A

SUMMER TRAINING PROJECT REPORT

ON

NPA MANAGEMENT IN J & K BANK

Submitted to

Punjabi University, Patiala

In partial fulfillment of the requirement for the award of

degree of

Master of Business Administration

By:

Ab. Raouf Naikoo

Class Roll No: 81

Registration No: 512-11-155

Under the guidance of:

Mr. Tariq Ahmad
Deputy Branch Head
J & K Bank Kulgam

DESH BHAGAT INSTITUTE OF MANAGEMENT AND COMPUTER

SCIENCES

MANDI GOBINDGARH

2013

DECLARATION

I declare that the Project entitled (Non Performance

Assets Management) is a record of independent work
carried out by me under the supervision and guidance of
2

(Mr. Tariq Ahmad Deputy Branch Head in J & K Bank). This

has not been previously submitted for the award of any
other diploma, degree or other similar title.

AB. RAOUF
NAIKOO
Class Roll No. 81

ACKNOWLEDGEMENTS

I owe a great many thanks to a great many people who

helped and supported me during the preparation of this
project report.

My deepest thanks to (Mr. Tariq Ahmad Deputy Branch

Head in J & K Bank) the Guide of the project for guiding
and correcting various documents of mine with attention
and care. He has taken pain to go through the project and
make necessary corrections as and when needed.

I express my thanks to the Dr. Nidhi Gupta, Director,

Desh Bhagat Institute of Management and
Computer Sciences, Mandi Gobindgarh for extending
her support.

Thanks and appreciation to the helpful people at [JAMMU AND

KASHMIR BANK], for their support.

I would also thank my Institution and my faculty members

without whom this project would have been a distant
reality.

I also extend my heartfelt thanks to my family, friends

and well wishers.

AB. RAOUF
NAIKOO
Class Roll No. 81

1.

INTRODUCTION
5

1.1

Industry

profile...................................................................................
........... 1-8
1.1.1

Introduction.

............. 2
1.1.2

History

of

Banking

in

India.............................................3-5
1.1.3

Composition

of

Banking

system

in

India.................................... 6-7
1.1.4

Sarfaesi Act........

8
1.2

Company profile..

9-20
1.2.1

Brief profile of J&K Bank.....

9
1.2.2 Vision..... 9
1.2.3 Mission....... 9
1.2.4

Awards and Recognitions . ..

. 10-12
1.2.5

Services

provided

by

J&K

Bank...

. 13-14
1.2.6

Loan

facilities

provided

by

JKB. 15
1.2.7

Risk Management

16-17
1.2.8

JKBs

performance

. 18-20

in

2009.

1.3
Background...........................................
......... 21-44
1.3.1

Story

of

an

NPA................................... 21-24
1.3.2

Non

Performing

Assets..................... 25
1.3.3

Problems

due

to

NPAs.. 26
1.3.4

Management

of

NPAs

(Securitization)

. 27
1.3.5

Securitization-

relevance

to

the

banking

sector.... 28-30
1.3.6

Preventing NPAs...

31-33
1.3.7

Reducing NPAs.

34
1.3.8

How

to

manage

NPAs

better. 35-39
1.3.9

Management

of

NPAs

in

JKB... 40
1.3.10

Asset

quality

of

J&k

Bank 41
1.3.11 Methods used in JKB for controlling NPAs.
42
1.3.12

Techniques

used

in

NPAs... 43

JKB

for

managing

1.3.13

Comparison

of

NPAs

of

JKB

and

other

banks........................................ 44

2.

REVIEW OF LITERATURE
2.1 Review of literature.

45-48
3.

RESEARCH METHODOLOGY/DESIGN ..

..49-53
3.1

Objectives

of

the

study............................. 50
3.2

Research

design.... 51
3.3

Data collection

..

... 51
3.4

Sampling plan...

52
3.5
Limitations
study... 53

4.

DATA

ANALYSES

AND

of

the

INTERPRETATION

..54-65
4.1 Questionnaire..
.55-65

5.

FINDINGS/SUGGESTIONS

.66-69

5.1

Findings...

.. 67
5.2

Suggestions...

. 68
5.3
.. 69

Conclusion...

6.
BIBLIOGRAPHY
.. 70

10

INTRODUCTION

INTRODUCTION

11

The most calamitous problem facing commercial banks all over the world
in recent times is spiraling non-performing assets (NPAs) which are
affecting their viability and solvency and thus posing challenge to their
ultimate survival. NPAs adversely affect lending activity of banks as nonrecovery of loan installment as also interest on the loan portfolio negates
the effectiveness of credit-dispensation process. Non-recovery of Loans
also hurt the profitability of banks. Besides, banks with high level of NPAs
have to carry more owned funds by way of capital and create reserves
and provision and to provide cushion for the loan losses. Banks have to
make provisions on NPAs from out of the income earned by them on
performing assets. Presently, high level of NPAs in loan portfolio of banks
make them fragile leading ultimately to their failure. This will shake
confidence both of domestic and global investors in the banking system
which will have multiplier effect in bringing disaster in the economy. Thus,
managing bad loans and keeping them at the lowest possible level is
critical for banks. It may be noted at this juncture that world class banks
do not have NPAs of over 2% of total portfolio. An NPA level of over 5% is
indicator of poor quality of loan portfolio. With growing competition and
Shrinking spreads banks should strive to keep NPAs much below the level
of 10% to make net earnings necessary for their survival and growth. It
merely affected by various factors such as originating factors. Internal and
External factors RBI has to take the necessary steps for lowering down the
NPAs.

12

HISTORY OF BANKING IN INDIA

Without a sound and effective banking system in India, it cannot have a
healthy economy. The banking system of India should not only be hassle
free but it should be able to meet new challenges posed by the
technology and any other external and internal factors.
For the past three decades, Indias banking system has several
outstanding achievements to its credit. The most striking is its extensive
reach. It is no longer confined to only metropolitan or cosmopolitan in
India. Infact Indian banking system has reached even to the remote
corner of the country. This is one of the main reasons of the Indias growth
process.
The government regular policy for Indian bank since 1969 has paid rich
dividends with the nationalization of fourteen major private banks of
India. Not long ago, an account holder had to wait for hours at the bank
counters for getting a draft or for withdrawing his/her money. Today
he/she has various options available in front of him that are easiest and
consume very little time. Gone are the days when the most efficient bank
transfer money from one branch to another in two days. Now it is as
simple as instant messaging or dial a pizza. Money has become the order
of the day.
The first bank in India though conservative, was established in 1786. From
1786 till today, the journey of Indian banking can be segregated into
three distinct phases which are mentioned as follows:
Phase-I (from 1786 to1969 of Indian banks).
Phase-II (From Nationalization of Indian banks to 1991 i.e. prior to Indian
banking sector reforms).

13

Phase-III (with the advent of Indian financial and banking sector reforms
after 1991).

To make this clear, all the phases have been discussed

one by one very briefly as under:

Phase-I
The General Bank of India was set up in the year 1786. Next came Bank of
Hindustan and Bengal Bank. The East India Company established Bank of
Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as
independent units and called it Presidency Banks. These three banks were
amalgamated in 1920 and Imperial Bank of India was established which
started as private shareholders banks, mostly Europeans shareholders.
In 1865 Allahabad Bank was established and first time exclusively by
Indian, Punjab National Bank Ltd. was set up in 1894 with headquarters at
Lahore. Between 1906 and 1913, Bank of India, Central Bank of India,
Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set
up. Reserve Bank of India came in 1935.
During the first phase the growth was very slow and banks also
experienced periodic failures between 1913 and 1948. There were
approximately 1100 banks, mostly small. To streamline the functioning
and activities of commercial banks, the Government of India came up with
The Banking Companies Act, 1949 which was later changed to Banking

14

Regulation Act 1949 as per Amending Act of 1965 (Act No. 23 of 1965).
Reserve Bank of India was vested with extensive powers for the
supervision of banking in India as the Central Banking Authority. During
those days public has lesser confidence in the banks. As an aftermath
deposit mobilization was slow. Abreast of it the savings bank facility
provided by the Postal department was comparatively safer. Moreover,
funds were largely given to traders.

Phase-II
Government took major step in this Indian banking sector reform after
independence. Seven banks forming subsidiary of State Bank of India was
nationalized in 1960s on 19th July 1969, major process of nationalization
was carried out. It was the effort made by the then prime minister of
India, Mrs. Indra Gandhi. Fourteen major commercial banks in the country
were nationalized. Second phase of nationalization Indian banking sector
reform was carried out in 1980 with seven more banks. This step brought
80% of the banking segment in India under government ownership.
The following were the steps taken by the government of India to
regulate banking institution in the country:
1949: Enactment of banking regulating act.
1955: Nationalization of State Bank of India.
1959: Nationalization of SBI subsidiaries.

1961: Insurance cover extended to deposits.

1969: Nationalization of 14 major banks.
1971: Creation of credit Guarantee Corporation.
1975: Creation of regional rural banks.
1980: Nationalization of seven banks with deposits over 200 crore.

15

After the nationalization of banks, the branches of the public sector

bank in India rose to approximately 800% in deposits and advances took a
huge jump by 11000%. Banking in the sunshine of government ownership
gave the public implicit faith and immense confidence about the
sustainability of these institutions.

Phase-III
This phase has introduced many more products and facilities in the
banking sector in its reforms measure. In 1991, under the chairmanship of
M Narasimham, a committee was set up by his name, which worked for
the liberalization of banking practices. The country was flooded with
foreign banks and their ATM stations. Efforts were being put to give a
satisfactory service to customers. Phone banking and net banking was
introduced. The entire system became more convenient and swift. Time
was given more importance than money.
The financial system of India showed a great deal of resilience. It
was sheltered from any crisis triggered by any external macroeconomics
shock as other East Asian Countries suffered. This was all due to a flexible
exchange rate regime, the foreign reserves were high, the capital account
was not yet fully convertible, banks and their customers were having
limited foreign exchange exposure.

16

COMPOSITION OF BANKING SYATEM IN INDIA

At present, the number of nationalized banks is twenty. Several foreign
banks were allowed to operate as per the guidelines of the RBI. At present
the banking system can be classified in following categories:

PUBLIC SECTOR BANKS

Reserve Bank of India (RBI)

State Bank of India and its associate Banks

Nationalized Banks (20 in number)

Regional Rural Banks sponsored by Public sector Banks.

PRIVATESECTOR BANKS

Old Generation Private Banks

New Generation Private Banks

Foreign Banks in India

Scheduled co-operative Banks

Non Scheduled Banks

CO-OPERATIVE SECTOR BANKS

State co-operative Banks

17

 Central co-operative Banks

Primary agriculture credit societies
Land Development Banks
Urban co-operative banks
State Land development banks

DEVELOPMENT BANKS
Industrial Financial corporation of India (IFCI)
Industrial Development Bank of India (IDBI)
Industrial Credit and Investment Corporation of India (ICICI)

Industrial Investment Bank of India (IIBI)

Small Industrial Development Bank of India (SIDBI)

National Bank For Agriculture And Rural Development (NABARD)

Export-Import Bank of India(EXIM)

18

SARFAESI ACT
The policy makers and legislators realized the need for measures for the quick
recovery of NPAs, and to empower Banks and Financial Institutions to recover the
NPAs without intervention of judicial process. In that process guidance was found
from Section 69A of Transfer of Property Act and State Finance Corporation Acts,
where there is provision for the sale of secured assets without the intervention of
Courts. In that process Securitization And Reconstruction of Financial Assets and
Enforcement of Security Interest Act 2002 (SARFAESI) was enacted. The Preamble
of the Act states that Narasimham Committee I and II and Andhyarujina Committee
constituted by the Central Government for the purpose of examining banking sector
reforms have considered the need for changes in the legal system in respect of these
areas. These Committees have suggested enactment of a new legislation for
securitization and empowering banks and financial institutions to take possession of
these securities and to sell them without the intervention of the Court. Acting on these
suggestions the SARFAESI Ordinance 2002 was promulgated on the 21st June 2002
to regulate securitization and reconstruction of financial assets and enforcement of
security interest and for matters connected therewith or incidental thereto. The
provisions of the Ordinance would enable banks and financial institutions to realize
long term assets, manage problem of liquidity, asset liability.

19

J& K BANK PRIVATE LIMITED

BRIEF PROFILE
Jammu & Kashmir Bank is the only Bank in the country with majority
ownership vested with a state government the Government of Jammu &
Kashmir. It is the sole banker to the Government of Jammu & Kashmir. J&K
Bank functions as a universal bank in Jammu & Kashmir and as a
specialized bank in the rest of the country. It is also the only private sector
bank designated as RBIs agent for banking business, and carries out the
banking business of the Central Government, besides collecting central
taxes for CBDT.J&K Bank follows a two-legged business model whereby it
seeks to increase lending in its home state which results in higher
margins despite modest volumes, and at the same time, seeks to capture
niche lending opportunities on a pan-India basis to build volumes and
improve margins J&K Bank operates on the principle of socially
empowering banking and seeks to deliver innovative financial solutions
for household, small and medium enterprises.

20

The Bank, is incorporated in 1938, and is listed on the NSE and the BSE. It
has a track record of uninterrupted profits and dividends for four decades.
The J&K Bank is rated P1+, indicating the highest degree of safety by
Standard & Poor and CRISIL.

VISION
To catalyze economic transformation and capitalize on growth.
J&K BANKS vision is to engender and catalyze economic transformation of
Jammu and Kashmir and capitalize from the growth induced financial
prosperity thus engineered.
The Bank aspires to make Jammu and Kashmir state the most prosperous
state in the country, by helping create a new financial architecture for the
J&K economy, at the center of which will be the J&K Bank.

MISSION

The mission of J&k bank is two-fold: To provide the people of J&K

international quality financial service and solutions and to be a superspecialist bank in the rest of the country.

Awards and recognitions

2011
Business Today - KPMG Study

21

The Bank was ranked one of the best banks in the Best Bank Study
2011 done by Business Today and global Consulting firm KPMG (BTKPMG). The study ranked the Bank No. 1 on the basis of NPA
coverage ratio which stood best in the industry as at the end of
March 2011.

The Bank was ranked 15th in large banks category in the country
based on the last year's growth, quality of assets, productivity and
efficiency parameters, leaving state bank of India, federal bank,
HSBC Bank, Standard Chartered bank and other major banks far
behind.
FE India's best banks Award

The Bank won the prestigious Financial Express Best Banks Award in the
Old Private Sector Banks Category for Scaling up its business and
strengthening the balance sheet for the year ended March 2011. The
Award is the recognition of the Bank's innovative approach towards the
business, both within and outside J&K.
Dun & Bradstreet Banking Awards
J&K Bank was awarded the Best Bank in the prestigious 'Dun & Bradstreet
(D&B) - Polaris software Banking Awards 2011 in the category for "Rural
Reach - Private Sector".
2012
Business Today - KPMG Study

The bank was ranked one of the best banks in the Best Bank Study
2012 done by Business Today and KPMG. The Study ranked the
Bank No. 1 on the basis of NPA

22

coverage ratio and the bank was also ranked No. 1 in terms of Cost
to income ratio which stood best in the industry at the end of the
March 2012.

The Bank was ranked 4th in Mid sized banks category in the
country based on the previous year's growth, quality of assets,
quality

of

earnings,

productivity

and

efficiency

and

capital

adequacy parameters.
Sunday Standard FINWIZ-2012 Best Bankers Award
The Bank was awarded Best Banker in Financial Inclusion and Customer
Friendliness and declared runner up for Best Banker in Priority Sector
Growth and Agricultural Credit.
IPE HRM Congress Awards
The Bank has been conferred with the prestigious HR Leadership Award at
IPE HRM Congress Awards organized under the aegis of APHC Asia Pacific
HRM Congress 2012. The criteria adopted to choose the awardees
included internal (within the organization) perception, external perception
(based on credibility, achievement and value contribution to the
business), track record of performance and achievements, values,
integrity and work life balance.
CNBC TV18 India Best Bank and Financial Institution Awards.
The Bank was awarded as the Best Bank in the Old Private Sector
Bank category at the CNBC TV18 India Best Bank and Financial
Institution Awards for FY12. The distinction of being the Best Bank in the
Old Private Sector Bank category has been accorded to J&K Bank by a
panel of distinguished jurors consisting of Mr. Jagdish Capoor, former
Deputy Governor Reserve Bank of India, former Chairman of HDFC Bank
and former Chairman of BSE, Mr. A. K. Purwar, Chairman of India Venture
Advisors Pvt. Ltd & former Chairman of State Bank of India, Mr. H. N.
Sinor, CEO, Association of Mutual Funds of India, former CEO, Indian

23

Banks Association and former Managing Director of ICICI and Mr. M. V.

Nair, former Chairman, Union Bank of India.

India Human Capital Awards 2012

For its leadership role in the human resource management practices, J&K
Bank was conferred with HR Leadership Award in the second India Human
Capital Awards 2012. The award is the recognition of Banks strategic and
iconic position as a role model for professionalism and management
excellence in the banking industry.
2013
FE Indias Best Banks Award-2012-13
The Bank was ranked as No. 1 in Best Old Private Sector Bank category
in the survey conducted across the banking industry. In terms of
Profitability, the Bank stands 3rd in the overall banking industry while as
1ST in the category of Old private sector banks.
The Award is the recognition of the Bank's strong fundamentals and
dynamic growth model.
Europe Business Assembly Awards, London
The Bank bagged the prestigious Best Enterprise award from Europe
Business Assembly (EBA) in London. The Socrates Committee of EBA also
awarded the Chairman and CEO - Mr. Mushtaq Ahmad with Manager of
the Year medal and a special statue.

24

SERVICES PROVIDED BY J&K BANK

The J&K Bank is the organization that is serving the people over the
decades. This is the only organization in the valley, which has a major
contribution towards the economy of J&K state. It is the J&K Bank who had
lifted the people of J&K for the extreme poverty to the leading business of
the valley. Examples are Kanwal Spices.

The J&K Bank has always tried to provide efficient and better service to the
customers. The J&K bank is trying to provide the qualitative services to its
customers. The bank has installed a network of about 200 ATMs both Off & On site
at various centers across the country. Besides, Anywhere Banking and Tele-Banking
services are available at various locations. The Central DATA centre of the bank has
been set up with Finacle - as core banking solution.
J&K Bank is the only bank in the country that has taken an initiative by establishing
Khidmat Centers all over the state where all e-services are provided to the people.
The rollover of bank on the data center has already begun. With the commencing of
the said Data Centre, the Bank is also offering Internet Banking to its customers.
25

Anywhere banking is presently available almost at all centers and with the
completion of interconnectivity; the said facility will be made available from all its
computerized branches. Tele banking is available at most of the centers. Though, with
the increase in the number of customers the bank is going to facilitate its customers
with Tele-banking facilities with ease.
The bank introduced new value added floating rate deposit
schemes viz., Super Earner Deposit Scheme and Super Reinvestment
Deposit Scheme

to

add

to

the

options/choices

available

to the

customers. Bank also introduced another new deposit product under the
name and style of Mehendi Deposit Scheme targeted for girl child.
The scheme has also value-added features and a free accidental
insurance cover. The bank continued its emphasis on maintaining high
standards of service to its customers. In this direction, the bank
introduced various hi-tech and customer friendly products providing value
added services to achieve customer satisfaction. Customer complaints
received are dealt promptly and expeditiously. The bank is a member of
the Banking Codes and Standards Board of India and has adopted Code
of Banks Commitment to Customers, a voluntary code providing
protection and Right to Know to the customers. The bank has
established a 24 X 7 help desk to address customer queries and the desk
is slated to be converted into a full fledged call centre in 2007-08. The
bank is also keenly pursuing for ISO 9000 certification for its customer
service.

The bank has revamped its delivery channels and added Business
Development and Promotion Centres (BDPCs) with an aim to get closer
to and provide hassle-free service to the customers. Marketing managers
and business promotion officers have been placed in all the zones for
execution of the marketing initiatives.

26

LOAN FACILITIES GIVEN BY THE BANK

The different types of loans provided by the bank to its customers as per their
requirement are:
Educational Loan
27

 House Loan
Car Loan
Consumer Loan
Dastkar Finance Scheme
Craft Development Scheme
Khatamband Finance Scheme
Roshni Financing Scheme

Personal Loan Scheme:

In addition to above products JK bank also extend Personal Loan Facility for
general public, which covers the following segments.
Housing Loan Scheme.
Consumption Loan Scheme.
Car Loan Scheme.
Education Loan Scheme.
Consumer Loan Scheme.
Loan for financing of School buses.

28

Risk Management

The bank continued to focus on risk management on an enterprise wide

basis and developing Integrated Risk Management Systems for efficient
management of various risks viz. Credit, Market and Operational. The
bank

has

taken

the

following

initiatives

for

strengthening

risk

management practices in line with business strategies as also to achieve

compliance with industry best practices and regulatory requirements.
I) Credit Risk: The bank has focused on improving the credit appraisal
and approval processes. New standardized appraisal formats have been
introduced in the Corporate and SME segments. Centralized processing of
credit

proposals

has

been

introduced

to

separate

the

business

development and credit appraisal system. To bring objectivity to the credit

risk assessment, eligible borrowers in corporate and SME segments are
proposed to be brought under the internal credit rating system, which is in
the final phase of customization and was operational during 2007-08.
Credit Audit / Loan Review Mechanism have been Introduced for standard
accounts of Rs. 5 Crore and above and identified weak accounts of Rs. 1
Crore and above with elevated risk characteristics. It would help to
improve the credit quality and manage credit risk proactively. The bank is
also doing periodic parallel runs of Standardized Approach for credit risk
measurement as per regulatory guidelines.
ii) Market Risk: The bank is implementing the recommendations of the
consultants engaged by the bank for developing a cohesive integrated
risk management system particularly in relation to interest rate risk
quantification techniques, liquidity management and reporting systems.
With an endeavor to further improve our Asset Liability management and

29

thereby the market risk management, the bank has switched over to
Duration Gap Analysis instead of the Traditional Gap Analysis. With these
systems in place, the bank has contained market risk particularly on
investment portfolio by reducing the non-SLR bonds and debentures
portfolio and the duration of overall investment portfolio.
iii) Operational Risk: The bank has constituted an Operational Risk
Management Committee (ORMC) at the apex level to monitor progress on
operational risk management. A comprehensive policy for Disaster
Management and Business Continuity Plan (BCP) has been formulated.
The bank has already initiated identification of operational risk areas of
business units, capturing various operational risk events and analyzing
their causative factors.

iv) Migration to Basel II: The bank has

geared up Revised Capital

Adequacy Norms in March 2009 that was time schedule set out in RBI
guidelines on the subject. Defining and restructuring the management
information system for this purpose has already been initiated.

30

31

J&K BANKS PERFORMANCE IN THE YEAR 2009

J&K Bank has emerged as one of the fastest growing banks in the country.
Some of the glimpses of its performance in the year 2009 are described
as follows.
The Bank has put in place a well articulated frame work of 3 Ps (People,
Process, Products) to identify and execute new initiatives to accelerate
business growth on sound and sustainable lines. This framework is also
designed to improve customer engagement at all customer touch points.
Innovation

is

actively

encouraged.

People

initiatives

include

new

programmes for leadership development, succession planning, incentives

for high performers, performance enhancement programmes etc. Process
initiatives include centralization of back office functions, separation of
credit marketing and approval process and feed forward MIS to Branches.
Product initiatives include offering timely, affordable, customer-centric
and non-commoditized products to the customers. The Bank is actively
chalking out strategies to take the Bank to higher growth trajectory.

Performance at a glance
The aggregate business of the Bank crossed yet another psychological
mark and stood at Rs. 53,934.51 crore at the end of the financial year
2008-09. The total business of the Bank increased by Rs. 6,458.64 crore
from the previous years figure of Rs. 47,475.87 crore, registering a
growth of 13.60%.

The total deposits of the Bank have grown by Rs.

4,410.84 crore from Rs. 28,593.26 crore as on 31st March, 2008 to Rs.
33,004.10 crore as on 31st March, 2009, registering growth of 15.43%.
During the same period CASA deposits of the Bank have grown by more
than 12% contrary to the declining trend in the industry.
The Bank continued its prudent approach in expanding quality credit
assets in line with its policy on Credit Risk Management. The net
advances of the Bank increased by Rs. 2,047.80 crore from Rs. 18,882.61

32

crore as on 31st March, 2008 to Rs. 20,930.41 crore as on 31st March,

2009, registering growth of 10.84%.During the year, focused attention
was given for accelerated lending under the agriculture sector which
recorded a growth of 269%. The overall priority sector credit portfolio
showed a growth of 40% during the same period.
The Bank, in line with its policy stance, has recorded higher credit growth
in J & K State than in rest of India. However, due to tumultuous situation
in the state for some time as also the global economic turmoil, the overall
credit growth has remained moderate. Moreover, with a

view to maintain immunity against the financial sector meltdown, the

Bank has reduced its exposure to Financial Markets by 54% and to the
Real Estate sector by about 32%.
The performance of the Bank in recovery of NPA,s during the year
continued to be good. During the year, the Bank effected cash recovery,
up-gradation of NPAs and technical write-off of Rs. 327.85 crore compared
to Rs. 244.53 crore in the previous year.
Investment portfolio of the Bank increased by 22.59% from Rs. 8,757.66
crore as on 31st March 2008 to Rs. 10,736.33 crore as on 31 st March,
2009.

Insurance Business
The Bank earned an income of Rs. 26.80 crore from the Insurance
Business, registering a growth of 25.2% over the last years income of Rs.
21.41 crore. In life

insurance, the Bank

101.10crore, recording

mobilized a

a growth of 28.33%

over

business of

Rs.

the last years

business of Rs. 78.78 crore. In non-life business, the Bank mobilized a

33

business of Rs. 40.53 crore as against Rs. 36.72 crore mobilized during
the preceding year.

Income Analysis
Interest income of the Bank recorded a growth of Rs. 553.89 crore from
Rs. 2,434.23 crore in the year 2007- 08 to Rs. 2,988.12 crore [+22.75%]
in the year 2008-09, as against the interest expenses which grew by
22.42% from Rs. 1,623.79 crore during the year 2007-08 to Rs.1,987.86
crore during the year 2008-09. The Net Interest Income recorded a growth
of Rs. 189.82 crore [+23.42%] during the same period. The Net Income
from operations [Interest Spread plus Non-interest Income] increased to
Rs. 1,245.31 crore in the financial year 2008-09 from Rs. 1,055.45 crore in
the financial year 2007-08 recording a growth of 17.99%.The Operating
Expenses showed an increase of 16.66% during the financial year 200809 and stood at Rs. 470.86 crore as compared to Rs.403.61 crore in 200708.The Cost to Income ratio [operating expenses to Net Operating
Income] improved marginally from 38.24% in the financial year 2007-08
to 37.81% in the financial year 2008-09.

Gross Profit
The Gross Profit for the financial year 2008-09 stood at Rs. 774.45 crore
as compared to Rs. 651.84 crore in the financial year 2007-08 registering
an increase of Rs. 122.61 crore [+18.81%]. The Asset Utilization Ratio

34

[percentage of Gross Profit to Average Working Funds] stood at 2.27% in

the financial year 2008-09 [previous year 2.23%].
Provisions
The Provision for Loan Losses, Provision on Standard Assets, Taxation and
others aggregated to Rs. 364.62 crore in the financial year 2008-09 as
compared to Rs. 291.83 crore in the financial year 2007-08.

Net Profit and Dividend

The Bank registered a Net Profit of Rs. 409.84 crore for the financial year
2008-09 compared to Rs. 360 crore in the financial year 2007-08
recording growth of 14%. The Board of Directors have recommended
dividend of 169% for the financial year 2008-09. In terms of extant
guidelines, the Bank will pay the dividend distribution tax for the financial
year 2008-09. Accordingly the total outflow on account of Dividend for
the year 2008-09 will be Rs. 95.90 crore including the dividend
distribution tax.

Net Worth and CRAR

The Net Worth of the Bank improved to Rs. 2,622.86 crore as on 31 st
March 2009 from Rs. 2,308.92 crore as on 31st March, 2008. The Capital
to Risk Adjusted Assets Ratio [CRAR] stood at 13.46% as on 31st March,
2009 as against 12.80% as on 31st March, 2008 which is well above
the

norm of 9% stipulated by the Reserve Bank of India. The Tier I

component of CRAR is 12.77% as on 31st March, 2009 compared to

12.14% as on 31st March, 2008. The Bank has implemented new capital
adequacy framework w.e.f. 31st March 2009. Under new norms, Banks
CRAR works out to 14.48%, which is higher than the CRAR as computed
under BASEL I norms. The advantage has stemmed mainly from higher
rated Investment / Credit portfolios. The Tier I component of CRAR under
new norms is 13.80% as against 12.77% under

35

BASEL I. Tier I leverage ratio of the Bank stands at 6.96% as on 31 March,

2009 against 7.05% as on 31 March, 2008.

STORY OF AN NPA
(NON-PERFORMING ASSET)
Once upon a time, there was a bright young engineer full of patriotic zeal.
He had graduated from the country's most prestigious institute and while
his classmates were preparing for migrating to USA, he had decided to
serve his country. Twenty years later, he has been converted to an NPA
(Non-Performing Asset) and he spends his time reading law books to save
his skin in the court case that will haunt him for the rest of his life.
He had started as an employee in a blue-chip company but gave up job to
be an entrepreneur. After spending five years to gather some initial
capital, he started a small industry with a loan from the largest Bank of
India. This was 1987 and the beginning of the tragedy. He had planned
the unit based on commitment from a large scale industry who it turned
out had given written commitments without being serious about what it
committed. The baby was born sick and it was clear to the engineerentrepreneur that there was no hope. There was just no exit route and he
was forced to keep the new-born alive. As soon as the production started
in 1988, he thought of various ways of saving the baby and discussed the
same with the Bank with who asked him to write it all out in hundred
different ways. He did that and also followed it up with personal visits to
officers of the Bank. Every day he would spend half the day shunting from
one office of the Bank to the other where more often than not he was
treated as a dignified beggar. On the rarest of rare occasions when he
displayed

some

sense

of

self-respect,

he

was

insulted

beyond

imagination. Reports of such bad behaviour to higher officers were

answered with sermons on learning to behave like a businessman.
Bank refused to help him out by giving additional finance. Bank also
refused to take over his unit or to help him find a buyer for the unit. In

36

fact they pleaded that they had no such provision. Bank can only take
over a unit after Court orders it to and that may take a few years if not
decades. Bank froze his account and insisted that he keep running the
unit with a frozen account. He committed his first illegal act by opening an
account in another bank. This started a witch-hunt with the Bank using all
means at its disposal to pressurize the other bank to close his account. All
this while he kept pleading with the Bank to settle the matter amicably,
but they were not interested. In 1993, the Bank filed a court case. Seven
years later he is still pleading with the Bank to take over his unit on as-iswhere-is basis and recover the best value possible. But the Bank believes
that a dead horse is more valuable than a live one

and they would take over the assets (or what remains of the assets) a few
years down the line after being ordered so by Debt Recovery Tribunal. He
has offered to pay some money based on his paying capacity and settle
the matter out-of-court. Bank is not even interested in talking. The case
drags on and he keeps cursing the day he decided to serve the country.
A long story that is boring because everyone likes to read about success
and forget about failures. Yet, there is no denying that failure is an
essential part of entrepreneurship. Accepting failures gracefully is the key
to success and a society that cannot accept failures is doomed.
For a long time, India tried to follow socialism treating all businessmen as
crooks

and

looking

at

entrepreneurs

with

suspicion.

All

talk

of

liberalization and economic reforms has not changed the mindset of

Indian bankers and powers that control the bankers. The legacy of the
British Raj has survived and flourished in the form of India's
cancerous

bureaucracy. The tentacles of this cancer have spread to

almost all fields in India including banking. Indian banks and

institutions

gigantic

(FI's) are

financial

crying hoarse about their large Non-Performing

37

Assets portfolio and are blaming the entrepreneurs, businessmen,

Government, judicial system, courts - practically everybody except
themselves for the mess that has been created primarily by them.
Any lending involves the following three stages where discretion needs to
be exercised (a) Evaluation and assessment of the proposal (b) Continuing
Support during the currency of the loan by additional loan or by non-fund
based activities (c) Exit decision and modality. Indian Banks and FI's
exhibit extremes of behavior at each of the above stages. A rule-based
approach precludes reasonable application of mind. Evaluation of project
idea and the management is something that most Indian banks and FI's
are least equipped for. This leads to the banker acting too liberal on all
projects that are related to the flavor-of-the-month as well as to insisting
on collaterals from everyone without taking into consideration any other
competencies of the entrepreneur. For example if wind is blowing in
favour of software, all projects involving software will be supported. On
the other hand if foods is not being favored, a genuinely good proposal in
foods will be rejected by all banks. This naturally encourages crooks to
keep smelling for the flavor-of-the-month. As soon as they smell it out, the
next step is to get a readymix 'bankable' project report from a con-man
(also called consultant). Banks and FI's are too willing to finance against
such reports to shady businessmen who may also sometimes grease their
palms instead of looking for genuine project ideas backed by competent
men of integrity. Herd mentality of the bankers and FI's

creates excess capacity in any industry that they choose to finance

thereby laying the seeds of sickness of that industry. Coupled with the
incompetency of the entrepreneurs and the shady intentions with which
the projects were set up, the sickness spreads like wild fire.
After a loan has been disbursed, it is an accepted norm that the Bank and
FI's have a duty to keep smelling for and to act promptly on key signals
that indicate the health of the recipient of the loan. Rule-bound bankers in
India do collect all the necessary information and pile it up in neat reports

38

and files. It is not unusual for bankers to even advise their clients to cook
up their accounts to either satisfy the Banker's Health Code requirements
or to get their unit classified as sick under the relevant laws. This having
been done, the banker can sleep peacefully. Acting on the signals that
emanate from these reports is none of his business. It is the entrepreneur
who has to exercise to convince a long chain of stubborn bank and FI
officers to rise from their slumber. This long chain operates on a veto
system. Each and every member of the chain has a right to delay and
veto and no one, howsoever senior, has a right to over-ride a veto or to
ask someone to expedite. So the entrepreneur is now caught in a game
where almost every petty Bank and FI officer satisfies his ego by kicking
him where it hurts most before obliging him by moving the file to the next
officer. Bank's and FI's key decisions about nursing versus exit get
influenced by this merry-go-round ego trip of the officers. The attitude
that the Bank will lose more than the entrepreneur by a delay in such key
decisions is completely missing in Indian bankers and FI's who see
themselves as demi-gods waiting for the right 'puja' (rites of worship) to
be performed by the faithful before granting the boons. Honourable exit is
something that is an alien concept to the Indian bankers and FI's. The only
exit route known to banks and FI's in India is to issue a Recall of Loan
letter. The letter is just a stepping stone to filing a suit and has no other
practical utility. As soon as a Recall letter is issued, the banker is relaxed
because his headaches are now over. He will pass the necessary entries in
his books classifying the loan as Non-Performing Asset (NPA). He can now
blame everybody else for all his omissions and commissions with the
entrepreneur being the key accused. In any other part of the world, the
first option that a banker is supposed to exercise with the support and
consent of the entrepreneur is a change in ownership. It always makes
more sense to sell a business as a going concern rather than sell it as a
dead horse. In any business there are intangibles like goodwill, key
customers, key employees who may be lost as soon as a court case is
filed. Sometimes such intangible assets may be more valuable than
tangibles like land, building, plant & machinery etc. Indian banks and

39

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 manner.
Tribunals and Courts are like surgeons who can cut and operate but
cannot give life and good health. Unless Indian banks and FI's learn to
build their health as well as the health of their clients, they will keep
converting useful assets of the country into NPA's.

40

NON PERFORMING ASSETS (NPA)

Action for enforcement of security interest can be initiated only if the
secured asset is classified as Nonperforming asset. Non-performing asset
means an asset or account of borrower, which has been classified by bank
or financial institution as sub standard, doubtful or loss asset, in

41

accordance with the direction or guidelines relating to assets classification

issued by RBI. An amount due under any credit facility is treated as past
due when it is not been paid within 30 days from the due date. Due to
the improvement in the payment and settlement system, 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 shell be an
advance where;
Interest and/or installment of principal remain overdue for a period
of more than 180 days in respect of a term loan.
The bill remains overdue for a period of more than 180 days in case
of bill purchased or discounted.
Interest and/or principal remains overdue for two harvest season
but for a period not exceeding two half years in case of an advance
granted for agricultural purpose, and
Any amount to be received remains overdue for a period of more
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 90 days overdue
norms for identification of NPA s, from the year ending March 31, 2004, a
non performing asset shell 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 a 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).
Interest and/or principal remains overdue for two harvest season
but for a period not exceeding two half years in case of an advance
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.

42

PROBLEMS DUE TO NPA

1) Owners do not receive a market return on their capital in the worst

case, if the banks fails, owners lose their assets. In modern times
this may affect a broad pool of shareholders.
2) Depositors do not receive a market return on saving. In the worst
case if the bank fails, depositors lose their assets or uninsured
balance.
3) Banks redistribute losses to other borrowers by charging higher
interest rates, lower deposit rates and higher lending rates repress
saving and financial market, which hamper economic growth.
4) Nonperforming loans epitomize bad investment. They misallocate
credit from good projects, which do not receive funding, to failed
projects. Bad investment ends up in misallocation of capital, and by
extension, labour and natural resources.
5) Nonperforming asset may spill over the banking system and
contract the money stock, which may lead to economic contraction.
This spillover effect can channelize through liquidity or bank
insolvency:
a) When many borrowers fail to pay interest, banks may
experience liquidity shortage. This can jam payment across
the country.
b) Illiquidity constraints bank in paying depositors.

43

MANAGEMENT OF NPAs: SECURITIZATION

Securitization:
Securitization is the process of conversion of existing assets or future
cash flows into marketable securities. For the purpose of distinction, the
conversion of existing assets into marketable securities is known as assetbacked securitization and the conversion of future cash flows into
marketable securities is known as future-flows securitization. A typical
securitization transaction consists of the following steps:

Creation of a special purpose vehicle (SPV) to hold the financial

assets underlying the securities;

Sale of the financial assets by the originator or holder of the assets

to the SPV, which will hold the assets and realize the assets;

Issuance of securities by the SPV, to investors, against the financial

assets held by it.

The purpose of the Securitization Act is to promote the setting up of asset

reconstruction / securitization companies to take over the Non Performing
Assets (NPA) accumulated with the banks and public financial institutions.
The Act provides special powers to lenders and securitization / asset

44

reconstruction companies, to enable them to take over of assets of

borrowers without first resorting to courts.
The Act was welcomed by the banking community, but resisted by the
borrower community. The validity was challenged in various courts on the
ground that it was predominantly in favor of lenders. Hence, lenders were
unable to enforce the provisions in full. But the crux of the issue was
whether the Act would be an effective tool to make a drastic difference to
the NPA menace.

SECURITIZATION- RELEVANCE TO THE BANKING

SECTOR
Other than freeing up the blocked assets of banks, securitization can
transform banking in other ways as well.
The growth in credit off take of banks has been the second
highest in the last 55 years. But at the same time the incremental credit

45

deposit ratio for the past one-year has been greater than one. Thus, for
every Rs 100 worth of deposit coming into the system more than Rs 100
is being disbursed as credit. The growth of credit off take though has not
been matched with a growth in deposits. So, the mismatch between the
credit given and the funds received creates an issue of proper
management of increased credit off-take. One of the measures adopted
by the banks to cater to this credit boom is by selling their investments in
government securities and giving the amount raised as loans. But there is
a limit to such credit funding due to minimum SLR requirements of 25% in
government and semi government securities.
As a result of selling government paper to fund credit off take their
investment in government paper has been declining. Once the banks
reach this level of 25 per cent, they cannot sell any more government
securities to generate liquidity. And given the pace of credit off take, some
banks could reach this level very fast. So banks, in order to keep giving
credit, need to ensure that more deposits keep coming in. One option is to
increase interest rates. Another alternative is Securitization. Banks can
securitize the loans they have given out and use the money brought in by
this to give out more credit. A. K. Purwar, Chairman of State Bank of India,
in a recent interview to a business daily remarked that bank might
securitize some of its loans to generate funds to keep supporting the high
credit off take instead of raising interest rates.
Securitization

also

helps

banks

to

sell

off

their

NPAs

to asset

reconstruction companies (ARCs). ARCs, which are typically publicly /

government owned, act as debt aggregators and are engaged in acquiring
bad loans from the banks at a discounted price, thereby helping banks to
focus on core activities. On acquiring bad loans ARCs restructure them
and sell them to other investors as 'Pass through Certificates' (PTCs),
thereby freeing the banking system to focus on normal banking activities.

46

MANAGING NPAs THROUGH SECURITIZATIONFACILITATING BANKS

An interesting shift is noticed in the case of private sector banks. It is
common knowledge that these banks have been notably driving the retail
banking revolution in the country in the last few years. The Supreme
Court verdict would help these banks in a limited manner in respect of
their corporate NPAs.
However, in case of defaults by retail borrowers, the banks would have to
weigh the costs and benefits of tracing each delinquent retail borrower,
seizing his assets and trying to sell them off to realize the dues. The
lenders may prefer to create homogeneous pools of these assets and
securitize them with an asset reconstruction company (ARC) instead.
The salient provisions of the Securitization Act state that the lender can
take possession of the asset in case the borrower does not discharge his
liabilities within 60 days of the demand notice from the lender. The lender
can then manage the assets with a right to transfer them by way of lease,
assignment or sale. Are banks today equipped for this? Imagine banks
having thousands of such seized assets of various descriptions and values
in their physical possession. The sheer cost of maintaining such assets in
marketable form could be formidable. The assets which form security for
bank loans and advances have to be valued / revalued on a periodical
basis to determine the security shortfall. The provisions made by banks
depend on this valuation. In a period when interest rates are headed
downwards, and asset values are on a steady ascent due to increased
consumer spending, there is a possibility that the `security' could be
overvalued on paper. But when the asset has to be liquidated or sold,
reality may crack paper valuations.

47

Then the Act may seem futile for the time being. On the one hand,
borrowers whose assets have been seized could be spurred to legal
recourse by the striking down of the 75% down payment provision. On the
other, existing assets may not yield the desired salvage values to the
lenders. The third dimension would be the escalating NPA levels due to
the implementation of the 90-day norm.
In the medium and long term, the Securitization Act would ensure
that both lenders and borrowers learn their lessons. Lenders would finetune their appraisal and monitoring

Mechanisms to prevent future NPAs, and feel comfortable in the

knowledge that securities can be liquidated without much bother. This is
the short-term picture. Borrowers would know that their assets are in
jeopardy if they do not deliver on their promises or take the lenders into
confidence in respect of their business risks. The change would be in the
attitude. And this change would go a long way in enhancing the quality of
the banking system's assets.

48

49

PREVENTING NPAs
At the pre-disbursement stage, appraisal techniques of bank need to be
sharpened.

All technical, economic, commercial, organizational and

financial aspects of the project need to be assessed realistically. Bankers

should satisfy themselves that the project is technically feasible with
reference to technical knowhow, scale of production etc. The project
should be commercially feasible in that all background linkages by way of
availability of raw materials at competitive rates and that all forward
linkages by way of assured market are available. It should be ensured
assumptions on which the project report is based are realistic. Some
projects are born sick because of unrealistic planning, inadequate
appraisal and faulty implementation. As the initiative to sanction or reject
the project proposal lies with the banker, he can exercise his judgment
judiciously. The banker should at the pre-sanction stage not only appraise
the project but also the promoter his character and his capacity. It is
said that it is more prudent to sanction a 'B' class project with an 'A' class
entrepreneur than vice-versa. He has to ensure that the borrower
complies with all the terms of sanction before disbursement.
A major cause for NPA is fixation of unrealistic repayment schedule.
Repayment schedule may be fixed taking into account gestation or
moratorium period, harvesting season, income generation, surplus
available etc. If the repayment schedule is defective both with reference
to quantum of installment and period of recovery, assets have a tendency
to become NPA.
At the post-disbursement stage, bankers should ensure that the advance
does not become and NPA by proper follow-up and supervision to ensure
both assets creation and asset utilization. Bankers can do either off-site
surveillance or on site inspection to detect whether the unit / project is
likely to become NPA.
Instead of waiting for the mandatory period before classifying an asset as
NPA, the banker should look for early warning signals of NPA.

50

The following are the sources from which the banker can detect
signals, which need quick remedial action:

a)

Scrutiny of accounts and ledger cards During a scrutiny of

these, banker can be on alert if there is persistent regularity in the
account, or if there is any default in payment of interest and
installment or when there is a
Downward trend in credit summations and frequent return of
cheques or bills,

b)

Scrutiny of statements If the scrutiny of the statements

submitted by the borrower reveal a sharp decline in production and sales,

rising level of inventories, diversion of funds, the banker should realize
that all is not well with the unit.
c)

External sources The banker may know the state of the unit

through
market

external sources. Recession in the industry, unsatisfactory

reports,

unfavorable

changes

in

government

policy

and

complaints from suppliers of raw material, may indicate that the unit is
not working as per schedule.

d)

Computerization of loan monitoring In computerized branches, it is

possible to computerize the loan monitoring system so that accounts, which show
signs of sickness or weakness can be monitored more closely than other accounts.
Personal visit and face-to-face discussion By inspecting the unit
the banker is able to see himself where the problem lies - either
production bottlenecks or income leakage or whether it is a case of willful
default. During discussion with the borrower, the banker may come to
know details relating to breakdown in plant and machinery, labour strike,
change in management, death of a key person, reconstitution of the firm,
dispute among the partners etc.
Special Mention category of accounts Based on warning signals
obtained through both off-site and

on-site monitoring, banks

may

classify accounts with irregularities persisting for more than 30 days

51

under Special Mention or Potential NPA category. This will help the bank
to initiate proactive remedial measures for early regularization. The
measures include timely release of additional funds to borrowers with
temporary liquidity problems and restructuring of accounts of sincere and
honest borrowers after considering cases on merit.
On-going classification Although classification of assets is a yearly
exercise, banks would do well to have a system of on-going classification
of assets and quarterly provisioning. This helps in assessing provisioning
requirements well in advance. All doubts regarding classification should
be settled internally and a system of fixing accountability for failure to
comply with the regulatory guidelines should be introduced.
Strategy for reducing provision The extent of provision for doubtful
asset is with reference to secured and unsecured portion. Cent percent
provision needs to be made for the

Unsecured portion. If banks can ensure that the loan outstanding is fully
secured by realizable security, the quantum of provision to be made
would be less. It takes one year for a sub standard asset to slip into
doubtful category. Therefore, as soon as an account is classified as
substandard, the banker must keep strict vigil over the security during the
next one year because in the event of the account being classified as
doubtful, the lack of security would be too costly for the bank.

52

REDUCING NPAs
53

Cash recovery Banks, instead of organizing a recovery drive based on

over-dues, must short list those accounts, the recovery of which would
provide impetus to the system in reducing the pressure on profitability by
reduced provisioning burden. Vigorous efforts need to be made for
recovery of critical amount (overdue interest and installment) that can
save an account from NPA classification:
a) In case of a term loan, the banker gets 90 days after the date of
default to take appropriate action and to persuade the borrower to
pay interest or installment whichever is due.
b) In case of a cash credit account, the banker gets 90 days for
ensuring that the irregularity in the account is rectified.
c) In case of direct agricultural loans, the account is classified NPA
only after two crop seasons (from sowing to harvesting) from the
due date in case of short duration loans and one crop season from
the due date in case of long duration loans.
Up gradation of assets Once accounts become NPA, then bankers
should take steps to up-grade them by recovering the entire over-dues.
Close follow-up will generally ensure success.
Compromise settlements Wherever feasible, in case of chronic NPAs,
banks can consider entering into compromise settlements with the
borrowers.
Recovery

through

legal

recourse

Since

provision

amount

progressively increases with increase in time, it is necessary to take steps

to recover dues either through persuasion or by legal recourse. A strategy
of fixing a dead line for recovery may force the bank to either recover
or shed the asset off the
Balance sheet. Banks may file suits promptly against willful defaulters.
Banks can take recourse under either a civil suit or the Special Recovery
Acts passed by various states or the Securitization and Reconstruction of
Financial Assets and Enforcement of Security Interest (SARFAESI) Act,
2002. The bank should vigorously follow up the legal cases.

54

HOW TO PREVENT SLIPPAGE AND MANAGE NPAs BETTER

Basic borrower data

The job begins with the know-your-customer (KYC) and credit appraisal
stage itself. The banks must first get the basic data on the borrower and
this includes details such as name and address of the business unit, name
and addresses of business partners, directors, guarantor, details of any
authorized advance, credit rating score, details of credit facilities, and
other relevant documentation. This should be prepared by the credit
officer and approved by the branch head. A monthly MIS to be generated
for the branch.
Daily account activity
Details of any unusual transactions or large value transactions in the
account, if there is no activity in the account for more than seven days.
This should be a daily MIS for the branch management. Unusual
transactions would be checks favoring any new customer not already
disclosed by the borrower at the time of proposal, checks for round
amounts etc. Large value transactions would vary according to the size of
the company and the limit or line of credit sanctioned.

55

Continuous surveillance every quarter

This would have details such as name of the account. Limits
sanctioned, drawing power as at the end of the month and outstanding,
details of arrival of
Drawing power - should show clearly value of unpaid stocks not reckoned
for drawing power, details of debits over a particular amount in the
account with purpose, details of insurance held for securities and expiry
date, details of production in the quarter vis--vis projections. There
should also be surveillance of any shortfall, and all pertinent details, such
as whether reasons for it were discussed with the borrower, sales and
profit during the quarter vis--vis projection, how it compares with the
same period for the previous year, or whether the unit would achieve the
projected sale for the year based on the performance so far. An analysis
of quarterly results of the company should be made. The continuous
surveillance statement must be seen and verified by the credit officer and
the branch head and would be available as a tool for ascertaining staff
lapses in case the account goes bad. If the account

had thrown signals and the statement also reflected the same and despite
that if prompt action is not taken to prevent slippage it becomes easier to
identify staff lapses in monitoring.

Daily statement of check returns both inward and

outward
This must be verified everyday by the credit officer and the branch
manager. It must have a column for their comments where they must
record the details of discussion with the borrower about the reasons for
the frequent return of check.

56

Overdue term loans

A daily statement to be generated, indicating name of the account, limit
sanctioned,

drawing

power,

outstanding,

date

and

amount

of

installment/interest due, date of last inspection of the unit by branch

official and name.

A weekly and monthly summary of overdue term

loans
This should indicate in addition to the above the details of out standings
in other borrower accounts of the same party and over dues, if any, in
such accounts. The monthly statement beyond a cut-off limit should be
available to the controlling office simultaneously. The monthly statements
should also generate simultaneously a pre programmed politely worded
reminder letter to the borrower.

Loan concentration statements

A

monthly

statement

should

be

generated

to

show

portfolio

concentrations by industry, geography and borrower segments. This

would just have under each head the name of the borrower, limits
sanctioned and outstanding as at the end of every month.

Weekly statement of overdue bills purchased and

discounted
This must give the bills outstanding beyond due date for since bills and
21 days for demand bills. This must have information on name and
address of the drawee, whether demand or since and if since the tenor,
whether a satisfactory credit report has been obtained on the drawee and

57

if not who authorized the purchase or discount without the credit report,
whether bills purchased on the drawee have been delayed before or
returned earlier.

The system should generate a reminder to the bank for all bills
outstanding beyond seven days from the due date with a copy to the
customer for his follow up. The system should reject purchase a bill on
drawees whose bills have been returned more than once. Monthly
statement of overdue bills purchased and discounted should have an
additional

column

for

fate

of

goods

covered

by

the

respective

consignments and whether this was discussed with the borrower.

Similar statements as above have to be generated for foreign bills
purchased and discounted - weekly and monthly separately for letter of
credit (LC) bills and non-LC bills.

Monthly statement of insurance for securities due

for renewal
A letter to the borrower to provide necessary funds for debit and a letter
to the insurance company asking for renewal premium should be
generated on the first day of every month. This has to be pursued by the
credit officer till renewal.

Limits due for renewal

A monthly statement should be generated for the credit officer. It should
also be seen by the branch head. A quarterly statement of lapsed limits
should be generated with the above details with an extra column for the

58

date of visit by the credit officer and the branch head to the unit for
discussions on renewal of limits.

Watch category statement

Accounts with funds overdue of Rs1m (approximately US$25,430) and
above are to be included on this statement to be generated on the 15th
and 30th of every month. From all the above data a watch category
statement is to be generated at the end of every fortnight to the branch
head

who

has to add his comments the same day and a monthly

statement should be available to the controlling office on the first working

day of every month. The fortnightly statement for the branch and the
monthly statement for the controlling office should have the following
details: name and address of the unit, date of first sanction and by whom,
date of renewal, details of limits sanctioned, drawing power, outstanding,
extent of irregularity, reasons for irregularity, when the unit was last
inspected, whether the unit is working, whether the documents are in
order and when the account is expected to be regularized, what the
branch proposes to do to regularize the account and the amount of penal
interest recovered. If the account remains overdue for more than six
months and remains in watch

Category for more than nine months with persisting over dues the
account is to be transferred to assets recovery or reconstruction
department for further course of action.

Assets classification and downgrade statement

This should be generated once every three months - where a downgrade
or slippage is likely, but the loans are assessed as acceptable to the bank,
the credit officer should send a mitigation report to the branch head as to
why the credit is still acceptable to the bank. It should detail the risks and
the mitigants for the same. This would be a monthly statement for the
credit officer and the branch head.

59

Assets recovery/reconstruction
The assets recovery/reconstruction department gets the account for its
follow up in the 10th month from the date it fell overdue. Immediately on
receipt of the account this department should start the recovery
proceedings.
The first step would be to visit the unit for a discussion to explore the
possibility of resurrecting the unit from its illness and retransfer the
account to the branch. The credit officer of the branch or its branch head
should also accompany the assets reconstruction department people for
the discussion. This branch should actively involve itself in the recovery
efforts of the assets reconstruction department because they know the
borrower better. The visiting official should record his findings. On the
ninth month from the date it became overdue the statement should
indicate whether efforts for a one-time settlement with the unit was
made. At the end of 12 months the assets reconstruction department
should explore the possibility of selling the account to any assets
reconstruction corporation for a price. If that is not possible at the end of
18 months they should initiate legal steps if their efforts for an OTS or for
revival or for sale to an ARC had failed. If the unit is found to be a willful
defaulter then a report should be generated for the RBI. The name and
address of the unit and the directors and partners should be blacklisted
and any unit in which they are interested which also has received finance
from the bank should also be put on the watch category list for an indepth analysis.

60

Statement of recoveries
A monthly statement of recoveries made in NPA accounts indicating total
NPAs as at the beginning of the month, cash recoveries made during the
month, slippage during the month, up gradation during the month, NPA
level as at the end of the month to be generated for the branch head.
Accounts falling under corporate debt restructuring mechanism should be
handled

only

by the

branch

and

reconstruction branch.

61

not

transferred

to

the

assets

MANAGEMENT OF NPAs IN J&K BANK

The management of NPAs has been quite outstanding in J&K bank. The
low valuation accorded to the bank is largely due to the risk perception of
the bank doing its business in the state of J&K. However, on the contrary,
the perceived perception weakness is its business strength. The close
relationship with the J&K government allows it access to large float funds.
It mobilizes deposits in the state at low cost and lends outside the state at
competitive rates. Moreover, overstaffing and poor network that dog
public sector banks are non-existent in J&K Bank. It is one of the best
banks, with its name being the primary perceptible concern. The banks
performance on recovery of NPAs has been always appreciable. It is due
to effective management policies that the NPA level of J&K bank is

62

decreasing continuously. The bank has also recorded a record profit of

more than 512 crores in the financial year 2009-10.
According to the companys chairman, despite the state being strife torn,
the company has been performing well and he sees no reason why it
should affect the operations of the bank in future. The bank has grown to
this size in the last five years when the concerns about the state have
been the highest. The bank has grown at a scorching pace in the last few
years making its presence visible by aggressively following prudent
policies and improving its asset quality. It boasts lowest NPAs in the
banking industry at 1.4 per cent. The deposits and advances growth has
shown remarkable growth, which is above the national average.

ASSET QUALITY OF J&K BANK

63

The asset quality of J&K Bank is shown with the following table:
2005-06

2006-07

2007-08

2008-09

2009-10
UNAUDITTE
D

GROSS NPAs (IN

370.19

501.83

485.23

559.27

511.32

NET NPAs (IN Rs CR)

133.87

193.57

203.55

287.51

159.56

GROSS NPA RATIO

2.52%

2.89%

2.53%

2.64%

2.44%

NET NPA RATIO(%)

0.92%

1.13%

1.08%

1.37%

0.77%

NPA COVERAGE

63.64%

61.43%

58.05%

48.59%

68.79%

20.57%

24.98%

21.02%

21.32%

18.66%

Rs.CR)

(%)

RATIO(%)

GROSS NPA TO NET

WORTH RATIO (%0

The above table shows that the work of J&K Bank on recovery of NPAs has
been excellent. Though there are ups and downs regarding NPA coverage
ratio but still the bank has kept the level at a place where chances of
business failures are almost nil.

64

METHODS USED FOR CONTROLLING NPAs IN

J&K BANK
The various methods that are used in J&K Bank for controlling NPAs are as
follows:

Basic borrower data

Daily account activity
Continuous surveillance every quarter
Daily statement of check returns both inward and outward
Overdue term loans
A weekly and monthly summary of overdue term loans
Loan concentration statements
Weekly statement of overdue bills purchased and discounted
Monthly statement of insurance for securities due for renewal
Limits due for renewal
Watch category statement
Assets classification and downgrade statement
Assets recovery/reconstruction
Statement of recoveries
The above techniques are discussed in detail earlier in this report and all
of these are strictly used in J&K Bank.

65

TECHNIQUES USED IN J&K BANK FOR MANAGING

NPAs
The various techniques that are used in recovering NPAs are:
Cash recovery
Up gradation of assets
Compromise settlements
Recovery through legal recourse
These techniques have been quite effectively used in J&K Bank for
reducing NPAs. During the last year, the Bank effected cash recovery, upgradation of NPAs and technical write-off of Rs. 327.85 crore compared to
Rs. 244.53 crore in the year 2008.

66

Investment portfolio of the Bank increased by 22.59% from Rs. 8,757.66

crore as on 31st March 2008 to Rs. 10,736.33 crore as on 31 st March,
2009.
These techniques could generate much better results for the Bank if
SARFAESI Act is applied in the state which has not been applied till now.
The efforts are being made to make this Act applicable in J&K. The chief
minister of the state has recently said in his speech that this Act will be
applied in the state very soon. J&K Bank is also hoping for the application
of this Act so that they can reduce NPAs further and further.
The procedure that is followed in J&K for recovering loans is discussed as
follows:
First the bank officials call the borrower who has take loans from the bank
and is not caring to pay back. If the holder does not respond then the
bank officials personally visit him and still if he doesnt pay back the loan
amount then the bank along with police takes legal actions against the
defaulter.
This is how the J&K Bank has managed its NPAs through decades in the
absence of the SARFAESI Act otherwise the story could have been
different. This is the only bank in the country that has grown its business
in those conditions where scope was very less because situation in J&K
state has always been a concern to carry on any business.
The level of NPAs in the current year has been one of the lowest in level in
the company. The net NPA percentage in 2010 which is unauditted till now
is only 0.77% which is excellent regarding the current situation in the
state. This percentage could have been zero if SARFAESI Act would have
been applied in the state.

67

COMPARISON OF NPAs OF J&K BANK AND OTHER

BANKS
The comparison of gross and net NPA percentage of J&K Bank and some
other banks is shown below:
NAME OF THE

GROSS NPAS %

NET NPAS %

BANK
2006-

2007-

2008-

2006-

2007-

2008-

07

08

09

07

08

09

STATE BANK OF INDIA

2.9

3.0

2.8

1.6

1.8

1.8

PUNJAB NATIONAL

3.5

2.7

1.8

0.8

0.6

0.2

2.I

3.3

4.3

1.0

1.6

2.1

1.1

0.8

1.1

0.7

0.4

0.4

2.9

2.5

2.6

1.1

1.1

1.4

1.5

1.2

1.6

0.9

0.8

1.1

4.8

3.2

2.7

1.7

1.5

1.2

INDIA

1.8

1.4

1.3

0.8

0.6

0.6

STATE BANK OF

2.3

1.6

1.9

0.6

0.6

0.8

2.9

2.2

2.0

1.0

0.2

0.3

3.0

2.7

1.9

0.8

1.0

0.8

2.1

1.5

1.1

0.5

0.3

0.3

1.9

1.2

0.9

0.4

0.2

0.2

4.1

2.4

2.1

2.0

0.9

1.1

1.4

1.4

2.0

0.4

0.5

0.6

BANK
ICICI BANK
AXIS BANK
J&K BANK
CANARA BANK
CENTRAL BANK OF

PATIALA
VIJAYA BANK
UNION BANK OF
INDIA
SYNDICATE BANK
CORPORATION BANK

68

INDIAN BANK

2.5

2.9

4.3

2.0

1.8

2.4

2.6

2.0

1.8

1.1

0.8

0.7

1.4

1.1

0.8

0.2

0.2

0.2

2.5

1.8

1.3

0.6

0.5

0.3

69

REVIEW OF LITERATURE

70

Though many published articles are available in the area of

non-

performing assets, which are either bank specific or banking sector

specific, there are hardly any state specific researches. As situation in
J&k has tumultuous from decades, so hardly any research has been done
on the topic. A considered view is that banks lending policy could
have

crucial

influence

on

non-performing loans (Reddy, 2004). He

critically examined various issues pertaining to terms of credit of Indian

banks. In this context, it was viewed that the element of power has no
bearing on the illegal activity.

A default is not entirely an irrational

decision. Rather a defaulter takes into account probabilistic assessment

of

various

costs

and

conceptualized lazy

benefits

banking

of

while

his

decision.

critically

Mohan

reflecting

(2003)

on

banks

investment portfolio and lending policy. The Indian viewpoint alluding

to the concepts of credit culture owing to Reddy (2004) and lazy
banking owing to Mohan (2003a) has an international perspective since
several studies in the banking literature agree

that

banks

lending

policy is a major driver of non-performing loans (McGoven, 1993,

Christine

1995,

Furthermore,

in

Sergio,
the

1996,

context

of

Bloem
NPAs

and

Gorters,

2001).

on account of priority sector

lending, it was pointed out that the statistics may or may not confirm
this. There may be only a marginal difference in the NPAs of banks
lending to priority sector and the banks lending to private corporate
sector. Against this

background, the study

suggests that given the

deficiencies in these areas, it is imperative that banks need to be guided

by fairness based on economic and
system

of

conventions,

if

reform

financial
has

to

decisions
serve

the

rather

than

meaningful

purpose. Experience shows that policies of liberalization, deregulation

and enabling environment of comfortable liquidity at a reasonable
price do not automatically translate themselves into enhanced credit
flow.

71

Rakesh Gupta has conducted a research on relative efficiency of Indian

Commercial Banks in which he finds the J&K bank among top eight banks
which were considered to be efficient in 2008. The other seven banks
include
Nainital Bank, SBI Comm. and Intl. Bank, Citibank, Union Bank of India and
City Union Bank, IDBI Ltd. and Federal Bank. In this research it the author
writes that the performance of these banks was efficient due to proper
management of NPAs. The performance of J&K Bank has been quite
outstanding in spite of the situation that was prevailing in the valley at
that time. The NPA percentage of the bank was 2.6% which is good as per
the norms of RBI. The NPA coverage ratio of the bank was at 68% and
58% in 2006 and 2008 respectively. Bhattacharya (2001) rightly points
to the fact that in an increasing rate regime, quality borrowers
would

switch

internal

over

accruals

to
for

other

avenues

such

as

capital

markets,

their requirement of funds. Under such

circumstances, banks would have no option but to dilute the quality of

borrowers thereby increasing the probability of generation of NPAs. The
problem of NPAs is related to several internal and external factors
confronting the borrowers (Muniappan, 2002). The internal factors are
diversion of funds for expansion/ diversification/ modernization, taking
up

new

projects,

helping/promoting

associate

concerns,

time/cost

overruns during the project implementation stage, business (product,

marketing, etc.)
relations,

failure,

inefficient management,

inappropriate technology/technical

strained

problems,

labour
product

obsolescence, etc.while external factors are recession, non-payment in

other countries, inputs/power shortage, price escalation, accidents and
natural calamities.
In the Indian context, Rajaraman and Vasishtha (2002) in an empirical
study provided an evidence of significant bivariate relationship between
an operating inefficiency indicator and the problem loans of public sector
banks. In a similar manner, largely from lenders perspective, Das
and

Ghosh

(2003) empirically

examined

72

non-performing

loans

of

Indias public sector banks in terms of various indicators such as

asset

size,

operating

credit

growth

and

macroeconomic

condition,

and

efficiency indicators. Sergio (1996) in a study of non-

performing loans in Italy found evidence that, an increase in the riskness

of

loan assets

relatively

is rooted

unselective and

in a

banks

inadequate

lending policy adducing to

assessment

of

sectoral

prospects.
Bloem and Gorter (2001) suggested that a more or less
predictable level of non-performing loans, though it may vary slightly
from year to year, is caused by an inevitable number of wrong economic
decisions by individuals and plain bad luck

(inclement weather, unexpected price changes for certain products, etc.).

Under such circumstances, the holders of loans can make an allowance
for a normal share of non-performance in the form of bad loan provisions,
or they may spread the risk by taking out insurance. Enterprises may well
be able to pass a large portion of these costs to customers in the form of
higher prices. For instance, the interest margin applied by financial
institutions will include a premium for the risk of nonperformance on
granted loans.

73

74

RESEARCH
METHODOLOGY/DESIGN

75

OBJECTIVES OF THE STUDY

The main objectives of my study were:

To know the policies that the J&K Bank follows to cover its NPA,s.

To know the relative efficiency of J&K Bank.

To know the NPA level of J&K Bank and other Indian Banks.

To know the ill effects of NPAs on the performance of the banks.

To get aware of the confidence among the customers of the J&K

Bank regarding the performance of the bank in recovery of NPAs.

To get aware of the services provided by J&k Bank and the level of
satisfaction among its customers.

To study the NPA coverage of J&k Bank in different financial years

and its effect on the overall efficiency of the bank at different
points of time.

76

77

RESEARCH DESIGN
A research design is the framework or plan for a study that guide the
collection and analysis of data. In this research report the descriptive
research method is applied.

DATA COLLECTION
Data collection is very important for conducting any research. Success or
failure of a research primarily depends on data collection. Data may be
collected by any of the following methods:
Primary sources
Secondary sources
The primary sources of collecting data in this project include:
o

Personal interviews

Questionnaire

Telephonic interviews

The secondary sources through which data have been collected for this
project include the following:
o

Internet

Newspapers

Information brochures of the bank

Books and magazines

78

79

SAMPLING PLAN
The sampling plan in this project is as follows:
Population:

The customers of the bank.

Sampling unit: Any individual residing in district Kulgam of J&K

state.
Sample size:

100

Sampling procedure: convenience sampling

80

81

LIMITATIONS OF THE STUDY

Every research suffers from one or the other limitation. The

limitations from which my study suffered are:
Time allowed for the study was short. This limitation
narrowed the scope of the study.
Political instability in the region prevented to conduct the
research in the manner in which it could have been
conducted.
Negative responses from some of the respondents made it
difficult to interpret the data easily.
The survey is limited to district Kulgam only. So the
respondents were of this district only. This limitation may
have brought biasness in the study.
Some of the ambiguous replies which I omitted by taking
them as unnecessary could generate wrong results.

82

83

DATA ANALYSES AND

INTERPRETATION

84

QUESTIONNAIRE

Q.1)

Are you satisfied with the ways J&K Bank

grants loans?
a) Yes
b) NO
With the help of this question an attempt was made to know whether J&K
bank grants loans with ease or apply strictness to cover their NPAs.

No. of respondents

100

Yes

80

No

20

The data in the table is shown with a chart for more clarification:

85

Chart 1
20.00%

YES
NO

80.00%

Analyses
The above chart shows that majority of the population is satisfied with the
ways J&K Bank offers loans to the public. About 80% of the respondents
favoured that J&K Bank offers them loans with ease and with the banks
effective policies it covers the risk.

Q.2) Is the NPA level of JKB controllable?

A. YES

86

B. NO
C. CAN'T SAY
With the help of this question, the purpose was to get aware whether the
people know that J&k Banks NPA level is at a point where they will feel
satisfactory.

No. of respondents

100

YES

50

NO

25

CAN'T SAY

25

Chart 2
50

50

45
40
35
30
25

25
20
15
10
5
0

YES

NO

CAN'T SAY

87

25

Analyses
After critical interpretation of the data it is clear that though most of the
respondents say that the NPA level of J&K Bank is controllable, still there
are a good portion of people who either say that NPA level of J&K Bank is
not controllable or dont have any knowledge. About 25% of respondents
were having no knowledge about the subject and the same amount of
respondents say that the NPA level of J&K Bank is not controllable.

Q.3) Are the profits of J&K Bank effected by NPA's?

A. YES
B. NO
C. CAN'T SAY
The main purpose by putting this question in the questionnaire was to get
the responses of the people that what they feel about the NPAs. Whether
more NPAs reduce the performance of the bank or not.

No.of respondents

100

YES

30

NO

15

CAN'T SAY

55

88

The above data is shown with a chart give on the next page:

Chart 3
55
50
45
40
35
30

percentage

25
20
15
10
5
0

YES

NO

CAN'T SAY

Q.4) Are the NPA reduction techniques of JKB

standardized?
A. YES
B. NO
C. CAN'T SAY

89

The purpose by asking this question was to know whether people feel
that the techniques for recovery of NPAs applied by J&K Bank are good
or they need to be changed.

No. of respondents

100

Yes

45

No

20

Cant say

35

The data in the above table is shown with the following chart:

Chart 4

45.00%
yes
no
can't say

20.00%
35.00%
Analyses

90

The analyses of the above data is made in this way that majority of the
respondents favoured that the NPA reduction techniques of J&K Bank are
standardized. A little percentage of about 20% say that the NPA reduction
techniques of J&K Bank need to be changed and about 35% of
respondents say that they cant say anything whether the techniques of
JKB are standardized or not.

Q.5) Has NPA coverage of JKB contributed in

earning a record profit of 512.38 crores in financial
year 2010?
A. NO ANSWER
B. YES
C. NO
No. of respondents

100

No answer

55

Yes

30

No

15

For more clarification the data in the table is shown with the chart as
follows:

91

Chart 5

No

percentage

Yes

No answer
0

10

20

30

40

50

60

Analyses
The interpretation of the above data shows that more than most of the
population was not having any knowledge about the subject. A good
percentage of 30% agree that NPA coverage has helped J&K Bank to earn

92

a record profit. Only 15% people dont agree that NPA coverage has
helped J&K Bank to earn a record profit.

Q.10) If SARFAESI Act is applied in J&k state. Will it

be useful for J&K bank to reduce NPAs?
A. YES
B. NO

30 %

YES
NO

70 %

Analyses

93

The analysis of the above data shows that most of the respondents that
SARFESI Act should be made applicable in the state. About 80% people
favoured that it will be beneficial for J&K Bank.

Q.3) Comparing with other Indian banks do you

think that the asset quality of J&K Bank has been
appreciable always?
A. YES
B. NO
No. of respondents

100

YES

75

NO

25

This has been shown with the chart as follows:

94

Chart 7
75
70
65
60
55
50
45
40
35

75

30
25
20
15

25

10
5
0
YES

NO

Analyses
The analyses of the data shows that more than 75% of the respondents
favoured that J&K Bank has improved its asset quality even though the
conditions in the state have not been good for business.

Q.8) Which bank is the role modal of banking in

J&k?
A. SBI
B. PNB
C. JKB
D. ICICI
No. of respondents

100

95

SBI

10

PNB

JKB

ICICI

80

The data in the above table is shown with the following chart:

Chart 8
5.00%

10.00%
5.00%

SBI
PNB
JKB
ICICI

80.00%

Analyses
The analyses of the above data shows that more than 80% people of J&K
agree that J&k Bank is the role modal of banking in the state.

Q.2) Which bank provides best services in the

state?
A. SBI

96

B. J&K BANK
C. OTHERS
No. of respondents

100

SBI

10

Others

J&K Bank

85

The above data is shown with the following chart:

Chart 9

J&K Bank

OTHERS

SBI
0

10

20

30

40

Analyses

97

50

60

70

80

After interpretation of the data the analyses shows that most of the
people of J&K prefer the services of J&K Bank over other banks.

Q.9) Do you think that NPA percentage in JKB can

be reduced to zero percent?
A. YES
B. NO
No. of respondents

100

Yes

50

No

50

The above data is shown with a chart as follows:

Chart 10

YES
NO

Analyses

98

The analysis of above data shows that there is a balance among

respondents whether NPA percentage of J&K Bank can be minimized to
zero percent.

99

FINDINGS AND SUGGESTIONS

100

FINDINGS

1) The bank has brought a good improvement in NPA recovery by

increasing the NPA Coverage Ratio to 68.79% in 2009-10.
2) People of the state mostly prefer J&K Bank over other banks.
3) The asset quality of J&K Bank is being appreciated by the people as
well as by the RBI.
4) Performance of the bank in recovery of NPAs has been appreciated
even though it needs further improvement.
5) The NPA reduction techniques of have J&K Bank have been rated
well by most of its customers.
6) Most of the people rated the NPA level of J&K Bank as controllable
still lot of improvement is needed to lower down the NPA level
further and further.
7) The ways through which the bank offers loans to the general public
has been appreciated by most of the respondents. This has
increased the image of the bank in the eyes of the people.
8) The bank has a great business opportunity in the future as its
people friendly policies make the bank quite popular in the state as
well as the national market.

101

SUGGESTIONS
J&k bank is one of the leading private sector banks in the country. The
performance of the bank has always been excellent. Its people friendly
policies have always been appreciated and it has emerged as a role
model of banking in the state as well as at national level. The bank has an
important role in the development of the state as its contribution to the
J&Ks economy is most. Though the performance is quite outstanding still
lot is to be done in future. Here are some of the suggestions that may
help the bank:

Special training programmes should be conducted to make the

employees more skilled.

Before setting up any new branch the bank should make efforts to
make it online because online banking will make supervision easy
and increase the banks performance.

102

The bank should make efforts to be at top at national level because

this bank has a great customer strength and people friendly
policies.

The bank should adopt reward system for employees so that the
confidence among them may be increased and they will put more
efforts.

One important suggestion is that the bank should not ignore

advertising at any point of time because present business is the
business of advertising and advertising has an important role in the
growth of business.

One more suggestion is that the bank should take initiatives to

increase the daily working hours time so that it can get maximum
amount of working days as Kashmir remains closed most of the
times due to strikes.

CONCLUSION

103

In this report the purpose was to study the management of NPAs in J&K
Bank. The overall analyses leads to the conclusion that J&K Banks
performance regarding the coverage of NPAs has been good but the
performance has not been consistent. Though the banks current
performance is better as compared to its past performance still there is a
need to improve asset quality and bring consistency in the performance
and eliminate NPAs totally because the performance of the Bank has been
affected by the NPAs in the past.
The performance of the bank in the last year has been one of the best in
its life and during this year it has also earned a record profit. The
organization is striving hard and has been able to minimize the NPA level
below 1% in the year 2010 which is unauditted till now. The bank has
taken strong initiatives to build up confidence among its customers. One
of these initiatives has been the Khidmat Centers which has been
appreciated throughout the country.
The people of the J&K state have a great faith on J&K Bank. Most of the
people of the state prefer J&K Bank over other banks because this bank
has served the Kashmiri Nation through decades. About 80% of the
population in the state says that J&K Bank is their banker. They feel that if
SARFAESI Act is applied in the state, then the time is not far when J&K
bank will be at the top of Indian private sector banks because it is due to
the non application of this Act that J&K Bank is having some percentage of
NPAs.

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BIBLIOGRAPHY

BOOKS

Research Methodology

Navdeep Aggarwal

Marketing Management

Philip kotler

Bank Watch

Sajad Bazaz

Marketing Management

T.N. Chabra

MAGAZINES AND NEWSPAPERS

Business world
India today

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Business today
Greater Kashmir
Times of India
Economic Times
Rising Kashmir

WEBSITES

www.rbi.com
www.cab.org.in
www.jkbank.net
www.scribd.com
www.livemint.com
www.ezinearticles.com
www.coolavenues.com
www.financialexpress.com
www.asiapacificforum.com
www.indiastudychannel.com

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