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INTRODUCTION OF PROJECT
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Introduction of project
Banks play a very important role in the economic development of every Nation. They have control over a large part the supply in circulation. It is an establishment, which deals with money. Banks are the main stimulus of the economic progress of country. The basic functions of the banks are the accepting all kind of deposit and lending of money. A strong banking sector is important for the banking economy. The failure of the banking sector may have adverse impact on the other sectors. In general there are several challenges confronting the bank in its day to day operations. The main challenges facing the bank are the disbursement of funds in quality assets (loan & advance) or otherwise it leads to NON PERFORNIG ASSETS. It is one the major concern for bank in India. Non Performing Assets reflect the performance of the bank .In simple term more the value of Non Performing Assets more is the chances of a large Number of credit defaults that a affect the profitability and Net worth of banks and also corrodes the value of the assets. The Non Performing Assets growth involves the necessity of provision which reduce the overall profit and shareholder value. The problem of Non Performing is not only affecting the bank but also the whole economy. In fact high level of Non Performing Assets. In Indian banks nothing but reflection of the state of health of the industry and trade. Non Performing Assets has emerged since over decade as an alarming threat to the banking industry in our country sending distressing single on the sustainability and endure ability of the affected bank. A project has been prepared under the title of Non Performing Assets in Thane Janata Sahakari Co-Bank Ltd. in Kalwa. The Thane Janata Sahakari Bank Ltd (TJSB) and has emerged as one of the leading multi state scheduled co-operative Bank in the country. TJSB presently is catering to the needs of society through a close network of 54 Branches and 1 Extension Counters spread all over the city of Thane, Mumbai, Navi Mumbai, Nasik, Pune & Satara. All these Branches have made remarkable progress on all fronts in all these years. TJSB believes that "customer delight" is the ultimate goal and has a strong belief that Customers & all Stakeholders wholehearted support, absolute faith and their patronage has largely been
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responsible for its enviable growth. TJSB is committed to provide banking with speed, comfort and convenience.
1.
(3) The risk covered in Thane Janata Sahakari Bank Ltd. bank is one of the major factor the management and evaluation of the Assets Bank.
(4) It also helps the strategies for survival and growth of the bank. (5) It is relevant to inflows and outflow of banking sector in India.
2. Objectives of Study
(1) To analyze the bank policy and system to recover the level of Non Performing Assets. (2) To understand the banking norms and conceptual framework of banks in India. (3) To understand how corrective measures taken by bank for non Performing Assets. (4) To understand RBIs rules and regulation for the control of Non Performing Assets. (5) To analyze the current position of Thane Janata Sahakari Bank ltd. And to study the present management of bank.
2.
Research Methodology
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Research is one kind of process to get knowledge about some topic. Research is done so that systematic analysis can be done and problem can also be solved.
level and understand the Non Performing Assets provision norm in bank.
Research Problem
Non Performing Assets affect the profit of bank and also the prestige of bank. So here the research problem is to identify the causes for the NPA and indentify the action to reduce the Non Performing Assets.
Research Design
Here the research design is exploratory which helps to explore the Non Performing Assets problems of bank.
Research Instrument
As a research instrument had been taken guidance from the Branch Manager and staff of Thane Janata Sahakari Bank Ltd.
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Data Collection
Primary Data Secondary Data Hence it is an exploratory research there is not any dependence on primary data.
2. Limitation of Project
(1) The study was restricted only to the Non-Performing Assets of Thane Janata
(4) The data collected and subsequent study is restricted for specific time frame.
(2) This research gives knowledge about every aspect of Non Performing Assets. (3) It gives the direction about how we reduce Non Performing Assets in Bank and convert in to profitability for Bank.
2. Chapter Plan
1. Chapter first signifies about scope of the project, objective of study, research of
to indentify NPA, factor affecting NPA, Indian economic and NPA, classification of NPA, which tools uses to recovery of NPA.
5. Chapter fifth reflects about TJSB bank and NPA, credit appraisal policy use by TJSB
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Definition of BANK
An organization , usually a corporation chartered by a state or deferral government which does most or all of following receives demand deposit and time deposit honors instruments drawn on them , and pays interest on them ; discounts note, make loans , and invest in securities ; collect check , drafts and notes ;certifies depositors check; and issues draft and cashiers checks.
Definition of Banking
In general term, The business activity of accepting and safeguarding money owned by other individuals and entities and then lending out this money in order to earn a profit. So we can say that Banking is a Company which transacts the business of banking. The Banking Regulation Act defines the business as banking by starting the essential function of a Banker. The term banking is defined as Accepting for the purpose of leading or investment , deposit of Money from the public , repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise.
India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of Indias growth process. The governments regular policy for Indian bank Since1969 has paid rich dividend with the nationalization of 14 major private bank of India. Not long ago, an account had wait for hours at the bank counters for getting draft or far withdrawing his own money. Today, he has a choice. Gone are day when the most efficient bank transferred money from one branch to anther in two hours.
Now it is simple as instant messaging or dials a pizza. Money has become the order of the day. The fist bank in India through conservative was established in 1786. Form 1786 till today, the Journey of India banking system can be segregated into three distinct phase. They are as Mentioned as below
(1) Early phase from 1786 to 1969 of India Bank.
(2) Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Returns. (3) New with the advent of Indian Financial and Banking sectors Returns after 1991 to make this write up. More explanatory, we divided scenario in phase I, phase II and phase III.
Phase I
The General Bank of India was setup in the year 1786. Next were Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal(1809), Bank of Bombey(1840) and Bank of Madrsh(1893) as independent unit and called it Presidency Bank . These three bank were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders. In 1865 Allahabad Bank was establish and first time exclusively by Indians; Punjab National Bank Ltd. Was setup in 1984 with head quarters at Lahore. Between 1906 and 1913 Bank of India, Central bank of India, Bank of Baroda, Canara Bank, Indian Bank and Bank of Maysure were setup. Reserve Bank of India came in 1935.
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During this first phase the growth was very slow and bank also experienced periodic failure between 1913 and 1948.These were approximately 1100 banks. Mostly small to streamline the functioning and activities of commercial banks the Government of India came up with Banking companies Act 1949 which latter change to Banking Act of 1965( Act of 23 of 1965). Reserve Bank of India was vested with extensive powers for the Supervision of Banking in India as the central banking Authority.
Phase II
Government took major steps in this Indian Banking Reform after independence. In 1955 it nationalized Imperial Bank of India with extensive Banking facilities on a large scale especially in rural and semi urban areas. In formed State Bank of India to act as principal agent of RBI and to handle banking transaction of the union and state Government all over the country. Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19 july1969, major process of nationalization was carried out .It was effort of the then chief Minister of India. Mrs. Indira Gandhi, 14 major commercial banks in the country was nationalized.
th
Second phase of nationalization Indian Bank sector Reform was carried out in 1980 with seven more banks. This setup brought 80% of the banking segment in India under Government ownership. The following are the steps taken by the Government of India to Regulate Banking Institution in the country.
(1) 1949 : Enactment of Banking Regulations Act .
(2) 1955 : Nationalization of State Bank of India. (3) 1959 : Nationalization of State Bank of India Subsidiaries. (4) 1961 : Insurance cover extended to deposite. (5) 1969 : Nationalization of 14 majors bank. (6) 1971 : Creation of credit guarantee corporation. (7) 1975 : Creation of regional rural bank. (8) 1980 : Nationalization of seven banks with deposit over 200crore.
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Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sub satiability of these institutions.
Phase III
This phase has introduced many more product and facilities in the banking sectors in its reforms measure in 1991, under the chairmanship of M Narasimbam a committee was set up by his name which worked for the liberalization of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and Net banking in introduced. The entire system became more convenient and swift. Time is given more importance than money. The financial system of the India has shown a great deal of resilience. It is sheltered from any crises triggered by any external macroeconomics shock as other East Asian Countries suffered. This is all due to a foreign are high the capital account is not yet fully convertible and banks and their customer have limited foreign exchanged exposure.
of Finance ten nominated Directors by the Government to give representation to important element in the economic life of the country and four nominated Director by the Central Government to resent 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 team of four years to represent territorial and economic interest and the interests of co-operative and indigenous Bank. 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:(1) To regulate the issue of bank notes to maintain reserve with a view to securing monetary
stability. (2) To operate the credit and currency system of the country to its advantage.
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Private Banks
Co-Operative Bank
Foreign Bank
Co-Operative Bank
The co-operative banks have a history of almost 100 years. The co-operative banks are an important of the Indian financial system, judging by the role assigned to them, the expectations they are supposed to fulfill, their number, and the number of offices they operate. The cooperative movement originated in the west, but the important that such banks have assumed in India is rarely paralleled anywhere else in the world. Their role in rural financing continuous to be important even today and their business in the urban areas also have increased phenomenally in recent years mainly due to the sharp increase in the number of primary co-operative banks.
Some of the co-operative banks are quit forward looking and have developed sufficient competencies to challenge state and private sector banks.
According to NAFCUB the total deposit and landings of co-operative Banks is much more than old private Banks. This exponential growth of co-operative Banks is attributed mainly to their ability to catch the nerve of the local clientele.
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Though registered under the co-operative societies Act of the Respective states (where formed originally) the banking related activities of the co- operative banks are also regulated by the Reserve by the Banking Regulation Act 1949 and Banking law (Co-Operative) Act 1965.
Some co-operative banks in India are more forward then many of the state and private sector bank.
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According to NAFCUB the total deposits and landing of Co-operative Bank in India is much more than Old Private Sectors Banks and New Private Sector Banks. This exponential growth of Co-operative Banks in India is attributed mainly to their much better local reach, personal interaction with customers, and their ability the nerve of the local client.
RRBs started their development process on 2nd October 1975 with the formation of a single bank (Prathama Grameen Bank). As on 31 March 2006, there were 133 RRBs (post-merger) covering 525 districts with a network of 14,494 branches. RRBs were originally conceived as low cost institutions having a rural ethos, local feel and pro poor focus. However, within a very short time, most banks were making losses. The original assumptions as to the low cost nature of these institutions were belied.
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When the reform process in the banking sector was initiated, RRBs were taken up for a close look. The GOI in consultation with RBI and NABARD started the reform process thru a comprehensive package for RRBs including cleansing their balance sheets and recapitalizing them. Extant lending restrictions were removed and space and variety available for investment of their surplus funds was expanded. Simultaneously, a number of human resource development and Organizational Development Initiatives (ODI) were taken up by NABARD with funding support of the Swiss Development Corporation (SDC) and with the tools of training and exposure visits, ODI, technology support, computerization and use of IT, system development, etc. for business development and productivity improvement. By end March 2005, there was a remarkable improvement in the financial performance of RRBs as compared to the position prevailing in 1994-95. The number of banks reporting profits went up to 166 of the 196 RRBs. As on 31 March 2006, of the total 133 RRBs (post merger), 111 posted profits and 75 of these RRBs were sustainably viable organizations having no accumulated losses as also posting current profits. GOI initiated the process of structural consolidation of RRBs by amalgamating RRBs sponsored by the same bank within a State as per the recommendations of the Vyas Committee (2004). The amalgamated RRBs were expected to provide better customer service due to better infrastructure, computerization of branches, pooling of experienced work force, common publicity / marketing efforts, etc. and also derive the benefits of a large area of operation, enhanced credit exposure limits and more diverse banking activities. As a result of the amalgamation, the number of RRBs was under the amalgamation process, 145 RRBs have been amalgamated to form 45 new RRBs.
Foreign Bank
The foreign banks in India are slowly but steadily creating a niche for themselves. With the globalization hitting the world, the concept of banking has changed substantially over the last couple of years. Some of the foreign banks have successfully introduced latest technologies in the banking practices in India. This has made the banking business in the country more smooth and interesting for the customers. The concept of foreign banks in India has changed the prevailing banking scenario in the country. The banking industry is now more competitive and customer-friendly than before. The foreign banks have brought forth some innovations and changes in the banking industry of the country. The Reserve Bank of India (RBI) is the supreme monetary authority of the country and tops the entire banking hierarchy. The scheduled banks under the authority of Reserve Bank of India are further categorized into two segments - commercial banks and co-operative banks. The commercial banks are then again subdivided into two classes - private sector banks and public
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sector banks. In the year 1994, the Government of India allowed the new private banks to operate in the country and this changed the face of banking in the country. According to the new rules set by Reserve Bank of India in the new budget, some decisions regarding foreign banks in India have been taken. The steps taken by the central monetary authority provide some extent of liberty to the foreign banks and they are hopeful to grow unshackled. The foreign banks in India are now allowed to set up local subsidiaries in the country. The policy also states that the foreign banks are not allowed to acquire any Indian bank unless the Indian bank is listed as a weak bank by the RBI. The Indian subsidiaries of the foreign banks are not allowed to open branches freely in the country. This is list of some foreign banks in India as of September, 2011:
ABN AMRO Bank N.V. American Express Bank. Arab Bangladesh Bank. Bank of America. Barclays Bank. Citibank. JPMorgan Chase Bank. HSBC (Hongkong & Shanghai Banking Corporation) Bank.
CHAPTER: 3
Introduction
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OF
INTRODUCTION OF BANK
TJSB is the name of bank where the bank to serve to its banking services to customers. The bank is governed by the Maharashtra co-operative societies act, a legislation enacted by state of Maharashtra in India. The TJSB co-operative bank was started in 1972. The dynamism infused by the Board of Directors, unflinching loyalties of clientele and devotion of staff has propelled the sound foundation of The Thane Janata Sahakari Bank Ltd (TJSB) and has emerged as one of the leading multi state scheduled co-operative Bank in the country.
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TJSB presently is catering to the needs of society through a close network of 54 Branches and 1 Extension Counters spread all over the city of Thane, Mumbai, Navi Mumbai, Nasik, Pune & Satara. All these Branches have made remarkable progress on all fronts in all these years. TJSB is the first Bank in Co-operative sector to install Cheque Depository Machines at 44 branches, which are operational 24 X 7. TJSB has put in place Real Time Gross Settlement System (RTGS) transactions. With Core Banking Solution in place the Bank is Providing RTGS facility to all its customers. TJSB has initiated process for strategic alliance with other Banks for the usage of their delivery channels by which nearly 60000 ATMs will be available to Banks customers across the country. TJSB is first Bank In the country to introduce Automated Cheque Issuance Machine which enables Customers to take Personalized Cheque Book 24 X 7.
Professional Board and Pragmatic decision making. Consistent profit and growth for last 39 Years. Equilibrium in Growth and profits. Strong Internal Reserves and CRAR at 15.47%. Balanced Credit Portfolio & focus on Retail /SME Segment. Strong Focus on Recovery and NPA Management. One of the very few co-operative banks to get AD1 license to deal in Foreign exchange. Exclusive financial solutions for professionals under special scheme of loans "Sanjeevani". First Co-op Bank to offer Banc assurance Product in association with Max New York Life Insurance Co. Ltd. Easy solution for medical expenses through Medi claim policy especially for TJSB account holders with a very low premium in association with Oriental Insurance Co. Ltd. Provinding assitance for investments in Mutual Funds with expert advice through UTI & Kotak Mahindra Mutual Fund. For receiving money from overseas in just 10 minutes through 'Money Gram'. Anywhere Any Branch Banking facility in all Branches. 58 ATMs installed in Branches at Thane, Mumbai, Pune, Nashik and Satara. 24x 7 Cheque Issuance Machine at e-Lobby at Naupada Branch. 24x 7 Cheque Depository machine at 44 branches. Value Added services for Customers.
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Awarded by Maharashtra Urban Co-operative Bank's Federation for 'Best Urban Co-
operative Bank' in Maharashtra for The Year 2004-05 amongst the urban Co-operative banks having Deposits over Rs.500crores.
TJSB has been awarded 1st Prize as "Padmabhushan Vasantdada Patil Utkarsha Nagari
Sahakari Bank" for the F.Y.2003-2004 from Kokan Region for the second time consecutively.
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TJSB was recognized amongst top 5 Co-Operative banks in the country, during centenary celebration of Co-Operative movement by Kalupur Commerical CoOperative Bank Ltd. "Banking Frontiers has conferred 5 awards to TJSB on 28/07/2008 as 1. Best M&A (Merger and Acquisition) 2. Innovation in CBS, 3. Innovation in Marketing 4. Innovation in Self Service 5. Innovation in Branch Up-gradation. In the category of big Co-operative banks having business mixes more than 500crores. The Thane Janata Sahakari Bank has won the award by 'Banking Frontiers' for esecurity implementation and best website in the category of big co-opeartive banks having business mix of more than 500crores.
BOARD OF DIRECTORS
NO.
NAME
DESIGNATION
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1 2 3 4 5 6 7 8 9 10 11 12
Shri. Vidyadhar Achyut Vaishampayan Shri. Bhalchandra Vaman Date Mrs. Anuradha Ramchandra Apte Shri. Ramakant Khushalchand Agarwal
Mrs. Padma Balkrishnan Director Iyer Shri. Ramesh Khushaldas Kanani Shri. Madhukar Dharma Khutade Shri. Namdeo Dattatray Mandge Shri. C. Nandgopal Menon Shri. Vivek Manohar Patki Shri. Pradeep Dattatray Thakur Shri. Vinodkumar Bansal Director Director Director Director Director Director Director
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DIRECTORS
CHIEF MANAGER
DIVISIONAL MANAGER
BRANCH MANAGER
STAFF OFFICER
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Registered Office
1st Floor, Madhukar Bhavan, Road No. 16, Wagle Estate, Thane - 400 604.
Head Office
Branch of Thane Janata Sahakari Bank Ltd are placed in various regions of Maharashtra. (1) Thane (2) Mumbai (3) Navi Mumbai (4) Pune (5) Nasik (6) Western Maharashtra
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NON-PERFROMING ASSETS
MEANING
An asset becomes non-performing when it ceases to generate income for the bank. Earlier an asset was considered as non performing asset based on the concept of past due.
DEFINITION
A non-performing assets was defined as credit in respect of interest and/ or installment of principal has remained past due for a specific period of time. The specific period of time was in phased manner as under: Year ended March 31 1993 1994 1995 2004 Specific Period 4 Quarters 3 Quarters 2 Quarters 1 Quarters
An amount is considered as past due, when it remains outstanding for 30 days beyond the due date. However, with effect from March31, 2001 the past due concept has been dispensed with the period is reckoned from the due date of payment
A. Interest and / or installment of principal remain overdue for a period of more than 90 days in respect of a term loan. B. The account remains out of order for a period of 90 days, in respect of an Overdraft/ Cash Credit (OD/CC). C. The bills remain overdue for a period of more than 90 days in the case of purchased and discounted. D. Any amount to be received remains overdue for a period of more than 90 days in respect of any other accounts.
Tier 2 bank like all the Urban Co-Operative Banks(UCBs) other than the Tier 1 bank i.e Unit bank shall classify their loan accounts as NPA as per 90 day norm as hitherto.
Improper selection of borrower activities. Weak credit appraisal system. Industrial problem. Inefficiency in management of borrower. Slackness in credit management & monitoring. Lack of proper follow up by bank. Recession in the market. Due to natural calamities and other uncertainties.
Gross NPA (Non-performing assets) in Indian banking sector have declined sharply to close to 3.0 per cent in 2006 (15.7 per cent at end-March 1997). Net NPAs of the banking sector are 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
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delinquency norms as against 180-day earlier. Banks are also required to make general provisioning (0.40 per cent) for standard advances. According to Reserve Bank of India, improved profitability, underpinned by robust macroeconomic environment and upturn in interest rate cycle, has enabled banks to reduce the backlog of NPAs.
NARSIMHAN COMMITTEE
FIRST COMMITTEE
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 Bank 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 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 is 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.
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Committee has suggested that banks should operate on the basis of financial autonomy and operational flexibility. It has recommended Capital Adequacy Norm of 18%.
These norms are applicable to all UCBs from 1st April, 1992.
SECOND COMMITTEE
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.
Norms is 9% which was 8% earlier. 2. Banks cant classify the account as NAP 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,
with effect from the year ending 31st March, 2000. In future, this provision is likely to be raised to 5%.
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5. The present norm is of 180 days for the account to be treated as NPA but after 31st
2000. The percentage has to be brought down to less than 3% with effect from 31 st March2002.
ASSETS CLASSIFACTION
ASSETS
NON-PERFORMING ASSETS
SUB-STANDERED ASSEST
DOUBTFUL ASSETS
LOSS ASSETS
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1 TO 3 YEARS
ABOVE 3 YEARS
1. STANDARD ASSETS:
Standard assets are one which does not carry any problems and which does not carry more than normal risk attached to the business. Such assets should not be an NPA.
2. SUB-STANDARD ASSETS:
These assets involved the two types of view as follows.
In respect to the norms of March 31, 2005 an assets would be classified as Sub standard
if it remained NPA for a period less than or equal to 12 months. An assets where the terms of the loan agreement regarding interest & principal have been regenerated or rescheduled after commencement of production, should be classified as
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sub-standard and should remain such category for at least 12 months of satisfactory performance under the renegotiated terms.
1. DOUBTFUL ASSETS:
In respect to the norms of March 31, 2005 an asset is required to be classified as doubtful, if it has remained NPA for more than 12 months. A loan which is classified as doubtful has all the weaknesses inherent as that classified as Sub-standard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently know fact, conditions and values, highly questionable and improbable. Some types of these assets are A. Less than 1 year B. 1 to 3 year C. 3 year and above
1. LOSS ASSETS
A Loss asset is one where loss has been identified by the bank or internal or external auditors or by the Co-operation department or by the RBI inspection but the amount has not been written of, wholly or partly.
2.
Doubtful up to 1 year
3.
4.
On or before 30-09-2003
5.
No NPA date
Loss asset
6.
No security or salvage value of security is less than 5% Chance of realization of dues from all available sources is practically negligible or zero. Account has been identified by the bank or internal / external auditors or RBI inspectors as loss assets, which has not been written off.
7.
8.
1. BASIC CONSIDRATION:
In simple term the classification of assets should be done by considering the well
defined credit weakness & extent of dependence on collateral security for realization of dues.
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existence of other factor such as fraud committed by it will not be prudent for bank to classify that account first as sub-standard and then as doubtful. Such account should be straight away classified as doubtful asset or loss asset, as appropriate, irrespective of the period for which it has remained as NPA.
1.
the term have been re-negotiated unless the package of re-negotiated terms has worked satisfactory for a period of one year.
A similar relaxation is also made in respect of SSI units which are identified as
sick by bank themselves and where rehabilitation packages programs have been drawn by the banks themselves or under consortium arrangements.
1.
fixed by bank.
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The system should ensure that doubts in assets classification due to any reason are settled though specified internal channels within one month from the date on which the account would have been classified as NPA as per extant guidelines.
recovery. Income from non-performing assets is not recognized on accrual basis but is booked as income only when it is actually received. Therefore, banks should not take to income account on non-performing assets on accrual basis.
However, interest on advances against term deposit, NSCs, IVPs, KVPs, and Life
policies may be taken to income account on the due date, provided adequate margin is available in the account.
Fees and commission earned by the banks as a result of re-negotiation or rescheduling of
outstanding debt should be recognized on an accrual basis over the period of time covered by the re-negotiated or rescheduling of credit. If Government guaranteed advances becomes overdue and thereby NPA, the interest on such advances should not be taken to income account unless the interest has been realized.
PROVISIONING NORMS
According to the norms the provisions should be made on the non-performing assets on the basis of classification of assets as we have already discussed.
Taking into account this provisioning norms the bank have to make provision on different
assets like Loss assets, doubtful assets and standard assets as below:-
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(1)
LOSS ASSETS
The entire assets should be written off after obtaining necessary approval from the competent authority and as per the provisions at of Co-Operative society act. If the assets are permitted to remain in the books for any reasons, 100% of outstanding should be provided for. If expected salvage value of the loss assets is negligible then 100% provision should made on it.
(1)
(1)
DOUBTFUL ASSETS
On doubtful assets provision made from 20% to 100% as per the period of assets. The table below shows the provision on doubtful assets.
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Period for which the advance has Provision Requirement remained in `doubtful category Up to One year Up to Up to one year 20% 30%
More than Three year -50% as on March 31,2007 (1) Outstanding NPA as on March -60% as on March 31,2008 31,2007 -75% as on March 31,2009 -100% as on March 31,2010
(2) Advances classified as `doubtful -100% for more than years on or April 1, 2007
There is no objection if the banks create bad and doubtful debts reserve beyond the specified limits on their own or if provided in the respective State CoOperative Societies Acts.
MANAGEMENT OF NPA
It is very necessary for the bank to keep the level of NPA as low as possible. Because NPA is one kind of obstacle in the source of bank so, for that the management of NPA in bank is necessary. And this management can be done by following way:1. Framing reasonably well documented lone policy and rules. 2. Sound credit appraisal on the well-settled banking norms. 3. Emphasizing reduction in Gross NPAs rather than Net NPAs. 4. Pasting of sale notice/ wall posters on the house pledged as security. 5. Recovery effort starts from the month default itself. Prompt legal action should be taken. 6. Position of overdue accounts is reviewed on a weekly basis to arrest slippage of fresh account to NPA. 7. Half yearly balance confirmation certificates are obtained from the borrowers regularly. 8. A committee is constituted at Head Office, to review irregular accounts. 9. Due to lower credit risk and consequent higher profitability, greater encouragement is given to small borrowers. 10. Recovery competition system is extended among the staff members. The recovering highest amount is felicitated. 11. Adopting the system of market intelligence for deciding the credibility of the borrowers. 12. Creation of a separate Recovery Department with Special Recovery Officer appointed by the RCS.
RCOVERY OF NPA IMPORTANCE OF RECOVERY:1. Increase in the income of bank. 2. Increase in the trust of share holder in bank. 3. Level of NPA reduces as the recovery done. 4. Decrease in the provisioning requirements.
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NON-PERFORMING ASSETS
INTRODUCTION
At the time of registration of bank, Loan rules were framed and approved by the DRCS, Maharashtra. Thereafter with the approval of Board, loan rules were changed considering guidelines issued by RBI from time to time. Now in view to increasing branch network in number of geographically also, one common document viz. Appraisal policy framed.
POLICY ON PRE-SANCTION
1. Application for loan should be in standardized form as devised by the bank.
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2. Branch to collect all the papers/information/documents as suggested in the respective application form.
3. Branch to visit the borrowers office /factory/residency and to satisfy themselves before
recommending any loan to higher authority and to keep record of such visit. 4. If applicant maintains loan/current/saving account with any other bank/financial institution to verify such account statement and to satisfy them.
5. Branch to ascertain the promptness of applicant in making payment of Power
interest
or
installment,
before
A. TERM FINANCE
1. Term loan limit to be arrived25% margin in respect of Machinery/Equipment and
Vehicles while 50% against land & building electrification, furniture fixtures.
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2. Sources for margin money existing earning to be ascertained. 3. Repayment capacity, considering existing to be ascertained. 4. Moratorium period to be fixed considering time required going in for commercial production.
A. GENERAL
1.
Credit facilities should not exceed segment wise, individual as also group exposures.
2. In case of switch over from other bank, branch to obtain credit information report from the concerned bank. 3. In case of existing borrower/group borrower, branch to satisfy themselves about their dealing with the bank.
EXPOSURE
As per the RBI guidelines per party exposure is restricted to 15% of share capital and Free Reserves and group exposures it is 40%. RBI has given liberty to recalculate the exposure on the basis of profitability of September half. However
irrespective of these it is restricted at lower level i.e. Rs.1.55 core for individual
and 3.50 cores for group.
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2. DOUBTFUL ASSETS
NPA for more than 12 months is doubtful assets.
PROVISION
1. STANDARD ASSETS
0.25% of standard assets in SME. 0.40% in case of all other standard loans. 1.00% for personal loan, Commercial Real Estate Loan, Loan against shares. And for housing loan up to Rs. 20.00 lacs the provision is 2.00%.
1. Doubtful assets
20% for NPA from 13 months to 24 months 30% for NPA from 25 months to 48 months 50% for NPA from 49 months and above
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BANK POLICY
At present they are making recovery but procedure for the same is not documented in the form of policy. Although the bank is committed to collection/recovery of its dues but the dignity of and respect for the customer is central to their recovery policy. The policy is framed o the principal courtesy, fair treatment and persuasion.
3. If the branch does not get response from the borrower for paying the amount, they
have to visit the unit and meet with the borrower. During visit to customers place for collection of dues, decency and decorum would be maintained and customers Privacy would be respected as for as practicable. 4. If the branch does not get any favorable response, during personal visit, they should write a notice letter to borrower. 5. If borrower still behaves irresponsible, they should meet the guarantor and ask guarantor to peruse the borrower. Guarantor must be informed about legal complication to arise if borrower fails to repay the dues.
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6. On failure of all the recovery steps, branch to contact Area office/Control centre.
7. Area office/Control centre to call the borrower along with guarantor and try to find out the reason or overdue. If borrower is in genuine difficulty, problem to be resolved in a mutually acceptable and in an orderly manner. 8. If party behaves indifferent, legal actions must be initiated. In such case prompt legal action and seizure action to be taken. Preference to be given for steps under Securitization Act rather than go for filling a case in the court of Board of Nominees. 9. Reasonable notice would be given before Repossession of security and its realization, unless the borrower is about to dispose of/remove the whole or any part of the security from the locality where it ordinarily remained or by whom it is used or caused to be remained or used, as the case may be, at the time of creation of security.
CHAPTER: 6
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Page | 46
YEAR
2007
2008
2009
2010
2011
212.12
268.02
303.69
28.11
507.42
467.86 0.00
504.12 0.00
541.69 0.00
497.80 0.00
552.07 0.00
TOTAL NPA
679.98
772.14
845.38
525.91
1059.49
YEAR
2007
2008
2009
2010
2011
TOTAL NAP
408.2
857.6
958.2
778.3
681.2
8622.7 9030.9
11990.9 12848.5
14107.9 15066.1
16012.25 19790.8
19237.5 19918.7
LACS) Details STANDARD ASSEST SUB-STANDARD ASSETS DOUBTFUL ASSETS LOSS ASSETS Amount 11990.9 268.02 504.14 0.00 %of Total 93.95 2.10 3.95 0.00
Page | 49
Total
12763.06
100
Page | 50
Details STANDARD ASSEST SUB-STANDARD ASSETS DOUBTFUL ASSETS LOSS ASSETS Total
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RATIO ANALYSIS
To analyze the NPA situation in the bank and from that to know about the bank credit appraisal and level of risk in the bank.We have done the ratio analysis. Ratio analysis is the tool which will helps us to do financial analysis of bank. Some names of ratio are as follows: ->
1. GROSS NPA RATIO. 2. NET NPA RATIO. 3. PROBLEM ASSETS RATIO. 4. SHAREHOLDERS RISK RATIO.
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5. PROVISION RATIO. 6. SUB-SATANDARED ASSETS RATIO. 7. DOUBTFUL ASSETS RATIO. 8. LOSS ASSETS RATIO.
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Gross NPA is the sum of the total assets which are classified as the NPA by bank at the end of every year. Gross NPA is the ratio of Gross NPA to Gross Advances. It is expressed in percentage from.
*100
(Rs. Ten laces) YEAR 2007 2008 2009 2010 2011 GROSS NPA 408.2 857.6 958.2 778.3 681.2 GROSS ADVANCES 9030.9 12848.5 15066.1 16790.8 19918.7 GROSS NPA RATIO (%) 4.25% 6.67% 6.36% 4.64% 3.42%
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Analysis :
Goss NPA ratio shows the banks credit appraisal policy. High Gross NPA ratio means bank have liberal appraisal policy and vice-versa. In TJSB bank this ratio was 4.25% in March 2007 and it will be increased to 6.67% in March 2008 but thereafter has been decreased continuously 6.67% to 3.42% from year 2008 to 2011. It is revels form the chart that banks Gross NPA ratio is continuously decreasing which is positive trend for bank and we can say bank have good appraisal system.
*100
YEAR
NET NPA
NET
NET
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ADVANCES 2007 2008 2009 2010 2011 0.00 0.00 0.00 0.00 0.00 62112.80 68881.84 72363.74 66222.75 97330.62
ANALYSIS :
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NET NPA ratio shows the degree of risk in portfolio of bank. High net NPA ratio means banks dont have enough fund to do provision against the Gross NPA. In TJSB bank Net NPA ratio was 0.00% from March 2007 to March 2011.Which shows that bank has enough provision capacity. So here the degree of risk is less. TJSB bank has done more provision every year which is good at one side but at other side it is also reduces the profit of bank and shareholder will get more dividend. When all bank will do provision then Net NPA will become zero but if we want to know the true and fair situation of bank we must consider the Gross NPA of bank.
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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.
* 100
YEAR
GROSS NPA
TOTAL ASSETS
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ANALYSIS:
This ratio shows the percentage of risk on the assets of banks. It shows the level of risk on banks assets shoe the high risk on liquidity. In TJSB this ratio was 3.98% in March 2007 and after that it has been decreased from 3.98% to 1.55% in March 2011. The ratio is continuously decreasing in bank. This ratio is good for the bank which indicates the level of risk in low in bank.
* 100
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ANALYSIS:
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The ratio shows the degree of risk with share holders investment. High ratio means high ratio with the investment. In TJSB Bank this ratio was 0.00% in year March 2007 which shows that in that year risk on share holders investment was low this ratio is continue up to year march 2011,which show that Bank have enough capacity for provision and the risk on investment is nil. As we know that this ratio is 0.0% shows the risk is nil but on the other side because of more provision the profit will decrease and the shareholder will get more dividends.
1. PROVISION RATIO:
Provisions are to be made against the Gross NPA of bank. As bank make provision for NPA it directly affects the profit of bank. This ratio shows the relation total provision to Gross NPA.
Provision Ratio =
*100
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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. If Provision ratio is less then it means that bank has make under provision and if provision is more then it means that it is over provision. In TJSB bank they made 75.96% provision in March 2007 which shows that is was under provision but after in March 2008 and March 2009 it is 92.67% and 97.10% respectively which indicates that provision was nearer to total amount of Gross NPA but in March 2010 and March 2011 the provision ratio reach at 143.16% and144.79% which indicates that the provision is very high. TJSB bank should make the provision in the range of 100% to 115%. The provision in March 2011 which is 144.79% is very high and it is not necessary to do that.
*100
YEAR
GROSS NPA
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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 assets in the Gross NPA. High ratio shows that chance of recovery of assets its high. In TJSB bank this ratio was 51.96% in March 2007 which is good for bank and it is 3.12 % in year March 2010 which is not good for bank. As the level of Sub-Standard assets are chances of recovery of NPA high.
1.
*100
YEAR
GROSS NAP
2006
408.2
ANALYSIS:
This ratio shows the percentage of doubtful assets in the Gross NPA of bank. High Doubtful assets ratio means more proportion of Doubtful assets in the Gross NPA. More Doubt assets means Bank should take action through recovery policy to reduce the level of Doubtful assets.
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As the Doubtful assets ratio is high shows that bank should take quick action to reduce that level. This ratio should be less for the bank. In TJSB Bank ratio is114% in March 2007 but after March 2008 and 2010 ratio is between 55.00% to 65.00%. Once again March 2011 this ratio reach at 81.04% which is not good for bank and bank must take some necessary action to recover it.
*100
YEAR
GROSS NAP
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ANALYSIS: This ratio shows the percentage of loss assets in the Gross NPA of bank. High loss assets ratio more proportion of loss asset in the Gross NPA. This should be less in bank. The high ratio indicates that bank is not good position. The bank must take necessary action to reduce the level of loss assets. In TJSB Co. Bank this ratio is 0.0% in March 2007 and from March 2007 it is constant. This ratio is zero in bank which is good for bank. .
Ratio analysis reveals that Banks financial condition is good. The observations are as follows:1. The Gross NPA ratio bank is 4.52% in the year 2007 after then it reaches to 3.42% in
the year 2011. Hence, the ideal gross NPA ratio is 4.00% and bank have3.42%. So, we can say that banks financial condition is good. 2. Banks Net NPA ratio is 0.00% from 2007 to 2011 which is positive for Bank.
3. The Problem assets ratio was 3.98% in the year 2007 was the heighted ratio and from
that year it decreases to 1.55% in that year 2011 which is good for bank.
4. Provision ratio for the year 2007 is 75.96% which show that it was under provision
but in the year 2009 this ratio is 97.10% which shows that bank have profit for provision.
5. It will be considered good if the Sub-Standard assets ratio is high. For TJSB bank this
ratio is 51.96% in the year 2007 which is good but it reached to 3.12% in year 2010 which is not favorable to the Bank. 6. Doubtful assets ratio should be low for the good health of bank and in TJSB bank this ratio is 114.61% in the year 2007 which is very bad but in year 2009 this ratio decrease to 56.53% which is positive for bank.
7. Loss assets ratio should be zero and bank have 0.00% ratio from March 2007 to
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CONCLUSION:
Now as we know that NON-PERFORMING ASSETS is like a black spot on diamond. They affect the profit of bank and also the financial health of the bank. This NPA have number of effects on bank working. Based on the collection and analysis of data as well as the introduction with bank officer, it is observed that :-> TJSB Co- banks NPA level is decreasing year by year which good for bank. TJSB Banks own NPA is very low. The Gross NPA ratio of bank is 4.25% in the year 2007 after then it reaches to 6.67% in the year 2008. Hence, the idle gross NPA ratio is 5.00% and bank have 3.42%. So, we can say that banks financial condition is good. Banks net NPA ratio is 0.00% from 2007 to 2011 it remains 0.00% which positive for bank. Loss assets ratio should be zero and bank have 0.00% in the year 2007 to 2011 which is good. TJSB Co. Bank has sound credit appraisal system and also sound recovery policy. TJSB Co. Banks NAA level is decreasing year by year and because of the TJSB Co. Bank is being considered very good bank by citizens of Thane. Hence in present time the position of NPA in bank is much better than the past position. In year 1997 in India the Gross NPA was 15.7% but now it is 0.00% in the year 2011. This is very favorable to Indian economy and also banking sector if India. Governments act and also the Narsimhan committee on NPA are very useful to reduce the level of NPA. So, it can be concluded that level NPA in any bank is important parameter to analyze the health of bank.
SUGGETIONS
1. TJSB Co. banks NPA level is decreasing year by year which good for bank but bank should follow the recovery policy strictly. 2. In TJSB Co. bank there is no any special recovery department so bank should develop the department for the fastest recovery of NPA. 3. Bank should motivate the staff to do fast recovery NPA. 4. Bank have more NPA in Small Scale Industry so, they should try to reduce that level of NPA.
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BIBLIOGRAPHY
JOURNALS
Periodical circular and statement of RBI regarding to NPA managing and UCBs
WEBSITES
Page | 71
APPENDICES
(Rs in Thousands) LIABLITIES As on 31st Mar 2011 CAPITAL 5,51,108 As on 31stMar 2010 4,00,890 CASH AND BANK BALANCES BALANCES WITH OTHER BANK ASSETS As on 31st Mar 2011 2268989 As on 31st Mar 2010 1990078
RESERVE FUND AND OTHER RESERVES EPOSITS AND OTHER ACCOUNTS BORROWINGS BILLS FOR COLLECTION BRANCH ADJUSTMENTS OVERDUE INTEREST RESERVE INTEREST PAYABLE
33,43,973
29,09,338
4680912
3209194
D 3,47,15,81 4
2,79,97,28 9
MONEY AT 0 CALL &SHORT NOTICE INVESTMENTS ADVANCES INTEREST RECEIVEABLE 1,35,52,68 1 1,99,18,70 6 10,99,072
1,41,164
1,24,506
1,25,728
Page | 72
15,64,940 26,312
12,81,821 2,03,587
4,90,940 84,485
4,80,980 17,922
4,95,778
4,41,929
11,61,244 3,28,892
GRAND TOTAL
4,37,63,72 8
3,59,52,90 5
PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2011
EXPENDITURE
INCOME
(Rs in Thousands) Year ended Year ended 31Mar 31Mar 2011 2010 2195877 1892422
313507
252464
1343149
1131880
Directors and local committee members fees Rent, Rate, Taxes, Insurance, and Lighting
201
265
114811
96831
65923
59210
Page | 73
7929
3529
Rent on safe Deposit Lockers Income from sale of securities Other Income
8595
8158
Postage, Telegrams 17154 and Telephone Charges Travelling and conveyance 7459
13006
14106
5955
4799
141275
90428
Audit Fees
8682
6888
2609
6905
23427
15702
149842
102905
75046
30811
50096
EXPENDITURE
INCOME
Page | 74
Advertisement
35845
32062
75
230
Bank charges
9697
5785
5119 15004
4331 10251
Contractual Expenses
7497
8155
Other Expenses
401816
27662
30971
149842
179571
129547
722026
589890
Income Tax
240000
153500
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(13733) 495759
(5529) 441919
TOTAL
3802510
3344804
TOTAL
3802510
3344804
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