vijaya bank asset

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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

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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

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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

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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

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CHAPTER-I

INTRODUCTION

Introduction

Objectives of Project Report

Scope of the Study

Methodology of the Study

Needs of the study

Limitation of the Study

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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.

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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:

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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.

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CHAPTER-2

BANKING- A THEORETICAL

PROSPECTS

Introduction to Banking

Development of Modern Banking

Function or Importance of Banking

Classification of Banker.

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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

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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.

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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.

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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

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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.

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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.

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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

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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

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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.

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VIJAYA BANK-A PROFILE

Genesis

History of Vijaya Bank

Establishment of Vijaya Banks

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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.

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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

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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

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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.

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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

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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.

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NON-PERFORMING ASSETS -A

THEORTICAL PERSPECTIVES

Introduction

Meaning of NPAs

Magnitude of NPAs

Causes of NPAs

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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.

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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.

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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.

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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.

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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.

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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.

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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

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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

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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

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[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

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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

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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

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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.

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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

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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

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RBIS PRUDENTIAL ACCOUNTING

NORMS

INCOME RECOGNITION

ASSETS CLASSIFICATION

RISK WEIGHTS

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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.

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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

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(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

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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:

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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:

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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.

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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%

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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

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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.

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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.)

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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

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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

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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

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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

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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

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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

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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.

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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

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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:

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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/-

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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.

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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.

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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

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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

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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

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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

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Graph shown the total loss Assets during the period of 2001-02 to 2006-07.

2003-04

2004-05

2005-06

2006-07

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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

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Pie Chart shown the total Naps during the period of 2001-2002 to 2006-07.

2003-04 2004-05

2005-06 2006-07

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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.

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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.

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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.

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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:

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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/-

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Graph shows the total number of educated Borrower defaulted by the Account

0

5

10

15

20

25

30

Students

Businessmen

Industrialist

Agriculturist

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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

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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

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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

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CHAPTER-VII

FINDING

CONCLUSION

SUGGESTIONS

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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

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(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

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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.

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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.

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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

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vijaya bank asset

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