Final Semester Mba Banking-project

A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

CHAPTER SCHEME Chapter 1: INTRODUCTION

The project report of The Bangalore City Co-operative Bank Ltd. has been designed into five chapters. This chapter deals with an introduction to Banking, Reserve Bank of India, beginning of finance and introduction to NON-PERFORMING ASSETS (NPA). Chapter 2: RESEARCH DESIGN

This chapter deals with the methodology of research this includes: 1. Introduction 2. Title of study 3. Statement of the problem 4. Objectives 5. Scope of the Study 6. Benefits from the study 7. Source of Data Collection  Primary Data  Secondary Data 8. Methodology 9. Limitations of the Study 10. Chapter Scheme SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD" Chapter 3: BANK PROFILE

A Profile of "The Bangalore City Co-operative Bank Ltd".

This

Chapter

gives

an

insight

into the

background of the BCCB Ltd.

Chapter 4: DATA ANALYSIS & INTERPRETATION

This chapter is one of the Core Chapter of the report, where the primary data is analyzed. This chapter mainly deals with the analysis of data relating to (NPA) "NON-PERFORMING ASSET" of "The Bangalore City Cooperative Bank Ltd". Here the data is analyzed by using Statistical tools, techniques & inferences are drawn from the results obtained. This chapter also consists of charts in order to support the tables. Chapter 5:

SUMMARY OF FINDINGS

This Chapter concludes the study by summarizing the inferences drawn from the analysis & on the basis of inferences; final conclusion drawn in relation to the set

SESHADRIPURAM FIRST GRADE COLLEGE

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objective of research; further suggestions have been made as completion of the study.

Chapter 6: SUGGESTIONS

This Chapter concludes the study further suggestions that have been made as completion of the study. Chapter 7: CONCLUSION

This Chapter concludes the study by final conclusion drawn in relation to the set objective of research. Chapter 8: ANNEXURES

This Chapter includes the bank balance sheet to the current fiscal year. Chapter 9: BIBLIOGRAPHY

This Chapter includes the documentation reference links through the knowledge acquired during project implementation.

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

CHAPTER-1

INTRODUCTION

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INTRODUCTION INTRODUCTION ABOUT BANKING INDUSTRY: The word bank originated the French word ‘benque’ or Italian ‘banco’ which means an office for monitory transaction over the counter. In those days banks or desks were used as centers for monitory transactions. During the barter system also, there existed traces of banking, i.e. people used to deposit cattle and agricultural products in specified places get loans of some other form in exchange for these. There is solid evidence found in records excavated from Mesopotamia, showing some bank existed around 1700 B.C. During this time barley, silver, gold, copper, etc., were used as a standard for valuation.

ORIGIN OF BANKING INDUSTRY: Greece

was

the

first

country

to

introduce

a

satisfactory system of coinage. After the invention of coins started, a meaningful system of banking came into existence taking into account all the avenue of banking a credit system. Rome was the first country to start a bank at the department of state level in the 4th century B.C. with transactions such as depositing and investments in other forms. In India ancient records show that banking was popular and money lending was a common practice among the common people.

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In the olden days’ Goldsmith, merchants and money lenders conducted the business. They had transactions among themselves by which funds were transferred from one business firm to another. They had no general or uniform principles of banking, lending, rate of interest, etc.

INTRODUCTION TO BANKING IN INDIA The Indian Companies Act defines the term banking as “accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft or otherwise”. A Banker is a dealer in money and credit. The business of Banking consists of borrowing and lending banks acts as financial intermediaries between savers (lenders) and investors (borrowers) by accepting deposits of money from a large number of customers and lending a major position of a accumulated ‘pool’ of money to those who wish to borrower. In this process banks secure reasonable return for the savers, make funds available to the investors at a cost and earn a profit for themselves after covering the cost of funds and providing for corporate taxes to the government. Thus, the banking institutions in a country mobilizes savings by accepting monetary deposits from the people, participate in the mechanism for the exchange of goods and services and extend credit while lending money. SIKKIM MANIPAL UNIVERSITY

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HISTORY OF MODERN BANKING IN INDIA  Pre-nationalization period: The history of modern banking in India dates back to the last quarter of 18th century. During this period the English agency houses of Bombay and Calcutta started banking business to India. They setup the Bank of Hindustan around 1770 followed by setting up of quasi government banking institutions like presidency bank of Bombay in 1840 and presidency Bank of Madras in 1873. In 1921 all these banks were amalgamated and imperial bank was constituted. In the late 19th and early 20th centuries, the Swadeshi Movement inspired to start banks in India. The Indian Banks were established during this period. In 1935 the Reserve Bank of India was established

as

a

central

bank

for

regulating

and

controlling the Banking business in the country. Soon after independence, the Reserve Bank was nationalized in September 1948. The outlook of Reserve Bank further changed after the inception of planning in 1950-51 and the country adopting a socialistic pattern of society.  Post-nationalization period: On an account of the top-sided growth of the banking system and to bridge the gap between a few industrial houses and banks, the scheme of the social control was imposed on banks with effect from Feb 1, 1969. It resulted SIKKIM MANIPAL UNIVERSITY

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in setting up of National Credit Council for more equitable distribution of bank credit and legislative changes in the Banking Regulation Act for making the board of directors of the banks

more board

based.

As

a result

the

government resorted to a more radical measure by nationalizing 14 major banks on July 1969. Later on in April 1980, six more banks were nationalized to achieve the objective. The objective of nationalization was to control the commanding

heights

of

economy

and

to

meet

progressively and serve he needs of the developing economy

in conforming

objectives.

Another

to

the

welcome

national feature

policy of

and

post

–

nationalization period is setting up of regional rural banks setting up of regional rural banks as per the provisions of the Regional Rural Bank Act 1976. These banks confine in themselves the simplicity of operations as required by local conditions and the efficiency and businesslike approach of commercial banks. At the end of June 1986 there were 194 regional rural banks covering 342 districts. Thus,

the

banking

system,

during

the

post

–

nationalization period has undergone a major structural transformation. There has been a phenomenal expansion of branch network particularly the hitherto under banked areas.  Present scenario of banking industry: SIKKIM MANIPAL UNIVERSITY

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The Indian banking can be broadly categorized

into

nationalized

(government

oriented),

private banks and specialized banking institution. The RBI acts as a centralized body monitoring any discrepancies and shortcoming in the system. Since the nationalized banks have required a place of prominence and has then seen tremendous progress. The need to become highly customer focused has forced the slow of moving public sector banks to adapt a fast track approach. The Indian Banking has come a long way from a sleepy business institution to a highly proactive and dynamic activity. This transformation has been largely brought by the large close of liberalization and economic reform that allowed banks to explore new business opportunities

rather

than

generating

revenue

from

conventional stream i.e. borrowing and lending. The Cooperative banks too have invested heavily in information technology to after computerized banks services

its

clients.  New Generation Banking: The

liberalized

policy

of

government

of

India

permitted entry of private sector in banking; the industry has witnessed the entry of new generation private banks. The major parameter that distinguishes these banks from all the other banks in Indian Banking is the level of SIKKIM MANIPAL UNIVERSITY

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services that is offered to the customer. Verifying the focus

has

always

being

centered

on the customer

understanding his needs and delighting him with various configurations of benefits and a wide portfolio of product and services. The popularities of these banks can be gauged by the fact, that in as short span of time, these banks have gained considerable customer confidence and consequently have shown impressive growth sales.

CLASSIFICATION OF BANKS Banks are classified into several types based on the function they perform. Generally banks are classified into 1. Investment banks 2. Exchange banks 3. Commercial banks 4. Co-operative banks 5. Land development banks 6. Savings banks 7. Central banks

FUNCTIONS OF BANKING A. The main functions are as follows; 1.

Borrowing

of

money

in

the

form

of

deposits. 2.

Lending or advancing of money in the form

of different types of loan. 3.

The

drawing,

making,

accepting,

discounting, buying and selling, collecting and SIKKIM MANIPAL UNIVERSITY

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dealing in bills of exchange, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants,

debentures,

certificates,

securities

both negotiable and non-negotiable. 4.

The

granting

and

issuing

of

credit,

travelers cheques, etc. 5.

The

acquiring,

commission,

holding,

underwriting,

issuing

dealing

in

on

stock,

funds, shares, debentures, bonds, securities of all kinds. 6.

Providing safe deposits vaults.

7.

Collecting

transmitting

of

money

and

securities. 8.

Buying and selling of foreign notes.

9.

The purchasing and selling of bonds scripts

and other forms of securities on behalf of constituents or others. B.

The subsidiary functions of banks are: 1. Acting as agents for governments or local authorities or any other persons. 2. Carrying out agency business of any description. 3. Contracting for public and private loans and negotiation and issuing the same. 4. Carrying on guarantee and indemnity business. 5. Managing to sell and realize any property or any interest in any such property. 6. Undertaking and executing of trusts.

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7. Granting

of

pensions

and

allowances

and

making payments towards pensions.

RESERVE BANK OF INDIA The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a share capital

of

Rs.

5

crores

on

the

basis

of

the

recommendations of the Hilton Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the beginning. The Government held shares of nominal value of Rs. 2, 20,000. Reserve Bank of India was nationalized in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated

Directors

by

the

Government

to

give

representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government appointed for a term of four years to represent territorial and economic interests and the interests of co-operative and indigenous banks. SIKKIM MANIPAL UNIVERSITY

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The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank. The Bank was constituted for the need of following:

• To regulate the issue of banknotes • To maintain reserves with a view to securing

monetary stability • To operate the credit and currency system of the

country to its advantage.

Functions of Reserve Bank of India The Reserve Bank of India Act of 1934 entrust all the important functions of a Central bank the Reserve Bank of India.

a.

Bank of Issue. b. Bank to Government c. Bankers Bank d. Lender of the Last Resort e. Controller of Credit f. Custodian of Foreign Reserves g. Supervisory functions BANKS

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Public Sector Bank

Private Sector Bank

Co-Operative Bank

Regional Rural Bank

Foreign Bank

CO-OPERATIVE BANKS The Co operative banks in India started functioning almost 100 years ago. The Co-operative bank is an important constituent of the Indian Financial System, judging by the role assigned to co- operative, the expectations the co-operative is supposed to fulfill, their number, and the number of offices the co-operative bank operate. Though the co-operative movement originated in the West, but the importance of such banks have assumed in India is rarely paralleled anywhere else in the world. The cooperative banks in India play an important role even

today

in

rural

financing.

The

businesses

of

cooperative bank in the urban areas also have increased phenomenally in recent years due to the sharp increase in the number of primary co-operative banks. While the co-operative banks in rural areas mainly finance agricultural based activities including farming, cattle, milk, hatchery, personal finance etc. along with some small scale industries and self-employment driven activities, the co-operative banks in urban areas mainly finance various categories of people for self-employment, industries, small scale units, home finance, consumer finance, personal finance, etc.

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Co operative Banks in India are registered under the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965. Cooperative banks in India finance rural areas under: 1. Farming 2. Cattle 3. Milk 4. Hatchery 5. Personal finance Cooperative banks in India finance urban areas under: 1.

Self-employment

2.

Industries

3.

Small scale units

4.

Home finance

5.

Consumer finance

6.

Personal finance

According to NAFCUB the total deposits & lending of Cooperative Banks in India is much more than Old Private Sector Banks & also the New Private Sector Banks. This exponential growth of Co operative Banks in India is attributed mainly to their much better local reach, SIKKIM MANIPAL UNIVERSITY

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personal interaction with customers and their ability to catch the nerve of the local clientele. AIMS OF CO-OPERATIVE BANKS •

To promote savings among members and thereby

increase the supply of funds. • To tap outside sources for the supply of funds. •

To promote the effective use of credit and to reduce

the risk in the granting of credit. • To reduce the cost of management through the

honorary services. Recent Developments Over the years, primary (urban) cooperative banks have registered a significant growth in number, size and volume of business handled. As on 31st March, 2009 there were 2,104 UCBs of which 56 were scheduled banks. About 79 percent of these are located in five states, Andhra Pradesh, Gujarat, Karnataka, Maharashtra and Tamil Nadu. Recently the problems faced by a few large UCBs have highlighted some of the difficulties these banks face and policy endeavors are geared to consolidating and strengthening this sector and improving governance. The following are the steps taken by the Government of India to regulate Banking Institutions in the country: • 1949: Enactment of Banking Regulation Act. • 1955: Nationalization of State Bank of India. SIKKIM MANIPAL UNIVERSITY

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• 1960: 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 200crores. In third new phase of Indian banking with the advent of financial and banking sector reforms, introduced many more products and facilities in the banking sector. In 1991 under the chairmanship of M. Narashiman committee was set up by his name which worked for liberalization of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory to customers. FACTS

ABOUT

CO-OPERATIVE BANK

• Some cooperative banks in India are more forward than many of the state and private sector banks. • According to NAFCUB the total deposits & landings of Cooperative Banks in India is much more than Old Private Sector Banks & also the New Private Sector Banks. •

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growth of Co-operative Banks in India is attributed mainly to their much better local reach, personal interaction with customers, and their ability to catch the nerve of the local client.

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EVOLUTION OF CO-OPERATAIVE BANK IN INDIA The Cooperatives were first started in Europe to serve the credit-starved people in Europe as a self-reliant, self-managed people’s movement with no role for the Government. British India replicated the Raiffeisen-type cooperative movement in India to mitigate the miseries of the

poor

farmers,

particularly

harassment

by

moneylenders. The first credit cooperative society was formed in Banking in the year 1903 with the support of Government of Bengal. It was registered under the Friendly Societies Act

of

the

British

Government.

Cooperative

Credit

Societies Act of India was enacted on 25th March 1904. Cooperation became a State subject in 1919. In 1951, 501 Central Cooperative Unions were renamed as Central Cooperative Banks. Land Mortgage Cooperative Banks were established in 1938 to provide loans initially for debt relief and land improvement. Cooperatives have played an important role in the liberation and development of our country. The word Cooperative has become synonymous for dedicated and efficient management of rural credit system. Reserve Bank

of

India

started

refinancing

cooperatives

for

Seasonal Agricultural Operations from 1939. From 1948, Reserve Bank started refinancing State Cooperative Banks for meeting the credit needs of Central Cooperative Banks and through them the Primary Agricultural Cooperative SIKKIM MANIPAL UNIVERSITY

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Societies. Only 3% of rural families availed farm credit in 1951. In 1954, the All India Rural Credit Survey Committee recommended strengthening of DCC Banks and PACS with State partnership and patronage to solve the farmers’ woes. Registrar of Cooperative Societies became the custodian of Cooperatives from 1962 with the enactment of

respective

State

Acts.

Reserve

Bank

introduced

Seasonality and Scale of Finance for crop loans and provided

for

conversion,

replacement

and

re-

schedulement to tide over crop loss due to calamities. The

Primary

Agricultural

Cooperative

Societies

became multi-purpose. Reorganization of PACS into viable units, FSCS, LAMPS started under action programme of RBI in 1964. The finding of All India Rural Credit Review Committee that coverage of cooperatives is limited to hardly 30% of farmers led to nationalization of Banks. However, Cooperatives have played a key role in meeting the credit needs of weaker sections of farmers. The establishment of Regional Rural Banks from 1975 has not reduced the problems of rural credit as they reached only 6% of the farmers. Cooperatives have contributed their part in the implementation of 20-point programme Programme.

and Though

Integrated the

Rural

Cooperatives

Development were

lagging

behind in rural credit till 1991, they regained their prime SIKKIM MANIPAL UNIVERSITY

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place with 62% share in rural crop loans between 1991 and 2001.

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DEFINITION OF CO-OPERATIVE BANKS: In the words of Henry Wolff “Co-operative banking is an agency which is in a position to deal with the small means on his own terms”. Devine defines “a mutual society formed composed and

governed

by

working

people

themselves

for

encouraging regular saving and generating miniature loans on easy terms of interest and repayments”.

FEATURES OF CO-OPERATIVE BANKS: 1. They are organized and managed on the principles of co-operation self-help and mutual help. They function with the rule of “one member one vote”. 2. Co-operative banks perform all the main banking function of deposit mobilization, supply of credit and provision for remittance facilities. 3. Co-operative banks belong to the money market as well as the capital markets. 4. Co-operative

banks

are

perhaps

the

first

government supported agency in India. 5. Co-operative banks accept current, saving, fixed and other types of time deposits from individuals and institutions including banks. 6. Co-operative banks do banking business mainly in the agricultural and rural sector. SIKKIM MANIPAL UNIVERSITY

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7. Some

co-operative

banks

are

schedule

co-

operative banks while others are non-schedule cooperative banks. 8. Co-operative banks also required to comply with requirement of statutory liquidity ratio [SLR] and cash reserve ratio [CRR] liquidity requirements as other scheduled and non-scheduled banks.

STRUCTURE OF COOPERATIVE BANKS Co-operative Banks

STATE CO-OPERATIVE BANKS

STATE LAND DEVELOPMENT BANKS

CENTRAL CO-OPERATIVE BANKS

URBAN CO-OPERATIVE BANKS

CENTRAL LAND DEVELOPMENT BANKS

PRIMARY AGRICULTURAL CREDIT SOCIETIES

PRIMARY LAND DEVELOPMENT BANKS

BRANCHES OF STATE LAND DEVELOPMENT BANKS

Following are the features of cooperative banks, which make

them hold in integral

position in

banking sector: SIKKIM MANIPAL UNIVERSITY

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1. The nature of cooperative banks is service oriented. So, without intention of profit they provide quality service within reach of common people. 2. Co-operative

banks

account

for

42%

of

institutional lending in rural sector and its covers about 65% of rural population. 3. The deposits and credit of these banks are about 15% and 35% respectively of those of commercial banks. 4. The government and RBI have taken a number of steps to improve the health and strength of cooperative banking in India. In keeping with other financial

sector

reforms

certain

co-operative

banking sector reforms have also been carried out after 1991. 5. The main factor for their increasing role is their local operations. They mobilize deposits in a local area, which are used for lending in same locality. Hence with increase in its branches it contributes to balanced regional development. 6. Co-operative banks operations are of mixed type.

Urban

co-operative

banks,

primary

co-

operative banks and state co-operative banks.

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7. District cooperative banks have a number of branches subject to this it can be said that each cooperative institution in a separate entity with a definite jurisdiction and has an independent board. 8. Cooperative banks belong to money market as well capital market. Primary Agricultural credit societies provide short term and long term loans. Land development banks provide long-term loans. Urban co-operative banks meet working capital needs and fixed capital requirements. They also issue debentures.

REFORMS IN CO-OPERATIVE BANKS The field of rural credit is so vast in India the problems so diverse and complex and the field of experimentation so wise that only if the important issues and

challenges

before

the

rural

credit

are

taken

adequately cooperative banks as major purveyors of rural credit would be able to make the crucial difference in the lives of millions of our countrymen in the countryside. The

financial

sector

reforms

1991

aimed

at

promoting a diversified and efficient, competitive financial sector with the ultimate objective of improving the efficiency of available resources, increasing the return on investments and promoting an accelerated growth of the real sector of the economy. In conformity with this and SIKKIM MANIPAL UNIVERSITY

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banking

sector

reforms

gave

raise

to

reforms

in

cooperative sector, which is an integral part in delivery of rural credit and promote its growth. Reserve Bank of India has over the years put its faith in cooperative banks as they hold a major share in agricultural credit. With its number if branches it can percolate to all the corners of the country. The Indian financial system has undergone several changes and now comprises of widespread network of financial institutions. Accordingly the co-operative credit structure has also grown. Despite the progress reforms are required to bring out efficiently reduce non-performing assets and increase capital base. These reforms aim at improving the financial health and

capabilities

by

prescribing

prudential

norms.

Prudential norms are required for cooperative banks to reduce non-performing assets. Due to the non-performing assets co-operative credit system is affected as a whole.

INTRODUCTION TO FINANCE Finance is regarded as life blood of an enterprise. This is because in the modern money oriented economy finance is one of the basic foundations of all kinds of economic activities. It is master key, which provides access to all sources for being rightly said that business needs money begets more money only when it is properly managed therefore efficient management of its finance. SIKKIM MANIPAL UNIVERSITY

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At any movement a business firm can be viewed as a part of funds these funds come from a variety of sources like investors in the company stock creditors, who lend in money and past earnings retained in the business. Fund provided from these sources are committed to a number of uses like fixed assets used in production of product & services inventory used in the production facilitates sales, account,

receivable

owned

by

customer,

cash

and

marketable securities used for transaction and liquidity purpose by given movements the pool changes and these changes are known as fund flow. Meaning of finance Finance is defined as "the provision of money as the time when it is required every enterprise, whether big, medium or small needs finance to carry on its operations and to achieve its target. Finance is regarded as the life blood of the business enterprise without adequate finance no enterprise can possibly accomplish its objectives.

Definition of Finance According

to

HG. Doug all "Business finance can

broadly defined as the activity concerned with planning, controlling

and

administering

of funds

used in the

business" Function of Finance

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Financial Decisions or Finance Functions are closely inter-connected. All decisions mostly involve finance. When a decision involves finance, it is a financial decision in a business firm. In all the following financial areas of decision-making, the role of finance manager is vital. We can classify the finance functions or financial decisions into four major groups: 1. Investment Decision or Long-term Asset mix decision 2.

Finance Decision or Capital mix decision

3.

Liquidity Decision or Short-term asset mix

decision 4.

Dividend Decision or Profit allocation decision

Scope of finance The scope of finance function is as wide as the periphery of finance. It concentrates primarily on money management and the different auxiliaries which are incidental different

to for effective resources

of

money

business

management,

enterprise

must

the be

mobilized. Decision on purchase of fixed assets and the methods of utilization whether on working capital or investment and surplus funds all these fall within the purview of finance function.

INTRODUCTION TO NON-PERFORMING ASSETS

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Indian laws permitted banks to conceal much with the result that the Balance Sheet and Profit and Loss A/c rarely revealed the true state of their affairs. The

Narasimhan

Committee

therefore

strongly

emphasized the need for bringing transparency in the financial statements of the banks and recommended for a new set of formats for Balance Sheet and Profit and Loss statements which were made effective from 1991-1992. Banks

provide

loan

and

advances

subjects

to

borrowers promise for the payment of principal and interest in the future. In this process banks are exposed to various types of risks including credit risk arising from non-performing of loans and defaults of borrowers. Moreover

with

Globalization

and

diversified

ownership where credit rating agencies constantly review the strength of the banks managing the levels of NPAs assumes greater importance. The cost of financial intermediation by banks is high partly because of the cross subsidization of NPA. NPA is inevitable burden of the banking industry. NPAs badly affect the financial health of the banks. Hence control and management of NPAs have assumed serious importance. It is well known fact that NPAs are the threat on the profitability of the banks because the banks have not only to make provisions but they have to meet the cost of funding these unremunerative assets. SIKKIM MANIPAL UNIVERSITY

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DEFINITIONS OF NON-PERFORMING ASSETS An asset is classified as non-performing asset (NPA’s) if the borrower does not pay dues in the form of principal and interest for a period of 180 days. However with effect from March 2004, default status would be given to a borrower if dues are not paid for 90 days. If any advance or credit facilities granted by bank to a borrower become non-performing, then the bank will have to treat all the advances/credit facilities granted to that borrower as non-performing without having any regard to the fact that there may still exist certain advances/ credit facilities having performing status. In simple words, an asset which ceases to yield is a non-performing asset.

Norms for Identification of NPA 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 (0D/CC) The bill remains overdue for a period of more than 90 days in case of bill purchased or discounted. 

Interest and/or principal remains overdue for

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two harvest season but for a period not exceeding two half years in case of an advance granted for agricultural purpose ,and

The objectives of NPA Management 1. To make more assets performing. 2. To reduce quantum of NPA's and 3. To minimize the amount of provision requirements.

Effective

NPA

management

involves

the

following aspects. 1.

Understanding of NPA amount.

2. Identification of NPA' s; 3. Prevention of NPA's 4. Proper NPA accounting system 5. Up-gradation of fresh NPA's 6. Liquidation of chronic NPA's 7. Use of MIS and IT in NPA management. 8.

Formulation of comprehensive NPA management policy/strategies.

9.

Rating of NPA management.

CAUSES FOR NON-PERFROMING ASSETS EXTERNAL FACTORS : Natural calamities and climatic conditions  Recession, changes in Government policies changes 

in economic conditions. SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

 Industry related problems.  Impact of liberalization on industries.  Technical problems INTERNAL FACTORS : Defective Lending process 



Inappropriate technology



Improper SWOT analysis



Poor credit appraisal system

 Managerial deficiencies  

Internal defaulters Faculty projects.

Most of the project reports are ground realities,



proper linkages, product pricing etc. Some approach for the "heck - of starting a



venture, with poor knowledge of product risks, over depended

on

poorly

paid

killed

workers

and

technicians.  Building up pressure for sanctions. 

In depth handling by bankers lack of professionalism and appraisal standards.



Non-observance of system, procedures and noninsistence of collaterals etc.

 Lack of post sanction monitoring, unchecked diversions. INDIAN ECONOMY AND NPA

Gross NPAs (non-performing assets) in Indian banking sector have declined sharply to close to 3.0 per cent in SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

2006 (15.7 per cent at end-March 1997). Net NPAs of the banking sector are now at close to one per cent and the gap between the gross and net NPAs has narrowed over the years. Recovery of dues is also more than the fresh slippages. The decline in NPAs is particularly significant as income recognition, asset classification and provisioning norms were tightened over the years. For instance, banks now follow 90-day delinquency norm as against 180-day earlier.

Banks

are

also

required

to

make

general

provisioning (0.40 per cent) for standard advances. According profitability,

to

Reserve

underpinned

Bank by

of

robust

India,

improved

macroeconomic

environment and upturn in interest rate cycle, has enabled banks to reduce the backlog of NPAs. NARSIMHAN COMMITEE

FIRST COMMITEE

The committee on financial system, also known as Narsimhan Committee, under the chairmanship of Shri M. Narsimhan, appointed by the RBI recommended the introduction of these prudential accounting norms by Indian Banks in its report submitted in December 1991. The committee was of view of that... A. If banks want to know the true and fair financial health SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

of bank then they should observed the prudential accounting norms while making balance sheet and profit & loss account. B. Classification of assets has to be done on the basis of

objective criteria. C. Provisioning

should

be

made

on

the

basis

of

classification into four different categories. The income recognition, Assets Classification and provisioning norms also known as Prudential Accounting Norms, provided that a bank should not show profit which is merely a book profit by resorting to practice like debiting interest to a loan account irrespective of its chance of recovery and booking the same as income or by not making provisions towards loan losses. NARSIMHAN COMMITTEE'S RECOMMENATIONS

a. Committee has suggested that banks should operate

on the basis of financial autonomy and operational flexibility. b. It has recommended "Capital Adequacy Norm" of 8% c. These norms are applicable to all UCB's from 1st

April, 1992.

SECOND COMMITTEE SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

The first committee had made recommendations in 1991, which had resulted in basic changes in the matter of

treatment

of

income,

assets

classification

and

provisioning norms, etc.. .it was considered necessary for government to continue the improvement with striker rules in future also and for that second committee was made to continue changes with certain modifications. The second committee includes the following points:

1. If bank is working in foreign countries at presently then

for them the "Capital Adequacy Norm" is 9% which was 8% earlier. 2. Banks can't classify the account as NPA which are

guaranteed by the Central / State government, effective from the year 2000-2001. 3. As per the existing norms, no provisions for standard

assets but from March 31st 2000, there is a norm of 0.25 percent on standard assets. 4. Banks have to make a provision of 2.5% on their

investment in Government securities with effect from the year ending 31st March, 2000. In future, this provision is likely to be raised to 5%. 5. The present norm is of 180 days for the account to be

treated as NPA but after 31st March, 2000, this period is reduced to 90 days only. SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD" 6. Banks have

been asked to

reduce

the level of NPA to 5% of their total advances till 31st March, 2000.

The

percentage has

to

be

brought down to less than

3%

with

effect

from

31st

March, 2002.

STANDARD A S ASSETS S E T S

SIKKIM MANIPAL UNIVERSITY

r

... ... ... .

LESS THAN 1 Y E 1 TO 3 YEARS A R

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

RBI INTRODUCED PRUDENTIAL NORMS ON THE RECOMMENDATIONS OF THE NARASIMHAM COMMITTEE IN THE YEAR 92-93. The above norms have three main criteria: 1. Asset classification 2. Income Recognition 3. Provisioning 1. ASSET CLASSIFICATION:

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assets classification

NON PERFORMING ASSETS

PERFORMING ASSETS

STANDARD

SUBSTANDARD ASSETS

LESS THAN 1 YEAR

DOUBTFUL ASSETS

1 TO 3 YEARS

LOSS ASSET

ABOVE 3 YEARS

For the purpose of making provisions for bad and doubtful loans and advances, banks need to classify them into the following broad categories;

SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD" A. Performing assets: Also known as Standard Assets

are the assets which do not disclose any problem and which do not carry more than the normal risk attached to

the

business.

Performing

asset

is

one

which

generates income for the bank. It is an asset where the interest and or principal are not overdue beyond 180 days (modified to 90 days, w.e.f., Mar 2004) at the end of the financial year. B. Non-performing asset: An amount is to be treated as

non performing asset when it ceases to generate income for the Bank. An asset may be treated as Non Performing Asset (NPA), if interest and /or installment of Principal

remain

overdue

for

a

period

exceeding

180days (modified to 90 days w.e.f. Mar 04) and Banks and FIs should not take into their Income account, the interest accrued on such NPAs, unless it is actually received/recovered. NPAs are further classified into:  Substandard Assets:

Loans which are non-

performing for a period not exceeding two years, where the current net-worth of the borrower or the current market value of the security, against which the loan is taken, is not enough to ensure full recovery of the debt.  Doubtful Assets: Loans which have remained

non-performing for a period exceeding two years and which are not classified as loss assets by the SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

management

or

the

internal/external

auditor

appointed by RBI.  Loss

Assets:

Assets

where

loss

has

been

identified by the internal/external auditor of the bank or the RBI, but the amount has not been written-off wholly or partly. These assets are considered unrecoverable and are of little value to the lending institution. 2. INCOME RECOGNITION The income recognition is linked to the concept of performance of the assets. In other words the income from performing assets only is to be recognized. The income from non-performing assets is recognized only to the extent of actual recovery made during the accounting year.

3. PROVISIONING The amount of provision required to be created for each asset depends on the classification of the assets, availability/value of security, other guarantee available and the age of the NPA etc.

IMPACT OF NON-PERFORMING ASSSETS a) Non-Performing Assets are drag on profitability of banks because besides provisioning banks are also SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

required to meet the cost of funding these unproductive assets. b) Non-Performing Assets reduce earning capacity of assets. Return on assets also gets affected. c) As Non-Performing Assets not earn any income, they adversely affect capital adequacy ratio. d) No recycling of funds. e) Non-performing assets also attract cost of capital for maintaining capital adequacy ratio. f) Non-Performing assets demoralize the operating staff and stakeholders. g) It

will

badly

affect

the

image

of

the

bank

concerned. h) Affect the moral of the employees and decisions making for fresh loans suffer. i) Enhances administrative, legal and recovery costs.

GENRAL CAUSES OF NON-PERFORMING ASSETS ♣ Directed

and

pre-approved

natures

of

loans

sanctioned under sponsored programmes. ♣ Misutilisation of loans and subsidies. ♣ Diversion of funds. ♣ Absence of security. ♣ Lack

of

effective

follow-up

(post-sanction

supervision& control). SIKKIM MANIPAL UNIVERSITY

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♣ Absence of bankruptcy and foreclosure laws. ♣ Decrepit legal system. ♣ Cost in-effective legal recovery measures. ♣ Difficulty in execution of decrees obtained. ♣ Lack of marketing support. ♣ Improper and inadequate credit appraisal. ♣ Demand recession. ♣ Frequent changes in Government’s policies. ♣ Industrial sickness and labour problems. ♣ Technology obsolescence. ♣ Incompetence-Management failures.

MEASURES TO TACKLE THE NON PERFORMING ASSETS 1. LOK ADALATS: Lok Adalats have been set up for recovery of dues in accounts falling in the Doubtful and loss category with outstanding balance up to 5 lakhs, by way of compromise settlement. 2. CIVIL COURTS

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For claims below Rs.10 lakhs, the banks and FIs can initiate proceedings under the Code of Civil Procedure of 1908, as amended, in a civil court. The courts are empowered to pass injunction orders restraining

the debtor through

itself or through

its

directors, representatives, etc from disposing of, parting with or dealing in any manner with the subject property. Courts are also empowered to pass attachment and sales orders for subject property before judgment, in case necessary.

3.

DEBT RECOVERY TRIBUNAL (DRT)

CDR is an non-statutory mechanism institutionalized in the year 2001 to provide timely and transparent system for restructuring corporate debts of Rs.20 crores and above, of viable entities financed by Banks and FIs under consortium or multiple banking arrangements. It is a voluntary system based on Debtor - Creditor Agreement (DCA) and Inters Creditor Agreement (ICA). At present 10 FIs and 49 Public and Private sector Banks are the members of the CDR mechanism.

4.

REVENUE RECOVERY ACT:

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

In some states, revenue recovery act has been made applicable to banks. Since this is also expeditious process of adjudicating claims, banks may be notified to cover the Act by state.

5.

ONE TIME SETTLEMENT SCHEMES (OTSS)

One Time Settlement Schemes launched in May’99 & July’00 has enabled Banks to recover outstanding amount in default up to 10 crores has been introduced in the month of Feb’03 its results will be seen in due course.

RECOVERY OF NPA IMPORTANCE OF RECOVERY: • Increase in the income of bank. • Increase in the trust of share holder in bank. • Level of NPA reduces as the recovery done. • Decrease in provisioning requirements. STEPS TAKEN BY GOVERNMENT TO RECOVERING NPA: SECURITIZATION ACT

This act is also applicable to all Urban CoOperative Banks.  According to this act Bank can take direct 

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

possession of the movable and immovable property mortgages against loans and sell out the same for such recovery, without depending on legal process in the court. Difficulties with the Non Performing Assets

1.

Owners do not receive a market return on their

capital. In the worst case, if the bank 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. The economy performs below its production potential.

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

5.

Non Performing 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 shortages. This can jam payment across the country. b. Liquidity constraints bank in paying

depositors. c. Under capitalized banks exceeds the bank's

capital base. Legal methods available for recovery of loans in The Bangalore City Co Operative Bank Ltd. (BCCB) The various legal proceedings for recovery of debt are:1. Legal notice 2. Complaint 3. Suit 4. Summons to defendant 5. Written statements from the defendant. 6. Discovery and inspection 7. Notice to admit facts 8. Summon witness 9. Hearing and disposable of units. 10.

Judgment debtor

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

INTRODUCTION OF SECURITISATION ACT 2002 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESIA), 2002 extends to whole of India including the State of Jammu & Kashmir. The act is effective from 21.06.2002. It also covers the earlier loans which are outstanding. The need for the setting up an Asset Reconstruction Company for acquiring distressed assets from Banks and FIs with a view to develop market for such assets was being felt, since long. Narasimhan Committee 1 & 2 and the Verma Committee on restructuring of weak Banks has strongly

recommended

the

setting

up

of

Asset

Reconstruction Companies (ARCs). The business of Securitization and Reconstruction is primarily meant for more than one purpose:  To regulate the business of securitization and reconstruction of the financial interest.  To regulate enforcement of the security interest and for the matters connected therewith or the matters incidental thereto. The debt securitization is a new concept in the Indian financial markets and is primarily meant for enhancing the liquidity of the Banks and FIs which have extended financial assistance to the borrowers for various purposes. SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

The

debt

securitization

makes

available

with

these

institutions the security papers against the financial assets which have been created out of the financial assistance sanctioned and disbursed by these institutions and in the case of a default by the borrowers the secured creditors can have a recourse to either the securitization of the financial asset or the reconstruction of the same.

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

CHAPTER-2

RESEARCH DESIGN

SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

RESEARCH DESIGN Research Design of the study is a conceptual structure a sketch or plan laid out of conducting the study. It is considered as a blue print of the final copy of the project where it shows the activities undertaken while doing the study. It constitutes the steps taken beginning with collection, clarifying, and analyzing, interpreting, processing and final putting it in an actual form. According to Clair Sleets & other "A research design is arrangement for collection and analysis of data in manner that aims to combine relevance to the research purpose with economy in procedure". Research is defined as "a scientific & systematic search for pertinent information on a specific topic". Research is an art of scientific investigation. Research is a systemized effort to gain new knowledge. It is a careful inquiry especially through search for new facts in any branch of knowledge. The search for knowledge through objective and systematic method of finding solution to a problem is a research.

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DESIGN OF THE STUDY TITLE OF THE STUDY

“A STUDY ON NON PERFORMING ASSETS AT THE BANGALORE CITY CO-OPERATIVE BANK LTD, BANGALORE.” STATEMENT OF THE PROBLEM: Banking institutions by proving financial assistance to business units have contributed to economic growth of the country. In recent years Loans and advances given by them are not yielding expected returns giving rise to NPA's. The NPAs are growing in such a rate where banks profits are eaten away by NPAs. Hence there is need to study the causes of such NPAs and steps taken by banking institutions and government to downsize such NPAs.

NEED AND IMPORTANCE OF THE STUDY The

Banks

and

Financial

Institutions

have

been

burdened with ever increasing Non Performing Assets. •

It helps to know more about NPA and the situation of NPA in bank.

•

It helps to know the strategies adopted by banks to reduce the NPA level and to understand the NPA provisions SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

norms in bank.

OBJECTIVES OF THE STUDY The main objectives of the study are 1.

To identify the nature of the problem in NPA's.

2.

Reasons/causes for the NPA's in agriculture sector

the recovery of loans is very tricky. 3.

To assess the financial implications of NPA's at The

Bangalore city Cooperative Bank Ltd. 4.

To study relevant models and their application in

reducing NPA's at The Bangalore City Co-operative Bank Ltd. 5.

To analyze the recovery strategies for improving the

profitability of The Bangalore City Co-operative Bank Ltd. 6.

To identify appropriate measures to control of NPA's

in The Bangalore City Co-operative Bank Ltd.

SCOPE OF THE STUDY Scope of study is general term means the extent to which it is possible to cover the subject. The area of operation is confined to the NPA in "The Bangalore City Co-operative Bank Ltd", Bangalore.

 This study attempt to find out NPA in The Bangalore city Co-operative Bank. SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

 In this study financial report of 2006-07, 2007-08, 2008-09, 2009-10 and 2010-11 are used.

METHODOLOGY OF THE STUDY 1. Collection of data from The Bangalore City Co-

operative Bank Ltd. 2. Discussion with the executives on The Bangalore City

Co-operative Bank Ltd, through an interview schedule.

TOOLS FOR THE COLLECTION OF DATA Sources of data: The

data

consisted

of

both

primary

data

and

secondary data 1. Primary

data: “Primary data is first hand

information which is collected a fresh and thus happens to be original in character”. This

data

is

collected

through

Personal

discussions with the General Manager, Deputy General Manager, Assistant General Manager and other officers in charge of recovery department through structured questionnaire were held.

SIKKIM MANIPAL UNIVERSITY

Page 55

A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD" 2. Secondary data: “Secondary data are those

which have already been passed through the statistical process”. These data is collected from RBI/IBA bulletins and

journals,

financial

magazines,

financial

statements/Annual reports and Audited Reports of the Banks, Text books and Websites.

SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

Data analysis: The data collected from the primary and secondary sources relating to NPAs has been analyzed and tabulated and draw the appropriate tables. Interpretations were made based on tables.

LIMITATIONS OF THE STUDY: 1. The study is confined to only one Bank i.e. The Bangalore City Co-operative Bank Ltd. 2. Due to time constraint depth analysis could not be made. 3. The

actual

identity

of

the

Banks

is

kept

confidential due to the sensitive nature of the topic 4. Some of the information is of confidential in nature that could not be divulged for the study. 5. The study is limited only for NPAs mechanism as time is the main constraint.

REFERENCE PERIOD Five years annual reports & audited data are considered which includes 2008-09, 2009-10 and 2010-11.

SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

CHAPTER-3

BANK PROFILE

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

BANK PROFILE History of the Bangalore City Co-Operative Bank Limited “THE BANGALORE CITY CO-OPERATIVE BANK LIMITED” was the first urban co-operative bank in the country

started

in

April

06,

1907

by

Sri.K.Ramaswamy and others.

[Administrative Office: No.3, Pampamahakavi Road, Chamarajpet, Bangalore – 560018.]

The Bangalore City Co-operative Bank Limited was established under the Co-operative society act bearing

registration

08.04.1907

from

the

number

314/CS,

Registrar

of

dated

Co-operative

Societies in Karnataka and the License was granted by

RBI

No.UBD/KA/642,

SIKKIM MANIPAL UNIVERSITY

dated

11.11.1986

for

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

conducting the “Banking Business”. The bank has 12 branches along with one administration office and all branches

have

jurisdiction

been

of

computerized

Bangalore

City

under

the

Co-operative

Corporation, Bangalore Development Authority and Bangalore urban &peripheral areas. The operation of the

bank

is

throughout

Bangalore

Co-operative

Limited.

Trademark

of

“The

Bangalore

City Co-operative Bank Ltd”.: In consideration of the application submitted to the Govt. of India, to get registered the above image of godess Lakshmi as Trademark, as per the Trademark Act of 1959, sec 23(2), rule 62(1) Trademark No.943843 dated 31-7-2000 the Govt. approved and registered the above image as a trademark and has been given letter of approval on 15-03-2008.

GOALS AND OBJECTIVES OF THE BANK: The Bangalore City Co-operative Bank Ltd., believes that every individual from each status of society needs

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affordable, relevant and quality services. The goals and objectives of bank are as follows; 1.

To take measures / steps to increase the

deposits to Rs.500 crores and loans and advances to Rs.370 crores. 2.

To earn more than Rs.9 crores of net profit.

3.

To reduce the net non-performing assets to 0%.

4.

To give more advantages to customers by

converting all the branches into core- banking system. 5.

To take steps to have own building for all the

branches. 6.

To

provide

more

and

more

training

and

development programmes to increase efficiency of employees. 7.

To

encourage

operative

savings,

self

help

among

the

members

principles

and

coand

depositors of the bank. 8.

To

undertake

banking

transaction

and

co-

operative system as per direction of RBI, Central Government and State Government.

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9.

To reduce the cost of the management through

the honorary services of members and thereby keep the cost of credit as low as possible. 10. To promote the effectiveness of credit and to reduce the risk in granting a credit through careful and continuous supervision of the operations of the borrowing members.

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VISION STATEMENT OUR VISION IS OUR MISSION Founded in 1907, this unique financial institution rests

on

the

pillars

of

thrift,

fellowship,

character,

accommodation and the selfless service of all individuals and organizations who wish to help themselves progress. We see ourselves as a family of honest, loyal and committed

professionals,

harmoniously

employing

technology, innovation and the human touch to achieve customer satisfaction and goodwill are the cornerstones of our success and the focus of all our efforts. The prosperity of our customer is the engine of our success and they will find in us a fast, timely, flexible, cooperative and competitive partner in their progress. We are

committed

to

approachability,

simplicity

and

transparency in our dealings with all our stakeholders and shall be a temple of their trust. `We shall use our employee involvement and sense of togetherness to generate high levels of teamwork, efficiency, excellence and profits. We shall mobilize aggressively, invest wisely, disburse prudently, recover assiduously,

reduce

costs

and

create

a

learning

organization that offers products and services in tune with and ahead of the time. SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

ORGANIZATION CHART OF THE BANGALORE CITY CO-OPERATIVE BANK LTD.

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

BRANCHES: At the end of the financial year 2008-09, including administrative office “The Bangalore City Co-operative Bank Ltd” is having 13 branches throughout the Bangalore City. Its branch wise deposit, loans & advances and net profit are as follows. Rs. 000’s

SL . N O.

BRANCHES

1.

Main Branch, Chamarajpet.

2.

Vijaynagar

3.

Vijayanagar 9th Block

4.

Indiranagar

5.

Chamarajpet West

6.

Shanthinagar

7.

Mahalakshmip uram

8.

Sanjaynagar

9.

Padmanabhana gar

10 . 11 . 12 . 13 .

Koramangala Avalahalli R.T.Nagar Jnana Jyothi Nagar

DATE OF STARTE D 06-042007 24-021980 25.01.19 81 19-121983 07-021988 0309.1992 07-071994 11-081994 04-091995 30-101996 16-012002 15-022002 22-032009

SIKKIM MANIPAL UNIVERSITY

TOTAL DEPOS ITS

TOTAL LOANS & ADVAN CES

NET PRO FIT

906580

819506

3320 2

642129

419626

8777

396813

173112

302

571798

182287

1535

163382

248523

1461 7

94564

143545

6492

264201

160861

1204

220257

95412

1045

144098

113703

2157

165431

181855

154604

210876

57433

159250

9038

3019

838

3

1084 9 1002 1

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

AWARDS: Since

from

the

opening,

the

bank

has

been

functioning effectively. The Bangalore City Co-operative Bank

Ltd.,

was

awarded

by

“Shri.

Kanteerava

Narasimha Raja Odeyar Bahadur” Ex. King of Mysore in 1926, 1927 and 1928 as

the

“Best Urban Co-

operative Bank”. In 2001-2002 and 2003-2004 the State Government of Karnataka awarded as the “Best Urban Co-Operative Bank”.

COMPETITORS INFORMATION: As The Bangalore City Co-operative Bank Ltd., is the urban Co-operative Bank, it is facing competition from the commercial

banks.

Commercial

banks

undertake

a

number of banking services. Since the urban co-operative banks are localized and do not have network of bankers they are not in a position to meet all the banking services. Therefore the institution like Government, public sector undertakings and the urban co-operative banks are facing competition from the commercial banks.

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

BANK ADMINISTRATIVE COMMITTEE  President - Avalahalli Chandrappa. R.  Vice president - Bhagyalakshmamma. L.

BOARD OF DIRECTORS · Dr. Devraj.T.M · Anjanappa · C.M. Bhagyalakshmamma · K. Krishnappa. · C. Govindraj · Basavaraju · C.K. Chikkanaiya · T.P.Yoga · K.P. Suresh · C. Raghunath · G.S. Vijay · U.P. Puranik. · K. Krishnamurthy. · P. Doddaiya · N. Manjunath

Resource mobilization SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

1. Customer profile The

bank

has

maintained

a

profile

important

customer and the branch as achieved to a greater extend by getting new connections from other Institution and individuals. 2. Popularity of deposit scheme The different deposit schemes like fixed deposits, Rajatha cash Certificates; Arunodaya cash certificate and Nirantara

Yogakshema

deposits

are

becoming

very

popular. The bank is staving popularized these schemes. 3. Customer services By and loge tile services provided by the bank is good and these are No complaints from the curt service in Bangalore city co-operative Bank is the one of the reasons for

attracting

more

customers

meeting

over

the

Recommendation by the sub committees and Board meeting. 4. Deployment of fund As the bank is situated in residential area the lending rate has been less but by introducing new and attractive schemes like Rajatha cash certificates etc, the lending has been increasing. The bank is also making sin cue efforts to bring a significant change in the deployment of funds. 5. Recovery The branch is giving it most importance for the recovery of the overdue loans. This is implemented with the help of the sale officer. Tile bank has obtained the SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

services of sale officer with the co-operation of the other three co-operative Banks under the law. 6. Human Resource Staff relationship in the bank is excellent. A subcommittee monitors the day-to-day affairs in the head office. This sub-committee corrects the mistakes and gives its previous suggestions to the staff member to provide excellent service. 7. Profitability Sincere effects are made to recover non-performing assets so as to realize unchanged interest cash remittance is also affected by monitoring the cash holding of the branch with the given prescribed limits. Main operations of Bank • Cash Receipts/Deposits. • Cash Withdrawals. • Sanctions and disbursement. • Locker facilities, • Updating and disbursement of loan. •

Issuing demand drafts.

Product Profile:The different types of loans and advances are as follows: SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

1. House construction loan. 2. Loan on immovable property. 3. Vehicle loan. 4. Site purchasing loan. 5. Loan for business on site. 6. Industrial loan. 7. Security loan. 8. Business loan. 9. Business improvement loan. 10. Gold loan. 11. Two wheeler loan. 12. IVP/VSC/LIC bond loan. 13. Overdraft on current account. 14. Overdraft on deposits. 15. Loans on deposits. 16. Festival advance. 17. Staff vehicle loan. 18. Special salary advance. 19. Staff houses building loan.

SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

CHAPTER-4

DATA ANALYSIS AND INTERPRETATION

SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

ANALYSIS AND INTERPRETATION OF DATA Banking system which constitutes the core of the financial sector plays a vital role in transmitting monetary policy impulses to the economic system. Therefore its efficiency and development are vital for enhancing growth and improving the changes for stability. During the recent past, profits of the Bank came under pressure due to rise in interest rates, decrease in non-interest income and increase in provisions and contingencies. The Banks and Financial Institutions have also been burdened with ever increasing Non Performing Assets The mounting menace of NPAs has raised the cost of credit,

made

Indian

businessmen

uncompetitive

as

compared to their counterparts in other countries. It has made Banks more averse to risks and squeezed genuine Small and Medium enterprises from accessing competitive credit and has throttled their enterprising spirits as well to a great extent. Till 2002 neither there were any legal provisions for facilitating Securitization of financial assets of Banks nor was there any legal framework to take possession of securities and sell them without the intervention of the court. The Securitization and Reconstruction of Financial SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

Assets Act, 2002 was a step in this direction. The Act has provided an enabling legal framework for setting up of Securitization or Reconstruction Company and the manner of acquisition of financial Assets by such companies. This Act has been enacted to help Banks and FIs to tackle the NPAs problem. The Securitization Act enables the Banks and FIs to sell off/transfer the NPAs without the intervention of court and the sale proceeds of the assets are to be used for payment to the secured creditors for the assets taken over from them. The Act was bound to create ripples in the corporate sector and at the same time provide a much needed balm to the banks and financial institutions.

REASONS FOR NPAs IN THE BANK: The main reasons for NPAs in The Bangalore City Cooperative Bank Ltd. are as follows; 1. Improper credit appraisal 2. Willful default 3. Diversion of funds 4. Lack of effective follow up 5. Cost ineffective legal measures 6. Difficulty in execution of decrees

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

MEASURES

FOR

THE

RECOVERY

OF

NPAs

Bank

follows

ADOPTED BY THE BANK The

Bangalore

City

Co-operative

following measures to recover those NPAs; 1. Legal Measures 2. Persuasion method 3. Coercion method

LEGAL RECOVERY MEASURES TAKEN BY THE BANK 1.

If the branch people are not able to recover the loan amount, the file is referred to Legal Department for arbitration.

2.

The legal department will initiate all the steps to recover

the

amount,

finally

E.P

(Execution

Petition) will be filled. 3.

The E.P files are handed by Sale Officer / ARCs who is appointed from co-operative department. As soon as the file is received, the sale officer will send the recovery force to identify the defaulter and his property. After identification, form no.6 will be issued attaching the property for sale and to pay the amount within 10days.

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

4.

If the party does not settle the amount with in 10days, then Form no.8 & 9 (sale date of the mortgaged property) will be fixed gig one month time.

5.

Even though after issuing of Form No.8 & 9, if the party does not give fruitful than a paper publication “fixing the sale of property” will be advertised.

6.

Before three days of option, the locality people where the mortgage property exists and the others are invited to participate.

7.

Then auction of that property will be conducted among the bidders and the auctions will be confirmed to the highest bidder.

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

TABLE: 4.1 Table showing Classification of NPA at BCCB Ltd. [Rs. In lakhs]

Particulars

2006-07

2007-08

2008-09

2009-10

2010-11

Total

%

Total

%

Total

%

Total

%

Total

%

Standard Assets

12677.64

84.42

21099.63

90.29

25985.14

88.13

32236.78

91.33

41235.43

92.85

Sub Standard Assets

1721.44

11.46

1807.89

7.47

2968.32

10.07

2384.37

6.75

2608.21

5.87

Doubtful Assets

618.40

4.12

460.92

1.97

530.98

1.80

677.04

1.92

568.48

1.28

Analysis: The above table shows the Classification of NPA of BCCB Ltd for the last 5 years. The Standard Assets are showing an increasing tendency during 2007 to 2011 from 87.42% to 92.85% which is favorable for bank. The Sub-standard Assets are continuously decreasing during 2007 to 2011 from 11.46 to 5.87. This is not favorable for bank it should try to increase it further. The doubtful assets are gradually decreasing from 4.12% to 1.28% during 2007- 2011 and bank should try to SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

reduce it further. GRAPH: 4.1 "-;

The Graph showing Classification of NPA at BCCB Ltd 100

84.42

90.29

88.13

91.33

92.85

80 60 40 20 0

11.46 4.12 2006-07

7.74 1.97 2007-08

Standard Assets

10.07 1.8 2008-09

6.75 1.92 2009-10

Sub-Standard Assets

5.87 1.28 2010-11

Doubtful Assets

Interpretation: The standard Assets are showing an increasing trend during the last 5 years and it is favorable for bank. The sub-standard assets are showing an overall decreasing trend which is not favorable for bank and it should try to increase by adopting effective measures. The Doubtful Assets are showing a gradual decrease during previous years which is good for bank and should try to decrease it further.

SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD" RATIO ANALYSIS

The relationship between two related items of financial statements is known as ratio. A ratio is just one number expressed in terms of another. The Ratio is customarily expressed in three different ways. It may be expressed as a proportion between the two figures. Second it may be expressed in terms of percentage. Third, it may be expressed in terms of rates. To analyzed the NPA situation in bank and from that to know about the banks credit appraisal system and level of risk in bank. Ratios are as follows: 1. GROSS NPA RATIO. 2. NET NPA RATIO. 3. PROBLEM ASSETS RATIO. 4. PROVISION RATIO. 5. SUB-STANDARD ASSETS RATIO. 6.

DOUBTFUL ASSETS RATIO.

SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

TABLE : 4.2 Gross NPA Ratio: Gross NPA Ratio is the ratio of gross NPA to gross advances of the Bank. Gross NPA is the sum of all loan assets that are classified as NPA as per the RBI guidelines. The ratio is to be counted in tens of percentage and the formula for GNPA is as follows: Gross NPA Gross NPA Ratio = Gross Advances

* 100

The table showing Gross NPA Ratio in the BCCB Ltd. [Rs. in iakhs] Years 2006-07 2007-08 2008-09 2009-10 2010-11

Gross NPA 2339.84 2268.83 3499.30 3061.41 3176.07

Gross Advances 15017.48 23368.44 29484.58 35298.19 44412.12

Gross NPA Ratio 15.58% 9.70% 11.86% 8.67% 7.15%

Analysis: Gross NPA ratio shows the bank's credit appraisal policy. High Gross NPA ratio means bank have liberal appraisal policy and vice-versa. In BCCB Ltd. Gross NPA ratio was 15.58% in March-2007 and it has been decreased in the year 2008 to 9.70%. However in the year 2009 it increased to 11.86% and then onward ratio is continuously decreasing from 8.67% to 7.15%. Gross NPA ratio is lower hence bank has taken effective measures to reduce the ratio. SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

GRAPH: 4.2 The graph showing Gross NPA Ratio in the BCCB Ltd.

16 14 12 10 8 6 4 2 0

15.58 11.86 9.71

8.67 7.15

2006-07 2007-08 2008-09 2009-10 2010-11 GrossNPA ratio

Interpretation: The Gross NPA Ratio shows overall decrease for the last 5 years except for year 2008-09. Hence the bank has taken measure to recover its NPA and is trying to decrease it further.

TABLE: 4.3 SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

Net NPA Ratio: The Net NPA percentage is the ratio of net NPA to net advances, in which the provision is to be deducted from the gross advance. The provision is to be made for NPA account. The formula for that is: Net NPA

*100

Net NPA Ratio =

Net Advances

The table showing Net NPA Ratio in the BCCB Ltd. [Rs. In lakhs] Years

Net NPA

2006-07 2007-08 2008-09 2009-10 2010-11

359.23 203.71 1332.04 821.69 794.16

Net Advances 13036.87 21303.32 27317.32 33058.47 42029.58

Net NPA Ratio 2.75% 0.95% 4.87% 2.48% 1.88%

Net NPA = Gross NPA — Provision for NPA Net Advances = Gross NPA — Provision for NPA

Analysis: Net NPA ratio shows the degree of risk in portfolio of bank. High net NPA ratio means banks don't have enough fund to do provision against the Gross NPA. In BCCB Ltd Net NPA ratio was 2.75% in March2007 and it has been decreased in year 2007 to 2011 from 2.75% to 1.88% except in the year 2009 it has reached to 4.87% due to Global Recession. Net NPA ratios are lower Hence; measures have been taken to reduce Net NPA. SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD" GRAPH 4.3

The graph showing Net NPA Ratio in the BCCB Ltd.

4.87

5 4 3

2.75

2.48 1.88

2

0.95

1 0

2006-07 2007-082008-09 2009-102010-11 Net NPA Ratio Interpretation:

The Net NPA Ratio has been gradually decreasing from the year 2007 to 2011, but in the year 200809 it has gone up more than 50% compared to previous years. This shows that bank has done enough provisions compared to previous years.

SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

TABLE: 4.4 PROBLEM ASSETS RATIO

This ratio is also known as the Gross NPA to Total Assets ratio. This ratio shows the percentage of risk on the total assets of the bank. High ratio means high risk for bank. Gross NPA * 100 Problem Assets Ratio = Total Asset The table showing Problem Asset Ratio in the BCCB Ltd. [Rs. in lakhsl

Years

Gross NPA

2006-07 2007-08 2008-09 2009-10 2010-11

2339.84 2268.83 3499.30 3061.41 3176.7

Total Assets 15017.48 23368.44 29484.44 35298.19 44412.12

Problem Asset Ratio CVO 15.58% 9.70% 11.56% 8.67% 7.15%

Analysis: This ratio shows the percentage of risk on the assets of bank. It shows the level of risk on bank's assets. In BCCB Ltd Problem Asset ratio was 15.58% in March2007 and after that it has been decreased from 15.58% to 9.70% in March-2008. But again it had been increased

to

11.56%

SIKKIM MANIPAL UNIVERSITY

in

March-2009.This

ratio

is

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

continuously decreasing in bank except in March-2009.

SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

GRAPH: 4.4

The graph showing Problem Asset Ratio in the BCCB Ltd.

16

15.58

14

11.56

12

9.7

10

8.67

8

7.15

6 4 2 0

2006-07

2007-08 2008-09 2009-10 2010-11 ProblemAsset Ratio

Interpretation:

The problem Asset Ratio is continuously decreasing tendency in 2006-07, but in the year 2008-09 there is an increasing tendency. From 2008-09 there is a gradual decrease in the ratio. This is appreciable to the growth of the bank. This is achieved by adopting the various recovery measures by the bank.

SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

TABLE: 4.5

PROVISION RATIO

Provisions are to be made for to keep safety against the NPA, & it directly affect on the gross profit of the Banks. The provision Ratio is nothing but total provision held for NPA to gross NPA of the Banks. Total Provision Provision Ratio =

*100 Gross NPA

The table showing provision at Ratio in the BCCB Ltd. [Rs. in Lakhs] Years Total Gross NPA Provision Provision Ratio (%) 2006-07 1980.61 2339.84 84.64% 2007-08 2065.12 2268.83 91.02% 2008-09 2167.26 3499.30 61.93% 2009-10 2239.72 3061.41 73.15% 2010-11 2382.54 3176.7 75.00% Analysis: Provision ratio shows the degree of provision that is made against the Gross NPA of bank. As bank made the provision it directly affect the profit of bank and also the dividend payout ratio of bank too. In BCCB Ltd they have made 84.64% and 91.02% provision in March-2007 and 2008 which shows that it was over provision but after that in March-2009, 2010 and 2011 it is 61.93%, 73.15% and

75%

respectively

SIKKIM MANIPAL UNIVERSITY

which

indicate

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

provision are fair. So, the bank is trying to balance between Over Provision and Under Provision.

GRAPH: 4.5

The graph showing Provision Ratio in the BCCB Ltd.

100

91.02

84.64

73.15

80

75

61.93

60 40 20 0

2006-07

2007-08 2008-09 2009-10

2010-11

Provision Ratio

Interpretation: The Provision ratio during 2007and 2008 are in increasing tendency and there is a sudden decrease during 2008 from then onwards gradual increase can be seen in the graph. The bank is making efforts to overcome the over and under provision situation.

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

TABLE: 4.6

SUB-STANDARD ASSETS RATIO.

It is the ratio of Total Substandard Assets to Gross NPA of the bank. Total Sub-Standard Assets Sub-standard Assets Ratio =

*100

Gross NPA

The table showing Sub-Standard Assets Ratio in the BCCB Ltd. [Rs. in Lakhs]

Years

Total subStandard

Gross NPA

Substandard

2006-07 2007-08

1721.44 1807.89

2339.84 2268.83

Assets 73.57% 79.68%

2008-09 2009-10

2968.32 2384.37

3499.30 3061.41

84.82% 77.88%

2010-11

2608.21

3176.7

82.10%

Analysis: This ratio shows the percentage of Sub-Standard assets in the Gross NPA of bank. High Sub-Standard ratio means more proportion of Sub-Standard asset in the Gross NPA. High ratio shows that there is a chance of recovery of assets is high. SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

In BCCB Ltd this ratio was 73.57% in March-2007, it is continuously increasing during 5 fiscal years which is good for bank and it is 82.10% in year March-2011 this is Favorable for bank. As the level of Sub-Standard assets are more the chances of recovery of NPA are high. GRAPH 4.6

The graph showing Sub-Standard Assets Ratio in the BCCB Ltd.

86 84 82 80 78 76 74 72 70 68 66

84.82 82.1 79.68 77.88 73.57

2006-07

2007-08

2008-09

2009-10

2010-11

Sub-Standard AssetsRatio

Interpretation:

The

Sub-standard

increasing

during

Assets 2007

SIKKIM MANIPAL UNIVERSITY

Ratio and

is

2009,

continuously but

sudden Page 90

A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

decrease can be seen during 2010 the bank has taken effective measure to increase the substandard assets during 2011. Higher the sub-standard asset ratio the chance of assets recovery will be high.

TABLE: 4.7 DOUBTFUL ASSETS RATIO.

It is the ratio of total doubtful assets to Gross NPA of the bank. Total Doubtful Assets * 100

Doubtful Asset Ratio = Gross NPA

The table showing Doubtful Assets Ratio in the BCCB Ltd. [Rs. in Lakhs]

Years

Total Doubtful

Gross NPA

Doubtful Assets

2006-07

618.40

2339.84

26.42%

2007-08

460.92

2268.83

20.31%

2008-09

530.98

3499.30

15.17%

2009-10

677.04

3061.41

22.11%

2010-11

568.48

3176.07

17.89%

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

Analysis: This ratio shows the percentage of Doubtful assets in the Gross NPA of bank. More Doubtful assets means Bank should take action through recovery policy to reduce the level of Doubtful assets. In BCCB Ltd Doubtful Assets Ratio was 26.42% in March2007 and it has been decreased from year 2007 to 2009 from 26.42% to 15.17%. But again in March- 2010 this ratio reach at 22.11% and again in March 2011 this ratio decrease to 17.89% which is good for bank.

GRAPH: 4.7

The graph showing Doubtful Assets Ratio in The BCCB Ltd.

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30

26.42

25

22.11

20.31

20

17.89 15.17

15 10 5 0

2006-07

2007-08

2008-09

2009-10

2010-11

Doubtful Asset Ratio

Interpretation: The Doubtful asset ratio is decreasing continuously from 2007 to 2009, but increases abruptly in 2010. Hence bank has taking various effective measures to decrease the Doubtful assets during 2011 and is trying to decrease it further.

SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD" CONSOLIDATED NPA STATEMENT AS ON 2008-09 TO 2010-11

2008-09

Types of loan

2009-10

AMOUNT

2010-11

AMOUNT

TOTAL

AMOUNT

TOTAL

TOTAL

ADVANCES

NPA

ADVANCES

N PA

ADVANCES

NP A

BUSINESS LOAN

8992908

2370103

15723904

2988420

21471627

5524607

JEWELRY LOAN

141261957

18941736

189930579

14578637

294755902

16496598

SPECIAL JEWELRY LOAN

15790140

Nil

35916758

1768803

45657811

1239426

LONG TERM CONSTRUCTION LOAN

137777550

10277327

144413030

4636714

148180211

2726711

LONG TERM LOAN

2459245780

303692503

2944806172 203479088 3722783633

SHORT TERM LOAN

27362920

9057922

21266583

8257205

16797765

8556293

16308904

4684540

16803190

4072700

24272514

4049920

LOAN VEHICLE LOAN

1294853

104679

3023591

120542

4057196

159127

DEPOSIT LOAN

75557484

Nil

95921492

Nil

84581843

Nil

STAFF LOANS

39048067

Nil

41834744

Nil

41635798

Nil

OTHER PRIORITY SECTORS

25803304

801299

20179326

476267

35017911

247268

TOTAL

2948443867

TRANSPORT OPERATIONAL

SIKKIM MANIPAL UNIVERSITY

349930109 3529819369 240378376 4441212211

167314865

206314815

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

TABLE: 4.8 The table showing percentage of total NPA to total Advances in the BCCB Ltd. for 5 fiscal years. Years 2006-07

Total NPA Total Advances (Rs, in (Rs. in lakhs) 2339.84 15017.48

NPA in Percenta ge 15.58

2007-08

2268.83

23368.44

9.71

2008-09

3499.30

29484.58

11.87

2009-10

3061.41

35298.19

8.67

2010-11

3176.07

44412.12

7.15

Analysis:

From the above table shows the percentage of t o t a l N P A t o t o t a l Advances/Credit in the BCCB Ltd. It is showing continuously decreasing trend from the financial year 2006-07 to 2010-11, i.e. it is 15.58 per cent in 2006-07 and reduced to 7.15 percent in 2010-11.Except

in

the

year

2008-09

due

to

Recession. It shows that an effort has been taken to control the NPA.

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

GRAPH: 4.8 The graph showing percentage of total NPA in total Advances in the BCCB Ltd.

16 14 12 10 8 6 4 2 0

15.58 11.87 9.71

8.67

7.15

2006-07 2007-08 2008-09 2009-10 2010-11 NPA inpercentage

Interpretation The decrease in the total NPA to total credit in the past five years shows the development

in

the

bank's

performance. The bank is taking action in large number of cases for recovery of its NPAs. This has helped the bank to recover its NPAs and lower the level of NPAs and it is striving hard to decrease it to full extent.

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

TABLE: 4.9

The table showing the percentage of total NPA in Long term loans to total advances given Long Term Loan at the BCCB Ltd. years

NPA

Total Advances

NPA in

2006-07

147564584

Percentag 1283527973 11.49 e

2007-08

160226191

2034963787

7.87

2008-09

314770657

2599996638

12.10

2009-10

208591669

3091189709

6.74

2010-11

170288444

3872049769

4.39

Analysis: The percentage of total NPA in long term loans to total credit given in agriculture sector is showing decreasing trend from the financial year 2006-07 to 2010-11. It shows that effective steps have been taken by bank to control the NPA.

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

GRAPH: 4.9

The graph showing the percentage of total NPA in Long term loans to total advances given Long Term Loans in at the BCCB Ltd.

14 12

12.1

11.49

10

7.87

8

6.74

6

4.39

4 2 0

2006-07 2007-08 2008-09 2009-10 2010-11 NPA inPercentage

Interpretation: The specific finding from the study is that as there is a gradual decrease in the percentage of NPA during the last five years, this is appreciable to the growth of the profitability of the bank. This is achieved by adopting the various strict recovery measures by bank.

SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

TABLE: 4.10

The table showing the percentage of total NPA in Short term loans to total advances given in Short Term Loans at the BCCB Ltd. Years

NPA

Total Advances

NPA in Percentag

2006-07

13201433

45467846

29.03 e

2007-08

10677612

37426270

28.52

2008-09

9057922

27362920

33.10

2009-10

8257205

21266583

38.82

2010-11

8556293

16797765

50.93

Analysis: The percentage of total NPA in short term loans to total credit given in sugar sector is showing an increasing trend during the past 5 years i.e., 2006-07, 2007-08,200809,2009-10 and 2010-11 respectively.

SIKKIM MANIPAL UNIVERSITY

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD"

GRAPH: 4.10

The graph showing the percentage of total NPA in Short term loans to total advances given in Short Term Loan sector at the BCCB Ltd.

60

50.93

50 38.82

40 30

29.03

28.52

33.1

20 10 0

2006-07

2007-08

2008-09

2009-10

2010-11

NPA in Percentage

Interpretation: NPA is increasing continuously every year. It indicate dangerous signal. Bank has to take best measure to control NPA in short teini loans. Though this graph we can understand that the inherent quality of the bank's credit appraisal capability is very weak and it should focus to a large extent in reduction of its NPA in short term loans.

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The table showing the percentage of NPA in other loans to total advances given in other loans at the BCCB Ltd. Years

Total NPA

Total Advances

NPA in Percentage

2006-07

13246156

177727738

7.45

2007-08

16146205

264459875

6.10

2008-09

26101530

321084309

8.12

2009-10

23529502

417363077

5.63

2010-11

27470078

552364676

4.97

Analysis: The percentage of total NPA in other loans to total credit given in other loans is showing continuously decreasing trend in 2007-08 when compared to 2006-07. But in 2008-09 again it is increased to 8.12 percent, later on it is decreased to 5.63 percent and 4.97 percent in 2009-10 and 2010-11 respectively.

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GRAPH: 4.11 The graph showing the percentage of NPA in other loans to total advances loans at the BCCB Ltd.

10 8

8.12

7.45 6.1

6

5.63

4.97

4 2 0

2006-07 2007-08 2008-09 2009-10 2010-11 NPA inPercentage

Interpretation: When compared to short term loans NPA in other loans is very less. Every best possible effort is taken by the bank to curb the growth of NPA. The bank has been focusing its attention on the recovery of NPAs and as a result it has been able to reduce the NPAs during the last years.

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A STUDY ON NON PERFORMING ASSETS AT "BCCB LTD" TABLE: 4.12

The table showing the percentage change in NPA to total advances at the BCCB Ltd.

Years 2006-07

NPA

Trend

2339.84

100

2007-08

2268.83

96.96

2008-09

3499.30

154.23

2009-10

3061.41

87.48

2010-11

3176.7

103.76

NOTE: In the above table 2006-07 taken as base year

Analysis: The above table shows the percentage change in NPA to total advances at the BCCB Ltd. The change in

NPA

to

total

advances

shows

continuously

increasing trend in 2008-09,2010-11 except in years (2007-08, 2009-10) are showing decreasing trend. SESHADRIPURAM FIRST GRADE COLLEGE

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GRAPH: 4.12 The graph showing the percentage change in NPA to total advances at the BCCB Ltd.

154.23

160 140 120 100

100

96.96

2006-07

2007-08

103.76 87.48

80 60 40 20 0

2008-09

2009-10

2010-11

Trend Percentage of NPA

Interpretation: The total NPA in the BCCB Ltd has been increased in last year's 2008-09, 2010-1 1 and the remaining years 2009-10, 2007-08 showing decreasing trend. This enhances the risk of the bank. Banks have to improve its performance.

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TABLE: 4.13 The table showing the percentage change in NPA in long term loans at the BCCB Ltd. Years

NPA

Trend percentage

2006-07

147564584

of100 NPA

2007-08

160226191

108.57

2008-09

314770657

196.45

2009-10

208591669

66.26

2010-11

170288444

81.63

NOTE: In the above table 2006-07 taken as base year

Analysis: The above table shows the percentage change in NPA long term loans at the BCCB Ltd. There is an increasing trend in NPA in the financial year 200607 and 2007-08 by 108.57 percent and 196.45 percent. In 2009-10 it has been decreased to 66.26 percent. But in year 2010-11 it again increased to 81.63 percent.

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GRAPH: 4.13

The graph showing the percentage change in NPA in long term loans at the BCCB Ltd.

196.45

200 150 100

100

108.57 66.26

81.63

50 0

2006-07 2007-08 2008-09 2009-10 2010-11 TrendPercentage of NPA

Interpretation The NPA in long term loans has increasing tendency in 2007-08, but in the year 2009-10 there is a decreasing tendency. But in 2010-11 increase can be seen in the percentage of the NPA to loans and advances. Bank has to take effective measures to reduce the NPA in long term loans.

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TABLE: 4.14 The table showing the percentage change in NPA in Short term loans at the BCCB Ltd. Years

NPA

Trend percentage

2006-07

13201433

of100 NPA

2007-08

10677612

80.88

2008-09

9057922

84.83

2009-10

8257205

91.15

2010-11

8556293

103.62

NOTE: In the above table 2006-07 taken as base year

Analysis: The above table shows the percentage change in NPA short term loans at BCCB Ltd. The percentage change in NPA in short term loans have gone up during the financial year

2008-09

to

2010-11.

But

in

2007-08

it

has

decreased to 80.88 percent. It shows that NPA is increased in last year's when compared to previous years.

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GRAPH 4.14 The graph showing the percentage change in NPA in Short term loans at the BCCB Ltd.

120 100

103.62

100 80.88

84.83

91.15

2007-08

2008-09

2009-10

80 60 40 20 0

2006-07

2010-11

Trend Percentage of NPA

Interpretation: The total NPA in short a term loan has been increasing since 2008-09 till 2010-11 from 84.83 percent to 103.62 SIKKIM MANIPAL UNIVERSITY

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percent. During 2007-08 the bank had given more attention and importance for the recovery of short term loans and had taken many effective steps in this regard.

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TABLE: 4.15 The table showing the percentage change in NPA in other loans at the BCCB Ltd. Years

NPA

Trend percentage

2006-07

13246156

of 100 NPA

2007-08

16146205

121.89

2008-09

26101530

161.65

2009-10

23529502

90.14

2010-11

27470078

116.74

NOTE: In the above table 2006-07 taken as base year

Analysis: The above table shows the percentage change in NPA in other sector at the BCCB Ltd. During 2007-08 and 2008-09 the NPA has increased by 161.65 per cent. However in 2009-10 it has decreased by 90.14 per cent. But again in 2010 - 11 NPA in other loans has increased by 116.74 percent.

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GRAPH: 4.15 The graph showing the percentage change in NPA in other sector at the BCCB Ltd.

200 161.65 150 100

121.89 100

116.74 90.14

50 0

2006-07 2007-08 2008-09 2009-10 2010-11 Trend Percentage of NPA

Interpretation: When compared to short term loans the NPA in other loans is high except in 2009-10. This enhances the risk of the bank. The bank has to formulate a strict recovery policy to reduce it further.

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TABLE: 4.16 The table showing the comparison of NPA to advances in Long term loans and total advances. Years

NPA

% of NPA to advances given in long term

% of NPA to total advances

2006-07

147564584

11.49

9.82

2007-08

160226191

7.87

6.85

2008-09

314770657

12.10

10.6

2009-10

208591669

6.74

5.90

2010-11

170288444

4.39

3.83

Analysis: The above table shows comparison of NPA to advances in long term loans and total advances. In the year 2006-07 percentage of NPA to total advances was 9.82 percent and percentage of NPA to advances in long term loans was 11.49 percent. Later on the NPA to total advances and NPA to advances given in long term loans are gradually decreasing and it is 3.83 percent in the years 2010-11

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GRAPH: 4.16 The graph showing the comparison of NPA to advances in Long term loans and total advances.

14 12 11.49 9.82 10 8

12.1 10.6 7.87 6.85

6.74

6

5.9 4.39 3.83

4 2 0

2006-07

2007-08

2008-09

2009-10

2010-11

%of NPA advancesgiven in long termloans %of NPA to total advances

Interpretation: The above NPA as compared to total advances is less. The

bank

has

to

fallow

the

same

NPA

recovery

measures in order to retain the position of NPA at nil. The bank should closely monitor NPAs and must put in place NPA management plan for efficient recovery.

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TABLE: 4.17 The table showing the comparison of NPA to advances in Short term loans and total advances.

Years

NPA

% of NPA to Advances given In

% of NPA to total advances

2006-07

13201433

29.03

0.87

2007-08

10677612

28.52

0.45

2008-09

9057922

33.10

0.30

2009-10

8257205

38.82

0.23

2010-11

8556293

50.93

0.19

Analysis: The above table shows comparison of NPA to advances in short term loans and total advances. In 2006-07 NPA to total advances was 0.87 percent and NPA to advances in short term loans is 29.03. Later on the NPA to advances given in short term loans is continuously increasing and

the

percent

of

NPA

to

total

advances

is

continuously decreasing.

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GRAPH: 4.17 The graph showing the comparison of NPA to advances in Short term loans and total advances.

60

50.93

50 40 30

29.03

33.1

28.52

38.82

20 10 0

0.87

0.45

2006-07

2007-08

0.3 2008-09

0.23 2009-10

0.19 2010-11

%of NPA to total advances %of NPA to advancesgiven in Short termloans

Interpretation: The NPA amount is compared to total advances is very less. When it compared to advances given in short term loans is very high. Through this table we can understand that the inherent quality of the bank's credit appraisal capability is very week and it should focus to large extent in reduction of its NPA in short term loans.

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TABLE: 4.18 The table showing the comparison of NPA to advances in other loans and total advances.

Years

NPA

% of NPA to Advances given In

% of NPA to total advances

2006-07

13246156

7.45

0.88

2007-08

16146205

6.10

0.69

2008-09

26101530

8.12

0.88

2009-10

23529502

5.63

0.66

2010-11

27470078

4.97

0.61

Analysis: The above table shows comparison of NPA to advances in other loans and total advances. The percentage of NPA to total advances is lower when compared to advances given in other sector. In both the cases the percentage shows a decreasing trend but in the year 2008-09 percentages of other loans NPA to total advances is increased.

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GRAPH: 4.18 The graph showing the comparison of NPA to advances in other loans and total advances.

10 8

8.12

7.45 6.1

6

5.63

4.97

4 2 0

0.88

0.69

0.88

0.66

0.61

2006-07 2007-08 2008-09 2009-10 2010-11 %of NPA to Advances given in other loans %of NPA to total advances

Interpretation: The bank is taking several steps to curb the level of NPA and is closely monitoring NPAs and put in place NPA management plan for efficient recovery. The bank has formulated a recovery policy with built in mechanism to settle NPAs by compromise as well.

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CHAPTER-5

SUMMARY OF FINDINGS

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SUMMARY FINDINGS 1.

The NPA of the bank stood at Rs. 3176.07

lakhs as on 31.03.2011 as against 3061.41 lakhs as on 31.03.2010

2.

The Gross NPA ratio of bank has been

continuously decreasing from year 2007 to 2011 except in the year 2009 Hence; bank has taken effective measures to reduce the NPA.

3.

The Net NPA ratio is showing a continuously

decreasing trend during 2007 to 2011 this shows that bank has done enough provisions compared to previous years.

4.

The Problem Asset ratio is showing decreasing

trend during 2007 to 2011 except in the year 2009. This is appreciable to the growth of the bank. This is achieved by adopting the various recovery measures by the bank. 5.

The Provision ratio is continuously decreasing

except in 2007-08. This indicates that bank is trying to balance between over provision and under provision.

6.

Sub-Standard assets are substantially increasing

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during 2007, 2008, 2010 and decreasing in 2009 and 2011. Bank should try to decrease it further. 7.

Doubtful Assets are continuously decreasing

except in the year 2010this shows that bank has taken necessary action to reduce doubtful assets. 8.

The result about repayment by the customers

was tricky. There is a good record in the repayment of the loans like Business loan, Staff loan, Vehicle loans and Term loans. The loan repayment is very poor in Short term loans. 9.

The percentage of total NPA in Long term loans

showing a continuously decreasing trend when compared with advances given in long term loans and to total advances during 2007 to 2011 from 9.82% to 3.83%.

10. More than 45% of the total credit given in Short term loans has become NPA. When short term loans are compared

with

total

advances

it

is

continuously

decreasing.

11.

The percentage change in NPA to total advances at

BCCB Ltd is showing an overall increasing trend when compare to previous year.

12.

The percentage of total NPA in other loans are

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showing continuous decreasing trend during the financial year 2007-2011.

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CHAPTER-6

SUGGESTIONS

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SUGGESTIONS The successful management of Non Performing Assets depends stipulated

not only on by

the

the policies and the norms

regulatory

authorities

and

the

management of the bank but also on how far the industrial finance has been extended, their portfolios and the present position of the new account. In this crucial function, the research will not be completed without suggestions and recommendations, which improves the performance. The following are the suggestions are made bringing down the NPAs:

1. In BCCB Ltd NPA level is decreasing year by year which

good for bank but bank should follow the recovery policy strictly to reduce it to full extent. 2.

In year 2008-09 BCCB Ltd NPA is very

high, because of Global recession bank has to form a special recovery policy to handle recession. 3.

The Bank have more NPA in Short term loans

so, they should try to reduce that level of NPA. 4.

There is a need to have periodic review of

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accounts inspection of units by audit department. 5.

Timely visit by the field staff and making

personal contact with the borrowers. 6.

Conducting training programs for the staff

concerned with the recovery about the latest rules

and

regulations

and

also

on

the

possibilities available for the recovery of NPAs. 7. Bank has to motivate the recovery staff to increase

the recovery rate.

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CHAPTER-7

CONCLUSION

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CONCLUSION The

project

on

Non

Performing

Assets

at

The

Bangalore City Co-Operative Bank ltd has been a great source of knowledge. It has given me an opportunity to understand the co operative financial sector. The

best

model

for

reducing

the

level

of

Non

Performing Assets at The Bangalore City Co-Operative Bank ltd to give more emphasis for technological improvements for proper and regular monitoring and follow up the accounts. The recovery strategies for impaired loans need to be revised with the following considerations by setting a time for recovery of a particular impaired loans and assigning the responsibility to a particular person for the

recovery

of

particular

loan

along

with

the

infrastructure and power to take action concerning to that loan. Apart from the said conclusions, the level of reduction of Non Performing Assets and to increase the like special efforts should be made in respect of large advances and more

attention

needs

to

be

paid

for

strategies

planning by employees with self set goals educating borrowers.

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CHAPTER-8

ANNEXURES

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ANNEXURE Balance Sheet of 3 Years from 2009 - 2011

Particulars

2008-2009

2009-2010

2010-2011

21,84,53,827.00

28,71,12,907.00

Share capital

17,33,63,267.00

Reserves and other funds

44,98,27,118.92

48,25,77,806.42

54,26,10,058.56

Deposits

378,63,09,868.54

489,58,18,010.17

597,62,10,335.29

Suspense account

47,56,009.22

31,66,479.82

30,27,360.65

Other liabilities

20,000.00

Branch accounts

139,07,04,668.64

192,26,71,750.25

227,31,69,875.70

Cash at bank

10,01,13,012.07

13,13,73,812.41

17,50,07,942.68

Investment

140,58,20,493.00

199,13,74,743.00

229,13,05,825.19

Loans and Advances

294,84,43,868.82

352,98,19,370.3

444,12,12,211.50

Other assets

13,23,88,764.75

15,44,37,682.19

17,18,64,797.84

Brach Account

139,10,93,476.53

192,41,44,939.10

227,30,16,187.70

Furniture and Fixture

79,51,791.14

1,21,91,561.10

1,28,68,259.12

Building Cost

91,43,744.70

89,15,151.00

2,01,72,212.30

Generator Cost

6,67,687.55

8,10,238.80

10,17,846.45

Vehicle Cost

2,39,902.80

1,19,952.40

6,48,328.80

Computer Cost

60,08,168.75

42,21,351.90

20,81,688.05

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Profit and loss Account of 3years from 2009-2011 (Amount in Rs) EXPENDITURE

2008-2009

2009-2010

2010-2011

28,63,72,094.50

38,95,11,846.50

44,39,35,172.37

35,02,741.00

91,70,906.00

74,06,399.00

5,23,37,753.00

6,03,69,103.00

8,44,37,935.00

30,96,724.25

42,91,247.78

44,67,473.11

61,900.00

60,800.00

81,000.00

9,52,90,633.74

13,92,45,174.02

15,74,03,723.63

Computer

12,13,919.00

11,37,464.42

13,52,898.00

Provisions

1,05,41,426.00

76,97,857.00

3,80,59,709.00

Insurance & Tax

32,26,635.00

42,21,386.17

53,79,089.00

Depreciation Account

36,93,283.89

50,63,171.55

52,52,102.51

45,93,37,110.38

62,07,68,956.44

74,77,75,501.62

Interest on Loans

36,04,22,492.00

43,48,66,244.63

56,08,52,799.80

Interest on Investments

8,12,65,519.99

11,85,85,513.55

14,32,44,509.11

74,838.00

69,738.00

40,940.00

6,92,74,317.88

12,06,25,262.71

12,31,83,806.17

TOTAL

51,10,37,167.87

67,41,46,758.89

82,73,41,790.18

NET PROFIT

5,17,00,057.49

5,33,77,802.45

7,95,66,288.56

Interest on Deposits Interest on Provision Account Establishment Account Administrative Expenses Conveyance Expenses Other Expenditure

TOTAL INCOME

Rent Received Other Items

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CHAPTER-9

BIBLIOGRAPHY

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BIBLIOGRAPHY JOURNALS:

• Annual Reports of "The Bangalore City Co-Operative Bank Ltd". •

Periodical circular and statement of RBI

regarding to NPAmanagement. WEBSITES: • http://finance.indiamart.com/investment in

india/banking in india.html • http://www.rbi.org.in/Home.aspx • http://www.banknetindia.com/banking/cintro.htm • http://www.investorwords.com/ • http://www.indiabankassociation.com/

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