EXECUTIVE SUMMARY
A project has been prepared under the title of CREDIT APPRAISAL SYSTEM IN THE KENDRAPARA
URBAN CO-OPERATIVE BANK.
First of all the information regarding the banking industry is given. In that various facts regarding
the bank industry is being provided.
The growing economic scenario in the country opens opportunity for big industry houses, both
national and multinational companies to invest in industry sector specifically in power, Iron and steel,
Mining, Infrastructure etc. This has given rise to competition among Banks to expand their loan and
advance portfolio, the effective management of which has posed a challenge. In effect, the credit appraisal
tool of the Bank assumes importance. An attempt has been made in this report to give an account of need
and importance of strengthening credit management system in the present economic scenario.
Since Nationalized Banks handle large loan and advance portfolio, RBI has been emphasizing
Banks to evolve suitable guidelines for effective management and control of credit risks.
Credit appraisal is done to evaluate the credit worthiness of a borrower. The credit appraisals for
any organization basically follow these steps: Assessment of credit need, financial statement analysis, and
financial ratios of the company, credit rating, working capital requirement, term loan analysis, submission
of documents, NPA classification and recovery. In other words, the Credit Appraisal System is meant to
ensure safety of Banks funds with the borrowers. This has two stages. In the first stage i.e. Pre-sanction
Credit Appraisal, the credit worthiness of the borrower is assessed by examining his current financial
standing. In the second stage i.e. Post Sanction Credit Appraisal, the monitoring and control of the loan
account is done to prevent the account tending to become NPA category. The Bank has devised suitable
forms and formats to collect required information and interpret the data.
Detail about Kendrapara Urban Cooperative Bank, the organization which is started with the intention
mainly to promote thrift among their members dwelling in urban centers and to provide credit to the
needy members and thus to save them from the clutches of unscrupulous moneylenders and also
undertakes various banking activities like sophisticated lending for the promotion of industrial growth
with particular reference to small scale and cottage industries, foreign exchange and merchant banking
etc . The Credit management system of urban cooperative bank, one of the oldest in the country, has been
out lined in details. This would give a wide exposure in the field of finance management. Detailed analysis
has been made on all aspects like project feasibility, risk and mitigations, financial strengths and
weaknesses. Comments and conclusions have been drawn for the benefit of the organization and the
major finding of the study was that overall credit appraisal system at this urban cooperative bank was
according to the RBI norms and regulations and the non performing assets of the bank are coming down
year after year and the project taken for case study is a financial feasible and generates enough cash flows
not only to repay the credit on time, but has surplus funds for reinvestment. Suggestions also have been
made for improving the service in the field of credit management.
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After that analysis comes. At the last find Conclusion & Suggestion. Then comes facts and
finding part. In this part first of all the details about the non performing assets by me is given. Then a
comparison is made among the three companies selected by me on various parameters.
INTRODUCTION
As you all know, Banking Sector in the country has been playing a key role in the Economic and
social development of India .That is why Banks were nationalized in 1969 and again in 1980 in order to
make them more prone towards mass and social banking. Co-operative Banks have played a very crucial
role in the development of rural and agriculture sector in India. But the emergence of Urban Co-operative
Banks in Co-operative sector has really earned a named for Co-operative movement in the Country. We
should thank the Reserve Bank of India for extending the provisions of Banking Regulation Act, 1949 to
Urban Co-operative Banks from 1st march 1966 after realizing and recognizing the performance,
achievements and relief these Banks.
Initially, these banks were started with the intentions mainly to promote thrift among their
members dwelling in Urban Centers and thus to save them from the clutches of unscrupulous money
lenders. Reserve Bank of India also tried to regulate them in order to cater to the needs of small poor
people in urban and semi urban areas.
Now it is a matter of great pleasure to mention that they are presently undertaking various
Banking activities, which besides acceptance of deposits include sophisticated lending for the promotion
of industrial growth with particular reference to small scale and cottage industries and for the various
types of trades and professions, discounting & collecting of bills & hundis, provision of safe deposit locker
facilities, provisions of Bank guarantees, foreign exchange and merchant banking activities etc.
Govt. & Reserve Bank of India have to give full credit and importance to their achievements and
should take sound steps for their rapid growth & development.
With the setting in of liberalization Process of the financial sector in India from 1991 onwards,
these banks have also been subjected to undergo policy changes in their style of functioning & operations.
The Urban Co-operative Bank are required to determine their interest rates according to their financial
Position and market trend.
In view of Indias liberalized economic policy and globalization, huge investment proposals are
flowing from Multi National Companies and big Industry Houses. As a result efficient finance
management now assumes great importance. In view of increased competition for financial investment,
new types of risks have emerged. Besides the safety of fund has been exposed to greater stake. Hence, the
Finance Managers responsibilities in modern days have increased many folds.
The Credit Appraisal System is meant to ensure safety of Banks funds with the borrowers.
Examining his current financial standing assesses the credit worthiness of the borrower and monitoring
and control of the loan account is done to prevent the account tending to become NPA category. In this
process the banks are posed with the following challenges.
To meet the financial requirements of rural and semi-urban people, urban co-operative banks
manage huge Loans and Advances portfolio. Efficient management of this portfolio assumes
greater significance as it is the largest asset of the Bank having direct impact on its profitability.
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The new scenario in the finance sector calls for strengthening of credit functions. RBI has also
been emphasizing Banks to evolve suitable guidelines for effective management and control of
credit risks.
With a view to ensuring a healthy loan portfolio, Urban co-operative Bank has taken following
steps:
Updating its policies and procedures in line with changing scenario for effective management and
disposal of credit risks.
Strengthening of pre-sanction appraisal and post sanction monitoring system.
Strengthening of organizational set-up by opening specialized Branches to meet the credit
requirement of specific type of borrowers.
Imparting intensive credit management training to staff.
Development of trained staff at branches/offices having potential for credit growth.
BANK PROFILE
DEFINITION OF BANK
DEFINITION OF BANKING
In general terms, 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
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4. DEVELOPMENT BANKS:
Industrial Finance Corporation of India (IFCI)
Industrial Development Bank of India (IDBI)
Industrial Credit & Investment Corporation of India (ICICI)
Industrial investment Bank of India (IIBI)
Small Industries Development Bank of India (SIDBI)
Small Industries Development Bank of India (SIDBI)
National Bank for Agriculture & Rural Development (NABARD)
All the types of banks have a centralized control of RBI. All these follow the guidelines of RBI.
Government used banks to provide to weaker section. This lead to a serious crisis of unrecoverable of
1990 banks was saddled with NPA (Non Performing Assets recoverable debt touched to Rs. 75,000 core.
The Kendrapara Urban Co-operative Bank is an autonomous association of persons
united voluntarily to meet their common economic, social and cultural needs and aspirations through a
jointly-owned and democratically controlled enterprise.
This bank is established in the year Feb, 1988 but registered under No.123 KE Dt-26.09.1986 in the
district of Kendrapara. The area of operation of this bank shall be confined to the entire district of
Kendrapara.
In the tradition of their founders, Co-operatives members believe in the ethical values of honesty,
openness, social responsibility and caring for others.
Registered Office:-
The Registered office of the Bank shall be situated at Kendrapara, P.o-Kendrapara, Dist-Kendrapara.
Area of Operation:-
The area of operation of the bank shall be confined to the entire district of Kendrapara. For any
revision in this regard prior approval of registering authority and Reserve Bank of India as indicated in
Reserve Bank of India circular No. UBD.RBL (RCS)10/07.01.00/95-96 DT. 10 th October 1995 shall be
necessary.
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Members:-
i. Member means a person joining in the application for registration of the Bank and a person duly
admitted to the membership of the Bank after registration and includes a nominal and an associate
member.
ii. Nominal member means a person who has been admitted as nominal member under Bye-law
No.10.
iii. Chief Executive means the SECRETARY appointed by the Board of Directors.
iv. A person means an Adult individual, proprietorship concern and partnership firm duly registered
under the Indian Partnership Act, 1932, Company or any other Body corporate constituted under
the law for the time being in force.
Objects:-
i. To encourage thrift, self-help and cooperation among members.
ii. To accept deposits of money from the public repayable on demand or otherwise, and
withdrawable by cheque, draft, order or otherwise for the purpose of lending or investment.
iii. To borrow or raise money.
iv. To buy and to sell foreign exchange including foreign bank notes.
v. To collect and transmit money and securities.
vi. To prepare and to finance schemes for amelioration of the financial conditions of member.
vii. To provide financial and technical assistance to self-employed persons for setting up their own
business etc.
Funds:-
Funds may be raised by the following means:-
a) Shares
b) Entrance Fee
c) Subscription
d) Deposits
e) Loans, cash credits, over drafts and advances
f) Donations, Grants and subsidies.
Shares:-
The authorized share capital of the bank is Rs.50,00,000.00 made up of 2.5 lakhs share of Rs.20/-
each which should be paid in full on application.
Explanation- A joint member consisting of two individuals related to each other as husband and
wife shall be deemed to be one individual and they shall have one vote which may be exercised by any
one of them.
No individual shall be eligible for being admitted or for continuing as a member of the bank; if he-
i. has been sentenced for an offence involving moral turpitude or sentenced to fine or imprisonment.
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ii. provided such an employee may be admitted or retained as a nominal member or the authorized
share capital may be increased from time to time by General Body resolution subject to the
approval of the Registering authority.
Every member shall hold at least one share and the maximum share holding of a member shall be
fixed keeping in view the provisions of Orissa cooperative Societies.
Nominal Member:-
Any person who is co-parcener or who desires to stand surety for a borrowing member of the
bank who desires to borrow occasionally for a temporary period against certain tangible securities such
as gold and silver ornaments, fixed deposit receipts life insurance policies and government and other
Trustee. Securities may be enrolled as a nominal member upon his application in a prescribed form on
payment of Rs.5/- as non-refundable entrance fee.
Joint Shareholders:-
Shares may be purchased in the names of more than one person jointly.
i. On death of a joint-holder the surviving person/persons shall be recognized as joint
shareholder/holders.
ii. The person whose name stands first written on the share certificate shall enjoy all the rights of a
member and he responsible for all the liabilities of a member. He shall be entitled to receive the
annual dividend and notice of the General Meeting.
Share Certificate:-
Every person admitted as member shall be entitled to received a share certificate gratis stating the
number of share/s and their distinctive number/s. The share certificates shall be signed by the President
or any duly authorised by the Secretary.
Transfer of share:-
A member may transfer his share or shares after holding them for not less than one year to any
person duly approved by the Board of Directors.
Nomination:-
A member may nominate a person to receive the members interest in the bank after his death.
Nomination shall be made in the prescribed form and entered in the special register kept at the Banks
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registered office. Prior approval of the Board shall be necessary, if the person to be nominated is an
employee of the bank. Nomination can be revoked and fresh nomination made any number of times after
due.
Liability of member:-
The liability of a share holder shall be limited to the capital represented by the share of shares of
which such share holder is the registered share holder.
General Body:-
i. Subject to the provision of Act and Rules the final authority of the bank shall vest in the general
Body.
ii. General meetings shall be of two kinds viz. Annual General Meeting and Special General Meeting.
iii. The Annual General Meeting shall be called once on or before 1st April to 30th June in each year.
iv. The special General Meeting may be called at any time by the Board of Directors. It shall also be
called on a written requisition made the president of the Board of Directors by one fourth (1/4 th)
of the share holders.
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ii. A noticed of the General Meeting stating the date, place and hour of the meeting together with a
statement of business to be transacted, at it shall be served on the members by publication of the
same in Daily Oriya Newspaper having wide circulation in the area of operation of the bank.
iii. Absence at a meeting due to non-receipt of notice by any member shall not invalidate the
proceedings of the meeting.
iv. No member can be admitted or any share transferred within thirty days prior to the election
General Body Meeting.
v. A special General Meeting must be convene within 30 days of receipt of requisition from one
fourth number of members.
Quorum:-
Thirty members or one fifth of the total number of share holder member which is less, shall
continue quorum for a General Meeting. No business shall be transacted at any meeting unless the
quorum of membership is present.
Voting Rights:-
i. Each share holder member shall have one vote irrespective of the number of shares held.
ii. Individual share holder shall vote in person while Government may appoint one of its officers to
participate in the meeting and to exercise the right of vote.
iii. Individual share holder members shall vote in person, while a firm or a company or any other
body corporate constituted under government which is a share holder member may appoint one
of its partners, directors or officers to participate in meeting and to exercise the right of vote.
iv. The President presiding over the meeting shall have a casting vote, in case there is quality of votes
for and against any resolution.
Resolution:-
Resolution shall be carried by a majority of votes. Votes shall be taken by show of hands unless a
share holder member demands a ballot in which case a ballot shall be taken forthwith.
The above fifteen members of the committee of management shall be elected by the members of the
bank in the following manner from the categories indicated below.
i. Schedule caste one belonging to woman.
ii. Schedule Tribe - one belonging to woman.
iii. Other backward caste - one belonging to woman.
iv. Other categories Ten nos. from their respective constituencies.
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The president & Vice-President of the Bank shall be indirectly elected from among the members of the
committee.
In case, the president of the Committee is not a woman, the office of the Vice-president shall be reserved
for woman member of the Committee.
Board of Directors:-
i. The management of the affairs of the bank shall vest in a Board of Directors which means a
committee of management within the meaning of Orissa Co-operative societies act.
ii. The term of the Board shall be for a period of four years from the date of assuming charge subject
to the provision of Orissa Cooperative Act.
Secretary:-
The powers and duties of Secretary, who will be responsible to the Board of Directors, will be as
under;
i. To take action on the resolutions and decisions taken by the General Body and Board of Directors.
ii. To convene the meeting of the General Body Board of Directors, sub-committees, staff committee
or any other committee.
iii. To conduct correspondence on behalf of the bank.
iv. To receive applications for loans.
v. To accept deposits of all kinds and types and arrange for issue of receipts, statements and pass
books.
vi. To disburse moneys on behalf of the bank.
vii. To be the custodian of cash in hand, proper both moveable and immovable documents, securities
and bonds.
viii. To take disciplinary action against the banks staff in accordance with service rules.
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Deposits:-
i. Regulations as may be fixed by the Board of Directors and also subject to the Deposits may be
received on such rates of interests and subject to such rules and directives, issued by the reserve
bank of India in this behalf from time to time.
ii. Deposits may be received on current, savings, fixed, recurring, and cumulative and under any
other special scheme/s.
Appropriation of Profits:-
The net profit of the bank as shown in the audited balance sheet and declared distribution able by
the Registrar shall be disposed off in the order specified below:
i. Not less than 25% shall go to the Reserve Fund
ii. Education fund (As per OCS Act and Rules).
iii. 5% shall go to common good fund, which may be utilised by the Board of Directors from
time to time for any social, educational, charitable.
iv. Dividend upto the maximum of 9%p.a may be allowed on each share.
v. The balance, if any, shall be distributed as under:-
a) A sum not exceeding 10% of the net profit may be paid as honorarium.
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b) A sum not exceeding 10% of the net profit may go to the bad debt fund.
c) A sum not exceeding 5% of the net profit may go to the dividend equalization fund.
Reserve Funds:-
i. The reserve fund shall belong to the bank as whole and is intended to meet unforeseen losses. No
member can claim a share in it. It shall be invested in such manner as may be described by the Registrar,
Cooperative Societies, subject to the provision of the Orissa Cooperative Societies Act.
ii. Bad debt fund, dividend equalization fund and building fund shall be in the nature of permanent serves
and shall be drawn upon from time to time within the sanction of General Body.
Dividend:-
i. The dividend declared shall be paid to the person whose name stands as the resistered share
holder in the books of the bank on the last day of the cooperative year to which the dividend
relates.
ii. Dividends shall be proportionate to the amount paid on shares and the period in whole months for
which the amount stood to the credit of the share holder.
iii. Dividend shall be payable at per at the banks Head Office as well as the branches.
iv. Any dividend remaining undrawn for three years after having been declared shall be carried to the
Reserve Fund of Bank.
Audit:-
The accounts of the bank shall be audited by an auditor appointed by the bank with the approval
of the Registrar.
Seal:-
The bank shall have a common seal which remain in the custody of the Chief Executive and shall be
affixed in the presence of a Director and the Chief Executive as per a specific resolution of the Board of
Directors.
Amendment to bye-laws:-
Any addition, on amendment, alternation or rescission resolved upon at such meeting shall take
effect from the date of receipt of the Registrars approval in writing.
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3. Term loan to transport operators and fleet owners for purchase of new vehicles for road and water
transport.
4. Term loan to transport operator for repairing of old vehicle financed by our bank.
5. Cash credit and overdraft to wholesales / retailer dealing with consumer items.
6. Consumer durable loan to salaried person (Govt. / public sector employer)
7. Personal loan to salaried person.
8. Term loan to purchase agricultural equipments like tractor, power tiller, pump-set and other
machineries required for agriculture.
9. Term loan for allied agricultural activities like dairy, fisheries, poultry, and piggery etc.
10. Term loan to professional and self employed persons.
11. Term loan to small / cottage industries.
12. Housing loan (Residential and commercial purpose).
13. Personal surety loan to tiny business persons.
14. Loan against pledge of gold ornaments.
15. Loan against pledge of Govt. securities like postal certificates, LIC policies etc.
Rate of interest and mode of charging of interest for various types of loans
The rate of interest on various types of loans will be fixed by H.O. as per R.B.I. guidelines or as
decided by Board of Management. In case defaulter a/c Bank may charge excess 2% as penal interest
Eligibility
1. The applicant must be a regular member of the Bank.
2. The applicant should have permanent / present residential house in the Kendrapara district.
3. The business establishment should within the area of operation of the Branch.
4. The applicant should be within the age groups of 18 to 60 years and he / she should physically
and mentally fit for managing the business.
5. The applicant should have good transaction with the Bank.
Securities
1. The entire loan amount should be secured in shape of collateral securities/tangible securities.
2. The applicant has to deposit the required amount of share money as fixed by the Bank.
3. Two nos. of valuable member-cum-customer of the Bank will stand as guarantor for him/her.
At least one should be an outsider (not from own family).
4. The applicant has to deposit required percentage of margin money.
Mode of disbursement
After execution of all documents and fulfillment of all formalities bank will disburse the loan
amount by way transfer to the existing a/c of the borrower.
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Recovery
The loan will be recovered in 36 to 60 nos. of installments, depending upon size of the loan
amount and nature of the business. The B.M. / F.O. of the branch will look and follow the procedure as
mentioned earlier for smooth recovery of the loan.
Eligibility
1. The applicant must be regular member of the bank.
2. The applicant should have permanent / present residential house within the area of operation of
the bank.
3. The business establishment of the applicant should be within the area of operation of the
concerned Branch.
4. The age limit of the applicant should be within 18 to 60 years, and he/she should have physically
and mentally fit for managing business.
5. He / she should have a valid and up-to-date sale tax, income tax and VAT no.
Security:
1. The entire loan amount should be fully covered with collateral security / tangible security /
hypothecation of stock.
2. The entire loan amount will be covered by insurance.
3. Two nos. of share member-cum-customer of the bank will stood as guarantor. One should be from
outside of the applicants family.
4. The applicant has to deposit required amount of share money.
Documents:
The applicant has to execute the following documents for disbursement of loan.
1. All statutory documents as mentioned earlier are necessary for this loan.
2. All other documents as per security, as mentioned earlier should be kept.
3. Authorization certificate or dealership certificate in of authorized dealer of any company.
4. Income tax return of last three years.
5. Audited balance sheet of last three years, audited by chartered accountant .
Mode of disbursement
After execution of all documents and fulfillment of all terms and conditions, bank will disburse the
amount to concerned a/c of the borrower. Bank also ensure about the utilization of funds by post
disbursement supervision.
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Recovery:
The loan will be recovered along with accrued interest in 36 to 60 monthly installments. In case of
default concerned Branch will take appropriate steps for recovery of loans. So it is the duty of the B.M. / F.O.
to watch the recovery position from time to time.
Eligibility
1. The applicant must be a regular share member of the bank.
2. His / her permanent residence must be within the area of operation of the bank.
3. The age limit of the applicant should be within 18 to 60 years.
4. The applicant should have at least 3 years of agricultural land of his own.
Securities:
The entire loan amount must be covered by 100% security. The security may be in shape of
collateral / tangible or both. The vehicle or equipment should be insured for its full value and the policies
should be in the joint names of the borrower and the bank. Borrower has to deposit required percentage
of margin and share money as fixed by the bank.
Documentation:
The statutory documents as mentioned earlier must be kept for this loan. All other documents as
per security should be obtained as per security kept. An undertaking should be obtained from the
borrower that, if any subsidy came from govt. will be adjusted directly to his/her loan a/c.
Mode of disbursement
Disbursement of loan should be made by way of D.D. / Bankers cheque / pay order, directly to the
firm concerned against the quotation supplied. Bank should acknowledge the money receipt and other
sale proceeds documents from the concerned firm.
Recovery of loan:
The loan should be recovered within 36 to 60 monthly installments depending upon the size of
loan and nature of loan. It is the duty of B.M. / F.O. should keep close watch on recovery of installments.
In case of any default bank should follow the borrower immediately. In case default for more than six
months bank may start legal procedures, as per suggestion of the board of management.
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TERM LOAN FOR ALLIED AGRICULTURAL ACTIVITIES LIKE DAIRY, POULTRY, FISHERY AND ETC.:
Bank may finance to allied agricultural activities like dairy, poultry, fishery beekeeping etc.
Eligibility
1. The applicant must be a regular member of the bank.
2. The applicants age limit should be within 18 to 60 years of age.
3. The applicant must have permanent residence in the area of operation of the bank.
4. The applicant should have sufficient experience in the concerned field.
Security:
The entire loan amount should be covered either in shape of collateral or tangible security. The
unit financed should be covered with insurance. Two nos. of share member must stand as surety for the
loan. The applicant has to deposit required share money as fixed by the bank.
Documentation:
The applicant has to execute all statutory documents as mentioned earlier. The applicant has to
execute security wise documents as per securities given by him / her. An undertaking should be obtained
from the borrower that any type of subsidy if came from govt. that will be directly credited to the
borrowers a/c.
ELIGIBILITY
1. The applicant must be a regular member of the bank.
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2. Permanent / present residence of the applicant must be within the area of operation of the bank.
3. The said land, on which the proposed unit is to be established, must be within the area of
operation of the bank and that should be owned by the applicant.
4. The age limit of the applicant must be within 18 to 60 years.
5. The proposed unit should be eco-friendly and should be approved by environment pollution
control board
Security:
The entire loan amount must be secured with 100% security in shape of collateral / tangible
security or both. The applicant has to deposit required percentage of share money and margin money.
All the machineries, plant and stocks should be hypothecated to the bank, and that should be properly
insured upto the full amount with bankers clause.
Documentation:
Following documents are required for disbursement of this loan.
1. All statutory documents are essential for this type of loan.
2. All security wise documents must be obtained as per security kept.
3. Approved project report of the unit.
4. No objection certificate from environment pollution control board.
Mode of disbursement:
The disbursement of the loan should be done after execution of all documents. For capital assets
payment should be made by way of D.D./ Bankers cheque to the concerned firm as per quotation
supplied and for working capital a c/c limit should be given. Drawing power should be fixed from time to
time as utilization of funds. B.M. / F.O. of the branch should verify the unit from time to time regarding
utilization of funds.
Recovery:
The recovery should be made after production started, on monthly installment basis along with accrued
interest. Bank official should watch the recovery position closely and in case of default they should take
appropriate legal action for recovery loan.
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When advances are to be granted against a term deposit receipts in the name of the third party, a
letter of consent signed by the depositors authorizing the Bank to hold the receipts as security, and an
authority letter, authorizing the issuing branch to pay the amount to the bank towards liquidation of
borrowers dues should be obtained.
The bank should avoid granting loan against the term deposit receipts issued by another bank.
Documentation to be retained:
1. Loan application signed by all parties in whose name receipts stand.
2. Demand promissory note.
3. Letter of continuity (in case of overdraft and cash credit).
4. Letter of lien and set-off.
5. Fixed deposit receipts duly discharged.
6. Authority to adjust the principal and interest towards the loan on maturity of deposit.
7. Letter of consent or renunciation (in case of third party).
8. Guardians declaration (in case of minors deposit).
VISION
To become the bank of first choice in our chosen areas by building beneficial and lasting
relationship with customers through a process of continuous improvement.
CORPORATE MISSION
A logical extension of the Vision Statement is the Mission of the Bank, which is to gain market
recognition in the chosen areas.
To build a sizeable market shares in each of the chosen areas of business through effective
strategies in terms of pricing, product packaging and promoting the product in the market.
To facilitate a process of restructuring of branches to support a greater efficiency in the retail
banking field.
To sustain the mission objective through harnessing technology driven banking and delivery
channels.
To promote confidence and commitment among the staff members, to address the expectations of
the customers efficiently and handle technology banking with ease.
PRODUCTS PROFILES:
PRODUCTS :-
Personal Banking.
Corporate Banking
Home Loan
Auto Loan
Deposit Interest rate
Credit Interest rate
Agricultural loan
Loan against pledge of gold ornaments
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SERVICE:-
Locker Facilities
Merchant Banking
Electronic Fund Service
Electronic Charging Service
Depository Service
Service charges
RTGS
12 hour Banking
Tele Banking
At par cheque facility available to customer in association with U.T.I Bank, HDFC,ICICI and Indus
Ind. Bank for the development of Non-fund business .
.
RATIONALE OF THE STUDY:
Efficient and proper management of loans and advances to small poor people in urban and semi-
urban areas and the reduction in NPA has assumed greater importance as it is the largest asset of the
Bank. The present economic policy developmental program of our country make multinational companies
and national big industry houses see big opportunities for large investments especially in infra-structure
development, steel industries, mining development, etc. This calls for handling of large credit proposal by
banking system. Consequently, safeguard of funds assumes greater importance. The risk management
system needs to be strengthened.
In this context, the present guidelines for credit management system of urban co-operative bank
need to be reviewed to check their adequacy to meet the requirement of present day scenario.
For the financial managers this is a challenging job. Study of Credit management and monitoring
system of an organization as big as urban co-operative Bank is certainly a plat form to succeed as a
financial executive.
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To understand the credit appraisal policy and NPA recovery policy of bank.
The study has made through survey method. The information received by word of mouth only
from the corporate, and may not be highly accurate.
I face difficulty in doing proper analysis as I dont have prior experience for making project report.
ORGANISATIONAL STRUCTURE:
(CHAIRMAN)
(DIRECTORS)
(CEO)
(CHIEF MANAGER)
(DIVISIONAL MANAGER)
(AREA MANAGER)
(BRANCH MANAGER)
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(OFFICER/CLERK )
SWOT ANALYSIS
FUNCTIONAL AREAS:
Planning and Development.
Credit Department.
Security department.
Training department.
REVIEW OF LITERATURE:
CREDIT APPRAISAL - The process by which a lender appraises the creditworthiness of the
prospective borrower. This normally involves appraising the borrowers payment history and establishing
the quality and sustainability of his income. The lender satisfies himself of the good intentions of the
borrower, usually through an interview.
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Before extending any loan or credit to you, lenders check things like how much money you earn, how
long youve been using credit and whether youve made payments ontime.
To give a complete shape to my Project Report, I have gone through different books, journals and
web sites. The references are given bellow.
Registered Bye-laws of
Urban Co-operative
Bank
Books:
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Website
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RESEARCH METHODOLOGY:
Research may be defined as the objective and systematic methods of finding solutions to the
problems i.e. systematic collection, recording, analysis, interpretation and reporting of information about
various facts of phenomena under study.
Research Design:
The researcher is required to prepare the design of the research project. A research design is the
arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance
to the research purpose with economy in procedure.
There are three basic types of research design via I) Exploratory research design II) Descriptive and III)
Experimental or casual. Among this descriptive type is used to do this research.
Descriptive:
Descriptive research includes surveys and fact-findings enquiries of different tools. For doing
descriptive type of research, formal design is required to ensure that the description covers all phased
desired, to ensure minimum basis in the collection of data and to reduce errors in interpreting the data
collected. For the normal design of descriptive study there are two methods study are considered they are
RESEARCH INSTRUMENT
As a research instrument I have taken guidance from the CEO of City bank and also my faculty of
college.
DATA COLLECTION:
To done my project I need different data, those data are collected from two sources like:
Primary sources
Secondary sources.
Primary sources:
The data are collected from primary sources through interacting with different experts in the bank
and also from my faculty.
Secondary sources:
The data for research have been collected from secondary sources like:
Circulars and guide lines issued by Urban co-operative Bank
Annual Reports of the said Bank
Web sites like Google, 123india.com,and yahoo.com.
Different articles and magazines etc
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The study completely depends on secondary data, which have been collected from Urban Co-operative
Bank. In the wake of the continued tightening of norms of income recognition, asset classification and
provisioning, increased competition and emergence of new risks in financial sector, it has become
imperative that the credit functions are strengthened. For efficient management of loans and advances
portfolio, Punjab National Bank has laid down detailed guidelines to be followed while considering credit
proposals. There are two distinct phases for credit management:
Pre-Sanction credit Appraisal System and
Post Sanction review and monitoring system. The details of the same have been enclosed as an
annexure
The data have been presented in tabular form and the column charts were prepared for interpretation.
Views and conclusions were drawn to improve the credit appraisal system for reducing the risk level of
non- refund of the loans and advances. The performance of the Bank has been analyzed.
Preparation of proposal
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Acknowledgement of Sanction
PRESENTATION OF DATA
Application to comply with Sanction Terms & Condition &
execution of Loan Documents
50 Reduction
upgrade
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Writeoff
30 Cash recovery
NPA addition
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NPA at end
10 Target level
Reduction target
0
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Analysis:
Between the periods from 2002-03 to 2005 06 the amount under addition to NPAs have
decreasing trend. Again it went up in 2006-07 and 2007-08. The phenomena call for close watch on credit
appraisal system followed in the bank and need for a strong monitoring and controlling system. Cash
recovery is much less than the write off amount for most of the year. This has effect on profit margin.
MEANING OF NON-PERFORMING ASSESTS:
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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.
With an intense to use the international best practice and to ensure greater transparency, 90 days
overdue norms are accepted for the identification of NPA from the year ended March 31, 2004.
With effect from March 31, 2004, a NPA shall be counted on loan and advances where:
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 bill remains overdue for a period of more than 90 days in the case of bills 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.
ASSETS CLASSIFICATION:
ASSETS
PERFORMING ASSETS
OR STANDARD ASSET NON-PERFORMING ASSETS
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Reserve Bank of India (RBI) has issued guidelines on provisioning requirement with respect to bank
advances. In terms of these guidelines, bank advances are mainly classified in to following categories:
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.
SUB-STANDARD ASSETS:
These assets involved the two types of view as follows
In respect to the norms of March 31, 2005 an asset 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 sub-standard and should remain in such
category for at least 12 months of satisfactory performance under the re-negotiated terms.
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
known facts, 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
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.
MANAGEMENT OF NPA
It is very necessary for bank to keep the level of NPA as low as possible. Because NPA is one kind of
obstacle in the success of bank so, for that the management of NPA in bank is necessary. And this management
can be done by following way:
Framing reasonably well documented loan policy and rules.
Sound credit appraisal on well-settled banking norms.
Emphasizing reduction in Gross NPAs rather than Net NPAs
Pasting of sale notice/ wall posters on the house pledged as security.
Recovery effort starts from the month of default itself. Prompt legal action should be
taken.
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Half yearly balance confirmation certificates are obtained from the borrowers
regularly.
A committee is constituted at Head Office, to review irregular accounts.
Due to lower credit risk and consequent higher profitability, greater encouragement
is given to small borrowers.
RECOVERY OF NPA:
IMPORTANCE OF RECOVERY:
APPRAISAL
B. TERM FINANCE
1. term loan limit to be arrived @ 25% margin in respect of Machinery/Equipment and Vehicles while
50% against land & building, electrification, furniture fixtures.
2. Sources for margin money to be ascertained.
3. Repayment capacity, considering existing earning to be ascertained.
4. Moratorium period to be fixed considering time required going in for commercial production.
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C. 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
crore for individual and Rs.3.50 crores for group.
DISBURSAL FORMALITIES
A. WORKING CAPITAL FACILITY
1. Fresh/additional limit against stock to be released only after party obtains adequate insurance for
stock and submit stock/book debts statement.
2. In case of new unit, working capital facility to be released, only after the unit starts commercial
production.
B. TERM FINANCE
1. So far as possible, disbursement to be made by direct payment to seller.
2. At every time of disbursement, matching contribution to be made by the borrower.
3. Immediately after disbursement, branch to follow up insurance policy, receipt for payment made,
invoice etc
C. GENERAL
1. Disbursement to be made only after complying with all the terms and conditions of sanction, complete
documentation and obtaining disbursal authority.
2. In case of Private Ltd. Company, charge with ROC to be registered immediately on disbursal of credit
facility.
3. Before disbursal branch to ensure that borrowers/guarantors become member of the bank.
POST SANCTION
A. TERM FINANCE
1. On installation of machineries branch to inspect the unit and to ensure that machineries as per sanction
is received & place the inspection report on record.
2. At least twice a year, branch to inspect the unit to ensure that machineries financed by the bank are in
running condition.
B. WORKING CAPITAL
1. No finance to be considered against inter-firm receivable and for the receivables of more than 90 days.
2. Drawing power to be arrived at regularly every month on the basis of stock statement/book debt
statement submitted by the party.
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3. Branch to ensure that receipt and payment through CC/OD accounts represent genuine business
transactions.
4. Branch to carry out inspection of the unit at least on quarterly basis.
2. DOUBTFUL ASSETS
NPA for more than 12 months is doubtful assets.
PROVISION:
1. STANDARD ASSETS
0.25% of standard assets in SME and direct agriculture advances.
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%.
3. 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
100% for loss assets
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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 on the principal of courtesy, fair
treatment and persuasion.
1. Branch to continuously inform the borrower about the due date of repayment schedule. Recovery
efforts to starts from the first month of default itself.
2. Position of overdue account to be reviewed on the monthly basis to arrest slippage of fresh
accounts to NPA category.
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 far 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.
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
for 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.
10. The aim of possession under Securitization or State co-op. Act will be to recover the dues and will
not be aimed at whimsical deprivation of the property. The bank shall resort to repossession of
the security only when the collection/recovery of dues is not forthcoming in spite of request made
and the policy for repossession shall be in accordance with the terms and conditions of the loan
documents and with in the legal framework. The policy fairness and transparency in repossession,
valuation and realization of security.
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ANALYSIS OF DATA:
YEAR WISE NPA AT KENDRAPARA URBAN CO-OPERATIVE BANK:
YEAR 2003
(RS. IN LACS)
Details Amount %of Total
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YEAR 2004
(RS. IN LACS)
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YEAR 2005
(RS. IN LACS)
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YEAR 2006
(RS. IN LACS)
Details Amount %of Total
YEAR 2007
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(RS. IN LACS)
Details Amount %of Total
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RATIO ANALYSIS:
SEGMENT
NO AMOUNT NO AMOUNT NO AMOUNT
OF OF OF
TOTAL TOTAL TOTAL
A/C NPA A/C NPA A/C NPA
ADVANCES ADVANCES ADVANCES
RETAIL TRADE 267 752.63 17.69 248 641.90 20.21 343 802.03 76.81
SMALL SCALE IND 582 4021.55 210.74 642 3832.29 44.88 975 6323.86 180.86
CONSTRUCTION &
246 323.43 21.02 231 343.86 2.70 345 459.76 22.43
REPAIRS
OTHER PRIORITY
SECTOR 0 0.00 0.00 55 41.82 3.47 326 68.05 16.42
OTHE NON
375 2454.16 177.26 285 2178.85 134.41 310 2394.94 186.20
PRIORITY SECTOR
TOTAL 1599 7707.72 436.09 1496 7093.63 225.82 3055 10340.26 538.77
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To analyzed the NPA situation in bank and from that to know about the banks credit
appraisal system and level of risk in bank I have done the ratio analysis. Ratio analysis
is the tool which will help us to do financial analysis of bank.
Some names of ratio are as follows:
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 form.
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ANALYSIS
Gross NPA ratio shows the banks credit appraisal policy. High Gross NPA ratio
means bank have liberal appraisal policy and vice-versa.
In Kendrapara Urban Co-operative Bank this ratio was 8.10% in March-2003 and it
has been decreased from year 2003 to 2006 from 8.10% to 3.18%. But again in March-
2007 this ratio reach at 5.21%.
However it is revels from the chart that banks Gross NPA ratio is continuously
decreasing which is positive trend for bank and we can say that bank have good
appraisal system.
The Net NPA Ratio is the ratio of net NPA to Net Advances. This ratio shows the
degree of risk in banks portfolio. Net NPA ratio can be obtain by Gross NPA minus the
NPA provisions divided by Net advances.
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(RS. IN LACS)
NET NPA RATIO
YEAR NET NPA NET ADVANCES
(%)
2003 299.13 6211.80 4.82%
2004 0.00 6888.84 0.00%
2005 0.00 7236.74 0.00%
2006 0.00 6622.57 0.00%
2007 0.00 9733.62 0.00%
ANALYSIS
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 Kendrapara Urban Co-operative Bank Net NPA ratio was 4.82% in year March-
2003 which shows that in that year bank had not enough fund for provisions. But after
that from March-2004 to March-2007 Net NPA ratio is 0.00% which shows that bank
has now enough provision capacity. So, here the degree of risk is less
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.
PROBLEM
YEAR GROSS NPA TOTAL ASSETS ASSETS RATIO
(%)
ANALYSIS
This ratio shows the percentage of risk on the assets of bank. It shows the level of
risk on banks assets. High ratio shows the high risk on liquidity
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In This Kendrapara Urban Co-operative Bank this ratio was 3.89% in March-2003
and after that it has been decreased from 3.89% to 1.21% in March-2006. But again it
increase to 2.23% in March-2007.
ANALYSIS
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This ratio shows the degree of risk with share holders investment. High ratio
means high ratio with the investment.
In this Urban co-operatives Bank this ratio was 16.68% in year March-2003
which shows that in that year risk on share holders investment was quite high but after
that this ratio is 0.00% up to year March-2007, which shows that Bank have enough
capacity for provision and the risk on investment is nil.
As we know that this ratio is 0.00% show the risk is nil but on the other side
because of more provision the profit will decrease and the shareholder will get less
dividends.
5. 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 of total
provision to Gross NPA.
PROVISION
TOTAL
YEAR GROSS NPA RATIO
PROVISION
(%)
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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 this Kendrapara Urban Co-operative Bank they have made 42.59% provision in
March-2003 which shows that it was under provision but after that in March-2004 and
March-2005 it is 107.83% and 108% respectively which indicate that provision was
nearer to total amount of Gross NPA but in March-2006 the provision ratio reach at
208.59% which indicate that it is the very over provision. And again in March-2007 it is
112.60% which is fair ratio.
Kendrapara urban co-operative bank should make the provision in the range of
100% to 115%. The provision in March-2006 which is 208.59% is very high and it is
not necessary to do that.
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(RS. IN LACS)
SUB-STANDARD
SUB-STANDARD
YEAR GROSS NPA ASSETS RATIO
ASSETS
(%)
2003 189.75 521.08 36.41%
ANALYSIS
This ratio shows the percentage of Sub-Standard assets in the Gross NPA of bank.
High Sub-Standard ratio means more proportion of Sub-Standard asset in the Gross
NPA.
High ratio shows that there is a chance of recovery of assets is high.
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In this Urban Co-operative bank this ratio was 36.41% in March-2003 which is
good for bank and it is 5.42% in year March-2006 which is not good for bank.
As the level of Sub-Standard assets are more the chances of recovery of NPA are
high.
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ANALYSIS
This ratio shows the percentage of Doubtful assets in the Gross NPA of bank. High
Doubtful assets ratio means more proportion of Doubtful asset in the Gross NPA.
More Doubtful assets means Bank should take action through recovery policy to reduce
the level of Doubtful assets.
As the Doubtful assets ratio is high which shows that bank should take quick action to
reduce that level.
(RS. IN LACS)
LOSS ASSETS
TOTAL LOSS
YEAR GROSS NPA RATIO
ASSETS
(%)
2003 14.64 521.08 2.81%
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ANALYSIS
This ratio shows the percentage of loss assets in the Gross NPA of bank. High loss
assets ratio means more proportion of loss asset in the Gross NPA.
This should be less in bank. The high ratio indicates that bank has more
fraudulent account and it is bad for bank. The bank must take necessary action to
reduce the level of loss assets.
Hence, bank should take some action to reduce the level of loss assets from the
total NPA.
As I have already analyze the ratio and from that I can say that banks financial
condition is good.
From ratio I am able to find the following findings
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1. The Gross NPA ratio of bank is 8.10% in the year 2003 after then it reaches to
5.21% in the year 2007. Hence, the idle gross NPA ratio is 5.00% and bank have
5.21%. So, we can say that banks financial condition is good.
2. Banks Net NPA ratio is 4.82% in the year 2003 and from 2004 to 2007 it remains
0.00% which is positive for bank.
3. The Problem assets ratio was 3.89% in the year 2003 which was the highest ratio
and from that year it is decrease to 1.21% in the year 2006 which is good for bank.
And this ratio is 2.23% in the year 2007.
4. Provision ratio for the year 2003 is 42.59% which show that their was under
provision in that year but in year 2007 this ratio is 112.60% which shows that
bank have enough profit for the provision.
5. It will be considered good if the Sub-standard assets ratio is high. For kendrapara
urban co-operative bank, this ratio is 36.41% in the year 2003 which is good but it
reaches to 5.42% in the year 2006 which is very bad for banks health.
6. Doubtful assets ratio should be low for the good health of bank and in this bank
this ratio is 94.58% in the year 2006 which is very bad but in year 2007 this ratio
decrease to 48.03% which is positive for bank.
7. Loss assets ratio should be zero and bank have 0.00% in the year 2006 which is
good but in year 2007 this ratio reaches to 29.67% which is very rapid change
with in a one year. And it is also bad for bank.
CONCLUSION
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Kendrapara urban Co. banks NPA level is decreasing year by year which good for
bank.
The Gross NPA ratio of bank is 8.10% in the year 2003 after then it reaches to 5.21%
in the year 2007. Hence, the idle gross NPA ratio is 5.00% and bank have 5.21%. So, we
can say that banks financial condition is good.
Banks Net NPA ratio is 4.82% in the year 2003 and from 2004 to 2007 it remains
0.00% which is positive for bank.
Loss assets ratio should be zero and bank have 0.00% in the year 2006 which is good
but in year 2007 this ratio reaches to 29.67% which is very rapid change with in a one
year. And it is also bad for bank.
Kendrapara urban Co. Bank has sound credit appraisal system and also sound
recovery policy.
Hence in present time the position of NPA in bank is much better then the past
position. In year 1997 in India the Gross NPA was 15.7% but now it is 3.00% in the year
2007. This is very favorable to Indian economy and also banking sector of India.
Governments act on NPA are very useful to reduce the level of NPA.
So, I can conclude that level NPA in any bank is important parameter to analyze the
health of bank.
SUGGESTIONS:
1. Kendrapara urban Co. banks NPA level is decreasing year by year which good for
bank but bank should follow the recovery policy strictly.
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
http://finance.indiamart.com/investment_in_india/banking_in_india.html
http://www.rbi.org.in/Home.aspx
http://www.banknetindia.com/banking/cintro.htm
http://www.investorwords.com/
http://www.indiabankassociation.com/
http://www.google .Com
http://www.Yahoo .com
http://Wikipedia.Com
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