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KARNATAKA STATE CO-OPERATIVE APEX BANK LTD

EXECUTIVE SUMMARYIndian banks are struggling to come out of the net of Non-Performing Assets. Banks are in the risk business. In the process of providing financial services, they assume various kinds of risks viz. Credit Risk, Market Risk, Operational Risk, Interest Risk, Forex Risk and Country Risk. Among these different types of risk, credit constitutes the most dominant asset in the balance sheet, accounting for about 60% of total assets. The credit risk is generally made up of Transaction Risk (default risk) and Portfolio Risk. The risk management is a complex function and requires specialized skills and expertise. As a result managing credit risk efficiently assumes greater significance. Some of the NPAs are excess holding of cash balance, bad and doubtful debts, deteriorating assets and interest on loans and advances that are doubtful to be realized. The Gross NPA of the apex bank is a percentage to the gross advances total assets of apex bank is less when compared to other banks. Recovery mechanism of NPA includes regular follow-up, replacement of loan, rehabilitation of potentially viable unit, acquisition of sick units by healthy units, recovery of advances given under government sponsored schemes and settlement of claims. Recovery mechanism of NPA includes calling up to advances and filing of civil suits, approaching to debt recovery tribunals, establishment of asset recovery branches, lok adalats and one- time settlement scheme by RBI. The analysis conducted in this project consists of following aspects: The functions performed by the banking industry a general study in industry profile. Overviews of the functioning of Indian bank that is the company profile of the bank. Another aspect of the study is the problem area that involves the study and analysis of NPAs at apex bank.


The study of non- performing asset management at Apex bank gives details of the Gross NPA no and Net NPA of the bank, which is least among the present co-operative banks. The strategies of reducing performing assets including prevention through better appraisals, prevention through better follow up, replacement of loans, merger or acquisition of sick units by healthy units, recycling of funds, filing of civil suits, debt recovery tribunals and recovery of advances given under government sponsored programs or schemes. Banks should take advantage of mergers and acquisition of sick units in order to reduce the NPAs. a large number of compromise proposals are being approved by the institutions with the view of reducing NPAs and recycling of funds instead of restoring to expensive recovery proceedings spread over a long period of time.


CHAPTER-1 1.1INDUSTRY PROFILEBanking is as old as civilization itself, initially banking meant money lending. The business of banking existed in Babylonia as early as 2000 BC. The Babylonians developed a banking system where money was lent in temples against the security of Gold and Silver left with them for safe custody. In ancient Greece around the same time, there existed banking business. Even then temples were used as depositories for the surplus funds of the people and were also used as centers of the money lending business. The priests acted as financial agents of the money lending business. The practice of granting credit existed in ancient Rome. The Romans adopted Greek system of banking. The banking business had a set back after the death of the emperor JUSTINIAN in 565A.D. With the advent of trade and commerce in the middle age, the banking business was mostly confined to only money lending. The JEWS and LAMBARDY dominated the money lending business in the medieval period. The Christians were forbidden by their religion to indulge in money lending. However in the course of time with the weakening of the hold of religion and with the development of trade and commerce around the 13th century, the Christians also entered the field of money lending. Banking business originated in England during the reign of Queen Elizabeth I. Goldsmiths mainly did banking business. They accepted the valuables and the funds of their customers for safe custody and issued receipts against the valuable lest for safe custody. But in the course of time their receipts became payable to barrier on demand. The banking business suffered a setback during the reign of Charles II in 1640 who declined to return the funds and valuables deposited by the Goldsmiths with the exchequer under the case of government. This led to the growth of private banking and also the establishment of

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD the Bank of England in 1694. Money banking system developed only after the industry resolution.

1. Banking business in ancient times. The ancient Hindu Scripture refers to the prevalence of money lending activities in the Vedic period. The epics Ramayana and Mahabharata refer banking business as full fledged activity. During the Smriti period, which followed the Vedic period the members of the Vaish community largely carried on banking business. In ancient times banking business was mainly in the form of money lending. It laid a strong foundation for banking industry. 2. Banking in pre-independence period During the pre-independence period, Indigenous Banking and Money Lenders primarily carried on banking business. Farmers main sources of loans were indigenous bankers and money lenders, even to the present times especially in rural and urban areas. Indigenous bankers have been operating in India since the ancient times mainly in small towns, semi urban areas and rural areas. Indigenous banking is carried on by all castes of people, but it is generally monopoly/ed by certain banking caste such as Shroffs in Maharashtra, Seths in West Bengal, Baniyas in Uttar Pradesh, Sahukars in Punjab, Chettiars in Tamil Nadu, Marwaries and Jains in Rajasthan and Gujarat. 3. Development of Indian banking industry in the post independence period During the pre-independence era Indian banking industry had to pass through several economic crisis and bank failures. But with India attaining independence the banking situation has completely changed. Some of the developments during the post independence period until today are: y y The nationalization of Reserve Bank of India on 1st January 1949. The passing of the banking regulation act in 1949.

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD y The nationalization and conversion of the Imperial Bank of India into the State Bank of India on 11th July 1955. y The nationalization of 14 major commercial banks on 19th July 1969 and the future nationalization of 6 commercial banks on 15th April 1980. y Establishment of Regional Rural Banks to cater to the needs of rural areas. About 196 rural banks are catering to the needs of rural people. y Setting up of Land Development Banks to cater to the long-term credit needs of agriculturists. y Setting up of special financial institutions for meeting the specialized need of certain sectors of the economy. Some of the specialized institutions are: Industrial Development Bank of India (IDBI). Industrial Credit and Investment Corporation of India (ICICI). State Financial Corporation (SFC). Industrial Development Corporation (IDC). Small Industries Development Bank of India (SIDBI). Industrial Bank for Reconstruction and Development (IBRD). National Bank for Agriculture and Rural Development (NABARD). Export Import Bank of India (EXIM). Export Credit Guarantee Corporation of India. The National Housing Bank. Present Banking Scenario The Indian Banking System of today can be compared with finest banking system in the whole world. Today the Indian banking system is on very sound lines with a network of branch

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD spread all over the country and serving all sections of the society with innovative banking programs. Todays Indian banking system comprises of 27 public sector banks, 30 private sector non schedule commercial banks, several private sector new commercial banks, 27 foreign schedule banks, 196 regional rural banks, several thousands co-operative banks and several land development banks. Institutions like Life Insurance Corporation of India and Unit Trust Bank of India also plays an important role in Indian banking system. With the liberalization of the economy in 1991 the banking sector has undergone a revolution. Foreign banks are based in India and this has led to further improvement and sophistication of banking service due to competition. Definition: The Indian banking regulation act of 1949 has aptly defined the term Banking in section 5(1) (B) as accepting for the purpose of lending or investments of deposits of money from the public, repayable on demand or otherwise and withdraw able by cheque, draft, order or otherwise Banking Structure or Banking System in India The constituents in the banking sector of India are 1. The Reserve Bank of India 2. The State Bank of India and its Subsidiaries 3. The Nationalized and the Private Sector Indian Commercial Banks. 4. The Private Sector Foreign Exchange Banks in India 5. The Co-operative Banks and the Land Development Banks 6. The Regional Rural Banks. Indian Commercial Banks Banks that carry on commercial banking operation such as acceptance of deposits from the public, repayable on demand or alter a short period and the granting of short term credit

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD mainly to trade, commerce and industry with a wide network of branches throughout the country. Commercial banks can be classified as 1. Public Sector Banks 2. Private Sector Banks

Co-Operative Bank Structure


RBI

National Bank of Agriculture and Rural Development

STATE CO-OPERATIVE APEX BANK

Agricultural Credit CoOperative Banks

Non Agriculture Credit Co-Operative Banks

Urban Credit CoOperative Banks

Short term Lending

Long term Lending

Housing Banks Urban Banks Employee s Credit Societies

State Level

State Land Bank

Industrial Co-Operative

Consumer Co-Operative

District Central

Credit

Non-Credit

Primary Land Development Bank FSS

Land Mortgages Bank Grain Bank Primary Co-Operative Bank

MP Co-Operative Bank


CHAPTER-2 1.2COMPANY PROFILEThe Karnataka State Co-Operative Apex Bank Limited has been playing a very significant role in the dispensation of production, credit to the farmers. It is to the credit of Karnataka, that the first co-operative credit institution in the entire country was established way back in the year 1904 in a village called Kanaginahal now at Gadag district. Primary Agricultural Credit Society (PACS) at the village level federated later to District Central Co-Operative Banks (DCCBs) at the district level. These DCC banks federated themselves at the state level to form Apex Bank. The Karnataka State Co-operative Bank was established in the year 1915 and the late Varadaraja Iyengar has been its founder president. It made a humble beginning with a working capital of Rs.1.80 lakh comprising of Rs.1.26 lakhs as deposits. Over 90 years, the institution has grown by leaps and bounds and today its working capital is Rs.4718.28 crores with deposit level of Rs.2264.14 crores and own fund of Rs.265.91 crores. The bank has earned Rs.13.35 crores. Apex bank is a pioneer in agriculture finance and allied activities. Apex bank is ranked as one of the premier state co-operative banks in the country. The main objectives of the bank are to serve the farmers in the state by providing short term and long term agricultural loans, general banking business and function as a leader of the co-operative banks in the state.

NATURE OF BUSINESS The business carried by the bank is generally related with providing short term and long term agricultural loans. It also accepts deposits from the public. Apex bank also provides loans to processing, marketing and consumer co-operative as well as sugar factories in Karnataka and working capital loans to state and national level institutions.


HISTORY AND GROWTH OF THE INDUSTRY:The banking system is an integral part of the financial sector of our country. Therefore, the role of banking in our economy must be seen in the context of its fundamental role in the entire financial sector. The financial sector plays a major role in mobilization and allocation of savings. Financial institutions, instrument and markets which constitutes the financial sector act as a conduit for the transfer of financial resources from net savers to the net borrowers, i.e. from those who spend less than they earn more than they spend.

Origin of bankingThe word Bank has been originally derived from the Italian word 'Banco' meaning a bench. In olden days money lenders used to exhibit the coins of different countries on a separate bench and the business of exchanging the coins were carried on through those money lenders, especially in Greece, Italy and England. Whenever these moneylenders were not in a position to convert the currency of one country into the currency of another, people virtually broke up their benches. Hence, the word 'Bankrupt'. The word Bank has also originated from German word 'Bank', meaning thereby a joint-stock fund, collected from public for the purpose of financing the needy people.

Evolution of banking in IndiaBanking is known in India since ancient times. It originated in our country as early as 600 B.C. References are found in the early Vedic literature of deposits, pledges, loans and rates of interest. However, banking in those days consisted mainly of money lending activities. Commercial banking of modern lines was started in India only during the nineteenth century. Earlier in British India, mainly the employees at the East India Company established banks and they were called the Agency Houses. It is these 'Agency houses' which paved the way for the establishment of Joint Stock Bank to be established in India. The Bank of Hindustan was the first Joint Stock Bank to be established in India under European Management. But soon it failed.

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD Later three Presidency Banks were started with financial position of the Government. These Banks were the Bank of Bengal, The Bank of Bombay and the Bank of Madras. The Commercial Bank was perhaps the first purely Indian Joint Stock Bank to be established in 1889. Later the Punjab National Bank in 1894 and the people Bank in 1901 were established. The Swadeshi Movement in 1905 gave a real stimulus to the development of Indian Bank. The Bank of India was started in 1906, the Indian Bank in 1907, the Bank of Baroda in 1908 and the Central Bank of India in 19 11. However, the banking arises of 1913 hit hand many of the banks. In 1922 the banking industry witnessed many bank failures. It is only in recent years, such bank failures have been prevented and stability restored. In 1935, the Reserve Bank of India, which is acting as the Central Bank of our country, was established.

Banking system in IndiaThe Banking system plays an important role in the economic development of the country. Indian Banking system is characterized by the present of wide variety of institutions. At the top of the banking systems there is the Reserve Bank of India which is the Central Bank of our country. There are 28 Public Sector Banks in India. The Banking scene is dominated by Public Sector Banking. "Nearly the Public Sector Banking controls 25% of banking resources of the country. Two more apex institutions in the field of agriculture and exports respectively have also been established. They are. THE NABARD (National Bank for Agriculture and Rural Development) and EXIM Bank (Export Import Bank of India). In the sphere of Industrial Finance, we have specialized financial Institutions such as 1FCI. IBRD, ICICI, SFC and SDC. Agriculture finance is provided by Cooperative Banks and Regional Rural Banks.


HISTORY OF CO OPERATIVE BANKING IN INDIA.The Beginnings The Co-operative movements was started in India in 1904 with the object of providing finance to agriculturists for productive purpose at low rates of interest and thereby relieving them from the clutches of the money lenders. A large number of agricultural credit Societies were set up in the villages under the Co-operative Societies Act of 1904. The Co-operative Societies Act of 1912 contributed to the establishment of Central Co-operative Banks and the State Cooperative banks to provide refinance to primary credit societies which could not mobilize funds by their own efforts. It gave stimulation to the co-operative credit movement in India. The Co-operative credit movement made good progress during and after the First World War of 1914-1918. But during the great depression of 1929-1933 it received a serious setback with the outbreak of Second World War between 1939-1945. The Co-operative Credit movement made considerable progress once again. By that time, the Co-operative Credit institutions had increased their membership had gone up and their deposits and advances also had increased considerably. Since then the progress had been maintained thanks to the keen interest shown by the Reserve Bank of India in the co-operative Credit movement.

DEFINITION AND MEANING OF CO-OPERATIVE BANKINGA CO-OPERATIVE BANK is a co-operative organization engaged in the banking functions of acceptance of deposits and lending credits.

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD The Co-operative banks and Societies perform an important role in meeting the requirements of people in the rural areas Co-operative banks and district entities by themselves with separate jurisdictions and independent board of directors. The Co-operative banks are organized on a Cooperative basis and one governed by their members according to the Co-operative laws. They are under the control of respective State government certain provisions of the banking regulation act also applied to co-operative banks in India are federal in their structure

AIMS OF CO-OPERATIVE BANKS To promote savings among members and thereby increase the supply of funds. To tap outside sources for the supply of funds. To promote the effective use of credit and to reduce the risk in the granting of credit. To reduce the cost of management through the honorary services.

MERITS OF CO-OPERATIVE BANKING:Co-operative banks play a very significant role in rural banking. The significant role of cooperative banks is owing to the following reasons Co-operative banks have a rural touch They are familiar with the rural problems They have attitudinal! identification with rural economy The cost of operation of co-operative banks is relatively low

Co-operative Banking has thought the agriculturist to borrow at the right time in right amount and for right purposes. Co-operative banking is widely accepted as the only means of eradicating poverty and realizing the standard of living of rural masses

Co operative banking in India

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD Co operative banking in India has made substantial progress in dissemination of banking services based on co-operative principles. In view of the special thrust on financial inclusion, cooperative banking has acquired renewed significance in the Indian financial system. The focus of the recent policy measures, therefore, has once again shifted to the strengthening of cooperative banking in India. The review of the problems of rural cooperatives by the Task Force (2004) constituted by the Government of India and the Vision Document on urban co-operative banks (UCBs) released in March 2005 by the Reserve Bank, have provided a fresh framework with practical and implement able arrangements to rejuvenate the Indian co-operative banking structure. The emphasis of the recent initiatives has been to revitalize these institutions for reinstating the confidence of the public in the co-operative banking system. While designing the regulatory and supervisory framework, care is being taken to preserve their co-operative character and institutional specifics. The co-operative banking structure in India comprises two main components, viz., urban cooperative banks and rural co-operative credit institutions. While urban co-operative banks have a single tier structure, rural cooperatives have a complex structure. Rural cooperative credit institutions have two distinct structures, viz., the short-term co-operative credit structure (STCCS) and the long-term cooperative credit structure (LTCCS). Within the STCCS, primary agricultural credit societies (PACS) at the village level form the base level, while district central co-operative banks (DCC Banks) are placed at the intermediate level, and the State co-operative banks (STCBs) at the apex level. The STCCS mostly provide crop and other working capital loans primarily for a short period to farmers and rural artisans. The longterm structure of rural co-operatives comprises State co-operative agriculture and rural development banks (SCARDBs) at the State level, and primary co-operative agriculture and rural development banks (PCARDBs) at the decentralized district or block level. These institutions focus on providing typically medium to long-term loans for making investments in agriculture, rural industries, and lately housing. The structure of rural co-operative banks is not uniform across the States of the country, and varies significantly from one State to another. Some States have a unitary structure with the State level banks operating through their own branches, while others have a mixed structure incorporating both unitary and federal systems.

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD Given the significant role played by urban co-operative banks in providing banking services to the middle and lower income people, the Reserve Bank continued to take initiatives to strengthen these banks. In June 2004, it was decided not to issue fresh licenses for setting up new banks or for opening new branches, until a suitable framework for regulation and supervision was put in place for the existing UCBs. In March 2005, the Reserve Bank prepared a draft Vision document for UCBs which, inter alia, discussed the problems of the sector and highlighted the issue of dual regulatory mechanism which restricted the ability of the Reserve Bank in handling the weaknesses of entities in the sector. In order to address the problem of dual control, Vision document proposed the adoption of a consultative approach for deciding the future set up of weak and sick banks in each State. In terms of the Vision document, the Reserve Bank approached the State Governments for signing MOU to ensure greater convergence of approach of the two agencies entrusted with the regulation and supervision of UCBs. As part of the MOU, it was decided to set up State level Task Force for Co-operative Urban Banks (TAFCUBs) comprising representatives of the Reserve Bank. State Government and federation/association of UCBs. The TAFCUB was entrusted to identify the potentially viable and non viable UCBs in the State and provide a revival path for the former and anon-disruptive exit route for the latter set of banks. The exit route could include merger/amalgamation with stronger banks, conversion into societies or ultimately as a last resort, through liquidation. Till date MOUs have been signed with 13 State Governments and Central Government (in respect of multi-State UCBs), which encompass 1,511 UCBs, i.e., 83 per cent of the banks representing 92 per cent of deposits of the sector. The impact of the initiatives in the recent past is perceptible as there is enhancement of public confidence in the sector which is reflected in the increase of deposits during 2006-07 and 2005-06, reversing the declining trend of 2004-05.


TYPES OF CO-OPERATIVE BANKS Structure of Co-operative Credit Institutions in India

Co-operative Credit Institutions

Urban Co-operatives Banks

Rural Co-operative Credit Institutions

Scheduled UCBs

Non-Scheduled UCBs

Short-Term

Long-Term

Multi State

Single State

State Co-operative Banks

District Central Cooperative

Primary Agricultur al Credit Societies

Multi State

Single State PCARDBs Single District Multi District SCARDBs

Unit UCBs

Non-Unit UCBs

SCARDBs: State Co-operative Agriculture and Rural Development Banks. PCARDBs: Primary Co-operative Agriculture and Rural development Banks.

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD The following are the steps taken by the Government of India to regulate Banking Institutions in the country: y y y y y y y y 1949: Enactment of Banking Regulation Act. 1955: Nationalization of State Bank of India. 1960: Nationalization of SBI Subsidiaries. 1961: Insurance cover extended to deposits. 1969: Nationalization of 14 major banks. 1971: Creation of credit guarantee corporation. 1975: Creation of regional rural banks. 1980: Nationalization of seven banks with deposits over 200crores.

In third new phase of Indian banking with the advent of financial and banking sector reforms, introduced many more products and facilities in the banking sector. In1991Under the chairmanship of M.Narasimham, a committee was set up by his name which worked for liberalization of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory to customers.

2.1 BACKGROUND AND INCEPTION OF THE COMPANYThe Karnataka state co-operative Apex Bank limited has been playing a very significant role in the dispensation of production, credit to the farmers. It is to the credit of Karnataka, that the first co-operative credit institution in the entire country was established way back in the year 1904 in a village called Kanginahal now at Gadag district. Primary Agriculture Credit Society (PACS) at the village level federated later to District Central Co-operative Banks (DCCBs) at the district level. These DCC banks federated themselves at the state level to form Apex Bank. The Karnataka State Co-operative Bank was established in the year 1915 and the late VaradarajaIyengar has been its founder president. It made a humble beginning with a working capital of Rd 1.26 lakhs as deposits. Over 95 years, the institution has grown by leaps and

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD bounds and today its working capital is Rs. 6437.25 crores with deposit level of Rs. 3892.41 crores and fund of RS. 348.67 crores. The bank has earned Rs 19.50 crores. Apex bank is a pioneer in agriculture finance and activities. Apex bank is ranked as one of the premier state co-operative banks in the country. The main objectives of the bank are to serve the farmers in the state by providing short term and long agricultural loans, general banking business and function as a leader of the co-operative banks in the state.

2.3 VISSION:y As a state co-operative bank, Apex bank shall be a dominant financial institution in the state, leading the state to economic prosperity. y They shall be the model of an effective, protective, dynamic and financial sound organization, respectively to state goals and aspirations. y They shall maintain highly trained and motivated professionals committed to the highest standards of ethics and excellence. y They shall contribute to building progressive and standards of cooperative societies in the service of farmers and rural mass.

MISSON:Ensuring the best quality of life and success of farmers, primary agricultural Co-operative Societies, District Central Co-operative Banks, clients and employees. y For Farmers:

Apex Bank shall continue to improve their socio-economic status through timely financial agricultural activities support for agricultural activities. y For Clients:

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD Apex Bank shall deliver innovative and advance products and services in effective manner to meet their local demands. y For PACS and DCC Banks: protective and

Apex banks shall ensure mutual co-operation and complement action to achieve optimum gains in an environment of trust and confidence. y For Our Employees:

Apex Bank shall ensure a work atmosphere of mutual respect and teamwork within by a system of recognition and regards. Banks shall continue to provide appropriate training and value enhancement to ensure the highest degree of professionalism and integrity. Apex Bank shall hold our organization composed of highly competent people driven by superior technology. y For the People of Karnataka:

Apex Bank commits our unwavering loyalty and dedicated service in the pursuit of state interest.

QUALITY OBJECTIVE:y To serve as a state co-operative bank and as a balancing centre in the state of Karnataka for registered co-operative societies. y To raise funds by way of deposits, loans, grants donations, subscription, subsidies etc. for financing the members by way of loans, cash credits, overdrafts and advances. y To develop, assist and coordinate the members DCC Banks and other co-operative societies and secure financial assistance for them. y To arrange/ hold periodical co-operative conferences of the DCC Banks and other members of the bank and to take action for the growth and development of the cooperative credit movement.

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD y Financing of short-term loans to seasonal agricultural operation and marketing of crops repayable within one year. y Advancing Cash credit loans to meet working capital for processing. Marketing and consumer co-operative including co-operative Sugar Factories in Karnataka.

OBJECTIVES OF THE KSC APEX BANK LTD.y Helping farmers to get irrigation, dairy, poultry facilities and advancing working capital loans to national level co-operative. y Financial to non-form sector for development of cotton industries rural artisans and weavers. y Bank carries all the banking transaction like remittances of funds by demand drafts, mail transfer, collection of cheques and drafts, issue of consumer loans, vehicle loans, housing loans, salary earners loans and gold loans etc. y Bank monitors the inland mutual arrangement scheme under which money remittances and cheques are facilities between members banks. y y Establishing banks presence in all the District of Karnataka. The main objective of the bank is to serve the farmers in the state by providing short-term and long-term agricultural loans.

2.4 PRODUCT/ SERVICES PROFILE:The Karnataka state co-operative Apex Bank Limited provides following services to the societies: y y Financing of kissan credit card scheme/loan Credit facilities to self-help groups. Advancing medium term loans economic development and providing cash loans

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD y y y Advancing workshop capital loans Loans through various schemes Personal banking

SERVICES PROVIDED BY THE BANK IN DETAIL:Short term loans: Financing of short term loans for seasonal agricultural operations and for marketing of crops, These loans are repayable within one year. Medium term loans: These loans area sanctioned for agricultural purpose and non-agricultural purpose. Kissan credit card schemes/loan: Kissan credit card aims at providing timely and adequate credit support to farmers for their cultivation including investment credit needs in a flexible and cost effective manner. All DCC banks in the state have implemented the kissan credit scheme. Credit facilities to self help groups: All the DCC Banks have taken keen interest in the formation of self help groups in co-ordination with PACS. Self help groups mobilize their savings and avail facilities from DCC Banks and PACS. Advancing medium term loans with economic development: These loans are advanced for the agricultural infrastructures such as lift irrigation, diary, poultry, plantation; gobar gas etc. that constitutes schematic lending. Cash credit loans:

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD Providing cash credit loans to processing marketing and consumer co-operatives as well as sugar factories in Karnataka and also term loans to sugar factories under consortium agreement. Working capital loans: Advancing working capital loans to state level co-operatives like CAMPCO, MARKFRED, and KCCF and to the national level co-operatives like IFFFCO and KRIBHCO. The bank provide similar facilities to public sector undertakings like Karnataka Silk Marketing Board, Karnataka Handloom Development Corporation, Karnataka Small Scale Industries Development Corporations, Food Corporations of India directly and also through consortium arrangements through commercial banks. Collection of Cheques and Drafts: The bank extends to the non-farm sector and to the development of cottage industries, small scale industries and rural artisan wavers. It is a scheduled bank in all aspects including remittance of funds, demand drafts, mail transfers, collection of cheques and drafts. Loans through various schemes: Such as: Vehicle loans, Housing loans, Mortgage loans, Instalment loans, Jewel loans, Other loans. Personal Banking: Apex bank provides the following deposit schemes to the customers: Fixed Deposits: In this account, the customer deposits money period up to 10 years. Current Deposits: In this type, the individuals or businessmen operate. This account is kept open for the entire day. The customer can make any number of deposits and withdrawals in a day during business hours.

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD Saving Bank Deposits: In this deposit, the low income class groups and marginal customer deposits the money.

2.5 AREA OF OPERATION:Apex bank works in the regional level only. It does not work in national level. The area of operation covers the entire Bangalore. It has 31 branches in Bangalore and head quarter is situated in Chamarajapet. The branch offices of bank are adequately delegated with power of sanction of disbursements. If the loans are to be provided up to 10 lakhs it is handled by concerned branch offices but if it is more than 10 lakhs then it is handled by concerned branch offices but if it is more than 10 lakhs then it is handled by main branch. BRANCHES AT BANGALORE: y Head office Branch - Chamarajapet. Ashoka pillar. Jayanagar Market complex Banashankari Basaveshwaranagar Jayanagar 9th Clock J.P.nagar Padmanabhanagar Public Utility Building Girinagar Kalpathru super Bazaar Gokula Koramangala R.P.C Layout Vivekananda College Gandhinagar Kengeri Satellite Town Agara-HSR Layout Indiranagar Lakkasandra Magadi Road VidhanaSoudha Legislators Home Vijayanagar R.T Nagar Rajajinagar Chandra Layout Mahalakshipuram Vyalikaval Ganganagra M.S Building

2.6 OWNERSHIP PATTERN:

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD The bank classifies its shareholders into 6 types such as A, B, C, D, E and F class. The facevalue of shares under each class is different from others. A class shares are alone having the Voting Rights. B, C, and D classification have an option to participate in Company Meeting. E category shares are the shares held by the members other than A, B and D classification. F classification is very general type since it doesnt have Voting Rights and participation in Company Meetings, but the face value of shares in this category is less compared to others.

SHARE CAPITALClassification summary as on 31-03-2010 Classification Sl.NO 1 2 3 4 Type A DCC Banks B KSUBF C State Government D State & national level cooperative institutions other than B 5 E Co-operative institutions other than A, B, D 6 F Associate/Nominal members Total 33 101 10,000 7,13,80,000 81,24,07,700 9 50,000 16,20,600 No. of members 21 1 0 37 Face value of shares 1,00,000 1,00,000 1,00,000 1,00,000 Shares Amount 73,26,50,000 1,50,000 0 66,07,100

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD For sanctioning of loan from the bank, each member has to keep some fixed percentage of loan amount in the shares of the Bank. For Cash Credit 1%, for Agriculture Loan 2.5%, for NonAgriculture Loan 5% has to be kept in shares of the Bank.

2.7 COMPETITORS INFORMATION:The major competitors are: Land Bank (agricultural based finance), Amanath Scheduled Co-operative Bank, Sham RoaVittal Co-operative Bank, Commercial Banks, Small Industrial Service Institution, Small Industries Development Bank of India, Corporate Banks, Some local Co-operative Banks.

2.8 INFRASTRUCURAL FACILITIES:The new administrative building at a around Rs.800 lakhs completed in 2002 provides additional impetus to a new culture and new mind set of all. The gigantic building with granite cladded facade having circular and rectangular columns suggesting strengths and stability reflects the character of the organization. This four storied block caters mainly to the administrative requirements of the bank along with hi-tech banking hall on the ground floor. The architects M/s Zechariah consultants effectively conceptualize the vision of the corporate head office floated by the Directors of the Board. The built up area of UTHUNGA HAS BEEN 67,820 Sq. ft. the civil cost has come to Rd. 888 per sq. Ft. And interiors all inclusive worked out at Rs.357 per sq. Ft. The believe that their members are always behind them not only to encourage but also to guide them in case they go wrong. They are grateful to them. Similarly they are grateful to the Government of Karnataka, RBI, NABARD and all other sister co-operative in the state for what they are today.

2.9 ACHIEVEMENT/ AWARDS:

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD 1) Bank is able to lend 75% of the farmers in the state and it covers all sugar factories in Karnataka. 2) Apex Bank is habituated to get awards at National levels year after year. Similarly. NABARD has been giving best performance award and even PACS have not have logged behind in getting National recognition. All DCC banks and merely 80% of PACS have proved themselves to be financially viable. 3) Nearly 40% of the loans have been advanced to weaker sections/SC/ST and agricultural labourers. 4) RTGS (Real Time Gross Settlement) system has been implemented in view of speedy transfer of funds. 5) Bank has entered an agreement with Oriental Insurance Company Ltd., to sell various insurance.

2.10 WORK FLOW MODEL (End to End)Loanee should pay interest plus principle every month If loanee fails to payInterest with principle

up to 3 months

Then bank will treat loan amount as NPA

And next bank will send a final notice to loanee and introducer


Next bank files a case against both the parties Next the court announce the property of parties should be under taken from the bank If both the parties have no such property or assets then court will announce them as insolvent Then bank will consider loan amount as bad debts not recovered

2.11 FUTURE GROWTH AND PROSPECTS1. The bank has introduced Apex Gold Savings Bank A/c for extending Group Insurance coverage through branches to its customers. 2. In order to extend the banking business, it is proposed to open 11 new branches in the city and new branches in the for revenue divisions of the state in addition to the existing 31 branches working in the city. 3. It is proposed to implement ATM system initially at Head Office Branch, vidhanaSoudha Branch, Legislators Home Branch, M.S. Building Branch, and Basaveshwaranagar branch.

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD 4. The bank is proposed to introduce NEFT facilities in the Bank through RTGS system in order to speedy transfer of funds.

Special activities of the Bank The bank has expanded its activities and offers all types of services to its customers growth in deposits as well as loans and advances has led to appreciable rise in profitability from year to year. It has now built up a strong capital base and is ranked as one of the premier state Co-operative bank in the country. The bank offers prompt customer service. Nearly 40% of loans have gone to weaker sections/SC/ST and agricultural labours The Apex Bank is one of the 1st state Co-operative banks which have introduced computerization. The Apex bank runs its training programmes in its own institutions named the agricultural Co-operative staff training institute at padmanabhanagar to cater its own staff as well as the employees of DCC banks and primary agricultural Co-operative society. The bank has set up some special funds like the farmers welfare fund, special assistance fund, Co-operative development fund for extending assistance to member banks and to the primary agricultural credit Co-operative society. Safe deposit locker facility is available in most of the branches.

ORGANIZATION STRUCTURE

BOARD OF MANAGEMENT President (1) Vice president (1) Directors (20) Managing Director (IAS) Secretary (JRCS)


CGM (A&D)

CGM (F&A)

GM (P&D)

GM (ACSTI) Manager Faculties Clerk/steno, Attenders

GM (I&A) DGM (I&A) AGM (I&A) Managers AsstManagers

GM (Banking)

DGM (P&D) AGM (Sr.KT) Managers AsstManagers Clerk/Steno

DGM (DAP) Managers AsstManagers Clerk/Steno Attenders DGM (A&O) AGM (A&O) Managers AsstManagers Clerk, steno, Attenders

Clerk/Steno Attenders

DGM (Funds) Managers AsstManagers Clerk, steno, Attenders

DGM (CFA) AGM (A&O) Managers AsstManagers Clerk, steno, Attenders

DGM (BC) Managers AsstManagers Clerk, steno, Attenders

CHAPTER-3

McKINSEYS 7S MODELThe organization is not just the structure; rather it is made up of seven elements, shown above. These are divided into two types: Hard and Soft. Elements in green are hard; they are easy to identify and feasible. They can be found in strategy elements, corporate plans, organizational structures and other documentations. The soft elements are hard to describe. They are sort of intangible. Hence it is more difficult to plan or influence these elements.

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD Effective organizations achieve a fit between all these seven elements. If one element changes then this will affect all the others. For example, a change in HR-systems like internal career plans and management training will have an impact on organizational culture (management style) and thus will affect structures, processes, and finally characteristic competences of the organization. In any change process in an organization, more focus is given on hard Ss and often soft Ss are ignored. This is not a good strategy. It is difficult to build new structures and strategies upon inappropriate cultures and values. Many M&A fail because of the clash of culture, value and style. Hence 7S model is an effective tool in initiating change process in the organization. One should look at the current status of these seven elements in the organization and compare with the ideal state. Then make and plan and implement them.

STRUTURE: Human Resource Section Planning and Development Financing Agency Clearing Section HUMAN RESOURCE SECTION Accounts and Operation Central

KARNATAKA STATE CO-OPERATIVE APEX BANK LTDSl. No. Designation Sanctioned Post Working Strength Vacant Post

This section is a part of planning and development department. This section providing Loans to staff Members, like Housing loans, Vehicle loans, Consumer Durable loans, Secured loans against Government securities, Festival advances,

PLANNING AND DEVELOPMENT SECTION Under this department there are five sections and they are a. Engineering b. Development Action Plans c. Administration d. Statistics e. Legal cell

ACCOUNTS AND OPERATION SECTION The primary activity of this section is to sanction to the customers who have applied for it and it deals with investing the surplus funds of the bank. The main activities are. y y y Giving advances to the district central co-operatives banks (DCC) Borrowing from NABARD Investments: the surplus funds of the bank can be invested in various ways.

CENTRAL FINANCING AGENCY The main functions of this department are to provide housing loans, short term seasonal agricultural operations, medium term loans, cash credit. CLEARING SECTION Karnataka State Co-operative Apex Bank limited has 32 branches of its own and 65 submembers. The clearing section will clear the cheques by either payment or by receiving money.

STAFF:

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD1 Chief General Manager General Manager Deputy General Manager Chief Statistician Assistant General Manager Senior Kannada Translator (AGM) Manager Assistant Manager Junior Kannada Translator Clerk cum Cashier Statement Writer Attender/Driver Fire Extinguisher Total 002 002 000

2 3

004 012

002 000

002 012

4 5

001 018

000 015

001 003

6

001

001

000

7 8

075 105

074 094

001 011

9

001

000

001

10 11 12 13

175 011 116 001 522

163 004 091 001 447

012 007 025 000 075

Duties:CLASS A OFFICERS: They are there to guide the fellow officers. These officers are the head of the departments. The Managing Directors, Executive Directors are at highest level.

CLASS B OFFICERS:

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD The class B officers are there for performing various functions of the organization. The officers look after the functions like treasury functions, legal functions and internal audit etc.

CLASS C- other subordinate staff: These officers are responsible to implement the function which is given by the bosses. The lower level officers have to perform the commanded task of their department. The bank has a unique combination of its professional on its payrolls charted accountants, M.com, lawyers, Engineers, and graduates etc. Thus the diversity of its Human Resources is one of the important assets of the bank. Bank follows a typical selection procedure. As a first step, advertisement is given as and when it is required. The test is conducted and the candidate made to go through interview which is being conducted by the top management board. It consists of subject expert from different department. Bank provides on the job and off the job training as per requirements.

STYLE:Bank follows a top down participative style of management. It believes in team work. For each task teams are constituted to attain specific goals. Apex band believes that quality can be achieved by providing quality financial and related services on a continuous basis. In order to motivate the employees, it encourages them to actively participate in setting organization growth targets, objectives and to take their own decisions at various levels. By this type of participative style the bank can conflict their rivals like land bank, Amanath Scheduled Co-operative Bank,

SYSTEM:The bank has a specified department for its MIS. This department is solely responsible for providing update information of all branches, all departments etc required by the management time to time on continuous basis as and when required. MIS Department In the first floor of the apex bank head office. MIS department is located. This department helps in the flow of information by the means of various software networking techniques. Performance Appraisal

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD This is also known as order executive. In this system employees can watch over their

performance level and required level during the process of transfer, promotion, demotion, this system has helped better performance of work. Attendance system This system is very popular system for the purpose of maintaining attendance. Everyone is using this technique for the attendance of their employees. This system is called swapping system. In this system the employees have their own ID card and during their entrance to the bank they swipe their card and mark their attendance. This system saves time and money.

STRATEGY:Apex bank in one of the pioneers in this industry in providing short term loans and long terms loans to farmers and medium scale industries. As a part of its marketing studies it makes its advertising through newspapers, leading television channels and focus over quality certificate. The following are the strategies used by Apex Bank to compete with its rivals. Business Developments This is a strategy in which existing customers are attracted. This strategy follows the

entrepreneur recognitions like that of penny sectors, and then attracting with various schemes. Identify needs This is also one strategy of Apex Bank which is used to identify the actual needs of the market. This will help the band to cover the demands of the markets by coming with various schemes and this organization has succeeded in knowing the consumer demands. SKILLS: The banks require different skills for different types works at different levels. Highly qualified professionals in the bank have major skills like technical, finance, economical and public relation skill. The bank also looks for the development of their staff skills.The various programs

organized by Apex for this purpose could be classified into in house and outside. On the job training The bank has the internal job training by means of guidance by their senior staffs. The bank also provides the on job training like: 1. Group assignment over some project 2. Job rotation

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD 3. Under supervision works Off the job training 1. In house training: this job training is done at ACSTI, padmanabha Nagar with residual facilities. 2. There are various programs performed as off the job training in Bangalore. The training provided is classified as 1. Communication skill training. 2. Computer skills 3. Project skills 4. Secretarial skills SHARED VALUES: A shared value is satisfying the farmers and small and medium scale industries first. Mission the Apex bank is committed to continuously nurture, develop and service the small sector thought the need based products and services. The value that the bank upholds most is Farmers

Satisfaction. This bank focuses over their farmers and industrial demands and wants. They also come up with various schemes like housing loans, vehicle loans.


CHAPTER-4 SWOT ANALYSIS OF KSCAB LTD:SWOT is the acronym for strength. Weakness, opportunities and threats. Strengths are the internal. Positive characteristics that the company processes. One look at this competitive advantage. Weaknesses are internal as well and are the negative aspects of the company and indicates competitive vulnerabilities. These should be distinguished from problems such that immediate collapse is not likely. Weakness should be overcome in order to achieve future growth and success. Opportunities are external and provide areas of growth and improvement of the company. Threats are external to the company and action is required

STRENGTHS: Rural development and priority Has the support of government in its functioning It is an open, proactive, team based and learning organization Experience in the field of banking for about 9 decades Profits, advances, reserves of title bank are increasing. Repayment period is very flexible Wide range of schemes One of the co-operatives banks in India Due to co operative in nature people have faith in bank.

WEAKNESS: Government culture in the organization Functions as per act It operates only in the regional level only Lack of advertising Procedural difficulties regional operation

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD Too much policies bound

OPPORTUNITIES: Introduce internet and mobile banking Advising on the investment As it is a state co operative bank this bank is a bank in demand. Raising of capital from all sources Being the co operative bank it has the opportunities to finance the government projects. Providing ATMs facility may take bank long way.

THREATS: Fail to provide updated facility to their customers Too many competitors There are too many commercial banks, Which provides funds at lower internet rates, which can be big threats for apex bank Government policies.


CHAPTER-5 ANALYSIS OF FINANCIAL STATEMENTPROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2010

Schedule

FOR YEAR ENDED 31.03.2009 (Rs. 00000)

FOR YEAR ENDED 31.03.2010 (Rs. 00000)

I

INCOME INTERESTED EARNED OTHER INCOME TOTAL1 31714.23 484.97 32199.20 39154.17 577.11 39731.28

2

II

EXPENDITURE INTEREST EXPENDED OPERATING EXPENSES PROVISIONS & CONTINGENCIES3 4 5 26388.59 3262.34 1298.27 35179.77 2275.34 1031.17

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD TOTAL30949.20 38486.28

III

NET PROFIT FOR THE YEAR

1250.00

1245.00


BALANCE SHEET AS AT 31ST MARCH 2010:( KARNATAKA STATE COOPERATIVE APEX BANKLTD)Schedule As at 31.03.2009 (Rs. 00000) As at 31.03.2010 (Rs. 00000)

I

CAPITAL AND LIABILIES CAPITAL RESERVE AND SURPLUS DEPOSITS BORROWINGS OTHER LIABILITIES & PROVISIONS TOTAL1 8111.17 8124.07

2 3 4 5

37254.63 389241.32 196667.92

36644.95 447903.71 164756.99

15080.59

21401.12 678830.90

646355.63

II

ASSETS CASH & BALANCES WITH RESERVE BANK OF INDIA BALANCES WITH BANKS & MONEY AT CALL & SHORT NOTICE INVESTMENTS8 115652.58 223294.06 7 154000.00 99440.00 6 22505.12 30644.03

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD ADVANCES FIXED ASSETS OTHER ASSETS TOTAL9 10 349254.68 2629.86 2313.39 646355.63 314628.40 8699.78

11

2124.63 678830.90

III

CONTIGENT LIABILITIES OUTSTANDING LIABILITIES FOR GUARANTEES ISSUED(FULLY SECURED)12 15.11 15.11


CHAPTER-6

LEARNING EXPERENCE

According to Peter Drucker, the Management Guru, management theories are not merely pen paper concept but a blend of both theory and practices. It is very essential for a management student to gain more practical knowledge along with the theoretical understanding. Before getting exposed to the real corporate world as a professional, student may not get a chance to know how an organization works practically. As a part of curriculum if student get an opportunity to enter into different organization, they can learn more about the various practices, work culture, management style, etc.and its relation to the management theories that they have learnt in class The in-plant training at KSCAB was very helpful to know the corporate culture that exists in company. By analyzing the whole structure of the company it is possible to know how theoretical concepts explained in the management books have a lively practical existence. The staff of KSCAB is open minded especially those who are in higher level. I found each and every staff to be cooperative and encouraging in helping me to get on experience about their work culture. As per the guidance given by my external guide he suggested to collect information with my own efforts and encouraged me to visit various departments to get an exposures about their process, workflow and culture in KSCAB. This experience made me to gain practical knowledge regarding their lending operation. The institution recognizes the need for the employees to have a satisfied customer

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD FINDINGS

KSCAB is established in Karnataka state in India. KSCAB is doing best for the development only for the state level and not only this corporation focuses mainly on small and medium enterprises development which is essentially required today. Leading management is very difficult which KSCAB is still trying to achieve standard in this. Effectiveness of any organization mainly depends on the decision making skill of tip management. KSCAB top management, a team of dynamic managers, is responsible for taking the decision up to great extent. KSCAB honor every commitment made and provide prompt, proactive customer service. It has also adopted an effective way of departmentation for the smooth and effective functioning of the organization. Overall this in-plant training has given a new corporate exposure which is very useful in future. I am really thankful to all the people without whom the project would not have been a success.


CHAPTER-7 NON-PERFORMING ASSETS


CHAPTER 7 NONPERFORMING ASSETS IntroductionNPA the three letters strike terror in banking and business circles today. NPA is the short form of non-performing assets. The dreaded NPA rule says simply this when interest or other due to a bank remains unpaid for more than 90 days, the entire bank loan automatically turns a non performing assets. The recovery of loans has always been problems for banks and financial intuitions. in the past after factoring different attributes of a loan like who has borrowed , their record, whether the industry is cyclical they would classify their loans as good, doubtful or bad. How then did the paradigm shift from assessing a dept as doubtful or bad. How then did the paradigm shift from accessing a debt as doubtful or bad to automatic classification of debts in to NPA? Banks are not allowed to book any income from NPAs. Also they have to make provisions for the NPAs which impacts profitability adversely. the classification of banks advances in several categories started in late 1980s but at that time the terminology of NPA did not exist. it was in the yearly 1990 when Anglo-American models which had several blocks of categorization of bank assets. prior to introduction of asset classification, banks in India had a system of their own. How ever the accounting system is not in conformity with the international standards. Banks in India have traditionally been saddled with very high Non Performing Assets. The total amount of NPA in the Indian financial system is estimated to be Rs. 120000. Banks burdened with whose NPAs fazed uphill tasks in recovering then due to archaic laws and procedures. this reflects the operational efficiency of the banks which is essential for sustained improvement of economic activity and growth. one assessment is that level of total NPAs is in India is estimates at 16% of the total loans given out by banks and financial intuitions. these NPAs account for 14% of countrys GDP.


TRADIATIONAL CONCEPT OF NPA: Before 1991 the Indian financial intuitions followed the traditional way of procedures. the system pertaining to repayment of principle amounts and periodical interest are as under. The bank or the financial intuitions use to credit the interest account and debit the borrowers accounts on a particulate date are given pre specified period, irrespective of whether the borrower paid the interest or not. There was no prompt action during those days for recovery of principle or the interest recovery actions for interest and the principle amount were initiated at the end of financial year of at the time of expiry of documents. all borrowers accounts were treated in same manner till recovery procedure like filling suite for outstanding interest and loan installment was initialed then there were known as protestant bills accounts which means all the loans were the suite or filled for recovery. Traditional concept of assets classification was absent before 1991 and it effected the health of financial institutions or banks MODERN CONCEPT: NPAs come in to financial system consent to the introduction of prudential accounting norms. and an era taking profit was changed providing for expected loss days of counting the chickens before eggs hatch are over. Intuitions of the modern concept the NPA again subdivided in to different categories they are sub standard assets doubtful assets

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD loss assets so it is very clear that many steps were towards the effective and efficient of functioning of the financial intuitions for reducing the level of NPA to the maximum possible extent.

DefinitionA loan or lease that is not meeting its stated principal and interest payments. Banks usually classify as nonperforming assets any commercial loans which are more than 90 days overdue and any consumer loans which are more than 180 days overdue. More generally, an asset which is not producing income. In India, an asset is classified as a Non-Performing Asset (NPA) if interest or installments of principal due remain unpaid for more than 180 days. However, with effect from March 2004, default status would be given to a borrower if dues are not paid for 90 days. If any advance or credit facilities granted by a bank to a borrower become non-performing, 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 fact that there may still exist certain advances/credit facilities having performing status.

What is a NPA?Action for enforcement of security interest can be initiated only if the secured asset is classified as Non Performing Asset. 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

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD to dispense with 'past due' concept, with effect from March 31, 2001. Accordingly, as from that date, a Non performing asset (NPA) shell be an advance where i. Interest and /or installment of 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 than 180 days, in respect of an overdraft/ cash Credit(OD/CC), iii. The bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted, 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 of more than 180 days in respect of other accounts.

OverdueAny amount due to the bank under any credit facility is 'overdue' if it is not paid on the due date fixed by the bank.

Difficulties with the non-performing assets:1. Owners do not receive a market return on their capital. In the worst case, if the bank fails, owners lose their assets. In modern times, this may affect a broad pool of shareholders. 2. Depositors do not receive a market return on savings. In the worst case if the bank fails, depositors lose their assets or uninsured balance. Banks also redistribute losses to other borrowers by charging higher interest rates. Lower deposit rates and higher lending rates repress savings and financial markets, which hampers economic growth. 3. Non-Performing loans epitomize bad investment. They misallocate credit from good projects, which do not receive funding, to failed projects. Bad investment ends up in misallocation of

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD capital and, by extension, labor and natural resources. The economy performs below its production potential. 4. Non-performing loans may spill over the banking system and contract the money stock, which may lead to economic contraction. This spillover effect can channelize through

illiquidity or bank insolvency; (a) when many borrowers fail to pay interest, banks may experience liquidity shortages. These shortages can jam payments across the country, (b) illiquidity constraints bank in paying depositors e.g. cashing their paychecks. Banking panic follows. A run on banks by depositors as part of the national money stock become inoperative. The money stock contracts and economic contraction follows (c) undercapitalized banks exceeds the banks capital base. Lending by banks has been highly politicized. It is common knowledge that loans are given to various industrial houses not on commercial considerations and viability of project but on political considerations; some politician would ask the bank to extend the loan to a particular corporate and the bank would oblige. In normal circumstances banks, before extending any loan, would make a thorough study of the actual need of the party concerned, the prospects of the business in which it is engaged, its track record, the quality of management and so on. Since this is not looked into, many of the loans become NPAs. The loans for the weaker sections of the society and the waiving of the loans to farmers are another dimension of the politicization of bank lending. Most of the depositors money has been frittered away by the banks at the instance of politicians, while the same depositors are being made to pay through taxes to cover the losses of the bank.

The effects of NPA are:1. They decrease profitability. 2. They reduce capital assets and lending limits. 3. They increase loan loss reserves.

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD4. They bring unwanted attention from government regulators.

An analysis of factors contributing to NPAsAn analysis of the contributory factors resulting in the emergence of NPAs on a large scale amongst commercial banks and financial institutions would lead to the following conceptualization:

1. PSBs performed creditably in respect of all parameters set for them. However, in the early 1990s, it emerged that PSBs were suffering from acute capital inadequacy and many of them had negative profitability. This is because the parameters set for their functioning were deficient and they did not project the paramount need for these corporate goals. Incorrect goal perception and identification led them to the wrong destination.

2. The pre-reform era witnessed directed banking for PSBs which functioned under the overall control and direction of the Finance Ministry, which along with the Reserve Bank of India (RBI), decided/directed all aspects of the working of the banks, leaving little freedom to price their products in competition with each other, cater their products to segments of their choice, or invest their funds in their best interest as they determined.

3.Since the 1970s, the SCBs of India functioned totally as captive capsule units cut off from international banking and unable to participate in the structural transformations, the sweeping changes, and the new types of lending products emerging in global banking institutions. Their personnel lacked needed training and knowledge resources required to compete with international players.

4. Major policy decisions were taken externally by the Finance Ministry/RBI. The environment of receiving decisions from a political background as distinguished from a professional outfit prevented the best talents coming to occupy key positions.


5 The quantum of credit extended by the PSBs increased by about 160 times in the three decades after nationalization (from around 3000 crore in 1970 to 475 113 Crore on 31 March 2000). The Banks were not sufficiently developed in terms of skills and expertise to regulate such growth and manage the diverse risks that emerged in the process. 6 The need for organizing an effective mechanism to gather and disseminate credit information

amongst the commercial banks was never felt or implemented. The archaic laws of secrecy of customer information prevented banks from publishing names of defaulters for common knowledge of the other banks in the system. 7 Effective recovery from defaulting and overdue borrowers was hampered on account of a sizeable overhang component arising from infirmities in the existing process of debt recovery, inadequate legal provisions on foreclosure and bankruptcy and difficulties in the execution of court decrees. Legal remedies were beset with too many formalities and were very timeconsuming. 8 Effective corporate management was an alien concept. In respect of PSBs, the boards were

ineffective and the only/main shareholder was the government of India. The government exercised multiple roles and concerns, and the instinct to act as a watchful shareholder and increase shareholders value of banks and financial institutions was never felt or experienced. 9 Credit management on the part of the lenders to the borrowers to secure their genuine and bonafide interests was not based on pragmatically calculated anticipated cash flows of the borrowers concern, while recovery of installments of term loans was not out of profits and surplus generated but through recourse to the corpus of working capital of the borrowing concerns.

10 Functional inefficiency was also caused due to overstaffing, manual processing of bloated operations and a failure to computerize the banks in India, when elsewhere Throughout the world the system switched over to computerization of operations.


Impacts of NPAs on the working of cooperative banksNPAs affected the profitability, liquidity and competitive functioning of public and private sector banks, and finally the psychology of the bankers in respect of their disposition towards credit delivery and credit expansion. Impact on profitability Cooperative banks incurred a total amount of Rs. 31 251 crore towards provisioning NPAs from 1 April 1993 to 31 March 2001. This has brought net NPAs to Rs.32 632 crore or 6.2% of net advances. The enormous provisioning of NPAs together with the holding cost of such non-productive assets over the years has acted as a severe drain on the profitability of the PSBs. Equity issues of nationalised banks that have already tapped the market are now quoted at a discount in the secondary market. This has alternatively forced PSBs to borrow heavily from the debt market to build Tier II capital to meet capital adequacy norms, thus putting severe pressure on their profit margins. It is worthwhile to compare the aggregate figures of the 19 nationalised banks for the year ended March 2001, as published by RBI in its Report on Trends and Progress of Banking in India

Current status of NPAs and Indian banks: A statistical introspectionIndian banking in 2002 represents a sea change from where it was in the preceding decade. There has been a decade of professional banking moving towards global standards. Banks, in general, performed extremely well in 2001-2002 and onwards.

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD In 1992-1993, the profitability of the PSBs as a group turned negative with as many as twelve nationalized banks reporting net losses. By March 1996, the outer time limit prescribed for attaining capital adequacy of 8%, eight public sector banks were still short of the prescribed limit.

The public sector banks which suffered losses of Rs.3 293 crore in 1992-1993 and Rs.4349 crore in 1993-1994, i.e. in the initial years of introduction of prudential norms, ended the year 1997-1998 with a net profit of Rs.5 027 crore. Net NPAs of public sector banks formed 8.2% of the net advances and 3.3% of the total assets as at the end of March 1998. Corresponding figures as at 31 March 2002 are 5.82% and 2.42%. PSBs recorded an aggregate net profit of Rs.8 301 crore in 2001-2002.

Measures taken to deal with NPAsy Dismantling of controls and deregulation of working of commercial banks, permitting entry of new private sector banks and permission for foreign banks to open more branches. This had the effect of opening Indian banking to global standards by making them function efficiently in a competitive environment. This was the initial step to create a structural framework for the PSBs to enable them to adjust to the new environment and turn into dynamic and self-reliant operating units.

y

The process of deregulation freed the banks from the control of the Finance Ministry and RBI. The RBI, hereafter, acts as a regulator. In the year 1994, RBI further fine-tuned the process by constituting a separate Board of Financial Supervision (BFS) with the objective of segregating the supervisory role from the regulatory functions of RBI. Banks now operate independently in a competitive financial market, but have to comply with prudential norms and safeguards essential for their wellbeing.

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD y RBI made prudential norms, as conveyed by the Basel Accord of 1988, applicable to Indian banks. These included standards relating to capital adequacy, income recognition, asset classification and provisioning for non-performing assets. This had the effect of providing much-needed transparency about the state of affairs of each bank and enabled instant corrective measures to be executed.

y

Banks were permitted to seek infusions of fresh equity from the public with the government retaining a 51% share of equity capital. A number of PSBs entered the market and raised Tier I and Tier II capital accordingly. This has created a new class of stakeholder (albeit shareholders) vitally interested in the wellbeing of the banks and qualified/empowered to question the Board of Directors at the appropriate forum.

y

Governance: RBI emphasized the paramount importance of accepting norms of good corporate governance by banks. While the Securities Exchange Board of India (SEBI) has introduced a general set of norms applicable to all companies including banking companies, RBI has further covered the special needs of banking companies by bringing out an appropriate set of standards.

y

The Credit Information Bureau (India) Ltd.: In order to expedite credit and investment decisions by banks and financial institutions, and curb the accretion of fresh NPAs, the Credit Information Bureau (India) Ltd., (CIBIL) was set up by the State Bank of India in association with HDFC in August 2000. CIBIL was to be technology driven to ensure speedy processing, periodic updating and availability of error-free data at all times in the system. As a first step towards activating the CIBIL, it was decided to initiate the process of collection and dissemination of some relevant information within the existing legal framework. The RBI accordingly decided to constitute a group drawing representation from CIBIL, the Indian Banks' Association (IBA), select banks and FIs to examine the possibility of the CIBIL performing the role of collecting and disseminating

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD information on the list of suit-filed accounts and the list of defaulters, including willful defaulters, which is presently handled by the Reserve Bank. The group is also expected to examine other aspects of information collection and dissemination, such as the extent, periodicity and coverage, and the feasibility of supplying information on-line to members in the future.

y

Norms of lenders' liability: RBI has come out with broad guidelines for framing the Fair Practices Code with regard to lenders' liability to be followed by commercial banks and financial institutions, emphasizing transparency and proper assessment of borrowers' credit requirements. RBI has issued a draft of the model code and has advised the individual banks to adopt model guidelines for framing their respective Fair Practices Codes with the approval of their Boards. This is a balancing measure. It imposes selfdiscipline on the part of the banks, which will only indirectly prevent accounts turning into NPAs on account of the bank's own failures or wrong actions.

y

Risk assessment and risk management: Since the year 1998, the RBI has been making serious efforts towards evolving a suitable and comprehensive model for riskmanagement by the banks and to integrate this new discipline in the working systems of banks. The RBI has identified risk-prone areas in asset-liability management, credit management, changes in market conditions and counter-party and country risks and has evolved suitable models for managing all such risks. RBI has also evolved a system of Risk-based Supervision of Banks. It also advised banks on a parallel scheme for carrying out internal audit based on risk perception.

y

E-banking and VRS: The influence of these areas of banking reforms may not appear directly relevant to a reduction of NPAs. However, computerization provides for dataaccuracy and operational efficiency and results in a better Management Information Service (MIS). VRS rationalizes the work force, which in turn results in better productivity and operational efficiency.

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD y RBI Guidelines on Fair Practices Code for Lenders are applicable to SCBs/AIFIs (excluding RRBs and LABS): According to the Fair Practices Code, which is at the core of lender liability, the lenders must treat their borrowers fairly, and when they do not, they can be subject to litigation by the borrower for a variety of reasons, inter alia, breach of contract, breach of fiduciary duty, fraud and misrepresentation, and negligent loan processing and administration.

y

Compromise settlement schemes: Banks are free to design and implement their own policies for recovery and write-off incorporating compromise and negotiated settlements with the approval of their Boards, particularly for old and unresolved cases falling under the NPA category. The policy framework suggested by RBI provides for setting up of independent Settlement Advisory Committees headed by a retired judge of the High Court to scrutinize and recommend compromise proposals. Specific guidelines were issued in May 1999 to PSBs for one time non-discretionary and non-discriminatory settlement (OTS) of NPAs of the small enterprise sector. The scheme was operative up to September 30, 2000. (Public sector banks recovered Rs. 668 crore through compromise settlement under this scheme). Guidelines were modified in July 2000 for recovery of the stock of NPAs of Rs. 5 crore and less, as on 31 March 1997. (The above guidelines which were valid up to 30 June 2001, helped the public sector banks to recover Rs. 2 600 crore by September 2001). An OTS scheme covering advances of Rs. 25 000 and below continues to be in operation and guidelines in pursuance to the budget announcement of the Honorable Finance Minister providing for OTS for advances up to Rs.50 000 in respect of NPAs of small/marginal farmers are being drawn up.

y

Circulation of information on defaulters: The RBI has put in place a system for periodic circulation of details of willful defaults of borrowers of banks and financial institutions. This serves as a cautionary list while considering requests for new or additional credit limits from defaulting borrowing units and also from the directors/proprietors/partners of these entities. RBI also publishes a list of borrowers (with aggregate outstanding of Rs. 1 crore and above) against whom banks and FIs have

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD filed suits for recovery of their funds, as on 31 March every year. These measures serve as a negative basket of steps shutting off fresh loans to these defaulters.

y

Recovery action against large NPAs: RBI advised public sector banks to examine all cases of willful default of Rs. 1 crore and above and file suits in such cases, and file criminal cases in regard to willful defaults. Boards of Directors are required to review NPA accounts of Rs.1 crore and above with special reference to fixing of staff accountability.

y

Special mention accounts: In a recent circular, RBI has suggested to the banks to have a new asset category or special mention accounts for early identification of bad debts. This would be strictly for internal monitoring. Loans and advances overdue for less than one quarter and two quarters would come under this category. Data regarding such accounts will have to be submitted by banks to the RBI. However, special mention assets would not require provisioning, as they are not classified as NPAs. An asset may be transferred to this category once the earliest signs of sickness/irregularities are identified. This will help banks look at accounts with potential problems in a focused manner right from the onset of the problem, so that monitoring and remedial actions can be more effective. Once these accounts are categorized and reported as such, proper top management attention would also be ensured. Borrowers having genuine problems due to a temporary mismatch in funds flow or sudden requirements of additional funds may be entertained at the branch level and for this purpose, a special limit to tide over such contingencies may be built into the sanction process itself.

2.2Title of the project A report on Non-performing assets at Apex bank, head office Bangalore

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD 2.3Statement of problem This project is conducted to analyze the non-performing assets level of apex bank and its impact on the performance of the bank. Non- performing assets is a major bane for the banks in India, so as in the case of apex bank the study has been undertaken to know the status, practices and impact of NPAs on the profitability of the bank. The problem lies in understanding and analyzing the NPAs.

2.4 Objectives of study y To have an overview of history, growth and development, functioning, schemes and facilities available at Apex bank.y y Analyzing the prudential norms an asset classification and income recognition. Understanding the concept of non-performing assets and to intimate timely steps to identify it.

y

To know the policies, procedures followed by the Apex bank with respect to nonperforming assets management.

y

Understanding the need and nature of various strategies for reducing NPA level through recovery mechanisms.

2.5 Scope of study The study of non-performing asset is a well-researched area and contributes constructively to the benefit of the banks, financial institution and other interested people. The study shows the developments and stability in earnings. 2.6 Methodology Introduction

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD The quality of the project work depends on the methodology adopted for the study. Methodology, in turn, depends on the nature of the project work. The use of proper methodology is an essential part of any research. In order to conduct the study scientifically, suitable methods & measures are to be followed.

Research Design

The type of research used for the collection & analysis of the data is Historical Research Method. The main source of data for this study is the past records prepared by the bank. The focus of the study is to determine the non-performing assets of the bank since its inception & to identify the ways in which the performance especially the non-performing assets of the Apex Bank can be improved.

The data regarding bank history & profile are collected through Exploratory Research Design particularly through the study of secondary sources and discussions with individuals.

Data Collection Method By taking guidance from bank guide & departmental guide.

Secondary Data Collection of data through bank annual reports, bank manuals and other relevant documents. Collection of data through the literature provided by the bank.

2.7 Limitations of the study Though sincere effort has been made during the study, certain limitations cannot be avoided. They are as follows:y Difference in definitions y Nonperforming assets is based on NPA statement of the bank

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD Prepared as per accounting practices. y This practice in some cases may lead to window dressing to cover up bad financial position. y This study is based only on 5 years NPA statement. y NPA statement suffers from inherent weakness of accounting practices, such as their historical nature of matching principle etc.


ANALYSIS AND INTERPRETATION TABLE NO.1 Table showing the percentage change in NPA at the KSCAB Ltd.

YEAR

NPA(Rs.in lakhs)23012.47 26152.63 24490.21 20895.27 19201.99 14602.61

Total advances (Rs in lakhs)164088.55 178574.78 223765.69 280484.04 349254.68 314628.00 390000.00(Proposed)

NPA in %

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

14.02 14.65 10.94 7.45 5.50 4.64

NPA to Total Advances14.02 15 10 5 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 14.65 10.94 7.45 5.5 4.64

NPA to Total Advances

Analysis: The percentage of the NPA to total credit in The Karnataka State Co-operative Apex Bank Ltd. It showing as increasing trend only during the financial year 2004 to 2006 and there is a decreasing trend in the year 2007 to 2010. It shows that effort has been taken to control the NPA.

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD Inference: The percentage of NPA compared to total advances given is constant bank has to taken care of recovery management.

Table No:2 The percentage change in NPA in agriculture sector to total advances given in agriculture sector at the KSCAB Ltd.YEAR NPA(Rs.in Lakhs)6861.72 5507.95 4598.63 5117.88 4765.47 0

Total advances (Rs in Lakhs)104484.27 111364.62 154330.97 209012.22 272614.39 226798.09

NPA in %

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

6.57 4.95 2.98 2.22 1.75 NIL

NPA in agricultural sector to total advances7 6 5 4 2.98 3 2.22 2 1 0 2004-05 2005-06 2006-07 2007-08 2008-09 1.75 NPA in agricultural sector to total advances 4.95 6.57

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD Analysis: The percentage of the total NPA to total credit in agriculture sector is showing as increasing trend only during the financial year 2004 to 2005 and there is a decreasing trend in the year 2006 and 2010. It shows that effort has been taken to control the NPA. Inference: The specific finding from the study is that bank has taken controlling devices to monitor NPA in agriculture.

Table No: 3 The percentage change in NPA in sugar sector to total advances given in sugar sector at the KSCAB Ltd.YEAR NPA(Rs.in Lakhs)13170.77 17523.23 16877.96 12711.78 11501.02 10755.53

Total advances (Rs in Lakhs)22768.28 31483.20 24653.90 19627.12 18693.50 20039.53

NPA in %

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

57.85 55.66 68.46 64.76 61.52 53.67

NPA in sugar sector to total advances80 70 60 50 40 30 20 10 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 NPA in sugar sector to total advances 57.85 55.6 68.46 64.76 61.52 53.67

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD Analysis: The percentage of the total NPA in sugar sector to total credit given in the sugar sector is showing continuous increasing trend from 2004 2005 and 2006 2007 and slightly decrease during the financial year 2005 2006, 2007 2008, 2008 2009 and 2009 2010. Inference: NPA shows that every year more than 50% of the total credit given has became NPA. It indicate dangerous signal. Bank has to take best measure to control NPA in sugar sector.

Table No: 4 The percentage change in NPA in other sector to total advances given in other sector at the KSCAB Ltd.YEAR NPA(Rs.in Lakhs)2979.98 3121.45 3013.62 3065.61 2935.50 3847.08

Total advances (Rs in Lakhs)36836 35726.96 44780.82 51844.10 57946.79 67790.78

NPA in %

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

8.09 8.74 6.73 5.91 5.07 5.67

KARNATAKA STATE CO-OPERATIVE APEX BANK LTD10 9 8.09 8 7 6 5 Series 1 4 3 2 1 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 6.73 5.91 5.07 5.67 8.74

: The percentage of the total NPA in other sector to total credit given in the other sector has showing constantly decreasing at a smooth rate it was 8.09% in 2004 2005 to 5.67% in the financial year 2009 2010. Inference: when it is compared to sugar sector it is very less but bank has to take some measure to control NPA.

Table no: 5 The total advances outstanding in agriculture sector from the year 2005-2009 at KSCAB Ltd.YEAR Total advances (Rs in Lakhs)

2004-05 2005-06 2006-07 2007-08 2008-09

104484.18 111364.42 154330.97 209012.22 272614.39


2009-10

226798.09

Total advances outstanding in agriculture sectorFigure No: 5 The total advances out

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