Download - Vijaya Bank Asset
-
7/28/2019 Vijaya Bank Asset
1/87
SYNOPSIS
1. INTRODUCTION TO PROJECT REPORT
2. BANKING- A THEORITICAL PROSPECTIVE
3. VIJAYA BANK-A PROFILE
4. NON-PERFORMING ASSETS-A THEORETICAL PROSPECTIVE
5. RBIS PRUDENTIAL ACCOUNTING NORMS
6. MANAGEMENT OF NPAS IN VIJAYA BANK
7. FINDINGS SUGGESTIONS & CONCLUSION
Questionnaires
Bibliography
1
-
7/28/2019 Vijaya Bank Asset
2/87
CHAPTER SCHEME
CHAPTER-I
INTRODUCTION:
Introduction of the Study
Objectives of Project Report
Scope of the Study
Methods of the Study
Needs of the study
Limitation of the Study
Chapter-II
Banking- A Theoretical Prospective
Introduction to Banking
Development of Modern Banking
Function or Importance of Banking
Classification of Banks
2
-
7/28/2019 Vijaya Bank Asset
3/87
Chapter-III
Vijaya Bank-A Profile
Genesis
History of Vijaya Bank
Establishment of Vijaya Bank
Progress of Vijaya Bank
Chapter-IV
Non-Performing Assets-A Theoretical Perspective
Introduction
Meaning of NPAS
Magnitude of NPAs
Causes of NPAs
Remedial measures of NPAs
Treatment of NPAs Conclusion Regarding Contributing Reasons
3
-
7/28/2019 Vijaya Bank Asset
4/87
Chapter-V
RBIs Prudential Accounting Norms
Income recognition
Assets classification
Provisions
Chapter-VII
Management of NPAs in Vijaya Bank
Deposits
Loans and advances
Rate of NPAs
Steps of management
Recovery measures
Chapter-VIIIFindings Suggestions & Conclusion
Questionnaires
Bibliography
4
-
7/28/2019 Vijaya Bank Asset
5/87
CHAPTER-I
INTRODUCTION
Introduction
Objectives of Project Report
Scope of the Study
Methodology of the Study
Needs of the study
Limitation of the Study
5
-
7/28/2019 Vijaya Bank Asset
6/87
INTRODUCTION
Banking is one form or another exists little historical evidence as to the
nature of banking operations before the 13 th century available for the earlier
period. The distention between commercial banks and other types of Banks is
difficult to make with certainty.
In ancient time the writing MANU (The maker of old Hindu Law] and
KOUTILYA [The minister of CHANDRAGUPTHA MOURYA] and the teaching of
Christ contained reference of Banking there are records of loans by the temples of
Baby lone as early as 2000 B.C. as the temples were considered sacred place
under the special protection of the gods. They were not likely to be robbed. Thus
were considered safe depositories, companies of traders also carried on Banking
functions connected with the Buying functions connected with the Buying and
selling of goods.
Banking system occupies an important role in our national economy
Banking Institution is Indispensable Banking has come to pay an important role in
the economy development of our country, with a stiff in the government policies
towards a state ownership banks with shareholding of public from corporate
bodies have been converted into national Institution.
This Project Report entitled the MANAGEMENT OF NO PERFORMING
ASSET with reference to MAIN BRANCH SHIMOGA.
OBJECTIVES OF PROJECT REPORT
1) To know the impact & NPAs on Bank profit and lending policy.
2) To find out the rate of NPA in Vijaya Bank.
3) To Know the Remedial measures to control or Reduce the NPA.
6
-
7/28/2019 Vijaya Bank Asset
7/87
4) To find the Banking Lending policy.
5) To know the measures before 2 after lending money by the banker.
6) To know the stages Management of NPA
7) To know the steps in Recovery measures.
8) To find is any illegal recovery measures taken by the Bank.
SCOPE OF STUDY:
For the purpose of study I have selected the branch located at B.H. Road
in SHIMOGA is related for study of NPA, and maintaining structure and how to
reduce it.
This Project report aimed at give clear picture of management of NPA and
maintaining structure In Vijaya Bank.
METHODOLOGY:
The Data is collected for the preparation of the Project Report includes
primary and secondary data. The primary data is collected through on Interview
with the manager of the Bank and the Bank staff to collect information about
service rendered by the bank to study the various aspects of annual Report.
The secondary data is collected through Newspaper, Magazines, and
Books etc, which reveals the customers India about the Branch.
BENEFITS OF THE STUDY:
7
-
7/28/2019 Vijaya Bank Asset
8/87
It helps to give the clear picture of management of NPA.
By preparing the Project Report the study help us to write our ownsuggestions and conclusion for its improvement.
We get the clear structure of Management of NPA.
It helps to give the Remedial measures of NPA.
LIMITATION OF PROJECT REPORT:
This Project Report has been prepared with in a restricted period of time.
The available time has been utilized to the at most extent possible to collect data
and analyze it for the successful completion of the repair.
This Project Report has been prepared with restricted Cost. The available
resources have been utilized to the fullest extent and additional resources have
also been used.
This Project Report may not give a true picture because of the based
nature of the response received. Because the Survey has been Conducted not
taking into account the nature of the people.
8
-
7/28/2019 Vijaya Bank Asset
9/87
CHAPTER-2
BANKING- A THEORETICAL
PROSPECTS
Introduction to Banking
Development of Modern Banking
Function or Importance of Banking
Classification of Banker.
9
-
7/28/2019 Vijaya Bank Asset
10/87
BANKING- A THEORETICAL PROSPECTS
INTRODUCTION:
Banking is one form or another was inexistence even in ancient times. The
writings (The maker of Hindu Law] and KAUTILYA [The maker of Hindu Law] and
KAUTILYA [The minister of Chandragupta Maurya] Contained reference to
banking.
However banking as a kind of business i.e. modern banking is of recent
origin. It come into existence only offer the industrial revaluation. After the
Industrial revaluation with the increase in the size of industrial and business units.
Joint stock company form of business organizationcame into existence only after
the industrial revaluation. After the industrial revaluation with the increase in the
size of industrial and business units. Joint stock company form of business
organization came into existence this form of organization encouraged people
with small means to become shareholders of big industrial 2 business enterprise.
Still there were certain sections of the public who were not prepared to invest their
surplus moneys if they were assured of the repayment of their money with a little
interest there on So, naturally there were the need for the formation of financial
10
-
7/28/2019 Vijaya Bank Asset
11/87
institutions that could collect the surplus funds of the people on terms acceptable
to them and make them (i.e. the funds] available to the needs for productive
purposes accordingly, a long number of financial institutions called joint stockbanks were set up offer the industrial revolution. As such joint stock banks or
modern banks are of recent development.
Bank plays a vary useful and dynamic role in the economic life of a modern
society these render very valuable services to the community to the trade and
industry they help the wheels of trade commerce and industry always revolving.
Banks in modern days acts as the chief agent in mobilizing the dormant funds of
community 2 diverts them into productive channels they contribute to the generalwelfare 2 prosperity of the nation. Banks today are the backbone of modern
industry. They are an essential part of the community.
So, naturally there were the need for the formation of financial institutions
that could collect the surplus funds of the people on terms acceptable to them and
make them (i.e. the funds] available to the needs for productive purpose.
Accordingly a long number of financial institutions called joint stock banks were
set up offer the industrial revaluation. As such joint stock banks or modern banks
are of recent development.
Bank plays a very useful and dynamic role in the economic life of a modern
society these render very valuable services to the community to the trade and
industry they help the wheels of trade commerce and industry always revolving.
Banks in modern days acts as the chief agent in mobilizing the dormant funds and
community & diverts them into productive channels they contribute to the general
welfare and prosperity of the nation. Banks today are the backbone of modern
Industry they are an essential part of the Community.
11
-
7/28/2019 Vijaya Bank Asset
12/87
Even though banking as an independent business oriented during the 14 th
century in England. The seeds of banking business were shown as early as 2000
B.C,.
According to Geoffrey Crowther the present day banker has their ancestry
viz, merchant, money lender and gold smith.
Banking in India flourished a ancient vide times. It originated in our country
as early as 500 B.C money was accepted on deposits and given in the form of
advances. However banking in those days consisted mainly on money wasaccepted on deposits and given in the form of advances. However banking in
those days consisted mainly on money lending country.
During the mogul period the Indigenous bankers played a very important
role in lending money & financing of foreign trade and commerce for the purpose
of lending the towns and principal towns. In small towns a Sheth also known
shah & chili on performed banking functions. In principal towns Nagar Sheth
as Town Bankers was doing money lending business besides money lending
they were transferring funds from place to place and doing collection business
mainly through Hindus (bills of exchange) first half of the 9 th century. The East
India Company established 3 banks.
They accepted deposits and employees them in their business the rate of
Interest charged by them was very high as the advance were unsecured and risks
and were repaid over a long period of time that is not cause now. The money
lender Act paused by different state has imposed a large number of restrictions on
their business with the growth of banking habits. The changes in the public
opinion and fast expansion of banking is Rural and Semi urban are especially
after nationalization of major Indian Commercial Banks the money lenders as a
close a bound to close their Importance.
12
-
7/28/2019 Vijaya Bank Asset
13/87
DEVELOPMENT OF THE MODERN BANKING:
For the history of modern banking in India, a reference to the English
Agency is the days of East India Company would be necessary. The bank of
Hindustan was the first joint stock Bank to be established under European
management. But soon if first half of the 9 th century. The East India Company
established 3 banks.
But of Bengali in 1809 with a capital lake under government after the 3
decade there were another two banks were established namely the Banks ofBombay in 1840, The bank of madras in 1843. These banks knew as the
presidency Banks. These 3 banks were amalgamated in 27 th January 1921 to
form the empirical bank of India. The aid commercial bank was perhaps the first
purely joint stock Bank to be established in 1889. Later the Punjab national Bank
(1989) and the peoples banks (1901) were established.
The Swadeshi movement of 1905 gave a great stimulus to the
development of Indian Banks. The Banks of India was started I 1906. The Indian
Bank in 1907. The Bank of Baroda in 1908 and the Central Bank of India in 1911.
However the banking Crises of 1943 unit hard money of the Bank.
The state bank of India was established and the following banks were
made subsidiaries of state Bank of India.
In 1922 the banking Industry witnessed many bank failure. It is only in
recent years such bank failure have been prevented 2 stability restored. In 1935.
We established the Reserve Bank of India which is acting as the central Bank of
our country.
Amongst various banking instructions in the country in the organized
sectors. The commercial banks are the oldest institutions having a wide network
13
-
7/28/2019 Vijaya Bank Asset
14/87
of branches. Infect one of the commercial bank in our country state Bank of India
(SBI) has got more than 12,000 branches all over India which is highest by any
banking institution in the world there by trying all over the country. Howevercommercial Banks have the lions shares in the total banking operation in the
country.
In 1955 the Imperial Bank of India has been taken over by the newly
constituted the state Bank of India. Pursuant to the provisions of the state Bank
of Act of 1956. eight state owned banks were nationalized with effect from July 19,
1969 again a 23-04-1980 six more banks were also nationalized. Thus bringing to
a total of 90% of the banking system in India under the public sector.
Regional Rural Banks are the new banking institution which have been
added to the Indian Bankign scheme since October 1975 under the Regional
Rural Banks Act 1976.
With a shift in the government policies towards state ownership Banks with the
shareholdings of public has been converted drawn corporate bodies into National
institution under 2 phase that is once in 1969 and then again in 1981. Today as
many as 28 lakhs constitute the strong public sector commercial Banks today
contributes business in the country.
FUNCTIONS AND IMPORTANCE OF BANKS:
The importance of Banks in the modern economy cannot be denied.
Banks plays a significant role in the economic development of a country.
14
-
7/28/2019 Vijaya Bank Asset
15/87
1) Banks mobilize the small scattered and idle savings of the people and make
them available for productive purposes. In short they aid the process of capital
formation.
By offering attractive interest on the Savings of the people deposited with them
Banks promote the habit of thrift and saving among the people.
2) By accepting the savings of the people, Banks provide safety and security of
the surplus money of the depositors.
3) Banks provide a convenient and economical means of transfer funds from one
place to another. Bank draft is commonly used for remittance of funds from oneplace to another
5. Bank influence the rate of interest in the money markets through the supply of
money (i.e. bank money or banks deposits) Banks exert a powerful influence on
the interest rates in the money market.
6. Banks help trade and commerce. Industry and Agriculture by meeting their
financial requirements. But for the financial assistance provided by the banks the
place of growth of trade and commerce. Industry and agriculture would have
been very slow.
7. Banks direct the flow of funds into productive channels. While lending money
they discriminate in favour of essential activities and against non-essential
activities.
8. Banks always make it a point to help the Industrious The product. The punctual
and the Honest and Discourage the dishonest. The spend thrift. The Gambler The
Liar and the Knave (i.e. he rogue). Thus, bank act as public conservators of
commercial virtues.
15
-
7/28/2019 Vijaya Bank Asset
16/87
9. Banks provide a convenient and economical method of payment. The check
system introduced by banks in convenient for making payments.
10. Banks helps the movement of capital from regions where it is not very useful
to regions where it unable more usefully funds from places where they are less
useful to places where they are more useful, Banks increase the utility of Funds.
CLASSIFICATION OF BANKS:
It is very difficult to have a classification of banks. Because the economic
conditions and the financial needs very from country and consequently the banks
that are developed to meet the financial needs also differ from one country to
another.
Generally banks are classified on the basis of their functions such a
classifications of banks is called Functional classifications of Banks. On the basis
of their functions. Banks are classified into 8 categories. They are.
1. Commercial Banks or Deposit Banks
2. Industrial Banks or Investment Banks.
3. Mixed Banks
4. Agricultural Banks
5. Exchange Banks
16
-
7/28/2019 Vijaya Bank Asset
17/87
6. Savings Banks
1. COMMERCIAL BANKS:
Commercial Banks are Banks which accepts deposits from the public
and lend them mainly to commerce for short periods. As finance mainly
commerce. They are called commercial Banks. They also called as Deposit
Banks as they accept deposits from the public and lend them for short periods the
system of accepting deposits from the public and lending them for short periods is
called Deposit Banking and Banks engaged in such banks are called DepositBanks.
2. INDUSTRIAL BANKS OR INVESTMENT BANKS:
Industrial Banks are banks. Which provide block or fixed capital (i.e. Long-
term Finance) to Industries. As they finance Industry. They are called Industrial
Banks They are also called as Investment Banks as they Invest their funds to the
shares and Debentures of Industrial Concerns with the object of providing long-
term Finance to Industries.
Industrial Banks are not found in all the countries of the world. They exist
only in a few countries like the U.S.A. Canada etc. In India Industrial Banks are
not found.
3. MIXED BANKS:
In some countries, there are no specialized Industries or Investment
banks to undertake Industrial or Investment banking (i.e. provision of fixed capital
or long term finance to Industries). In such countries the commercial Banks
themselves are required to perform Industrial Banking (i.e. provision of fixed
17
-
7/28/2019 Vijaya Bank Asset
18/87
capital or long term finance to industry). In addition to their commercial banking
(i.e. provision of working capital or short term finance to Industries). Commercial
Banks which undertakes both commercial Banking and Industrial Banking arecalled Mixed Banks.
Mixed Banks had their origin in the continent of Europe. They made
tremendous progress in west company. They made great progress also in
Countries. They made great Progress also in Countries like Switzer (and Italy.
Austria. Japan etc.
4. AGRICULTURAL BANKS:
Agricultural Banks are banks, which provides finance to agriculture. As they
provide finance to agriculture they are called agricultural Banks.
Agricultural Banks are found in money countries such as India England.
West Germany. USA etc. In most of the countries agricultural banks are organized
on co-oeprative basis.
5. EXCHANGE BANKS:
Exchange Banks are banks which finance mainly the foreining exchange
business (i.e. export and Import trade) of a country. As they finance mainly the
foreign exchange business of a country. They are called Exchange Banks.
Special Exchange Banks are found only in some countries. In many
countries commercial banks themselves perform exchange. In India the major
part of foreign exchange business is done by foreign exchange business of India
through their branches in India.
18
-
7/28/2019 Vijaya Bank Asset
19/87
VIJAYA BANK-A PROFILE
Genesis
History of Vijaya Bank
Establishment of Vijaya Banks
19
-
7/28/2019 Vijaya Bank Asset
20/87
Progress of vijaya Bank
VIJAYA BANK-A PROFILE
GENESIS:
After the end of the 1st World was the economy was in Shamble. The
businessman traders, agriculturists etc, were suffering from paucity of funds for
their enterprises. In the middle of the Seventies of the 20 th Century. Vijaya Bank
limited was established Vijaya Bank limited was founded 65 years ago in the
Costal town of Mangalore in Dakshina Kannada District of Karnataka State by a
group of agriculturist with the main response of solving a small community of
formers of the district. Today it is a household name in the country serving people
from all work of life through a wide network of branches spreat over 25 states and
3 union territories.
Vijaya bank has indeed come along way after having buffered the storms
of great depression survived the companys when small banks were merged withbigger ones. Vijaya Bank emerged stronger and began its exciting journey to
success. Pursuing dynamic branch expansion policies which enabled it to grow
into an all Indian bank was nationalized in the 15 th April 1980.
20
-
7/28/2019 Vijaya Bank Asset
21/87
ESTABLISHMENT OF VIJAYA BANK:
Vijaya Bank was establish on 23 rd October 1931 by late Shri A.B. Shetly an
other enterprising formers in mangalore Karnataka. The objective behind
establishment of the Bank was essentially to promote banking habit. Thrift and
enterprenurship among the forming community of Dakshina Kannada district in
Karnataka state. The bank become a Scheduled bank in 1958.
During 1963-68 nine smaller banks merged with Vijaya Bank and the Bank
steadily grew into a large. All India bank. Vijaya Bank was nationalized on April
15, 1980 and today. The Bank has a net work of 913 branches that span all 28
states and 3 union territories in the country.
Vijaya Bank has been constantly focusing on technological upgradation. As on
October 2005, all the 913 branches have been computerized. Covering 97% of
the banks total business.
The Bank has diversified into new areas such as credit card. Merchant
banking, hire purchase and leasing and electronic remittance service. Vijaya Bank
is one of the few bank in the country to take up principal membership of VISA
International and master and International.
HISTORY OF VIJAYA BANK:
DECADE OF ENTERENCHMENT:
The early Corporate history of the bank, i.e. 1931 to 1960 ws not eventful,
those were the difficult years for the banks. The external environment was not
conducive for growth. The national movement second world war, economic
recession post-independent charges in the Banking regulatory framework posed
tremendous pressure on the Coping capabilities of the banks. It is not surprising
21
-
7/28/2019 Vijaya Bank Asset
22/87
that the country recorded highest number of bank failures during this period.
Vijaya Bank Ltd. Reacted cautiously to the market realities. If followed the path
of prudence and conservation. It mainly concentrated on giving gold loans andpledge loans on agricultural commodities. During this period of insulation. The
Bank added 20 branches-less than one branch per year. A branch was however
opened in Bombay thus exponding the banks.
Operations beyond Dakshina Kannada district The year `958 was the
benchmark year for the Bank, in the year Vijaya Bank Ltd was categorized as
scheduled commercial Bank by the Reserve Bank of India
DECADE OF MERGERS: 1960-69:
In the early sixties, Reserve Bank of India took a policy decision to merge
smaller banks with comparatively large smaller banks with Comparatively larger
ones to reduce the number of banks to on administratively manageable level.
Vijaya Bank saw an opening. It come out with a proposal of collaborative merger
of smaller banks for synergy, strength and collective prosperity. Some banks
found the proposal acceptable Totally nine banks got merged with Vijaya Bank
Ltd. On various dates between 1963 and 1967. The credit for successful
execution of the merger plan should go to Sri. M. Sunder Ram Shetly. Who was
than (1962-69) the non executive chairman of the Bank. Thanks to the merger, 42
branches were added to the branch net work and the Bank emerged as a strong
and confident entity.
DECADE OF GROWTH 1970-80:
1969 was an eventful year for the banking industry. The year saw
nationalization of 14 major banks The remaining smaller banks were brought
22
-
7/28/2019 Vijaya Bank Asset
23/87
under social control. In Vijaya Bank Ltd. Also things started happening Shri. M.
Sunder Ram sheltie took over as the wole time chairman and chief executive of
the bank. The key strategic areas were identified for growth capital and Reservedeposit advances branch expansion and human one bank among the non-
nationzied banks. The reserve Bank of India had Just liberalized the branch
licensing policy As a provide to its action plan, mangalore to Bangalore. Thanks to
the extraordinary enthusiasm, dedication and capacity for hard work shown by the
employees the bank could outperform its peers in the industry and record
outstanding growth which has few parallels in the history of Indian Banking
Industry.
During the period from 1969 to 1976 the Banks Deposits shot up from Rs.
13.21 Crore to 221.02 Crore recording on Aug annual growth rate of 42%. The
Bank added 377 new branches. The shareholders return in the form of dividend
doubled from 6% to 12%. The bank exponded 60th functionally and
geographically. The Bank introduced a number of innovative deposit and loan
schemes. Focusing on various customer segments. The Banks
publicity and public relations was at its best. The bank identified international
banking as a Sunrise. Sector as early as in 1970. The full fledged international
banking division was opened in the year 1971. As a part of product diversification
strategy. The bank was also: very active in Social lending particularly in the area
of agricultural finance. The Bank had on enlightened human resources
management policy. A great deal of emphasis was laid on training. The bank
opened its first training college in Bangalore in 1971. The Bank has 1160
employees in 1969 and the number went upto 9080 in 1979 Rugges young and
inexperienced. They were a highly inspired and motivated lot. The average age of
the employees at one point of time during the period was just 27%. By the late
seventies the Bank had made substantial headway as Indicated below.
23
-
7/28/2019 Vijaya Bank Asset
24/87
NATIONALIZATION AND NEW CHALLENGES:
The Bank was nationalized on 15.04.1980 following natioinalization banks
objectives and priorities changed. Change from entrepreneurial banking to
compliance banking called for radial changes in the organizational structural
policies and programs as well as in the mindset of its employees. In the early part
of 1980s the Bank was pre-occupied in effecting such structural changes for
effective implementation of various Government schemes. A new Rural
Development and priority sector division was created during this period to further
intensity. The banks efforts for lending to priority sector and weaker sections of
the society the bank introduced quite a number of innovative schemes such asvijaya Krishna Cards Vijaya Vichar Vihar etc to meet the specific needs of forming
community. The bank also sponsored its first regional Rural Bank Viz.
Visureshwaraya Grameena Bank for madya District. The bank had a highly
centralized administrative set up before nationalization. After nationalization
banking operations were gradually decentralized. The bank shifted its zonal
offices to their respective territories. To give greater threst on computralization
and diversification, new departments viz, computer policy and planning
Depreciation credit card division and Merchant Banking Division were set up at
Head office.
THE CHALLENGING NINETIES:
In early 90s banks were faced with turbulent changes in the financial
sector. Liberalization of economy. Deregulation, computerization etc opened up
new opportunities for banks for diversification and growth. Introduction of
prudential norms in income recognition provision and capital adequacy
transparency in financial reporting etc, have rendered banks more accountable for
performance. The bank faced thee challenges posed by the deregulation in its
24
-
7/28/2019 Vijaya Bank Asset
25/87
stride. It opened as money as 113 new branches of these 36 were specialized,
specialized industrial finance and SSI branches were opened to give focused
attention to meet the needs of different classes of customers. Greater emphasiswas also given on modernization of banking operations. The bank, which had to
book losses in 1992-1993 and 1995-96 on account of stringent income
recognition/provisioning norms, turned the corner immediately in 1996-97 and has
now started improving its performance on the profitability front the Bank also
successfully mobilized equity, amounting to Rs. 100 Crore through an IPO Issue
in 2000. As a result, the shareholding of the Government of India has come down
from 100% to 72.16%.
LOOKING AHEAD:
Today Vijaya Bank is a vibrant institution. It has spread its branch net work
in all the 288 states and 4 union territories of the Country. It has on its rools about
12000 employees a overwhelming majority of whom have already put in about 20
to 25 years of service in various capacities. They are quite an experienced,
reliable and competent lot to provide efficient service and to take the bank to
grater heights.
25
-
7/28/2019 Vijaya Bank Asset
26/87
NON-PERFORMING ASSETS -A
THEORTICAL PERSPECTIVES
Introduction
Meaning of NPAs
Magnitude of NPAs
Causes of NPAs
26
-
7/28/2019 Vijaya Bank Asset
27/87
Conclusion Recording Contributory Reasions
Causes for on account becoming NPAs
Treatment of NPAs
NON-PERFORMING ASSETS -A THEORTICAL PERSPECTIVES
INTRODUCTION:
A strong banking sector is important for flourishing economy. The failure ofthe banking sector may have an adverse impact on other sectors. Non-performing
assets are one o the major concerns for banks in India.
NPAs reflect the performance of banks. A high level of NPAs suggests
high probability of a large number of credit defaults that affect the probility and net
worth of banks and also erodes the value of the asset. The NPAs growth involves
the necessity of provisions which reduces the over all profits and shareholders
value.
The issue of Non-performing Assets have been discussed at length for
financial system all over the world. The problem of NPAs is not only affecting the
banks but also the whole economy. In fact igh level of NPAs in Idian banks is
nothing but a reflection of the state of health of the Industry and trade.
27
-
7/28/2019 Vijaya Bank Asset
28/87
The paper deals with understanding the concept of NPAs it magnitude
and major causes for an account becoming non performing projection of NPAs
over next three year in Banks and concluding remarks.
MEANING OF NPAS:
An asset is classified as non-performing Asset (NPA) if due in the form of
principal and interest are not paid by the borrower for a period of 180 days.
However with effect from march borrower if dues are not paid for 90 days if any
advance of credit facilities granted by banks to a borrower becomes nonperforming then the bank will have to treat all the advances credit facilities
granted to that borrower as non-performing without having any regard to the fast
that there may still exist certain advances credit facilities having performing
status.
Though the term NPA connotes a financial asset of commercial bank.
Which has stopped earning on expected reasonable return it is also a reflection of
the productivity of the unit firm concern industry and nation where that Asset is
ideling viewed with this perspective. The NPAs is a result of an environment that
prevents it from performing up to expected levels.
The definition of NPAs in Indian context is certainty more liberal with two
quarters norm being applied for classification of such assets The RBI is moving
over to one quarter norm firm 2004 onwards.
WHAT IS A NPA [NON-PERFORMING ASSETS]
Action for enforcement of security interest can be initiated only if the
secured asset is classified as Non-performing Asset.
28
-
7/28/2019 Vijaya Bank Asset
29/87
Non performing Asset means an asset or account of borrower, which has been
classified by a bank or financial institution as sub-standard, doubtful or loss asset
in accordance with the directions or guidelines relating to asset classification
issued by RBI.
An Amount due under any credit facility is treated as Past due when it
has not been paid within 30 days from the due date. Due to the improvement in
the payment and settlement systems, recovery climate, up gradation of
technology in the banking system etc it was decided to dispense with past due
concept, with effect from march, 31, 2001. Accordingly as from that date a Non
performing asset (NPA) shall be an advance where.
(i) Interest and/or installment 3 principal remain overdue for a period of more than
180 days in respect of a term loan .
(ii) The account remains out of order for a period of more than180 days
MAGNITUDE OF NPAS
In India the NPAs that are considered to be at higher levels than those in
other countries have of late attracted the attention of public. The Indian banking
system had acquired a large quantum of NPAs which can be termed as legacy
NPAs.
A distinction is often made between Gross NPA and Net NP A is obtained
by deducting items like interest due but not recovered part payment received and
kept in suspense account etc from Gross NPA.
29
-
7/28/2019 Vijaya Bank Asset
30/87
As shown in the above table-1 over the year NPAs as a percentage of net
advances and total assets have been declining but actual numbers are
increasing.
Dealing with NPAs involves two steps of policies.
1) Relating to existing NPAss
2) To reduce fresh NPA generation
As far as old NPAs one concerned a bank can remofe it on its own or sell the
assets to AMCs to clean up its balance sheet. For preventing fresh NPAs, the
bank, itself should adopt proper policies.
CAUSES OF NON PERFORMING ASSETS:
A strong banking sector is important for a flourishing economy. The
failure of the banking sector may have an adverse impact on other schemes. The
Indian banking system which was operating in a closed economy, now faces the
challenges of an open economy.
On one hand a protected environment ensured that banks never needed to
develop sophisticated treasury operations and asset liability management skills.
On the other hand a combination of directed lending and social banking
relegated profitability and competitiveness to the background. The net result was
unrustanable NPAs and consequently a higher effective cost of banking services.
30
-
7/28/2019 Vijaya Bank Asset
31/87
One of the main causes of NPAs into banking sector is the directed loans
system under which commercial banks are required a prescribed percentage of
their credit (40%) to priority sectors as of today nearly 7 percent of Gross NPAsare locked up in hard core doubtful and loss assets accumulated over the years.
There are secured reasons for an account becoming NPAs
Internal factors
External factors
INTERNAL FACTORS
1) Funds borrowed for a particular purpose but not use for the said purpose.
2) Project not completed in times
3) Poor recovery of receivables
4) Excess capabilities created on non-economic costs.
5) In-ability of the corporate to raise capital thorugh the issue of equity or other
debt instrument from capital markets
6) Business failures
7) Diversion of funds for expansion/Madernization/setting up new projects/helping
or promoting sister concerns.
8) Willful defaults siphoring of funds, froud, disputes, management disputes,
misappropriation etc.
31
-
7/28/2019 Vijaya Bank Asset
32/87
9) Deficiencies on the part of the banks viz in credit appraised, monitoring and
follows. Delay in settlement of payments/subsidiaries by government bodies etc
EXTERNAL FACTORS:
1. Sluggish legal system:
Long legal tangles
1) Changes that had taken place in labour laws.
2) Scarcity of raw material power and other resources.
3) Industrial recession
4) Shortage of raw material input price escalation power shortage industrial
receission, excess capacity, national calamities like floods, accidents.
5) Failures non-payment/over dues in other countries, recession in other countries
extranalizaiton problems, advance exchange rates etc.
6) Government policies like excise duty changes, import duty changes etc.
CONCLUSION REGARDING CONTRIBUTORY REASONS:
The Study of about 900 to NPAs accounts in 27 public sector banks that
has been tabulated from the available information revealed by RBI, that the
following are the important factors for units becoming sick/weak and constantly of
accounts turning NPA in the order of prominence.
32
-
7/28/2019 Vijaya Bank Asset
33/87
Diversification of funds, mostly for expansion/divers, fication/modernization
taking up of new project is the single most prominent reason. Besides being so
this factor also has significant proportion of cases when compared to otherfactors.
Internal factor, failure of business inefficient management inappropriate
technology, product obsole scence.
External factors comprising industrial recession price escalation power
shortage accidents etc.
Time/cost overrun during the project implementation stage lending toliquidity strain and turning NPA into next factor.
Other factors in order or prominence are government policies like changes
in import excise duties etc willful default fraud/misappropriation dispute etc and
lastly deficiencies on the part of banks delays in release of limits and delay in
settlement of payment by government bodies.
OTHER CAUSES FOR AN NPAs
Those Attributable to Borrower
Causes Attributable to Banks other Causes
1) Failure to bring in Required capital
2) Too ambitious project
3) Larger gestation period
4) Unwanted expenses
33
-
7/28/2019 Vijaya Bank Asset
34/87
5) Over trading
6) Imbalance of investories
7) Lack of proper planning
8) Dependence on Single Customers
9) Lack of expertise
10) Improper working capital management
11) Mis management
12) Diversion of funds
13) Poor quality management
14) Heavy borrowings
15) Poor credit collection
16) Lack of quality control
17) Wrong selection of borrowser
18) Poor credit oppraisal
19) Unhelpful in supervision
20) Tough stand on issued
21) Too inflexible attitude
22) Systems overloaded
23) Non-inspection of units
24) Lack of motivation
34
-
7/28/2019 Vijaya Bank Asset
35/87
IMPACT OF NPAS ON BANKING OPERATIONS
NPA have the following impacts in the banking operations.
The interest income of banks will fall as interest is to be accounted only on
receipt basis.
Banks profitability is affected adversely because of providing for
doubtful/writing off of bad debts.
ROI (Return on Investment) is reduced
Capital adequacy ratio is disturbed as NPAs enter into its calculation.
Cost of capital will go up.
Assets and liability mismatch will widen
Eva (economic valuation) by banks gets up set because EVA is equal to
Net operating profit minus cost of capital.
TREATMENT OF NON PERFORMING ASSETS [NPAS]
PART-A POLICIES AND PRACTICES
o Clasification Of Loans And Off-Balance Sheet Items
There is no uniform system of classification of loans and off-balance items.
Many countries have adopted, mainly through regulatory and supervisory
framework. A three tier approach towards classification of Non-performing Assets
35
-
7/28/2019 Vijaya Bank Asset
36/87
[NPAs[, corresponding to substandard doubtful and loss categories, using
delinquency period as the main bench mark, Thus, substandard Assts are those
where principal and/or interest are more than 90 days past due doubtful Assetsare those where principal and/or interest are at least 180 days past due; and loss
assets are those whom principal and/or interest are at least 1 year past due. This
classification categories is also applied to contingent accounts or off-Balance
sheet items, since they are treated the same way as loans. The delinquency
period is applied for classification of various on balance sheet assets and off-
balance sheet items, so as to provides, among others on objectivevs criterion for
appropriate classification, depending on the possibility of collectibility. However, if
in the banks judgement on asset is impaired to such an extent and its collectibility
is in serious doubt that it should straightaway be classified as doubtful or loss
the bank will do so, at any time without waiting for the delingciency period.
The delinquency period various across countries and if differs in relation
to the types of accounts, also, in some countries, banks themselves classify the
loans, on the basis of judgemental factors.
In view of the varied practices followed, primarily depending on the
structure of the banking system, credit delivery systems, and socio economic
conditions, it will not be advisable to prescribe a set of definition of Non-
performing Assets one may rely on the approach adopted by the national
authorities. It should however, be made a requirement that the system followed in
the matter of classification of assets, should be explained fully, in the form of
footnotes to the accounts.
Provisioning requirement:
The practices of provisioning differ among countries, following the asset
classification system adopted, most of the countries have adopted the standard
36
-
7/28/2019 Vijaya Bank Asset
37/87
requirements of provisioning 20 percent of the outstanding balance in respect of
substandard category of assets, 50 percent in respect of doubtful category and
100 percent in respect of loss category. While some countries have imposedlower percentages yet some others have adopted the system of provisioning in a
phased manner, Recognition of collateral, fully or partially in assessing the
provisioning requirements, as applicable in some countries, has great impact on
provisioning. Also, tax deductibility of specific provisions towards loan losses, as
extended by tax authorizties in some countries, constitutes a strong positive
incentive for banks to make adequate provisions. It is therefore, necessary that
banks should be required to fully explain the policies and procedures adopted in
making provisions towards NPAs.
RECOGNITION OF INCOME ON NON-PERFORMING
Loans [NPAs]
Structure regulations have been laid down by supervisory authorities in
many countries with regard to income recognition on Non-performing Loans
[NPAs]. The suspension of Interest are classified as non-performing [sub-
standard. doubtful and loss]. Any uncollected interests payments on NPLs is
considered non accrued interest. Previously accused, but collected interest, is
reversed out of income, failure to do so would oversats income uncollected
interest is normally put in a memorandum account. NPLs are restored on an
accual basis only after full settlement has been made on all delinquent principal
and interest. It would, therefore, be useful, if the accounts carry a footnote
explaining the accounting policies followed with regard to recognition of income
on NPLs.
Criteria for write-off of bad loans:
The policy with regard to write-off of bad loans by banks is set by the
Board of Directors, depending, among others, on the repayment culture and legal
37
-
7/28/2019 Vijaya Bank Asset
38/87
system prevalent. It will be inadvisable for the regulatory authority to lay down
specific guidelines as to when a loan could be considered as non recoverable
and written-off. The banks may, However be exhorted that balance sheets wouldneed to be cleansed, as early as possible.
PART B-REPORTING REQUIREMENTS.
Interest Income:
Ideally, Interest income should reflect only interest income realized and should
exclude accrued on NPLs so as to avoid overstanding of income.
The banks may be required to report the balance of uncollected interest on
NPLs as a memorandum item. It would be useful if additions and deletions during
the preceding specified period are also reflected.
Loans:
It will be appropriate to record the Specific provisions as a contra item,
thus reducing the total loans outstanding so as to reflect the recoverable value of
the loans. Thus, while specific loans loss provisions are reported as contra asset,
nonetheless, provisions other than for loan losses, should however, appear under
liabilities.
NON-PERFORMING ASSETS (NPAS)
The banks may be required to report Non-performing Loans (NPLs)
preferably under various categories, as a memorandum item, It is important tht
the amount of outstanding NPLs should not include interest not realized. The
38
-
7/28/2019 Vijaya Bank Asset
39/87
additions and deletions during the preceding specified period may also be
reflected.
The total of on-balance sheet assets other than loans, and off-balance
sheet items classified as non performing may be reported separately under
various categories. Additions and deletions during the preceding specified period
shall also be reported.
PROVISIONS:
General Provisions may be required to be reported as a separate item
under capital and reserves.
The Specific provisions may be required to be reported, so as to facilities
arriving of provisons/adjusted NPLs i.e. Net NPLs Additions and deletions during
the preceding specified period may also be required to be reported.
REMEDIAL MEASURE OF NPAS:
In spite of better credit management in terms of apprecising and monitoring
of loan asets NPAs do occur. In such user. Various remedial measures are
available to deal with such NPAs. The remedies may be broadly divided into two
namely.
Non-Legal Remedies
Legal remedies.
39
-
7/28/2019 Vijaya Bank Asset
40/87
NON-LEGAL REMEDIES:
Non-Legal remedies may be in the form of compromise mergers and take
overs. The goods pledged or hypothecated may be sold without the intervention
of the court. The debts can be assigned in favour of an agency which may come
forward to collect debt for a service charged.
LEGAL REMEDIES:
The BRI has advised lenders to initiate legal measure including criminal
action some of the important legal measurable available are
Filing of suits under state recovery acts for the recovery of debts
Filing of civil suits for the recovery of debts or for the enforcement of the security
Referring the cases to debts recovery tribunal (drts) and debt recovery appellate
tribunal (DRAT) set up under the recovery of debts due to banks and financial
institution act 1993
Referring cases to lokadalats constituted under the legal services authorities act
1987 which helps in resolving disputes between the parties by conciliation
mediation compromise or amicable settlement ,every award of the lokadakath
shall be deemed to be a decree of a civil court
Resolving large loans via debt recovery mechanism most notably the corporate
debt restructuring (CDR) mechanism one time settlement schemes have been
tried with good result
40
-
7/28/2019 Vijaya Bank Asset
41/87
Proceeding against the default borrower under the securities and reconstruction
of financial assets and enforcement of security interest ACT(SRFAESI ACT)2002
which come into effect on JUNE 21-2002 under the ACT banks and financialinstitutions and allowed to issue demand notices to defaulting borrowers and to
take possession of secured asset without the intervention of the courts if the dues
are no paid with in 60 days from the date of such notice ,the provisions of this
ACT are not applicable to unsecured loans or loans below Rs 1,00,000/-or to
loan and due is been than 20% of the principal amount and interest there on
Recently on April 8-2004 the supreme court has upheld the validity of
the securitisation Act by giving one major relief to the borrower litigant, the earlierprovision that the borrower will have to deposit 75% of the disputed amount
before appealing has been scrapped with the implementation of the SRFAESI
ACT many lenders have commenced their recovery action against recalcitrant
debtors since the supreme court has upheld the constitutional validity of the ACT
it will go a long way in moging NPAS successfully ,this Act also provides the
formal legal basis for setting up asset reconstruction companies (ARCS)in India
41
-
7/28/2019 Vijaya Bank Asset
42/87
RBIS PRUDENTIAL ACCOUNTING
NORMS
INCOME RECOGNITION
ASSETS CLASSIFICATION
RISK WEIGHTS
42
-
7/28/2019 Vijaya Bank Asset
43/87
RBIS PRUDENTIAL ACCOUNTING NORMS
INTRODUCTION:
Non performing Asset means an asset or account of borrower which has
been classified by a banks or financial institution as sub-standard doubtful or loss
asset in accordance with the directions or guidelines relating to asset
classification issued by RBI.
An Amount due under any credit facility is treated as Past due when it has
not bene paid within 30 days from the due date. Due to the improvement in the
payment and settlement systems. Recovery climate, up gradation of technology in
the banking system etc it was decided to dispense with past due concept witheffect from march 31.2001 Accordingly as form that date a non performing asset
(NPA) shall be an advance where.
i) Interest and/or installment of principal remain overdue for a period fo more than
180 days in
ii. The account remains respect of a term loan.
out of order for a period of more than 180 days in respect of a an overdraft/cashcredit[OD/CC].
iii. The bill remains overdue for a period of more than 180 days in the case of bills
purchased and discounted.
43
-
7/28/2019 Vijaya Bank Asset
44/87
iv. Interest and/or installment of principal remains overdue for two harvest
seasons but for a period not exceeding two half years in the case of an advance
granted for agricultural purpose and.
v. Any amount to be received remains overdue for a period fo man than 180 days
in respect of other accounts.
With a view to moving towards international best practices and to ensure
greater transparency, it has been decided to adopt the 90days overdue norm for
identification of NPAs form the year ending March 31, 2004. Accordingly, with
effect form march 31, 2004 a non-performing asset (NPA) shall be a loan or an
advance where.
Interest and or installment of principal remain overdue for a period of more
than 90 days in respect of the term loan.
The account remains out of order for a period of more than 90 days in
respect of an overdraft/cash credit [OD/CC]/.
The bill remains overdue for a period of more than 90 days in the case of
bills purchased and discounted.
Interest and/or installment of principal remains overdue for two harvest
seasons but for a period not exceeding two half years in the case of an ad ance
granted for agricultural purpose and.
Any amount to be received remains overdue for a period of more than 90
days in respect of other accounts.
RBIS PRODENTIAL NORMES OF NPAS
1.LOANS AND ADVANCES
Existing prudential norms
44
-
7/28/2019 Vijaya Bank Asset
45/87
(a) Income recognition
A government guaranteed advances where interest and instalment of
principal or any other amount due to the bank remain overdue for a period more
than 90 days shall become a non-performing advances . the interest due on such
advances should not be taken to income account unless it has been realized.
(b). Asset classification and provisioning:
A Government guarantee advance where interest or installment of principal
or any other amount due to the bank remains overdue for a period of more than
90 days after invocation of the Government guarantee shall be subjected to
appropriate asset classification and provision norms.
c. Risk weights:
A government guaranteed advance attracts zero percent risk weight.
A government guaranteed advance where guarantee has been invoked and the
concerned Government has remained in default for a period of more than 90 days
will attract a risk weight of 100 percent.
REVISED PRUDENTIAL NORMS:
a) Income recognition:
A government guaranteed advances where interest or installment of
principal or any other amount due to the bank remains overdue for apirod more
45
-
7/28/2019 Vijaya Bank Asset
46/87
than 90 days shall become a non-performing advances The interst due on such
advances should not be taken account, unless it has been realized.
2. Investments:
Existing prudential norms.
a. Income recognition:
Investment in securities where payment of interst or repayment of
principal is guaranteed by governments will become a non-performing investmentif interest on installkment is due and remains unpaid for more than 90 days.
Bank should not take income on non-performing investment to income
account unless it has been realized.
b) Asset classification and provisioning
i) Investment in the nature of deemed advance:
Investments is Government guaranteed securities which are in the nature
of deemed advance will attract appropriate asset classification and provisioning
norms as in the case of advances when interest or installment of principal or any
other amount to the bank remains overdue for a period of more than 90 days after
innovation of the government guarantee.
towards debentures where the interest is in arrears or principal is not paid
as per due date shall not be allowed to be set off against appreciation against
other debentures or bonds.
c) Risk Weights:
46
-
7/28/2019 Vijaya Bank Asset
47/87
Investment in Government guaranteed securities of Government
undertaking which form part of approved market borrowing programme attracts an
aggregate risk weight of 2.5 percent Zero percent for credit risk and 2.5 percentfor market risk.
Investment in Government guaranteed securities attract a risk weight of
102.5 percent if the guarantee is invoked and concerned Government has
remained in Default.
ASSET CLASSIFICATION:
Having Identifiable assets, as NPA banks are required to classify themfurther into
a) Sub-standard Assets.
b) Doubtful Assets
c) Loss Assets
1) Sub-Standard Assets:
A sub-standard asset is one, which has remained NPA for a period of lass
than or equal to 12 months.
ii. Doubtful Assets:
An asset is classified as doubtful if it has remained in the sub-standard,
category for a period of 12 months.
iii. Loss Assets:
47
-
7/28/2019 Vijaya Bank Asset
48/87
A Loss Assets is one where loss has been identified by the bank or internal
or external auditors or the RBI inspection but the amount has not been written off
wholly. In other words, such an audit is considered uncollectible and of such littlevalue that its continuance as a bankable asset is not warranted although there
may be same salvage or recovery value.
Exceptions:
In respect of accounts where there are potential threats for recovery on
account of erosioin in the value of security or non-availability of security andexistence of other factors. Such as frauds committed by borrower it will not be
prudent that such accounts should go through various stages of assets
classification. In case of such serious credit impairment the asset should be
straightway classified as doubtful of loss asset as appropriate.
i) Erosion in the value of security can be reckoned as significant when the
security. It has then 50 percent of the value assessed by the bank or accepted by
RBI at the time of last inspection as the case may be such NPAs may be straight
away classified under doubtful category and provisioning should be made as
applicable to doubtful assets.
ii) If the realizable value of the security as assessed by the bank/approved various
RBI is less than 10 percent of the outstanding in the borrowal accounts the
existence of security should be ignored and the asset should be straightaway
classified as loss cus etc. It may be either written off or Fully provided for by the
bnak.
48
-
7/28/2019 Vijaya Bank Asset
49/87
Table
Summarused RBI Guidelines for NPAs Classification and Provisioning
Classification
of NPAS
Guidelines for
classification
prior to 31-3-
2001
Guidelines for
classification
from 31-3-2001
Provisonig Norms
Sub-standard
Assets
NPAs for a
period less than
or equal to 2
years
NPAS for a
period less than
or equal to 18
months
10% of outstanding
principal plus entire
outstanding interest
Doubtful
Assets
NPAS for a
period
exceeding 2
years
NPAS for a
period
exceeding 18
months
For advance not covered
by realizable securities.
Provide @ 100% of
advances for advances
covered by realizable
securities provide at
120% of advances. I
doubtful for below 1 year
30% of advances if
doubtful for 1-3 years
50% of Advances if
doubtful for 3 and above
3 years
Loss Assets Which are
identified as
lost by the bank
Which are
identified as
lost by the bank
Write off entire assets or
provide @ 100%
49
-
7/28/2019 Vijaya Bank Asset
50/87
or auditors or
By RBI on
inspection
or auditors or
by RBI on
inspection
Standard
Assets
Which are not
NPAS but has
business risks
Which are not
NPAS but has
business risks
A minimum of 0.25% on
Global portfolio but not
onDomestic portfolio.
Summarized RBI Guidelines for NPAS Recognition
Loans and Advances Guidelines applicable
From 31-03-2001
Guidelines applidable
from31-03-2004
Term loan interest and/or
installment remains over due
for more than
180 days 90 days
Agricultural loan interest and/or
installment remains over due
for
Two harvest seasons
but not exceeding two
2 half years
Two harvest seasons
but not exceeding two
2 half years
Other accounts only amount to
be received remains over due
for more than
180 days 90 days
Magnitude of Gross NPAS as on 31st
50
-
7/28/2019 Vijaya Bank Asset
51/87
Scheduled Commercial
Banks
1999 2000 2001 2002 2003 CAGR
%
Total Gross NPAS 58722 60408 63741 70861 68714 3.19
Total Gross Advance 39943
6
475113 55876
6
68095
8
77804
3
14.26
Gross NPAA as %
Gross Advances
14.7 12.7 11.4 10.4 3.8
Total Net NPAS 28020 30073 32461 35554 32764 3.18
Total Net advances 36701
2
44429
2
52632
8
64585
9
74047
3
15.07
Net NPAS as % of Net
Advances
7.6 6.8 6.2 5.5 4.4
Gross NPAS (Rs in Cross) Expressed as % 8 Gross Advances as on 31 st
March.
51
-
7/28/2019 Vijaya Bank Asset
52/87
Scheduled
Commercial
Banks
1999 % 2000 % 2001 % 2002 % 29003 %
Public
sector
Banks
51710 15.9 53033 14.0 54672 12.4 56473 11.1 54087 9.4
Old Private
Sector
Banks
3773 13.0 3815 10.8 4346 10,9 4851 11.0 4568 8,9
New
Private
Sector
Banks
871 5.7 746 4.1 1617 5.1 6811 8.9 7232 7.6
Foreign
Banks
2201 7.0 2614 7.0 3106 6.8 2726 8.4 2829 5.2
Total 58555 14.6 60408
q
12.7 63741 14.4 70861 10.4 68714 8.8
Gross NPAs and Gross Advances of Commercial Banks at 31st March (Rs
in Crores.)
52
-
7/28/2019 Vijaya Bank Asset
53/87
Sl.
NO.
Classification 1999 % 2000 % 2001 % 2002 % 2003 %
1 Gross NPAS 58722 14.7 60840 12.8 63963 11.4 70953 10.4 68780 8.8
1.1 Substandard
Asssets
19928 5.0 19594 4.1 18206 3.3 21382 3.1 20078 2.6
1.2 Doubtful assets 31350 7.8 33688 7.1 37756 6.8 41202 6.0 39731 5.1
1.3 Loss Assets 7444 1.9 7558 1.6 8001 1.4 8370 1.2 8971 1.2
2 Standard Assets 34071
4
85.3 41491
7
87.2 49471
6
88.6 60997
2
89.6 70926
0
91.2
3 Total Gross
Advances (H2)
39943
6
100 47575
7
100 55867
9
100 68062
5
100 77804
0
100
53
-
7/28/2019 Vijaya Bank Asset
54/87
MANAGEMENT OF NPAS IN VIJAYA
BANK R.S. ROAD, SHIMOGA
INTRODUCTION
Deposits
Loan & Advances
Standard Assets
Sub-standard Assets
Loss Assets
Rate of NPAs
Recovery measures
54
-
7/28/2019 Vijaya Bank Asset
55/87
MANAGEMENT OF NON-PERFORMING ASSETS IN
VIJAYA BANK, R.S.ROAD, SHIMOGA
INTRODUCTION:
In terms of guidelines of Reserve Bank of India, advances are classified as
Performing and non-performing Assets based on recovery of principal/Interest.
However, Government guaranteed accounts and state Government guaranteed
accounts where the guarantees are involved and not paid unto 180 days in spite
of default in the payment of principal/interest; continue to the classified as
performing Assets. Further if such accounts remain unpaid by the State
Government for a period of more than 180 days then those accounts becomes
non-performing advances.
After pushing its NPA (Non-performing Asset) ratio to below one percent,
Vijaya Bank is now aiming to push. The ratio further down in the coming, year,
addressing the shareholders at the annual general meeting. The bank chairman
and managing director M.S. Kapur said The money which has been lent is your
money and we have to do all we can to ensure that these funds are returned
Vijaya Bank managed to bring down its NPA ratio to below one percent level I
n2003-2004 at 0.91 percent from the previous years level of 2.61 percent. Now,
during the current year. The bank is hoping to push it further down. According to
Kapur the recovery procedures adopted by the bank had yielded good results and
added that the level of NPA Coverage had also gone up to 73 percent.
The banks fourth AGM attended by over 2,000 shareholders, was also the
first for many who had acquired the shares during the Second Public issue, The
issue which came out in 2003 was oversubscribed by over 17 times. The bank
55
-
7/28/2019 Vijaya Bank Asset
56/87
has declared a divided of 25 percent (including) 10 percent interim dividend] for
the year 2003-04.
Commenting on the banks future performing, Kapur Said bank is eying a
business of Rs. 43,000 Corer with deposits accounting for Rs. 28,000 Corer. The
bank plans to set up 47 new branches to its existing network strength of over 800
branches. Some of its long-term plans include fray into international market for
business growth.
FINANCIAL POSITION OF VIJAYA BANK
(SHIMOGA. R.S. ROAD BRANCH)
Vijaya Bank has performed creditably during the year 2006-07. The year
has been the profitable year for the Bank since its inception in the banks balance
sheet as on 31-03-2007 and the profit and Loss Account for the year ended
31/03/2007 are furnished in annexure. The highlights to the banks performance
are given below.
DEPOSITS:
The deposits of the Vijaya Bank increase since from earliest years of its
working as the confidence of the customers increases. The Vijaya Bank receives
deposits from the customer through the following accounts.
Saving Bank Account
Fixed Deposit Account
Recurring Deposit Account
56
-
7/28/2019 Vijaya Bank Asset
57/87
Following is the table shown the total deposits deposited by the Customer during
the year 2001 to 2002 to 2006-07.
Sl. No. Years Deposits
1 2003-04 15,80,00,000
2 2004-05 18,00,60,000
3 2005-06 20,08,60,000
4 2006-07 22,00,00,000
57
-
7/28/2019 Vijaya Bank Asset
58/87
Graph shown the total deposits deposited by the Customer during the year
2001 to 2002 to 2006-07.
0
50000000
100000000
150000000
200000000
250000000
2003-04
2004-05
2005-06
2006-07
58
-
7/28/2019 Vijaya Bank Asset
59/87
LOANS AND ADVANCES:
Vijaya Bank not only accepted Deposits from the customer but also
providing loan to smaller traders Businessman, Industrialists, students etc, at a
reasonable rate of Interest. The Bank lends the loans who provide the detail
documents and security.
Loans and advances are the most profitable of all the assets of a bank This
Assets is universally sought after by banks. This asset constitutes primary
sources of Income to the banks. Here the banker is brought into direct relation
with the public. His capacity and judgment and his usefulness to the community
is judged by the way he lend the money left with him by the depositors.
Loans and advances account for the largest part of the revenue of the
Vijaya Bank. At the time they are least liquid of all the bankers Assets. Although
they are nominally repayable on demand, it is very difficult to realize them at short
notice. A bank cannot rely upon this asset in times of emergency. A trader or a
businessman who borrows money to buy goods cannot be expected to redeem
the loan on demand or even at short notice.
59
-
7/28/2019 Vijaya Bank Asset
60/87
Following is the table Shown total loans and Advances by the Customer
during the year 2001-02 to 2006-07.
Sl. No. Years (in Rs. In Lack
Loans & Advances
1 2003-04 9,05,89,000
2 2004-05 9,75,00,000
3 2005-06 10,50,00,000
4 2006-07 13,00,00,000
60
-
7/28/2019 Vijaya Bank Asset
61/87
Pie Chart Shown total loans and Advances by the Customer during the year
2001-02 to 2006-07.
2003-04
2004-05
2005-06
2006-07
STANTARD ASSETS:
61
-
7/28/2019 Vijaya Bank Asset
62/87
These are loans which do not have any problem are less risk.
A standard asset whose interest is being restructured would not cause it to
be downgraded to sub-standard category subject to the condition that the amount
of sacrifice if any in the element of interest measured in present value terms is
either written off or provision is made to the extent of the sacrifice involved.
Following is the table shown total standard Assets in the Vijaya Bank
during the period of 2001-02 to 2006-07.
Sl.No. Year Standard Assets (Rs in
lacks)
1 2003-04 981
2 2004-2005 1008/.-
3 2005-06 1113/-
4 2006-07 1239/-
62
-
7/28/2019 Vijaya Bank Asset
63/87
Graph shown total standard Assets in the Vijaya Bank during the period of 2001-
02 to 2006-07
0
200
400
600
800
1000
1200
1400
2003-04
2004-05
2005-06
2006-07
Sub-Standard Assets:
A sub-standard asset is one which has remained NPA for a period of less
than or equal to 12 months.
63
-
7/28/2019 Vijaya Bank Asset
64/87
A General provision of 10 percent on total outstanding should be made
without making any allowance for ECGC guarantee cover and securities
available.
At times bank give loans, which are unsecured ab-initio i.e.. The loans is
sanctioned without any security. If such account become NPA and is classified as
substandard then provision of 20% would be made.
Banks are permitted to phase the additional provisioning consequent upon
the reduction in the transition period from substandard to doubtful asset from 18
to 12 months over a four year period commencing from the year ending, with a
minimum of 20% each year.
64
-
7/28/2019 Vijaya Bank Asset
65/87
Following is the table shown to sub-standard Assets during the period of 2001-02
to 2006-07.
Sl. No. Year Sub-standard (Rs inLakh) Assets
1 2003-04 9/-
2 2004-05 10.2/-
3 2005-06 11.5/-
4 2006-07 12/-
Graph shown to sub-standard Assets during the period of 2001-02 to 2006-07.
0
2
4
6
8
10
12
2003-04
2004-05
2005-06
2006-07
65
-
7/28/2019 Vijaya Bank Asset
66/87
Doubtful Assets;
An asset is classified as doubtful if it has remained in the sub-standard
category for a period of 12 months.
100 percent of the extent to which the advance is not covered by the
realizable value of the security to which the bank has a valid recourse and the
advisable value is estimated on a realistic basis.
In regard to the secured portion, provision may be made on the following
basis at the rates ranging from 20 percent to 100 percent of the secured parting
depending upon the period for which the asset has remained doubtful.
Following is the table shown to Doubtful Assets during the period from
2001-2002 to 2006-07.
Sl. No. Year Doubtful Assts
1 2003-2004 20
2 2004-2005 28
3 2005-2006 31
4 2006-2007 35
66
-
7/28/2019 Vijaya Bank Asset
67/87
Graph shown to Doubtful Assets during the period from 2001-2002 to 2006-07.
0
5
10
15
20
25
30
35
2003-04
2004-052005-06
2006-07
67
-
7/28/2019 Vijaya Bank Asset
68/87
Loss Assets:
A Loss Asset is one where loss has been identified by the bank or internal
or external auditors or the RBI inspection but the amount has not been written off
wholly. In other words. Such an asset is considered uncollectible and of such little
value that its continuance as a bankable asset is not warranted although there
may be some salvage or recovery value.
Loss Assets should be written off. If Loss assets are permitted to
remain in the books for any reason, 100 percent of the outstanding should be
provided for.
Following is the table shown the total loss Assets during the period of
2001-02 to 2006-07.
Sl. NO. Year Loss Assets
1 2003-2004 9.5
2 2004-2005 11.8
3 2005-2006 12.5
4 2006-2007 14
68
-
7/28/2019 Vijaya Bank Asset
69/87
Graph shown the total loss Assets during the period of 2001-02 to 2006-07.
2003-04
2004-05
2005-06
2006-07
69
-
7/28/2019 Vijaya Bank Asset
70/87
Rate of NPA
Banking Business is mainly that of borrowing from the public and lending to
the needy persons and business, lending involves credit risk, when the loans and
advances made by a bank or financial institution turn-out non-productive & non
rewarding they become Non-performing Assets (NPAS)
NPAs are an inevitable burden on the banking industry. Banks need to
monitor standard assets to arrest any account becoming a NPA. Today the
Success of bank depends upon the methods of managing NPAs and keeping
them within a totelerance level.
Following is the table shown the total Naps during the period of 2001-2002
to 2006-07.
Sl. NO. Year Rate of NPAS (% )
1 2003-2004 7
2 2004-2005 8
3 2005-2006 5
4 2006-2007 4
70
-
7/28/2019 Vijaya Bank Asset
71/87
Pie Chart shown the total Naps during the period of 2001-2002 to 2006-07.
2003-04 2004-05
2005-06 2006-07
71
-
7/28/2019 Vijaya Bank Asset
72/87
MANAGEMENT OF NPAS IN VIJAYA BANK
The Vijaya Bank adopted two aspects of Management of Naps they are
1. Prevention:
This involves credit appraisal and rating of borrowers, before Commitment
of loans. The Credit and relationship manager in the Vijaya Bank should be able
to carry on this. By seeking information from internal records or from the externalagencies like credit information Bureaus (India) Limited it is possible avoid
possible NPAS.
II. Remedial Management:
The Vijaya Bank use different management techniques to Cure. NPAs
probe. They are.
1. Analysis of NPAS by Sectors:
The NPAS need to be analyzed by priority and non-priority Sectors,
Agriculture, large corporate, small industries, retail borrowers, state-wise analysis
and industry, wise analysis. In Vijaya Bank 23% of NPAS are in priority sector,
while 77% belongs to non-priority sector The Industry classification suggests that
textiles. Iron and steel, chemicals. Engineering and non-ferrous metals account
for 55% of NPAS. Major portion of NPAS is from the large borrowers rather than
small borrowers. Such analysis by Vijaya Bank would help in controlling NPAS
and avoiding debt losses.
72
-
7/28/2019 Vijaya Bank Asset
73/87
2 Prevention of Slippage:
Standard performing assets must not be allowed to slip into NPAS Efforts
must be made to for up graduation of NPAS into standard assets. This calls for
credit monitoring by the banks.
The Vijaya Bank follows some up graduation guidelines are.
When the borrower makes the payment of the interest and principal arrears it may
be considered as standard asset.
In case of Sub-standard account which is subject to restructuring/rescheduling
there can be up graduation to standard asset only after on year from the date
when first interest/principal payment whichever is earlier is reviewed and the
account is operated satisfactory during the period.
Early Warming Systems:
Based Committee on credit risk management has emphasized on
establishing early warning system in Vijaya Bank. EWS should function as on
going monitoring system of loans and advances. The objectives of EWS are to
minimize the risk of loss by detecting potential distress of borrowers to enable to
initiate corrective action before the loan becomes irrecoverable and to increase
chances of recovering debt from defaulters.
4. Legal Remedies:
Legal action has been considered as last resort to recover debts by the
Vijaya Bank. In fact in the case of willful default, diversion and siphoning of funds
legal actions are the last remedies.
73
-
7/28/2019 Vijaya Bank Asset
74/87
5. Restructuring:
RBI has instituted the corporate Debt Restructuring (CDR) a new
mechanism for restructuring Viable NPAS, CDR mechanism is non-statutory by
provides for debtor creditors mutual agreement for restructuring of NPAS caused
by international or external factors.
6. Compromise Settlement:
It can be either one time settlement or negotiated settlement
a. One time settlement scheme 9OTS)
Except the NPAS caused by willful default and fraud all NPAS which have
become doubtful on 31st March, 2000 are eligible for OTS.
b. Negotiated settlement scheme announced by RBI for the first time in July 1995
enabled banks Recover old and unresolved NPAS.
7. Borrowers Special Investigative Audits:
The Vijaya Bank should have power to order Special investigative audit
of willful defaulting borrowers and of those borrowers who siphon off funds and
defraud banks. This measure will steam line working of borrowers and improve
repayment of loans.
8. Bench Marking:
For better performance of banking Sector it is necessary to have bench
marking on various parameters. Recognition of advances overdue for 90 days as
NPA is also on international bench mark.
74
-
7/28/2019 Vijaya Bank Asset
75/87
RECOVERY MEASURES:
Vijaya Bank adopted the legal Recovery measures. They are.
1. By issuing legal Notice:
The Vijaya Bank first of all issues the legal Notice to the defaulter and
taking action against them. Suppose defaulter not respond to the legal notice.
They go to court.
2. Issuing of legal notice through court:
If the defaulter not respond to the legal notice issued by bank, and then
they go through the court by issuing the notice to the defaulter.
3. Filing of Suits:
If the defaulter not responds to the legal notice the bank go to court and
filling the suits against his so, Bank follow the court decision.
4. Compromise and settlement:
If the defaulter has the interest with the compromise, Bank manager settle
the all actions and compromise with him.
Following is the table shown the Income Expenditure profit of the Bank.
Defaulter:
75
-
7/28/2019 Vijaya Bank Asset
76/87
In Vijaya Bank maximum defaulted by Educated Borrowers. Some portion
of un-educated borrowers also their, majority of the defaulter is educated
borrower.
Table shows the total number of educated Borrower defaulted by the Account are
as follows.
Borrower Rs in lacks
Students 1.35/-
Businessmen 28.23/-
Industrialist 10.65/-
Agriculturist 10.77/-
76
-
7/28/2019 Vijaya Bank Asset
77/87
Graph shows the total number of educated Borrower defaulted by the Account
0
5
10
15
20
25
30
Students
Businessmen
Industrialist
Agriculturist
77
-
7/28/2019 Vijaya Bank Asset
78/87
The Table Shows Un-educated borrower defaulted some portion.
Borrower Rs in lacks
Businessmen 18.38/-
Agriculturist 8.37/
Graph Shows Un-educated borrower defaulted some portion.
Businessmen
Agriculturist
78
-
7/28/2019 Vijaya Bank Asset
79/87
Following is the table shown the profit and loss of the Vijaya Bank during the
period of 2003-04 to 2006-07.
Sl. No. Year Income Expenditure Profit/Loss
(Rs in lack)
1 2003-2004 120 118.5 1.5
2 2004-2005 122 121 1
3 2005-2006 128 126 2
4 2006-2007 131 128 3
79
-
7/28/2019 Vijaya Bank Asset
80/87
Graph shown the profit and loss of the Vijaya Bank during the period of 2003-04
to 2006-07.
112
114
116
118
120
122
124
126
128
130
132
2003-2004 2004-2005 2005-2006 2006-2007
Income
Expenditure
80
-
7/28/2019 Vijaya Bank Asset
81/87
CHAPTER-VII
FINDING
CONCLUSION
SUGGESTIONS
81
-
7/28/2019 Vijaya Bank Asset
82/87
CHAPTER-VII
FINDING, CONCLUSION AND SUGGESTIONS:
FINDINGS
At the time of nock interview the manager of the Vijaya Bank, give
me a Informations about bank financial position and management of Naps
recovery measures and impact of NPA.
So I find that Naps have the main role in the financial position of the
bank. And I find some draw backs of NPA, and these are.
(1) It is adversely affects to the financial position of the bank.
(2) Naps also influenced by the Natural calamities.
(3) NPAS reduce the growth rate of the bank.
(4) Vijaya bank follows the legal recovery measures it is taking slow action
against customer as setout by the government assets classification
standard.
(5) Bank can not follow the RBI rules; it is effect on recovery time
(6) Bank con not offer the good security
82
-
7/28/2019 Vijaya Bank Asset
83/87
(7) Bank do not have close contact with customer
SUGGESTIONS:
In above In auctioned some of findings, relate to that I point out some
suggestions, they are.
(1). At the time of lending loans to the customers, the bank manager must enquire
the cash and every aspect of the customer.
(2). The bank manger should take the proper security from the customer while
lending the loans.
(3). Manager should have the close contact with the customer.
(4). Manager should follow the R.B.I. S prudential norms, for NPAS recovery.
(5). Manager should try to reduce the NPAS year to year.
(6). Bank should recover the NPAS through the collection agencies at the end
(7). Allow branches to use head office capital for regulatory purpose.
(8). Create an environment whereby financial institutions are required to written
down non performing loans to the lower of the market value or
83
-
7/28/2019 Vijaya Bank Asset
84/87
CONCLUSIONS:
In India, branching is a serving industry and all the banks are controlled
and guided by the RBI. The banks can frame their own techniques, or ways of
supplying the services to the customer. But they have follow the rules of RBI.
Without the NPAS we cant see anyone bank exists in the world. Whether
it is an public bank or private bank.
Totally I conclude that, the removal of NPAS is not possible in any bank,
but it try to, avoid some certain limit.
Banks have a social purpose; Banks have been entrusted with a worthy
course. Banks belongs to, the nation, the people, only through the employees.
The bank discharges its responsibilities.
84
-
7/28/2019 Vijaya Bank Asset
85/87
QUESTIONS USED IN VJAYA BANK FOR INFORMATION
. (1) Factors affecting NPAS
(2). Causes or Reasons for NPAS
(3). Impact of NPA on banking Business
(4). Steps in management of NPA
(5). measures taken before lending and after lending NPAS
(6). Stages in management of NDA
(7). Recovery measures.
(a) Legal
(b) Illegal
(8). Deposits & Advances in Vijaya Bank during 4 years.
(9). Statistics of standard Assets sub-standard Assets doubtful & Loss Assets
during the 4 years.
(10). Whether the NPA occurrence more from the educated or un-educated
(11). The Occurrence of NPAS in from the
(a) Businessmen
(b) Industrialist
(c) Agriculturist
(d) Student.
85
-
7/28/2019 Vijaya Bank Asset
86/87
BIBILOGRAPHY
Banking books
Gardon and Natrajan
Himalaya publication
Banking books
Dr.p, k.Sri Vatsal
Himalaya publication
Annual report on
Vijaya Bank . B H Road SHIMOGA
RBIS Magazines
WEBSITE
(1) Indian budget . nic.in
(2)www.bank report.rbi.org.in
(3)www.banknetindia.com
(4)www.rbi.org
(5)www.finacial express.com
(6)www.vijayabank.com
86
-
7/28/2019 Vijaya Bank Asset
87/87