TABLE OF CONTENTS

CHAPTER

TITLE DECLARATION ACKNOWLEDGEMENT PREFACE

PAGE NO.

1 2 3 4

INTRODUCTION OF THE STUDY REVIEW OF LITERATURE DATABASE AND METHODOLOGY DATA ANALYSIS AND INTREPRETATION

CONCLUSION BIBLIOGRAPHY

CHAPTER - 1

INTRODUCTION

HISTORY OF BANKING
No one can say for certain where the history of loan began. Its likely that people have been practicing lending and borrowing for as long there has been a concept of ownership. The history of loans and advances can be documented at least several thousand years back forms of lending were evident in ancient Greek and Roman times, of course. It is however, important to realize that lending started much earlier than many people would imagine and has its origin in much older times.

BANKING IN INDIA
Banking in India in the modern sense originated in the last decades of the 18th century. The first banks were Bank of Hindustan (1770-1829) and The General Bank of India, established 1786 and since defunct. The largest bank, and the oldest still in existence, is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of Indiain 1955. For many years the presidency banks acted as quasi-central banks, as did their successors, until the Reserve Bank of India was established in 1935. The Reserve Bank of India, India's central banking authority, was established in April 1935, but was nationalised on 1 January 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948. In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India". The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

Nationalisation in the 1960s

The Government of India issued an ordinance ('Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969')) and nationalised the 14 largest commercial

banks with effect from the midnight of 19 July 1969. These banks contained 85 percent of bank deposits in the country. A second dose of nationalisation of 6 more commercial banks followed in 1980. The stated reason for the nationalisation was to give the government more control of credit delivery. With the second dose of nationalisation, the Government of India controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of Indiawith Punjab National Bank. It was the only merger between nationalised banks and resulted in the reduction of the number of nationalised banks from 20 to 19.

Liberalisation in the 1990s

In the early 1990s, the then NarasimhaRao government embarked on a policy of liberalisation, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, UTI Bank (since renamed Axis Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalised the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been set up with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 74% with some restrictions.

PUNJAB STATE COOPERATIVE BANK LTD.

The Punjab State Cooperative Bank was established on 31st August, 1949 at Shimla vide registration No. 720 has a principle financing institution of the cooperative movement in Punjab. In 1951 its Head Office was shifted to Jalandhar from where it moved in 1963 to its present building at Chandigarh. In the cooperative Banking structure, the position of the Punjab State Cooperative Bank is extremely important as the whole credit system revolves around it. It has 19 branches and 1 extension counters in Chandigarh. There are 20 District Central Cooperative Banks having 804 branches all over Punjab, mostly in rural areas of the State. In the Cooperative banking structure the position of the Punjab State Coop. Bank is extremely important as a the whole short term credit system revolves around it. This bank ensures that its member central cooperative banks follow sound banking practices and observe strict financial discipline. The Central Cooperative Banks are financing the farmers through PACS at the village Level. There is no arena of life where this premier institution has not played its part. From a farmer, artisan to traders/businessman, everybody has been covered in the fold of this institution. The green, white and sweet revolutions in the state of Punjab are some of the major achievement in which this institution has plays a vital role.

Important aspects of the bank

The Punjab State Cooperative Bank has already been awarded "BEST PERFORMANCE AWARD" from NABARD (National Bank for Agriculture and Rural Development) and NAFSCOB (National Federation of State Cooperative Banks Limited). For the year 2003-04, Punjab Cooperative Bank has been selected for NABARDs Best Performance Award which is based on performance of all the SCBs in the country. Jalandhar DCCB (District Central Cooperative Bank) has also been selected for NABARDs Best Performance Award out of all the DCCBs in the country for the year 2003-04.

OBJECTIVES
To serve as a Balancing Centre for Cooperative Societies in the State for Cooperative Societies in the State of Punjab registered under the Punjab Cooperative Societies Ac, 1961 for the time being in force. To promote the economic interest of the member banks and cooperative societies in the state in accordance with cooperative principles and to facilitate the development and funding of any cooperative society registered under the said act. To carry on banking and credit business.

ORGANIZATION STRUCTURE
Chairman Board Of Directors Managing Director Additional Managing Director (Administration) Additional Managing Director (Banking)

Deputy General Manager (System) Deputy Vigilance Officer

General Manager (O&A)

General Manager (Development)

Deputy General Managers

Deputy General Managers

General Managers (Division Officers at Jalandhar, Bhatinda& Amritsar)

Establishment Officer

Liaison Officer

ACFA Assistant General Managers Assistant General Managers Assistant General Managers

Assistant General Manager

Deputy Managers

Deputy Managers

Deputy Managers

ORGANIZATION SYSTEMS OF COOPERATIVE BANKS

RBI

NABARD

DISTRICT COOPERATIVE BANK (CENTRAL LEVEL)

PUNJAB STATE COOPERATIVE BANK - APEX BANK (STATE LEVEL)

PUNJAB AGRICULTURE COOPERATIVE SOCIETIES

FARMERS

INTRODUCTION TO NON-PERFORMING ASSETS

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.

Defination
A NPA was defined as credit in respect of which interest and / or instalment of principal has remained Past Due for a specific period of time. An amount is considered as past due, when it remains outstanding for 30 days beyond the due date. However, with effect from March 31, 2001 the Past due concept has been dispensed with and the period is reckoned from the due date of payment.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.

NORMS FOR THE IDENTIFICATION OF NPA Sr. No

1 2

Category account
Term Loan Cash credits overdraft

of Criteria for classification of account as NPA

If interest and /or instalment of principal remain overdue for a period of more than 90 days. and i) If the account remains out of order for a period of more than 90 days Conditions for treating the account as out of order. (a) The outstanding balance remains continuously in excess of the sanctioned limit/drawing power. (b) Though the outstanding balance is less than the sanctioned limit/drawing power but there are no credits continuously for 90 days as on the date of balance sheet or credits are not enough to cover the interest debited during the same period. ii) 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 borrowal account will become NPA if such irregular drawings are permitted in the account of a continuous period of 90 days even though the unit may be working or the borrowers financial position is satisfactory .

3 4

Bills Purchased and Discounted Direct Agricultural Advance

5 6

Securitization Transaction Derivative Transactions

Other Accounts

Accounts where a solitary or a few credits are recorded before the balance sheet date

If the bill is remain overdue for a period of more than 90 days The instalment of principal or interest thereon remain overdue for two crop seasons for short duration crops (or one season for long duration crop). The crop season for each crop which means the period up to harvesting of the crops raised, would be as determined by the State Level Bankers Committeein each state Amount of liquidity facility remains outstanding for more than 90 days. The overdue receivables representing positive mark to market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment. If any amount to be received in respect of that facility remains overdue for a period of more than 90 days OVERDUE: Amount due to bank under any credit facility is overdue, if it is not paid on the due date fixed by the bank. Where the account indicates inherent weakness on the basis of the date available, the account should be deemed as a NPA. In other genuine cases, the banks must finish satisfactory evidence to the Statutory Auditors/inspecting officers about the manner of regularization of the account to eliminate doubts on their performing status.

FACTORS RESPONSIBLE FOR NPA

Poor Credit discipline Inadequate Credit & Risk Management Diversion of funds by promoters Funding of non-viable projects In the early 1990s PSBs started suffering from acute capital inadequacy and lower/ negative profitability. The parameters set for their functioning did not project the paramount need for these corporate goals. The banks had little freedom to price products, cater products to chosen segments or invest funds in their best interest Since 1970s, the SCBs functioned as units cut off from international banking and unable to participate in the structural transformations and new types of lending products.

Audit and control functions were not independent and thus unable to correct the effect of serious flaws in policies and directions Banks were not sufficiently developed in terms of skills and expertise to regulate the humongous growth in credit and manage the diverse risks that emerged in the process Inadequate mechanism to gather and disseminate credit information commercial banks Effective recovery from defaulting and overdue borrowers was hampered on account of sizeable overhang component arising from infirmities in the existing process of debt recovery, inadequate legal provisions on foreclosure and bankruptcy and difficulties in the execution of court decrees. amongst

IMPACT OF NPAS ON OPERATIONS

Drain on Profitability Impact on capital adequacy Adverse effect on credit growth as the bankers prime focus becomes zero percent risk and as a result turn lukewarm to fresh credit. Excessive focus on Credit Risk Management High cost of funds due to NPAs

NARSIHMAN COMMITTE
The committee on financial system, also known as the Narsimhan Committee, under the

chairmanship of shri M. Narsimhan, appointed by the RBI recommended the introduction of these prudential accounting norms by Indian bank in its report submitted in December 1991. The committee was of the view that 1. If banks want to know the fair financial health of bank then they should observe the prudential accounting norms while making balance sheet and profit and loss account. 2. Classification of assets has to be done on the basis of objection criteria. 3. Provisioning should be made on the basis of classification into four different categories. Income recognition , Assets classification and provisioning norms also known as the

prudential accounting norms , provided that a bank should not show profit which is merely a book profit by resorting to practice like debiting interest to a loan account irrespective of its chance of recovery and booking the same as income or by not making provisions towards loan losses. NARSIMHAN COMMITTEES RECOMMENDATIONS 1. Committee has suggested that banks should operate on the basis of financial autonomy and operational flexibility. 2. It has recommended CAPITAL ADEQUACY NORMS of 8%. 3. These norms are applicable to all UCBs forms 1st April, 1992. SECOND COMMITTEE The first committee had made recommendations in 1991 which had resulted in basic changes in the matter of treatment of income,assets classification and provisioning norms etc. It was considered necessary for government to continue the improvement with striker rules in future also and for that second committee was made to continue changes with certain modifications. The second committee includes the following points: 1. If the bank is working in foreign countries at present then for them the CAPITAL ADEQUACY NORMS is 9% which was earlier 8% 2. Banks cant classify the accounts as NPA which are guaranteed by the central / state government effective from the year 2000-2001.

3. As per the existing norms, no provisions were there for the standard assets but from 31st March 2000, there is a norm of 0.25% on the standard assets. 4. Banks have to make a provision of 2.5% on their investment in government securities with effect from the year ending 31st March, 2000. In future this provision is likely to be raised to 5%. 5. The present norms are of 180 days for the account to be treated as NPA but after 31st

March 2000, this period has been reduced to 90 days only.

CLASSIFICATION OF ASSETS

ASSETS

PERFORMING ASSETS OR STANDARD ASSETS

NON - PERFORMING ASSETS

SUB STANDARD ASSETS

DOUBTFUL ASSETS

LOSS ASSETS

LESS THAN 1 YEAR

13 YEARS

ABOVE 3 YEARS

CLASSIFICATION OF NPA ACCOUNT AND PROVISIONS

SR. NO 1 CATEGORY OF NPA Standard CRITERIA RATE OF PROVISION

Sub-standard

Doubtful

Loss assets

For the year ended March 31, 2000, the banks should make a general provision of a minimum of 0.25% on the standard assets. If a/c is NPA for less A general provision @ of 10% on than or equal to 12 total outstanding is made. month (w.e.f 31/3/05) If a/c is sub- standard (i) Unsecured Portion Provision for 12 month (w.e.f @ 100% of unsecured 31/3/05) or when portion. realizable value of (ii) Secured portion on tangible security is less than security:50% of value assessed Up to one year doubtful-20% at the time of last One to three year doubtfulinspection. 30% More than 3 years doubtful100% If so identified by 100% of Net Outstanding bank/auditor or realizable value of security assessed by bank/auditor is less than 10% of outstanding in the a/c.

GUIDELINES FOR CLASSIFICATION OF ASSETS

1. BASIC CONSIDERATION In simple terms the classification of assets should be done by considering the well defined credit weaknesses and extent of dependency on collateral security of realisation of dues. In accounts where there is a potential threat to recovery on account and existence of other factors such as fraud committed by borrowers. It will not be prudent for bank to classify that account first as sub-standard and then as doubtful. Such account should be straight away classified as doubtful assets or loss assets, as appropriate, irrespective of the period for which it has remained as NPA. 2. ADVANCE GRANTED UNDER REHABLIATION PACKAGES Banks arenot permitted to do classification of advances in respect of which the terms have been re-negotiated unless the package of re-negotiated terms has worked satisfactory for a period of one year. A similar relaxation is also made in respect of SSI units which are identified as sick by banks themselves and were rehabilitation package programs have been drawn by the banks themselves or under consortium arrangements. 3. INTERNAL SYSTEM FOR THE CLASSIFICATION OF ASSETS AS NPA Banks should establish appropriate internal system to eliminate the tendency to delay or postpone the identification of NPA, especially in respect of high value accounts. The banks may fix minimum cut-off points 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.

INCOME RECOGNITION POLICY: According to the act of 1stApril, 1992 the

income recognition policy is as follows 1. The Policy of income recognition has to be objective and based on the record of recovery. Income from non-performing assets is not recognized on accrual basis but is booked as income only when it is actually received. Therefore, banks should not take into account the interest on non-performing assets on accrual basis. 2. However, interest on advances as against term deposits, NSCs, KVPs and life policies may be taken to income account on the due date provided adequate margin is available in the accounts.

3. Fees and commissions earned by the banks as a result of re-negotiation or rescheduling of outstanding debt should be recognised on an accrual basis over the period of time covered be the re-negotiated or rescheduled extension of credit. 4. If government guaranteed advance becomes overdue the interest on such advances should not be taken to income account unless the interest has been realized. 5. According to the norms the provisions should be made on the non-performing assets on the basis of classification of assets as discussed earlier.

MANAGEMENT OF NPA
It is a very necessary for the 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 banks is necessary. And this management can be done by following ways 1. Framing reasonably well documented loan policies and rules. 2. Sounds credit appraisal on well settled banking norms. 3. Emphasizing reduction in gross NPAs rather than Net NPAs. 4. Pasting of sale notice /wall poster on the house pledged as security. 5. Recovery efforts start from the month of default itself. Prompt legal action should be taken. 6. Position of overdue accounts is reviewed on a weekly basis to arrest slippage of fresh account to NPA. 7. Half yearly balance conformation certificates are obtained from the borrowers regularly. 8. A committee is constituted at head office to review irregular accounts. 9. Due to lower credit risk and consequent higher profitability, greater encouragement is given to small borrowers. 10. Recovery competition system is extended among the staff members. Recovering the highest amount is felicitated. 11. Adopting the system of market intelligence for deciding the credibility of the borrowers. 12. Creation of a separate Recovery Department with special recovery officer appointed by the RCS.

RECOVERY OF NPA
STEPS TAKEN BY THE GOVERNMENT FOR THE RECOVERY OF NPA There are various steps which are being taken by the government for the recovery of NPA which are discussed as under 1. SECURITIZATION ACT The securitization act is now applicable to all urban co-operative banks also. According to this act, bank can take direct possession of the movable and immovable property, mortgages against loans and sell out the same for such recovery without depending on legal process in the court. 2. Gujarat state has also by amending under the co-operation society act, empower the cooperative bank to appoint their staff as recovery officer on getting order from the board of nominees. Both the above acts are beneficial to bank for the recovery of NPA. RECOVERY OF NPA IN CO-OPERATIVE BANK The recovery of NPA in co-operative bank takes place in two ways 1. Persuasions 2. Legal PERSUASION When any account comes to NPA then the notice is conveyed to the loaned either telephonically or door to door. Its purpose is to mainly recover the recovery amount. This is an easy method and excludes the legal steps. LEGAL After persuasion when the loaned do not return the amount of loan to the bank then the legal notice through the advocate or bank printed notice is sent to the loaned. In the notice the loaned is given the 15 days notice. If loaned does not return the loan in given 15 days, then the bank files the arbitration case as per the co-operative act 1961 in the court of honourable assistant magistrate or deputy magistrate. After the decision of arbitration 63 A or 63 C is applied.

In 63 A the warrant for recovery from DC office against the loaned is sent. In 63 C the bank goes to the civil court for execution If the loaned is a govt employee, then their salary is to be attached and amount is to be deducted from his salary. If the loaned is not a govt employee, then their property is to be attached for the purpose of recovery.

IMPACT OF NPA
IMPACT ON PROFITABILITY In the context of severe competition in the banking industry, the weak banks are at disadvantages for leveraging the rate of interest in the deregulated market and securing remunerative business growth. The options for these banks are lost. The spread is the bread for banks. This is the margin between the cost of resources employed and the return there form. In the competitive money and capital markets, inability to offer competitive market rates adds to the disadvantages of marketing and building new business. IMPACT ON LIQUIDITY NPA affects the liquidity of the banks to a large extent. If the bank will have more NPA it would not be able to convert those assets into cash. This may create problem for the bankers to meet their time demand liabilities. It will hamper the smooth running of the operations of the bank. IMPACT ON COMPETITION As an impact of globalization, liberalization and privatisation, competition level has increased to a great extent. Now there would be survival of the fittest and if the banks go on increasing non-performing assets, they would not be able to survive in this competitive environment. Non-performing assets have a direct impact on the profitability and liquidity of banks. Thus the existence of NPA is a limiting factor for the growth of a bank.

FACTORS CONTRIBUTING TO NPA

There are various factors which contribute to NPAs. These can be classified into 1. Human factors 2. Environmental imbalances in the economy on account of wholesale changes. 3. Inherited problems of Indian banking and industry. While banks functioned for several decades under ethnic culture. Indian business and industry were owned , controlled or managed by single families all having been natured and developed through innovative zeal of pioneers, represented by one dominant individual towering at each set up. This inherently convey the sole-proprietorship culture and unable to quickly transform to modern professionally managed corporations of the global standard, where operations should be conducted on a decentralised knowledge based work group-an integrated teams of specialist each contributing to a core area of management. The Indian management set up everywhere turns mostly as one man show even today. Variable skill, efficiency and level integrity prevailing in different branches and in different banks accounts for the sweeping and disparities between inter-bank and intra-bank performance. We may add that while the core or base-level NPA in the industry is due to common contributory causes, the inter variables are on account of the structural and operational disparities. The heavy concentrated prevalence of NPA is definitely due to human factors contributing to the same. No bank appears to have conducted studies involving a cross-section of its operating field staff, including the audit and inspection functionaries for a candid and comprehensive introspection based on a survey of the variables of NPA burden under different categories of sectoral credit, different regions and in individual branches categorized as with high, medium and low incidence of NPA. We do not hear the voices of the operating personnel in these banks candidly expressed and explaining their failure. Ex-bankers, i.e. the professional bankers who have retired from services, but possess a depth of inside knowledge do not outpour candidly their views. Everyone is satisfied in blaming others. Bank executives hold wilful defaulters responsible for all plague. Industry and business blames government policies.

Apart from these are various other factor which contribute to NPAs. These can be classified as: INTERNAL FACTORS The internal factors which contribute to NPAs have been listed below: A) Funds which are borrowed for a particular purpose may not be used for the said purpose. B) There are various projects which may not be completed on time. C) Poor recovery of receivables also contributes to NPAs. D) The major internal factor which contributes to NPAs is the business failures. E) Diversion of funds for expansion/modernization/setting up new projects/ helping or promoting sister concern also contributing to NPAs. EXTERNAL FACTORS In addition to the internal factors there are various external factors also which contribute to NPAs. These are listed below A) The scarcity of raw material, power and other resources adds up to the NPAs. B) Another factor is the sluggish legal system which involves long legal tangles, changes that had take place in labour laws and lack of sincere efforts. C) Industrial recession is one of the factors that contribute to the NPAs. D) Last but not the least, the important external factor contributing to the NPAs is the government policies like excise duty changes, import duty changes etc.

DIFFICULTY WITH NON PERFORMING ASSETS

There are some difficulties related with non-performing assets which have been discussed below: 1. Owners do not receive a market return on their capital. In the worst case, if the bank fails, owners lose their assets. In modern times, this may affect a broad pool of shareholders. 2. Depositors do not receive markets return on their savings, in worst case if the bank fails, depositors lose their assets or uninsured balance. Banks also redistribute losses to other borrowers by changing higher interest rates. Lower deposits rates and higher lending rates repress saving and financial markets, which hampers economic growth.

3. Non- performing epitomizes bad investment. The misallocation credit from good projects, which do not, receives funding to failed projects. Bad investment ends up in misallocation of capital and, by extension, labour and natural resources. The economy performs below its production potential. 4. Non-performing loans may spill over the banking system and contract the money stock, which may lead to economic contraction. This spill over effect can channelize through illiquidity or bank insolvency: a) When many borrowers fail to pay interest, banks may experience liquidity shortages. These shortages can jam payment across the country. b) Illiquidity constraints bank in paying depositors e.g. cashing their pay checks. Banking panic follows. A run on banks by depositors as part of national money stock become inoperative. The money stock contracts and economic contraction follows.

CHAPTER 2

REVIEW OF LITERATURE

Review of literature McGoven (1993) argued that 'character' has historically been a paramount factor of credit and a major determinant in the decision to lend money. Banks have suffered loan losses through relaxed lending standards, unguaranteed credits, the influence of the 1980s culture, and the borrowers' perceptions. It was suggested that bankers should make a fairly accurate personality-morale profile assessment of prospective and current borrowers and guarantors Christine 1995, Sergio, 1996, Bloem and Gorters, 2001 pointed out that the statistics may or may not confirm this. There may be only a marginal difference in the NPAs of banks' lending to priority sector and the banks lending to private corporate sector. Against this background, the study suggests that given the deficiencies in these areas, it is imperative that banks need to be guided by fairness based on economic and financial decisions rather than system of conventions, if reform has to serve the meaningful purpose. Experience shows that policies of liberalization, deregulation and enabling environment of comfortable liquidity at a reasonable price do not automatically translate themselves into enhanced credit flow. Sergio (1996) in a study of non-performing loans in Italy found evidence that, an increase in the riskiness of loan assets is rooted in a bank's lending policy adducing to relatively unselective and inadequate assessment of sectoral prospects. Interestingly, this study refuted that business cycle could be a primary reason for banks' NPLs. The study emphasised that increase in bad debts as a consequence of recession alone is not empirically demonstrated. It was viewed that the bank-firm relationship will thus, prove effective not so much because it overcomes informational asymmetry but because it recoups certain canons of appraisal. Bhattacharya (2001) rightly pointed to the fact that in an increasing rate regime, quality borrowers would switch over to other avenues such as capital markets, internal accruals for their requirement of funds. Under such circumstances, banks would have no option but to dilute the quality of borrowers thereby increasing the probability of generation of NPAs. Muniappan, 2002 pointed the problem of NPAs is related to several internal and external factors confronting the borrowers The internal factors are diversion of funds for expansion/ diversification/ modernization, taking up new projects, helping/promoting associate concerns, time/cost overruns during the project implementation stage, business (product, marketing, etc.) failure, inefficient management, strained labor relations, inappropriate technology/technical problems, product obsolescence, etc.,while external factors are recession, non-payment in other countries, inputs/power shortage, price escalation, accidents

and natural calamities. Mohan (2003) conceptualized 'lazy banking' while critically reflecting on banks' investment portfolio and lending policy. The Indian viewpoint alluding to the concepts of 'credit culture' owing to 'lazy banking' owing to Mohan has an international perspective since several studies in the banking literature agree that banks' lending policy is a major driver of nonperforming loans. Das and Ghosh (2003) empirically examined non-performing loans of India's public sector banks in terms of various indicators such as asset size, credit growth and macroeconomic condition, and operating efficiency indicators Raul R.K. (2004) tried to identify the nature and consequential affect of the NPAs on the banking sector. He concluded that an app ropriate set of substantial financial sector regulation clarity including changes in tax laws is imperative for the banking system to get rid off NPAs as well as for the QIBs to look forward to the investment opportunity Reddy (2004) examined various issues pertaining to terms of credit of Indian banks. In this context, it was viewed that 'the element of power has no bearing on the illegal activity. A default is not entirely an irrational decision. Rather a defaulter takes into account probabilistic assessment of various costs and benefits of his decision. Sharma (2005) in her study on NPA has talked about the detrimental effects of NPA on the society as providing capital support to banks with high NPA s is actually a burden on the public exchequer and hence is a cost to the society. She also says that high NPAs reduce earning base and puts much more pressure on the banks to maintain the required capital adequacy ratio. According to her "high level of NPA also leads to squeezing of interest spread". She mentions the need to create industry cells to cope with this menace. Singh and Singh (2006) studied the funds management in the District Central Cooperative Banks (DCCBs) of Punjab with specific reference to the analysis of financial margin. It noted that a higher proportion of own funds and the recovery concerns have resulted in the increased margin of the Central Co-operative Banks and thus had a larger provision for non-performing assets. Pal and Malik (2007) investigated the differences in the financial characteristics of 74 (public, private and foreign) banks in India based on factors, such as profitability, liquidity, risk and efficiency. It is suggested that foreign banks were better performers, as compared

to other two categories of banks, in general and in terms of utilization of resources in particular. Singla(2008) emphasized on financial management and examined the financial position of sixteen banks by considering profitability, capital adequacy, debt-equity and NPA. Dutta and Basak (2008) suggested that Co-operative banks should improve their recovery performance, adopt new system of computerized monitoring of loans, implement proper prudential norms and organize regular workshops to sustain in the competitive banking environment. Chander and Chandel (2010) analyzed the financial efficiency and viability of HARCO Bank and found poor performance of the bank on capital adequacy, liquidity, earning quality and the management efficiency parameters

CHAPTER - 3

DATABASE AND METHODOLOGY

NEED OF THE STUDY

The present study was conducted to analyze the level of non-performing assets of the Punjab State Co-operative bank. The 3 letters NPA strike terror in banking sector and business circle today. The recovery of loan has always been a problem for banks or financial institution. The core banking business is of mobilizing the deposits and utilizing it for lending to industry. Lending business is generally encouraged because it has the effect of funds being transferred from the system to productive purpose which result into economic growth. Financial companies and institution are now-a-days facing a major problem of managing the NPA as these assets are providing to become a major set-back for the growth of economy.

OBJECTIVES
1. To study and understand the concept of NPA. 2. To analyze the banks policies towards NPA. 3. To analyze the impact of non-performing assets on banks profit and position. 4. To study the corrective measures taken by the bank for the recovery of NPA. 5. To study the RBIs regulations for the control and management of NPA. 6. To provide the recommendation to overcome the problems of NPA.

RESEARCH DESIGN
This research is based on descriptive study as it is pre- planned and structured.

SCOPE OF THE STUDY

The study is confirmed to non-performing assets of the Punjab State Cooperative Bank. The efforts has been made to study the status of non-performing assets in sector 22 branch for which the non-performing assets of last five years have been taken into consideration.

SOURCES OF DATA COLLECTION

Primary Data: The data has been collected through both primary and secondary sources. In primary sources the data has been collected through the interview of the manager and the employees.

Secondary Data: The secondary data was collected on the basis of internal data in the form of published balance sheets and income and expenditure statement and various website and books were also referred.

DATA ANALYSIS
Data analysis has been done with the help of the statistical method such as percentage and data is presented with the help of pie charts.

LIMITATIONS
Though the present study aims to achieve the above mentioned objectives in full earnest and accuracy, it may be hampered due to certain limitations, and some of the limitation of this study could be summarized as follows: 1. Sometimes the bank officers were busy or they hesitate to give all the data on nonperforming assets. 2. Study is confidential in nature, so the views expressed by the official may be a general opinion. 3. As only one branch of the Punjab State Cooperative Bank has been studied, it may not provide a true picture of the non-performing assets as a whole. 4. Paucity of time was one of the major-limitation, as 8 weeks were very less to carry out the study. If there would have been enough time, the study could be carried out in more detail.

CHAPTER - 4

DATA ANALYSIS AND INTERPRETATION

1. NON PERFORMING ASSETS (2009)

Assets Sub Standard Asset Doubtful Asset Loss Asset Total Rs. in lakhs 5.13 258.81 13.25 277.19

NON PERFORMING ASSETS (2009)

Loss Asset 13.25

Doubtful Asset

258.81

Rs. In Lakhs

Sub Standard Asset

5.13

50

100

150

200

250

300

InterpretationIn 2009, the substandard assets of the Punjab state co-operative bank are Rs 5.13lakhs and the doubtful assets are Rs 258.81lakhs, whereas the share of loss assets remainsRs 13.25lakh. The total NPA in 2009 was Rs 277.19.

2. NON PERFORMING ASSETS (2010)

Assets Sub Standard Asset Doubtful Asset Loss Asset Total Rs. in lakhs 18.09 112.34 13.25 143.68

NON PERFORMING ASSETS (2010)

13.25 18.09 Sub Standard Asset Doubtful Asset Loss Asset 112.34

InterpretationAs compared to 2009, sub standard assets have increased to Rs 18.09lakhs whereas the doubtful assets have reduced and there is no change in the loss assets in the year 2010. The total NPA in 2010 was 143.68lakhs.

3. NON PERFORMING ASSETS (2011)

Assets Sub Standard Asset Doubtful Asset Loss Asset Total Rs. in lakhs 32.7 33.06 13.25 79.01

NON PERFORMING ASSETS (2011)

35 30 25 20 15 10 5 0 Sub Standard Asset Doubtful Asset Loss Asset Rs. in lakhs

InterpretationIn 2011, the sub standard assets have further increased to Rs 32.70lakhs and the doubtful assets have reduced to Rs 33.06lakhs as compared to the year 2010. The total NPA in 2011 was Rs 79.01lakhs.

4. NON PERFORMING ASSETS (2012)

Assets Sub Standard Asset Doubtful Asset Loss Asset Total Rs. in lakhs 37.89 38.15 13.25 89.28

NON PERFORMING ASSETS (2012)

40 35 30 25 20 15 10 5 0 37.89 38.15

13.25

Rs. In Lakhs

Sub Standard Asset

Doubtful Asset

Loss Asset

InterpretationIn 2012, the sub standard assets and the doubtful assets have further increased to 37.88lakhs and 38.15lakhs respectively as compared to the year 2011. The total amount of NPA in 2012 remains Rs 28lakhs.

5. NON PERFORMING ASSETS (2013)

Assets Sub Standard Asset Doubtful Asset Loss Asset Total Rs. in lakhs 59.24 35.04 13.25 107.53

NON PERFORMING ASSETS (2013)

13.25

Sub Standard Asset 35.04 59.24 Doubtful Asset Loss Asset

InterpretationIn 2011, the sub standard assets have further increased to Rs 59.24lakhs and the doubtful assets have reduced to Rs 35.06lakhs as compared to the year 2012 and loss assets remains same as in 2012 . The total NPA in 2013 was Rs 107.53lakhs

6. TOTAL NPA FOR THE LAST FIVE YEAR

YEAR 2009 2010 2011 2012 2013 AMOUNT ( IN LAKHS) 277.19 143.68 79.01 89.28 107.53

AMOUNT ( IN LAKHS)
300 250 200 150 100 143.68 50 0 1 2 3 AMOUNT ( IN LAKHS) 4 5 79.01 89.28 107.53 277.19

InterpretationFrom the above data it is analysed that there is a fluctuation in the amount of NPA over a period of 5 years i.e. from 2009-2013 since in 2013 the amount has increased by Rs18.25lakhs as compared to the NPA of the year 2012. As the level of NPA has increased, the bank should take the quick actions to reduce it. In 2009 there was a much higher amount of NPA and after that it reduces in following years, hence the bank must take the necessary actions to recover it.

CHAPTER 5 SUGGESTIONS

On the basis of the study done following recommendation can be made to the bank for managing their NPAs

1. Proper provisions for non-performing assets. 2. Proper securitization should be made to handle the NPA. 3. Services of lokadalats should be availed off which alternate dispute resolution forums are organised by the various legal aid authorities like the State Legal Aid Authority, The District Legal Aid Authority, The Supreme Court Legal service committee etc. The LokAdalats aid the resolution of disputes through conciliatory methods. 4. There are several debt recovery tribunals for proper management of non-performing assets and their facilities and expertise should also be availed. 5. Efforts should be made to improve the weak credit appraisal system which will help in reducing the non-performing assets. 6. There should be a proper selection of borrower activities which also helps in the reduction of non-performing assets. 7. OTS (one time settlement) should be done for long pending cases. 8. There should be a clear flow of communication in the bank for its efficient working.

CHAPTER - 5

CONCLUSION

CONCLUSION

We can conclude from the above study that non-performing assets is like a black spot on the diamond. NPAs have emerged as an alarming threat to the banking sector. They affect the profits of the bank and also the financial health of the bank. Thus NPAs effect the banks working in a number of ways The loss assets were zero in the year 2008, which is good for the bank, but in the year 2009 this amount touched Rs 13.25lakhs which is a very drastic change within a year and it may have negative impact on the bank. The drastic increase as due to the reason that 5 persons of a car loan were resulted in the non-performing assets and the branch manager was also terminated in this case. Hence in present time the position of non-performing assets in bank is much better than the past position. In the year 2009 In India the total non-performing assets were Rs 277.19lakhs but now it is Rs. Government act and also the Narsimhan committee on non-performing assets are very useful to reduce the level of non-performing assets. So, I can conclude that level of non-performing assets in any bank is an important parameter to analyse the health of the bank.

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