Documente Academic
Documente Profesional
Documente Cultură
1 INTRODUCTION
Introduction To Banking
History of Banking in India
Banking System in India
Co-operative Banks
Structure of Co-operative Banks
Co-operative Flag
INTRODUCTION
Bank and banking are the most important and major factors in today's world economy. Each
and every transaction is routed through banking. Not a single business is possible without
banking activity. The bank and the business are related. Today we cannot imagine the business
world without banking institution. Banking is an important as blood in the human body. Due
to the development of banking, advances are increased and business activities developing so it
is rightly said, "The development of banking is not only root but also the result of the
development of the business world.
The activities and facilities provided by the bank such as collection of deposits from small
investors, lending finance and leasing, cash credit, letter of credit, routine transaction is very
important for economic growth on whole.
Every economic activity is done through bank in this new era. So every economy whether it is
developed, under developing or under developed need strong banking system from the
economic point of view. The major task of bank and other financial institution is to act as
intermediaries channeling, saving to investment. Through them, the investment requirements
of savers are reconciled with the credit need of investors and consumers.
Commercial Bank
Co-operative Banks
RBI
Commercial Bank
Development Bank
Foreign
Comm.Bank
Indian
Comm.Bank
Public Sector
Bank
Private
Sector Bank
National
Level
SFCs(Stat
Fin Corp)
State
Level
Cooperative Bank
STCs(Stat
Trad.
National
Housing Bank
Land
Devp.
Bank
Stat Co-op
Bank
Regional Rural
Bank
State Land
Dev.Bank
Central Dist
Co-op Bank
IFCI
(Industrial
Finance Corp
Of India)
ICICI (Industrial
Credit Invest.
Corp of India)
Primary
Land Dvpt.
Society
SIDBI (Small
Indust. Dvpt
Bank of India)
CO-OPERATIVE BANKS
The Co-operative banks have a history of almost 100 years. The Co-operative banks are an
important constituent of the Indian Financial System, judging by the role assigned to them, the
expectations they are supposed to fulfill, there number, and the umber of offices they operate.
The co-operative movement originated in the West, but the importance that such banks have
assumed in India is rarely paralleled anywhere else in the world. Their role in rural financing
continues to be important even today, and their business in the urban areas also has increased
phenomenally in recent years mainly due to the sharp increase in the number of primary cooperative banks.
While the co-operative banks in rural areas mainly finance agricultural based activities
including farming, cattle, milk, hatchery, personal finance etc. along with some small scale
industries and self-employment driven activities, the co-operative banks in urban areas mainly
finance various categories of people for self-employment, industries, small scale units, home
finance, consumer finance, personal finance, etc.
Some of the co-operative banks are quite forward looking and have developed sufficient core
competencies to challenge state and private sector banks.
The total deposits & landings of Co-operative Banks are much more than old Private Sector
Banks & also the New Private Sector Banks. This exponential growth of Co-operative Banks is
attributed mainly to their much better local reach, personal interaction with customers, and
their ability to catch the nerve of the local clientele.
Though registered under the Co-operative Societies Act of the Respective States (where
formed originally) the banking related activities of the co-operative banks are also regulated by
the Reserve Bank of India. They are governed by the Banking Regulations Act 1949 and
Banking Laws (Co-operative Societies) Act, 1965.
So, while commercial banks mostly provide short-term finance and development banks
provide long-term finance to industries trades and commerce. Co-operative banks on the other
hand usually help to the credit needs of lower and middle class borrowers in urban, semi urban
and rural areas.
Urban Co-Operative Banks
Urban co-operative bank has been defined as primary co-operative bank in the banking
regulation Act, 1949 (as applicable to co-operative societies), in terms of section 5(ccv) of the
said Act. A primary co-operative bank means a co-operative society other than a primary
agricultural credit society. The primary objective or principal business of which is the
transaction of banking business. The paid-up share capital and reserve of which are not less
than rupees lakh, and the bye-laws of which do not permit admission of any other cooperative
society, as its member expecting such co-operative bank as will contribute to its share capital
with the help of funds provided by the State Urban Co-operative Banks cater primarily to the
needs of upper and middle strata of society in urban and semi urban areas. Most of the Urban
Co-operative Banks are small in size and unitary in character. The deposits of UCBs are
equivalent to 9% of commercial banks deposits. Few states such as Maharashtra, Gujarat,
Karnataka, Andhra Pradesh and Tamilnadu account for over 80% of urban co-operative banks
presence and 75% of their total deposits. Predominant concentration of Urban Co-operative
Banks in these 5 states is mainly on account of emergence of strong co-operative leadership.
UCBs. Normally confine their area of operation to localized geographical regions. But over a
period of time, their areas have crossed the frontiers of districts and in some cases the states of
their registration. The client profile of UCBs predominantly comprises priority sector
segments viz. Small business establishments, SSIs, retail traders, professional, self employed
persons and SRTOs, etc. who would not normally find it easy to have access to large
commercial banks. There are weak banks in the total population of UCBs. But most of the
banks may be rated as satisfactory to very good. Many of them are highly computerized. Since
UCBs are primarily co-operative societies they are subjected to dual control management
aspects of these banks, e.g. registration administration and liquidation are controlled by the
registrar of the concerned State Government under the respective Co-operative Societies Act
and banking aspects of these bank e.g. regulation and supervision of their banking functions
are governed by the Reserve Bank by the virtue of power conferred on it by the bank of Urban
Co-operative Bank Regulation Act, 1949.
CO-OPERATIVE FLAG:
The international co-operative alliance has in 1925 adopted the beautiful seven-colored pattern
of the rainbow horizontal strips as its international flag, the flag of co-operation, progress and
peace. The flag has seven colors. They are violet, indigo, blue, green, yellow, orange and red.
Rainbow is regarded as an auspicious omen,
Farmers see the rainbow and start plugging their fields,
They read in it the message about rains to come,
It is thus a symbol of hope a harbinger peace.
Men see co-operation in its multi-colored patterned, each color blending with the other to make
one harmonious. Whole an ultimately all-pervading harmony unity in diversity.
The seven hues of the rainbow when blended together reunite to present pure unstained white
effulgence. Thus it stands for purity truth and righteousness.
It symbolizes the aims and an ideal of the co-operative movement like the rainbow cooperation brings hope to the depressed achieve harmony among diverse interest and offers the
promise of an ultimate and universe peace.
Co-operative by their own efforts inspired by a sense of fraternity, equity and love of the past
and creates a new economic system, a system in which capital plays the role of servant instead
of master, the object of production is organized self-help instead of profit and human dignity is
given the pride of place for achieving a more equitable and efficient economy better social
adjustment and a more balanced system of democracy.
COMPANY PROFILE
With advent of the 20th century, Cooperative movement started gathering momentum in our
country. In those days, there were only a few banks having solely profit conscious foreign
management, absolutely unmindful of their social obligations. Further, there was also
widespread economic exploitation of the common man in general and socially as also
economically weaker sections of the society in particular by moneylenders in the form of
lending money to them in the name of catering to the social and economic needs at exorbitant
rate of interest as also with stringent conditions which altogether ultimately subjected them to
crushing indebtedness. In such socio-economic scenario, Co-operative banks were looked
upon to playa vital role in strengthening the co-operative movement.
The Sarvoday Nagrik Co-Operative Bank ltd. is leading bank in the sabarkanth district, which
works with the objective of social welfare, leadership & development. Today it is very
important it has improved the standard of living of the people as the 22 % of the total
population of the sabarkatha people & there were no other activities who can improve the
people's living styles, in order to complete this dream the S.N.S.B LTD was established in
1978
10
11
aimed at economic development but also social, educational, religious development. From last
27 year bank has achieved good reputation & tried helping & providing good services to
customers, members & shareholders.
(Year: 1997-2006)
(Rs in lakhs)
Year Share
Share
Deposits Loan
Capital Holders
1997
55.04
6511
1060.90
926.94
73.21
54.63
15%
1998
59.04
6501
1340.96
1005.47 89.60
61.63
15%
1999
66.02
7315
1609.95
1045.01 108.25
53.43
15%
2000
71.04
7337
1951.12
1086.63 124.19
53.21
15%
2001
76.30
7398
2224.53
1155.04 138.11
55.48
15%
2002
82.79
7478
2416.21
1236.52 151.97
50.17
15%
2003
103.86
7551
2593.20
1650.43 164.53
54.06
15%
2004
105.59
7638
2475.09
1527.96 178.04
33.23
12%
2005
108.10
7714
2379.63
1484.60 191.81
34.60
12%
2006
110.57
7798
2163.18
1510.61 206.41
22.62
12%
12
GENERAL INFORMATION
Name:
The Sarvoday Nagrik Co-Operative Bank Ltd.
Polo ground.
Himmatnagar-383001
Objective:
To provide employment
Corporate Philosophy:
S.N.S.B has responded to the changing economic scenario in a positive manner that has led to
renew profitability of operations. The corporate philosophy of the corporation is as under:
1. Always ahead-Born to the changing economic scenario in a positive manner that has
led to renewed profitability of the operation.
2. Aggressive and focused approach to marketing of products and services.
3. Open, clean and transparent approach to recover idle and non-performing assets.
4. Generation of improved returns through large volume, Diversified business and
judicious resource base.
13
Board of Directors:
As the article of association of the S.N.S.B states that three directors retired & election of
subsequent are elected by shareholders as general & those directors who are retired by rotation
being eligible for re election.
Abdul Latif Gulam Hussain Vadaliwala.
(Chairman)
(M.Director)
(Director)
(Director)
(Director)
(Director)
(Director)
(Director)
(Director)
Form the BOD list, we can say that in board of director one is chairman, one is M.D &
remaining are Directors. As par the provision of article of association of the organization every
years three directors retired form the board by rotation & being eligible to offer them selves for
the re-election.
14
Virtues/ principles:
Ideal as a co-operative.
15
SWOT OF SNSB
Strength:
Weaknesses:
Quality of assets.
Lack of Centralization.
Lack of ATM
Opportunities:
Threats:
Liquidity problem.
Inflation risk.
16
To take deposits.
Deposits (Days/months)
Up to 45 days.
46 to 180 days
181 days to 13 months
13 months to 36 months
36 months to 48 months
48 months to 60 months
Int.
Rate
4%
5%
6%
7%
7.5%
8%
Int.
Rate
11%
12%
12.5%
13%
17
Owned deposit
Deposits
Borrowings
Others
Owned deposit
The owned funds consisting of paid capital of the bank, reserve fund, and other reserves.
Deposits
It is sum of current deposits, fixed deposits, saving deposits, special saving deposits, NRI
deposits, inoperative deposits, etc. It is the main Cash Inflow for any institution.
Borrowings
The borrowed funds consisting of borrowings from other banks (as per some writer deposits of
various types is also part of borrowed funds), debentures offered to public, etc.
Others
Increase in current liabilities, reduction in debtors, fund from operations like net income,
depreciation, and reserves, less payment to creditors, reduction in advances, reduction in
inventories, reduction in cash, sold marketable securities, etc.
18
Others
3 percent of NDTL;
19
While NDTL is the base for calculating the legal reserve requirements, there are a few
adjustments that are to be made. All those liabilities that are exempted from the maintenance
of the CRR will have to be deducted from the NDTL to arrive at the resolvable liabilities.
After making these adjustments to the NDTL and arriving at the resolvable liabilities, the cash
reserves are computed as a percentage to it. The relevant level of cash reserves will be the
higher of the two alternatives mentioned earlier.
The cash reserve requirements so computed will a maintenance period of a fortnight. During
this fortnight, the bank should ensure that the value of such assets that constitute the cash
reserves, should meet the statutory levels. For a better understanding of the computation and
maintenance of CRR, it is essential to get an insight on the relevant exemptions, the assets
constituting the cash reserves and the concepts of reporting Friday and maintenance period.
20
While SLR also targets the money supply as in the case of CRR, its effectiveness is however,
restricted due to the fact that the statutory liquidity reserves are mostly in the form of
securities. While on the other hand, cash reserves are in highly liquid form i.e., cash and bank
balances. Hence, any change in this ratio, affects the money supply quickly and to a larger
extent.
Since the statutory liquidity reserves include investments in approved government securities, it
provides a captive market for these instruments. Also, investment in such securities will also
provide yields to the statutory reserves, which are higher than the returns on the CRR. In
addition to this, due to the inclusion of assets having good marketability and higher liquidity,
the statutory liquid reserves also enhance the solvency of the bank. With these three
objectives, the central bank has announced the statutory liquidity requirement which is to be
the highest of the following:
a) 25 percent of the NDTL;
b) 25 percent (prevailing percentage as announced by the RBI) of the Resolvable liabilities.
Loanable Fund
Loanable funds means amount of money, which is applicable for lending. Three main factors
own fund, deposits, and borrowings decide it. Advances can never be more than loanable fund.
Loanable fund is a total of:
75% of own funds
70% of deposits
100% of borrowings
Others
Purchase of fixed assets, purchase of marketable securities, addition to advances, addition to
inventories, payment to creditors, payment of dividend, etc.
21
ORGANIZATION STRUCTURE
The S.N.S.B is following functional organization structure In S.N.S.B various division are
available for smooth functioning of smooth functioning of the various activities. These
divisions are there are their major functions are as given below:
Banking & Account Division:
It is related with the accounting function the main activity of this department is to passing
checks, drafts & to receive cash in the form of deposits. And they also maintain book of
account for that purpose. They are maintaining day-to-day balance of all accounts is to be
carried by the banking & account division. The other function of this division is as below:
Establishment Division:
The main Function of this division is to maintain & administer the whole organization. This
Division serves for administering the whole organization & its branches & its affairs.
Administration division also related with to maintain daily liquidity of each receives. The other
& main function of this division as under:
22
Loan Division:
This division is serves for procedures to take loans. This division also provides the guidance &
condition for loan and its requisites. The other functions are as under:
Disbursements of loans.
Creation of security.
Monitoring.
Recovery Division:
Recovery of the loans is significant function of the all banks. The division concerns & also
severs for recovery of the loans given. This is the main function of the bank.
The Procedure for opening vault is so very easy because one can open its own vault by
applying various types to manager on agreement of 20Rs. Stamp. Vault division provides
various types of lockers for the security of gold money & eviler ornaments. The main function
of vault division is as under:
To keep second key of all lockers in safe place and to provide key of locker to person
who miss this key.
23
All data are kept in computer because of computerization customer get quick service.
24
ORGANIZATION CHART
Organization is group of people working to gather Co-operatively under authority towards
achieving goals and objective that benefits the participants and the organization. An
organization to establish an effective behavioral relationship among selected employed and
group may work to gather effectively.
Organization stricture is the executive structure of an enterprise a basic framework with in
which the executive decision making behavior occurs. Organization char of S.N.S.B is
following:
Chairman
B.O.D
M.D
General Manager
Establishment
Division
Share Division
Recovery
Division
Loan Division
Banking
Division
Vault
Division
25
26
RESEARCH METHODOLOGY
OBJECTIVES OF THE STUDY
To study the practical aspects of the credit management, specially focusing on Loan
(term loan), Cash credit and overdrafts, Purchase /discounting of bills, Bank guarantee
etc.
To know customers preferences about the loan and banks policies for giving loan and
getting suggestions form the customers about the loan management.
RESEARCH PROBLEM
The main research problem was to get an insight into the Credit Management functions like of
Loan (term loan), Cash credit and overdrafts, Purchase /discounting of bills, Bank guarantee of
The SNSB Ltd. Bank and carrying out the detailed analysis of the customers preferences for
the same.
RESEARCH INSTRUMENT DATA COUECTION TOOLS
For the purpose of analysis various documents and personal talks were used to collect data
about the loan management activity of the Bank. Apart from this a questionnaire was prepared
to know the customers preferences about the loan management and to know their suggestions
about the same.
RESEARCH DESIGN
The research design specifies the method and procedures for conducting a particular study. The
type of research design applied here is exploratory.
SOURCES OF DATA COLLECTIONS
27
The sources of data collection used in this project are a combination of both primary data and
secondary data collection. But most of the data were collected from the primary source.
The primary data collection method was used to collect first hand information through
personal discussion with bank officers. Also the data for analysis purpose was collected from
the books, accounts and records of the company and through a well-defined questionnaire
which was designed by taking help of the expert from the Banks staff.
Secondary Data Collection.
The secondary data collection in the project is used to collect the theoretical aspects of Credit
management. The basics of Credit Management and its theoretical aspects were taken from the
books, material provided form the bank and Internet.
LIMITATIONS OF STUDY
The scope Of Credit Management is very wide; hence it was not possible to cover
all the relevant details regarding the topic within such a short span of time.
Some of the data, which could have been of great help for in depth analysis, was
not provided as they being confidential.
28
CREDIT MANAGEMENT
MEANING OF CREDIT
The word credit is actually derived from the Latin word Credere. Credere means to have
trust or faith. Thus credit is directly related with trust. That is why State Ford stated that
Credit is nothing more than that of trust. By this we can say that credit is a tool that is
resulted by the complete mutual trust/faith.
Credit creation implies a situation when a bank may receive interest simply by permitting
customer to overdraw their accounts or by purchasing securities and paying for them its own
cheque or bank may pay amount to borrower or directly to seller of goods whom against
borrower get amount.
CREDIT RISK
Credit risk refers to the risk of default on loans and advances granted by banks when timely
repayment of principal and interest or both is threatened due to inability or unwillingness of
the borrowers. This causes cash-flow problems and uncertainty. Its effect is measured by the
cost of replacing cash flows if the other party defaults.
An example being if the bank has placed a CP with company X on the back of a deposit from
depositor Y. When the company X is enables to honor the repayment of the CP, the bank
suffers a set back as it has to make good the amount to the depositor Y in any event. Generally,
credit risk can also lead to losses when debtors, even when not defaulting, are downgraded by
credit rating agencies. Credit risk also includes sovereign risk. Credit risks also take on the
form of pre-settlement and settlement risk.
29
Fixing exposure limit for individual borrowers, group of borrowers, industry/ economic
sector e.g. agriculture, transport, trade, specific regions so as to have a well diversified
portfolio of loan assets.
Rigorous appraisal and analysis of individual loan proposals to weed out less Promising
ventures.
Pricing loans and advances according to the risk perception of the projects arrived at on
the basis of a credit scoring model to ensure returns commensurate with risk and to
motivate borrowers to improve performance and earn higher rating and consequently
pay lower interest rate.
FORMS OF CREDIT/ADVANCES
1) Loan (term loan)
2) Cash credit and overdrafts
3) Purchase /discounting of bills
4) Bank guarantee
30
1) Loan/Term Loan
Loan is a method of lending under which bank gives credit to a borrower for a fixed period and
for a specific purpose. Loan are promises for future payment, they have to be repaid in periods
beyond a year and are therefore long-term liabilities.
In other words when a banker makes an advance in a lump-sum which can not be paid wholly
or partly and which the customer has permission to withdraw subsequently, it is called a loan.
Many a time a borrower needs funds for fixed assets or non-respective type of activities and
thus seeks money from the bank that is withdrawn in one lump sum. The loan amount is
normally repaid in installments. Loan may be shot-term, medium-term or long-term.
Loans and advances are classified in to secured and unsecured.
Secured loan or advance means a Loan or Advance made on the security of assets. The market
value of which is not at any time less than the amount of such loan or advance.
An unsecured loan or advances means a Loan or advance not so secured. A partly covered
loan or advance is partly covered by the security of assets, the market value of such securities
being less than the amount that has been lend or outstanding at any time. SNSB provides this
type of loan up to the limit of 2, 00,000 Rs. to known parties.
31
Types of Loan:
Generally bank grants loans for different period like shorts, medium and long and for different
purpose. Broadly, the loans granted by banks are classified follows
Bank Loan
Short-term
Loans
Medium &
Long-term
loan
Composite
Loans
Consumption
Loans
Short-term Loans:
Short-term loans are granted to meet the working capital needs of the borrowers. These loans
are granted against the securities of tangible assets mainly the movable assets like goods and
commodities, share debenture, etc.
Term Loans:
Medium and long-term loans are usually called term loans. These loans are granted for more
than a year and are meant for purchase of capital assets for the establishment of new units and
for expansion or diversification of an existing unit. Such loans constitute a part of the project
finance which industrial enterprises are required to raise from different sources. These loans
are usually secured by the tangible assets like land, building, plant and machinery, etc.
Composite Loans:
When a loan is granted both for buying capital assets and for working capital purpose, it is
called a composite loan. Such loans are usually granted to small borrowers, such as artisans,
farmers, small industries, etc.
Consumption Loans:
Though normally banks provide loans for productive purpose only, but as an exception loans
are also granted on a limited scale to meet the medical needs or the educational expenses or
expenses relating to marriages and other social core monies etc. of the needy persons such
loans are called consumption loans.
32
2) Cash Credit
Cash credit is the main method of lending in India and accounts for above 70% of total bank
credit. Under the system, the banker specifies the limit, called the cash credit limit for each
customer, up to which the customer is permitted to borrower against the security of tangible
assets or guarantees. The customer withdraws from his cash credit account as and when
requires the funds and deposits any amount of money, which he finds surplus with him on any
day. The cash credit amount is thus an active and running account to which deposits and
withdrawals may be affected frequently. The customer is required to provide tangible assets as
security to cover the amount borrowed from the banker. The borrower is charged interest on the
actual amount utilized by borrower and for the period actually utilized only.
3) Overdrafts
When a current amount holder is permitted by the banker to draw more than what stands to his
credit, such an advance is called an overdraft. The banker may take some collateral security or
may grant such advance on the personal security of the borrower. The customer is permitted to
withdraw the amount as and when he needs it and to repay it by means of deposit in his
account as and when it is feasible for him. Interest is charged on the exact amount overdrawn
by the customer and for the period of its actual utilization
4) Bills Purchase
The Banker credits customers account with the amount of the bill after deduction his charges.
As the demand bills are repayable on demand and there is no maturity, the banker is entitled to
demand their payment immediately on presentation before of drawee. Their practice adopted in
the case of demand bills is known as purchase of the bills.
33
Bills Discount
In case of bills discounting, a bank credits the amount of the bill to the drawers account before
the realization of the bill and thus lends its funds to him after deduction his charges. The bills
purchased and bills discounted by a bank are, therefore, shown in its balance sheet as part of
loans and advances, this practice is called discounting of the bill.
Bank Guarantee
It is a contract to perform the promise or discharge the liability of a third person in case of his
default. In case of guarantee, Bank is taking responsibility to pay the amount to seller if buyer
will not pay amount in time.
34
: Up to12months (1 yr)
- Medium-term Finance
: Up to 24 months (2 yr)
- Long-term Finance
PROCESS OF CREDIT
Application inward
Shakh report
Advocate report
Loan report
Inspection report
Committee report
Fulfill conditions
Make/sign document
Open account
Insurance posting
35
Inward application
A customer seeking an advance is required to submit an appropriate application form. There
are different types of application forms for different types of advances available. The
information furnished in the application covers, inter alias, the following: name and address of
the borrower and his establishment, the details of borrowers business, the nature and amount
of security offered. The application form has to be supported by various ancillary statements
like the financial statements and financial projections of the firm. A separate inquiry
department is set under the loan department. Here, different types of application forms are
available and collect process charge from borrower; application is accepted and entered into
computer.
Shakh report
This is one of the strangest facilities of SNSB are with other co-operative banks This facility
provides bank to total kundali of the borrower related to dealing with bank not only as a
borrower but also as partner, as a director also as a guarantor and same detail of the guarantor
also and also about all the types of loans, which are already paid up, which are overdue, which
are running and also about past performance of particular.
Advocate report
Bank through its legal departments staff in two matters prepares advocate report mostly, which
are given below:
When the bank prepares advocate report, bank charges some amount from borrower.
36
Purpose of advance
Provision of security
Period of payment
37
38
Up to 15, 00,000
Make/sign document
This application is now in the document department, document department take signature of
loanee and guarantors in specimen card and also on the sanction letter to seat beside and verify
all the documents. Types of documents are discussed in each type of loan separately. This
process is last for borrower, after this loan is sanctioned. No formality is remaining at the
borrower side.
Open account
Now loan is sanctioned, all formalities are completed. So bank is giving your amount of loan
either by credited in your account or pay the amount to the party, whose quotation is provided
by borrower to bank. Bank opens your account with himself to get the actual transaction
between bank and borrower.
39
Insurance posting
It is must for loanee to insure the property or equipment, which is hypothecated with the bank
against loan as a security. This policy is assigned in favor of bank, which is also required. In
case of immovable property or new purchase of machinery, equipment, etc. insurance of same
amount and in case of old machinery, goods stock, etc. twice of the price insurance is needed.
In case of education loan, the life insurance of student is required. Shakh department is posting
it in borrowers account.
40
As per the rules of co-operatives, any one who wants to avail finance has to become a
member of the bank.
As a shareholder of the bank, he/she have to make compulsory deposit or the payment
of deposit as per rules and regulations of the bank and thereafter, he/she can submit the
application for loan. In all the practice with the bank, you are known by bank through
your compulsory deposit number.
The application will have to be submitted in the prescribed form, wherein all details and
particulars will have to be furnished as demanded in the form. He/she has to submit
further particulars as may be asked by the bank.
The loanee will be advanced loan against the security and he/she has to submit
minimum 2 guarantors, who will be the recognized member and accepted to the bank.
Taking in view the total amount of loans taken for different purpose by the firm or
individual, the interest will be calculated at the same rate on all the advances.
It will be necessary to make payment of share deposit or loan deposit at the rate of
2.5% of the sanction in case of secured loan and 5% of sanctioned loan or in case of
unsecured loan. The maximum share deposit accepted of Rs.50000 and additional
deposit over Rs.50000 will be accepted as loan deposit.
The company, who wants to take loan from bank, has to get its name registered for the
said loan purpose with the registrar of companies and has to submit the document of
registration charge to the bank.
41
Some time a property which given in mortgage by borrower is already put before the
bank in case of other loan as a security at that time equitable mortgage is already done
by party so there is no need of equitable mortgage again but the equitable extension is
only needed.
Margin money means gap between purchase value and bank finance. Bank always does
payment directly to the seller. So loanee has to deposit the margin money in the bank.
42
SCRUTINY OF CREDIT
While scrutinizing an application from the bank takes into consideration-safety, liquidity,
purpose profitability, security, and spread of advances.
Safety
Bank has to see that the prospective borrower is a reliable user of the finance and banks
money is safe in his hands.
Liquidity
Bank has to find out that the borrower is quite capable in repaying the finance within
reasonable period.
Purpose
The purpose for the finance should not be illegal. It should be creative, service oriented,
development oriented, and like. Banks should check end use of funds.
Profitability
If the project or the purpose of the finance is not profitable in the hands of the borrower than he
will not be in a position of repaying the amount to bank. It should be profitable enough to
generate the income to satisfy his needs and banks dues.
Security
The bank has to take into consideration the character, capacity, and capital of the prospective
borrower. Bigger advances and cash credit is to be secured with collateral security over and
above prime security.
Spread of advances
For having balanced economy the bank should choose to spread the finance amongst various
sectors of the society, so that the risk of incoming bad advances is minimized. Concentration
on one type of advances may turn into bad advances if the scheme becomes ineffective due to
some natural calamities or government rules or change in taste or demands of the society, by
and large.
43
TYPES OF CREDIT
Surety Loan
Vehicle Loan
Security Loan
Gold Loan
Educational Loan
F.D. Loan
Cash Credit
Overdraft
Bills Purchase
Bank Guarantee
Staff Loans
44
: Personal use
Limit
: Rs. 50,000
Rate of int.
:11%
Period
: 60 months
Repayable
Security
Documents
Submit Paper : In case of service person pay sleep, in case of businessperson last yearly
business report.
Other terms:
5% of the loan amount will be deducted as a share deposit as a rule of the bank.
Under the above scheme, if the death of the loanee under surety loan occurs, in the said
circumstances, in remaining loan in his account will be credited from this account to the
guarantors or lonee's varasdars loan account.
Limit
: Up to 50 lac.
Margin
: 30%
Rate of interest:
particulars
Up to 50,000
Interest rate
11%
50,001 to 2,00,000
12%
2,00,000 to 5,00,000
12.5%
5,00,000 to 50,00,000
13%
45
Limit
: 1 lac to 50 lac.
Margin
: 25%
Rate of interest :
particulars
Up to 50,000
Interest rate
11%
50,001 to 2,00,000
12%
2,00,000 to 5,00,000
12.5%
5,00,000 to 50,00,000
13%
Period
Repayable
: one needs to show monthly stock turnover, every month within 1 to 10 dates.
Security
Documents
Submit Paper: Last three-year business report, Shop Act License, SSI license, Elec.
Connection proof, IT Return, Rent receipt
If applicant is a Partnership Firm
Partnership deed copy, Reg., of firms,
If applicant is a limited company
Resolution for getting loan, Memorandum of association, Articles of
association, letter of assurance for registration in Reg. of Companies
46
Other terms:
Insurance is twice of the value of goods price, is required to the taken out from the
insurance company recognized by bank and the said insurance policy is required to be
recognized in favor of the bank.
Limit
1 lac to 50 lac.
Margin
30%
Rate of interest
particulars
Up to 50,000
Interest rate
11%
50,001 to 2,00,000
12%
2,00,000 to 5,00,000
12.5%
5,00,000 to 50,00,000
13%
Period
10 years.
Repayable
Security
Documents
47
Submit Paper
Last three-year business report, shop Act License, IT Return, (In case of new project,
project report), approved plan and estimate.
If applicant is a partnership Firm
Partnership deed Copy, Reg. of firms
If applicant is a limited company
Resolution for getting loan, Memorandum of association, Articles of
association, letter of assurance for registration in Reg. of Companies
Other terms
Loanee is required to pay the document inspection and advocate fee along with process
charge as per the rate time-time decided by the bank.
The insurance for the value of building will have to be taken over and the insurance
policy will have to be assigned to the bank.
48
Vehicle Loan
Purpose
Limit
As per demand (if the vehicle is new, than 90% of the quotation will be
passed and if the vehicle is old, the valuation value will be passed)
Margin
30% (in case of new vehicle purchase), 50% (in case of old)
Period
48 months
Rate of interest
particulars
Up to 50,000
Interest rate
11%
50,001 to 2,00,000
12%
2,00,000 to 5,00,000
12.5%
5,00,000 to 50,00,000
13%
Repayable
Security
Documents
Submit Paper In case of service person pay sleep, in case of businessperson last yearly
business report, IT return, Quotation of vehicle
49
Other terms
It is necessary to take full comprehensive insurance for the vehicle, for which the higher
purchase agreement is done in favor of the bank. The above insurance will have to be taken
from the insurance company recognized by bank and will have assign in favor of the bank.
In case of second hand vehicle, necessary valuation reports from a recognized valuer to be
submitted to the bank.
Gold Loan
Purpose
Personal use
Limit
Period
12 months
Rate of int.
11%
Repayable
Security
Documents
Other terms
This kind of loan is given on the re-pledge of ornaments or items of gold-silver. This
kind of loan is not available to the merchants of gold-silver for the purpose of buying
selling.
This kind of loan can be given to the member of the bank, but this kind of loan can also
be given to the non-member, taking Rs. 5 as admission fee and giving nominal
membership for the loan only.
The purity of the ornaments or items of Gold, which is given on re-Pledge, should be
minimum 21 Carets.
For the purpose of this kind of loan, bank shall appoint one or more goldsmiths, who
will make valuation of the ornaments or items of gold-silver and the loanee has to
accept his decision arrived at on the basis of the kind/weight etc. of gold-silver
ornaments or items. Per 11.664 Gram (Per TOLA) Rs.3000 is Valued & 70 % Valued
Amount is Sanctioned as Loan.
50
Limit
As per requirement
Margin
15%
Period
Up to 1 year
Rate of int.
Int on FD + 2% extra
Repayable
Security
Documents
51
Limit
1 lac to 50 lac.
Margin
25%
Period
Rate of interest
Repayable
particulars
Up to 50,000
Interest rate
11%
50,001 to 2,00,000
12%
2,00,000 to 5,00,000
12.5%
5,00,000 to 50,00,000
13%
The customer is permitted to withdraw the amount as and when he need it and
to repay it by means of deposit in his account as and when it is feasible for
him
Security
Document
52
Submit paper
Last three years Business Report, Shop Act License, SSI License, , IT return, rent receipt
If applicant is a partnership firm
Partnership deed copy, Reg. of firms
If applicant is a limited company
Resolution for getting loan, memorandum of association, articles of the
association, letter of assurance for registration in reg. of companies
Other terms
Loanee has to submit the stock statement to the bank every month regularly.
Loanee has to submit the balance sheet, profit and loss account every year.
Loanee has to submit the copy of income tax return or income tax assessment order
every year.
In the cash credit account facility, the turn over will to be done four times of the
sanctioned facility within one year.
The insurance for the value of sanctioned cash credit will have to be taken over and the
insurance policy will have to be assigned to the bank.
In case of cash credit the facility can be availed maintaining the goods stock margin.
Sale of goods and amount of recovery cannot be set off, but the same should be credited
in the bank and the amount of payment should be made by bank cheque all the business
transaction should be made through bank.
As per the norms of the reserve bank of India, a borrower cannot operate two cash
credit account at a time with two different banks.
53
Education Loan
Purpose
This kind of loan is given to the brilliant students, who can not do further
study because of paucity of finance, with a view to building their career. The
bank is giving loan to cooperate and to give assistance to such students for
education purpose
Limit
5, 00,000
Margin
30%
Rate of int.
Repayable
particulars
Up to 50,000
Interest rate
11%
50,001 to 2,00,000
12%
2,00,000 to 5,00,000
12.5%
5,00,000 to 50,00,000
13%
the applicant needs to pay only interest till his/her studies are running, but as
soon as he/she completes the studies he/she requires to pay the loan
installments within 6 months of the completion of the study.
Security
Document
Submit paper In case of service person pay sleep, in case of businessperson last yearly
business report, two photograph of student.
Other terms
The loan can be sanctioned keeping in view the loanees repaying capacity
Loanee is that who has a property on his own name. Student has to join as a coloanee.
The installment of loan will be stated after 6 months of the completion of study
54
Limit
85% of F.D
Margin
15 %.
Period
1 year.
Rate of int.
Documents
Other terms
Lien should be noted in the FDO account and on the back of the F.D.O. duly
discharged
Bills purchase
Purpose
Limit
As required by applicant
Margin
Generally 25 %
Rate of int.
particulars
Up to 50,000
Interest rate
11%
50,001 to 2,00,000
12%
2,00,000 to 5,00,000
12.5%
5,00,000 to 50,00,000
13%
Period
6 month to 1 year.
Documents
55
Bank guarantee:
Performance guarantee
56
Personal use
Limit
Period
60 months
Rate of int.
Repayable
Security
Documents
Limit
Rate of int.
9%
Repayable
Security
Documents
57
Limit
Rate of int.
9%
Repayable
Security
Documents
Limit
up to 50 lac.
Period
up to retirement.
Rate of int.
9%
Repayable
Security
Documents
any
Limit
Int.
0%
Repayable
58
Interest and/or installment of the principal remain over due for a period of more than
90 days in respect of a term loan;
The bills remain over due for a period of more than 90 days in case of bill purchase
and discounted.
Interest and/or installment of principal remains over due for two harvest season but for
a period not exceeding two half years in case of an advance granted for agriculture
purposes.
Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts.
Income recognition
The policy of the income recognition has to be objective and based on the record of recovery.
Internationally, income from non-performing assets is not recognized on actual basis; but it is
booked as income, only when it is actually received. Therefore, banks do not charge and take
in to account interest on any NPA. Reserve Bank has issued the following guidelines to the
banks in regards to the income recognition.
Interest on the advances against the term deposits, NSCs, IVPs, KVPs and life
insurance policies may be taken to income account on the due date, provided adequate
margin is available in the accounts.
59
If the government guaranteed advances become NPA, the interest on such advances
should not be taken to income account unless the interest has been realized.
If any advance, including bills purchased and discounted, becomes NPA as at the close
of any year, interest accrued and credited to income account in the corresponding
previous year, should be reversed or provided for if the same is not realized. This
applies to government guaranteed accounts as well.
In respect of NPAs fees, commission and similar income that have accrued should cease
to accrue in the current period and should be reversed or provided for with respect to
past periods, if uncollected.
60
ASSETS CLASSIFICATION
Banks are required to classify non-performing assets further in to the following categories
based on the period for which the assets have remained non-performing and the realisability of
the dues:
Standard assets
Non-performing assets
Sub-standard assets
Doubtful assets
Loss assets
Non-performing assets
NPAs are loans given by a bank or financial institute where the borrower defaults or delays
payments of interest or repayment of principal. Asset here also includes a leased asset. A NPA was
defined a credit facility in respect of which interest and/or installment of principal has remained
past due for a specified period of time. The specified period in a phased manner is as under
Year ending
1993
1994
3 quarters
1995 onward
2 quarters
From 2004
1 quarters
Performing assets
Which accounts are not in non performing are performing assets. Which accounts are regular
or cover due installments are less than six is called performing assets.
Standard assets
Standard Assets is one, which does not disclose any problems and which does not carry more
than normal risk attached to the business. Such as asset should not be an NPA.
61
Sub-standard assets
In case of sub-standard assets, the current net worth of the borrower/guarantors or the current
market value of the security charged is not enough to ensure recovery of the dues to the banks
in full. In other words, such assets will have well defined credit weakness 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.
An asset where the terms of the loan agreement regarding interest and principal have been renegotiated or rescheduled after commencement of production, should be classified a sub
standard and should remain in such category for at least 18 months of satisfactory performance
under the re-negotiated or rescheduled terms. If interest and installment of loans have been
paid regularly as per the terms of re-scheduled. In other words, the classification of an asset
should not be upgraded merely as a result of rescheduling, unless there is satisfactory
compliance of this condition.
Doubtful assets
An asset is required to be classified as doubtful, if it has remained in the sub-standard category
for 12 months. As in the case of sub-standard assets, rescheduling does not entitle the bank to
upgrade the quality of an advance automatically.
A loan classified as doubtful thus all the weakness inherent as that classified as sub-standard,
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 importable.
Loss assets
A loss asset is one where loss has been identified by the bank or internal or external auditors or
by the co-operation department or by the Reserve Bank Of India inspection but the amount has
not been written off, wholly or partly, in other words, such an asset is considered un-collectible
and of such little value that its continuance as a bankable asset is not warranted although there
may be some salvage or recovery value.
62
Complaints from suppliers of raw material, other lenders etc. about non payment of
bills.
Rising level of inventories, this may include large proportion of slow or non-moving
item.
Rephasement of loan.
63
Assets classification
Standard assets
% Of provision to be made
0.40 %
10 %
Doubtful assets
1. On liability covered by ECGC
Nil
20 %
30 %
3. On unsecured liability
50 %
Loss
(On the balance out standing minus amount guaranteed 100 %
by ECGC)
64
DATA ANALYSIS
Persons in requirement of money.
Particular
No. of
Respondents
Yes
48
No
02
Total
50
Requiremet of Money
No. of Person
60
50
48
40
30
20
10
0
Yes
No
Response
The above graph shows that out of total 50 respondents 48 respondents were in need of money
for various purposes. There were only 2 respondents who were not requiring money for any
purpose.
65
No.
of Total
Respondent
Respondent
12
50
01
50
40
50
08
50
08
50
No of person
Need Of Money
50
40
40
30
20
12
10
For a new
house
For purchasing
a vehicle
0
Education
Medical
Expenses
For Business
Requirement
The above graph shows that, there were 12 out of 50 respondents, who were requiring money
for the education purpose, there were only 1 respondent who was in need of money for medical
expenses, the majority of the requirements were for business development, there were 40
respondents out of 50 for the same. There were 8 respondents from the 50 who were in need of
money for purchasing a house. And 8 were there who were requiring money for purchasing a
vehicle.
66
Particulars
No. Of Respondents
Bank Loan
48
00
Relatives
02
No of Person
Optimum Sources
60
50
40
30
20
10
0
48
Bank Loan
Other Financial
Institution
Relatives
Prefrences
The above graph shows that the 48 out of the 50 respondents preferring to have the require
money from Bank, 2 out of 50 were preferring to take the needed money from relatives, there
was no one to show the interest of taking the required money from other institution.
67
Respondents Total
Respondent
Interest Rate
46
50
14
50
Loan's Installments
14
50
Amount of Loan
08
50
04
50
03
50
02
50
05
50
46
5
.
gi
n
2
R
ec
ov
e.
D
oc
ur
3
um
...
ity
M
ar
S
ec
ta
ll.
.
..
In
s
D
u.
tim
e
es
er
In
t
14
nt
14
A
m
ou
50
40
30
20
10
0
...
No. Of Person
Factors
The above table shows that out of 50 respondents 46 have given wightage to interest rate while
taking bank loan, 14 have shown their preference on loan installments, 14 have preferred loan
duration, 08 have shown their preference to the loan amount sanctioned, 04 were giving their
preference to security demanded, 03 were focusing on document required, 02 were preferring
to the loan margin, 05 were preferring to recovery process.
68
Particular
No. of Respondents
Yes
42
No
01
50-50
07
No.of Persons
50
42
40
30
20
7
10
0
Yes
No
50-50
Response
Above chart shows that 42 out of the 50 respondents thinks that bank fulfills the borrowerers
needs satisfactorly, 1 out of the 50 was negatively responding that his needs are not fulfiled
satisfactoryly, 7 out of 50 were responding 50-50.
69
Particular
No of Respondents
Yes
48
No
02
No of Person
60
50
48
40
30
20
10
0
Yes
No
Response
Above chart shows that 48 out of 50 respondents were satisfied with the lending process of the
Bank, while 2 out of 50 were not satisfied with the lending
70
Particular
No
of Total
Respondent Respondent
43
50
19
50
19
50
09
50
17
50
No of Respondents
43
40
30
19
20
19
17
9
10
0
Reasonable
interest
Hidden
condition
Fast
sanctioninig
Minimum
security
Amount of the
loan
Factors
The above chart shows the suggestions of the respondents for the purpose of Developing the
bank as an ideal co-operative, 43 out of 50 respondents has given Wight age to reasonable
interest rate, 19 out of 50 have preferred not to have any hidden condition while taking the
loan, and the same amount of people have preferred to have fast sanctioning of the loan, 17 out
of 50 have preferred that full amount of loan should be passed, and 9 respondents out of 50
have preferred to have minimum security for the loan.
71
No of Respondents
HPCC
36
Clean Loan
08
Vehicle Loan
06
Vajpai Loan
01`
Home Loan
04
The above chart shows that loan currently held by the respondents, the highest preferred loan
has been HPCC there were 36 respondents out of 50 who had HPCC loan currently, secondly
there were 08 respondents who were having clean loan, there were 6 response for the vehicle
loan, there were 4 for the home loans, and uniquely there was 1 respondent found with Bajpai
loan which was made emendatory by the previous government to issue to the public
72
Particular
No of Respondents
Yes
41
No
01
May be
08
No of person
41
1
Yes
No
May be
Preference
The above Chart shows the respondents Preference for the future course of action that would
they prefer to have loan from the SNSB ltd, out of 50 respondents 41 have responded in
positive manner only one have negative answer and 8 people were not sure that whether they
will have loans from the bank in future or not
73
Sr.no
Classification of assets
1.
Standard assets
2.
Sub-standard assets
3.
Amount of
NPA
Amount
1365.59
0.40%
5.46
Secured
36.48
10%
3.65
Unsecured
03.90
100%
3.90
Banks
provision
Doubtful assets
Up to 1year
Secured
32.43
20%
6.49
Unsecured
01.51
100%
1.51
Secured
20.04
30%
6.01
Unsecured
01.98
100%
1.98
Secured
11.56
50%
5.78
Unsecured
02.48
100%
2.48
34.64
100%
34.64
1 to 3 year
4.
Loss assets
Total
1510.61
71.90
162.67
As per the RBI guidelines bank is required to do provision for 71.90 lakhs rupees, but instead
the bank has done the provision of 162.67 lakhs which is more than the double of the actual
requirements, which is a good indicator from the safety side.
74
Category
Rupees
(in lakh)
Standard Assets
1365.59
90.4
36.48
2.41
3.9
0.26
32.43
2.15
1.51
0.1
20.04
1.32
1.98
0.13
11.56
0.76
2.48
0.16
loss assets
34.64
2.29
Total
1510.61
100
The above chart shows the assets bifurcation; it is evident from the chart given that the 90.40%
of the total assets is under category of standard assets, than 4.62% is in sub standard assets,
2.67% of the assets are in sub standard assets, and the remaining 2.31% is in Doubtful assets.
75
Provision required to be done by the Bank for NPA for the year 2006
Category
Provision-Rs
(Mandatory)
Standard Assets
05.46
03.65
03.90
06.49
01.51
06.01
01.98
05.78
02.48
loss assets
34.64
Total
71.90
Above chart shows that there has been 34.24 lakhs of Rs. of mandatory requirement to made
by the bank under the head of Loss Assets, 24.25 lakhs to be kept a side as a provision, 7.55
lakh to be kept as provision under the head of Sub standard Assets, and 5.46 lakhs to be kept as
a provision under the head of Standard Assets.
76
Year
2005-06
1510.61
2004-05
1484.60
2003-04
1527.95
2002-03
1650.43
2001-02
1236.52
2000-01
1155.04
Above Chart shows the total NPA of the Bank over the years, the greates NPA ever has been in
the year of 2002-03, which was of rs.1650.43 lakh, than it was 1527.95 lakh in the year200304, and than the current years NPA has been 1510.61 lakhs, then in the year 2004-05 it has
been 1484.6 lkhs, than it was 1236.52 in the year 2001-02, and the least NPA in the last 6 years
was found in the year 2000-01, which was 1155.04 lakhs.
77
RBIs
Mandatory
Provision
Banks Actual
Provision
2005-06
71.90
162.67
2004-05
59.55
149.17
2003-04
54.47
146.16
2002-03
62.38
103.32
2001-02
77.70
92.32
2000-01
67.50
86.56
The Above given Chart is the Comparison between the actual provision made by the bank and
the actual mandatory to be made by the R.B.I, the bank has done almost double than the actual
required Provision for NPA, the highest provision has been in the current year of 2005-06,
which was more than the double, the actual mandatory for the year has been only 71.90 lakh
and the bank has done the provision of 162.67 lakhs, subsequently this track record can be seen
for give past years.
78
Sr. No
Category
Account
1 to 50,000
150
50,001 to 1,00,000
16
1,00,001 to 2,00,000
24
2,00,01 to 5,00,000
13
5,00,001 to 25,00,000
04
25,00,001 to 50,00,000
50,00,001 to 1Carore
Total
207
No of Account in NPA-2006
No. of Accounts
200
150
150
100
50
16
24
50 to 100
100 to 200
13
200 to 500
500 to 2500
0
1 to 50
The given chart shows the no of NPA A/c in the different limits, the highest figure has been in
loan able limit up to 50,000, where there has been 150 accounts, as a non performing assets,
than the second highest figure comes to 24 A/c in the lonable limit of 1 lac to 2lac Rs., thirdly
there has been 16 A/c in the range of 50,000 Rs. to 1 lac, then there has been 13 A/c in the
range of 2lac to 5 lac Rs., and there has been only 4 A/c in the limit of 5 lac to 25 lac RS. in the
Current year.
79
FINDINGS
Findings of the Survey
In the survey of 50 persons I come to know that majority of them were in need of
money for one or another purpose, there were 48 persons out of total 50, who were
requiring the money.
In eve of finding the money requirement I come to know that majority of the
respondents were requiring the money for the Business development, there were 40
persons out of the sample of 50 for the same purpose, there were 12 people who were
indeed of money for the education purpose, and there were 8 persons who were in
requirement of money for the purpose of purchasing a house or a vehicle, there was
only 1 person requiring money for the medical expenses.
For the requirements of money 48 out of 50 were thinking of the bans as an optimum
source of money supply, while only 2 preferred to have their required money from
relatives.
While thinking of a bank for a money supply, 46 out of 50 were thinking that the
interest rate on the loans should be given the first preference, 14 were giving their
preference to credit duration, 14 were preferring the amount of installments, 8 were
preferring to loan amount, 4 were preferring to security demanded against the loan, 3
were preferring to the documents demanded, 2 were preferring the margin of the loan,
and 5 were preferring the recovery process of the bank, there were many respondents
with more than one choice, so interest rate is the highly rated preference.
In the question of satisfaction derived from the bank by obtaining the services of it, 42
out of the 50 respondents were satisfied, 1 was not satisfied and remaining 7 were not
in a position to define either they are satisfied or not.
38 out of 50 respondents were satisfied from the lending norms and procedures of
SNSB, and remaining 12 were refusing to say that they are quit happy from the landing
norms of SNSB.
80
In the question of taking suggestion from the respondent for development of bank, 43
have given wightage to interest rate on loan, 12 have rated to the hiding condition
which should not be there, 19 were targeting towards fast sanctioning of the loan, 9
were preferring to have minimum security for the loan, and 17 were preferring to have
full sanction of the loan amount.
Currently there were 36 respondents who were helding bank's HPCC loan, there were 8
respondents who were having TLCL, 6 were having vehicle loan, 1 were having bajpai
loan, 4 were having Home loan, there were few respondents who were having more
than one loan.
While asking the question of the future that is will they prefer to have loan in future
from SNSB, 41 were responding in positive manner, I was responding negatively, and 8
were saying may be they will.
By taking the general view of the respondents, I come to know that most of them were
demanding ATM machine, some were asking bank to remove internal politics, some
were asking for the bank employees to behave in pleasant manner, some were
demanding for the improvements in physical appearance of the bank, some were
demanding to put forward qualification requirements to appear for the BOD position.
From my point of view all these were valid demands.
Findings of NPA
Total NPA for the Year -2006 was 1510.61 lakh, out of which 1365.59 lakhs were in
standard assets, 40.38 lakhs were in sub-standard assets, 70 lakhs were in doubtful assets,
and 34.64 were in Loss assets.
Bank was required to do provision of 71.90 and SNSB has done the provision of 162.65
lakh which shows the Banks strength to do almost double provision for NPA than actually
required.
81
While considering the total NPA year wise, from last six year it was found that highest NPA
was found in 2002-03, which was 1650.43 lakh, than it was 1527.95 in 2003-04 lakh, than
it was 1510.61 lakh in the current year 2005-06, than it was 1484.60 lakh in 2004-05, than
it was 1236.52 lakh in 2001-02, and it was 1155.04 in 2000-01, this was found out not
considering the loaned amount.
Considering the provision made the highest ever was of the current year, which was of
162.67 lakh in mandate of 71.90,than it was 149.17 against mandate of 59.55, than it
146.16 against 54.47, than it was 103.32 against 62.38, than it was 92.32 lakh against 77.70
in all subsequent years.
Category wise it was found that the biggest block of assets were in small amounted loans,
there were 150 accounts in 2006, which were in the range of 1 to 50,000 Rs of Loan in
NPA,16 a/c were found in NPA between the loan range of 50,000 to 1 lakh Rs, 24 a/c were
found in the range of 1 lakh to 2 lakh range, 13 a/c were found in the range of 2 lakh to 5
lakh, and 5 a/c were found in the loan range of 5 lakh to 25 lakh.
82
LIMITATIONS
I have done survey of only 50 respondents to know the customer response to the Bank loan,
which is too small, because the bank has more than 7500 share holder and around more
than 10,000 0f retail customers, I was not able to do survey of more respondents because I
have another topics to focus on and in short span of 40 days all these were not possible.
Respondents were found very suspicious to respond to the Questionnaire, they were feeling
it a sort of confidential data, though it was not, so it was bit difficult to get response from
them
It was difficult for me as this stage to understand and make others understand loan schemes
and credit appraisal process of other bank. This could have been much more effective from
mine as well as banks perspective again time was a limit.
There was no. of small-small information in the loan department, to collect all these were
bit difficult.
There were no of other factors, which may be considered by the loan taker, but all these
were not in my mind to include in.
To understand the full fledge concept of NPA it requires depth knowledge of loans, RBI
guidelines and Banking accounting Concepts, which in all were not known to me.
Loan wise bifurcated NPA is not maintained by the Bank, which could have helped me a lot
in my analysis.
83
I come to know through direct interaction of few potential customers that the bank staff is
not co-operative up to the mark, so bank need to improve upon.
Secondly it was greatly demanded to have a Branch at few specified places as bank has
wide spreaded customers.
The Education loan is in great demand as many of the respondents have shown their
requirement for higher studies, this loan is not provided by the bank, it is required to
provide Education loan also.
Many respondents were asking for increasing the deposit rate, which is also required by the
top authority to be considered.
The process of sanctioning loan is bit low, it requires improvement and needs to be made
faster.
The most importantly it was observed that bank lacks in Professionalism, it do not have
enough professional staff, so while doing new recruitment it is most demanded to be
considered.
Banks NPA has increased over the year, which is a warning signal, and it is due to
unhealthy lending process
Bank needs to prepare loan type wise NPA a/c so those in different categories of loan can
be measured and next time that particular sanction can be more focused.
Bank is totally a relation base institution, which affects the recovery process, there are no
of loans which are not recovered due to the customers relation etc..
84
CONCLUSION
Bank has good reputation in the eyes of its customers, in order to maintain or to improve upon
bank needs to have more branches, good physical appearance, and good and professional staff,
etc will lead the bank to a prime bank of the region. Secondly Loan department is also doing
bit well, it needs to be made more advance through the help of computers.
At last SNSB is a good co-operative bank and will be the batter one if it will have more
professional people in future.
85
86
RESEARCH METHODOLOGY
Objectives of the Study
To know how the bank has done investments over the years.
.
Research Problem
The main research problem was to get an insight into the Treasury Management functions like
Reserves Management, Cash Management, Liquidity Management, and Investment Portfolio
Management of The Sarvoday Nagrik Sahkari Bank Ltd and carrying out the analysis of the
same.
Research Instrument: Data Collection Tools
For the purpose of analysis various reports were used to collect data about the financial details
of the company. Apart from the scrutiny of the reports, discussion with the bank officers was
used as an instrument to collect data.
Research Design
The research design specifies the method and procedures for conducting a particular study. The
type of research design applied here is exploratory.
87
The primary data collection method was used to collect first hand information through
personal discussion with bank officers. Also the data for analysis purpose was collected from
the books, accounts and records of the company.
The secondary data collection in the project is used to collect the theoretical aspects of treasury
management. The basics of Treasury and its functions have been taken from books. And
material provided by the bank and Internet.
LIMITATIONS OF STUDY
The scope if Treasury Management is very wide, hence it was not possible to cover all
the relevant details regarding the topic within such a short span of time.
Some of the data which could have been of great help for in depth analysis was not
provided as they being confidential.
88
TREASURY MANAGEMENT
INTRODUCTION
The reforms set in since the past few years have brought many changes in the functioning of
the banks. The concept of mass/social banking was slowly changed to commercial banking.
The banks have been taken, slowly but steadily, from regulated regime to deregulated market.
A couple of years further ahead, once capital Account convertibility is fully implemented,
banks may have to swim on their won in the totally competitive global market without any
support or strength from the Reserve Bank of India.
Mobilizing deposits from the saving segment and lending to the needy was the main business
of banks till a couple of years back. In other words, banks were intermediating between savers
and investors/borrowers. However since the past couple of years, after prescription of reforms
like prudential norms relating to income recognition, asset classification, provisioning and
capital adequacy, growth of new off balance sheet instruments and techniques, financial sector
liberalization by permitting nationalized banks to access capital markets, interest rates
deregulation, licensing of new private sector banks etc., Banks especially nationalized banks
which cover the major part of the banking business in the country, are forced to re look into
their objectives and functioning. Like any commercial organization, banks are also now
focusing on the bottom lines and also the quality of their Balance sheet.
Liberalization has brought along with it a host of risks for the banks, apart from a variety of
opportunities. Now banks will have to learn to operate in a more deregulated environment and
a diversified and competitive market place which will require them to manage risks better.
Recent volatility in exchange rate movements and domestic interest rate levels has indicated
the influence of the global market within the country. Such volatilities would precipitate
substantial losses and at times irretrievable situations for several banks. These situations
warrant a proactive or prompt reactive move from the bank.
It is in this context the urgent need of TREASURY MANAGEMENT for banks emerges.
Banks with an extensive branch network has to set up a centralized Treasury and Dealing
Room, to counter the market situations and to contain the risk exposures at the earliest.
89
Until a few years, many of the Indian Banks were giving a secondary importance to Treasury
Management. There are dangers in giving treasury operations a secondary role. A significant
proportion of the treasury related problems are to be attended immediately-for instance, loss of
interest arising from surplus funds available for the bank on day-to-day basis. An open
currency risk which has been identified but not acted upon for lack of time means that bank
profits are at risk for possibly one or more days movement in volatile foreign exchange
markets can be very expensive indeed.
Therefore, that, even in a relatively small organization, it is essential that treasury work is
under taken by at least one individual with a sole or primary responsibilities to cover, at least
cash management and currency management.
A few of the banks have already set up fully functioning treasuries and a couple of them have
set up integrated treasuries with Forex and Domestic dealers sitting in the same dealing room.
90
TREASURY MANAGEMENT
Treasury refers to the fund and revenue at the disposal of a bank and the day to day
management of the same. The treasury unit acts as the custodian of cash and other liquid
assets. The art of managing the consolidated funds of the bank optimally and profitably within
the acceptable level of risk is called Treasury management.
OBJECTIVES OF TREASURY
Main objective of a Bank Treasury should be to optimize the returns with minimum risk. This
will improve the profitability of the bank and thereby create value for its shareholders. It is
needless to say that returns are associated with risks. High risk business gives high returns to
the banks while low/zero risk yield only low/nil returns. Asset Liability Committee (ALCO)
of the bank has to formulate clear policy demarcating the Risk Return trade-off Treasury, on
the other hand has to, within the given Policy limitations, endeavor to maximize the profit. As
aforesaid any profits are associated with risk, treasury has to see that as for as possible the
risks associated with are totally hedged.
An efficient Treasury would have at least some role, direct or indirect, to play in almost all the
heads, both on the Asset and Liability sides, in the Balance sheet. May be it is for raising
resources, when there is need for liquidity or for deployment in profitable avenues (asset
creation) when there is surplus liquidity. If the policy permits, the Treasury would go on, even
before the growth in liabilities, Asset creation first and simultaneous funding of it. Balance
sheet management is yet another importance function of the Treasury. Management of most of
the risks is with the Treasury. Thus Treasury plays a vital role in the development of banks
business.
91
A centrally organized treasury would have the total picture of liquidity (current/cash
and long term) of bank. This would enable it to take decision/control on the
utilization/deployment of the funds to the best advantage of the bank.
It will be able to take advantage of funds in transit within the banks network like interbranch funds movement, movement of funds between RBI and non-RBI canters, etc.
Otherwise there is possibility that these funds are ignored and left idle in the banking
system.
A Centralized Treasury would have better managerial control, responsibility and risk
control. If the treasury is decentralized in smaller units, one unit would not necessarily
be aware of the exposure taken by the other unit. Likewise when the market is highly
volatile, a pro-active treasury may have to change its position within short time to
avoid risk. This is possible only if the Treasury is centralized.
Main disadvantage of the centralized treasury is that the bank may not be able to take
advantage of the 'better markets' at other centers. Likewise, as the involvement in
financial matters is centralized other centers may not know the importance of treasury
management, which may reflect in their actions/omissions.
92
TREASURY FUNCTIONS
The major functions of the Treasury Department are as follows:
Cash Management
Liquidity management
Fraud Protection
93
Interacts with other banks! institutions in the market, both domestic and global,
as a representative of the whole bank
Need to take fast decisions which should comply various rules regulations and
also are profitable to the bank
Decision taken, good or bad for the bank. Creates an impression about the bank
in the market.
Though it is difficult to enlist all the attributes a good treasury officer should have, it should
include at least the following attributes:
Be good numerate to assess the information he receives and the financial impact
of his decisions on the bank
94
RESERVES MANAGEMENT
INTRODUCTION
Maintenance of Reserves is one of the major functions of the Treasury. This is mainly because
the reserves are maintained on the overall financial figures of the bank and no other
departments of the bank other than Treasury will be able to handle it effectively. On account
of Treasury's role active involvement in banks major day to day operations, Treasury can
manage the Reserves Maintenance more effectively than others.
In India, the reserve requirements fall into following two categories:
These two monetary policy measures of the Reserve Bank of India (RBI) together try to
ensure adequate liquidity and a balanced monetary position in the system. Nevertheless, it is
the CRR, which is more effective in bringing about changes in the monetary position since the
reserves are in the form of cash. On the other hand, the aim of SLR is twofold (i) It provides
profitability to the financial institutions while ensuring liquidity since investments in
government securities form a part of their reserves. (ii) The statutory investments to be made
in approved government securities ease the government borrowing program. Further, these
investments earn the financial institutions reasonable returns (the cash reserves maintained for
CRR carry a very marginal rate of return).
While fixing these reserve requirement levels, there cannot be a standard (absolute) amount of
liquid assets level that can be used for all banks. To ensure that there is a common approach of
computing the reserves that can satisfy the necessary liquidity level for each individual bank,
the Reserve Bank of India stipulates the percentage level at which the cash reserves and the
statutory liquidity reserves are to be maintained. The CRR and the SLR are given as a
percentage to the amount that is arrived at based on the Net Demand and Time Liabilities
(NDTL) of the bank. Since the maintenance of the statutory reserves is based on the quantum
of NDTL of the bank, it is necessary to understand what constitutes the NDTL and the method
of computing the same.
95
- NABARD
-SIDBI
- IDBI
-IFCI
-EXIM Banks
-ICICI
96
B. Demand and Time Liabilities that are to be included for NDTL Computation.
Demand Liabilities
Current deposits
Unclaimed deposits
97
Time Liabilities
Cash Certificates.
Interest accrued on deposits, bills payable, unpaid dividends, suspense account balances
representing amounts due to other banks or public, any amounts due to the banking
system which are not in the nature of deposits or borrowings should be included in
"Other Liabilities". If a bank cannot segregate from the total of other demand and time
liabilities, the liabilities to the banking system, the entire other demand and time
liabilities may be shown against "Liabilities to Others in India".
Participation Certificates issued to other banks may be included in the other demand
and Time liabilities. Participation Certificates issued to others should be shown under
liabilities to others.
Net credit balance in the inter-branch adjustments account. The outstanding balance in
the blocked account pertaining to segregated outstanding credit entries for more than
5years in inter-branch account and transferred to this account.
98
6. In case of any co-operative bank which has granted an advance against any balance
maintained with it, such balance to the extent of the amount outstanding in respect of such
advance.
7. Amount received from Deposit Insurance and Credit Guarantee Corporation (DICGC)
towards claims and held by banks pending adjustments thereof
8. Amount received from court receiver.
9. Recoveries in suit filed account, pending adjustments etc.
10. Any provision made in annual accounts for payment of income tax, after having met the
income tax liability in full, need not to be included for NDTL.
11. Amounts received from Insurance Company on ad-hoc settlement of claims pending the
judgment of the Court.
12. Amounts received from ECGC on invocation of guarantees, pending their set-off
against the relative advances.
D. Power to decide classification in case of doubt
RBI has the power to settle any dispute or doubts that may arise in classifying any transaction
as liability in India under Section 18(2) if Banking Regulation Act.
Considering these liabilities, NDTL can be computed as follows:
NDTL = Liabilities to others + Net Inter bank Liabilities
Where, Net Inter bank Liabilities (NIBL) = Liabilities to banking system - Assets
with Banking system.
99
While calculating the NIBL, all the assets with other banks are netted against the interbank
liabilities and the balance of the liabilities are taken for the computation of the NDTL.
However, in cases where the interbank assets are greater than the interbank liabilities, the
negative balance cannot be taken into account for the computation of the NDTL since the
assets of the bank with the banking system cannot be used to set-off its liabilities to others.
Hence, a negative figure of the NIBL will not be considered for the computation of the NDTL.
Reporting Friday
It is now observed that the quantum of primary reserves to be maintained will be assessed
based on the NDTL of the bank. However, it is NDTL as measured on the Reporting Friday
that is taken into consideration. Every alternate Friday is considered as a Reporting Friday. If
the Reporting Friday is a holiday, then the previous working day is considered for the
calculation of the NDTL. From the level of NDTL so obtained, all liabilities that are exempted
from the maintenance of the statutory reserves are deducted. The balance obtained after such
deductions will be the reservable liabilities (RL) on which the rate for the reserves
maintenance (CRR/SLR) is applied to arrive at the statutory reserves. However, within these
reservable liabilities, there may be certain liabilities which have a differential rate for reserve
maintenance. Thus, the total reserves will be the sum of the reserves computed on a common
rate and those reserves computed using differential rate. Discussed below are the guidelines
relating to the CRR and the SLR as issued by the RBI and also the computation of the same.
100
101
After making these adjustments to the NDTL and arriving at the resolvable liabilities, the cash
reserves are computed as a percentage to it. The relevant level of cash reserves will be the
higher of the two alternatives mentioned earlier.
The cash reserve requirements so computed will a maintenance period of a fortnight. During
this fortnight, the bank should ensure that the value of such assets that constitute the cash
reserves, should meet the statutory levels. For a better understanding of the computation and
maintenance of CRR, it is essential to get an insight on the relevant exemptions, the assets
constituting the cash reserves and the concepts of reporting Friday and maintenance period. A
detailed discussion on the same follows.
Constituents of Cash Reserve
The assessed cash reserve requirement will have to be maintained by deploying funds into
certain approved assets. With regard to CRR, these approved assets include deposits with RBI
and cash balances in the Currency chest. Only these two categories of assets account for the
cash reserves of the bank for CRR purpose. Currency chest is a representative office of RBI
and hence cash deposited with the currency chest is deemed to have been deposited with the
RBI. However, the Currency chest is maintained by the bank itself.
Interest on Eligible CRR Balances
Only eligible balances maintained with RBI earns interest @ 3.5%. Any excess CRR (over the
required rate) maintained doesn't earn any interest for the bank. Hence the bank should ensure
that it maintains CRR as accurately as possible but should never default.
Penalty
Penalty for Non submission/delayed submission of return: Failure to submit the return/late
submission of the return attracts the provisions of section 42 (4) of RBI Act, 1934 and the
banks are liable for imposition of penalties as indicated therein.
102
103
104
While SLR also targets the money supply as in the case of CRR, its effectiveness is however,
restricted due to the fact that the statutory liquidity reserves are mostly in the form of
securities. While on the other hand, cash reserves are in highly liquid form i.e., cash and bank
balances. Hence, any change in this ratio, affects the money supply quickly and to a larger
extent. Since the statutory liquidity reserves include investments in approved government
securities, it provides a captive market for these instruments. Also, investment in such
securities will also provide yields to the statutory reserves, which are higher than the returns
on the CRR. In addition to this, due to the inclusion of assets having good marketability and
higher liquidity, the statutory liquid reserves also enhance the solvency of the bank. With these
three objectives, the central bank has announced the statutory liquidity requirement which is to
be the highest of the following:
a) 25 percent of the NDTL;
b) 25 percent (prevailing percentage as announced by the RBI) of the Resolvable liabilities.
105
Cash in hand
Gold
Investments in approved securities
'Gold' includes gold in the form of coins, whether legal tender or not, or in the form of bullion
or ingot, whether refined or not and is required to be valued at a price not exceeding its current
market price.
Legally speaking, the banks may invest in gold (including gold ornaments) to maintain liquid
assets. However, such investments are of unproductive nature and yield no income, except
price increase, which is subject to speculative forces. Keeping these aspects in view as well as
the difficulties involved in valuation, safe keeping, etc., the bank should not invest in gold to
maintain liquid assets for the SLR purposes.
The investments in approved securities will generally include all securities issued by the
central/state governments, central/state government bodies that have the guarantee of the
government and all such securities which have the approval of the RBI to be categorized as
approved securities for the SLR purpose.
Approved securities consists of
The securities issued by the Government of India in the form of Promissory Notes
Stock certificates.
State Financial Bonds, ICICI Bonds, IFCI Bonds, IDBI Bonds, HDFC Bonds and
Debenture and NABARD Debentures.
All State Electricity Bonds and Port Trust Bonds, if they are guaranteed.
106
Units of UTI
Indira Vikas Patra (IVP), Mahanagar Telephone Nigam Ltd. (MTNL) and
National Thermal Power Corporation (NTPC) Bonds, Kisan VIkas Patra (KVP)
All the PCBs are required to maintain investments in government securities only in SGL
Accounts with Reserve Bank or in Constituent SGL Accounts of scheduled commercial banks,
Primary Dealers (PDs), State Co-op. Banks, and Stock Holding Corporation of India Ltd. or in
the dematerialized accounts with depositories such as National Securities Depositories Ltd
(NSDL), Central Depository Services Ltd., (CDSL) 3:1d National Securities Clearing
Corporation Ltd. (NSCCL).
Maintenance Period
All the statutory reserves that are to meet the SLR requirements will have to be maintained for
a period of a fortnight. The liquidity reserves for the fortnight will be assessed based on the
NDTL of the reporting Friday of the preceding fortnight. This implies that the NDTL of the
preceding fortnight's reporting Friday will have to be considered for the maintenance of the
liquidity reserves during the current fortnight. For instance, if the statutory liquidity reserves
for the fortnight January 17-30 are to be assessed, then the NDTL, pertaining to the reporting
Friday of the preceding fortnight will have to be considered. Thus, the NDTL as on January 2
(reporting Friday) will be considered for the maintenance of the liquidity reserves during the
fortnight January 17-30.
Since NDTL will be known well in advance, the SLR can be assessed based on. The actual
figure. Unlike in CRR, 100 percent of the statutory liquidity reserves are to be maintained on a
daily basis. There is no flexibility offered for the maintenance of the SLR. Hence banks should
be cautious in planning their reserve maintenance for the SLR requirement.
Yields
The liquidity reserves do earn better yields when compared to the cash reserves mainly due to
the assets that comprise such reserves. While the cash in hand and the current account
balances with banks RBI does not derive any yields. Investments made in gold and approved
107
securities will fetch the banks certain yields. The yields on securities will however, depend on
the coupon offered by the issuer of these securities. "The yield depends on the prevailing
interest rate structure and the period of investment. The investments in such securities are
generally for a shorter period, and hence the returns correspond to the short-term interest rates
in the market.
Since the investment in securities is on a long-term basis, the banks are exposed to interestrate risk. In a rising interest rate scenario, the yields earned will be insuperably lower than the
actual prevailing rates. To avoid such a situation, banks should select their investment
portfolio in a manner that suits the interest rate structure. A declining interest rate scenario
would suggest investment in fixed rate/ long-term instruments while a rising interest rate
structure would suggest a floating rate of interest on the securities.
Since the investment in such reserves is compulsory, banks should, within their investment
policy and risk exposure levels, ensure better yields from the same. Another important aspect
of the investments made in approved securities is that even the excess reserves will earn
yields. This enables the bank to avoid any situation of shortfall in the statutory liquidity
reserves since it will not be losing its yields for maintaining excess liquid reserves.
Penalty Provisions
If banks do end up in shortfall while maintaining these reserves, then they will attract certain
penalties from the RBI.
In terms of section 24(4)(a) of the BR Act, 1949, if on any alternate Friday or, if such Friday is
a public holiday, on the preceding working day, the amount maintained by any bank at the
close of business on that day falls below the minimum prescribed the bank shall be liable to
pay to the RBI in respect of that day's default, penal interest for that day at the rate of 3% per
annum above the bank rate on the amount by which the amount actually maintained falls short
of the prescribed minimum on that day.
108
Further, vide section 24{ 4)(b), if the default occurs again on the next succeeding alternate
Friday, or, if such Friday is a public holiday, on the preceding working day, and continues on
succeeding alternate Fridays or preceding working days, as the case may be, the rate of penal
interest shall be increased to a rate of 5% per annum above the bank rate on each such
shortfall in respect of that alternate Friday and each succeeding alternate Friday or preceding
working day, if such Friday is a public holiday, on which the default continues.
Where it is observed that banks are persistently defaulting despite instructions and repeated
advises, the Reserve Bank in addition to levy of penalty on such defaulting banks, may be
constrained to consider canceling the license in case of licensed banks and refuse license in
case of unlicensed banks under section 22 of the Act, ibid. The banks should, therefore, in
their own interest ensure maintenance of statutory liquidity ratio at prescribed rates and be
very prompt in submission of Return to RBI offices.
Any change in the statutory requirement of these reserves, will have a definite impact on the
lending ability of the banks and the credit creation power of the financial system. A reduction
in the reserve requirements will expand credit while on the other hand credit contraction
further may lead to change in the interest rate structure. With a cut in reserve requirements,
banks will have more funds at their disposal which may lead to a decrease in interest rates.
Similarly, any increase in the reserve requirements may squeeze out the funds from the
banking system leading to a credit crunch thereby raising the interest rates. It is, thus,
understood that the statutory reserve requirement is a very powerful tool for fine-tuning credit
and market conditions. Thus the CRR and SLR which are adopted as policy measures, aim for
the successful management of the monetary position in the financial system by changing the
level and growth of reserve availability and the cost of credit.
Finally, the goal of reserve management will be to ensure lower costs while meeting the
shortfall in reserves and higher yields while deploying the excess reserves.
From the past records it is known that the bank is very efficient in managing the statutory
liquidity ratio both CRR and SLR and in last 82 years it has never made any default or neither
is penalized for the same. Generally it always maintains much more balances with RBI than
required and much more investment in government approved securities than the requirement.
This shows how carefully it manages the reserves requirements.
109
LIQUIDITY MANAGEMENT
INTRODUCTION
Banks actively engage in liquidity planning at two levels. The first relate to Cash management
(including CRR), where the planning horizon generally is a fortnight.
The second stage involves forecasting net fund needs derived from seasonal or cyclical
phenomena and overall bank growth.
Banks always experience fluctuations in their liquidity positions, depending on the timing and
magnitude of unexpected deposit flows. While shortages in liquidity can be met by accelerating
planned borrowings and deferring asset purchases and! or sale of assets, excess liquidity can be
invested in earning assets. A well managed bank monitors its liquidity position carefully and
maintains a low liquidity risk.
LIQUIDITY AND ITS INFLUENCE
There is a short run trade-off between liquidity and profitability. The more liquid a bank is, the
lower are its return on equity (ROE) and return on assets (ROA), all other things being equal.
Both asset and liability liquidity contribute to this relationship.
Asset liquidity is influenced by the composition and maturity of funds. Large holdings of cash
assets clearly decrease profits because of the opportunity loss of interest income. In terms of
the investment portfolio, short term securities normally carry lower yields than comparable
longer term securities. Banks that invest in short term securities thus increase liquidity but at
the expense of higher potential returns.
In terms of liability liquidity, banks with best asset quality and highest equity capital have
greater access to purchased funds. Because of quality assets/ low NP A, these banks have to
pay lower interest rate. But as the most of the assets are low risks like Government securities,
these banks forego the risk premium that could be earned. This results in lower returns for the
bank in the short run.
110
Liquidity risk for a poorly managed bank closely follows credit and interest rate risk.
Generally banks that experience large deposit outflows can often trace the source of either
credit problems or decline of earnings from interest rate gambles that backfired. The sequence
of events underlying liquidity problems normally is:
Bank reports reduced earnings on account of higher non performing assets (NPAS)
The media publicizes the credit and interest rate difficulties faced by the bank.
Bank is forced to pay higher rates to attract and keep deposits and other purchased
funds.
Banks earning decline further with reduced margins and non accruing loans.
Panic stricken depositors withdraw their funds forcing the bank to sell assets are
distress prices.
Liquidity planning forces management to monitor the overall risk position of the bank such
that credit risk partially offset interest rate risk assumed in the banks overall treasury strategy.
If credit risk is high, interest risk should be low and vice versa. Potential liquidity needs must
reflect estimates of new loan demand and potential deposit losses.
111
112
Liquidating Assets
For management of liquidity through sale of assets, basically the treasury should have highly
marketable securities. Likewise the treasury should hold top rated bonds and debentures which
can be liquidated in case of liquidity crisis. It should be understood that, at times of liquidity
crisis, market turns to buyers market and hence the bank which wants to liquidate the asset
must have the asset which the buyer demands/chooses.
However while sourcing the liquidity by sale of securities, Treasury has to look into following
factors:
Opportunity cost of funds if raised through other sources like deposits, refinances, etc.
113
114
5) The usuance of the bills should not exceed 120 days and the unmatured period of
such bill for drawing DUPN (rediscounting) should not exceed 90 days.
The Interest rates on these borrowing are market related. The DUPN is issued at a discount
which is realized at front end. For example if a bank rediscounts commercial bills with a face
value of Rs. 100 @ 14% for 90 days, the amount receivable is calculated as follows:
Discount Amount
= 100*14%*90/365 = 3.4521
Available
= 100-3.4521
= Rs.96.5479
However the banks should note the following while transacting under this scheme:
a) Underlying bills should relate to genuine trade transactions and not accommodation bills.
b) Bills discounted by NBFCs should not be rediscounted.
c) Bans borrowing under this scheme should seek the facility to the extent of eligible usable
bills held by them. Any excess obtained by rediscounting ineligible bills will be treated as
borrowing and will attract statutory reserves.
115
It has two incompatible objectives: liquidity of funds and return. The investment portfolio of
banks consists of Government securities and other domestic investments. Government
securities are the securities issued by the Central and State Governments. Other avenues of
domestic investments includes other trustee securities, fixed deposits with other banks, shares
and debentures of corporate bodies, real estate, bullion, units of UTI, etc. Substantial fund
remain invested in Government securities partly because they are considered most liquid Le.
easily realizable in cash without much capital loss and partly because such securities serve as
the security for loans from the Reserve Bank of India (RBI) at the bank rate.
A sound investment portfolio allows a bank to realize earning on its assets and still maintain
the necessary liquidity to provide funds to depositors and borrowers as needed.
The nature, type and quantum of the investment portfolio are detonated by the host of factors,
viz. Reserve Banks liquidity requirements (monetary policy) the individual banks investment
objective and policy, the credit pressure, the general level of funds available to the bank, etc.
These factors are individually and collectively responsible for the pattern of investment at a
particular date. In practice, banks keep at least 10-12% more liquid funds than their statutory
requirements in order to meet their own liquidity requirements. Most banks have
arrangements with other banks including State Bank of India, through which their branches
meet their requirements for cash and funds by drawing against deposits as security. Even in
the head offices, bank requires more such accommodation against Government securities for
the State Bank of India. And the Reserve Bank of India. Thus, it is seen that investments in
Government securities are mainly influenced by liquidity requirements and mandatory
requirements.
116
When banks are left with excess funds after meeting the credit needs and the liquidity
requirements, they prefer to invest those funds in such securities as may earn some income.
Investments in 'Other Domestic securities' are generally held for such purpose within the
investment portfolio. The relative proportion of various types of securities is determined by
the banks policy for maintaining a balance between liquidity, safety and profitability. Banks
strive to invest in such a way that the above stated objectives are easily fulfilled. Banks also
take into consideration the shift ability characteristics of the securities. Thus, the securities
which are eligible for being placed with RBI against borrowing from it, may be treated as
more shift able and are given priorities for investments.
The volume and directions of the investment portfolio depends upon the availability of banks
funds, the credit needs of the economy, and the banks policy regarding employment of funds. If
the credit needs are heavy and banks are confronted with shortage of funds, they are bound to
en cash some of their investments and vice versa. In such case also banks attempt to liquidate
such investments and to that extent maximize the return on alternative uses of funds.
117
INVESTSTMENT OBJECTIVES
Invest management is a direct result of the Bank's efforts to maintain soundness and
profitability for the Bank in the long term.
General objective of the Investment management should be :
To preserve the integrity and safety of the deposits and net worth of the Bank.
To attain and sustain a strong level of earnings as further protection for the depositors
and to assure appropriate rerun to the shareholders.
118
While prescribing norms for investments, the policy should clearly define the level of risks that
can be taken by the Treasury. It should include:
(i) Minimum rating requirement -instrument wise
(ii) Maximum exposure -counter party, industry, instrument etc.
(iii) Mandatory norms prescribed by RBI, SEBI or any other authorities in this regard.
Overseas investment limits prescribed by RBI etc. and also take into account the Tax
planning of the bank.
While prescribing norms for investments, the policy should clearly define the level of risks
that can be taken by the Treasury. It should include:
(i) Minimum rating requirement -instrument wise
(ii) Maximum exposure -counter party, industry, instrument etc.
(iii) Mandatory norms prescribed by RBI, SEBI or any other authorities in this regard.
119
Functional set up of the Investment department is another area which Investment policy should
define. The Policy should clearly demarcate the functional activities between Dealing, Back
office and Accounting & Monitoring sections in the department. It should also give the powers
delegated to / enjoyed by each category of official. Constitution of the Investment Committee,
its objective, role and powers should be given in the Investment Policy.
SELECTING THE PORTFOLIO STRATEGY
Almost 40% of the asset base of the banks now consists of Govt. stock and other
Bonds/debentures. The types of Bonds are varied -Fixed income, floating rate, zero coupon,
Liquid, option embedded, deep discount bonds, unrated, unlisted etc. Since a huge
proportion of Bank funds are deployed in these debt instruments, its management assumes a
very important factor in the overall profitability/risk exposure of the bank. As some of these
instruments are I traded / tradable in the secondary market, Treasury has a major role in the
management of this portfolio. Moreover in the recent years, as the financial markets are
much volatile and as due to intense competition, Bank Treasury has to manage the portfolio
with strategies that can consequently play an integral role in meeting overall Assets &
Liability managements goals. With Treasury's trading and distribution skills, non-fund
based income can be generated apart from providing liquidity to the portfolio. An Active
Treasury should shuffle the investment portfolio of the Bank -by adjusting maturities,
changing the composition of the securities (taxable versus tax free, Gilts vs. debentures
etc.), swapping the securities -and achieve the ALCO objectives/policies in the changing
market environment. Treasury that targets to earn a rate of return that consistently exceeds
the opportunity cost of funds will create long term share holder value.
120
Treasury has to consider many factors while determining which securities to buy or sell. Risks
arise because it is very difficult to outperform the market when forecasting interest rates.
Treasury must also be aware of the Bank's overall interest rate risk position to make
investments that offset the prevailing risk or enhance returns as targeted. A Treasury with
passive strategy, passive because of the internal policies restricting its powers, its risk taking
decisions, etc., just adopt 'buy & hold' strategy. Because of this they select maturities that
generate average returns over the entire business cycle. Whereas an active treasury shuffles the
portfolio based on the forecasts, hedges the portfolio from risks it is exposed, trade in securities
a generate non-fund based income.
Therefore depending upon the investment objective as well as policy the bank will select
whether to adopt active or passive strategies.
SELECTION OF ASSETS
Selection of right assets at right time is the essence of the Investment Portfolio Management.
This ensures in achieving the objective of 'maximizing the yield with minimum risk'. While
identifying the assets for investments following aspects also should be considered.
a) Assets conforming to Investment Policy
Assets identified should comply with all the conditions prescribed by the Investment Policy
and also any other regulatory norms prescribed by the RBI or any authority. In case the Policy
restricts investments in specific instruments or the Issuer, such assets should be avoided
through in all other respects it might be a good investment.
b) Assets with highest yield and minimum risk
Government securities are assumed as 'NIL, risk securities. Hence while identifying any other
assets, the optimum risk premium I yield spread the investor gets on investing in that bond
should be the consideration.
121
Repayable securities.
122
123
124
VALUATION OF SECURITIES
Held to Maturity
I. Investments classified under Held to Maturity category need not be marked to market and
will be carried at acquisition cost unless it is more than the face value, in which case the
premium should be amortized over the period remaining to maturity.
II. Banks should recognize any diminution, other than temporary, in the value of their
investments in subsidiaries/ joint ventures which are included under Held to Maturity category
and provide therefore. Such diminution should be determined' and provided for each
investment individually.
Available for Sale
The individual scripts in the Available for Sale category will be marked to market at the
quarterly or at more frequent intervals. While the net depreciation under each classification
referred above should be recognized and fully provided for, the net 3plRCiation under each
classification should be ignored. The book value of the individual securities would not undergo
any change after the revaluation.
Held for Trading
The individual scripts in the Held for trading category will be marked to market at monthly or
at more frequent intervals as in the case of those in the Available for Sale category. The book
value of the individual securities in this category would not undergo any change after marking
to market.
125
The various investment avenues and the proportion of investment in each avenue made by the
bank. All the investment made by the bank can be categorized as follows:
1. Central Government Securities (SRL-l)
Government of India
126
IFCI
IDBI
HUDCO
127
Total
NDTL
(in lakhs)
SLR To Be SLR
Maintained Actually
25%
maintained
Surplus
SLR
Sr.
No
Base
Date
From
Date
9-6-2006
24-6-2006
7-7-2006
2114.23
528.56
1186.63
658.07
23-6-2006
8-7-2006
21-7-2006
2124.78
531.20
1206.49
675.29
7-7-2006
22-7-2006
4-8-2006
2161.13
540.28
1257.97
717.69
21-7-2006
5-8-2006
18-8-2006
2220.06
555.02
1399.78
844.76
4-8-2006
19-8-2006
1-9-2006
2251.04
562.76
1211.36
648.6
18-8-2006
2-9-2006
15-9-2006
2292.13
573.03
1382.85
809.82
1-9-2006
16-9-2006
29-9-2006
2279.17
569.79
1416.01
846.22
15-9-2006
30-9-2006
13-10-2006
2232.23
558.06
1343.25
785.19
29-9-2006
14-10-2006
27-10-2006
2270.38
567.60
1355.32
787.72
10
13-10-2006
28-10-2006
10-11-2006
2243.72
560.93
1369.23
808.30
11
27-10-2006
11-11-2006
24-11-2006
2259.12
564.78
1347.97
783.19
12
10-11-2006
25-11-2006
8-12-2006
2259.61
562.90
1336.63
773.73
13
24-11-2006
9-12-2006
22-12-2006
2266.53
566.63
1396.91
830.28
14
8-12-2006
23-12-2006
5-1-2007
2238.44
559.61
1354.54
794.93
15
22-12-2006
6-1-2006
19-1-2006
2272.68
568.17
1369.29
801.12
Date
The above table shows the last 15 reporting of SLR by the SNSB, it is to be noted that the
Bank have maintained almost Double of the actual mandate of SLR by the RBI, this is really a
good sign from the liquidity point of view, but it is also needed to be considered that
maintaining more than the actual requirements may cause a problem to the bank, in the sense
the excess money could have deployed in some more income generating avenues, which entails
the Bank to have good amount of earnings, which can be reflected in the net profit at the year
end. Moreover RBI allows to have 25% to 40% of Liquidity Reserves, but if this limit is
crossed than RBI does interference from its own side, the near by 40% of SLR maintenance
shows poor liquidity management , and incase of SNSB many a times it has been seen that it
reaches near by 40 % of NDTL.
128
Total
NDTL
(in lakhs)
CRR To Be
Maintained
3%
CRR
Actually
maintained
CRR
Surplus
Sr.
No
Base
Date
From
Date
09-6-2006
24-6-2006
7-7-2006
2114.23
63.43
117.91
54.48
23-6-2006
8-7-2006
21-7-2006
2124.78
63.74
128.75
65.01
07-7-2006
22-7-2006
4-8-2006
2161.13
64.83
124.55
59.72
21-7-2006
5-8-2006
18-8-2006
2220.06
66.60
98.72
32.12
04-8-2006
19-8-2006
1-9-2006
2251.04
67.53
117.94
50.41
18-8-2006
2-9-2006
15-9-2006
2292.13
68.76
100.07
31.31
01-9-2006
16-9-2006
29-9-2006
2279.17
68.38
95.94
27.56
15-9-2006
30-9-2006
13-10-2006
2232.23
66.97
78.16
11.19
29-9-2006
14-10-2006
27-10-2006
2270.38
68.11
89.85
21.74
10
13-10-2006
28-10-2006
10-11-2006
2243.72
67.31
102.35
35.04
11
27-10-2006
11-11-2006
24-11-2006
2259.12
67.77
160.13
92.36
12
10-11-2006
25-11-2006
8-12-2006
2259.61
67.55
100.09
32.54
13
24-11-2006
9-12-2006
22-12-2006
2266.53
68.00
115.88
47.88
14
08-12-2006
23-12-2006
5-1-2007
2238.44
67.15
91.02
23.87
15
22-12-2006
6-1-2006
19-1-2006
2272.68
68.18
106.94
38.76
Date
The above table shows the last 15 reporting of CRR by the SNSB, it is to be noted that the
Bank have maintained almost Double of the actual mandate of CRR by the RBI, the CRR
mandate is 3% of NDTL, and a bank can have maximum of 20% of NDTL as CRR, the SNSB
Ltd is maintaining the CRR at an average of 5.5% to 7%, which is a healthy CRR maintenance,
it is to be noted that for both cash and liquidity maintenance the banks are require to do
investments in RBI approved securities.
129
Surplus
73.28
5.73
67.55
85.02
17.47
3-12-2006
67.55
85.02
17.47
4-12-2006
67.55
94.21
26.66
5-12-2006
67.55
89.55
22
6-12-2006
67.55
94.13
26.58
7-12-2006
67.55
98.57
31.02
8-12-2006
67.55
91.02
23.47
9-12-2006
68
83.91
15.91
10-12-2006
68
83.91
15.91
11-12-2006
68
101.77
33.77
12-12-2006
68
97.34
29.34
13-12-2006
68
84.57
16.57
14-12-2006
68
86.61
18.61
15-12-2006
68
84.71
16.71
16-12-2006
68
101.46
33.46
17-12-2006
68
101.46
33.46
18-12-2006
68
115.56
47.56
19-12-2006
68
118.72
50.72
20-12-2006
68
126.96
58.96
21-12-2006
68
104.65
36.65
22-12-2006
68
106.94
38.94
23-12-2006
68
74.83
7.68
24-12-2006
67.15
74.83
7.68
25-12-2006
67.15
74.83
7.68
26-12-2006
67.15
94
26.85
27-12-2006
67.15
91.21
24.06
28-12-2006
67.15
109.63
42.48
29-12-2006
67.15
108.63
41.48
30-12-2006
67.15
92.08
24.93
31-12-2006
67.15
92.08
24.93
Date
Required to
maintained
1-12-2006
67.55
2-12-2006
be Actually
Maintained
130
The chart on previous page shows the daily maintenance of cash reserve, as per the RBI
mandate the Banks are required to maintain the Cash Reserve of at least 3% of NDTL, this
CRR is to be maintained daily and on each reporting Friday along with the final reporting the
daily date wise reporting is needed to be shown to RBI, from this RBI evaluates the Banks
Position and Checks that the final fortnightly reporting is the actual replica of the daily
maintenance, it will check it out that in the daily operations also the bank have maintained the
required CRR or not, if in a single day it founds the deficit in the maintenance it charges the
penalty to the bank. Here the daily CRR maintenance of the December is shown, where it is
clear that the SNSB has the CRR provision more than the actual requirement, which is a
healthy sign.
The bank uses the following avenues for the CRR maintenance:
131
Actually
Maintained
Deficit
Surplus
1-12-06
562.9
1335.5
772.6
2-12-06
562.9
1346.69
783.79
3-12-06
562.9
1346.69
783.79
4-12-06
562.9
1340.88
777.98
5-12-06
562.9
1340.85
777.95
6-12-06
562.9
1337.68
774.78
7-12-06
562.9
1352.09
789.19
8-12-06
562.9
1354.54
791.64
9-12-06
566.63
1351.98
785.35
10-12-06
566.63
1351.98
785.35
11-12-06
566.63
1354.46
787.83
12-12-06
566.63
1365.03
13-12-06
566.63
1346.89
780.26
14-12-06
566.63
1359.46
792.83
15-12-06
566.63
1355.56
788.93
16-12-06
566.63
1363.81
797.18
17-12-06
566.63
1363.81
797.18
18-12-06
566.63
1373.78
807.15
19-12-06
566.63
1376.94
810.31
20-12-06
566.63
1388.51
821.88
21-12-06
566.63
1367
800.37
22-12-06
566.63
1369.29
802.66
23-12-06
559.61
1329.62
770.01
24-12-06
559.61
1329.62
770.01
25-12-06
559.61
1329.62
770.01
26-12-06
559.61
1350.83
791.22
27-12-06
559.61
1347.57
787.96
28-12-06
559.61
1365.99
806.38
29-12-06
559.61
1371.83
812.22
30-12-06
559.61
1355.28
795.67
31-12-06
559.61
1355.28
795.67
Date
798.40
132
The chart given on the previous page shows the daily maintenance of SLR by the SNSB
Ltd, it is clear from the chart given that the bank is maintaining more than double the SLR
of the actual mandate by the RBI, the statutory requirement is to maintain minimum of
25% of NDTL as a SLR, along with the fortnightly reporting to the RBI, the Bank requires
to show the daily maintenance of SLR, so that RBI can ensure that the Bank is actually
maintaining the liquidity requirement, it also sees to it, that there is any deficit of SLR
maintenance in day to day operations, and if any default is found, RBI charges the penalty
to the bank, in case of SNSB, I have gone through last 6 months daily SLR maintenance
but I have not found a single day with deficit.
SNSB uses following assets for the current maintenance of its SLR requirements.
133
Liquidity management
Daily deposits of the Bank (December-2006)
Date
Saving
Fixed
Loan
Other
Cash
Trans
Cash
Trans
Cash
Trans
Cash
Trans
Cash
Trans
18.22
12.69
06.06
08.25
03.02
03.56
47.63
41.37
04.23
51.26
11.72
14.93
04.85
02.01
00.83
03.15
35.63
29.06
04.02
34.81
11.36
08.86
09.31
08.54
00.75
02.27
34.32
46.78
01.57
34.19
03.22
00.87
06.67
01.85
00.26
01.29
10.54
46.57
00.77
19.08
09.33
09.12
13.11
10.62
01.31
02.99
48.96
44.97
05.87
61.04
06.52
12.32
05.76
07.22
04.81
01.34
30.16
54.48
06.98
48.28
09.87
5.46
07.60
05.46
01.05
02.40
30.41
40.34
04.27
38.15
10.47
16.36
04.30
07.31
02.18
03.75
50.21
42.54
04.36
54.03
10
07.59
32.17
03.37
05.75
00.76
00.16
38.35
34.06
06.36
80.28
11
06.88
03.90
01.78
03.18
01.29
01.69
30.97
33.70
01.86
14.83
12
13
08.13
10.03
06.86
08.44
01.92
03.00
49.87
43.01
04.95
49.42
14
08.11
16.26
05.18
04.70
03.22
03.56
50.01
44.86
04.64
57.34
15
12.58
07.01
05.33
06.82
00.87
03.43
29.77
58.23
01.83
22.24
16
10.26
10.25
03.33
07.30
03.44
03.15
37.54
60.95
03.08
23.70
17
13.65
10.33
08.84
07.84
00.79
00.82
31.49
35.38
02.10
41.54
18
08.31
09.82
06.92
04.59
02.01
00.64
30.80
35.38
02.33
33.69
19
20
09.51
06.04
04.86
09.26
02.55
01.28
51.60
49.53
06.13
60.59
21
11.00
08.25
03.85
11.27
00.53
03.41
35.71
59.90
05.61
53.59
22
14.39
11.75
06.70
12.67
00.74
01.72
32.48
79.64
05.38
81.82
23
13.25
10.29
03.00
09.23
01.01
01.08
34.46
54.16
02.36
40.58
24
10.31
17.19
02.84
04.27
01.35
03.63
34.35
43.38
02.92
93.99
25
08.83
10.32
05.09
04.32
00.23
01.79
33.52
37.91
01.06
35.61
26
27
13.43
09.83
05.40
09.83
00.22
01.13
46.06
28.78
04.77
89.18
28
08.10
08.45
07.19
08.59
00.58
00.64
45.55
54.51
06.00
87.06
29
04.85
16.52
05.78
09.93
04.03
00.83
31.29
44.13
03.72
54.29
30
09.00
10.06
02.90
17.46
01.04
00.54
34.71
48.45
02.94
75.65
Total
258.89
289.08
146.61
197.21
40.79
52.31
978.49
1199.43
100.11
1336.24
134
Trans
Cash
Trans
Cash
Trans
Cash
Trans
Cash
Trans
05.67
31.09
11.07
05.60
00.46
00.96
36.41
65.72
30.24
13.76
07.25
12.13
11.52
05.67
00.74
01.64
19.38
39.13
35.51
25.39
03.50
15.52
05.96
05.72
00.60
02.31
23.39
53.65
25.13
23.44
00.59
04.24
01.68
05.78
01.64
13.18
25.93
32.07
08.90
09.17
10.06
13.31
00.49
05.65
44.98
79.17
25.23
21.44
08.52
12.22
05.97
06.84
00.39
02.44
29.74
44.87
15.10
57.17
09.37
12.91
06.87
10.08
00.34
02.38
18.96
40.68
15.10
57.17
11.91
07.13
08.39
06.39
00.10
04.32
25.10
69.99
25.00
36.16
10
07.13
34.35
07.52
04.75
00.67
00.50
20.63
67.73
25.06
45.09
11
03.62
06.57
07.44
02.82
00.05
01.77
35.96
36.57
16.04
09.57
12
13
04.03
12.66
07.39
05.41
01.52
05.36
27.74
74.39
00.39
15.88
14
09.56
15.75
07.96
03.96
00.64
03.09
24.89
70.67
27.07
33.25
15
02.53
15.38
07.96
03.96
00.64
03.09
24.89
70.67
27.07
33.25
16
02.05
21.92
07.05
05.46
01.40
04.45
26.88
34.98
00.28
20.34
17
04.77
20.93
05.91
03.36
00.15
02.20
34.33
52.13
21.17
42.86
18
03.11
06.48
06.57
00.48
01.46
00.70
17.25
26.64
10.07
49.82
19
20
06.55
18.47
5.98
2.33
00.54
03.71
45.02
79.33
00.13
22.82
21
01.51
13.54
06.99
07.06
00.73
04.78
23.93
49.80
30.14
61.24
22
04.93
20.64
06.21
06.55
01.00
03.54
26.55
72.38
25.14
73.49
23
02.48
17.75
11.99
07.90
00.20
00.87
26.84
47.94
20.19
40.88
24
04.54
26.42
11.64
02.93
00.68
03.47
15.59
55.05
15.08
74.58
25
11.08
10.28
05.60
01.55
00.45
02.17
23.94
47.28
20.11
27.67
26
27
04.32
24.53
08.83
07.54
00.23
02.52
35.18
77.08
10.03
27.08
28
00.63
13.42
06.57
15.51
00.56
01.77
28.19
64.80
25.27
63.40
29
10.78
09.09
05.67
07.26
00.13
04.39
21.08
52.75
30.03
52.21
30
02.57
20.44
07.97
13.76
00.38
00.50
31.88
90.25
00.13
27.21
138.90
413.14
195.83
161.74
14.17
71.61
719.20
1465.89
482.91
952.55
Saving
Fixed
Loan
Other
31
Tot
al
135
Month wise liquidity position of SNSB ltd (Last six months has been taken)
DECEMBER-2006
Sr.
No
Saving
Loan
Cash
Trans
216.64
230.53 109.54
Sr.
No
Cash
Fix
Saving
Others
Trans Cash
Trans
Cash
Trans Cash
Trans
172.04 18.59
58.93
845.54
998.09 220.44
1378.64
Fix
Loan
Others
Cash
Trans Cash
Trans Cash
Trans
Cash
Trans
Cash
Trans
118.70
328.38 156.88
109.98 19.31
71.46
609.25
Loan
Others
NOVEMBER-2006
Sr.
No
Saving
Fix
Cash
Trans Cash
Trans Cash
Trans
Cash
Trans
258.89
289.08 146.61
197.21 40.79
52.31
978.49
Sr.
No
Others
Current
1
Saving
Fix
Cash
Cash
Trans Cash
Trans Cash
Trans
Cash
Trans
138.90
413.14 195.83
161.74 14.17
71.61
719.20
Cash
Trans
Trans
136
OCTOBER-2006
Sr.
No
Saving
Trans
Cash
Fix
Loan
Trans
Cash
Trans
Cash
Trans Cash
Trans
111.41 185.36
25.40
41.42
796.65
700.76 150.83
1236.61
281.88 253.90
Sr.
No
Others
Saving
Fix
Cash
Trans
Cash
Trans
108.97
428.90
179.82 100.97
Loan
Others
Cash
Trans
Cash
Trans
Cash
Trans
8.04
49.57
503.76
Loan
Others
SEPTEMBER-2006
Sr.
No
Saving
Cash
Trans
Trans
Cash
Trans
Cash
Trans
Cash
216.64
18.59
58.93
845.54
998.09
220.44 1378.64
Sr.
No
Cash
Fix
Saving
Fix
Loan
Trans
Others
Cash
Trans Cash
Trans
Cash
Trans
Cash
Trans
Cash
Trans
118.70
19.31
71.46
609.25
AUGUST-2006
137
Sr.
No
Saving
Fix
Loan
Others
Cash
Trans Cash
Trans
Cash
Trans Cash
Trans
Cash
Trans
216.64
264.73 95.33
163.29
34.25
62.02
901.25
81.54
1419.52
Sr.
No
Saving
Fix
812.09
Loan
Others
Cash
Trans Cash
Trans
Cash
Trans Cash
Trans
Cash
79.04
16.46
72.15
396.41
1157.88 605.33
Loan
Others
Trans
1105.96
JULY-2006
Sr.
No
Saving
Fix
Cash
Trans
Cash
Trans Cash
Trans Cash
Trans Cash
Trans
204.34
244.54
87.69
159.09 33.16
58.20
884.32 92.07
1574.39
Sr.
No
Saving
Fix
784.12
Loan
Others
Cash
Trans
Cash
Trans Cash
Trans Cash
Trans
87.83
371.51
219.64
94.87
56.73
14.64
375.21
Cash
Trans
In all above months the aggregate of deposits have been greater then the Widrawal, which is a
good sign of liquidity of the bank, except in one month that is in August the figure proves
wrong, all these are explained in depth in next table.
138
August
September
W
N.P
October
N.P D
N.P
Current
449
459
-11
481
460
21.7
Saving
247
325
-78
259
263
-4.5
Fixed
91.4
143
-51
96.3
88.6
7.66
77.52
Loan
25.29 1497
1563
-65
2185
Others
1666 1608 58
1599.1 1495
104.5 1387
1290
Total
4248.6 4118
130.9 3784
3729
90.77 -13.3
November
N.P
December
N.P
N.P
552
548
4.07
-7.35
77.52 90.77
2178
7.17
1844
13.25
1818.3 25.29
97.6 1435
1436
-0.89
1599
1494.6 104.5
55.5 4616
4599
16.75 4249
4117.6 131.3
D = Deposit
W = Widrawal
N.P= Net Position
The above Chart shows the monthly liquidity position of SNSB Ltd where one can see that the bank has good amount of liquidity position,
except in one month August, there has been positive net position in all other months, this shows the Banks strength in maintaining the
liquidity. As per RBI guidelines the negative gap in normal course must not exceed 20% of the cash outflow in each time bucket, and this is
effectively maintained by the S.N.S.B ltd.
139
PERTICULARS
20012002
20022003
20032004
20042005
20052006
1.05
1.05
1.05
1.05
1.05
Bond of BOB
47.88
47.88
50
50
110.19
54.99
30.41
933
854
418
260.5
535.5
3.2
3.2
3.2
3.2
FD with HNSB
FD with S.B.I
60.15
60.15
60.15
60.15
29.96
69.4
85.1
100.3
94.2
55.8
7.29
7.29
7.29
7.29
7.29
FD with Sardar
Sarovar nigam limited
450
400
400
400
Total
1574.09
1460.79
1535.48 1535.81
1317.43
-7.19
5.11
-14.22
%(INCREASE/
DECREASE)
495.49 551.35
0.021
551.35
The above table shows the investment portfolio of SNSB Ltd over the years, from the above data it
is evident that the SNSB has plough back the investments, because in last year there was a drastic
decrement of 14% in the total investment done by the bank, in the preceding year it was nominal
increment of 0.021%, and before that it was the increment of 5%, but preceding that it was fall of 7%
in total investment. It is also seen that the major investment of the bank has been in state government
securities, than the bank has kept FDs with Sabarkantha District Co-operative Bank Ltd, than the
bond of Sardar Sarovar Yojna, and bond of BOB has been there in good amount over the years.
Investment in different securities by the Bank over the years.
140
19992000
20002001
20012002
20022003
20032004
20042005
20052006
(RS. IN LAKHS)
Total
(%)
1.05
1.05
1.05
1.05
1.05
1.05
1.05
7.35
0.072
495.49
551.35
551.35
1598.19
15.74
Bond of BOB
47.88
47.88
100.76
0.99
50
50
50
50
110.19
54.99
415.18
4.09
0.03
0.03
0.00029
30.41
30.41
0.29
657
743
933
854
418
260.5
535.5
4401
43.44
3.2
3.2
3.2
3.2
3.2
3.2
22.4
0.22
FD with HNSB
70.55
70.55
0.69
FD with S.B.I
60.15
60.15
60.15
60.15
60.15
60.15
29.96
390.86
3.85
46.8
58.8
69.4
85.1
100.3
94.2
55.8
510.4
5.02
FD
with
Gandhinagar.
8.19
8.19
7.29
7.29
7.29
7.29
7.29
52.83
0.52
Sardar
Sarovar nigam limited
450
450
450
400
400
400
2550
25.12
Total
1281.
42
1444.
94
1574.
09
1460.
79
1535.
48
1535.
81
1317.
43
10149.96
100
Particulars
LIC,
The above chart shows the investment pattern of the bank over the years, the SNSB ltd has invested on an
average 43.44% in the Sabarkantha District Co-operative Bank, the second major investment avenue for
the bank over the years has been the Sardar Sarovar bonds in which the bank has invested on an average
25.12%, the third major investment for the bank has been state government securities where the bank has
done on an average an investment of 15.74%, these are the major investments avenues for the bank. There
have been many small investments in the bank portfolio.
Investment portfolio of the year 2006
141
The above
Amount
Invested
(Rs.
lakhs)
%
in
1.05
0.08
551.35
41.85
Bond of BOB
47.88
3.63
4.17
2.30
535.5
40.64
3.2
0.24
FD with HNSB
FD with S.B.I
29.96
2.27
55.8
4.23
7.29
0.55
Total
1317.43
100%
shows last
chart
years
investment portfolio, there has been 41.85% investment in state government securities, the second
major portion of 40.64% in F.D of SDC Bank, then there has been many other small avenues for the
bank.
142
YEAR
Total
Amount
Invested (in lakhs)
2001-2002
1574.09
2002-2003
1460.79
2003-2004
1535.48
2004-2005
1535.81
2005-2006
1317.43
From the above chart it is clear that the higher investment (1574.09) is realized by the Bank 200102, then in 2004-05 (1535.81) and least in 2005-06 (1317.43). The reason for this is in todays
scenario the interest rates are falling and most of the banks investments yielding higher coupon
matured in the before years, and now what bank has only few investments which yield high returns
and majority if investments are yielding low to medium return or income.
143
144
BIBLIOGRAPHY
WEBSITES:
www.banknetindia.com
www.finance.indiamart.com
www.rbi.org.in
www.investopedia.com
www.answers.com
BOOKS:
MATERIAL:
145
ANNEXURE
Questionnaire.
146