Study of Non-Performing Asset

A Project Report On

A study on NPAs in Co-op banking sector

OF

The Seva Vikas Co-op Bank LTD By sssssssssssss Under the Guidance of sssssssssss Submitted To University of Pune

In partial fulfillment of the requirement for the award of the Degree of Master of Business Administration (MBA) ssssssssssssssssss
Pune

ACKNOWLEDGEMENT

Study of Non-Performing Asset

First and foremost I would like to thank Seva Vikas co-op bank, kothrud branch and Staff Training College, Pune for giving me an opportunity to work as a summer trainee. I would also thank Mrs Adtiee Huprikar, Staff Training College and Mrs Shilpa Dhameja, Faculty, Staff Training College, Seva Vikas Co-op bank, my project guide from Seva vikas co-op bank for sharing their expertise in banking. I am grateful to them for giving me the project idea and providing never-ending motivation.

I take this opportunity to express my sincere gratitude towards internal project guide Mr Deepak Artwani for his invaluable guidance and support during the course of development of this project. Without his cooperation and constant encouragement this project would not have materialized.

I also thank Mr Promod Jogdeov, Executive Direrctor, SBS, for playing the ideal mentor and being a constant source of inspiration throughout.

Lastly, I also thank to the innumerable sources of information and many direct & indirect helping hands without which this project work would not have been possible.

DECLARATION

I MR AJINKYA RANJIT GHOLE .Student of Sankalp business School ,Pune Hereby Declare That The Project Report Submitted By Me Is An Orignal Work 2

Study of Non-Performing Asset

Conducted By Me For Partial Fulfillment Of Degree Of MASTERS OF BUSIN -ESS ADMINISTRATION And Same Has Not Been Submitted By Me For Any Other Examination Of This University Or Any Other University.

AJINKYA RANJIT GHOLE.

EXECUTIVE SUMMARY

The main basis of banking is granting of credit facilities for economic activities. Apart from raising funds through fresh deposits, borrowings, etc. recycling of funds received back from borrowers constitutes a major part of funding credit dispensation activity. Nonrecovery of principal along with the interest on the loan portfolio wipes out the 3

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effectiveness of the process of credit cycle. Non-recovery also affects the profitability of banks besides being required to maintain more owned funds by way of capital and creation of reserves and provisions to act as cushion for the loan losses. Avoiding loan losses is one of the major concerns of management of banks. While complete elimination of such losses is not possible, bank managements aim to keep the losses at a low level. In fact, it is the level of Non-Performing Assets (hereafter known as NPA), which, to a great extent, differentiates between a healthy and weak banking business. In India, the Non Performing Assets, which are considered to be at higher levels than those in other countries, have attracted the attention of public as also of International Financial Institutions. This has gained further importance in the wake of transparency and disclosure measures initiated by Reserve Bank of India during recent years. These developments have prompted me to undertake a study of NPAs in banks, to understand the problem, its genesis and influence on the banking industry.

The project consists of identifying the causes of non-recovery, impact of NPAs on the financial position of the bank, study of Income Recognition and Asset Classification norms and understanding NPA management through a case study.

Index

Sr.No.

Topic

Page No.

Study of Non-Performing Asset

Chapter I Introduction To Study

Chapter II

Company profile

Chapter III

Research methodology

Chapter IV

Theoretical Background

Chapter V

Data Analysis And Interpretation

Chapter VI

Finding And Conclusion

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Chapter VII

Recommendation

61

Chapter VIII

Bibliography

88

Chapter IX

Annexure

96

Chart Index
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Study of Non-Performing Asset Sr No.

Chapter I Chapter II Chapter III Chapter IV

Topics
Deposites Loans And Advances

Page NO

Profit
Gross And Net NPA

Study of Non-Performing Asset

INTRODUCTION

Study of Non-Performing Asset

Introduction To Study Of NPA

Non Performing asset (NPA) is defined as a credit facility in respect of which the interest and/or installments of principal has remained over due for a specified period of time i.e. more than 90 days. Before coming to the main topic of Non-Performing-Assets it is important to acknowledgement the relationship of credit and risk associated with lending. The Bank of international settlement Basel, Switzerland, states, Granting credit involves accepting risks as well as producing profits. This statement clearly goes out to show that how important credits are to the banks and how it affects profits. The risk perception implies admission of the fact that some risk is inherent in all credit transactions irrespective of the fact that securities and other precautions are in place. It is also true that for the sake of risk aversion alone, the bank cant stop credit expansion, since the remedy to the problem does not lie there at all. The fact that credit forms nearly 70% of the total assets of the bank and thus cannot be ignored. In all it can be summed up to say that banks cant do without credit and credit cannot be without risk. For study of non-performing assets study of Income recognition, asset classification and provisioning is important. Income Recognition means an eligibility of any account to debit the interest and credit the same to Profit and Loss account. Income can be recognized only if the account is classified as standard asset. Interest accrued but not recovered in specified period cannot be recognized for profit. Generally earlier to 1992 there was a method of the bank used to charged interest on loan and show as income irrespective of whether it was actually received or not. Naturally there was a rosy picture of profit and loss account. 8

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To avoid such practice it was felt necessary to apply NPA concepts and following it methodically.

Assets are classified as follows 1. Standard Assets 2. Sub-standard assets 3. Doubtful assets 4. Loss assets

The asset classification depends on the performance of the account. For these assets classification there are some guidelines and provisioning norms given by RBI.

Study of Non-Performing Asset OBJECTIVES OF THE STUDY

1. To study Non Performing Assets of SEVA VIKAS CO OPP BANK 2. Identify the Causes of Non Performing Assets and their Impact on Banks 3. Study the Prudential Norms with respect to Income Recognition, Asset Classification and Provisioning. 4. Study the case about restructuring of loan . 5 Recovery of Non-Performing Assets

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Scope Of Study
Concept of NPA can be studied in each and every bank .therefore the scope of this subject is wide ; but the scope of the study is limited to the study of Seva Vikas Co Op Bank.

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COMPANY PROFILE

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COMPANY PROFILE SEVA VIKAS CO-OP BANK

HISTORY-

Known as a serving common mans, bank since inception, seva vikas co-op bank was registered on 23th april 1971 with an authorized capital of 11.00 lakh and commenced its business on 25 th june.1971. Its initial help to small units gave birth to many of todays industrial houses. The Bank expanded rapidly. It now has 13 branches (as on 31.03.2011) all over pune. The bank has largest network of branches by any public sector bank in the state of Maharashtra. Believing in the philosophy of technology with personal touch, seva vikas bank aims to cater all types of need of the entire family, in the whole country. Its dream is SEVA + VIKAS, AND HUGE DEVELOPMENT. IT help in giving more and more services with simplified procedures without intervention of Government.

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VISIONTo be a vibrant, forward looking, techno-savvy, customer centric bank serving diverse sections of the society, enhancing shareholders and employees value while moving towards global present

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Study of Non-Performing Asset

MISSION To ensure quick and efficient response to customer expectation. To innovate products and services to cater to diverse sections of society. To adopt latest technology on a continuous basis. To build proactive, professional and involved work force. To enhance the shareholders wealth through best practices and corporate governance. To enter international arena through branch network.

THE EMBLEMThe Diya in Hand The hands indicates support to society. And people Diya indicates ujala in the society, and in life of commam people . ATTRIBUTES OF THE BANK The Bank has rolled out 13 branches under Core Banking Solution. The Bank is going to soft launched multiple delivery channels like Internet Banking, Phone Banking and Mobile Banking. Real Time Gross Settlement (RTGS) scheme is implemented at 13 branches. Instant Remit facility is made available on RTGS platform at these 13 branches. National Electronic Funds Transfer (NEFT) is also made available at these 13 branches.

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Lockers facilites,safe deposite,stamp franking,SWIFT,ABB anywhere branch bankiang ,sms facility for account status.

VISION 2011-

To cross the Business Level of Rs.500/- Crore by March 2011. Increaseing of Growth rate of Savings Bank Deposits and average Saving Deposits . Increaseing Growth rate in Current Deposits and average Current Deposit. Systematic approach for reducing Net NPA level to 0.0%. 6 Branches proposed to be opened at new business centers and 3 extension counters to be converted into full-fledged branches. .

ATM network to be increased Biometric ATMs to be introduced at selected branches. Introduction of Internet banking, Mobile banking and Phone banking. SHGs with special reference to agriculture to be promoted and financing be implemented so as to increase financing to small and marginal farmers.

Financial Inclusion to the unbanked section of the population.

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RESEARCH METHODOLOGY

Research Methodology is a way to systematically solve the problems. It may be understood to study how research is done scientifically. In this, we study various steps that are generally adopted by the researcher in studying research problems along with the logic behind them, to understand why we are using particular method or technique so that the research results are capable of being evaluated. During my project work, I have used a lot of data to understand the concept of NPA. The data collected was interpreted and then used as information in project work.

Data collection The data collected for the project was in the form of written as well as verbal information regarding the loan indication. 1) Primary data- The information about the bank is gathered from the discussion with the employees/staff. And from case study 2) Secondary data- The secondary data was collected from

Summary reports about classification of advances, movement of NPAs etc. Circulars and notifications of RBI concerning NPAs and credit management.

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Annual reports of the bank.

DATA ANALYSIS-

The data thus obtained is analyzed by using following methods: a) Analysis of financial statements b) Ratio analysis

FINANCIAL HIGHLIGHTS:
(All figures in lacs of Rs. except ratios) Parameter Working Capital Investments Share Capital Reserves Deposites Loans and Advances Profit Before Tax Profit After Tax Gross NPAs Net NPAs CRAR Audit Classification RBI Grade Table no 5.1 Mar-08 28898.68 11780.80 125.94 2877.69 21665.15 15150.43 904.50 584.50 3.62 0.00 15.49 A -------Mar-09 30884.30 11341.76 147.61 3443.75 23675.14 16872.07 1293.37 903.37 2.50 0.00 18.57 A I Mar-10 42055.96 15481.49 153.60 4328.08 31707.86 21152.84 1345.36 970.36 1.75 0.00 16.24 A I

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PAST PERFORMANCE OF THE BANK :

Asset Quality

(All figures are in crores of Rs. except ratios) Increase % Rise 19.67 9.28 11.36 42.99 54.55 17.21 % Rise 25.68 33.93 25.37 4.02 7.41 4.06

Sr. No. 1 2 3 4 5 6 Sr.No. 1 2 3 4 5 6

Particulars Reserves Deposits Loans And Advances Profit Before Tax Net Profit After Tax Share Capital Particulars Reserves Deposits Loans And Advances Profit Before Tax Net Profit After Tax Share Captial

2008-09 2009-10 2877.69 3443.75 21665.15 23675.14 15150.42 16872.07 904.50 1293.37 584.50 903.37 125.94 147.61 2008-09 3443.75 23675.14 16872.07 1293.37 903.37 147.61 Table no 5.2 2009-10 4328.08 31707.86 21157.84 1345.36 970.36 153.60

566.06 2009.99 1721.65 388.87 318.87 21.67 Increase 884.33 8032.72 4280.77 51.99 66.93 5.99

BUSINESS RATIOS:

Sr. No. 1 2 3 4 5 6 7

Particulars Capital Adequacy ratio N.P.A At The End Of The Year Percentage Of NPA To Total Loans & Advances Percentage Of Net NPA To Net Loans & Advances Interest Income as Percentage To Working Fund Non Interest Income As Percentage To Working Fund Non Interest Income as Percentage to total Income

31.03.2009 31.03.2010 18.57% 16.24% 422.59 lac 370.88 lac 2.50% 1.75% 0.00 0.00 9.94% 8.20% 0.93% 0.87% 8.55% 9.61% 19

Study of Non-Performing Asset

8 9 10 11 12 13 Cost Of Fund (Percentage) Percentage Of Management Cost To Working Fund Operating Profit As Percentage To Working Fund Percentage Of Net Profit To Working Fund Business Per Employee NET Earning Per Employee (Productivity) Table no 5.3 5.62% 5.28% 2.15% 1.84 4.41% 3.20% 2.92% 2.31% 275.83 Lac 354.77 Lac 6.15 Lac 6.51 Lac

Deposits

Chart no 5.1

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Study of Non-Performing Asset Loans And Avances

Chart no 5.2

Profit

Chart no 5.3

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NPA In Percentage(%)

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Chart no 5.4

Bank/Year SevaVikas Co.Op. Bank Sarswat Bank Shamrao Vitthal Bank

2001-2011 0.85% 3.25% 2.88%

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Bank/Year SevaVikas Co.Op. Bank

2001-2011 4.37%

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Study of Non-Performing Asset

Sarswat Bank Shamrao Vitthal Bank 0.00% 0.00%

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Theoretical Background

CONCEPT OF NPA

NPA means Non Performing Assets. An asset, including a leased asset, becomes nonperforming when it ceases to generate income for bank, As per RBI Guidelines a Non Performing Asset is a loan or advance where:

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

2. The account remains out of order in respect of an Overdraft/ Cash Credit (OD/CC) for more than 90 days.

3. The bill remains overdue for the period of more than 90 days in the case of bills purchased and discounted.

An asset is classified as non-performing asset (NPAs) if the borrower does not pay dues in form of principle and interest for a period of 90 days. If any advance or credit facilities granted by bank to borrower becomes non performing, then the bank will have to treat all the advances/ credit facilities granted to a borrower as non performing without having any regard to the fact that there may still exists certain advances / credit facilities having performing status. Ninety-day norm

From April 2004, all bank dues pending for more than 90 days are declared bad or nonperforming and appropriate action will follow to recover the dues. In preparation for the implementation of the 90-day norm, Indian banks had been directed to shift, since April 2002, to a system of charging of interest on a monthly basis instead of the practice of

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charging interest on quarterly basis. Interest has to be calculated on a monthly basis under the new system because borrowers are required to pay the interest for every month before the 10th day of the subsequent month or, in any case, before the next payment of interest is due. Failure to service interest every month will attract penal interest besides recall of the loan after three months. Introduction of the 90-day norm was a part of the banking reforms aimed at ushering in an efficient, business and customer friendly banking system, which can conform to international standards. The 90-day norm makes the banks follow up on every loan from the very first month after disbursement. This has greatly help the banks to detect signs of sickness in time and start the recovery process before the default swells up or the assets financed by the loans deteriorate in value. Seen from the borrowers angle, the new norm imparts them with a much needed credit discipline to manage their finances properly. Eventually the new norm has lead to a comfortable 90-day cycle of payment in the organized sector, which meets the needs of liquidity and business growth in a competitive economy. Banks have a key role to play here in educating the various sections of the borrowers on the banking reforms, in general, and the 90-day norm in particular.

4. Appropriation of recovery in NPAs Interest realized on NPAs may be taken to income account provided the credits in the accounts towards interest are not out of fresh/ additional credit facilities sanctioned to the borrower concerned. In the absence of a clear agreement between the bank and the borrower for the purpose of appropriation of recoveries in NPAs (i.e. towards principal or interest due), banks should

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adopt an accounting principle and exercise the right of appropriation of recoveries in a uniform and consistent manner.

5. Interest Application There is no objection to the banks using their own discretion in debiting interest to an NPA account taking the same to Interest Suspense Account or maintaining only a record of such interest in proforma accounts.

ASSET CLASSIFICATION Categories of NPAs Banks are required to classify non-performing assets further into the following three categories based on the period for which the asset remains non-performing and the realization of the dues: a) Substandard Assets b) Doubtful Assets c) Loss Assets

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Substandard Assets With effect from 31 March 2005, a substandard asset would be one, which has remained NPA for a period less than or equal to 12 months, such an asset will have well defined credit weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.

Doubtful Assets With effect from March 31, 2005, an asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values highly questionable and improbable.

Loss Assets A loss asset is one where the bank or internal or external auditors have identified loss or the RBI inspection but the amount has not been written off wholly. In other words, such an asset is considered uncollectable and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

Guidelines for classification of assets

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Broadly speaking, classification of assets into above categories should be done taking into account the financial institution of well-defined credit weaknesses and the extent of dependence on collateral security for realization of dues. Banks should establish appropriate internal systems to eliminate the tendency to delay or postpone the identification of NPAs, especially in respect of high value accounts. The banks may fix a minimum cut off point to decide what would constitute a high value account depending upon their respective business levels. The cut off point should be valid for the entire accounting year. Responsibility and validation levels for ensuring proper asset classification may be fixed by the banks. The system should ensure that doubts in asset classification due to any reason are settled through specified internal channels within one month from the date on which the account would have been classified as NPA as per extant guidelines.

Accounts with temporary deficiencies The classification of an asset as NPA is based on the record of recovery. Bank does not classify an advance account as NPA merely due to the existence of some deficiencies which are temporary in nature such as non-availability of adequate drawing power based on the latest available stock statement, balance outstanding exceeding the limit temporarily, non-submission of stock statements and non-renewal of the limits on the due date, etc. In the matter of classification of accounts with such deficiencies banks follow the following guidelines:

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(a) Banks ensure that drawings in the working capital accounts are covered by the adequacy of current assets, since current assets are first appropriated in times of distress. Drawing power is required to be arrived at based on the stock statement, which is current. However, considering the difficulties of large borrowers, stock statements for determining drawing power should not be older than three months. The outstanding in the account based on drawing power calculated from stock statements older than three months, would be deemed as irregular. A working capital borrower account will become NPA if such irregular drawings are permitted in the account for a continuous period of 90 days even though the unit may be working or the borrower's financial position is satisfactory.

(b) Regular and ad hoc credit limits need to be reviewed/ regularized not later than three months from the due date/date of ad hoc sanction. In case of constraints such as nonavailability of financial statements and other data from the borrowers, the branch should furnish evidence to show that renewal/ review of credit limits is already on and would be completed soon. In any case, delay beyond six months is not considered desirable as a general discipline. Hence, an account where the regular/ ad hoc credit limits have not been reviewed/renewed within 180 days from the due date/ date of ad hoc sanction is treated as NPA.

Upgrading of loan accounts classified as NPAs

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If the borrower in the case of loan accounts classified as NPAs pays arrears of interest and principal, the account is no longer treated as non-performing and is be classified as standard account.

Accounts regularized near about the balance sheet date The asset classification of borroweraccounts where a solitary or a few credits are recorded before the balance sheet date should be handled with care and without scope for subjectivity. Where the account indicates inherent weakness on the basis of the data available, the account should be deemed as a NPA. In other genuine cases, the banks has to furnish satisfactory evidence to the Statutory Auditors/Inspecting Officers about the manner of regularization of the account to eliminate doubts on their performing status.

Asset Classification to be borrower-wise and not facility-wise a) It is difficult to envisage a situation when only one facility to a borrower/one investment in any of the securities issued by the borrower becomes a problem credit/investment and not others. Therefore, all the facilities granted by a bank to a borrower and investment in all the securities issued by the borrower will have to be treated as NPA/NPI and not the particular facility/investment or part thereof which has become irregular. b) If the debits arising out of devolvement of letters of credit or invoked guarantees are parked in a separate account, the balance outstanding in that account also should be treated

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as a part of the borrowers principal operating account for the purpose of application of prudential norms on income recognition, asset classification and provisioning. Advances under consortium arrangements Asset classification of accounts under consortium should be based on the record of recovery of the individual banks and other aspects having a bearing on the recoverability of the advances. Where the remittances by the borrower under consortium lending arrangements are pooled with one bank and/or where the bank receiving remittances is not parting with the share of other member banks, the account will be treated as not serviced in the books of the other member banks and therefore, be treated as NPA. The banks participating in the consortium should, therefore, arrange to get their share of recovery transferred from the lead bank or get an express consent from the lead bank for the transfer of their share of recovery, to ensure proper asset classification in their respective books Advances to PACS/FSS ceded to Commercial Banks In respect of agricultural advances as well as advances for other purposes granted by banks to PACS/ FSS under the on-lending system, only that particular credit facility granted to PACS/ FSS which is in default for a period of two crop seasons in case of short duration crops and one crop season in case of long duration crops, as the case may be, after it has become due will be classified as NPA and not all the credit facilities sanctioned to a PACS/ FSS. The other direct loans & advances, if any, granted by the bank to the member borrower of a PACS/ FSS outside the on-lending arrangement will become NPA even if one of the credit facilities granted to the same borrower becomes NPA.

Advances against Term Deposits, NSCs, KVP/IVP, etc

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Advances against term deposits, NSCs (National Savings Certificate) eligible for surrender, IVPs (Indira Vikas Patra), KVPs (Krishi Vikas Patra) and life policies need not be treated as NPAs provided there is sufficient margin available. Advances against gold ornaments, government securities and all other securities are not covered by this exemption.

Asset classification status During the specified one-year period, the asset classification status of rescheduled accounts will not deteriorate if satisfactory performance of the account is demonstrated during the period. In case, however, the satisfactory performance during the one-year period is not evident, the asset classification of the restructured account would be governed as per the applicable prudential norms with reference to the pre- restructuring payment schedule. The asset classification would be bank specific, based on record of recovery of each bank, as per the existing prudential norms applicable to banks.

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INTERNAL CAUSES:

They are those which are within the control of the bank management or the borrower and attributable to them. Due to fault of the borrower: 1. Willful default: There have been a number of borrowers who have strategically defaulted on their debt service obligations realizing that the legal recourse available to creditors is slow in achieving results. 2. Diversion of funds: Sometimes the borrower may take a loan for a particular purpose and use the loan amount for some other purpose. The borrower may engage in activities that may be personally beneficial to him but may increase the probability of default and thus 36

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harm the lender. The borrower may invest in unprofitable projects, in projects with higher risk, in which the borrower profits if the project succeeds but the lender bears most of the loss if the project fails. In many cases, the borrower, instead of using the loan amount for the required purpose, uses it mostly for expansion, diversification, and modernization of the existing plant. Short-term funds are invested in long term, non-productive purposes due to this the project for which the loan is taken does not materialize and the loan turns bad. 3. Incorrect financial information: In many cases borrowers submit incorrect financial statements, stock statements, security etc. to get their loans sanctioned. Even during business visits, the borrower is able to show a good picture. The bank is unaware of the actual facts and grants the loan on the basis of documents. Many borrowers borrow and start industries/activities for purpose of getting subsidies and do not have any interest in the activity. These loans ultimately become bad. 4. Inefficient management: Many borrowers do not have the business acumen to do business effectively. In spite of the other factors being present like adequate finance the project does not yield adequate returns because of mismanagement on the part of the promoters. Such promoters do not have effective marketing or financial skills due to which the project fails. This leads to loss to the bank as their advances get stuck in the process.

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Due to fault of the bank: 1. Poor credit appraisal: Irrespective of the size of the project, almost 70-75 percent of the investment is financed by banks and financial institutions and 25-30 percent comes from the promoters as their contribution in form of capital. In other words, banks and financial institutions finance major part of the investment in all the projects. It is thus the job of the banker to properly scrutinize the projects and stay away from unviable ones. He should screen the potential projects to determine expected risk and return. Future growth prospects of the project and that of the industry, effects of various government policies, environment etc. should also be considered. There may be situations where many borrowers hide information while borrowing and once the loans are granted they default. Adverse selection of the borrowers and projects without properly scrutinizing their viability leads to substantial accumulation of NPA in the banks. Poor credit monitoring: Once lending decisions are made, ongoing monitoring needs to be done with a view to prevent moral hazard or otherwise in order to assure the maximum possibility of repayment. A very strong credit monitoring system needs to be in place to do the post sanction follow up. It can identify in advance whether a loan is turning bad. However many banks fail in this aspect. They fail to do the post sanction follow up. Unless a close watch is kept on, the accounts irregularities cannot be detected. This is also a major reason for rising level of NPAs in banks.

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2. Lack of organizational learning in the bank - repeated lending to the same person or group of persons with similar dubious characteristics: Organizational learning on the part of the bank is very important in controlling the growth of NPA. It is obvious that with the experience of repeated lending over a period of time to varieties of borrowers, a bank can identify a particular type of borrower who is more likely to default. But in practice it fails to learn from the past. Due to several constraints, whether internal or external, like political interference, it cannot bar these potential defaulters. For instance, loans have been extended to,

Industries in the negative list circulated by IDBI, department of industries and RBI.

Existing accounts, which have gone irregular. A party, which is irregular on existing accounts in a different branch of the same bank.

Several projects with promoters or directors with doubtful integrity.

3. Improper repayment schedule: The repayment schedule should be decided according to the project and the ability of the borrower. It should be such that it does not adversely affect the cash flows of the project. Inefficient decisions have resulted in many newly born projects turning sick or closing down. There are instances in which installments and interest have become due before the commencement of commercial production. This poses a financial burden on the borrower and at times he may borrow more at higher cost to

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service the debt in the initial stages. Thus further repayment of loan becomes a problem. 4. Contagious Default: When a borrower cannot pay back the due because of the fact that his venture failed and he escapes any form of penalty, this induces another to default, even when he has the capacity to pay back. In such a scenario, occurrence of NPA leads to creation of additional NPA, a phenomenon called contagious default.

5. Forced lending: Banks are not free from this problem. They are forced either by the government in case of public sector banks or by the top management in case of private banks to extend loans to borrowers irrespective of requirement, usage of the money, credibility or ability to repay. While devising such programs no methods are devised for recovering loans in case of default. This leads to the formation of NPA. 6. Targeted lending: Targets are set for lending under certain schemes. Credit is disbursed just to meet the target and potential of the borrower is not taken into consideration. Proper credit appraisal is not done before lending. Such accounts in many cases turn bad. Though loans of small amount are granted under such schemes, the number of accounts becomes unmanageable for follow-up and recovery. 7. Adverse selection of borrowers:

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In many cases it so happens that because of high level of NPAs the profitability of the bank gets affected. Thus they are forced to increase their interest rates on loans. Due to this the genuine borrowers shift to other banks, which offer lower interest rates. In such a case the bank is forced to grant loans to risky borrowers. This increases the risk of further NPAs. The bank gets into a trap where due to existing high NPAs, the chance of further NPAs increases. 8. Timing of loan: It has been generally observed that the timing of loan may not be proper. This has been true in the case of agriculturists and small borrowers. The loan amount is not given to them immediately at the time of requirement but only after a few days because of the procedural delays. This forces them to borrow at a higher interest rate from the moneylenders and then they use the bank money to repay them. The loan amount is not used for the purpose for which it was granted but for servicing debt. This problem is also a cause of NPA. Inadequacy of trained staff: The bank needs to have highly trained and knowledgeable staff, which can appraise the loans properly. Absence of these will cause more NPAs. It is the responsibility of the bank to train its staff properly so that they can carry out functions like risk assessment, credit appraisal and monitoring.

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EXTERNAL CAUSES: The external factors are those which are attributable to reason, which are beyond the control of the banks and thus, the banks cannot be held responsible for the defaults caused by these factors. Some external causes are:

1. Natural calamities like floods and accidents: Due to natural calamities the manufacturing units, factories etc get destroyed and the borrowers are left with no means to repay the loans. The bank cannot enforce the security on the loan as that also gets destroyed. Thus the advance given for the projects becomes bad.

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2. Change in Government policies: Government policies are responsible to some extent for adding to the volume of NPAs of banks. Projects are undertaken keeping in mind current policies. But when the policies are changed the prospects of certain projects gets affected, as the new policy may be different from the earlier one. At this stage the project cannot be reversed, thus leading to its failure. Thus the funding for that project becomes NPA. Example: The steel sector has been affected to a large extent because of change in the governments policies.

3. Change in technology:

Sometimes projects are started keeping in mind that the plant will run on a particular technology. But the technology may change over time making the old technology totally obsolete. Due to these factors the cost of the project increases thereby affecting the profitability of the unit and the repayment of the loan. 4. Labour issues, non-availability and price escalations of raw materials, power shortage: For smooth functioning of the project it is very essential that the operational aspects like raw material, power, labour etc are available on time. If these are not

43

Study of Non-Performing Asset

available on time the prospects of the project fail. Manufacturing gets delayed and profitability gets affected. Ultimately the loan turns bad.

5. Liberalization: It is a major cause of NPA in India. Some industries due to lack of professional management were not able to cope up with the growing competition from MNCs. This adversely affected their profitability and also the chances of repayment of loans. 6. Loan waiver schemes of the government: The government in many cases grants various incentives, concessions and waivers to the loans to people in the rural areas. Due to this people develop an attitude that they can take benefit of concessions and so they dont repay the loans. Also those who pay before such waivers are announced feel frustrated and default on the subsequent loans that they take. 7. Use of bank as an instrument of public policy: A number of examples may be cited in order to show that PSBs have been used as an instrument of public policy, which has helped accumulation of NPAs. Lending under populist schemes like loan melas, directed lending to certain sectors like mini-steel, mini-paper, mini-cement units, sugar and cotton spinning co-operatives are examples. 8. Defaulter favored legal system:

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Study of Non-Performing Asset

The legal system in India does not permit early recovery of dues. It is more sympathetic towards borrowers. These legal procedures are a drain on resources and are highly time consuming as the matters get invariably delayed with law courts granting adjournments one after another for any small reason. More money is spent than is expected to be recovered by pursuing these cases in the courts of law. There may be a tendency to write off a small amount of advances in the face of prohibitive legal and administrative cost and inordinate delay in final settlement. 9. Tax benefits: Our tax policies are such that they encourage debt more than equity. Through debt financing, the borrower gets a tax shield, which reduces his tax burden. This encourages the businessmen to take more debt and a situation arises when the debt becomes unmanageable because of the rising interest and installments. Thus the borrower defaults on payment and the account becomes an NPA.

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Study of Non-Performing Asset

IMPACT OF NON PERFORMING ASSETS

At the macro level, NPAs have affected the supply line of Credit of the potential lenders thereby having a deleterious effect on capital formulation and arresting the economic activity in the country. At the micro level, unsustainable level of NPAs has eroded current profits of banks. They have led to reduction in interest income and increase in provisions and have restricted recycling of funds. NPAs not only affect the profitability of the bank but also have other serious impacts.

1. Impact on Profitability: Performance in terms of profitability is a benchmark for any business enterprise including the banking industry. However, increasing NPAs have a direct impact on banks profitability as legally banks are not allowed to book income on such accounts and at the same time banks are forced to make provision on such assets as per the Reserve Bank of India (RBI) guidelines. The enormous provisioning of 46

Study of Non-Performing Asset

NPA together with the holding cost of such non-productive assets over the years has acted as a severe drain on the profitability of the PSBs. The minimum cost of holding NPAs is around 7% p.a. (reckoning average cost of funds at 6% plus 1% service charge). Also due to the advance becoming bad, interest is not received on it and hence the income reduces to that extent. They are not merely non-remunerative but also cost absorbing and profit eroding. 2. Excessive Capital requirement: Writing off of loans requires capital and the banks have to maintain capital adequacy even on NPAs. The capital adequacy ratio (CAR) is directly related to the quality of loan assets of the Bank. A bank can make losses and requires capital to write it off. Since these losses are written off against capital, fresh capital is required whenever any advance is written off. Thus any increase in defaults will require increase in capital whenever they are written off. Every bank has to maintain some amount of capital in the books on the basis of its risk-weighted average of assets. If an advance turns bad, it continues to be a part of the assets thus requiring the bank to maintain that much amount of capital in the books. No interest is earned on the advance but still the bank has to maintain capital on assets, which are not yielding any income. 3. Excessive focus on credit risk management: The most important business implication of NPAs is that it leads to credit risk management assuming priority over the other aspects of banks functioning. The

47

Study of Non-Performing Asset

banks whole machinery would thus be pre-occupied with recovery procedures rather than concentrating on expanding business. 4. High cost of funds due to NPAs: Banks are profit-making organizations. They lend money after charging a desired spread, which is the gap between the deposit rate and the lending rate. On account of the burden of heavy NPAs, banks are forced to increase the spread on the loans given to other borrowers to maintain their profitability. Thus genuine borrowers face the difficulties in raising funds from banks due to mounting NPAs. Either the bank is reluctant in providing the requisite funds to the genuine borrowers or if the funds are provided, they come at a very high cost to compensate the lenders losses caused due to high level of NPAs.

Example Assume that under competitive market conditions, the interest rate is 10% and the total amount of bank debt transacted is Rs.100. If there were no defaulters the bank would earn Rs.10 from every Rs.100 lent. However there are bound to be some defaulters and to cover their losses, the bank would need to build in a cushion against risk of default and charge a rate above the normal rate of 10% in this example. Assuming that 25% of the borrowers will default on the loan, then on a loan of Rs.100 the bank can expect to get back Rs.75 plus interest. Therefore if the bank has to earn the perfect market return of Rs.110, it will have

48

Study of Non-Performing Asset

to charge its good borrowers a higher rate of interest than 10%. In this example the rate that the bank will need to charge to fully recover its advance works out to be 14.67% (i.e. 110/75*10) instead of 10%. Therefore, the presence of bad loans on their books pushes up interest rates charged by banks. 5. Attitude of bankers towards credit delivery: The fear of NPAs has affected the psychology of the bank managers in entertaining new projects for credit expansion. Today the psychology of the banks loaded with NPAs is to insulate them with zero percent risk and turn lukewarm to fresh credit. This has adversely affected credit growth compared to growth of deposits, resulting into a low C/D Ratio. The fear psychosis has also lead to excessive securityconsciousness in the approach towards lending to the small and medium sized credit customers. 6. Slow recycling of funds: The advances that are repaid and the interest on them that a bank gets are recycled to give further advances. Now if an account turns bad funds are not received thus slowing down the process. Supply of funds gets reduced which affects credit expansion. Thus there is slow recycling if funds and the bank cannot lend money for productive activities to improve earnings. 7. Reputation risk: The credit rating of a bank may get affected due to disclosures on quantum and movement of NPAs, provisions etc. The risk perception of the depositors towards

49

Study of Non-Performing Asset

the bank may increase and the bank may not be able to mobilize enough deposits even at a higher rate of interest. This would affect the competitiveness of the bank. 8. Impact on staff morale: High level of NPAs affects the staff morale. There may be a conflict among the different departments as to who is responsible for the high level of NPA. It may also lead to low productivity because the staff gets involved in the recovery process and they do not get time to do their normal developmental work. 11. Impact on the banking activities: Large level of NPAs may affect the functioning of the banks and hence the main function of the bank of accepting deposits and lending money may get affected. Inadequacy of funds will adversely affect the success of the real sector.

CASE STUDY

Introduction to CaseMr ABC borrowed a mortgage loan of Rs 2,50,000/-(Rupees Two Lakhs Fifty Thousand Only) from Seva Vikas Co-operative Bank Ltd.by mortgaging two flats (hereinafter referred to as the said flats) owned by him in favour of the Bank .A document was executed between the Bank and Mr ABC which was duly registered in the Office of Sub-Registrar, Pune. Mr. ABC failed to pay the monthly installments as was agreed, in consequence of which the Recovery Officers of the Bank visted Mr ABC and gave a reminder to pay the installments. Thereafter also Mr ABC continued to commit deafults in payment of the installments and hence notice was issued in name of Mr ABC regarding the same. Being repeatedly informed about the defaults and still failing to pay the installments, the Recovery Officers went to the residence of Mr ABC and it came to the knowledge of the recovery officers that Mr ABC had executed a Power of Attorney in favour of a relative 50

Study of Non-Performing Asset

who on acting on the Power of Attorney sold the said flats morgaged to the bank to a third party. Later Bank approached the parties to whom the flats were sold informed them about the Mortgage with the Bank ,the parties then lodged a Police Complaint against the Public Relations Officers(PR Officers) of the Bank ,due to the complaint lodged the PR Officers were put to a Police Custody for a night. The case was not taken care of for a few years until an Branch Manager was appointed in the branch who did a brief study of the case. While the case study the officer found the receipt of the Mortgage deed executed between the Seva Vikas Co-operative Bank Ltd. and Mr.ABC. The said Branch Manager then brought the copy of the mortgage deed from the office of the Sub-Registrar in which it was duly registered and a case was filed in the Court against the third party. During the suit the third party approached the Bank to compromise the case on the terms that the third party would pay the Bank Rs 2,00,000/- (Rupees Two Lakhs Only)against the said flats .The said Bank agreed to the terms of the compromise with the third party and thereafter the case was closed.

Security for the bank1. All the outstanding facilities are secured by the second charge on fixed assets of the company. Working capital assets and FD margins secure working capital facility. 2. A financial institution has second charge on fixed assets and exclusive first charge on equipments procured out of the financial institution loan. 3. Term loan has been repaid for which Bank of Maharashtra had first charge on the fixed assets. 4. Bank outstanding including WCTL and the financial institution now has pari passu first charge on fixed assets of the company except exclusive charge granted to the financial institution.

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Study of Non-Performing Asset

5. After the financial institution issues No-dues certificate, Bank will have first charge on all assets of the company.

Analysis of annual report for year 2006-07:

SUGGESTIONS FOR MANAGING NPAs

The magnitude of the problem and the reasons behind it call for immediate corrective steps in the recovery processes so that the problem is contained. The recovery plan should take long-term measures to dig out the roots of this problem. But the impact of the problem on the current scenario should not be totally neglected. The weak banking system is also contributing to the current crises. Thus, some immediate measures should also be taken.

LONG-TERM MEASURES

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Study of Non-Performing Asset

1) Sub prime debt: There have been few instances at some banks extending credit to sub prime debtors and getting kickbacks for the same. Sub prime debtors are one who does not have capacity to repay or who does not create sufficient assets which will provide security to the bank Ineffective Legal mechanisms and inadequate internal control mechanisms have made this problem grow quick action has to be taken on both counts so that both the defaulters and the authorizing officer are punished heavily. Without this, all the other mechanisms suggested may prove to be ineffective. 2) Proper Credit and Risk Assessment Mechanism: Lasting solution to the problem of NPAs can be achieved with proper credit assessment and risk management mechanisms. For instance, in the situation of liquidity overhang, the enthusiasm of the banking system to increase lending could compromise on asset quality, raising concern about adverse selection, and potential danger of addition to the stock of NPAs. It is, therefore, necessary that the banking system is equipped with prudential norms to minimize, if not completely avoid the problem. RBI is taking the necessary steps in this direction. 3) Redefining Priority Sector: In many countries directed credit gave rise to large NPAs adversely affecting the viability of the banks. As discussed above, in India also, its the same case. But directed credit cannot be totally erased because of development concerns of certain core sectors. However, its scope can be limited and relaxation given to the priority sector can be reduced. 53

Study of Non-Performing Asset

This would bring in a sense of responsibility in the priority sector units and improve their financial viability. Thus, considering the basic merit of social banking vis--vis ensuring sound banking practices, the priority sector should be redefined. 4) Sick companies: Companies declaring themselves sick under SICA can still stall recovery procedures. Once the Board has prima facie accepted the fact of their sickness for Industrial and Financial Reconstruction (BIFR), there is nothing a DRT can do till the case is disposed of by the BIFR. This issue must be addressed if the proceedings of the DRT are to be speeded up. 5) Effectiveness of ARCs: ARCs should focus on the larger borrowers. Further, there is a need for private sector and foreign participation in the ARC. Private parties will look to active resolution of the problem and not merely regard it as a book transaction. Moving NPAs to an ARC doesn't get rid of the problem. In China, potential investors are still worried about the risks of nonenforcement of ownership rights of the assets they purchase from the ARCs. Actions and measures have to be taken to build investor confidence. 6) Well -Developed Capital Markets Numerous papers have stressed the criticality of a well-developed capital market in the restructuring process. A capital market brings liquidity and a mechanism for write off of loans. Without this a bank may seek to postpone the NPA problem for fear of capital adequacy problems and resort to tactics like ever greening. Monitoring by bondholders is better as they have no motive to sustain uneconomic activity. Further, the banks can

54

Study of Non-Performing Asset

manage credit risk better as it is easier to sell or securitize loans and negotiate credit derivatives. 7) Contextual Decision-making Regulations must incorporate a contextual perspective (like temporary cash flow problems) and clients should be handled in a manner, which reflects true value of their assets and future potential to pay. The top management should delegate authority and back decisions of this kind taken by middle level managers. 8) Securitisation This has been used extensively in China, Japan and Korea and has attracted international participants due to lower liquidity risks. The Resolution Trust Corporation has helped develop the securitization market in Asia and has taken over around $ 460 billion as bad assets from over 750 failed banks. Its highly standardized product appeals to a broad investor base. Securitisation in India is still in a nascent stage but has potential in areas like mortgage backed securitisation. But it should be kept in mind that this method can be used for willful defaulters only.

9) Effects of Capital Norm tightening There is a fear that disposal through the provision of excessive reserves may result in a deflationary spiral. A thorough provision of reserves will have no negative impact on the long-term dividends paid to shareholders. Firstly, it helps restore credibility in the financial system. Further, an adjustment mechanism can be created by which the capital gains and

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Study of Non-Performing Asset

future profits that will result from the disposal of NPAs will pass back to the creditors and taxpayers who incurred the losses today. 10) Realignment of Performance metrics Traditional performance measures like ROE and NPA Ratio are not really indicative of performance - A high volume of bad lending today will impact positively on ROE, asset growth and NPA Ratio and only show up 5 years later as NPAs. The complexity of the balance sheet makes it impossible to disaggregate the impact of these actions even if stricter disclosure norms are put in place. Economic Value of Equity (EVE) (or market value) and Economic Value of Equity at Risk (EVER) are useful mechanisms to handle this problem. EVE is the value of the firm if its assets are instantaneously liquidated (assuming the availability of liquid markets). Book Value vis--vis EVE comparisons give an idea of whether the fair value is being reflected. EVER can be computed by using what if scenarios like downgrading the ratings of assets or changing interest rates. Now, at every stage banks can check if their actions are consistent with the goal of maximizing EVE, subject to an acceptable level of EVER.

INTERNAL MEASURES 1) Data base: The bank should develop a strong database, which should be updated on a continuous base. The classification of the NPAs of the bank should be done on the basis of Accounts

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(amount of the NPA), Assets (Sub Standard, Doubtful and Loss), sectors (Priority Sector, Non Priority Sector) and locations (Rural, Semi Urban, Urban and Metro). Such a database would help the manager in analyzing the NPAs as well as in the process of appraisals of loans. 2) Meetings with the borrowers: Frequent meetings with the borrowers whose accounts are NPAs or are likely to be NPAs should be held for initiating timely remedial measures. Discussions of such meetings should be recorded and decisions taken should be closely followed up for their implementation. Effect of macro environment of the company i.e. of the overall economy as such should also be studied. This may be helpful to understand the problems which may arise in future and which will affect repayment capacity of the borrower. 3) Early alert systems: Borderline cases having irregularity / default in the accounts which are likely to slip to NPA category should be listed out for close monitoring, so as to ensure their immediate regulation and to prevent their slippage to NPA category. Sub standard category within NPA should be given the topmost attention as there is a scope for their up gradation into performing category by maintaining close follow up. Possibility of recovery in NPA through compromise / negotiated settlement should be also explored depending upon the merits of individual cases. Effective steps should be initiated to strengthen the pre sanction appraisal and utilize the services of trained staff at potential offices to improve the quality of credit. To strengthen postsanction monitoring and followup of accounts for detecting warning signals at incipient stage, for initiating corrective action. In accounts where no security or

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attachable assets are available, and all other remedial measures have been exhausted proposal for write offs may be considered. The write off proposal should contain all the required details giving the jurisdiction for the write off, including the officers visit report. 4) Finally Dont Eliminate Manage! Studies have shown that management of NPAs rather than elimination is prudent. Indias growth rate and bank spreads are higher than western nations. As a result we can support a level of NPAs, which balances the risk vis--vis return appropriate to the Indian context. The current organizational competencies, regulatory framework, quality of disclosures and incentive structure take the Bank to an unsustainable performance level. Micro level issues will have to be addressed in order to root out the problem. Processes at every stage of an assets life impact the overall quality of the intermediation process and so a consistent set of procedures are necessary to handle the problem.

FINDING & CONCLUSION

1. The company s, management performing very accurate and in correct manner. 58

Study of Non-Performing Asset

2. The management is taking right decision ,at right time at right place. This is fact that the company is with full time management leadership for a long time 3. Thats why NPA is .zero for last five consecutive years ,the reason for this is,provision made for NPA is more than the actual NPA .eg NPA is Rs10,00,000 and provision is 12,00,000. 4. The company is keeping proper record of its current assets (especially non moving inventories and debtors) and it still have a proper record which is clearly mentioned by the auditors of the company in its annual report . So the consortium easy to calculated , companys drawing power and how it calculated companys working capital limits. 5. 6.

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BIBLIOGRAPHY

Annexure
YEAR 2008 -2009 CAPITAL AND LIABLITIES 1.Capital (Authorized capital) 12,00,000shares of rs 25/- Each 11,02,00,000 1,47,60,825 34,43,74,835.8 8 Subscribed and Paid up capital . 6,14,392 shares of 25/- Each 3,66,596.17 2.Reserves Funds and other Reserves 43,28,08,221. 91 1,53,59,800 15,90,48,043.57 YEAR 2009 -2010

1,50,00,000

3,00,00,000

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Study of Non-Performing Asset

6,35,00,000 1,2,86,00,218. 06 statutory Reserve 3,27,37,198.44 8,52,00,000 Building fund 6,69,56,383,73 2,33,132.15 Dividend Equalization Fund

3,85,00,000

Bad and Doubtful Debts Res.

2,69,00,198.44

Investment Fluctuation Res. 38,52,75,164

6,49,41,287.23 236,75,14,332. 16

Other funds and Res 3.Deposites and Other Accounts 3,17,07,86,3 90.05

(A)Fixed deposits

(I)Individuals 272,66,49,993. 04 272,66,49,993. 04 3,61,89,54,4 41.96 3,61,89,54,4 41.96

TOTAL Carried Forward Brought forward

95,77,63,045.17

(II)Central CO-op banks

(III)others Societies

(B) saving Bank deposits

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72,11,78,545.0 7 (I)Individuals 39,35,90,650.26

(II)Central Co-op Banks

(III)Other Societies

c. Current deposits

1,43,41,57,530.62 28,55,60,422.0 5

(I) Individuals & Firms

(II)Central Co-op Banks

(III)Other Socities 1,11,05,00,517 .04 272,66,49,993. 04

(D) Others Deposits 3,618,954,4 11.96

TOTAL Carried Forward

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272,66,49,993. 04 Brought Forward 3,618,954,4 11.96 44,22,605.5 0

4.Bills For Collection Being 39,68,906.16 Bills (Receivable as per contra )

5.Branch adjustment A/c

6,13,837.31

6.Borrowings 3,56,44,668.00 7.overdue interest 5,79,83,857.00 Suspense -Contra 2,65,70,898.00 8.Provision For Overdue 16,16,816.00 Interest 5,17,06,488.00 11,39,22,054.0 9.Provision For Bad & 0 Doubtful A.Provision.for bad & Doubtful 4,06,42,613.00 Debts 14,43,325.0 0 5,97,05,485. 00

2,65,70,898.00 b.Provision.for standard Assets

4,67,08,543.00 c. Excess Prov. On N.P.A.

2,90,41,41,626 .20 TOTAL Carried Forward 2,90,41,41,626 .20 Brought Forward 13,45,36,406.86 2,24,67,140.48 10.Interest Payable

3,79,90,61,7 18.77 3,79,90,61,7 18.77 1,84,42,593. 30

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3,75,00,000.00 13,34,37,659.7 3 11.other Liabilities 12.PROFIT & LOSS (After 9,03,36,951.97 Tax) AMOUNT 12,93,36,951.9 7 Profit Before Tax 21,10,14,82 7.07 9,70,36,406. 86

3,90,00,000.00 Less -Income Tax Provision

2008 -2009

PROPERTY AND ASSET

2009 -2010 2,10,43,398. 72 18,90,31,36 9.39

4,76,94,935.44

1 Cash in Hand

7,08,22,270.65

Balances with Others Bank

a. Current Deposites

b. Saving Bank Deposits 431,251,549.00 c. Fix Deposits 240,382,888.02 3.Money At Call And Short Notice 16,029,890 113,41,76,424. 00 4. Investments 1,53,21,19,6 06.00

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39,45,89,465.0 0 16,95,34,062.0 0 a.Central And State Govt.(HTM) 655,604,547.00

b.Central And State Govt.(AFS)

1,95,57,662.00

Less: Depreciation

5,067,500.00

Face Value ,65,35,00,000.00 54,45,65,865.0 0

5,000.00

871,442,559.00 Market Value 57,75,13,300.00

50,67,500.00

C.Other Trustee Securities

500 d.Shares with PDCC 58,45,42,559,0 0 125,26,93,630. 09 125,26,93,630. 09 168,72,07,326. 22

Other Investments 1,74,21,94,3 74.11 1,74,21,94,37 4.11 2,11,52,84,0 77.90

Total Carried Forward

69,82,02,077.00

Brought Forward

69,82,02,077

5.Loans And Advances

69,82,02,077.00

a. Short Term Loans 55,85,71,553.4 0 5,58,571,553.4 0 1.Over Draft

92,74,000.00

92,77,000.00 b.Againts Other Tangible Securities

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1,32,41,54,855,.7 5 55,85,71,553.4 0 c.Due From Individuals and Firms 1,32,36,93,344.75 1,11,29,000.00 d.Of Wich Over dues 1,32,36,93,344.75 1,11,30,254.00 1,02,73,81,450 .40 e.Considered Bad Debts Recovery

b.Medium Term Loan 1,39,17,000.00

a.Againts Other Tangible 810,239.00 Securities 1,53,44,000.00 1,02,65,71,211 ,.40 1,0,273,81,450 .40 b.Againts Other Tangible Securities c.Due From Individuals And Firms

1,50,10,000.00

d.Of Wich Over dues 33,97,026.00 e.Considered Bad Debts Recovery 33,97,206.00 3,857,478,452 .01 3,85,74,78,45 2.01

1,61,97,292.00 293,99,00,956. 31 293,99,00,956. 31

Total Carried Forward

Bought Froward

38,02,802.56

c.Unsecured Short Term 8,95,30,119.15 a. Due From Individuals And Firm 8,95,30,119.15

38,02,802.56

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2,54,000.00 b.Of Which Over dues 1,11,25,000.00 2,54,118.00 c.Considered Bad Debts For Recovry 1,24,67,000.00 9,74,51,519.98 d.Unsecured Medium Term

9,74,51,519.86

a. Due From Individuals 2,19,82,700.11

1,25,06,000.00

b.Of Which Over dues 77,98,277.00 c.Considered Bad Debts For Recovry 2,97,80,977. 11

1,46,77,765.00

2,39,70,188.00

6.Interest Receivable

1,75,85,359.00

i.Investments

63,84,829.00 296,387,71,14 4.31 296,387,71,14 4.31

ii.Interest Receivable on Loans 3,88,72,59,4 29.12 3,88,72,59,42 9.12 11,87,515.24 44,22,56,490. 22 2,22,56,490.2 2 6,10,182.00

Total Carried Forward

Brought Forward

39,68,906.16

Bills Receivable

1,44,71,077.46

9.Fix Asset

i.Premises 1,227,107 12,77,107.24

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99,547.00 Less: Depreciation 89,592.00

11,032.00 ii.vechicle

6,60,417.00

1,655.00 Less: Depreciation 50,235.00 3.Furniture And fixtures 1,31,84,593 2,04,58,792.98 25,22,196.00 Additions During Year 1,13,26,649.66

1,33,40,208.27

1,11,262.05

Less :Loss on Sale Of Asset Less: Sale Of Dead Stock 7,582.46 Depreciation 40,44,867.44 15,10,38,088. 47 2009 -2010 5,97,05,485.0 0 16,72,58,224.10

25,66,549.00 10,86,09,723.0 0

12.Other Asset

57,983,857 13.Overdue Interest 14.Stock Of Printing And Stationary

9,59,543.94 315,03,83,378. 38

1,97,804.00 4,32,82,379.00

8,73,447.69 4,12,55,55,5 46.00

TOTAL

1,29,76,862.30 4,99,890.00

2008 -2009

Expenditure

7,18,683.54 10,90,242.00

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13,10,18,702.9 9 20,25,536.10 3,89,65,252 1,03,82,676 5,22,629.00 6,50,522.63 7,41,354.15 26,67,900.00 18,29,539 7,14,354.15 6,83,130.39 3,20,195.00 1,46,772.00 81,047.00 47,500.00 69,35,616.00 30,000.00 69,35,616.00 3,90,00,000.00 9,03,36,951.97 To Interest On Deposits To Interest On Borrowings To Salaries And Allowances To Rent Taxes, Insurance To Legal Charges To Postages ,Telegrams, Telephone To Audit Fees To Depreciation To VDDS Agents Commission To Repairs And Maintenance To Stationery And Printing To Advertisements Expenses To Fringe Benefit Tax To AGM Expenses To Members Contribution To Bad Debts To Education Fund To Other Expenses To Income Tax Provision/Paid To Net Profit For The Year 23,56,76,639.02 10,92,14,927.96 76,31,583.29 1,46,17,642.70 6,13,611.15 2008 -2009 21,88,72,287.9 2 8,82,41,134.12 58,13,504.84 90,42,421.19 Income 20,87,471.00 99,72,471.74 By Interest on Advances By Interest on Investments By Commission Exchange By Bank Services Rendered 38,15,71,573.86 45 17,57,182.00 2009 -2010 30,000.00 1,01,67,065.75 3,96,94,230.00 9,70,36,408.86 41,85,452.44 18,66,249.00 11,04,330.40 10,02,861.52 2,22,284.40 12,076.00 1,76,032.94 47,500.00

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8,82,093.09 10,13,539.00 45,59,462.73 95 73,95,938.00 33,58,20,475.8 9 By Recovery Charges Received By Legal Notice Charges Recovered By Other Receipts By Dividend on PDCC Shares By Depreciation 3,66,596.17 TOTAL 6,35,00,000 11,02,00,000 15,90,48,043.57

Year Working Capital Investment Share Capital Reserves

200 5 21,929. 23 10,760. 68

200 2007 8 24,28,898. 28,898. 24,741 68 68 11,780. 12,200.85 10,671.84 80 2006

2009 30,884. 30 11,341. 76

2010 420,55. 96 154,81. 49 1,53.60 43,28.0 8 317,07. 86 211,52. 84 3,345.3 6 9,70.36 1.75 0 16.24 A I

Deposites Loans & Advances Profit Before Tax Profit After Tax ------Gross NPA In % 12.54 7.86 Net NPA IN % 0.00 CRAR 17.67 17.60 Audit Classification A A A RBI Grade -------

122.46 123.03 124.99 125.94 147.61 20,31.7 28,77.6 34,43.7 7 22,11.27 26,02.94 9 5 17,292. 21,665. 23,675. 48 18,410.61 18,652.99 15 14 9,748.6 15,150. 16,872. 1 11,456.61 12,941.50 43 07 12,93.3 266.36 409.86 432.90 904.50 7 292.30 5.90 0 15.14 A ------584.50 903,37 3.62 0.00 15.49 A I 2.5 0 18.57

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