CHAPTER 1:- INTRODUCTION

1
INTRODUCTION TO THE TOPIC:-

I have a great pleasure in presenting my project report. The subject of my project is

Credit Appraisal Mechanism and NPA Management in Kotak Mahindra Bank. For
completion of this subject I have chosen Kotak Mahindra Bank, Gangapur Road, Nashik as
organization for my study. Today the base of the country’s economic development and
trade is depending upon banking and credit structure of economy.

The financial structure is the foundation of credit and capital market of the economy which
solely depends upon the banking business in the country. The basic foundation at any bank
is its deposit patterns and advances. This project deals with the credit appraisal and the
process involved in the appraisal of Working Capital Loan and Term Loans and also the
process of recovering the loans in case the account degrades to a substandard or doubtful
category.

Credit Appraisal is the process by which the financing authority approves the loan
requirement of an organization or an individual by assessing his credit, capital, collateral,
capacity and condition. Credit Appraisal process measures both a company’s efficiency and
its short term financial health. These funds are used for day to day operation of the
company. So for assessing one’s requirement the institution has to follow a systematic
procedure comprising of a series of steps. For a long term loan often the economic,
financial, technical as well as management viabilities are well defined and the borrower
should invest in a viable project. Often loans lend out on exorbitant projections get reduced
to NPA. When the loan gets degraded to a non-performing one; it acts as double edged
sword on the bank itself. While the bank will not earn any interest, at the same time they
have to make provisions for those accounts. Banks have to hire DRA agents and often the
banks end up getting less as they settle for OTS.

DEFINITION OF BANK:-

Bank means which accept the deposits for the purpose of lending or investment of
deposit of money from the public re-payable on demand or otherwise withdrawal by
cheque, draft, or order or otherwise.

2
TYPES OF THE BANK

 COMMERCIAL BANK

Commercial bank is the most important type of banking, as much that the term" Term
bank" When used unqualified by any objectives it is taken to mean a commercial bank.
These banks perform important function of accepting deposit & granting loans to Traders,
Industrialists etc. for short period.

 CO-OPERATIVE BANK

In the first category fill in primary co-primary co-operative bank which are small size
units organized sector which operate both in urban & town urban center. They finance
small borrowers in industrial & Trade sector besides professional & salaried classes.

 CENTRAL BANK

In every country, there is a central bank which has to performed various function like
note issue, banker’s bank government bank etc. R.B.I is the central bank of our Indian
established on 1 April 1935.

 FOREIGN BANK

The bank established abroad are called as ‘Foreign Bank’ In India this Foreign Banks
perform various banking functions live accepting deposits granting loans,& rendering other
banking service. They are very useful in the international trade in many ways.

 INTERNATIONAL BANK

They are really a close by themselves .International bank for reconstructions &
development (IBRD) Asian development Bank (ADB) International finance corporations
(IFC) are some such bank their aim is to help the smooth performance of international
financial transaction, economic development of the countries & to have international
monitory co-operation.

3
ORGANIZATION PROFILE

VISION, MISSION OF THE ORGANIZATION:-

Vision:-

Kotak Bank's vision is to be the best & leading financial service provider with high value
for customer service.

Mission:-

Kotak Bank’s mission is

o To enable its customers to enjoy benefits of dealing with global Indian brand.
o To be most preferred employer in financial services
o To be most trusted financial services company
o Value creation rather than size alone would be the business driver.

HISTORICAL BACKGROUND OF THE ORGANIZATION:-

In 1985, 26 year old entrepreneur Uday Kotak founded Kotak Capital Management Finance
Ltd. which later became Kotak Mahindra Finance Ltd (KMFC). His vision was to
eventually turn it into a banking company

MEANING OF LOGO- Need are unlimited and solutions are infinite at Kotak

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BACKGROUND :

In 1985, it started with Bills discounting as our first product

1991-Launched Car Finance and at very inception became leading player in car Finance.

In 1992 Co went public, pricing its IPO at Rs. 45 per share. Shares created record of sorts,
notching up prices in the range of Rs. 1300-1400 on debut day trading.

1995-96- The Investment banking division was incorporated into Kotak Mahindra Capital
company (KMCC). In 1995 JV was signed between Kotak Mahindra and Goldman Sachs.
Goldman picked up 25% stake in Kotak’s Investment banking & securities which was
completely bought in 2006.

1996- Ford JV- KMPL and Ford credit joint venture (60:40)

1998- Launched mutual funds business- Kotak Mahindra Assets Management Company.

2001-Life Insurance: JV with old mutual (26% stake) and founded Kotak Mahindra Old
Mutual Life insurance Company. Kotak Securities Ltd was incorporated which was largest
broking house in India.

2003- 1st NBFC to Bank. Kotak Mahindra finance Ltd (KMFL), the NBFC got in principle
nod from RBI to start a bank.

2004-05- Kotak Investment Advisory Ltd (KIAL): 2004- launched India growth fund , a
private equity fund. 2005- Launched a real estate fund. KIAL is amalgamation of these two
businesses.

2015- Merger: ING Vyasa Bank merged with Kotak Mahindra Bank making it largest bank
in the private sector space.

5
CHAPTER 2:- OBJECTIVES AND
SCOPE

6
SELECTION OF THE TOPIC:-

Since 1992-93 the economy banking sector and insurance sector have been opened for
foreign equity, participation and management. Therefore the competition in the industrial
sector in general and banking sector in particular has been increasing and the profitability
of the banks is under pressure. As I am student of finance, I have keen interest in areas
concerned with the banking. As mentioned earlier banks play a vital role in economic
development, credit creation and overall up liftmen of common people. Further the bank
financing to various needs of individuals, families has become very popular, I thought it
would fit to select a subject having focus attention of many banks operating in our country.

In my project, I will try focusing light on the different loan products offered by Kotak
Bank and the procedure for the same. This will help in analyzing the role of Kotak
Mahindra Bank, over development of Nashik.

OBJECTIVE OF THE PROJECT:-

The objective of the given project is to understand the entire process involved in successful
lending by the bank beginning from the financial analysis of lending, identification of
reliable potential customer, legal sanction to monitoring of those accounts and final
recovery procedure through scheduled EMI structure. This aims at analyzing the ways at
which the bank manages its NPA. It includes identification of problems associated with pre
and post advances and simultaneously finding out viable solutions and alternatives to
address those issues.

The individual object of the project is to work effectively, efficiently using his/her
creativity as well as knowledge for self-development.

The organizational perspective is to generate new ideas through fresh talents and can
utilize them for implementing the future strategies.

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OBJECTIVE OF THE STUDY:-

1. To study the credit appraisal.

2. To study the various types of facility.
3. To study the loan policies of the Bank.
4. To study the charging of securities.
5. To study the various types of loans and advances.
6. To study the documents required for loan sanctioning procedure.
7. To study the loan sanction producers.
8. To study the various types of borrowers.
9. To study the various types of securities.
10. To study the NPA and its categories.
11. To study the life spans of borrowers account.

PURPOSE OF STUDY:-

The purpose of preparation of this report is to focus on the lending function of banks. The
report states the following points:

 The study gives insight into the procedure followed by the bank as per the norms of
the Reserve Bank of India and the authority that governs the functioning of Kotak
Mahindra Bank.
 The report states the different types of advances that are financed and their
classification as fund and non-fund based advances.
 Credit monitoring, identification of NPA and legal procedures adopted in recovery
of those advances.
 The last topic discussed as per schedule of the project involves an in depth study of
the problems related to pre and post sanction of advances and their possible
solutions. Certain conclusions and recommendations are made as per the analysis of
the cases.

8
CHAPTER 3:- THEORITICAL
PERSPECTIVE

9
CREDIT APPRAISAL

Credit Appraisal is the process to estimate and evaluate the risks associated with the
extension of the credit facility. It is generally carried by the financial instructions which are
involved in providing financial funding to its customers. The risk involved here is the non-
repayment of the credit obtained by the customer of a bank. Thus it is necessary to appraise
the credibility of the customer in order to mitigate the credit risk. Proper credit evaluation
of the customer has to be performed. This measures the financial condition and the ability
of the customer to repay back the loan in future. Generally the credit facilities are extended
against the security known as collateral. But even though the loans are backed by the
collateral, banks are normally interested in the actual loan amount to be repaid along with
the interest. Thus, the customer’s cash flows are ascertained to ensure the timely payment
of principal and interest. So while appraising the credit worthiness of a loan applicant a
multitude of factors like age, income, number of dependents, nature of employment,
continuity of employment, repayment capacity, previous loans, credit cards etc. come into
play. Every bank or lending institution has its own panel of officials for this purpose.

However the 6 ‘C’ of credit are crucial and relevant to all borrowers/lending which is
relevant for all the borrowers. They are namely:

1) Character
2) Capacity
3) Collateral
4) Capital
5) Cash flow

10
DEFINING CREDIT APPRAISAL

The assessment of the various risks that can impact the repayment of loan is credit
appraisal. Depending on the purpose of loan and the quantum, the appraisal process may be
simple or elaborate. For small personal loans, credit scoring based on income, lifestyle and
existing liabilities may suffice. But for project financing, the process comprises technical,
commercial, marketing, financial, managerial appraisals as also implementation schedule
and ability.

So credit appraisal can be defined as “ a means of an investigation/assessment done by the

bank prior before providing any loans and advances/ project finance and also checks the
commercial, financial and technical viability of the project proposed in finding pattern and
further checks the primary collateral security cover available for recovery of such funds.”

BASIC TYPES OF CREDIT

There are four basic types of credit:

SERVICE CREDIT is monthly payments for utilities such as telephone, gas, electricity
and water. You often have to pay a deposit and you may pay a late charge if your payment
is not on time.

LOANS let you borrow cash. Loans can be for small or large amounts and for a few days
or several years. Money can be repaid in one lump sum or in several regular payments until
the amount you borrowed and the finance charges are paid in full. Loans can be secured or
unsecured.

INSTALLMENT CREDIT may be described as buying on time, financing through the

store or the easy payment plan. The borrower takes the goods home in exchange for a
promise to pay later. Cars, major appliances and furniture are often purchased this way.
You usually sign a contract, make a down payment and agree to pay the balance with a
specified number of equal payments called installments. The finance charges are included
in the payments. The item you purchase may be used as security for the loan.

11
CREDIT CARDS are issued by individual retail stores, banks, or business. Using a credit
card can be the equivalent of an interest-free loan—if you pay for the use of it in full at the
end of each month.

CONDUCTING FEASIBILITY STUDY:

The success of a feasibility study is based on the careful identification and assessment of all
of the important issues for business success. A detailed Project Report is submitted by an
entrepreneur, prepared by a approved agency or a consultancy organization. Such report
provides aspect, the Economic Condition and Projected Financial performance of the
company. It is necessary for the appraising officer to cross check the information provided
in the report for determining the worthiness of the project. They are :

1) Financial feasibility
2) Technical feasibility
3) Economic feasibility
4) Management feasibility

TYPES OF LOANS AND ADVANCES

1. Cash Credit
2. Overdraft
3. Loan System
1. Cash Credit System
Cash credit system is an arrangement by which the customer is allowed to borrow money
up to a certain limit known as “cash credit limit”. Usually the borrower is required to
provide security in the form of pledge or hypothecation of tangible securities.

2. Overdraft
Overdraft is an arrangement between a banker and his customer by which the latter is
allowed to withdraw over and above his credit balance in the current account up to an
agreed limit. This is only a temporary accommodation usually granted against security.

12
3. Loan system
In case of loan, the banker advances a lump sum for a certain period at an agreed rate of
interest. The entire amount is paid on an occasion either in cash or by credit in his current
account which he can draw at any time. The interest is charged for the full amount
sanctioned whether he withdraws the money from his account or not.

A. Demand Loan Vs Term Loan

Loan may be a demand loan or a term loan. Demand loan is payable on demand. It is for a
short period and usually granted to meet working capital needs of the borrower.

Term loans may be medium term or long term. Medium term loans are granted for a period
ranging from one year to five years. Long term loans are granted for capital expenditures.

B. Secured Loan Vs Unsecured Loan

Secured loan or advance means such a loan or advance as made against the security assets,
market value of which is not at any means less than the amount of such loan or advance or
part of it does not require sanctioning against the security.

C. Participation Loan or Consortium Loan

When one single loan is granted by more than one financing agency, it is termed as a
participation or consortium loan.

D. Purchasing and Discounting Bills

An instrument in writing containing an unconditional order, signed by the maker, directing
a certain person to pay a certain sum of money only to, or to the order of, a certain person
or to the bearer of the instrument. Bank grant advances to their customers by discounting
bills of exchange.

13
INTRODUCTION OF LOAN POLCY OF THE BANK:-

Fig. Type of Credit Facility

TYPES
OF
FACILITY

FUNDED NON-
FUNDED

TERM LETTER
WORKING BANK OF
LOAN BP/BD CAPTIAL GUARANTEE
CREDIT

CASH CREDIT OVER

DRAFT

TYPES OF CREDIT FACILITY:-

Various credit facilities extended by bank can be classified into two categories. Fund based
and non-fund based. When bank places certain funds at the disposal of borrowers and
borrowers avail these funds, such types of credit facilities are known as fund based.
However, there are certain types of advances which do not involve deployment of funds at
least the initial stage though in contingencies funds are also involved. These are called non-
fund based advances.

14
Fund based credit facilities are extended in any one of the following manners: -

FUNDED

1) Overdraft
2) Cash Credit
3) Demand Loan
4) Term Loan
5) Bills Purchasing / Discounting

1) OVERDRAFT

When a customer who is maintaining a current account, is allowed by the bank to draw
more than the credit balance in the account, such facility is called an overdraft facility. At
the request and requirement of customer temporary overdraft are allowed. However, against
certain securities, regular overdraft limits are sanctioned.

Salient features of this type of account are as under

i) Overdraft accounts are maintained in current account ledgers. Depending upon business
requirements, for regular overdraft limits either some folio in current account ledger are
reserved or separate ledger is maintained. Current account cheque book is issued to the
constituents.

ii) All rules applicable to current account are applicable to overdraft account mutatis
mutandis. Overdraft is a running account and hence debits and credits are freely allowed.

2) CASH-CREDIT

A cash-credit is an arrangement to extend short term working capital facility under which
the bank establishes a credit limit and allows the customers to borrow money up to a certain
limit. Under the system, bank sanctions a limit called the cash-credit limit to each borrower
up to which he is allowed to borrow against the security of stipulated tangible assets i.e.

15
stocks, books debts etc. the customer need not draw at once the whole of the credit limit
sanctioned but can withdraw from his cash-credit account as and when he needs the funds
and deposit the surplus cash/funds proceeds of safe etc. into the account.

3) DEMAND LOAN

A demand loan is a loan sanctioned for a period of less than 3 years repayable on demand.
The loan is disbursed by way of single debit to the account. The amount may be allowed to
be repaid in lump sum or in suitable installment, as per terms of sanction.

4) TERM LOAN

A term loan is an advance allowed for a fixed period either in lump sum or in installments
and which is repayable according to a schedule of repayment as against on demand and at a
time. Purpose of term loan are generally granted to meet the need of capital expenditure i.e
acquitting of fixed assets like land, building, plant and machinery etc. for the purpose of
setting up of new units or expansion, modernization, renovation, replacement of existing
units or rehabilitation of sick units

5) BILLS PURCHASE / DISCOUNTING

These represent advances against bills of exchange drawn by the customers on their clients.
Bills are either purchased or discounted by bank. Demand bills are either purchased or
discounted by banks. Demand bills are purchased and usance bills are discounted. Bills
may be either clean or documentary. Bills accompanied by the title to goods i.e. R/R, MTR
etc. are called documentary bills. Bills without such documents are known as clean bills.

NON FUNDED

1) BANK GUARANTEE

Contract of guarantee have special significance in the business of banking as a means to

ensure safety of funds lent to the customers. The safety of such funds is primarily ensured
by securing a charge over the tangible assets owned by the borrower and by the personal
16
security of the letter, but in case the borrower is unable to provide the security to tangible
assets or the value of the latter falls below the amount of the loan and the borrowers
personal security is not considered sufficient an additional security is sought by the banker
in the form of a ‘guarantee’ given by a third person. A guarantee is, in fact the personal
security of the third person, who must command the confidence of the banker.

“Contract to perform the promise or discharge the liability of a third person in case of his
default.”

2) LETTER OF CREDIT

Modern banks facilitate trade and commerce by rendering valuable services to the business
community. Apart from providing appropriate mechanism for making payments arising out
of trade transactions, the banks gear the machinery of commerce, especially in useful like
between the buyer and the seller who are often too far away from and too unfamiliar with
cash other. Opening or issuing letter of credit is one of the important services provided by
the banks for these purpose. The foundation of the banking business is the confidence
reposed in the banking institutions by the people in general and the mercantile community
in particular. The standing, reputation and goodwill earned by a banking institution enables
it to issue instruments, known as letter of credit, in favors of traders and banks to meet the
needs of their customer. In fact a letter of credit carries a promise or an undertaking by the
issuing banker which is valued and honored on a global basis. Letters of Credit are two
types:

1) Travelers letter of credit

2) Letters of commercial credit

17
CONCEPT OF NPA

The concept of non-performing assets refers to which ceases to generate income. In case of
banks, all loans and advances are its assets, which can be classified into performing and
non-performing assets. RBI has advised the banks not to charge interest on those loans and
advances classified as non-performing asset.

Definition

“A non-performing asset has been defined to be a credit facility in respect of which the
interest and/or installment of principle has remained overdue for a specified period of
time.”

Non-Performing Asset (Advances) are those advances, which has ceased to earn income by
way of interest and other charges from the borrowers due to various reasons. The reasons
for such non-recovery could be any of the following.

a. Closure of the unit.

b. Sickness of the unit
c. Death of the Borrower
d. Destruction / loss of the asset financed.
e. Willful Default of the borrower.

However the above definition is modified and elaborated for various types of advances like
Term Loan, Cash Credit, Overdraft, Bills Purchase, Advances Bills etc.

An asset including a leased asset becomes nonperforming when it ceases to generate

income for the bank.

A) A nonperforming asset (NPA) is a loan or an advance where

1. Interest and installment of principal remain overdue for a period of more than 90
days in respect of a term loan.

18
 2. The account remains out of order as indicated at paragraph ‘B’ below in respect of
an Over Draft / Cash Credit (OD/CC)
3. The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted.
4. The installment of principal or interest thereon remains overdue for two crop
seasons for short duration crops.
5. The installment of principal or interest thereon remain overdue for are crop season
for loan duration crops.

Bank should classify an account as NPA only if the interest charged during any quarter is
not serviced fully within 90 days from the end of the quarter.

B) ‘Out Of Order’ status

An account should be treated as remains continuously in excess of the sanctioned limit/

drawing power. In case where the outstanding balance in the principal operating account is
less than the sanctioned limit/ drawing power, but there are no credits continuously for 90
days as on the date of Balance Sheet or credit are not enough to cover the interest debited
during the same period, these accounts should be treated as ‘Out Of Order’.

C) Overdue

Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid the due
date fixed by the bank.

CATEGORIES OF NPA:-

1. STANDARD
Assets are treated as standard when interest and installment are received regularly from the
customer.

2. SUB-STANDARD
Assets are treated as sub-standard when interest and installment are not received within 12
months.

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3. DOUBTFUL
Assets are treated as doubtful when interest and Installments are not received within 3
years.

4. LOSS
Assets are treated as loss assets when interest and installment are not received.

NPA PROVISION

(Source: Secondary data)

LOAN CLASSIFICATION PERIODS PROVISION IN %

Standard Asset After 90 days 04% of loan amt.

Substandard Asset After 90 days to 12 months 15/25% of loan amt.

Doubtful After 1year to 3 years 25% of loan amt.

Loss After 3 years 100% of loan amt.

In every case provision overdue interest is 100%

HOW TO REDUCE NPAs:-

 Arrest- slippage in existing standard assets.

 Identify new / probable NPAs…
 List out high value NPA accounts.
 Examine security aspect.
 Consider rescheduling in genuine cases.
 Recovery planning: Distribute accounts among staff members/ Director/officers.
 Meet the borrowers frequently

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Review of NPAs Account: Branch wise monthly statement

Opening Balance (1)

(+) Fresh Addition (2)

Cash Recoveries (3)

-------------------------------

Closing Balance

NPA = Cash Recoveries (3) – Closing Balance (5)

Review accounts if interest is not served in the last month

Regular limits review on due date

Ensure there is no erosion in the value of security &

There is no threat to recovery for any reason.

MEASURES FOR NPA MANAGEMENT

NPA management is a matter of concern for the entire banking system. Before preparing an
action plan for the NPA management, one has to see the background of NPA and reasons
for its origin. There are certain factors, which are beyond the control of the borrowers as
well as banks. But, constant and effective monitoring and control will definitely minimize
this problem. Few measures for reduction of NPA can be as follows:

PREVENTIVE MEASURES

Preventive measures are aimed at preventing the “Standard Assets” from turning into a
“Sub-Standard Asset.” The objective is achieved by robust appraisal system while
sanctioning loans and advances and proper follow up. These include mainly:

1) Extending need based finance.

21
 2) Proper selection of the borrower and financing only in viable schemes.
3) Following up with the borrowers about the irregularities in audit and inspection
immediately and arranging for their rectification.
4) Periodic visit to the borrower’s business unit for the verification of stocks and plant
and machinery, proper scrutiny of the quarterly financial statements and projection
received from the borrower.
5) Renewing and reviewing the credit facilities at least once a year along with
conducting fresh appraisal and assessment of the productivity, profitability and
financial strength of the unit.

CORRECTIVE MEASURES

These are aimed at reducing and minimizing the outstanding of the NPA. These mainly
include various recovery or write-off measures as follows:

1) Recovery of dues by regular follow-ups with the borrowers or guarantors.

2) If the unit is financial viable and its management is capable enough to turn around
the unit by additional assistance, the bank should grant a financial package, subject
to the borrower agreeing to certain terms and conditions involving some additional
securities charged by the bank and adhering to a strict control by the bank. If the
unit turns around, the irregularities in the account gets adjusted due to improved
cash flows/profits and the account becomes performing.
3) Legal enforcement of the securities charged to the bank, sale or auction them and
appropriating the sale proceeds towards the dues.
4) Write off loss assets.

22
CHAPTER 4:- METHODOLOGY AND
PROCEDURE OF WORK

23
RESEARCH METHODOLOGY:-

Project Methodology means various method used by the structure to obtain the knowledge
of information about the subject any one selected for the project methodology may differ
from person to person, subject to subject. Some people refer book practical knowledge,
through interview of peoples and from questionnaire.

Project method gives guidelines how the data is collected and the presentation at
information. It must be collected with the help of some technique.

The various technique are used for project are as follows

There are two types of research methodology as follows

Primary data collection

1. Interview Technique: It is verbal method of collecting the data. It is direct dialogue

between two or more person. The intension to collect information through interview
technique totally depends upon the skill of the interviewer.
2. Questionnaire Technique: List of questions consisting of numbers of questioning
painted of written form having a definite order. This is indirect way of collecting
information. In this technique questions are ask and answer are collect as valuable
information.
Secondary data collection

3. Text Book Reference: Text book reference is very useful of source of information.
Through text book person can get reliable and details information. This is the sours which
available very easily in market and in very large amount.

Project Report

Project report is an attempt to collect the information and present it in order. The researches
select a topic in which he has interest present in with conclusion social research is
explained as systematic efforts of the researcher on the topic selected. Research is to

24
discover intellectual and practical answer to problem through the application of scientific
methods, which means use of system and arriving at a logical conclusion.

Qualities of Researcher:

1) Researcher should have perfect understanding

2) He should have knowledge of the subject
3) He must be truthful to himself.
4) He must be punctual and regular.
5) He must have analytical mind.

Utility of Researcher

1) Researcher is for finding cause and effect relation.

2) Researcher held to increase the knowledge
3) It finds out many unknown things.
4) It helps to discover many hidden things.
5) It helps the society as it is ultimately beneficial.
6) It help has practical implication.
7) It makes improvement of the society.

Graphical Representation

While writing the project report and presenting the data many time the researcher uses
appropriate form of graphs. Graphic from may be in the form of charts graphs, diagram
factories, this helps to clear the meaning of what the researcher intends to cover.

 DATA SOURCE: - The study contains both primary data as well as secondary data.
 PRIMARY DATA: - It is data which is collected a fresh for first time and that happen
to be original in character. The mode of collecting the data here was questionnaires.
 SECONDARY DATA: - It is data which already collected by someone else and which
have already passed throughout the statistical process. The secondary sources of the data
25
have been from book of “Bank Law & Practices” of Mr. P.N.Varshney and Books of
instruction.
 SAMPLE SIZE:-
 40 NPAs Accounts
 SAMPLING SEGMENT:-
 NPA Analysis.
 SAMPLING AREA:-
 Nashik Area.
 SAMPLING INTSTRUMENTS:-
 Questionnaires.

26
CHAPTER 5:- ANALYSIS OF DATA

27
GRAPHICAL AND TABULAR REPRESENTATION OF DATA ANALYSIS :-

AGE GROUP

The age group is important of survey. It will be helpful to determine which age group is
highly involved towards NPAs.

Form the survey the following age wise classification has drawn. The following graph &
table represent it.

Table no. 1: - Age Classification

Sr. No. Age Group No. of NPAs Percentage %

1. 20-30 05 12.50

2. 30-40 08 20.00

3. 40-50 12 30.00

4. 50-60 09 22.50

5. 60-Above 06 15.00

Total 40 100.00

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Fig no 1: - Pie chart of Age Category

Age Category

35
30
No. of NPAs (%)

25
20
15
10
5
0
20-30 30-40 40-50 50-60 60-Above
Age Group

Result

Form the survey, the above table and graph representation have drawn showing age wise
classification of the NPAs account. Form the total group of 40 NPAs account the highest
frequency of NPAs are 12 representing 30% are of age group 40-50, while the lowest
frequency of NPAs are 5 representing 12.5% are of age group 20-30.

It shows that, most of time 40-50 age group are include towards NPAs.

GENDER / SEX

As the survey is NPA a gender differentiation plays an important role in survey.

Form the survey the following Gender wise classification has drawn. The following graph
& table represent it.

29
Table no. 2: - Gender Classification

Sr. No. Sex No. Of NPAs Percentage %

1. Male 36 90.00

2. Female 04 10.00

Total 40 100.00

Fig no 2: - Pie chart of Gender Category

Gender Category

100
No. of NPAs (%)

80
60
40
20
0
Male Female
Sex

Result

Form the survey, the above table and graph representation have drawn showing Gender
wise classification of the NPAs account. Form the total group of 40 NPAs account the
highest frequency of NPAs are 36 representing 90% are of Gender ‘Male’, while the lowest
frequency of NPAs are 4 representing 10 % are of Gender ‘Female’.

It shows that, there is comparative difference in the gender during NPAs

30
MARITAL STATUS

In the survey, the marital status is an important part on which the income status & other
factors are depends.

From the survey, the following Marital Status wise classification has drawn. The following
graph & table represent it.

Table no. 3: - Marital Status Classification

Sr. No. Marital Status No. Of NPAs Percentage %

1. Married 32 80.00

2. Unmarried 08 20.00

Total 40 100.00

Fig no 3: - Pie chart of Marital Status Category

Marital Status Category

90
80
No. of NPAs (%)

70
60
50
40
30
20
10
0
Married Unmarried
Age Group

31
Result

Form the table, group of 40 NPAs, the highest frequency of NPAs are 32 representing 80%
are of Married, while the remaining 8 NPAs represent 20% are unmarried

It shows that during the survey the highest percentage of NPAs are of Married

EDUCATIONAL QUALIFICATION

Education profile is very important factor for survey. It is one of the important factors
responsible for the awareness towards the loan.

From the survey, the following Educational Qualification wise classification has drawn.
The following graph & table represent it.

Table no.4: - Educational Qualification

Sr. No. Education Qualification No. of NPAs Percentage %

1. 1st to 4th 02 05.00

2. 5th to S.S.C 08 20.00

3. H.S.C. / Diploma 12 30.00

4. Graduate / Engineering 15 37.50

5. Post Graduate / Master Degree 03 07.50

Total 40 100.00

32
Fig no 4: - Pie chart of Educational Qualification

Education Qualification

1st to 4th
8% 5%

20% 5th to S.S.C

H.S.C. / Diploma
37%
Graduate / Engineering

30% Post Graduate / Master

Degree

Result

Form the table and graph, group o 40 NPAs, the higher frequency of NPAs are 15 & 12
represents 37-30% are of Graduate / Engineering to H.S.C / Diploma group, while the
lowest frequency of NPAs is 02 and 03 represent 5-7.5% is of 1st to 4th & Post Graduate /
Master Degree.

It shows that, most of time educated people include towards NPAs.

OCCUPATION / JOB

The occupation / job is important factor, which is a major source of disposal income on
which NPAs are depending.

Form the survey, the following occupation / job wise classification has drawn. The
following graph & table represent it.

33
Table no.5: - Occupation Classification

Sr. No. Occupation / Job No. of NPAs Percentage %

1. Farmer 02 05.00

2. Wage Earner 05 12.50

3. Proprietor / Business 17 42.50

4. Professional 06 15.00

5. Govt. Servant 07 17.50

6. Salary Earner 03 07.50

Total 40 100.00

Fig no 5: - Pie chart of occupation category

Occupation / Job

8% 5% Farmer
13%
17% Wage Earner
Proprietor / Business
Professional
15% Govt. Servant
42%
Salary Earner

34
Result

Form the survey, the above table and graph representation have drawn showing Occupation
/ job wise classification of the NPAs account. Form the total group of 40 NPAs account the
highest frequency of NPAs are 17 representing 42.5% are of Occupation/Job group
Proprietor / Business, while the lowest frequency of NPAs are 2 representing 5 % are of
Farmer.

It shows that, as the area given us is around the Nashik.

ANNUAL INCOME STATUS

Income play very important role in the survey. The disposal income is directly related to
income required. During survey generally annual income has taken in consideration.

From the survey income status wise classification has drawn. The following table & graph
represent it.

Table no.6: - Annual Income

Sr. Income Group No. of NPAs Percentage %

No.
(Rs. In Thousands)

1. 25-Below 02 05.00

2. 25-50 01 02.50

3. 50-75 05 12.50

4. 75-100 08 20.00

5. 100-125 05 12.50

35
 6. 125-150 10 25.00

7. 150-Above 09 22.50

Total 40 100.00

Fig no 6: - Pie
chart of Status of Annual Income

Annual Income Status

5% 3% 25-Below
22% 13%
25-50
50-75
75-100
100-125
20%
24% 125-150
13% 150-Above

Result

From the table and graph, group of 40 NPAs, the higher frequency of NPAs are 9 represent
22.5% are if income status Rs.1, 50,000 and Above per annum while the lowest frequency
of NPAs are 1 represents 2.5% are of income group Rs. 25,000-50,000.

It shows that, most of time 150 and above income group are include towards NPAs.

WHAT KINDS OF LOANS WAS TAKEN

The kind of loans is an important part of survey. It will helpful to determine which loan is
highly involved towards NPAs.

From the survey kinds of loan wise classification has drawn. The following table & graph
represent it.

36
Table no.7: - Loan Classification

Type of Loan No. of NPAs Percentage %

Sr. No

1. Home Loan 15 35.50

2. Auto Loan 07 17.50

3. Personal Loan 03 07.50

4. PMRY Loan 05 12.50

5. Others 10 25.00

Total 40 100.00

Fig no 7: - Pie chart of Loan

What kind of loan

40
35
No. of NPAs (%)

30
25
20
15
10
5
0
Home Loan Auto Loan Personal Loan PMRY Loan Others
Types of loan

Result

From the survey, the above table & graph representation have drawn showing kinds of loan
wise classification of the NPAs. From the total group of 40 NPAs the highest frequency of
borrowers are 15 representing 35.50% are if types of loan is home loan, while the lowest
frequency of NPAs are representing 7.50% are of the personal loan.

37
It shows that, most of time Home Loan group are include towards NPAs.

WHY WAS THE LOAN TAKEN

Why taken the loan is an important part of survey. It will helpful to determine which loan is
highly involved towards NPAs.

From the survey taken the loan wise classification has drawn. The following table & graph
represent it.

Table no.8: - Loan Classification

Why taken the loan No. of NPAs Percentage %

Sr. No

1. Pur. House 16 40.00

2. Pur. Auto 06 15.00

3. Personal used 05 12.50

4. Pur./Develop Shop 03 07.50

5. Others 10 25.00

Total 40 100.00

38
 Fig no 8: - Pie chart of Loan taken

Purpose of taken the loan

50
No. of NPAs (%)

40
30
20
10
0
Pur. House Pur. Auto Personal Pur./Develop Others
used Shop
Purpose

Result

From the survey, the above table & graph representation have drawn showing purpose of
taken the loan wise classification of the NPAs. From the total group of 40 NPAs the
highest frequency of NPAs are 16 representing 40% is purchase Home, while the lowest
frequency of NPAs are representing 7.50% are of the purchase and develop the shop.

It shows that, most of time Purchase Home group are include towards NPAs.

REASON BEHIND SELECTING KOTAK MAHINDRA BANK

Reason behind selecting Kotak Mahindra Bank only is an important part of survey. It will
help to determine which loan is highly involved towards NPAs.

From the survey selected bank wise classification has drawn. The following table & graph
represent it.

39
Table no.9: - Bank Classification

Sr. No Reasons for Selected No. of NPAs Percentage %

1. Private Bank 15 35.50

2. Near at Home 07 17.50

3. Ref. for Relatives & friend 04 10.00

4. A/c was there 11 27.50

5. Others 05 12.50

Total 40 100.00

Fig no 9: - Pie chart of Why Kotak Bank

Why selected BOB only

40
No. of NPAs (%)

35
30
25
20
15
10
5
0
Nationalized Near at Home Ref. for A/c w as there Others
Relatives &
friend
Reasons for Selected

40
Result

From the survey, the above table & graph representation have drawn showing selected
Kotak Mahindra Bank only wise classification of the NPAs. From the total group of 40
NPAs the highest frequency of NPAs are 15 representing 35.5% is Private bank, while the
lowest frequency of NPAs are representing 10% are of the reference for relatives and
friends .

It shows that, most of time selected Private group are included towards NPAs.

PERIOD OF LOAN

Period of loan is an important part of survey. It will helpful to determine which loan is
highly involved towards NPAs.

From the survey period of loan wise classification has drawn. The following table & graph
represent it.

Table no.10: - Period of loan Classification

Sr. No Period No. of NPAs Percentage %

(in years)

1. 1-3 yr. 5 12.50

2. 3-6 yr. 4 10.00

3. 6-9 yr. 7 17.50

4. 9-12 yr. 14 35.00

5. 12-15 yr. 10 25.00

Total 40 100.00

41
 Fig no 10: - Pie chart of Period Loan

Period of Loan

40
No. of NPAs (%)

30

20

10

0
1-3 yr. 3-6 yr. 6-9 yr. 9-12 yr. 12-15 yr.
Years

Result

From the survey, the above table & graph representation have drawn showing period of
loan wise classification of the NPAs. From the total group of 40 NPAs the highest
frequency of NPAs are 14 representing 35% is 9-12 year, while the lowest frequency of
NPAs are representing 10% are of the 3-6 years period. .

It shows that, most of time 9-12 years group are include towards NPAs

SANCTIONED LOAN AS PER THE BORROWER DEMAND

Sanctioning of loan as per the borrower demand is an important part of survey. It will
helpful to determine which loan is highly involved towards NPAs.

From the survey sanctioning of loan as per the borrower demand wise classification has
drawn. The following table & graph represent it.

42
Table no.11: - Amount Classification

Sr. No Sanctioned Loan as per No. of NPAs Percentage %

Borrowers Demand

1. Full amount 32 80.00

2. Less than full amount 8 20.00

Total 40 100.00

Fig no 11: - Pie chart of loan as per borrower demand

Sanctioning of loan as per the borrower demand

Full amount
20%

Less than full

amount
80%

Result

Form the table & group of 40 NPAs, the highest frequency of NPAs are 32 representing
80% are of Full amount, while the remaining 8 NPAs represent 20% are less than full
amount.

It shows that during the survey the highest percentage of NPAs are of full amount

REASONS FOR DEFAULT

43
Reason for defaults is an important part of survey. It will helpful to determine which loan is
highly involved towards NPAs.

From the survey reason for defaults wise classification has drawn. The following table &
graph represent it.

Below diagram shows that, most of time Family Problems are include towards NPAs

Table no.12: Reasons of Default Classification

Reasons for default No. 0f NPAs Percentage %

Sr. No.

1. Family Problem 17 42.50

2. Diversion of Fund 03 07.50

3. Natural Calamities 07 17.50

4. Willful Defaulter 04 10.00

5. Others 09 22.50

Total 40 100.00

Fig no 12: - Pie chart of Reasons for Default

44
 Reasons for Default

45
No. of NPAs (%) 40
35
30
25
20
15
10
5
0
Family Diversion of Natural Willful Others
Problem Fund Calamities Defaulter
Reasons

From the survey, the above table & graph representation have drawn showing Reasons for
Default wise classification of the NPAs. From the total group of 40 NPAs the highest
frequency of NPAs are 17 representing 42.5% is Family Problem, while the lowest
frequency of NPAs are representing 7.5% are of the Diversion of Fund.

USED FUND FOR THE REASON FOR WHICH LOAN WAS SANCTIONED

Used fund for the reasons is an important part of survey. It will helpful to determine which
loan is highly involved towards NPAs.

From the survey used fund for the reasons wise classification has drawn. The following
table & graph represent it.

Table no.13: - Fund for The Reasons Classification

Sr. No Fund used for the Reason No. of NPAs Percentage %

1. Yes 35 87.50

2. No 5 12.50

Total 40 100.00

45
Fig no 13: - Pie chart of Fund Used for the Reason

Fund use d for the Re ason

13%

Yes
No

87%

Result

Form the table & group of 40 NPAs, the highest frequency of NPAs are 35 representing
87% are of ‘Yes’ that used fund for the reason, while the remaining 5 NPAs represent 13%
are ‘No’ that used fund for the reason.

It shows that during the survey the highest percentages of NPAs are of ‘Yes’ that used
fund for the reason.

SATISFIED SERVICE / POLICIES / PROCEDURE / SYSTEM

Satisfied service is an important part of survey. It will helpful to determine which loan is
highly involved towards NPAs.

From the survey satisfied service wise classification has drawn. The following table &
graph represent it.

46
Table no.14: - Satisfied Service Classification

Sr. No Satisfied Service No. of NPAs Percentage %

1. Satisfied 30 75.00

2. Unsatisfied 10 25.00

Total 40 100.00

Fig no 14: - Pie chart of Satisfied Service

Satisfied Service

80
No. of NPAs (%)

60

40

20

0
Satisf ied Unsatisf ied
Se rvice

Result

Form the table & group of 40 NPAs, the highest frequency of NPAs are 30 representing
75% are of Satisfied Service, while the remaining 10 NPAs represent 10% are of
Unsatisfied Service.

It shows that during the survey the highest percentages of NPAs are of Satisfied
Service.

47
WHAT ACTION THE BANK HAS TAKEN TO RECOVER

Action the bank has taken is an important part of survey. It will helpful to determine which
loan is highly involved towards NPAs.

From the survey action the bank has taken wise classification has drawn. The following
table & graph represent it.

Table no.15: - Action Taken By bank Classification

Sr. No Action taken by Bank No. of NPAs Percentage %

1. Overdue Notice 14 35.00

2. LAD 8 20.00

3. Possession 2 05.00

4. Recovery 12 30.00

5. Other 4 10.00

Total 40 100.00

Fig no 15: - Pie chart of Action Taken By Bank

Action taken by Bank

40
No. of NPAs (%)

30

20

10

0
Overdue LAD Possession Recovery Other
Notice
Action

48
Result

From the survey, the above table & graph representation have drawn showing Action taken
by Bank wise classification of the NPAs. From the total group of 40 NPAs the highest
frequency of NPAs are 14 representing 35% is Overdue Notice, while the lowest frequency
of NPAs are representing 5% are of the Possession of Action taken by Bank. .

It shows that during the survey the highest percentages of NPAs are of Overdue
Notice action taken by bank.

OPINION ABOUT THE STATUS OF LOAN ACCOUNT

Opinion about status loan account is an important part of survey. It is helpful to determine
which loan is highly involved towards NPAs.

From the survey opinion about status loan account wise classification has drawn. The
following table & graph represents it.

Table no.16: - Opinion About status Loan Classification

Sr. No Opinion about the status No. of NPAs Percentage %

loan A/c

1. Regular 04 10.00

2. Irregular 36 90.00

Total 40 100.00

49
 Fig no 16: - Pie chart of Opinion about the status loan A/c

Opinion about the status loan A/c

10% Regular

Irregular

90%

Result

Form the table & group of 40 NPAs, the highest frequency of NPAs are 36 representing
90% are of Irregular in repayment, while the remaining 4 NPAs represent 10% are of
Regular in repayment.

It shows that during the survey the highest percentages of NPAs are of Irregular in
Repayment.

NPA AS PER YEARS

NPA as per years is an important part of survey. It will helpful to determine which loan is
highly involved towards NPAs.

From the survey NPAs as per years wise classification has drawn. The following table &
graph represent it.

50
Table no.17: - NPAs per Year Classification

Sr. No Years No. of NPAs % (Percentage)

1. 2012-13 2 05.00

2. 2013-14 3 07.50

3. 2014-15 5 12.50

4. 2015-16 14 35.00

5. 2016-17 16 40.00

TOTAL 40 100.00

Fig no 17: - Pie chart of NPAs as per Year

NPA AS PER YEAR

18
NO. 16
OF 14
NPAS 12
10
8
6
4
2
0
2012-13 2013-14 2014-15 2015-16 2016-17
YEARS

Result

From the survey, the above table & graph representation have drawn showing NPA as per
year wise classification of the NPAs. From the total group of 40 NPAs, the highest
frequency of NPAs are 16 representing 40% are 2016-2017 year, while the lowest
frequency of NPAs are representing 5% are of the 2012-2013.

It shows that during the survey the no. of NPAs is increasing day by day, but NPA
percentage has reduced in the current year (2017-18)
51
CHAPTER 6:- LIMITATIONS

52
LIMITATION OF THE PROJECT:

1. Practically difficult to data collection.

2. Time consumable process for collecting data.
3. Source of data not more reliable than the actual practice.
4. Project data not fully reliable but it helps for understand the loans and eligibility for
loan. and other things for taking loan.

53
CHAPTER 7:- FINDINGS, INFERENCES
AND RECOMMENDATIONS

54
APPRAISAL SYSTEM:-

 For the prevention of account becoming NPAs the appraisal officers, while
appraising a proposal, should
 Look for symptoms of dishonesty which can be revealed form the financial
statement, cheque drawn by the party, securities held vies-a vies bank finance, etc.,
in such case the proposal should be rejected even if the proposal is sound in other
respects.
 Do not grant credit limits unless the primary source of repayment, i.e., profit from
operation is adequate to take care of interest payment and repayment of principle
loan amount (i.e., unless the debt service coverage ratio is higher than
 Do not give credit limit before the borrower’s family background is adequately
investigated such as: Size of the family, Number of the dependent in the family,
Standard of living, Detail of family business / profession, if any, earning member in
family, etc.

55
CHAPTER 8:- CONCLUSION AND
SUGGESTIONS

56
CONCLUSION:-

The study and analysis done above helps us to know various aspects relating to default of
loans.

The finding above helps us to analyze the study and draw proper conclusion. The
conclusion is in the form of points given below.

1. Bank has granted loans in various sectors i.e.

 Home loans
 Auto loans.
 Personal loans
 PMRY Loan
2. The major cases of default are of housing loan and auto loan.
3. The main reasons for the default being
 Nonpayment from the debtors to the borrowers
 Family problem faced by the borrowers
 Willful default
 Natural calamities
 Diversion of fund
4. Bank official come to borrowers place for
 Overdue Notice
 LAD
 Possession
 Recovery
Nationalized bank sanction the PMRY loan

57
 5. From the above survey I learnt about NPA account holders

 What type of loan have they taken?

 How they taken the loan?
 From where have they taken the loan?
 How much amount they prefer to take the loan?
 What are the problems they face while taking the loan?
 Reasons behind selected bank.
The survey is helpful to Banking and Financial Institution to solve the problems by giving
loan to borrowers. It is supportable to take decision regarding.

 To focus on Credit Appraisal system.

 To follow the KYC Norms.
 To study the borrower account.
 To increase new strategy by giving loan to borrowers.
From the survey it is also possible to know the borrowers behavior

SUGGESSTIONS:-

 They should target marginal customers instead of their regular customer.

 The documentation formalities should be made easy and minimal.
 Seminar, personal visits, programs should be made frequently.
 Proposal requiring sanction from controlling authority is unduly delayed. Sanction
of loan should be faster without unnecessary delay.
 Positive attitude should be developed by the operation staff to attract more
customers.
 Behavior of staff should be improved. They should be co-operative and soft spoken.
 Frequent training to the staff should be imparted to update the knowledge.
 Branch front line staff should be directed for actively involvement in branch and
output of branch marketing and ensuring excellent customers relation all spheres of
banking transaction.
 Staff shortage is the main hurdle in efficient performance so that overload of work
can be avoided.

58
 Terms and conditions should be explained properly to the customers to avoid
misunderstandings between customer and bank.
 Bank should convey in writing the main reason for rejection of loan application.
 Demand draft commission and bank charges should be reduced so that customer
does not shifted to other banks.
 Banks are lacking in conducting awareness campaign so they should take necessary
steps regarding this.
 There should be educated staffs and they should be motivated to give there 100%
devotion for bank progress.
 Frequent training to the staff should be imparted to update the knowledge.
 Branch front line staff should be directed for actively involvement in branch and
output of branch marketing and ensuring excellent customers relation all spheres of
banking transaction.

59
CHAPTER 9:- SUMMARY OF THE
PROJECT

60
As a part of PGDBA Programme, a student has to pursue a project duly approved by the
institute. I had the privilege of undertaking the project on CREDIT APPRAISAL
MECHANISM AND NPA MANAGEMENT. Credit Appraisal is the process through
which institutions like banks etc try to continue giving quality loan to its customers. One of
the basic tenets of the loan policy is to ensure continuous growth of loan assets while
endeavouring that they remain secure, performing and standard. Loans and advances
constitute significant portion of bank’s balance sheet. But lending activity is associated
with various risks , the most predominant being default risk. While default risk is
unavoidable, risk mitigation is recognized as a significant technique.

This report also compares the strategies to deal with Credit Appraisal and to check the
credit worthiness of the customer. It further looks into the effect of different techniques
used for Credit Appraisal and suggests mechanism to handle the problem by drawing on
experiences from different technologies used.

NPA’s have turned to be a major stumbling block affecting the profitability of Indian
banks. Before 1992, banks did not disclose the bad debts sustained by them and provisions
made by them fearing that it may have an adverse effect. Owing to the low levels of
profitability, banks owned funds had to be strengthen by repetitive infusion of additional
capital by the government. The introduction of Prudential Norms strengthens the bank’s
financial position and enhanced transparency is considered as a milestone measure in the
financial sector reforms. These prudential norms relate to income recognition, asset
classification, provisioning for bad and doubtful debts and capital adequacy.

61
ANNEXURES

62
GLOSSARY:-

NPA - Non-performing Assets

A/C - Account

PC - Personal Computer

PDCs - Post Dated Cheques

OD/CC - Over Draft / Cash Credit

KYC Norms - Known Your Customer

SWOT - Strength, Weakness, Opportunity and Threats.

LAD - Letter of Acknowledgement.

BIBLIOGRAPHY:-

Website: http://www.kotak.com

63