Beruflich Dokumente
Kultur Dokumente
SL. NO 1 2 3 4 5 6 7 8 9 10 11 12
PARTICUALARS
PAGE .NO
ORGANISATION PROFILE
NON PERFORMING ASSETS OBJECTIVES OF THE STUDY METHODOLOGY ANALYSIS AND INTERPRETATION OF DATA FINDINGS SUGGESTIONS CONCLUSION BIBLIOGRAPHY
Company Profile
The Belgaum District Central Co-operative Bank established in the year 1918 and The Belgaum District central Co-operative Banks operations were started by the following year that is by 1919. The bank is established mainly for the purpose to serve the Farmers and general people who were in the hands of private and capitalist in the year 1919. Now the bank is successfully running by serving all the sectors. Now a day all the sectors are affected by the Political interferences, lack of honesty, lack of social service and lack of innovative ideas. But BDCC Bank is going far away from these difficulties. There are totally 650 employees, 5 Deputy General Managers, & 1 General Manager. Total branches of the bank are 84 plus 1 Head office. The Bank is currently achieved Rs.605.97 crores deposits, Rs.592.64 crores Advances, Rs.104041.95 crores working capital. By which the bank is running in the success path. Loan Repayment is recorded with 75% which has made an important aspect for the deposits and advances. The BDCC Bank has over 85 Branch offices.
Babasabpatilfreepptmba.com
Project Report on Non Performing Assets & Banking Studies SCOPE OF THE STUDY:
The scope of the study here was confined to the organization only. The study covers to find out the strategy required to reduce the NPAs. The concentration is given only in understanding the NPAs growth with the reference of BDCC Bank. The data is purely based on the secondary data and collected from website and journal. The scope is limited to drawn conclusions from analysis and interpretation of the primary and secondary data of the BDCC bank.
METHODOLOGY: Introduction
The quality of the project work depends on the methodology adopted for the study. Methodology, in turn, depends on the nature of the project work. suitable methods and measures are to be followed. The use of proper methodology is an essential part of any research. In order to conduct a study scientifically,
Research Design:
The type of research used for the collection and analysis of the data is Historical Research Method. The main source of data for this study is the past record prepared by the bank. The focus of the study is to determine the non-performing assets of the bank since its inception and to identify the ways in which the performance especially the non-performing assets of the BDCC Bank can be improved. The data regarding bank history and profile are collected through Exploratory Research Design particularly through the study of secondary sources and discussions with individuals. Babasabpatilfreepptmba.com
Data collection method Primary data: Discussion with the manager and officers of the bank to get general
information about the bank and its activities. Having face to face discussions with the bank officials. By taking guidance from bank guide and departmental guide.
Secondary data: Collection of data through bank annual reports, bank manuals and other
relevant documents. Collection of data through the literature provided by the bank
RECOMMENDATIONS:
Banks concerned should continuously monitor loans to identify accounts that have potential to become non-performing. BDCC Bank should offer rescheduling of loans of those borrowers who were struggling with high interest rates in a falling interest rate environment. BDCC Bank should concentrate more on credit appraisal, monitoring, credit risk management and recoveries.
CONCLUSION:
NPA Act is fine, comprehensive and an extra-ordinary piece of legislation. It is also a reassuring sign of Governments commitment to reforms. The Act empowers bank to change or take over the management or even take possession of secured assets of the borrowers and sell or lease out the assets. This is for the first time that the banks can take over the immovable assets of the defaulting borrowers without the intervention of the court. They can claim future receivables and supersede the Board of Directors of the defaulting corporate. No court, other than Debt Recovery Tribunal, can entertain any appeal against the action taken by banks and financial institutions under this act.
Babasabpatilfreepptmba.com
Project Report on Non Performing Assets & Banking Studies INTRODUCTION TO THE STUDY
A study on the Management of Non Performing Assets in the BDCC Bank is done at the BDCC Bank near central bus stand, Belgaum (Dist), Karnataka state. The type of research used for the collection and analysis of the data is Historical Research Method. The main source of data for this study is the past records prepared by the bank. The focus of the study is to determine the Non Performing Assets of the bank since its inception and to identify the ways in which the performance especially the non-performing assets of the BDCC Bank can be improved. The data regarding bank history and profile are collected through Exploratory Research Design particularly through the study of secondary sources and discussions with individuals.
Title of the Project: A STUDY ON BDCC BANK AND ITS NON PERFORMING ASSETSS
BACKGROUND OF PROJECT TOPIC A crucial issue which is engaging the constant attention of the banking industry is the alarmingly high level of non performing assets (NPA). Another major anxiety before the banking industry is the high transaction cost of carrying non performing assets in their books. The resolution of the non performing assets problem requires greater accountability on the part of the corporate, greater disclosure in the case of defaults, an efficient credit information sharing system and an appropriate legal framework pertaining to the banking system so that court procedures can be stream lined and actual recoveries made within an acceptable time frame. So the project title A Study on The Management of Non Performing Assets in the BDCC Bank looks in to the implications of high NPAs and suggests effective recovery measures for resolving problem loans and thus making the banks NPAs level healthy. It also compares the position of BDCC Bank with other public sector banks in terms of their NPAs in the last five years and also to study the management of total assets and advances of the BDCC Bank among other public sector banks. Babasabpatilfreepptmba.com 5
Project Report on Non Performing Assets & Banking Studies INDUSTRY PROFILE MEANING OF BANKS:
A banking company in India has been defined in the banking companies Act 1949 as One which transacts the business of banking which means the accepting of the purpose of sending or investment of deposits of money from the public repayable on demand or otherwise and withdrawal by cheque, draft order or otherwise.
History:
Banking in India has its origin as carry as the Vedic period. It is believed that the transition from money lending to banking must have occurred even before Manu, the great Hindu jurist, who has devoted a section of his work to deposits and advances and laid down rules relating to the interest. During the mogal period, the indigenous bankers played a very important role in lending money and financing foreign trade and commerce. During the days of East India Company, it was to turn of the agency houses top carry on the banking business. The general bank of India was the first joint stock bank to be established in the year 1786.The others which followed were the Bank of Hindustan and the Bengal Bank. The Bank of Hindustan is reported to have continued till 1906, while the other two failed in the meantime. In the first half of the 19th Century the East India Company established three banks; The Bank of Bengal in 1809, The Bank of Bombay in 1840 and The Bank of Madras in 1843.These three banks also known as presidency banks and were independent units and functioned well. These three banks were amalgamated in 1920 and The Imperial Bank of India was established on the 27th Jan 1921, with the passing of the SBI Act in 1955, the undertaking of The Imperial Bank of India was taken over by the newly constituted SBI. The Reserve Bank which is the Central Bank was created in 1935 by passing of RBI Act 1934, in the wake of swadeshi movement, a number of banks with Indian Management were established in the country namely Punjab National Bank Ltd, Bank of India Ltd, Canara Bank Ltd, Indian Bank Ltd, The Bank of Baroda Ltd, The Central Bank of India Ltd .On July 19th 1969, 14 Major Banks of the country were nationalized and in 15th April 1980 six more commercial private sector banks were also taken over by the government. The Indian Banking industry, which is governed by the Banking Regulation Act of India 1949, can be broadly classified into two major categories, non-scheduled banks and Babasabpatilfreepptmba.com
Babasabpatilfreepptmba.com
Project Report on Non Performing Assets & Banking Studies The Structure of Indian Banking:
The Indian banking industry has Reserve Bank of India as its Regulatory Authority. This is a mix of the Public sector, Private sector, Co-operative banks and foreign banks. The private sector banks are again split into old banks and new banks.
Scheduled Banks
Nationalized Banks
Babasabpatilfreepptmba.com
Co-operative Banking:
India is a country where agriculture is still a predominant activity. Our farmers by and large are poor and usually used to depend on money lenders Indigenous bankers and financiers etc. Till 1951-52 the money lenders were providing 70% of the requirements of farmers and thus constituted the most important source of rural finance. However the share of Moneylenders in rural credit was reduced to 49%. This was due to high rates of interest, dishonesty and fraudulent practices followed by the money lenders. The cooperative Movement was started in India in 1904 with the objective of providing finance to agriculturists for productive purpose at low rates of interest and thereby relieving agriculturists from the chetches of the Money lenders. The co-operative society Act of 1912 contributed to the establishment of central co-operative banks and the state co-operative banks to provide refinance to primary credit societies which could not mobilize funds by their own efforts. The co-operative credit movement made food progress during and after the 1 st world of 191418, but during the great depression of 1929-1933, it received a serious setback. With the out break of Second World War of 1939-45, the co-operative credit movement made considerable progress once again. Since then, the progress has been maintained. A co-operative bank promotes economic activity and provides banking facilities and service to the rural people. The significant role of co-operative banks in the agricultural economy imparts a lesson to commercial banks and dispels from their minds the age old inertia and the gloom of conservatism by shifting emphasis from credit worthiness of the purpose and from tangible security to the character of the business. Co-operative means a form of organization where in persons voluntarily associate together as human beings on the basis of equality for the promotion of the economic interest of themselves. So, co-operatives are characterized by voluntary association and open membership, democratic management, limited interest on capital, education and training equity of distribution of profits etc. Each for all and all for each is the underlying principle of cooperatives.
Babasabpatilfreepptmba.com
10
So, co-operative came as an answer to the problem of rural indebtedness which was rampant through act the country during the later decades of 19th century. It was an official remedy to be introduced on a voluntary basis, with the principles of self-help, thrift and mutual co-operation. This was supposed to be the beginning of genuine Indian co-operative movement. So the objective of co-operative movement is actively implementing socio economic program with the ultimate aim of uplifting the living standard of economically backward and weaker section of society. In 1919 the government of India Act 1919 was passed and co-operation became a state subject. So several states passed their own acts for the development of the co-operative movement in their respective states through the co-operative movement in India was born at the beginning of century as an instrument of dealing with agricultural indebt ness, it was only after attaining independence that attaining independence that attention was paid in a big way to this issue. After independence the co-operative movement received added support from Government. So to sum up, the co-operative movement has made remarkable progress in terms of number, membership share capital and working capital. The progress of co-operative movement has been remarkable in the fields of agricultural credit, marketing and supply of farm inputs and processing. Babasabpatilfreepptmba.com
11
Table Showing The District Co-Operative Credit Structure in the Whole State of Karnataka for the Year 2007-08: Babasabpatilfreepptmba.com 13
Babasabpatilfreepptmba.com
14
Project Report on Non Performing Assets & Banking Studies ORGANISATION PROFILE
Babasabpatilfreepptmba.com
15
In this chapter I have concentrate over the introduction of co-operation and co-operative and profile of the Belgaum district central co-operative Bank Belgaum. and organizational structure of the bank, objectives of the bank, limitation of the bank.
PRINCIPLES OF CO-OPERATIVES:
The foundation of any co-operative activity is based on certain principles. These principles are the guiding force behind the development of the co-operative movement throughout the world. These principles are as follows:
Project Report on Non Performing Assets & Banking Studies 2) Democratic management and equality of voting rights:
A co-operative bank is democratic in its management. All members are treated equal and exercised through the principle of one man one vote. A principle of democracy representatives is accountable to the membership.
Babasabpatilfreepptmba.com
17
Project Report on Non Performing Assets & Banking Studies BACKGROUND OF CO-OPERATIVE MOVEMENT IN INDIA
The co-operative movement `was started in India in the year 1904 by establishing co-operative bank to encourage thrift, self help and co-operation, these finance for both agricultural, small scale and cottage industries, after the independence the central government as well as the state government encouraged the co-operative movement to improve the economic conditions of the weaker section of the society particularly the rural population. Co-operative banking as yet remains the best answer or most satisfactory in situations for providing finance to borrowers in the rural area and also occupy a significant role also. it seeks the help of members and work for the benefit throughout them for larger good of the community.
Babasabpatilfreepptmba.com
18
Project Report on Non Performing Assets & Banking Studies Board of Directors:
The present composition and category of Board of Directors of the Bank are furnished below: S/No 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. Name Of The Directors Shri. Ramesh V. Katti Shri. Mahantesh B. Dodagoudar Shri. D. V. Sangannavar Shri. G. N. Kvalli Shri. L. S. Savadhi Shri. Aravind C. Patil Shri. N. B. Patil Shri. D. T. Patil Shri. Mahantesh S. Patil Shri. S. S. Dhavan Shri. A. M. Kuligude Shri. S. G. Dhavleshwar Shri. Ganesh P. Hukkei Shri. P. B. Dyamangodar Shri. C. B. Patil Shri. A. S. Navalgatti Shri. S. B. Kamatgi Shri. G. M. Patil Shri. S. B. Tubachi Category Of Director Chairman & MP Of Chikkodi V. Chairman Director Director Director & Co-Operative Minister Of Karnataka Govt Director Director Director Director Director Director Director Director & ZP member Director Director Director APEX Bank Nominee Deputy Registrar General Manager
Project Report on Non Performing Assets & Banking Studies CO-OPERATIVE BANK LTD BELGAUM
1) To encourage thrift help and co-operation among the members, associate members,
nominal members and depositors of the bank. 2) To provide required finance to priority sectors like agriculture, cottage industries and
small scale industries. 3) To borrow funds from members and non members and to be utilized for granting loans
to members and non members for useful purposes. 4) To act as an agent for the joint purposes of domestic and other requirement of the
members and non members. 5) 6) To arrange for the safe custody of valuables and documents. To carry out instructions for periodic or collections, remittance etc of the members and
non members. 7) To prepare and finance projects to improve the economic conditions of the members
particularly those belonging to weaker sections of the society. 8) To extend financial and technical assistance to the unemployed to start their industry /
profession. 9) The branches of district central co-operative bank Ltd, Belgaum. SI. No. Operation Areas 1. Head office: 1 2. Branches through district: 85
Project Report on Non Performing Assets & Banking Studies Organizational structure of DCC Bank Belgaum
Chairman
Directors
Genral Manager
SUPERIDENTS
SUPERIDENTS
SUPERIDENTS
SUB ACCOUNTANT
SUB ACCOUNTANT
SUB ACCOUNTANT
SUB ACCOUNTANT
SUB STAFF
SUB STAFF
SUB STAFF
Babasabpatilfreepptmba.com
21
Project Report on Non Performing Assets & Banking Studies NOMINAL MEMBERSHIP:
Not with standing anything contained in any other bye-laws any person who is above the age 18 and who is competent to contract residing in the jurisdiction of the bank who is not the member of any other co-operative credit society or bank, may be admitted as a nominal subject to the following conditions. I. II. III. He shall pay an admission fee of Rs. 50 = 00 He should be credit worthy. He shall not have right to vote or to participate in the management of the bank or in the
distribution of its profits or liabilities, except the liability against him, as a borrower or surety or both in the event of its winding up except that such member may attend the general body meeting of the bank with prior permission of the board by its resolution. IV. a) b) c) d) e) f) He shall be eligible for the following types of loans. Personal loan Mortgage loans Loan against deposits and government securities Loan against government & guarantee Loan for house construction / purchase / mortgage / purchase of plots Loan against pledge of goods or immovable property of his own.
The BDCC Bank has over 85 Branch offices It is to ensure that the Bank is providing its services all over the Belgaum as well as in the State. The other details of Bank are as provided below: Babasabpatilfreepptmba.com
22
Project Report on Non Performing Assets & Banking Studies Membership and Share Capital
Membership Years Societies 31-03-2004 31-03-2005 31-03-2006 31-03-2007 31-03-2008 1984 2000 2017 2028 2028 Individual Members 282 281 281 281 281 3450.16 3453.79 3736.37 4114.37 4259.91 Share capital
Deposits
The BDCC Banks deposits are shown as follows: (Rupees in Lakhs)
Babasabpatilfreepptmba.com
23
The securities like Deposits Insurance and Credit Guarantee Corporation Law 1961 are made and Nationalized Banks providing higher rate of interest to the Bank.
Working Capital Years 2003-04 2004-05 2005-06 Working capital 74372.94 71243.78 78085.9 Babasabpatilfreepptmba.com
24
Babasabpatilfreepptmba.com
25
% Of Ach ieve m e n ts 3 .5 4 0 .92 1 0.5 1 (-)3 .6 8 3 1-3 -2 0 08 Ach ieve m e n ts 4 25 9 .9 1 1 22 3 6 .21 6 0 5 96 .7 8 1 59 4 1 .8 1 2 00 7 -0 8 Ta rg e t 4 2 00 1 2 23 6 6 04 0 0 1 6 5 0 0 3 1-3 -2 0 07 4 1 1 4.37 1 2 1 2 4 .0 9 5 49 2 4 .4 1 16 5 5 0.5 1
BDCC PRODUCTS
A. Short term loans B. Medium term loans C. Long term loans D. Deposits
Project Report on Non Performing Assets & Banking Studies Short term loans to societies:
1. Decent kisan credit card 2. Tobacco pledge loan 3. General cash credit 4. Key loans to sugar factory 5. Hypothecation loan to sugar factories 6. Hypothecation loan to spinning mills 7. Clean C.C to spinning mills 8. Clean C.C to sugar factory
Other loans
1. Bills discounted 2. Sight & Mudati hundies
Deposits
1. Reserve fun deposits 2. Fixed deposits 3. Bhagyajyoti deposits 4. Recurring deposits 5. Saving deposits 6. Current deposits Babasabpatilfreepptmba.com
28
Babasabpatilfreepptmba.com
30
Project Report on Non Performing Assets & Banking Studies 90 Days Overdue Norm
With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the 90 days overdue norm for identification of NPAs, from the year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a NPAs shall be a loan or an advance where; i. Interest and / or installment of principal remain overdue for a period of more than 90 days in respect of a Term Loan, ii. The account remains Out Of Order for a period of more than 90 days, in respect of an overdraft / cash credit (OD / CC), iii. The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, iv. Interest and / or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agriculture purpose, and v. Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts As a facilitating measure for smooth transition to 90 days norm, bank has been advised to more 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 charging of interest at monthly rests. Banks should, therefore, continued to classify an account as NPA only if the interest charged during any quarter is not serviced fully with 180 days from the end of the quarter with effect from April 1, 2002 and 90 days from the end of the quarter with effect from March 31, 2004.
Babasabpatilfreepptmba.com
31
REVERSAL OF INCOME:
If any advance, including bills purchased and discounted, becomes NPA as at the close of any year, interest accrued and credited to income account in the corresponding previous year, should be reversed or provided for if the same is not realized. This will apply to Government guaranteed accounts also. In respect of NPAs, fees, commissions and similar income that have accrued should cease to accrue in the current period and should be reversed provided for with respect to past records, if uncollected. Babasabpatilfreepptmba.com 32
Project Report on Non Performing Assets & Banking Studies THE CONCEPT OF GROSS NPA:
Income recognition is not possible once an account becomes NPA. Interest accrued on nonperforming loan accounts is debited to the respective accounts and credited to the interest suspense account instead of Profit and Loss account. Usually no debits are permitted in NPA expect unavoidable expenditure like litigation expenses, insurance, etc. Hence the balance outstanding in an NPA account includes: 1. Balance as on date of becoming an NPA. 2. Interest accrued but not realized. On balance sheet date banks make provisions for loan losses. This provision is calculated not on the balance outstanding but on the net balance, balance net of the amount kept in the interest suspense account. This book balance of the net interest suspense account is known as Gross NPA. But in cases where guarantee claim is received from credit guarantee corporations like ECGC, before making the provision for loan losses, such claim received is also netted from the gross NPA. The terminology Net NPA indicates the balance in interest suspense account. For evaluation RBI and other rating agencies relay on purpose usually the Net NPA balance. Thus, Gross NPA means, balance outstanding minus balance in interest suspense account. Net NPA means: Gross NPA minus balance claim received amount and provision outstanding in that account.
IMPACT OF NPA:
At the Macro level, NPAs have chocked off the supply line of credit of the potential lenders thereby having a deleterious effect on capital formation and arresting the economic activity in the country. At the Micro level, unsustainable level of NPAs has eroded current profits of banks and FIs. They have led to reduction of interest income and increase in provisions and have
Babasabpatilfreepptmba.com
33
WRITING-OFF NPAs:
In terms of section 43(D) of the Income Tax Act 1961, income by way of interest in relation to such categories of bad and doubtful debts as may be prescribed having regard to the guidelines issued by the RBI in relation to such debts, shall be chargeable to tax in the previous year in which it is credited to the banks profit and loss account or received, whichever is earlier. This stipulation is not applicable to provisioning required to be made as indicated above. In other words, amounts set aside for making provision for NPAs as above are not eligible for tax deductions. Therefore the banks should either make full provision as per the guidelines or write-off such advances and claim such tax benefits as are applicable, by evolving appropriate methodology in consultation with their auditors / tax consultants. Recoveries made in such accounts should be offered for tax purposes as per the rules.
SECURITIZATION ACT:
With the enactment of the Securitization and Reconstruction of the financial asses and Enforcement of Security Interest Act 2002, banks can issue notices to the defaulters to pay up the dues and the borrowers will have to clear their dues within 60 days. Once the borrower receives a notice from the concerned bank and the financial institutions, the secured assets mentioned in the notice cannot be sold or transferred without the consent of the lenders. The main purpose of this notice is to inform the borrower that either the sum due to the bank or financial institution is paid by the borrower or else the former will take the action by way of taking over the possession of assets. Besides assets, bank can also take over the management of the company. Thus the bankers under the aforementioned Act will have the much needed authority to either sell the defaulting companies or chare their management.
And that certain specified percentages of the same be held as provision there against. Before the reform process, banks were booking income on an accrual basis and their balances sheets did not reflect their true specified financial health. Thus the profit, capital and reserves were overstated by them. After 10 years of NPA terror in the banking industry, Now the Banks Have Teeth, a new law lightens the burden of bad loans for Indian Banks. The law that has been the catalyst for the bad loan cleans up passed Indias Parliament in November 2002. it allows lenders to more easily foreclose on debtors assets or even demand a change in management. Within weeks of the laws passage, banks saw a flood of loans once deemed unrecoverable being repaid in double time. The Act is The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Also known as the Securitization Act). This Act enables the setting up of asset management companies for addressing the problems of NPAs of banks and FIs.
38
Sometimes such intangible assets may be more valuable than tangibles like land, building, plant & machinery etc. Indian banks and financial institutions live in a fool's paradise thinking that a court or tribunal can get them all that they need. What they do not realize is that no judicial body can help them get possession of a running unit without sacrificing its vitality. The bureaucratic attitude of Indian banks and FI's has had two negative effects. On one hand it has fed and strengthened a generation of shady businessmen and con-men who know how to fool the banks for a multitude of projects - some of which even turn profitable. On the other hand it has killed a new generation of capable entrepreneurs. Indian Banks and FI's have looked at balance sheets and financial statements for too often. It is time that they learn to look at human capabilities. It is time that they learn to evaluate ideas rather than run in herd-like Babasabpatilfreepptmba.com 39
SUB-STANDARD ASSETS:
Babasabpatilfreepptmba.com
40
DOUBTFUL ASSETS:
A doubtful asset was one, which remained NPA for a period exceeding two years. With effect from 31 March 2001, as asset is to be classified as doubtful, if it has remained NPA for a period exceeding 18 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full; - on the basis of currently know facts, conditions and values highly questionable and improbable.
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 of computing 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 sheet. The Third Schedule to the banking regulation act 1949 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 Babasabpatilfreepptmba.com
41
It the realizable value of the security, as assessed by the bank / approved values / RBI is less than 10 percent of the outstanding in the borrowal accounts, the existence of security should be ignored and the asset should be straight away classified as loss asset. It may be either written off of fully provided for by the bank.
43
PROVISION REQUIREMENTS:
As and when an asset is classified as an NPA, the bank has to further sub-classify if into sub-standard, loss and doubtful assets. Based on this classification, bank makes the necessary provision against these assets. 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.
44
At Pre-Credit Stage:
1. Extensive enquiry about the character and the credit worthiness of the borrower. 2. Viability of the project to be financed is meticulously studied. 3. Adequate coverage of collateral is ensured to the extent possible. 4. Financial statements of the borrower are obtained and poor analysis of their financial strength is done. 5. Apart from the published financial statements independent enquiries are made 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. 6. Early warning signals are properly attended to. Babasabpatilfreepptmba.com
45
WARNING SIGNALS:
1. Default in servicing periodic installments and interest. 2. Accumulation of stock and non-movement of stock. 3. Operating loss / net loss. 4. Slow turnover of debtors and fall in level of sundry creditors. 5. Return of outward bills for collection / return of cheque. 6. Labour 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.
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 a rid of its excess liquidity by increasing its lending but, often shy away from such an option due to 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 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 deposits with the banks. On the other hand, SLR is 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 Babasabpatilfreepptmba.com 47
Project Report on Non Performing Assets & Banking Studies MEASURES TO TACKLE NPAs:
Seeing the gravity of the situation, RBI has taken several constructive steps for arresting the incidence of NPAs. It has also created a regulatory environment to facilitate the recovery of existing NPAs of banks.
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 Rs.500000, by way of compromise settlements. This mechanism has proved to be a quite effective for speedy justice and recovery of small loans.
2.
Debt Recovery Tribunals: DRTs which have been set up by the Government to
facilitate the speedy recovery by banks / DFIs have not been able to make much impact on loan recovery due to a variety if reasons like inadequate number, lack 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 of the Winding Up court for distribution among the lenders. Also, DRTs could be set up in more centers preferably in District Head Quarters 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 burden of large number of cases filed with since their inception.
3.
Babasabpatilfreepptmba.com
49
4.
5.
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 Babasabpatilfreepptmba.com 50
participants, details the rights and responsibilities of transacting parties, assures that completed transactions are legally binding and also provides the regulators with the necessary Teath to enforce Standards and ensure complains and adherence to law. Does the legal framework is a key element for limiting moral hazards in Indian Banking. As the problem of NPAs is closely linked with the issue of legal reforms the Government has taken up initiatives to align the legal set up with the requirements of the banking system. As early as in 1999 the Andhyarujina Committee set up by the Government of India to formulate specific proposals to give effect to the suggestions made by the Narasihmam Committee (1998) recommended amending the recovery of Debts due to the banks and Financial Institutions Act 1993 and Sick Industrial Companies Act 1995. It also recommended a new legislation for banks and FIs to take possessions and sale of securities without the intervention of the court, in respect of both immovable property and movable assets which resulted in the enactment of SRFAESI Act 2002. The committee also considered the Securitization as an instrument to tackle the NPA problem.
7.
Securitization: Securitization enables risk sharing and trading of loans where the
bas assets of banks can be securitized and sold at a discount. The lending institutions NPAs are hence removed from their balance sheets and are instead funded by investors through negotiable financial instruments. The security is backed by the expected cash flows from the assets. With securitization the NPAs in a banks balance sheet can be cash upfront, which could be put to productive use.
Babasabpatilfreepptmba.com
51
RISK MANAGEMENT:
Banking and risk are inseparable and risk management assumes significance as the banks have to take considerable risks. Analysis of risks also assumes importance as it determines the pricing for the products. As banking is subject to several types of risks like market risk, credit risk, liquidity risk, default risk, interest rate risk, investment risk, transaction risk, forex risk, etc., proper perception and evaluation of risk is extremely important and any short coming on this score can play havoc on the financial decision. It has been seen that in banks managing NPAs has been a reactive response rather than a proactive function. In a market driven environment, volatility and risk have increased considerably in any credit dispensation. Hence, a proper perception and evaluation of risk becomes essential along with market intelligence about the industry concerned.
Babasabpatilfreepptmba.com
52
Bank should, therefore, continue to classify an account as NPA only if the interest charged during any quarter is not serviced fully within 180 days from the end of the quarter
Babasabpatilfreepptmba.com
53
Babasabpatilfreepptmba.com
54
Project Report on Non Performing Assets & Banking Studies REASONS FOR NON PERFORMANCE IN LOAN ASSETS:
1. Antiquated legal system in the country and the defaulter taking shelter under this. 2. Even DRT cases are not getting settled the way it was envisaged when tribunals were set up. 3. In agriculture sector poor recovery has been due to various factors recovery and RPDS advances have 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. 4. Poor recovery in schematic loans is mainly due to willful default by the borrowers. 5. Default in share loans has been due to setback in securities market and sharp decline in the values of equities.
RECOVERY ROUTE:
1. Lok Adalat. 2. Compromise route is the most effective and time consuming procedure, due to the delay in obtaining a favorable decree, further delay in the execution of the decree, the securities available to bank may get depreciated or alleviated. COMPROMISE ROUTE IS POSSIBLE IN THE FOLLOWING CASES: 1. When all the remedies other than filing a suit are exhausted. 2. Activity of the borrower closed / become unviable due to reasons beyond his control and overdue mounting up due to application of interest / penal interest and other charges and the recovery of the debt has become doubtful. 3. Legal position of bank is weak. 4. Values of the primary / collateral securities are inadequate. 5. Not a willful defaulter.
Babasabpatilfreepptmba.com
55
sector, types of advances and other various parameters viz the NPA position and the findings will be communicated to all field functionaries initiating corrective action.
2. Efforts shall be taken by branches to speed up the disposal of non-banking assets at
the possession of the bank. The real effect of the continuing menace of NPA will have a cascading effect on the bottom line because of the higher and higher provisions required on such accounts. Therefore the management of NPAs calls for a short term and long term strategy. Prevention from further deterioration and recovery of the existing NPAs alone are the two alternatives for us to come out of the present problems.
4. Salvage operations are to be intensified for effecting recoveries under loss assets categories and also in cases where they have already shed assets. 5. Incentives schemes for motivating members of staff are to be built in the recovery policy of the bank. Considering the above facts, the department suggests the following measures for the optimum recovery in the small value bond up to Rs.10000. 1. No legal actions to be initiated against borrowers coming under the small valued bond. 2. In cases of failure of letter personal contact and persuasion fall, go for compromise. 3. Services of approved recovery agents can be considered very discreetly in the recovery of small value accounts. 4. If all the above efforts fall the regional heads can use their discretion for shedding such assets.
SUB-STANDARD ASSETS:
This segment is more effort elastic in terms of recovery and hence the banks recovery policy is to be tuned up for maximizing the recoveries from the sub-standard efforts.
Babasabpatilfreepptmba.com
57
Project Report on Non Performing Assets & Banking Studies NPA RECOVERY ACTION PLAN:
1. Send simple remainder letter in installments / interests debited are not serviced on due dates. 2. If no results are forthcoming from the remainders, meet the borrower in person and persuade them to settle the accounts in persons. 3. Officials from the assets recovery cell at the regional office to compulsorily meet the borrower with Rs.500000 and evaluate the reasons for the non-performance of accounts and suggest / evolve methods to improve the quality. 4. In cases of sick but viable industries units prospects for rehabilitation are too looked into a nursing program to be evolved.
DOUBTFUL ASSETS
Slippage of assets from sub-standard category to doubtful necessitates higher provisions requirements. Depending on the age of the asset, 20% to 50% provision has to be made on such assets on the secured portion and 100% provision is required on the unsecured provision. Recovery of the doubtful assets in the normal course is difficult; the following strategies can be adopted in handling doubtful assets: 1. Borrowers are to be met in person to get the accounts settled through persuasion. 2. Ensure that the securities charged to the bank are in tact and are not alienated. 3. Securities are to be inspected at periodic intervals and correct value properly recorded. 4. Legal remedy is the last resort. 5. Most of the accounts coming under this category are either suit field or RR initiated. Incase of suit field accounts, cases are to be closely followed up with the advocated to ensure that the decree is obtained within a reasonable time.
LOSS ASSETS:
CHANCES OF RECOVERY IN MOST OF THESE CASES ARE VERY REMOTE:
Babasabpatilfreepptmba.com
58
W Write offs
59
O 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 bank should ensure recovery of its dues to the maximum extent possible of minimum expenses. Proper distinction should be made between willful defaulters and borrowers defaulting in repayments due to circumstances beyond their control. An advantage in settlement cases is that banks can promptly recycle the funds instead of resorting to expensive recovery proceedings spread over a long period. All compromise proposals approved by any functionary should be promptly reported to the next higher authority for post facto scrutiny. Proposal for write off/ compromise should be first by a committee of senior executives of the bank. Babasabpatilfreepptmba.com
60
Project Report on Non Performing Assets & Banking Studies Legal remedies:
The legal remedies are one of the methods of management of NPAs. The banks observed that the borrower is making willful default; no more time should be lost instituting appropriate recovery proceedings. The legal remedies are filling of civil suits.
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 limit. Rehabilitation of potentially viable units: The unit is sick due to technical obsolescences of inefficient management or financial irregularities. When the Bank settles the dues, of such, companies through the compromise or through the legal actions the better is to be followed.
Other Methods:
Persistent phone calls Media announcement Babasabpatilfreepptmba.com 61
To evaluate the BDCC Banks assets quality. To study the management of total assets and advances of the BDCC Bank. To identify the effectiveness of the risk management system, undertaken by the bank. To analyze sector wise non-performing assets. To offer useful suggestions to reduce the NPAs in the bank.
Babasabpatilfreepptmba.com
62
METHODOLOGY: Introduction
The quality of the project work depends on the methodology adopted for the study. Methodology, in turn, depends on the nature of the project work. suitable methods and measures are to be followed. The use of proper methodology is an essential part of any research. In order to conduct a study scientifically,
Research Design:
The type of research used for the collection and analysis of the data is Historical Research Method. The main source of data for this study is the past record prepared by the bank. The focus of the study is to determine the non-performing assets of the bank since its inception and to identify the ways in which the performance especially the non-performing assets of the BDCC Bank can be improved.
Babasabpatilfreepptmba.com
63
Secondary data:
Collection of data through bank annual reports, bank manuals and other relevant documents. Collection of data through the literature provided by the bank.
Babasabpatilfreepptmba.com
64
Babasabpatilfreepptmba.com
65
TABLE: 1 SHOWING PROVISIONS MADE FOR BAD DEBTS, NPA AND STANDARD ASSETS: (Rs. In Lakhs)
Year 2003-04 2004-05 2005-06 2006-07 2007-08 Bad Debts 729 729 729 763.79 765.57 NPA 7467.19 8067.19 8517.19 8517.19 8517.19 Standard Assets 90.00 90.00 140.00 160.00 210.00
Babasabpatilfreepptmba.com
66
INTERPRETATION
By the table it is clear that BDCC Bank is maintaining adequate amount of provisions as regulated by the RBI. The Bank has found a stable amount of provisions as it lends the loans to the farmers through the Co-operative societies, which brings the borrower with a repayment capacity. By the graph it is also clear that the BDCC Bank is maintaining high or equal amount of provisions as compared to the previous years
TABLE: 2 SHOWING ASSETS OF THE BDCC BANK Year 2003-04 2004-05 2005-06 2006-07 2007-08 Standard 35505.93 25117.63 33733.24 49217.52 48091.07 Sub-standard 5856.51 5511.39 1743.59 2154.52 4108.32 Doubtful 10801.64 7554.04 3016.47 6660.14 6761.24 Loss assets 131.75 4864.53 4860.31 306.89 303.33 Total 52295.83 43047.59 43353.61 58339.07 59263.97
Babasabpatilfreepptmba.com
67
INTERPRETATION
From the table it is clear that the Standard assets were suddenly declined when the NPA rule was applicable i.e. in the year 2004-05. Then the loss assets were also increased due to some internal factors. But the Sub Standard and Doubtful assets shows the fluctuating trends.
TABLE: 3 SHOWING ADVANCES OF THE BDCC BANK (Rs. In Lakhs) Year S. A. O. Short term 26454.65 23995.52 25669.47 33747.41 30820.47 Cash Credit & ODs 2456.65 2189.78 2677.94 3870.17 3986.08 Cash Credit 18283.14 12177.92 11783.06 15595.09 16970.15 Bills Discounted 3.75 2.62 4.87 2.76 2.93 Term Loans 5063.88 4682.76 3218.26 5123.64 7484.32 Total
Babasabpatilfreepptmba.com
68
INTERPRETATION
BDCC Bank advances loans mainly for Agricultural purposes through co-operative societies. The advances for Agricultural loans were increasing year by year. The bank provides cash credit but less than the agricultural loan. The Bank also provides loans as ODs, Bills discounting and term loans in a small proportions.
Babasabpatilfreepptmba.com
69
INTERPRETATION
From the graph and table it is clear that the Net NPA Ratio of BDCC Bank has fluctuations. In the year 2005-06 it has recorded a highest Net NPA Ration of 19.64% and lowest in the year 2002-03 i.e., 13.82.
TABLE: 5 SHOWING RETURN ON ASSETS (ROA) FROM 2003-04 TO 2007-08 IN PERCENTAGES (%)
2003-04 4.72
2004-05 -4.5
2005-06 2.25
2006-07 2.48
2007-08 2.66
Babasabpatilfreepptmba.com
70
INTERPRETATION
This ratio correlates between the total assets and the net profit. The return on total assets (also return on capital employed or return on investment) is defined as Net Income (Profit) divided by average total assets. A return of 10 percentages is considered as ideal ratio. As such, if the actual ratio is equal or more than 10 percentage, it indicates the higher productivity of the total resources / assets and vice verse in adverse cases. In the year 2004-05 BDCC Bank faced loss so the return on assets was recorded negative. But in the year 2003-04 it has recorded almost 5%, which is the highest in last 5 years.
DETAILS
1918-19
1948-49
1968-69
1978-79
1988-89
1998-99
2007-08
Babasabpatilfreepptmba.com
71
Personal
26
1215
569
341
297
286
281
0 5170 -
0 692550 481616
0 7729200 2382219
0 21150550 13251847
0 80478500 36908261
0 286040900 372562119
3 425991055 1223620850
8233 13403
6265468 8868222
48924623 80101042
149213250 236500169
702232753 112686422
3692753173 5779068089
60059677630 10404194856
2484492 1872043 -
41468
INTERPRETATION
As shown in the table BDCC Bank has increased its members, share capital, reserves, funds, deposits, working capital, advances, and net profit year by year. No it can be said that BDCC Bank is growing in a moderate speed.
FINDINGS
The Findings about the project in BDCC Bank: Findings about the Priority Sector Lending:Babasabpatilfreepptmba.com 72
SUGGESTIONS
Banks concerned should continuously monitor loans to identify accounts that have potential to become non-performing.
Babasabpatilfreepptmba.com
73
in those branches where over dues as a percentage of advances exceed a specified limit, a special recovery department may be set up. These cells can take up not only monitoring of bad loans but existing loans as well. Senior official may visit branches to regular intervals.
CONCLUSION
NPA Act is fine, comprehensive and an extra-ordinary piece of legislation. It is also a reassuring sign of Governments commitment to reforms. The Act empowers bank to change or Babasabpatilfreepptmba.com 74
BIBLIOGRAPHY
Dr.Baligar.G.B. Banking Law and Practice. Publisher, Ashok Prakashan 2004 Babasabpatilfreepptmba.com 75
India. Deep & Deep publications 2002 Bedi.H.Lpractical Banking Advance Publisher. Ashok Prakashan 2004 REPORTS Annual Report of Belgaum District Central Co-operative Bank WEBSITES
Babasabpatilfreepptmba.com
76