SYNOPSIS

1. INTRODUCTION TO PROJECT REPORT

2. BANKING- A THEORITICAL PROSPECTIVE 3. VIJAYA BANK-A PROFILE

4. NON-PERFORMING ASSETS-A THEORETICAL PROSPECTIVE 5. RBIS PRUDENTIAL ACCOUNTING NORMS 6. MANAGEMENT OF NPAS IN VIJAYA BANK 7. FINDINGS SUGGESTIONS & CONCLUSION

Questionnaires Bibliography

CHAPTER SCHEME
CHAPTER-I

INTRODUCTION: Introduction of the Study Objectives of Project Report Scope of the Study Methods of the Study Needs of the study Limitation of the Study

Chapter-II

Banking- A Theoretical Prospective

Introduction to Banking Development of Modern Banking Function or Importance of Banking Classification of Banks

Chapter-III

Vijaya Bank-A Profile

Genesis History of Vijaya Bank Establishment of Vijaya Bank Progress of Vijaya Bank

Chapter-IV Non-Performing Assets-A Theoretical Perspective Introduction Meaning of NPAS Magnitude of NPAs Causes of NPAs Remedial measures of NPAs Treatment of NPAs Conclusion Regarding Contributing Reasons

Chapter-V

RBIs Prudential Accounting Norms

Income recognition Assets classification Provisions

Chapter-VII

Management of NPAs in Vijaya Bank

Deposits Loans and advances Rate of NPAs Steps of management Recovery measures

Chapter-VIII Findings Suggestions & Conclusion Questionnaires Bibliography

CHAPTER-I

INTRODUCTION

Introduction
Objectives of Project Report Scope of the Study Methodology of the Study Needs of the study Limitation of the Study

INTRODUCTION Banking is one form or another exists little historical evidence as to the nature of banking operations before the 13 th century available for the earlier period. The distention between commercial banks and other types of Banks is difficult to make with certainty. In ancient time the writing MANU (The maker of old Hindu Law] and KOUTILYA [The minister of CHANDRAGUPTHA MOURYA] and the teaching of Christ contained reference of Banking there are records of loans by the temples of Baby lone as early as 2000 B.C. as the temples were considered sacred place under the special protection of the gods. They were not likely to be robbed. Thus were considered safe depositories, companies of traders also carried on Banking functions connected with the Buying functions connected with the Buying and selling of goods. Banking system occupies an important role in our national economy Banking Institution is Indispensable Banking has come to pay an important role in the economy development of our country, with a stiff in the government policies towards a state ownership banks with shareholding of public from corporate bodies have been converted into national Institution. This Project Report entitled the MANAGEMENT OF NO PERFORMING ASSET with reference to MAIN BRANCH SHIMOGA.

OBJECTIVES OF PROJECT REPORT 1) To know the impact & NPAs on Bank profit and lending policy. 2) To find out the rate of NPA in Vijaya Bank. 3) To Know the Remedial measures to control or Reduce the NPA.

4) To find the Banking Lending policy. 5) To know the measures before 2 after lending money by the banker. 6) To know the stages Management of NPA 7) To know the steps in Recovery measures. 8) To find is any illegal recovery measures taken by the Bank.

SCOPE OF STUDY: For the purpose of study I have selected the branch located at B.H. Road in SHIMOGA is related for study of NPA, and maintaining structure and how to reduce it.

This Project report aimed at give clear picture of management of NPA and maintaining structure In Vijaya Bank.

METHODOLOGY: The Data is collected for the preparation of the Project Report includes primary and secondary data. The primary data is collected through on Interview with the manager of the Bank and the Bank staff to collect information about service rendered by the bank to study the various aspects of annual Report. The secondary data is collected through Newspaper, Magazines, and Books etc, which reveals the customers India about the Branch. BENEFITS OF THE STUDY:

It helps to give the clear picture of management of NPA.

By preparing the Project Report the study help us to write our own suggestions and conclusion for its improvement.

We get the clear structure of Management of NPA.

It helps to give the Remedial measures of NPA.

LIMITATION OF PROJECT REPORT: This Project Report has been prepared with in a restricted period of time. The available time has been utilized to the at most extent possible to collect data and analyze it for the successful completion of the repair. This Project Report has been prepared with restricted Cost. The available resources have been utilized to the fullest extent and additional resources have also been used. This Project Report may not give a true picture because of the based nature of the response received. Because the Survey has been Conducted not taking into account the nature of the people.

CHAPTER-2
BANKING- A THEORETICAL PROSPECTS

Introduction to Banking

Development of Modern Banking

Function or Importance of Banking

Classification of Banker.

BANKING- A THEORETICAL PROSPECTS

INTRODUCTION: Banking is one form or another was inexistence even in ancient times. The writings (The maker of Hindu Law] and KAUTILYA [The maker of Hindu Law] and KAUTILYA [The minister of Chandragupta Maurya] Contained reference to banking. However banking as a kind of business i.e. modern banking is of recent origin. It come into existence only offer the industrial revaluation. After the Industrial revaluation with the increase in the size of industrial and business units. Joint stock company form of business organizationcame into existence only after the industrial revaluation. After the industrial revaluation with the increase in the size of industrial and business units. Joint stock company form of business organization came into existence this form of organization encouraged people with small means to become shareholders of big industrial 2 business enterprise. Still there were certain sections of the public who were not prepared to invest their surplus moneys if they were assured of the repayment of their money with a little interest there on So, naturally there were the need for the formation of financial

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institutions that could collect the surplus funds of the people on terms acceptable to them and make them (i.e. the funds] available to the needs for productive purposes accordingly, a long number of financial institutions called joint stock banks were set up offer the industrial revolution. As such joint stock banks or modern banks are of recent development. Bank plays a vary useful and dynamic role in the economic life of a modern society these render very valuable services to the community to the trade and industry they help the wheels of trade commerce and industry always revolving. Banks in modern days acts as the chief agent in mobilizing the dormant funds of community 2 diverts them into productive channels they contribute to the general welfare 2 prosperity of the nation. Banks today are the backbone of modern industry. They are an essential part of the community. So, naturally there were the need for the formation of financial institutions that could collect the surplus funds of the people on terms acceptable to them and make them (i.e. the funds] available to the needs for productive purpose. Accordingly a long number of financial institutions called joint stock banks were set up offer the industrial revaluation. As such joint stock banks or modern banks are of recent development. Bank plays a very useful and dynamic role in the economic life of a modern society these render very valuable services to the community to the trade and industry they help the wheels of trade commerce and industry always revolving. Banks in modern days acts as the chief agent in mobilizing the dormant funds and community & diverts them into productive channels they contribute to the general welfare and prosperity of the nation. Banks today are the backbone of modern Industry they are an essential part of the Community.

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Even though banking as an independent business oriented during the 14 th century in England. The seeds of banking business were shown as early as 2000 B.C,.

According to Geoffrey Crowther the present day banker has their ancestry viz, merchant, money lender and gold smith. Banking in India flourished a ancient vide times. It originated in our country as early as 500 B.C money was accepted on deposits and given in the form of advances. However banking in those days consisted mainly on money was accepted on deposits and given in the form of advances. However banking in those days consisted mainly on money lending country. During the mogul period the Indigenous bankers played a very important role in lending money & financing of foreign trade and commerce for the purpose of lending the towns and principal towns. In small towns a Sheth also known shah & chili on performed banking functions. In principal towns Nagar Sheth as Town Bankers was doing money lending business besides money lending they were transferring funds from place to place and doing collection business mainly through Hindus (bills of exchange) first half of the 9 th century. The East India Company established 3 banks. They accepted deposits and employees them in their business the rate of Interest charged by them was very high as the advance were unsecured and risks and were repaid over a long period of time that is not cause now. The money lender Act paused by different state has imposed a large number of restrictions on their business with the growth of banking habits. The changes in the public opinion and fast expansion of banking is Rural and Semi urban are especially after nationalization of major Indian Commercial Banks the money lenders as a close a bound to close their Importance.

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DEVELOPMENT OF THE MODERN BANKING: For the history of modern banking in India, a reference to the English Agency is the days of East India Company would be necessary. The bank of Hindustan was the first joint stock Bank to be established under European management. But soon if first half of the 9 th century. The East India Company established 3 banks. But of Bengali in 1809 with a capital lake under government after the 3 decade there were another two banks were established namely the Banks of Bombay in 1840, The bank of madras in 1843. These banks knew as the presidency Banks. These 3 banks were amalgamated in 27 th January 1921 to form the empirical bank of India. The aid commercial bank was perhaps the first purely joint stock Bank to be established in 1889. Later the Punjab national Bank (1989) and the peoples banks (1901) were established. The Swadeshi movement of 1905 gave a great stimulus to the development of Indian Banks. The Banks of India was started I 1906. The Indian Bank in 1907. The Bank of Baroda in 1908 and the Central Bank of India in 1911. However the banking Crises of 1943 unit hard money of the Bank. The state bank of India was established and the following banks were made subsidiaries of state Bank of India. In 1922 the banking Industry witnessed many bank failure. It is only in recent years such bank failure have been prevented 2 stability restored. In 1935. We established the Reserve Bank of India which is acting as the central Bank of our country. Amongst various banking instructions in the country in the organized sectors. The commercial banks are the oldest institutions having a wide network

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of branches. Infect one of the commercial bank in our country state Bank of India (SBI) has got more than 12,000 branches all over India which is highest by any banking institution in the world there by trying all over the country. However commercial Banks have the lions shares in the total banking operation in the country. In 1955 the Imperial Bank of India has been taken over by the newly constituted the state Bank of India. Pursuant to the provisions of the state Bank of Act of 1956. eight state owned banks were nationalized with effect from July 19, 1969 again a 23-04-1980 six more banks were also nationalized. Thus bringing to a total of 90% of the banking system in India under the public sector. Regional Rural Banks are the new banking institution which have been added to the Indian Bankign scheme since October 1975 under the Regional Rural Banks Act 1976. With a shift in the government policies towards state ownership Banks with the shareholdings of public has been converted drawn corporate bodies into National institution under 2 phase that is once in 1969 and then again in 1981. Today as many as 28 lakhs constitute the strong public sector commercial Banks today contributes business in the country.

FUNCTIONS AND IMPORTANCE OF BANKS: The importance of Banks in the modern economy cannot be denied. Banks plays a significant role in the economic development of a country.

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1) Banks mobilize the small scattered and idle savings of the people and make them available for productive purposes. In short they aid the process of capital formation. By offering attractive interest on the Savings of the people deposited with them Banks promote the habit of thrift and saving among the people. 2) By accepting the savings of the people, Banks provide safety and security of the surplus money of the depositors. 3) Banks provide a convenient and economical means of transfer funds from one place to another. Bank draft is commonly used for remittance of funds from one place to another 5. Bank influence the rate of interest in the money markets through the supply of money (i.e. bank money or banks deposits) Banks exert a powerful influence on the interest rates in the money market. 6. Banks help trade and commerce. Industry and Agriculture by meeting their financial requirements. But for the financial assistance provided by the banks the place of growth of trade and commerce. Industry and agriculture would have been very slow. 7. Banks direct the flow of funds into productive channels. While lending money they discriminate in favour of essential activities and against non-essential activities. 8. Banks always make it a point to help the Industrious The product. The punctual and the Honest and Discourage the dishonest. The spend thrift. The Gambler The Liar and the Knave (i.e. he rogue). Thus, bank act as public conservators of commercial virtues.

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9. Banks provide a convenient and economical method of payment. The check system introduced by banks in convenient for making payments. 10. Banks helps the movement of capital from regions where it is not very useful to regions where it unable more usefully funds from places where they are less useful to places where they are more useful, Banks increase the utility of Funds.

CLASSIFICATION OF BANKS: It is very difficult to have a classification of banks. Because the economic conditions and the financial needs very from country and consequently the banks that are developed to meet the financial needs also differ from one country to another. Generally banks are classified on the basis of their functions such a classifications of banks is called Functional classifications of Banks. On the basis of their functions. Banks are classified into 8 categories. They are.

1. Commercial Banks or Deposit Banks 2. Industrial Banks or Investment Banks. 3. Mixed Banks 4. Agricultural Banks 5. Exchange Banks

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6. Savings Banks

1. COMMERCIAL BANKS: Commercial Banks are Banks which accepts deposits from the public and lend them mainly to commerce for short periods. As finance mainly commerce. They are called commercial Banks. They also called as Deposit Banks as they accept deposits from the public and lend them for short periods the system of accepting deposits from the public and lending them for short periods is called Deposit Banking and Banks engaged in such banks are called Deposit Banks. 2. INDUSTRIAL BANKS OR INVESTMENT BANKS: Industrial Banks are banks. Which provide block or fixed capital (i.e. Longterm Finance) to Industries. As they finance Industry. They are called Industrial Banks They are also called as Investment Banks as they Invest their funds to the shares and Debentures of Industrial Concerns with the object of providing longterm Finance to Industries. Industrial Banks are not found in all the countries of the world. They exist only in a few countries like the U.S.A. Canada etc. In India Industrial Banks are not found.

3. MIXED BANKS: In some countries, there are no specialized Industries or Investment banks to undertake Industrial or Investment banking (i.e. provision of fixed capital or long term finance to Industries). In such countries the commercial Banks themselves are required to perform Industrial Banking (i.e. provision of fixed

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capital or long term finance to industry). In addition to their commercial banking (i.e. provision of working capital or short term finance to Industries). Commercial Banks which undertakes both commercial Banking and Industrial Banking are called Mixed Banks. Mixed Banks had their origin in the continent of Europe. They made

tremendous progress in west company. They made great progress also in Countries. They made great Progress also in Countries like Switzer (and Italy. Austria. Japan etc.

4. AGRICULTURAL BANKS: Agricultural Banks are banks, which provides finance to agriculture. As they provide finance to agriculture they are called agricultural Banks. Agricultural Banks are found in money countries such as India England. West Germany. USA etc. In most of the countries agricultural banks are organized on co-oeprative basis.

5. EXCHANGE BANKS: Exchange Banks are banks which finance mainly the foreining exchange business (i.e. export and Import trade) of a country. As they finance mainly the foreign exchange business of a country. They are called Exchange Banks. Special Exchange Banks are found only in some countries. In many countries commercial banks themselves perform exchange. In India the major part of foreign exchange business is done by foreign exchange business of India through their branches in India.

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VIJAYA BANK-A PROFILE

Genesis History of Vijaya Bank Establishment of Vijaya Banks

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Progress of vijaya Bank

VIJAYA BANK-A PROFILE

GENESIS: After the end of the 1 st World was the economy was in Shamble. The businessman traders, agriculturists etc, were suffering from paucity of funds for their enterprises. In the middle of the Seventies of the 20 th Century. Vijaya Bank limited was established Vijaya Bank limited was founded 65 years ago in the Costal town of Mangalore in Dakshina Kannada District of Karnataka State by a group of agriculturist with the main response of solving a small community of formers of the district. Today it is a household name in the country serving people from all work of life through a wide network of branches spreat over 25 states and 3 union territories. Vijaya bank has indeed come along way after having buffered the storms of great depression survived the companys when small banks were merged with bigger ones. Vijaya Bank emerged stronger and began its exciting journey to success. Pursuing dynamic branch expansion policies which enabled it to grow into an all Indian bank was nationalized in the 15 th April 1980.

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ESTABLISHMENT OF VIJAYA BANK: Vijaya Bank was establish on 23 rd October 1931 by late Shri A.B. Shetly an other enterprising formers in mangalore Karnataka. The objective behind establishment of the Bank was essentially to promote banking habit. Thrift and enterprenurship among the forming community of Dakshina Kannada district in Karnataka state. The bank become a Scheduled bank in 1958. During 1963-68 nine smaller banks merged with Vijaya Bank and the Bank steadily grew into a large. All India bank. Vijaya Bank was nationalized on April 15, 1980 and today. The Bank has a net work of 913 branches that span all 28 states and 3 union territories in the country. Vijaya Bank has been constantly focusing on technological upgradation. As on October 2005, all the 913 branches have been computerized. Covering 97% of the banks total business. The Bank has diversified into new areas such as credit card. Merchant banking, hire purchase and leasing and electronic remittance service. Vijaya Bank is one of the few bank in the country to take up principal membership of VISA International and master and International.

HISTORY OF VIJAYA BANK:

DECADE OF ENTERENCHMENT: The early Corporate history of the bank, i.e. 1931 to 1960 ws not eventful, those were the difficult years for the banks. The external environment was not conducive for growth. The national movement second world war, economic recession post-independent charges in the Banking regulatory framework posed tremendous pressure on the Coping capabilities of the banks. It is not surprising

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that the country recorded highest number of bank failures during this period. Vijaya Bank Ltd. Reacted cautiously to the market realities. If followed the path of prudence and conservation. It mainly concentrated on giving gold loans and pledge loans on agricultural commodities. During this period of insulation. The Bank added 20 branches-less than one branch per year. A branch was however opened in Bombay thus exponding the banks. Operations beyond Dakshina Kannada district The year `958 was the benchmark year for the Bank, in the year Vijaya Bank Ltd was categorized as scheduled commercial Bank by the Reserve Bank of India

DECADE OF MERGERS: 1960-69: In the early sixties, Reserve Bank of India took a policy decision to merge smaller banks with comparatively large smaller banks with Comparatively larger ones to reduce the number of banks to on administratively manageable level. Vijaya Bank saw an opening. It come out with a proposal of collaborative merger of smaller banks for synergy, strength and collective prosperity. Some banks found the proposal acceptable Totally nine banks got merged with Vijaya Bank Ltd. On various dates between 1963 and 1967. The credit for successful execution of the merger plan should go to Sri. M. Sunder Ram Shetly. Who was than (1962-69) the non executive chairman of the Bank. Thanks to the merger, 42 branches were added to the branch net work and the Bank emerged as a strong and confident entity.

DECADE OF GROWTH 1970-80: 1969 was an eventful year for the banking industry. The year saw nationalization of 14 major banks The remaining smaller banks were brought

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under social control. In Vijaya Bank Ltd. Also things started happening Shri. M. Sunder Ram sheltie took over as the wole time chairman and chief executive of the bank. The key strategic areas were identified for growth capital and Reserve deposit advances branch expansion and human one bank among the nonnationzied banks. The reserve Bank of India had Just liberalized the branch licensing policy As a provide to its action plan, mangalore to Bangalore. Thanks to the extraordinary enthusiasm, dedication and capacity for hard work shown by the employees the bank could outperform its peers in the industry and record outstanding growth which has few parallels in the history of Indian Banking Industry. During the period from 1969 to 1976 the Banks Deposits shot up from Rs. 13.21 Crore to 221.02 Crore recording on Aug annual growth rate of 42%. The Bank added 377 new branches. The shareholders return in the form of dividend doubled from 6% to 12%. The bank exponded 60 th functionally and geographically. The Bank introduced a number of innovative deposit and loan schemes. Focusing on various customer segments. The Banks publicity and public relations was at its best. The bank identified international banking as a Sunrise. Sector as early as in 1970. The full fledged international banking division was opened in the year 1971. As a part of product diversification strategy. The bank was also: very active in Social lending particularly in the area of agricultural finance. The Bank had on enlightened human resources management policy. A great deal of emphasis was laid on training. The bank opened its first training college in Bangalore in 1971. The Bank has 1160 employees in 1969 and the number went upto 9080 in 1979 Rugges young and inexperienced. They were a highly inspired and motivated lot. The average age of the employees at one point of time during the period was just 27%. By the late seventies the Bank had made substantial headway as Indicated below.

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NATIONALIZATION AND NEW CHALLENGES: The Bank was nationalized on 15.04.1980 following natioinalization banks objectives and priorities changed. Change from entrepreneurial banking to compliance banking called for radial changes in the organizational structural policies and programs as well as in the mindset of its employees. In the early part of 1980s the Bank was pre-occupied in effecting such structural changes for effective implementation of various Government schemes. A new Rural Development and priority sector division was created during this period to further intensity. The banks efforts for lending to priority sector and weaker sections of the society the bank introduced quite a number of innovative schemes such as vijaya Krishna Cards Vijaya Vichar Vihar etc to meet the specific needs of forming community. The bank also sponsored its first regional Rural Bank Viz. Visureshwaraya Grameena Bank for madya District. The bank had a highly centralized administrative set up before nationalization. After nationalization banking operations were gradually decentralized. The bank shifted its zonal offices to their respective territories. To give greater threst on computralization and diversification, new departments viz, computer policy and planning Depreciation credit card division and Merchant Banking Division were set up at Head office.

THE CHALLENGING NINETIES: In early 90s banks were faced with turbulent changes in the financial sector. Liberalization of economy. Deregulation, computerization etc opened up new opportunities for banks for diversification and growth. Introduction of prudential norms in income recognition provision and capital adequacy transparency in financial reporting etc, have rendered banks more accountable for performance. The bank faced thee challenges posed by the deregulation in its

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stride. It opened as money as 113 new branches of these 36 were specialized, specialized industrial finance and SSI branches were opened to give focused attention to meet the needs of different classes of customers. Greater emphasis was also given on modernization of banking operations. The bank, which had to book losses in 1992-1993 and 1995-96 on account of stringent income recognition/provisioning norms, turned the corner immediately in 1996-97 and has now started improving its performance on the profitability front the Bank also successfully mobilized equity, amounting to Rs. 100 Crore through an IPO Issue in 2000. As a result, the shareholding of the Government of India has come down from 100% to 72.16%.

LOOKING AHEAD: Today Vijaya Bank is a vibrant institution. It has spread its branch net work in all the 288 states and 4 union territories of the Country. It has on its rools about 12000 employees a overwhelming majority of whom have already put in about 20 to 25 years of service in various capacities. They are quite an experienced, reliable and competent lot to provide efficient service and to take the bank to grater heights.

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NON-PERFORMING ASSETS -A THEORTICAL PERSPECTIVES

Introduction

Meaning of NPAs

Magnitude of NPAs

Causes of NPAs

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Conclusion Recording Contributory Reasions

Causes for on account becoming NPAs

Treatment of NPAs

NON-PERFORMING ASSETS -A THEORTICAL PERSPECTIVES

INTRODUCTION: A strong banking sector is important for flourishing economy. The failure of the banking sector may have an adverse impact on other sectors. Non-performing assets are one o the major concerns for banks in India. NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a large number of credit defaults that affect the probility and net worth of banks and also erodes the value of the asset. The NPAs growth involves the necessity of provisions which reduces the over all profits and shareholders value. The issue of Non-performing Assets have been discussed at length for financial system all over the world. The problem of NPAs is not only affecting the banks but also the whole economy. In fact igh level of NPAs in Idian banks is nothing but a reflection of the state of health of the Industry and trade.

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The paper deals with understanding the concept of NPAs it magnitude and major causes for an account becoming non performing projection of NPAs over next three year in Banks and concluding remarks.

MEANING OF NPAS: An asset is classified as non-performing Asset (NPA) if due in the form of principal and interest are not paid by the borrower for a period of 180 days. However with effect from march borrower if dues are not paid for 90 days if any advance of credit facilities granted by banks to a borrower becomes 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 fast that there may still exist certain advances credit facilities having performing status. Though the term NPA connotes a financial asset of commercial bank. Which has stopped earning on expected reasonable return it is also a reflection of the productivity of the unit firm concern industry and nation where that Asset is ideling viewed with this perspective. The NPAs is a result of an environment that prevents it from performing up to expected levels. The definition of NPAs in Indian context is certainty more liberal with two quarters norm being applied for classification of such assets The RBI is moving over to one quarter norm firm 2004 onwards.

WHAT IS A NPA [NON-PERFORMING ASSETS] Action for enforcement of security interest can be initiated only if the secured asset is classified as Non-performing Asset.

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Non performing Asset means an asset or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset in accordance with the directions or guidelines relating to asset classification issued by RBI. An Amount due under any credit facility is treated as Past due when it has not been paid within 30 days from the due date. Due to the improvement in the payment and settlement systems, recovery climate, up gradation of technology in the banking system etc it was decided to dispense with past due concept, with effect from march, 31, 2001. Accordingly as from that date a Non performing asset (NPA) shall be an advance where.

(i) Interest and/or installment 3 principal remain overdue for a period of more than 180 days in respect of a term loan . (ii) The account remains out of order for a period of more than180 days

MAGNITUDE OF NPAS In India the NPAs that are considered to be at higher levels than those in other countries have of late attracted the attention of public. The Indian banking system had acquired a large quantum of NPAs which can be termed as legacy NPAs. A distinction is often made between Gross NPA and Net NP A is obtained by deducting items like interest due but not recovered part payment received and kept in suspense account etc from Gross NPA.

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As shown in the above table-1 over the year NPAs as a percentage of net advances and total assets have been declining but actual numbers are increasing.

Dealing with NPAs involves two steps of policies. 1) Relating to existing NPAss 2) To reduce fresh NPA generation

As far as old NPAs one concerned a bank can remofe it on its own or sell the assets to AMCs to clean up its balance sheet. For preventing fresh NPAs, the bank, itself should adopt proper policies.

CAUSES OF NON PERFORMING ASSETS: A strong banking sector is important for a flourishing economy. The failure of the banking sector may have an adverse impact on other schemes. The Indian banking system which was operating in a closed economy, now faces the challenges of an open economy. On one hand a protected environment ensured that banks never needed to develop sophisticated treasury operations and asset liability management skills. On the other hand a combination of directed lending and social banking relegated profitability and competitiveness to the background. The net result was unrustanable NPAs and consequently a higher effective cost of banking services.

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One of the main causes of NPAs into banking sector is the directed loans system under which commercial banks are required a prescribed percentage of their credit (40%) to priority sectors as of today nearly 7 percent of Gross NPAs are locked up in hard core doubtful and loss assets accumulated over the years. There are secured reasons for an account becoming NPAs

Internal factors

External factors

INTERNAL FACTORS 1) Funds borrowed for a particular purpose but not use for the said purpose. 2) Project not completed in times 3) Poor recovery of receivables 4) Excess capabilities created on non-economic costs. 5) In-ability of the corporate to raise capital thorugh the issue of equity or other debt instrument from capital markets 6) Business failures 7) Diversion of funds for expansion/Madernization/setting up new projects/helping or promoting sister concerns. 8) Willful defaults siphoring of funds, froud, disputes, management disputes, misappropriation etc.

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9) Deficiencies on the part of the banks viz in credit appraised, monitoring and follows. Delay in settlement of payments/subsidiaries by government bodies etc

EXTERNAL FACTORS: 1. Sluggish legal system:

Long legal tangles

1) Changes that had taken place in labour laws. 2) Scarcity of raw material power and other resources. 3) Industrial recession 4) Shortage of raw material input price escalation power shortage industrial receission, excess capacity, national calamities like floods, accidents. 5) Failures non-payment/over dues in other countries, recession in other countries extranalizaiton problems, advance exchange rates etc. 6) Government policies like excise duty changes, import duty changes etc.

CONCLUSION REGARDING CONTRIBUTORY REASONS: The Study of about 900 to NPAs accounts in 27 public sector banks that has been tabulated from the available information revealed by RBI, that the following are the important factors for units becoming sick/weak and constantly of accounts turning NPA in the order of prominence.

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Diversification of funds, mostly for expansion/divers, fication/modernization taking up of new project is the single most prominent reason. Besides being so this factor also has significant proportion of cases when compared to other factors. Internal factor, failure of business inefficient management inappropriate technology, product obsole scence. External factors comprising industrial recession price escalation power shortage accidents etc. Time/cost overrun during the project implementation stage lending to liquidity strain and turning NPA into next factor. Other factors in order or prominence are government policies like changes in import excise duties etc willful default fraud/misappropriation dispute etc and lastly deficiencies on the part of banks delays in release of limits and delay in settlement of payment by government bodies.

OTHER CAUSES FOR AN NPAs

Those Attributable to Borrower Causes Attributable to Banks other Causes 1) Failure to bring in Required capital 2) Too ambitious project 3) Larger gestation period 4) Unwanted expenses

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5) Over trading 6) Imbalance of investories 7) Lack of proper planning 8) Dependence on Single Customers 9) Lack of expertise 10) Improper working capital management 11) Mis management 12) Diversion of funds 13) Poor quality management 14) Heavy borrowings 15) Poor credit collection 16) Lack of quality control 17) Wrong selection of borrowser 18) Poor credit oppraisal 19) Unhelpful in supervision 20) Tough stand on issued 21) Too inflexible attitude 22) Systems overloaded 23) Non-inspection of units 24) Lack of motivation

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IMPACT OF NPAS ON BANKING OPERATIONS

NPA have the following impacts in the banking operations. The interest income of banks will fall as interest is to be accounted only on receipt basis. Banks profitability is affected adversely because of providing for doubtful/writing off of bad debts. ROI (Return on Investment) is reduced Capital adequacy ratio is disturbed as NPAs enter into its calculation. Cost of capital will go up. Assets and liability mismatch will widen Eva (economic valuation) by banks gets up set because EVA is equal to Net operating profit minus cost of capital.

TREATMENT OF NON PERFORMING ASSETS [NPAS] PART-A POLICIES AND PRACTICES o Clasification Of Loans And Off-Balance Sheet Items There is no uniform system of classification of loans and off-balance items. Many countries have adopted, mainly through regulatory and supervisory framework. A three tier approach towards classification of Non-performing Assets

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[NPAs[, corresponding to substandard doubtful and loss categories, using delinquency period as the main bench mark, Thus, substandard Assts are those where principal and/or interest are more than 90 days past due doubtful Assets are those where principal and/or interest are at least 180 days past due; and loss assets are those whom principal and/or interest are at least 1 year past due. This classification categories is also applied to contingent accounts or off-Balance sheet items, since they are treated the same way as loans. The delinquency period is applied for classification of various on balance sheet assets and offbalance sheet items, so as to provides, among others on objectivevs criterion for appropriate classification, depending on the possibility of collectibility. However, if in the banks judgement on asset is impaired to such an extent and its collectibility is in serious doubt that it should straightaway be classified as doubtful or loss the bank will do so, at any time without waiting for the delingciency period. The delinquency period various across countries and if differs in relation to the types of accounts, also, in some countries, banks themselves classify the loans, on the basis of judgemental factors. In view of the varied practices followed, primarily depending on the structure of the banking system, credit delivery systems, and socio economic conditions, it will not be advisable to prescribe a set of definition of Nonperforming Assets one may rely on the approach adopted by the national authorities. It should however, be made a requirement that the system followed in the matter of classification of assets, should be explained fully, in the form of footnotes to the accounts.

Provisioning requirement: The practices of provisioning differ among countries, following the asset classification system adopted, most of the countries have adopted the standard

36

requirements of provisioning 20 percent of the outstanding balance in respect of substandard category of assets, 50 percent in respect of doubtful category and 100 percent in respect of loss category. While some countries have imposed lower percentages yet some others have adopted the system of provisioning in a phased manner, Recognition of collateral, fully or partially in assessing the provisioning requirements, as applicable in some countries, has great impact on provisioning. Also, tax deductibility of specific provisions towards loan losses, as extended by tax authorizties in some countries, constitutes a strong positive incentive for banks to make adequate provisions. It is therefore, necessary that banks should be required to fully explain the policies and procedures adopted in making provisions towards NPAs. RECOGNITION OF INCOME ON NON-PERFORMING Loans [NPAs] Structure regulations have been laid down by supervisory authorities in many countries with regard to income recognition on Non-performing Loans [NPAs]. The suspension of Interest are classified as non-performing [substandard. doubtful and loss]. Any uncollected interests payments on NPLs is considered non accrued interest. Previously accused, but collected interest, is reversed out of income, failure to do so would oversats income uncollected interest is normally put in a memorandum account. NPLs are restored on an accual basis only after full settlement has been made on all delinquent principal and interest. on NPLs. Criteria for write-off of bad loans: The policy with regard to write-off of bad loans by banks is set by the Board of Directors, depending, among others, on the repayment culture and legal It would, therefore, be useful, if the accounts carry a footnote explaining the accounting policies followed with regard to recognition of income

37

system prevalent. It will be inadvisable for the regulatory authority to lay down specific guidelines as to when a loan could be considered as non recoverable and written-off. The banks may, However be exhorted that balance sheets would need to be cleansed, as early as possible.

PART B-REPORTING REQUIREMENTS. Interest Income: Ideally, Interest income should reflect only interest income realized and should exclude accrued on NPLs so as to avoid overstanding of income. The banks may be required to report the balance of uncollected interest on NPLs as a memorandum item. It would be useful if additions and deletions during the preceding specified period are also reflected.

Loans: It will be appropriate to record the Specific provisions as a contra item, thus reducing the total loans outstanding so as to reflect the recoverable value of the loans. Thus, while specific loans loss provisions are reported as contra asset, nonetheless, provisions other than for loan losses, should however, appear under liabilities.

NON-PERFORMING ASSETS (NPAS) The banks may be required to report Non-performing Loans (NPLs) preferably under various categories, as a memorandum item, It is important tht the amount of outstanding NPLs should not include interest not realized. The

38

additions and deletions during the preceding specified period may also be reflected. The total of on-balance sheet assets other than loans, and off-balance sheet items classified as non performing may be reported separately under various categories. Additions and deletions during the preceding specified period shall also be reported. PROVISIONS: General Provisions may be required to be reported as a separate item under capital and reserves.

The Specific provisions may be required to be reported, so as to facilities arriving of provisons/adjusted NPLs i.e. Net NPLs Additions and deletions during the preceding specified period may also be required to be reported.

REMEDIAL MEASURE OF NPAS: In spite of better credit management in terms of apprecising and monitoring of loan asets NPAs do occur. namely. In such user. Various remedial measures are available to deal with such NPAs. The remedies may be broadly divided into two

Non-Legal Remedies Legal remedies.

39

NON-LEGAL REMEDIES: Non-Legal remedies may be in the form of compromise mergers and take overs. The goods pledged or hypothecated may be sold without the intervention of the court. The debts can be assigned in favour of an agency which may come forward to collect debt for a service charged.

LEGAL REMEDIES: The BRI has advised lenders to initiate legal measure including criminal action some of the important legal measurable available are Filing of suits under state recovery acts for the recovery of debts Filing of civil suits for the recovery of debts or for the enforcement of the security Referring the cases to debts recovery tribunal (drts) and debt recovery appellate tribunal (DRAT) set up under the recovery of debts due to banks and financial institution act 1993 Referring cases to lokadalats constituted under the legal services authorities act 1987 which helps in resolving disputes between the parties by conciliation mediation compromise or amicable settlement ,every award of the lokadakath shall be deemed to be a decree of a civil court Resolving large loans via debt recovery mechanism most notably the corporate debt restructuring (CDR) mechanism one time settlement schemes have been tried with good result

40

Proceeding against the default borrower under the securities and reconstruction of financial assets and enforcement of security interest ACT(SRFAESI ACT)2002 which come into effect on JUNE 21-2002 under the ACT banks and financial institutions and allowed to issue demand notices to defaulting borrowers and to take possession of secured asset without the intervention of the courts if the dues are no paid with in 60 days from the date of such notice ,the provisions of this ACT are not applicable to unsecured loans or loans below Rs 1,00,000/-or to loan and due is been than 20% of the principal amount and interest there on Recently on April 8-2004 the supreme court has upheld the validity of the securitisation Act by giving one major relief to the borrower litigant, the earlier provision that the borrower will have to deposit 75% of the disputed amount before appealing has been scrapped with the implementation of the SRFAESI ACT many lenders have commenced their recovery action against recalcitrant debtors since the supreme court has upheld the constitutional validity of the ACT it will go a long way in moging NPAS successfully ,this Act also provides the formal legal basis for setting up asset reconstruction companies (ARCS)in India

41

RBIS PRUDENTIAL ACCOUNTING NORMS

INCOME RECOGNITION ASSETS CLASSIFICATION RISK WEIGHTS

42

RBIS PRUDENTIAL ACCOUNTING NORMS

INTRODUCTION: Non performing Asset means an asset or account of borrower which has been classified by a banks or financial institution as sub-standard doubtful or loss asset in accordance with the directions or guidelines relating to asset classification issued by RBI. An Amount due under any credit facility is treated as Past due when it has not bene paid within 30 days from the due date. Due to the improvement in the payment and settlement systems. Recovery climate, up gradation of technology in the banking system etc it was decided to dispense with past due concept with effect from march 31.2001 Accordingly as form that date a non performing asset (NPA) shall be an advance where. i) Interest and/or installment of principal remain overdue for a period fo more than 180 days in ii. The account remains respect of a term loan. out of order for a period of more than 180 days in respect of a an overdraft/cash credit[OD/CC]. iii. The bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted.

43

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 agricultural purpose and. v. Any amount to be received remains overdue for a period fo man than 180 days in respect of other accounts. With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the 90days overdue norm for identification of NPAs form the year ending March 31, 2004. Accordingly, with effect form march 31, 2004 a non-performing asset (NPA) shall be a loan or an advance where. Interest and or installment of principal remain overdue for a period of more than 90 days in respect of the term loan. The account remains out of order for a period of more than 90 days in respect of an overdraft/cash credit [OD/CC]/. The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted. 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 ad ance granted for agricultural purpose and. Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts. RBIS PRODENTIAL NORMES OF NPAS 1.LOANS AND ADVANCES

Existing prudential norms

44

(a) Income recognition A government guaranteed advances where interest and instalment of principal or any other amount due to the bank remain overdue for a period more than 90 days shall become a non-performing advances . the interest due on such advances should not be taken to income account unless it has been realized.

(b). Asset classification and provisioning: A Government guarantee advance where interest or installment of principal or any other amount due to the bank remains overdue for a period of more than 90 days after invocation of the Government guarantee shall be subjected to appropriate asset classification and provision norms. c. Risk weights: A government guaranteed advance attracts zero percent risk weight. A government guaranteed advance where guarantee has been invoked and the concerned Government has remained in default for a period of more than 90 days will attract a risk weight of 100 percent.

REVISED PRUDENTIAL NORMS:

a) Income recognition: A government guaranteed advances where interest or installment of principal or any other amount due to the bank remains overdue for apirod more

45

than 90 days shall become a non-performing advances The interst due on such advances should not be taken account, unless it has been realized.

2. Investments: Existing prudential norms. a. Income recognition: Investment in securities where payment of interst or repayment of principal is guaranteed by governments will become a non-performing investment if interest on installkment is due and remains unpaid for more than 90 days. Bank should not take income on non-performing investment to income account unless it has been realized. b) Asset classification and provisioning i) Investment in the nature of deemed advance: Investments is Government guaranteed securities which are in the nature of deemed advance will attract appropriate asset classification and provisioning norms as in the case of advances when interest or installment of principal or any other amount to the bank remains overdue for a period of more than 90 days after innovation of the government guarantee. towards debentures where the interest is in arrears or principal is not paid as per due date shall not be allowed to be set off against appreciation against other debentures or bonds. c) Risk Weights:

46

Investment in Government guaranteed securities of Government undertaking which form part of approved market borrowing programme attracts an aggregate risk weight of 2.5 percent Zero percent for credit risk and 2.5 percent for market risk. Investment in Government guaranteed securities attract a risk weight of 102.5 percent if the guarantee is invoked and concerned Government has remained in Default. ASSET CLASSIFICATION: Having Identifiable assets, as NPA banks are required to classify them further into a) Sub-standard Assets. b) Doubtful Assets c) Loss Assets 1) Sub-Standard Assets: A sub-standard asset is one, which has remained NPA for a period of lass than or equal to 12 months.

ii. Doubtful Assets: An asset is classified as doubtful if it has remained in the sub-standard, category for a period of 12 months.

iii. Loss Assets:

47

A Loss Assets 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 audit is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be same salvage or recovery value.

Exceptions: In respect of accounts where there are potential threats for recovery on account of erosioin in the value of security or non-availability of security and existence of other factors. Such as frauds committed by borrower it will not be prudent that such accounts should go through various stages of assets classification. In case of such serious credit impairment the asset should be straightway classified as doubtful of loss asset as appropriate. i) Erosion in the value of security can be reckoned as significant when the security. It has then 50 percent of the value assessed by the bank or accepted by RBI at the time of last inspection as the case may be such NPAs may be straight away classified under doubtful category and provisioning should be made as applicable to doubtful assets. ii) If the realizable value of the security as assessed by the bank/approved various 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 straightaway classified as loss cus etc. It may be either written off or Fully provided for by the bnak.

48

Table Summarused RBI Guidelines for NPAs Classification and Provisioning

Classification of NPAS

Guidelines classification 2001

for Guidelines classification

for Provisonig Norms

prior to 31-3- from 31-3-2001

Sub-standard Assets

NPAs

for

a NPAS

for

a 10%

of

outstanding plus entire

period less than period less than principal years months for a NPAS period 2 exceeding months for

or equal to 2 or equal to 18 outstanding interest

Doubtful Assets

NPAS period

a For advance not covered by realizable securities. 18 Provide covered securities @ by 100% of advances for advances realizable at I if if provide

exceeding years

120% of advances. 30% 50% 3 years Loss Assets Which identified are Which as identified of of advances Advances

doubtful for below 1 year doubtful for 1-3 years

doubtful for 3 and above

are Write off entire assets or as provide @ 100%

lost by the bank lost by the bank

49

or auditors or or auditors or By RBI on by RBI on inspection Standard Assets inspection

Which are not Which are not A minimum of 0.25% on NPAS but has NPAS but has Global portfolio but not business risks business risks onDomestic portfolio.

Summarized RBI Guidelines for NPAS Recognition

Loans and Advances

Guidelines

applicable Guidelines

applidable

From 31-03-2001 Term loan interest and/or 180 days

from31-03-2004 90 days

installment remains over due for more than Agricultural loan interest and/or Two harvest seasons Two harvest seasons installment remains over due but not exceeding two but not exceeding two for 2 half years 2 half years 90 days

Other accounts only amount to 180 days be received remains over due for more than

Magnitude of Gross NPAS as on 31st

50

Scheduled Commercial 1999 Banks Total Gross NPAS Total Gross Advance 58722 39943 6 Gross NPAA as % 14.7

2000

2001

2002

2003

CAGR %

60408

63741

70861 68095 8 10.4

68714 77804 3 3.8

3.19 14.26

475113 55876 6 12.7 11.4

Gross Advances Total Net NPAS Total Net advances 28020 36701 2 Net NPAS as % of Net 7.6 Advances 30073 44429 2 6.8 32461 52632 8 6.2 35554 64585 9 5.5 32764 74047 3 4.4 3.18 15.07

Gross NPAS (Rs in Cross) Expressed as % 8 Gross Advances as on 31 st March.

51

Scheduled Commercial Banks Public sector Banks

1999

2000

2001

2002

29003 %

51710 15.9 53033

14.0 54672 12.4 56473 11.1 54087 9.4

Old Private 3773 Sector Banks New Private Sector Banks Foreign Banks Total 2201 871

13.0 3815

10.8 4346

10,9 4851

11.0 4568

8,9

5.7

746

4.1

1617

5.1

6811

8.9

7232

7.6

7.0

2614

7.0

3106

6.8

2726

8.4

2829

5.2

58555 14.6 60408 q

12.7 63741 14.4 70861 10.4 68714 8.8

Gross NPAs and Gross Advances of Commercial Banks at 31 st March (Rs in Crores.)

52

Sl. NO. 1 1.1

Classification

1999

2000

2001

2002

2003

Gross NPAS Substandard Asssets

58722 19928

14.7 5.0

60840 19594

12.8 4.1

63963 18206

11.4 3.3

70953 21382

10.4 3.1

68780 20078

8.8 2.6

1.2 1.3 2

Doubtful assets Loss Assets Standard Assets

31350 7444 34071 4

7.8 1.9 85.3

33688 7558 41491 7

7.1 1.6 87.2

37756 8001 49471 6

6.8 1.4 88.6

41202 8370 60997 2

6.0 1.2 89.6

39731 8971 70926 0

5.1 1.2 91.2

Total

Gross

39943 6

100

47575 7

100

55867 9

100

68062 5

100

77804 0

100

Advances (H2)

53

MANAGEMENT OF NPAS IN VIJAYA BANK R.S. ROAD, SHIMOGA

INTRODUCTION Deposits Loan & Advances Standard Assets Sub-standard Assets Loss Assets Rate of NPAs Recovery measures

54

MANAGEMENT OF NON-PERFORMING ASSETS IN VIJAYA BANK, R.S.ROAD, SHIMOGA

INTRODUCTION: In terms of guidelines of Reserve Bank of India, advances are classified as Performing and non-performing Assets based on recovery of principal/Interest. However, Government guaranteed accounts and state Government guaranteed accounts where the guarantees are involved and not paid unto 180 days in spite of default in the payment of principal/interest; continue to the classified as performing Assets. Further if such accounts remain unpaid by the State Government for a period of more than 180 days then those accounts becomes non-performing advances. After pushing its NPA (Non-performing Asset) ratio to below one percent, Vijaya Bank is now aiming to push. The ratio further down in the coming, year, addressing the shareholders at the annual general meeting. The bank chairman and managing director M.S. Kapur said The money which has been lent is your money and we have to do all we can to ensure that these funds are returned Vijaya Bank managed to bring down its NPA ratio to below one percent level I n2003-2004 at 0.91 percent from the previous years level of 2.61 percent. Now, during the current year. The bank is hoping to push it further down. According to Kapur the recovery procedures adopted by the bank had yielded good results and added that the level of NPA Coverage had also gone up to 73 percent. The banks fourth AGM attended by over 2,000 shareholders, was also the first for many who had acquired the shares during the Second Public issue, The issue which came out in 2003 was oversubscribed by over 17 times. The bank

55

has declared a divided of 25 percent (including) 10 percent interim dividend] for the year 2003-04. Commenting on the banks future performing, Kapur Said bank is eying a business of Rs. 43,000 Corer with deposits accounting for Rs. 28,000 Corer. The bank plans to set up 47 new branches to its existing network strength of over 800 branches. Some of its long-term plans include fray into international market for business growth. FINANCIAL POSITION OF VIJAYA BANK (SHIMOGA. R.S. ROAD BRANCH) Vijaya Bank has performed creditably during the year 2006-07. The year has been the profitable year for the Bank since its inception in the banks balance sheet as on 31-03-2007 and the profit and Loss Account for the year ended 31/03/2007 are furnished in annexure. The highlights to the banks performance are given below. DEPOSITS: The deposits of the Vijaya Bank increase since from earliest years of its working as the confidence of the customers increases. The Vijaya Bank receives deposits from the customer through the following accounts. Saving Bank Account Fixed Deposit Account Recurring Deposit Account

56

Following is the table shown the total deposits deposited by the Customer during the year 2001 to 2002 to 2006-07.

Sl. No. 1 2 3 4

Years 2003-04 2004-05 2005-06 2006-07

Deposits 15,80,00,000 18,00,60,000 20,08,60,000 22,00,00,000

57

Graph shown the total deposits deposited by the Customer during the year 2001 to 2002 to 2006-07.

250000000 200000000 150000000 100000000 50000000 0

2003-04 2004-05 2005-06 2006-07

58

LOANS AND ADVANCES:

Vijaya Bank not only accepted Deposits from the customer but also providing loan to smaller traders Businessman, Industrialists, students etc, at a reasonable rate of Interest. The Bank lends the loans who provide the detail documents and security.

Loans and advances are the most profitable of all the assets of a bank This Assets is universally sought after by banks. This asset constitutes primary sources of Income to the banks. Here the banker is brought into direct relation with the public. His capacity and judgment and his usefulness to the community is judged by the way he lend the money left with him by the depositors.

Loans and advances account for the largest part of the revenue of the Vijaya Bank. At the time they are least liquid of all the bankers Assets. Although they are nominally repayable on demand, it is very difficult to realize them at short notice. A bank cannot rely upon this asset in times of emergency. A trader or a businessman who borrows money to buy goods cannot be expected to redeem the loan on demand or even at short notice.

59

Following is the table Shown total loans and Advances by the Customer during the year 2001-02 to 2006-07.

Sl. No.

Years

(in Rs. In Lack Loans & Advances

1 2 3 4

2003-04 2004-05 2005-06 2006-07

9,05,89,000 9,75,00,000 10,50,00,000 13,00,00,000

60

Pie Chart Shown total loans and Advances by the Customer during the year 2001-02 to 2006-07.

2003-04 2004-05 2005-06 2006-07

STANTARD ASSETS:

61

These are loans which do not have any problem are less risk.

A standard asset whose interest is being restructured would not cause it to be downgraded to sub-standard category subject to the condition that the amount of sacrifice if any in the element of interest measured in present value terms is either written off or provision is made to the extent of the sacrifice involved. Following is the table shown total standard Assets in the Vijaya Bank during the period of 2001-02 to 2006-07.

Sl.No.

Year

Standard Assets (Rs in lacks)

1 2 3 4

2003-04 2004-2005 2005-06 2006-07

981 1008/.1113/1239/-

62

Graph shown total standard Assets in the Vijaya Bank during the period of 200102 to 2006-07

1400 1200 1000 800 600 400 200 0

2003-04 2004-05 2005-06 2006-07

Sub-Standard Assets: A sub-standard asset is one which has remained NPA for a period of less than or equal to 12 months.

63

A General provision of 10 percent on total outstanding should be made without making any allowance for ECGC guarantee cover and securities available. At times bank give loans, which are unsecured ab-initio i.e.. The loans is sanctioned without any security. If such account become NPA and is classified as substandard then provision of 20% would be made. Banks are permitted to phase the additional provisioning consequent upon the reduction in the transition period from substandard to doubtful asset from 18 to 12 months over a four year period commencing from the year ending, with a minimum of 20% each year.

64

Following is the table shown to sub-standard Assets during the period of 2001-02 to 2006-07. Sl. No. 1 2 3 4 Year 2003-04 2004-05 2005-06 2006-07 Sub-standard Lakh) Assets 9/10.2/11.5/12/(Rs in

Graph shown to sub-standard Assets during the period of 2001-02 to 2006-07.

12 10 8 6 4 2 0 2003-04 2004-05 2005-06 2006-07

65

Doubtful Assets; An asset is classified as doubtful if it has remained in the sub-standard category for a period of 12 months. 100 percent of the extent to which the advance is not covered by the realizable value of the security to which the bank has a valid recourse and the advisable value is estimated on a realistic basis. In regard to the secured portion, provision may be made on the following basis at the rates ranging from 20 percent to 100 percent of the secured parting depending upon the period for which the asset has remained doubtful. Following is the table shown to Doubtful Assets during the period from 2001-2002 to 2006-07.

Sl. No. 1 2 3 4

Year 2003-2004 2004-2005 2005-2006 2006-2007

Doubtful Assts 20 28 31 35

66

Graph shown to Doubtful Assets during the period from 2001-2002 to 2006-07.

35 30 25 20 15 10 5 0

2003-04 2004-05 2005-06 2006-07

67

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.

Loss Assets should be written off. If Loss assets are permitted to remain in the books for any reason, 100 percent of the outstanding should be provided for.

Following is the table shown the total loss Assets during the period of 2001-02 to 2006-07.

Sl. NO. 1 2 3 4

Year 2003-2004 2004-2005 2005-2006 2006-2007

Loss Assets 9.5 11.8 12.5 14

68

Graph shown the total loss Assets during the period of 2001-02 to 2006-07.

2003-04 2004-05 2005-06 2006-07

69

Rate of NPA

Banking Business is mainly that of borrowing from the public and lending to the needy persons and business, lending involves credit risk, when the loans and advances made by a bank or financial institution turn-out non-productive & non rewarding they become Non-performing Assets (NPAS)

NPAs are an inevitable burden on the banking industry. Banks need to monitor standard assets to arrest any account becoming a NPA. Today the Success of bank depends upon the methods of managing NPAs and keeping them within a totelerance level.

Following is the table shown the total Naps during the period of 2001-2002 to 2006-07.

Sl. NO. 1 2 3 4

Year 2003-2004 2004-2005 2005-2006 2006-2007

Rate of NPAS (% ) 7 8 5 4

70

Pie Chart shown the total Naps during the period of 2001-2002 to 2006-07.

2003-04 2005-06

2004-05 2006-07

71

MANAGEMENT OF NPAS IN VIJAYA BANK

The Vijaya Bank adopted two aspects of Management of Naps they are

1. Prevention: This involves credit appraisal and rating of borrowers, before Commitment of loans. The Credit and relationship manager in the Vijaya Bank should be able to carry on this. By seeking information from internal records or from the external agencies like credit information Bureaus (India) Limited it is possible avoid possible NPAS.

II. Remedial Management: The Vijaya Bank use different management techniques to Cure. NPAs probe. They are.

1. Analysis of NPAS by Sectors: The NPAS need to be analyzed by priority and non-priority Sectors, Agriculture, large corporate, small industries, retail borrowers, state-wise analysis and industry, wise analysis. In Vijaya Bank 23% of NPAS are in priority sector, while 77% belongs to non-priority sector The Industry classification suggests that textiles. Iron and steel, chemicals. Engineering and non-ferrous metals account for 55% of NPAS. Major portion of NPAS is from the large borrowers rather than small borrowers. Such analysis by Vijaya Bank would help in controlling NPAS and avoiding debt losses.

72

2 Prevention of Slippage: Standard performing assets must not be allowed to slip into NPAS Efforts must be made to for up graduation of NPAS into standard assets. This calls for credit monitoring by the banks.

The Vijaya Bank follows some up graduation guidelines are. When the borrower makes the payment of the interest and principal arrears it may be considered as standard asset. In case of Sub-standard account which is subject to restructuring/rescheduling there can be up graduation to standard asset only after on year from the date when first interest/principal payment whichever is earlier is reviewed and the account is operated satisfactory during the period. Early Warming Systems: Based Committee on credit risk management has emphasized on establishing early warning system in Vijaya Bank. EWS should function as on going monitoring system of loans and advances. The objectives of EWS are to minimize the risk of loss by detecting potential distress of borrowers to enable to initiate corrective action before the loan becomes irrecoverable and to increase chances of recovering debt from defaulters.

4. Legal Remedies: Legal action has been considered as last resort to recover debts by the Vijaya Bank. In fact in the case of willful default, diversion and siphoning of funds legal actions are the last remedies.

73

5. Restructuring: RBI has instituted the corporate Debt Restructuring (CDR) a new mechanism for restructuring Viable NPAS, CDR mechanism is non-statutory by provides for debtor creditors mutual agreement for restructuring of NPAS caused by international or external factors. 6. Compromise Settlement: It can be either one time settlement or negotiated settlement a. One time settlement scheme 9OTS) Except the NPAS caused by willful default and fraud all NPAS which have become doubtful on 31st March, 2000 are eligible for OTS. b. Negotiated settlement scheme announced by RBI for the first time in July 1995 enabled banks Recover old and unresolved NPAS.

7. Borrowers Special Investigative Audits: The Vijaya Bank should have power to order Special investigative audit of willful defaulting borrowers and of those borrowers who siphon off funds and defraud banks. This measure will steam line working of borrowers and improve repayment of loans. 8. Bench Marking: For better performance of banking Sector it is necessary to have bench marking on various parameters. Recognition of advances overdue for 90 days as NPA is also on international bench mark.

74

RECOVERY MEASURES: Vijaya Bank adopted the legal Recovery measures. They are. 1. By issuing legal Notice: The Vijaya Bank first of all issues the legal Notice to the defaulter and taking action against them. Suppose defaulter not respond to the legal notice. They go to court.

2. Issuing of legal notice through court: If the defaulter not respond to the legal notice issued by bank, and then they go through the court by issuing the notice to the defaulter.

3. Filing of Suits: If the defaulter not responds to the legal notice the bank go to court and filling the suits against his so, Bank follow the court decision.

4. Compromise and settlement: If the defaulter has the interest with the compromise, Bank manager settle the all actions and compromise with him.

Following is the table shown the Income Expenditure profit of the Bank. Defaulter:

75

In Vijaya Bank maximum defaulted by Educated Borrowers. Some portion of un-educated borrowers also their, majority of the defaulter is educated borrower.

Table shows the total number of educated Borrower defaulted by the Account are as follows. Borrower Students Businessmen Industrialist Agriculturist Rs in lacks 1.35/28.23/10.65/10.77/-

76

Graph shows the total number of educated Borrower defaulted by the Account

30 25 20 15 10 5 0 Students Businessmen Industrialist Agriculturist

77

The Table Shows Un-educated borrower defaulted some portion. Borrower Businessmen Agriculturist Rs in lacks 18.38/8.37/

Graph Shows Un-educated borrower defaulted some portion.

Businessmen

Agriculturist

78

Following is the table shown the profit and loss of the Vijaya Bank during the period of 2003-04 to 2006-07.

Sl. No.

Year

Income

Expenditure

Profit/Loss (Rs in lack)

1 2 3 4

2003-2004 2004-2005 2005-2006 2006-2007

120 122 128 131

118.5 121 126 128

1.5 1 2 3

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Graph shown the profit and loss of the Vijaya Bank during the period of 2003-04 to 2006-07.

132 130 128 126 124 122 120 118 116 114 112 2003-2004 2004-2005 2005-2006 2006-2007 Income Expenditure

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CHAPTER-VII
FINDING CONCLUSION SUGGESTIONS

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CHAPTER-VII

FINDING, CONCLUSION AND SUGGESTIONS:

FINDINGS At the time of nock interview the manager of the Vijaya Bank, give me a Informations about bank financial position and management of Naps recovery measures and impact of NPA.

So I find that Naps have the main role in the financial position of the bank. And I find some draw backs of NPA, and these are.

(1) It is adversely affects to the financial position of the bank. (2) Naps also influenced by the Natural calamities. (3) NPAS reduce the growth rate of the bank. (4) Vijaya bank follows the legal recovery measures it is taking slow action against standard. (5) Bank can not follow the RBI rules; it is effect on recovery time (6) Bank con not offer the good security customer as setout by the government assets classification

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(7) Bank do not have close contact with customer

SUGGESTIONS: In above In auctioned some of findings, relate to that I point out some suggestions, they are.

(1). At the time of lending loans to the customers, the bank manager must enquire the cash and every aspect of the customer. (2). The bank manger should take the proper security from the customer while lending the loans. (3). Manager should have the close contact with the customer. (4). Manager should follow the R.B.I. S prudential norms, for NPAS recovery. (5). Manager should try to reduce the NPAS year to year. (6). Bank should recover the NPAS through the collection agencies at the end (7). Allow branches to use head office capital for regulatory purpose. (8). Create an environment whereby financial institutions are required to written down non performing loans to the lower of the market value or

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CONCLUSIONS:

In India, branching is a serving industry and all the banks are controlled and guided by the RBI. The banks can frame their own techniques, or ways of supplying the services to the customer. But they have follow the rules of RBI.

Without the NPAS we cant see anyone bank exists in the world. Whether it is an public bank or private bank.

Totally I conclude that, the removal of NPAS is not possible in any bank, but it try to, avoid some certain limit.

Banks have a social purpose; Banks have been entrusted with a worthy course. Banks belongs to, the nation, the people, only through the employees. The bank discharges its responsibilities.

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QUESTIONS USED IN VJAYA BANK FOR INFORMATION . (1) Factors affecting NPAS (2). Causes or Reasons for NPAS (3). Impact of NPA on banking Business (4). Steps in management of NPA (5). measures taken before lending and after lending NPAS (6). Stages in management of NDA (7). Recovery measures. (a) Legal (b) Illegal

(8). Deposits & Advances in Vijaya Bank during 4 years. (9). Statistics of standard Assets sub-standard Assets doubtful & Loss Assets during the 4 years. (10). Whether the NPA occurrence more from the educated or un-educated (11). The Occurrence of NPAS in from the (a) Businessmen (b) Industrialist (c) Agriculturist (d) Student.

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BIBILOGRAPHY

Banking books Gardon and Natrajan Himalaya publication

Banking books Dr.p, k.Sri Vatsal Himalaya publication

Annual report on Vijaya Bank . B H Road SHIMOGA

RBIS Magazines WEBSITE

(1) Indian budget . nic.in (2)www.bank report.rbi.org.in (3)www.banknetindia.com (4)www.rbi.org (5)www.finacial express.com (6)www.vijayabank.com

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