A

STUDY ON
NON- PERFORMING ASSETS
OF

KENDRAPARA URBAN CO-OP. BANK

LTD.
UNDER THE GUIDANCE OF:
INTERNAL GUIDE: ASST.PROF.SUSANTA ROUT
EXTERNAL GUIDE: MR.RAJIB LOCHAN PANDA

( manager credit)

SUBMITTED BY
SATYA PRAKASH SAHOO

MFC (Semester - III) 2014-2015

ROLL No: MFC/13-04
P.G. DEPARTMENT OF
COMMERCE & MANAGEMENT STUDIES
KENDRAPARA AUTONOMOUS COLLEGE
KENDRAPARA

DECLARATION
I do here declare that this project is A Study On Non-performing Asset
Of Kendrapara Urban Co-operative Bank is a record of independent
research work carried out by me under the supervision of

Mr. Sushil

Kumar Samal (CEO), Mr. Rajib Lochan Panda( Manager Credit).

This report is a partial fulfillment of

MFC in kendrapara Autonomous

College,Kendrapara of my own and it is not submitted to any other Institute

or University or Published elsewhere or for any Award of degree or Diploma.

Mr. Satya Prakash Sahoo

Roll No.MFC13-004
MFC 2nd Year
PG
Department of Commerce
&
Management Studies
Kendrapara
Autonomous College,
Kendrapara

ACKNOWLEDGEMENT
I take this opportunity to offer my sincere feelings of gratitude to the
Co-operation and advice given to me to bring up this project work.
In this regard I would like to thanks Dr. K.C Lenka, Honable
Cordinater of MFC for giving me permission to undergo this training
programme.
I am obliged to Mr. Sushil Kumar Samal (CEO), for given me
an opportunity to undertake the project work in this field. I am
grateful to my guide Mr. Rajib Lochan Panda(Manager Credit) for
giving me valuable guidance to do project work successfully.
I would like to express my thanks to Mr. Susanta Rout(Prof.
MFC).

Mr. Satya Prakash Sahoo

Roll No.MFC13-004
MFC 2nd Year
PG
Department of Commerce
&
Management Studies
Kendrapara
Autonomous College,
Kendrapara

CERTIFICATE
This is to certify that the project work entitled A Study On Non-performing
Asset Of Kendrapara Urban Co-operative Bank is a original piece of work
done by Sayta Prakash Sahoo, student of P.G. Department of
Commerce & Management Studies, for the partial fulfillment of the
requirement for the degree in MFC under Utkal University. This research
work which has done by him under my guidance and supervision.
To the best of my knowledge and belief, the thesis embodies the work of the
candidate himself and has been duly completed. Simultaneously, the thesis
fulfills the requirements of the rules and regulations related to the summer
internship of the institute and I am assured that the project is up to the
standard both in respect to the contents and language for being referred to the
examiner.

Asst. Prof. Susanta Rout

Faculty MFC
P.G. Department of Commerce &
Management Studies
Kendrapara Autonomous College,
Kendrapara

CONTENTS
(1)CHAPTER 1: INTRODUCTION
OBJECTIVES
NATURE AND SCOPE.
RESEARCH METHODOLOGY.
LIMITATIONS.

(2)CHAPTER 2: ORGANISATION PROFILE

HISTORY OF THE ORGANISATION
FUNCTIONS OF THE BANK
GROWTH AND DEVLOPMENT

(3) CHAPTER 3:NPA MANAGEMENT

MEANING & DEFINATION
CAUSE & IMPACT
REDUCING & PREVENTING NPA

(4)CHAPTER 4: DATA ANALYSIS, INTERPRETATION

TABLES,GRAPHS,ANALYSIS AND INTERPRITATION

(5)CHAPTER 5: RESEARCH FINDINGS

CONCLUSION
SUGGESTIONS.
APPENDIX

CHAPTER-1

INTRODUCTION
The Indian banking system, endowed with a large network of branches and
wide range of financial instruments, has achieved considerable progress in the next two
decades after Nationalization. The concept of banking had undergone a dynamic change
in keeping with the need to achieve rapid socio-economic progress. As against the
traditional banking theory, a shift in the approach to lending from security-orientation to
purpose-orientation also became a predominant concept during the period. Despite the
overall progress made by the financial system, poor capital base, inefficient
organizational structure, declining profitability and very high and ever-growing nonperforming assets (NPA) had become the major stumbling blocks in the banking sector
during the post-nationalization decades. It was against this background that the
Financial Sector Reforms became inevitable and were initiated in India.

An NPA is defined as a loan asset, which has ceased to generate any income
for a bank whether in the form of interest or principal repayment. The Indian cooperative
banking sector is facing a deep crisis. The Reserve Bank of India (RBI) has said gross
non-performing assets (NPA) of urban cooperative banks (UCBs) shot up to Rs 11,922
corer for the fiscal2003-04. To make matters worse, RBI said apart from UCBs, central
co-op banks have recorded NPAs of Rs 13,862 crore, and state co-operative banks NPAs
was Rs 6,284 crore as on March 31st, 2003. In to, urban co-op banks, state co-op banks
and central co-op banks have recorded NPAs of Rs 32,068 crore which is enough to fund
50 per cent of Indias Golden Quadrilateral road project. In its report on Trend and
Progress of Banking 2003-04, RBI said while the deposits of 55 urban co-operative
banks have risen to a staggering Rs 39,305 crore, their accumulated losses were Rs
2,320 crore. The deposits and advances of all UCBs were Rs 1,10,256 crore and Rs
67,930 crore respectively as on March 2004. RBI said there is no clear demarcation of
regulatory powers between state government, NABARD and itself, which has resulted at
times in cross-directives from the controlling agencies thereby undermining the working
of co-operatives.
In order to reduce NPAs, RBI has banned loans to directors and their family
members and also directed these banks to step up their statutory liquidity ratio (SLR)
investments in government securities. This report explores an empirical approach to the
analysis of Non-Performing Assets of Nationalized Bank and Co-operative Bank.

OBJECTIVES OF THE STUDY

To understand

the concept of Non-performing assets (NPA).

 To identify the Non-performing assets at Commercial banks.

To study the general reasons for assets to become Non-performing assets.
To offer suggestions based on findings of the study.

SCOPE OF THE STUDY

The present study of Non-performing assets is confined and restricted to the
boundary of KENDRAPARA URBAN CO-OPERATIVE BANK banks.
Data is analyzed since2009-2014.

METHODOLOGY
The data collected for the purpose of the study are of the following sources :Collection of the from primary sources are:
By personal interview and discussion with employee of the
organization.

Collection of data from secondary sources:

Information relating to historical background, type, size and growth of
Kendrapara Urban Cooperative Bank.
Annual administrative reports

 Official records
Employee of the Kendrapara Urban Cooperative Bank.

LIMITATIONS
As the NPA Management is one of the crucial areas for any bank, some
of the technicalities are not revealed.
NPA Management system includes various types of detail studies for
different areas of analysis, but due to time constraint, our analysis was
of limited areas only.

CHAPTER-2

HISTORY OF THE BANK

The Kendrapara Urban Co-operative Bank Ltd., one of the largest Cooperative Bank in the state in its outlook and approach has the objective of
progress & prosperity of all. From a humble beginning in September, 1986
with a share capital of Rs1.75 lakhs held by 523 members and being
registered under Co-operative Societies Act vide Registration
No123KE/26.09.1986 under the able leadership of Sri Bhagabat Prasad
Mohanty, a noted politician and social reformer. Today the Bank has become
one of the largest Urban Co-op. Bank of the state having six branches
operating at various places of the district and a corporate office at Kendrapara
town in its own building. The area of operation, which was confined to the
district of Kendrapara, now extended to adjoining Jajpur & Jagtsingpur
district. Now the capital base of the bank stands at RS.15514.41lakhs and
reserves and surpluses at Rs221.27lakhs as on 31st march, 2014. The Bank

has shown a tremendous growth in deposits and advances. Over the years the
deposits of the bank is over Rs13533.47 lakhs at on 31st march, 2014against
Rs12411.75lakhs as at the financial year 2012-13. Bank has posted a net
profit of Rs14.61 lakhs as on 31.03.2014. The growth rate of the bank
compares well that of others in the state. The bank has maintained a steady
growth since its inception. Recently RBI has rated our bank as GRADE-I
BANK and our bank has been awarded as BEST URBAN BANK OF THE
STATE FOR THE YEAR 2011-12.
The Bank has launched different loan schemes tailor-made to suit the needs
of various types of customers. The procedure for sanctioning of loans under
various schemes has been simplified and relaxed with a view to attract new
customers and facilitating speedy sanction of loans. The bank is providing
investment opportunities to all sections of the people in the form of attractive
deposit schemes and attractive interest rates. All the six branches and the
corporate office have been computerized to provide quality services to
customers. The bank is committed to spread network of branches throughout
the kendrapara, jajpur and jagtsingpur district and to provide much needed
banking services to the people, who have been deprived of the banking
facilities.
Innovative banking through CBS system is another area of operation that
bank is currently focusing at for sustainable long term growth. The bank has
always endeavored for providing satisfactory customer service by the help of
the latest technology like RTGS/NEFT and at par cheque facility with utmost
care for its customers. In a nut-shell it can be said that this Bank is acting as a
life line for the socio-economic growth of the district as a whole.

DETAILS OF THE OF THE BANK

Name of the bank and address -: The Kendrapara Urban Co-operative

Bank Ltd.
At/post

-: Kendrapara,

Dist

-: Kendrapara,

Pin

-: 754211, ORISSA

Regd.No and date

-: 123KE/26.09.1986

Area of operation

-: Entire area of Kendrapara district

No. of directors

-:Now Board of Management is dissolved,

Collector of Kendrapara as in charge of

M.I.C
No. of nominated directors
Total no. of Employees
No. of Branches

-:Nil
-:94
-:06

THE BRANCHES OF BANK

Corporate office/

: Kendrapara town,

Near Kendrapara Autonomous College

Main Branch: Kendrapara town,
Near Kendrapara Autonomous College.
Old Bus stand Branch-:Kendrapara town, Near Old Bus stand.
Marsaghai Branch-

: Marsaghai, Kendrapara.

Patamundai Branch- :Patamunda, Kendrapara.

Aul BranchChandol Branch-

:Aul, Kendrapara.
:Chandol, Kendrapara

ORGANISATION STRUCTURE
Urban Co-operative Banks are primary co-operative bank means a cooperative society other than a primary agricultural credit society. The main
objective of bank is transaction of banking business.
Banking Regulation Act 1949(as applicable to co-operative society), which
had come into force from 1st march 1966.has vest the RBI with various
statutory powers of control and supervision over the co-operative bank.
The powers in regard to incorporation, management, audit, etc. of cooperative banks are vested in the registrars of co-operative societies of the
state concerned.

The share holders are real owners of the bank. Each holder has same voting
rights. Elections are conducted at every four years for the member of board
of directors.15 directors are elected for the board of management. President
is elected among the board of directors. Board of management takes all the
policy decision of the bank. The day to day functioning of the bank are
managed by the chief executives of the bank with the help of other subordinate officers & staffs. Board of management has no power to interfere
in the day to day business of the bank.

MISSION OF THE BANK

To provide complete satisfaction to customers with helping hand.

To gain and sustain customer confidence by ensuring high Standards
and high quality of services & products for all levels of customers.
To attain leadership in our area through high levels of management.
To motivate & upgrade our employees through continued training for
better service to customer.

FUNCTIONS OF BANK
The functions of bank is mainly of two types. such as
(1)Primary function.

(2)Secondary function.

The primary functions are:

(a)accepting deposits
(b)Granting loans and advances.

The secondary functions are:

(a)Issuing letter of credit, cheques , circular notes etc.
(b)Under self custody of valuable, important documents and securities
by providing safe deposits or lockers.
(c)Transfer of money from one place to another and from one branch to
another branch.
(d)Collecting and supplying business information.
(e)Providing report on the creditworthiness of the customer.

MILESTONES
The bank became GRADE -1 bank in the year 2011-12.
The deposit of the bank reached 100 crore in the year 2011-12.
The Kendrapara Urban Co-operative bank was registered under Co-

operative Societies Act, 1962 on 26th September,

Registration No.123KE/26.09.1986.

1986 vide

The Bank started banking business from 24.02.1988 after obtaining

license from Reserve Bank of India vide license
No.UBDORISSA-888P on dated 26.10.87.
Bank opened its second branch at old bus stand (balagandi)
kendrapara on dt.04.05.1994
Two new branches at pattamundai and at marshaghai on
dt.08.01.1996 & dt.31.01.1996.
Bank had opened another two branches one at Aul and other at
Chandol on dt.16.03.1998 & dt.30.06.2000.
Total deposit of the Bank crossed Rs25.00 crore in the year 2002.
The deposit of the Bank reached Rs50.00 crore in the year 2008.
Total bank automation made in the year 2005.
The Bank awarded best urban co-operative bank of the State in the
year 2008-09.

HIGHLIGHTS OF ACHIEVEMENTS
We pay more interest than other bank.
Safe deposit lockers are available in all branches.
Deposits are insured in DICGC (RBI subsidiary)
RTGS & NEFT facility at all branches for instant money transfer.

 The paid of share capital stands at Rs402.99 lakh.

Total number of share holders reached at 24648.
Total reserves stands at Rs221.27 lakhs.
Attened capital Adequacy Ratio of 11.72%.
Total deposit touched Rs13533.47 lakhs.
Total advances stands at Rs9297.38 lakhs.
Net NPA slashed down to 8.98 %.
Working capital stands at Rs15514.41 lakhs.
Net Worth of the bank reached at 586.65 lakhs.
Total staff strength is 94.
Net Profit- Rs14.61 lakhs.
Continued to maintain A audit rating since inception.
The RBI has adjuged as grade I bank in his latest
inspection on 2012 Products of the bank.

CHAPTER-3

NPA MANAGEMENT
NPA is an advance where payment of interest or repayment of installment of
principal (in case of term loans) or both remains unpaid for a certain period. In India, the
definition of NPAs has changed over time. According to the Narasimham Committee
Report (1991), those assets (advances, bills discounted, overdrafts, cash credit etc.) for
which the interest remains due for a period of four quarters (180 days) should be
considered as NPAs. Subsequently, this period was reduced, and from March 1995
onwards the assets for which the interest has remained unpaid for 90 days were
considered as NPAs.

An NPA is defined as a loan asset, which has ceased to generate any income for a bank
whether in the form of interest or principal repayment.

Definition
A loan or lease that is not meeting its stated principal and interest payments.
Banks usually classify as nonperforming assets any commercial loans which are more
than 90 days overdue and any consumer loans which are more than 180 days overdue.
More generally, an asset which is not producing income.
Conceptually an asset becomes nonperforming, when it ceases to generate income
for the bank.
RBI introduced, in 1992-93, the prudential norms for income recognition, asset
classification & provisioning IRAC norms in short in respect of the loan portfolio of
the UCBs.The objective, inter-alia, was to bring out the true picture of a banks loan
portfolio.The fallout of this momentous regulatory measure for the management of the
UCBs was to divert its focus to profitability, which till then used to be a low priority area
for it. Asset quality assumed greater importance for the UCBs when RBI introduced the
Basel norms for Capita Adequacy from year-ended March 31, 2002 in the aftermath of
serious financial problems in the sector. Maintenance of high quality credit portfolio
continues to be a major challenge for the UCBs, especially with RBI gradually moving
towards convergence with more stringent global norms for impaired assets.
The quality of a banks loan portfolio can impact its profitability, capital and
liquidity. Asset quality problems are at the root of other financial problems for
banks,leading to reduced net interest income and higher provisioning costs. If loan losses
exceed the Bad and Doubtful Debt Reserve, capital strength is reduced. Reduced income
means less cash, which can potentially strain liquidity. Market knowledge that the bank
is having asset quality problems and associated financial conditions may cause outflow
of deposits. Thus, the performance of a bank is inextricably linked with its asset quality.
Managing the loan portfolio to minimize

bad loans is, therefore, fundamentally

important for a financial institution in todaysextremely competitive and market driven

business environment. This is all the more important for the UCBs, which are at a
disadvantage vis--vis the commercial banks in terms of professionalised management,
skill levels, technology adoption and effective risk management systems and procedures.
Management of NPAs begins with the consciousness of a good portfolio,
whichwarrants a better understanding of risks in lending. The Board has to decide a
strategy keeping in view the regulatory norms, the business environment, its market
share, the risk profile, the available resources etc. The strategy should be reflected in
Board

approved

policies

and

procedures

to

monitor

implementation.

The

essentialcomponents of sound NPA management are i) quick identification of NPAs, ii)

their containment at a minimum level and iii) ensuring minimum impact of NPAs on the
financials. A two-pronged strategy of preventing slippage of standard assets in to NPA
category and reducing NPAs through cash recovery, up gradation, compromise,
legal means etc., is called for.
The RBI has given the following guide lines for classification of advance
account to NPAs.
I.LOAN ACCOUNTS
A loan account (term loan) is to be classified as NPA when interest and
installment of principal remain overdue for a period of more than 90 day.
An account will be classified as NPA, if the charges during any quarter are not
service fully with in 90 day form the end of the quarter. Similarly it also be classified as
NPA if the installment due is not serviced with in 90 day from its due date.

II.CASH CREDIT OR OVERDRAFT ACCOUNT

A cash credit or over draft account is to be classified
order for a period of more than 90 days.

as NPA when it remains out of

A cash credit over draft account is treated as out of order if the outstanding in the
account remains continuously in asses of the sanctioned limit /drawing power.
III. BILL PURCHASE/ BILL DISCOUNTED ACCOUNT

A bill purchased /bill discounted account will be classified as a NPA if the bill remains
over due for a period of more than 90 days.
IV.AGRICULTURAL ADVANCES
A crop loan account for short duration cropped will be classified as NPA if the principal
or interest there on remains overdue for two crop seasons.
A crop loan account for long duration crops will be classified as NPA if the principal or
interest there on remains overdue for one crop seasons.
A term loan given for agricultural purposed will be classified as NPA if the principal or
interest over due for one crop season or two crop seasons depending on the duration of
crop raised by the borrower/ agriculturist.

V .NPA DUE TO IRREGULARITY IN OPERATION OF ACCUNT

In case of cash credit account, where the stock statement has not been obtained for a
continuous period of more than 3 months as on the date of the balance sheet, the account
will be classified as NPA.
An account where the limits have not been reviewed or renewed for a period of more
than 180 days from its due date or form the date of adhoc will be treated as NPA.
VI. ORTHER POINTS ON NPA CLASSIFICATION
Consortiums advances: in case of Consortium advance, the account will be
classified as NPA by a member bank depending on the record of recovery in its
own books irrespective of the recovery status with the lead bank or any other
member bank.
NPA classification borrower wise and not facility wise
Exempted categories
Advances guarantees by govt.:

Assets Classification:
1. Standard assets.

2. Sub standard assets.

3. Doubtful assets.
4. Loss assets.
1. Standard Assets: Standard assets are assets which are not NPA and as such do not
more than normal risk attached to the business.
2. Sub standard assets: Sub standard assets are is one which is a NPA for a period not
exceeding 18 months. In such assets the current not worth of the barrower guarantor
or the current market value of the securities charged is not enough to ensure recovery
of the dues to the bank is fuel in other words such an asset will have well depend
credit weaknesses that may jeopardize the liquidation of the debt and are
characterized by the distinct possibilities that the bank will sustain some loss of
deficiencies are not corrected.
3. Doubtful Asset: A doubtful asset is assets one which remains nonperforming assets
for period accessing 18 months. A loan classified as doubtful has all the weaknesses
in leaven as that of sub standard amount with the added characteristics that the
weaknesses make collection or liquidation of outstanding dues in such an amount in
for on the basis of currently
known facts, conditions values highly questionable and improbable or these are assets
which
have remained as NPA for more than two years starting March 2001 assets will have
to be
classified as doubtful if it remains in the sub - standard category for 18 months.
4. Loss Assets: A loss asset is an asset which or where loss has been identified by the
bank or internal or external auditors or the RB inspecting officials. But the amount
has not been written off wholly or partly in other words such as asset is considered
collectable and of such

little value that is continuance as bankable asset is not warranted although there may
be some
salvage or recovery value.

Causes for Creation of Non-Performing Assets

External causes: Natural calamities and climatic conditions, Recession, changes in
Government policies changes in economic conditions, Industry related problems, Impact
of liberalization on industries, Technical problems.

Internal causes: Internal defaulters, Faculty projects, Most of the project reports are
ground realities, proper linkages, product pricing etc. Some approach for the heck of
starting a venture, with poor knowledge of product risks, over depended on poorly paid
killed workers and technicians, Building up pressure for sanctions, Inept handling by
bankers lack of professionalism and appraisal standards, Non
observance of system, procedures and non-insistence of collaterals etc, Lack of post
sanction monitoring, unchecked diversions.

Lack of Persuasion

38

76

Lack of Monitoring

41

82

Willful Defaulters

43

86

No
Risk 39
Assessment
Mismanagement
48
of
Fund
by
borrower
Delay
in
Legal 41
Proceedings

78
96

82

Bankers Views on NPA

Bankers Opinion on Cause of NPA

Delay in Legal Proceedings

Mismanagement of Fund by borrower

No Risk Assessment
cause of npa
Willful Defaulters

Lack of Monitoring

Lack of Persuasion
0 10 20 30 40 50 60

Data presented in Table above reveals that as high as 96% of Bank Managers find the
most important cause of NPA is the mismanagement or diversion of funds sanctioned to

borrowers for specific projects. In other words, borrowers become defaulters in regular
repayment of loan as they do not manage the money properly, thereby make their
projects sick; and hence NPA at Banks grow.
In complementing to this cause a high significant proportion of 86% of Bankers
subscribed to the view that willful defaulters are the cause for NPA.
Bankers in large proportions blamed their own system and that of the legal system. As
high as 76% of respondents pointed out that Bankers usually do not persuade the
borrowers to make regular repayments. Once a loan is given or taken both ends are
relaxed. Neither the borrower is pressurized or persuaded to pay the installments on
schedule time; nor the Banker take any immediate measures. However, bank officers feel
strongly that persuasion is an important tool to improve upon repayment, and reduction
of NPA.
The borrower feels more relaxed if s/he is not persuaded for defaulting repayment.
Similarly, 86% of Bank Officers agreed that monitoring system in the Banks is not up to
the mark. Surprisingly 78% of respondents pointed out that the Risk Assessment
aspect is highly neglected by the Banks.

Statement of the Problem

Non-performing assets are those which are not been yielding revenue for
a long period of time. The bank will always face the problem of NPA because of poor
recovery of advances granted by the bank and several other reasons like adopting a poor
recovery strategies so when the loan is not recovered from the bank effectively and
efficiently that balance amount will become the NPA to the bank it may create some
huge problem to the banks financial status. In order to evaluate the performance of the
kendrapara urban co-operative bank.ltd. It feels necessary to undertake the study
regarding management of NPAs.

FACTORS RESPONSIBLE FOR NPAs:The following factors confronting the borrowers are responsible for incidence
of NPAs in the banks:(i) Diversion of funds for expansion/modernization/setting up new projects/helping
promoting sister concerns.
(ii) Time/cost overrun while implementing projects.
(iii) External factors like raw-material shortage, raw-material/Input price escalation,
power shortage, industrial recession, excess capacity, natural calamities like floods,
accident etc.
(iv) Business failure like product failing to capture market, inefficient management,
strike/strained labour relations, wrong technology, technical problem, product
obsolescence, etc.
(v) Failure, non-payment/over dues in other countries, recession in other countries,
externalization problems, adverse exchange rate, etc.

(vi) Government policies like excise, import duty changes, deregulation, pollution
control orders, etc.
(vii) Willful default, siphoning of funds, fraud, misappropriation,
promoters/management disputes etc.
Besides above, factors such as deficiencies on the part of the banks viz. deficiencies in
credit appraisal, monitoring and follow-up; delay in release of limits; delay in settlement
of payments/subsidies by Government bodies, etc. are also attributed for the incidence of
NPAs.

The impact of NPAs on the profitability of the banks is

summarized in the following points
1. Reduces earning capacity of the assets: NPAs reduced the earning capacity of the
assets and as a result of this return on assets get affected.
2. Blocks capital: NPAs carry risk weight of 100% (to the extent it is uncovered).
Therefore they block capital for maintaining Capital adequacy. As NPAs do not earn any
income, they adversely affecting Capital Adequacy Ratio of the bank.
3. Incurrence of additional cost: Carrying of NPAs require incurrence of Cost of
Capital Adequacy Cost of funds in NPAs and Operating cost for monitoring and
recovering NPAs.
4. Reduces EVA: While calculating Economic Value Added (EVA =Net operating profit
after
tax minus cost of capital) for measuring performance towards shareholders value
creation, cumulative loan loss provisions on NPAs s considered as capital. Hence, it
increases cost of capital and reduces EVA.

5. Low yield on advances: Due to NPAs, yield on advances shows a lower figure than
actual yield on standard Advances. The reasons that yield are calculated on weekly
average total advances including NPAs.
5. Affect on Return on Assets: NPAs reduce earning capacity of the assets and as a
result of this, ROA gets affected.

Preventing NPAs
At the pre-disbursement stage, appraisal techniques of bank need to be
sharpened.All technical, economic, commercial, organizational and financial aspects of
the project need to be assessed realistically. Bankers should satisfy themselves that the
project is technically feasible with reference to technical knowhow, scale of production
etc. The project should be commercially feasible in that all background linkages by way
of availability of raw materials at competitive rates and that all forward linkages by way
of assured market are available. It should be ensured assumptions on which the project
report is based are realistic. Some projects are born sick because of unrealistic planning,
inadequate appraisal and faulty implementation.As the initiative to sanction or reject the
project proposal lies with the banker, he can exercise his judgment judiciously. The
banker should at the pre-sanction stage not only appraise the project but also the
promoter his character and his capacity. It is said that it is more prudent to sanction
a 'B' class project with an 'A' class entrepreneur than vice-versa. He has to ensure that
the borrower complies with all the terms of sanction before disbursement.
A major cause for NPA is fixation of unrealistic repayment schedule.
Repayment schedule may be fixed taking into account gestation or moratorium period,
harvesting season, income generation, surplus available etc. If the repayment schedule is

defective both with reference to quantum of installment and period of recovery, assets
have a tendency to become NPA.
At the post-disbursement stage, bankers should ensure that the advance does not
become and NPA by proper follow-up and supervision to ensure both assets creation and
asset utilization. Bankers can do either off-site surveillance or on site inspection to detect
whether the unit / project is likely to become NPA. Instead of waiting for the mandatory
period before classifying an asset as NPA, the banker should look for early warning
signals of NPA.
The following are the sources from which the banker can detect signals, which
need quick remedial action:
a) Scrutiny of accounts and ledger cards During a scrutiny of these, banker can be
on alert if there is persistent regularity in the account, or if there is any default in
payment of interest and installment or when there is a downward trend in credit
summations and frequent return of cheques or bills.
b) Scrutiny of statements If the scrutiny of the statements submitted by the
borrower reveal a sharp decline in production and sales, rising level of
inventories, diversion of funds, the banker should realise that all is not well with
the unit.
c) External sources The banker may know the state of the unit through external
sources. Recession in the industry, unsatisfactory market reports, unfavorable
changes in government policy and complaints from suppliers of raw material, may
indicate that the unit is not working as per schedule.
d)
e) Computerization of loan monitoring In computerized branches, it is possible to
computerize the loan monitoring system so that accounts, which show signs of
sickness or weakness can be monitored more closely than other accounts.
f) Personal visit and face-to-face discussion By inspecting the unit the banker is
able to see for himself where the problem lies - either production bottlenecks or
income leakage or whether it is a case of willful default. During discussion with

the borrower, the banker may come to know details relating to breakdown in plant
and machinery, labour strike, change in management, death of a key person,
reconstitution of the firm, dispute among the partners etc. All these factors have a
bearing on the functioning of the unit and on its financial status.
g) Special Mention category of accounts Based on warning signals obtained
through both off-site and on-site monitoring, banks may classify accounts with
irregularities persisting for more than 30 days under Special Mention or
Potential NPA category. This will help the bank to initiate proactive remedial
measures for early regularization. The measures include timely release of
additional funds to borrowers with temporary liquidity problems and restructuring
of accounts of sincere and honest borrowers after considering cases on merit.
h) Ongoing classification Although classification of assets is a yearly exercise,
banks would do well to have a system of ongoing classification of assets and
quarterly provisioning. This helps in assessing provisioning requirements well in
advance. All doubts regarding classification should be settled internally and a
system of fixing accountability for failure to comply with the regulatory
guidelines should be introduced.
i) Strategy for reducing provision The extent of provision for doubtful asset is with
reference to secured and unsecured portion. Cent percent provision needs to be
made for the unsecured portion. If banks can ensure that the loan outstanding is
fully secured by realizable security, the quantum of provision to be made would
be less. It takes one year for a sub standard asset to slip into doubtful category.
Therefore, as soon as an account is classified as substandard, the banker must
keep strict vigil over the security during the next one year because in the event of
the account being classified as doubtful, the lack of security would be too costly
for the bank.

Reducing NPAs

Cash recovery Banks, instead of organising a recovery drive based on overdues,

must short list those accounts, the recovery of which would provide impetus to the
system in reducing the pressure on profitability by reduced provisioning burden.
Vigorous efforts need to be made for recovery of critical amount (overdue interest and
instalment) that can save an account from NPA classification:
a) In case of a term loan, the banker gets 90 days after the date of default to take
appropriate
action and to persuade the borrower to pay interest or instalment whichever is
due.
b) In case of a cash credit account, the banker gets 90 days for ensuring that the
irregularity
in the account is rectified.
c) In case of direct agricultural loans, the account is classified NPA only after two
crop
seasons (from sowing to harvesting) from the due date in case of short duration
loans and one crop season from the due date in case of long duration loans.
Up gradation of assets Once accounts become NPA, then bankers should take
steps to upgrade them by recovering the entire over dues. Close follow-up will generally
ensure success.
Compromise settlements Wherever feasible, in case of chronic NPAs, banks can
consider entering into compromise settlements with the borrowers.
Recovery through legal recourse Since provision amount progressively increases
with increase in time, it is necessary to take steps to recover dues either through
persuasion or by legal recourse. A strategy of fixing a dead line for recovery may force
the bank to either recover or shed the asset off the balance sheet. Banks may file suits
promptly against willful defaulters. Banks can take recourse under either a civil suit or
the Special Recovery Acts passed by various states or the Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI)
Act, 2002. The bank should vigorously follow up the legal cases.

Steps to be taken by Banks to Control NPA

N

36

72

Strengthening of Recovery Cell

43

86

Monitoring of Performing Asset

37

74

Out-of-Court Settlement

46

92

39

78

Caution & Care during Loan

Processing

Vigorous Follow-up at Branch

Level
Vigorous Follow-up at Branch Level

Out-of-Court Settlement

Monitoring of Performing Asset

Strengthening of Recovery Cell

Caution & Care during Loan Processing

0%

20%

40%

60%

80%

100%

The next question to the bank officers was to know their views on steps taken by them
for recovery of NPA. As would be seen from the table below, 72% of respondents
revealed that Banks should take caution and care during the loan processing stage in
order to avoid NPA later. Similarly, the Recovery Cell need to be strengthened, said as
high as 86% of the respondents, to reduce the NPA ratio. A significant 74% bank officers
were of the opinion that if the Performing Assets are monitored meticulously, the NPA

position would be improved. Vigorous follow-up is necessary at the Branch Level,

commented 78% respondents. It was the opinion of as high as 92% of Bank Officers to
go for out-of-court settlement than taking legal actions against defaulters, as the matter
takes a long time and NPA grows further than getting resolved.

CHAPTER-4

DATA ANALYSIS
BRANCH WISE N.P.A STATEMENT FOR THE YEAR 2011-2012
SL
.
N
O
1
2
3

CLASSIFICATION
STANDARD
ASSET
(UN SECURED)
SUBSTANDARD
DOUBTFUL
a-UPTO 1
YEAR(S)
UNSECURED

MAIN BR

OBS BR
108026043.
9

AUL BR
45787644.4
5

MGI BR
98915888.
7

PMI BR

CHL BR

9004334.5

67981552

7975708

754032

1115899

7686084

5609300.1

3262531.48

26403554.58

5833307

1529743

1590336

159221

319959

1265311

12129877

188411342

HO
16010442.
7

TOTAL
615179248.4

b-ABOVE 1YR TO
3YR
SECURED
UNSECURED
c-OVER 3YEARS
(S)

6492214.2
9

4840765

2747705

3985439

5789301.5

1348331

25203755.79

9475740.97

1933996

964349

1614278.5

2839398

173228

UNSECURED

1950491.4
7
5984912.2
5

1510531.5

1675713

1988581.5

1231503

1068097

47372

13506710.25

NPA TOTAL

28236633

10569067.5

8094002

16865604

15789462

7117498.48

47372

86719638.59

TOTAL
OUTSTANDING

216647975

118595111.5

53881646.4
5

115781496

10583579
6

75099050.4
8

16057814.
7

701898887

PERCENTAGE OF N.P.A 12.36%

BRANCH WISE N.P.A STATEMENT FOR THE YEAR 2012-2013

SL
.
N
O
1
2
3

CLASSIFICATION
STANDARD
ASSET
(UN SECURED)
SUBSTANDARD
DOUBTFUL
a-UPTO 1
YEAR(S)
UNSECURED
b-ABOVE 1YR TO
3YR
SECURED
UNSECURED
c-OVER 3YEARS
(S)
UNSECURED

MAIN BR

OBS BR

AUL BR

MGI BR

CHL BR

HO

TOTAL

86620509

PMI BR
10965524
9

234970552

132337793`

62655159

68539167

17144262

711922664

79380229

6186176

2692255

15235486

1024956

1262516

34339421

3977012

511512

1113259

4413238

5516599

4169394

22701015

6781664

4791380

3215152

4223354

5174971

2135931

26322452

5043613
138166

4212357
149537

2898289

466467
35893

4053512
14559

1399776

NPA TOTAL

32878485

15850962

9918958

31572438

15784599

TOTAL
OUTSTANDING

258849008

148188756

72574117

118192947

12543984
8

47372

22272015
385527

8967617

47372

1060204432

77506784

17191634

817943096

PERCENTAGE OF N.P.A- 12.96 %

BRANCH WISE N.P.A STATEMENT FOR THE YEAR 2013-2014

SL
.
N
O
1

CLASSIFICATIO
N
STANDARD
ASSET
(UN SECURED)

MAIN BR

OBS BR

AUL BR

MGI BR

264358484

138384264

73238295

97491092

PMI BR
12100832
3

CHL BR

HO

TOTAL

77973814

18787762

79121036

2
3

SUBSTANDARD
DOUBTFUL
a-UPTO 1
YEAR(S)
UNSECURED
b-ABOVE 1YR TO
3YR
SECURED
UNSECURED
c-OVER 3YEARS
(S)
UNSECURED

9020706

14667855

3312332

4995171

4278894

2982736

39257681

4253708

11474218

1754171

12212393

866693

873320

31434503

5126934

1270794

2012538

7705460

5551273

4261057

25928056

8008671
114540

11499812
149537

4294747

6847507
35893

8784549
14559

2056130
52732

47372

41491427
414633

NPA TOTAL

26524560

30962216

11373798

31796424

19495968

10225962

47372

138526301

TOTAL
OUTSTANDING

290883045

177446480

84612093

129287516

14050429
1

88169776

18835134

929738338
S

PERCENTAGE OF N.P.A- 14.90 %

CONCLUSION
Finally it can conclude that the banks can avoid sanctioning loans to the non
creditworthy borrowers by adopting certain measures. Banker can constantly
monitor the borrower in order to ensure that the amount sanctioned is utilized

properly for the purpose to which it has been sanctioned. The banker should
get both the formal and informal reports about the goodwill of the customer.
If he had already proven as a defaulter then there is no question of
sanctioning loan to him. The banker also has to educate the borrowers
regarding the effects and consequences of defaulting. By considering all the
above factors the banker can reduce the non-performing assets in a bank. The
use of technology like Core Banking Solutions in Apex bank should make
more reachable to all borrowers.
At last the problem of NPAs has been a major issue for the banking industry.
The RBI which is the apex body for controlling level of non-performing
assets have been giving guidelines and getting norms for the banks in order to
control the incidents of faults. Reduction of NPAs in banking sector should
be treated as national priority item to make the Indian Banking system more
strong, vibrant and geared to meet the challenges of globalization.

Findings
Decrease in the number of accounts of nonperforming assets
year by year.
Security are very powerful tools for the Bank. In all eligible
cases one should involved the provision of the act the quickly
cases the assets and display of.

 On the demand side mis management or diversion of funds,

willful defaulters and flaw in the legal system accounts of NPA.
Large borrowers are found to be the principal defaulters
The seed of npa is shown at the limit of sanction itself in case
the credit appraisal standard is compromised.

SUGESSATIONS
The bank must have to improve its customer service.
Up gradation of assets Once accounts became NPA, then
Bankers should take steps to upgrade them by recovering the
entire over dues. Close follow up will generally ensure
success.
Recovery through legal recourse- Banks may file suits promptly
against willful defaulters. Banks can take Recourse under either

civil suits or the special recovery acts passed by various states

of the securitization and reconstruction of financial assets and
enforcement of security interest (SARFAESI) act, 2002. The
Bank should vigorously follow up the legal cases.

BIBLIOGRAPHY
BOOKS
1. Varshney P.N (PhD), Banking Law and Practice, New Delhi,
Sultan Chand & Sons, 2003 Editation.
2. Sharma R.K. and Gupta S.K. ,Financial Management, New
Delhi, Kalyani Publishers, 2009 Editation.
3. Gordon and Natarajan, Financial Markets and Services,
Mumbai, Himalaya Publishing House, 2007 Edition.
4. Dash S.K, TIT BITS OF General Advances & Financial
Services, Bhubaneswar, Bank House, 2008 Edition.

INTERNET SITES:-

1. www.scribd.com
2. www.iisi.com
3. www.management paradise.com

4.

www.google.com