.
b. During this period, the NPAs of the bank were decreased to a
greater extent and the recovery performance of the bank was
increased.
c. But in 2008-09, the position of NPAs was increased because of
the economic crisis; the borrower had no money with them to
repay their loans.
d. The Profit position of the bank also increasing since 2006, it
shows the Act is very effective.
3. The main reasons for an account becoming a non- performing asset
are diversion of funds, improper credit appraisal and willful default
followed by cost ineffective legal measures and difficulty in the
execution of decrees.
4. Before the enactment of the Securitization Act the banker had limited
options for recovery which consisted of having an intensive follow-up
and interaction with the borrower and initiating legal actions through
courts.
5. The Securitization Act empowers Banks to takeover the possession of
secured assets of the defaulting borrowers & sells or lease out the
assets without the intervention of the court.
6. The measures to tackle the NPAs adopted by the bank Post-
Securitization Act include:
a. Issuing notices as per the SRFAESI Act and waiting for 60 days
b. Issue possession notice after 60 days and initiate steps to take
physical possession of securities
c. Sell the securities and adjust the amount to the NPAs.
7. The act is not applicable to any security interest for securing
repayment of any financial asset not exceeding Rs.1,00,000.
8. Although the Securitization Act empowers banks to seize the secured
assets of the defaulting borrowers without the intervention of the
courts, borrowers are still able to get the proceedings under the act
stayed by appealing in civil courts
9. The major issues of concern with the implementation of the Act are:
a. Inability to dispose-off the assets acquired under the act by the
banks due to lack of market for such assets.
b. Problems in disposing of land due to the restrictions imposed by
the Land ceiling laws.
c. Difficulty in seizing the said property with tenants and
leaseholders occupying the property
d. Stays from civil courts by the parties against the action initiated
by the banks for seizure
10. Majority of the bankers opinioned that the act was helpful in the
reduction of NPAs.
SUGGESTIONS
The bank should be given more powers to seize and dispose-off the
security and to attach any other additional security/asset available with
the defaulting borrower and court intervention in such proceeding
should be eliminated.
The Act has to be made applicable for recovery of all dues of banks
irrespective of the Limitations Act.
Bankers handling the recovery operations should be educated on the
management and disposal process of the acquired assets and should
also be provided with management expertise while taking over the
operations of the companies.
The powers currently available to the bankers under the Act should be
explained to both the borrowers and the bankers for the effective
implementation of the Act.
The NPA assets must be rated by a rating agency which would facilitate
the market for such assets this would in turn reduce the holding cost of
the seized assets to the bank.
CONCLUSIONS
The Securitization Act is a fine comprehensive piece of legislation; it is
also a reassuring sign of Government’s commitment to reforms. The Act
empowers the banks to take over the possession of secured assets of the
borrowers and sell or lease out the assets. This is the first time that the banks
can take over the immovable assets of the defaulting borrowers without the
intervention of the courts.
Since the enactment of the Securitization Act, it was seen as a panacea
to the entire problem of NPAs. The banks are educated about the act and are
taking actions strictly by issuing notices to the defaulting borrowers. Defaulting
borrowers who were not responding previously started responding favourably
and cash recoveries became a reality.
In view of the above, it can be concluded that the Act has empowered
the banks with additional powers for recovery and facilitated the reduction of
NPAs. However, the Act should be much more effective in realizing its
proposed objectives by way of recovery reforms and development of market
for distressed assets of banks.
QUESTIONNAIRE
TOPIC:
“Impact of Securitization & Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 on NPAs – A study at
Bangalore City Co-operative Bank Ltd”.
Dear Sir / Madam,
This is with respect to my M.Com project in “The BCCB Ltd” on
impact of Securitization Act 2002 on NPAs. This questionnaire is to
be answered for y research purpose. I request you to give your co-
operation to do my survey as the same will be kept confidential.
NAME :
DESIGNATION :
DEPARTMENT :
Ph. No. :
1. According to Bank what is Non-Performing Assets?
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
________
_____________________________________________________
__
2. What are the criteria to treat different Loans & Advances as
NPAs?
_____________________________________________________
_____________________________________________________
_____________________________________________________
______
3. Does NPAs are classified into
□ Substandard Assets
□ Doubtful Assets
□ Loss Assets
□ All the Above
4. How much provisions are made on Performing Assets & NPAs by the bank for the
following years
Particulars 2001-02 2002-03 2006-07 2007-08 2008-09
Standard Assets
Substandard Assets
Loss Assets
Doubtful Assets
5. Details of different categories of Performing Assets & NPAs of bank
Particulars 2001-02 2002-03 2006-07 2007-08 2008-09
Standard Assets
Substandard Assets
Loss Assets
Doubtful Assets
6. What are the effects of NPAs on growth of “The BCCB Ltd”.
_____________________________________________________
_____________________________________________________
_____________________________________________________
______
7. What are the main reasons for NPAs in the Bank?
□ Improper credit appraisal
□ Lack of effective follow up
□ Management failure
□ Difficulty in execution of decrees
□ Diversion of funds
□ Willful default
□ Others (if any), Specify____________________
8. What are the measures for the recovery of NPAs adopted by the
bank?
□ Legal
□ Non-Legal
□ Both Legal and Non-Legal
□ Others (if any), Specify __________________
9. What are the recovery mechanisms are adopted by the bank for
reducing NPAs in the Pre-Securitization Act?
□ Lok Adalats
□ Civil Courts
□ Debt Recovery Tribunals
□ One Time Settlement Scheme
□ Others, Specify___________________________________
10. What are the recovery mechanisms are adopted by the bank
for reducing NPAs in the Post-Securitization Act?
□ Lok Adalats
□ Civil Courts
□ Debt Recovery Tribunals
□ One Time Settlement Scheme
□ ARCs / Securitization Co/s / Direct
□ Others,
Specify______________________________________
11. Which of the above measure is practicable & more effective?
and Why?
_____________________________________________________
_____________________________________________________
____
12. Has the enactment of Securitization Act reduced the level of
NPAs in the bank?
□ Yes
□ No
□ Can’t Say
13. Are there any issues of concern for the bank in the
implementation of the Act for the recovery of NPAs? If so, what
are they?
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
__________
14. What is the Impact of Securitization Act in the reduction of
NPAs in the Banking Sector?
_____________________________________________________
_____________________________________________________
_____________________________________________________
______
15. Does bank have made any insurance coverage on NPAs
□ Yes If yes, how much and with whom?
____________________________________
_
□ No
16. Do you like to suggest any changes that are to be made to
make the Act more meaningful and effective?
_____________________________________________________
_____________________________________________________
_____________________________________________________
______