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A STUDY ON NPA IN TGMC BANK LIMITED 2008
INTRODUCTION
A healthy banking system is essential for any economy striving to achieve
good growth and remain in an increasingly global business environment. The
Indian banking system, with one of the largest banking network in the world, has
witnessed a series of reforms over the past few years line deregulation of interest
rates, dilution of the government stake in public sector banks, guideline being
issued for risk management, asset classification and provisioning etc.
Its known fact that the bank and financial institution in Indian face the
problem of swelling non-performing assets (NPAs) and the issue is becoming
more and more unmanageable.
In the changed scenario, it has now become extremely important for Indian
banks to remain competitive for surviving. This kind of rapid growth however led
to strains in the operational efficiency of banks and accumulation of non
performing assets in their loan portfolios.
The origin of the problem of burgeoning NPAs lies in the quality of managing
credit risk by the banks concerned. What is need is having adequate preventive
measures in place namely, fixing pre-sanctioning appraisal responsibility and
having an effective post-disbursement supervision. Banks concerned should
continuously monitor loans to identify account that have potential to become
non-performing
1 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
BANKING BACKGROUND
Meaning of a bank:
A bank is an institution, which accepts deposits and lends money.
Functions of bank:
The functions of bank may be divided into two broad categories
* Primary function
* Secondary function
1. Primary function:
* Accepting deposits.
* Leading money or investment.
2. Secondary functions:
* Agency services
* General utility services.
TYPES OF BANK:
RBI has statistical tables related to the bank in India. Banking structure of
the country is broadly composed of commercial banks both scheduled and non-
scheduled, foreign banks and co-operative banks, even through organized
controlled and governed by separate Acts and Rules. They are all engaged in
providing credit to different segment of our economy.
2 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Commercial and foreign banks are engaged in providing credit to the highly
organized industrial and commercial undertakings.
The co-operative banks have assumed the different role of providing
banking facilities on widely extended basis to the disorganized agricultural sector
of the Indian economy.
1. CENTRAL BANKS:
The important functions of the central bank on India-RBI are as follows.
1. To issue currency notes.
2. To regulate and supervise commercial banks and other financial
institutions.
3. To regulate and control money market.
4. To frame credit policy, regulate and control credits.
5. To implements the banking and financial policy of the government of
India.
6. To regulate & control the foreign exchange.
7. To publish monetary and financial indicators.
3 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
2. COMMERCIAL BANK:
It can be defined as “A financial institution which accept deposit, draws
cheques, and lends money to commerce industry & society. Commercial bank
borrows money or accepts deposits and lends to those who needs funds for
commercial and industrial purpose. Thus they act as dealers for the need of funds
of the society.
Commercial bank accepts deposits in the from of:
a. Fixed deposits
b. Savings bank account
c. Current account and miscellaneous account as pigmy deposits’ home
safe deposit etc. Deposits are accepted to make advances in the from
of
a. Cash credit
b. Overdraft
c. Loans for short & long periods.
Apart from these full functions they also render a number of services to
their customers such as collection of cheques, bill of exchange, discounting of
bills, handle and promissory notes, Safe custody of valuables, remittance
facilities, payment of insurance premium, payment of electricity bills etc.
commercial banks. They are owned and controlled by central government where
as private sector bank are owned & controlled by the shareholders. Some banks 4 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
are functioning in co-operative banks incorporated under co-operative society’s
act of the respective state.
3. INDUSTRIAL BANKS:
These banks provide long-term funds to industrial enterprises. They are
also known as development banks as they provide financial technological and
managerial assistance for the development of industries. They perform the
following functions.
1. Provide long term loan to industrial organization for expansion &
modernization programs.
2. Promotions of new industrial centers by working as under writers.
3. To provide technological guidance in the management of industries.
4. Controlling the affairs of the industrial undertaking by securing
representation on their board of directors.
Till 1947 there were no industrial banks in India. RBI and center
government have taken active part in the setting up of such banks to finance large
medium and small-scale industries. E.g. of Industrial banks are industrial Finance
corporation state finance corporation, industrial credit and Investment
Corporation of India & industrial Development bank etc.
5 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
4. EXCHANGE BANK:
These banks undertake the usual banking business but they specialize in
foreign exchange transaction. At present there are 16 exchange banks in India
and they conduct foreign trade transaction. They also render other service
incidental to financing such as collecting and supplying formation about foreign
customers, providing remittance facilities etc. these banks have also entered in
the field of internal trade. They compete with Indian commercial banks in their
specialization the licensing of these is controlled by the Banking regulation Act
1949. RBI controls foreign exchange control regulations & other banking
transactions.
5. RURAL BANKS:
In India, regional rural banks have been setup in backward and rural areas.
Where coverage of commercial and co-operative banking is not well spread. The
purpose of such banks is to finance agriculture, and provide employment to rural
educated youth who possess the requisite orientation to look after the need of the
rural areas. Rural banks try to combine advantages of both co-operative and
commercial banks. The regional rural banks have been included in second
6 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
schedule of the RBI act therefore enjoy the same privilege and facilities of the
scheduled banks.
6. AGRICULTURE BANKS:
These banks provide long-term finance to farmers for purchase of tools,
equipments machinery and for permanent improvement of land. In India these
banks were set up to provide loans for the purpose of repayment of loans to
village moneylenders and indigenous bankers. These banks were also known as
land mortgage banks but now emphasis have been shifted to providing long term
loans facilities. In India these banks have been developed in the co-operative
sector.
7. EXIM BANKS:
The export and import bank of India was set up in January 1982 with its
head office in Bombay. If part of normal banking functions are conducted by
there connected with import and export of goods. This bank performs several
other functions for example financing of export out of India and imports into
India, Financing joint ventures in foreign countries financing the import and
export of machinery and equipment lease etc. It also undertakes purchasing
discounting and negotiation of export bills.7 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
8. CO-OPERATIVE BANKS:
These banks are formed under the principle of co-operative to provide the
loans to farmers. Small scale industrial concerns, promote in general Self- Help
among the lower and middle-income groups of the society. Services are the base
of such co-operative organization. These banks are helpful to small farmers,
artisans and in mobilizing rural deposits.
PRINCIPLE OF CO-OPERATIVE ORGANISATION:
For clear understanding of the co-operative ideology and to differentiate
from other business enterprises the founding father of co-operative movements
have laid down some finer principles, which are expected to serve as guide posts
for the future development of the co-operative movement. These principles have
considerable significance in the growth of the co-operative movement.
CO-OPERATIVE BANKS AND THEIR FUNCTIONS:
8 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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Co-operative bank is a co-operative organization whose main functions are
acceptance of deposits and lending of credit for functional of co-operative banks
these are further sub categorized as:
1. Primary credit societies:
A primary credit society is an association of ten or more persons residing in
particular locality knowing each other intimately and showing interest in welfare
of another. The sources of funds are entrance fees, share capital, reserve funds
deposits from members and non-members etc. primary credit societies function
are as follows.
Granting short and medium loan to members.
Encouraging saving among rural society.
Mobilizing rural savings.
Supplying from input like seeds, fertilizers etc to members
2. Central co-operative banks:
Because of failure of primary credit societies in mobilizing enough
deposits from their members for meeting their requirements, they needed help of
any agency. These central co-operative banks were established to provide re-
9 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
finance to the primary credit societies. They supervise and guide the affiliated
primary credit societies. Central co-operative bank functions as follows.
To lend money to the primary credit societies.
Pool the surplus resources of some primary credit societies and
provide it to needy primary credit societies.
Supervise and guide the affiliated primary credit societies.
Raise loans from co-operative banks and lend it to primary credit
societies.
Commercial banking operation.
3. State co-operative banks:
Also know as the apex bank, it controls and co-ordinates the working of all
co-operative credit institutions in the state. It is found in the state capital. Their
funds consist of share capital, reserve fund, deposits from members, local
authorities, general public and reserve bank of India. Its functions are as follows:
To lend funds to the central co-operative bank.
Act as balancing centers between central co-operative banks.
Borrow funds from RBI and lend it to central co-operative bank.
Act as intermediary between the money market and co-operative.
10 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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FEATURES OF CO-OPERATIVE BANK:
The important characteristics features of co-operative banks are:
1. Co-operative banks are concerned with the performance of the
banking functions of acceptance of deposits and lending of funds.
2. Co-operative banks are established under the co-operative societies
Act.
3. A co-operative bank is an association of persons, and not of capital.
4. For co-operative banks, their borrowings are linked with their owned
funds in the sense that amount of borrowings by a co-operative bank
is, generally, fixed at certain times.
5. Co-operative banks have a federal structure. In India, short-term co-
operative banks have a three-tier set up, and long term co-operative
banks have two tiers set up.
6. Co-operative banks are democratic institution, in the sense that they
follow the principle of ‘one man, one vote’ in their management.
11 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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7. Co-operative banks are based on the principle of mutual help.
8. Thrifts and savings is the essence of the working of co-operative
banks.
9. Personalization of credit is the special feature of co-operative banks.
That is, in co-operative banking, greater emphasis is placed on the
credit-worthiness and character of the borrowing members.
10. For Co-operative banks, the purpose for which credit is given gets
greater importance. Service and not profits is the main motto of co-
operative banks.
11. Co-operative banks at the bottom level depend on honorary
services of members. That is why, the management of the co-
operative banks at the lower rung of ladder is generally costly, but is
insufficient.
12.The rate of interest charged by co-operative banks is generally low.
13.Co-operative banks mainly finance agriculture and allied activities.
14. Co-operative banks are basically rural-oriented.
15. The operations of a co-operative bank are, generally, restricted to a
specified area, say, a village, a district or state.
16. Co-operative banks, generally, declare only limited dividends out of
their profits in accordance with the provisions of the co-operative
societies.
12 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
TYPES OF CO-OPERATIVE BANKS:
Co-operative banks are broadly classified into two types i.e
I. Agricultural co-operative banks.
II. Non-agricultural co-operative banks.
Agricultural co-operative banks cover all co-operative agencies or
institutions which meet the short term, medium term financial requirements of
agriculture an allied activities. Agricultural co-operative banks are further sub-
divided into
A. Short term and medium term agricultural
B. Long term agricultural credit institutions.
Non-agricultural co-operative banks refer to all co-operative credit
institutions which finance activities other than agriculture in commercial and 13 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
industrial towns and trade centers. They finance salaried employees, artisans and
craftsmen, small traders and small scale and cottage industries. Co-operative
urban banks employees, co-operative credit societies and industrial banks fall
under the category of non agricultural co-operative banks.
14 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
STUDY ON NPA:
It’s a known fact that banks and financial institutions in India face the
problem of swelling non-performing assets and the issue is becoming more and
unmanageable. In order to bring the situation under control, the securitization
and construction of financial assets and enforcement of security interest act-2002
was passed by parliament.
As asset is classified as non-performing if dues in the form of principal and
interest are not paid by the borrower for a period of 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 bank to a
borrower become non-performing, then the bank will have to treat all the
advance/credit facilities granted to that borrower as non performing without
having any regard to the fact that there many still exist certain advance/credit
facilities having performing status.
Such a huge level of NPAs exits in the India Banking System:
The origin of the problem of burgeoning NPAs lies in the quality of
managing credit risk by the banks concerned. What is needed is having adequate
preventive measure in place namely. Fixing pre sanctioning appraisal
responsibility and having an effective post-disbursement supervision. Banks
concerned should continuously monitor loans to identify accounts that have
potential to become non-performing.
15 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
NAPs have become as issue for banks and financial institution:
To start with performance in terms of profitability is a benchmark for any
business enterprise including the banking industry. However, increasing NPAs
have a direct impact on banks profitability as legally banks are not allowed to
book income on such accounts and at the same time banks are forced to make
provision on such assets as per the Reserve Bank of India (RBI) guidelines.
Also, with increasing deposits made by the public in the banking system,
the banking industry cannot afford defaults by borrowers since NPAs affects the
repayment capacity of banks.
Further, Reserve Bank of India (RBI) successfully creates excess liquidity
in the system through various rates cuts and banks fail to utilize this benefit to its
advantage due to the fear of burgeoning non-performing assets.
Credit risk and NPAs
Credit risk management is confused with managing NPAs. However there
is an appreciable difference b/w the two. NPAs are the result of past action whose
effects are realize in the present i.e. they represent credit risk that has already
materialized and default has already taken place.
On the other hand managing credit risk is a much more forward-looking
approach and is mainly concerned with managing the quality of credit. Portfolio
16 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
before default takes place. In other words, an attempt is made to avoid possible
default by properly managing credit risk.
Considering the current global recession and unreliable information in financial
statements, there is high credit risk in the banking and lending business.
To create a defense again such an uncertainty, bankers are expected to develop an
effective internal credit risk model for the purpose of credit risk management.
India economy and Non Performing Assets:
Undoubtedly, the world economy gas slowed down, recession is at its
peak, globally stock markets have tumbled and business itself is getting hard to
do. The Indian economy has been much effected due to high fiscal deficit, poor
infrastructure facilities, sticky legally system, cutting of exposures to emerging
markets by FII’s etc,
Further, international rating agencies like, standard and poor have lowered
India’s credit rating to sub-investment grade. Such negative aspects have often
outweighed positives such as increase in forex reserves and manageable inflation
rate.
Under, such a situation, it goes without saying that banks are no exception
and are bound to face the heat of a global down turn. One would be surprised to
known that the banks and financial institution in India hold NPA worth Rs. 1,
17 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
10,000 cores; bankers have realized that unless the level of NPA’s is reduced
drastically, they will find it difficult to survive.
Global Developments and NPA’s;
The core banking business is of mobilizing the deposits and utilizing it for
lending to industry. Lending business is generally encouraged because it has the
effect of funds being transferred from the system to productive purposes which
results into economic growth.
Non-performing Assets has emerged since over a decade as an alarming
threat for the banking industry in our country. Sending distressing signals and the
Sustainability and endurability of the affected banks. The positive results of the
chain of measures affected under banking reforms by the Government of India.
And RBI in terms of the two committee reports of its period has been
neutralized by the ill effects of this surging threat. Despite various correctional
steps administered to solve this problem. Concrete results are eluding. It is a
sweeping and all pervasive virus confronted universally on banking and financial
institutions. The severity of the problem is however actually suffered by
nationalized banks, followed by the RBI groups and the all Indian Financial
Institutions.
18 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
The deregulation in interest rates, grant of financial autonomy to bank in
the area if credit entry of foreign banks and emergence of new private banks has
made the Banking environment more competitive. While the total share in banks
credit continues to be dominated by Public sector banks, the share of foreign
banks is showing an increasing fraud, with same political hurdles.
A announced in the union budget for 2004-05. it has been decided to give
an option to foreign banks to either operate as branches of their parent banks or
set up subsidiaries.
Meaning of NPA;
An asset is to be treated as NPA when it ceases to generate any income for
the bank and interest or installments remain past due to two or more quarters on
the date of Balance Sheet.
In other words, classifying the advances as Standard Asset, there should
not be more than on quarter installment or interest remaining past due as on the
Balance Sheet date.
Term Loan:
A Term Loan is one where interest and or installment of principle remain
overdue for a period of more than 90 days will be treated as NPA. Thus, an
amount which falls due on 31.12.05 will be 90 days old if unpaid as on 31.03.06.
19 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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The requirement is that the over due period should be more than 90 days.
Therefore, such an amount needn’t be classified as NPA. Any amount which had
become payable before 31.12.05 will be NPA as at 31.03.2006 if it remains
unpaid.
Overdraft/ Cash Credit:
An overdraft/Cash credit will become NPA as at 31.03.2006 under the
following circumstances;
a) If the outstanding balance remains continuously in excess of the
sanctioned limit or the drawing power or,
b) If there are no credits continuously for 90 days as on the Balance Sheet
date or the credits are not enough to cover the interest debited during
the same period.
The period from 1st Jan. 2006 is of 90 days. Hence, the above two
requirements will have to be tested for this period of 90 days to determine
whether the account becomes NPA or not as on 31st March 2006.
Bill purchased and discounted:
If the bills remain overdue for a period of more than 90 days, then such
bills would be classified as NPA. As mentioned before the bills purchased and
20 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
discontinued before 31st Dec. 2005 if unpaid as at 31st March 2006 will be treated
as NPA.
Others:
Any amount to be received remains overdue for a period of more than 90
days in respect of other accounts.
As per the recent RBI guidelines the overall ceiling for foreign direct
investment in private sector banks has also been enhanced. In the changed
scenario, it has now become extremely important for India banks to remain
competitive for surviving. Universally, there is a more towards consolidation and
convergence. This kind of rapid growth however led to strains in the operational
efficiency of banks and the accumulation of non performing acts in their bank
loan portfolios.
In recent years one factor that has common to all countries facing
economic turmeric has been weak banking system contributing to NPA’s. It has
been contention of many bankers that the Government and supervisory
authorities should only provide a conducive environment for handling, these
situations through appropriate fiscal and monetary policies supported by a sound
regulatory and supervisory framework.
Hence, the immediate concern of the policy makers and practitioners in the
banking industry is the existing mass and or near bad loans that have now called
21 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
over the years. The result is the constitution of the committee on banking
reforms.
RBI issued guidelines on income recognition, asset classification and
provision norms compelling the banks to disclose real financial position in their
annual aspects also to take prudent steps to improve their credit portfolios. The
objective should be to reduce the average level of Net NPA’s in all banks to
minimum extent possible say 2% in about 3 years.
Exempted assets:
The following categories of advances are totally exempted from assets
classification income recognition and provisioning
Advances against banks own term deposits including recessing deposits.
National saving certificate.
L.I.C policies.
Indira vikas pathras.
Kissan vikas pathras.
Steps for identification of NPA’s
If the balance on loan outstanding as on 30th June the year under audit less
amount recovered from 1st July to 31st march to year under audit is more
22 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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than the sanctioned limit, there is an arrears of interest for more than the
quarters and hence the amount will become NPA.
If the above worked out amount is less than sanctioned limit, then arrears
of installments has to be worked out as follows.
From the balance out standing in the account as on 31st August, of the year
under audit, deduct the remittances made from September 1st to March 31st
of the year under audit.
From the amount of advances deduct the installment amount over due
deduct the installments amounts overdue up to august 31st of the year
under audit if the amount marked out as per above is more then the amount
worked out as then, the account will become NPA.
Management of NPA’s:
The most important facet of risk in India remains credit risk. Banks have
been successful in containing their non-performing assets, despite adoption of 90
day delinquency norm and the over hang problem. Net NPA’s have now fallen to
about just tow percent of net advances. Banks have been able to achieve this by
using treasury profits during the last few ears. Various measures initiated by the
Government, the Reserve Bank and the banks then selves have also facilitated the
recovery and management of NPA’s.
23 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
The securitization and reconstruction of Financial Assets and Enforcement
of Security Interest (SARFAESI) Act, 2002 has significantly strengthened the
lender’s ability to enforce its right to collateral.
The Act has also created enabling conditions for asset reconstruction
companies. The corporate debt restructuring (CDR) system has also emerged as a
time bound and transparent mechanism for arriving at a consensual financial
arrangement between the creditor and the borrower.
The enactment of the credit information companies Act, 2005 will also
enable sharing of credit information and progressive formation of credit
information bureaus, which should help in reducing transaction costs of banks in
extending credit to small and medium borrowers.
This should also enable banks to keep the NPA’s levels low, which, in
turn, would improve credit delivery and promote appropriate credit pricing.
Banks, however, need to further strengthen the risk management systems and
enhance further capacity building.
24 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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INDUSTRY PROFILE
Banking industry has been facilitating this task to a satisfy level during the
last few decades. But major threat in the Indian Bank Industry is the rising level
of non performing asset which the threat the industry and profit margin in fact the
major task before the Indian banks is to reduce ratio of non-performing assets to
total assets, based upon the new income recognition norms. In this context, the
issuance of these risk management guidelines by the RBI became considerable
significance. It emphasis on the need of a bank to adopt visit management
strategy and to reduce their NPA and in order to improve that business of that
bank.
Bank adopt risk management and strategies and to reduce their NPA and in
order to improve their business the bank would have to provide not only quality
service by adopting newer technologies but also newer service the banks will
have to reap the economic scale and scope in order to cost out and raise their 25 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
profitability, the central instrument against NPAs must be bankers themselves
first.
They must have detailed and shared knowledge of the credit characteristic
of they have key borrowers, strategically, this remains largely on informs word of
mouth process, in Indian Banking, many decades ago RBI itself used to collect
the credit information from the Indian Banks and mis-communication it to all
financial institution regulated by it, this practice came to half in 1970’s because
information system became increasingly.
Inadequate in fact of the mass expansion of the banking system till today in
the absence of an adequate, information network, banks about to generate
information flows about major defaulter, even in mutual use.
The effective management of NPA’s single major issue which will decided
the facts of the SBM branch bank in future the periodical change in solving the
problems of NPA by time testes method and future innovative step to reduce the
NPA is in very essential at this juncture.
Hence, this study research has emphasized on the operational efficiency of
the bank in Karnataka State with regard to management of NPA’s potential
strategic it had adopted to meet the challenge in the same area in future. Also the
researcher has tried to suggest some measure which would be helpful to the bank
in effective management of NPA and based on his analysis and findings. Bankers
must have the authority to trim NPA’s through across table settlement and other
26 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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discretionary instrument that would facilitate early detention and surgery of loans
that go has these big sized bank may turn out.
Despite the emergence of a number of dynamic private sector banks and
entry by a large number of foreign banks, the biggest banks in India are all in the
public sector, i.e., they are corporatized banks with the Government as the
controlling shareholder. The 27 public sector banks collect over 77% of the
deposits and have over 90% of branches.
While banks in India occasionally provide long-term loans, financing fixed
capital is primarily the responsibility of specialized long term lending institutions
such as the Industrial Finance Corporation of India. Banks typically, provide
short-term working capital to firms.
These loans are given as a credit line with a pre-specified limit and an
interest rate that is set at a few % points higher than prime. The gap between the
interest rate and the prime rate is fixed in advance based on the banks credit
rating and other characteristics but cannot be more than 4%. Credit lines in India
charge interest only on the part that is used up and given that the interest rate is
pre-specified all borrowers should want as large credit line as they could get.
A Year isn’t too long a time when it comes to financial institutions like
banks. Yet, there are plenty of changes we find in banks. There are different
banks like Corporation Bank, HDFC Bank, ICICI Bank, Andhra Bank, Punjab 27 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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National Bank, Karur Vysya Bank, Karnataka Bank, State of Bank of Indian and
Bank of Baroda, which have their own importance in the banking industry. The
biggest gainers in terms of jumping places on the list were public sector banks.
Karnataka Bank, for instance, was leading bank in 2004, but this year some other
bank took the place. India Overseas Bank, State Bank of Mysore and Punjab
National Bank are some other banks that stood better rankings.
The rise of India’s public sector banks is but a pointer to the dramatic
changes sweeping through the industry for some years. A growing economy,
greater consumer confidence and appetite for credit, and greater thrust on
technology have helped the more aggressive public sector unit banks not just
grow their business, but drum their balance sheets into shape.
According to the Reserve Bank of India’s banking review of 2004-05,
there was a notable pickup in credit to the commercial sector, and a renewed
demand from industry for investments and a surge in exports. While both
operating profits and net profits grew slowly (-2.2% and 0.9%, respectively
compared to 2.7% and 1.1% in 2003-04) in absolute terms, the banks still made a
lot of money Rs. 20,705 crores in total net profits in the case of our different
banks.
28 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Impressively enough, the Non Performing Assets monster is on the run.
Over the last five years, the industry has halved its bad debts. Bad loans as a
percentage of advances shrank to 2.2% from 2.9% the year before. The industry
focus now is on scaling up both domestically and in markets abroad. Widening
the product and services portfolio, and better using technology to make banking
more accessible and efficient.
Now, the India’s best bank is HDFC bank and Centurion Bank, it had
decided to step back and look at the industry changing contours. With the
possible opening up of the banking sector in 2009 will mean for the competitors.
Banks should use as an opportunity to get their growth strategies in place.
They should grow through mergers and acquisitions. Bankers are rushing
to tap the countries small and medium enterprises.
The fact that it has been growing upwards of 10% annually and that profit
margins here are better than those in corporate lending. Small Medium
enterprises apart, looked at what will soon become a headline-grabbing affair in
the banking industry. Mergers and acquisitions, not the one to make a case for
consolidation in the industry arguing that India needs is not a large number of
small banks but a small number of large banks.
Indeed, underlining the frenetic activity in the sector is the growing
realization that strong and large banks are what the country needs to drive its
economy. Indian banks must be given time to get their act together.
29 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
BANK PROFILE
ORIGIN OF TGMC BANK LTD:
Tumkur grain merchant co-operative bank limited, B.H. Road in an urban
co-operative bank is one of the visionary merchant classes of Tumkur.
The TGMC bank was incorporated on 16-09-1963 by registering at
Mysore State co-operative register office with a register No. Of 270 with 275
members & with authorized capital Rs 5 lacks. In the beginning tears, TGMC
bank carried out its banking operation under the guidance of Bangalore gain
merchant co-operative bank limited.
30 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Mr. A.K.A Parshwanath, founder chairman of the TGMC bank. On 02-10-
1963 election was held for board of management & 12 directors were elected.
Bank has made considerable progress since then 1963 there were only 257
member having capitalization of 1, 35,000. Since then, there is considerable
increase of member joining the bank. Now it has 6633 members. Bank celebrated
its silver jubilee on 31-01-1992 & 44th anniversary in 29/09/2007.
TGMC bank is first fully computerized bank in Tumkur. Bank is offers
good services to its customers. Bank is increasing its profit over the year and
recently it has schedule bank status by achieving deposit of Rs. 225 crores.
Deposit though competition & many challenges in financial credit system
in Karnataka when compared to other co-operative bank, RBI have rated the bank
as “A” grade bank.
The reality behind the great success of this bank is good administration of
president Sir. N.R. Jagadish for his best advice, suggestion, and direction. The
Board of Directors and employees have also dedicated for the development of the
bank.
The reality behind the great success of this bank is good administration of
president Sir. N.R. Jagadish for his best advice, suggestion, and direction. The
board of directors and employees have also dedicated for the development of the
bank.
31 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
BOARD OF DIRECTORS AT THE TIME OF ESTABLISHMENT. In the
Year 1936;
Sri. A.K.A. Parshwanath – president.
Sri Gubbi Huchappa.
Sri. D.S. Siddappa.
Sri N.R. Jagadish
Directors-P.G. Srinivassetty, T.N. Kempu Honnayya,H.V. Shivradurayya,
G.B. Chidananda, H.N. Thimayya, C.L. Shekharappa and Y.
Chandrashedarappa.
DISTRIBUTION NETWORK/ AREAS OF OPERATION:
The area of operation of is confined to:
1. Tumkur district.
2. Bangalore urban and rural district.
3. Mysore district.
TUMKUR GRAIN MERCHANTS CO-OPERATIVE BANK LIMITED.
32 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
HEAD OFFICE:
B.H. Road, Tumkur-572103
Phone: 0813-2255905
Fax: 0816-2257636
Email: [email protected]
RBI License No: UBD: KA: 912:P: 11/11/1987
BRANCHES:
♦ Tumkur Branch:
S.S. Puram branch B.H. Road Tumkur. License No. UBD: GL: 2155. 16/05/1990
J.C. Road Branch J.C. Road, Tumkur License No: UBD: KA: 912P, 20-03-1994
Raghavendra Nagar Branch: Setty hally road License No: UBD: G.G: 49, 28-03-1994
Sadashivanagar Branch, Kunigal road, Tumkur License No: UBD: G.G.L: 49, 28-03-1994
A.P.M.C. Yard Branch, Tumkur License No: UBD: G.G.L. 274, 12-12-1997
♦ Tiptur Branch
Address: Jayadeva Complex, railway station road License No: UBD: G.G.L. 183,13-04-1999
33 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
♦ Sira Branch:
Adders: Hanuman bus complex, N.H. 4, Sira, License No. UBD: G.G.G.L 259, 31-07-1999
♦ Bangalore branches:
Address: No. 2, 11th cross, 4th block, Dr. Rajkumar roadRajajinagar License No: UBD: B.G.B.L. 333, 24-03-1999
Address: Basaveshwaranagar Branch, 3rd Stage, 4th Block, Basaveshwaranagar. License No. UBD: B.G.B.L. 413, 09-01-2002
Addres: Jayanagar Branch, No 239/19, 9th main road, and 3rd Block, Jayanagar. License No: UBD: B.G.B.L. 416, 20-01-2002
Address: Indiranagar Branch. License No; UBD: B.G.B.L. 493 01-04-2004
♦ Mysore Branch:
Adders: Ramavilas Road, K.R. Mahal road Mysore License No: UBD: B.G.B.L. 353, 28-07-1999
34 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
BOARD OF MANAGEMENT OF TGMC BANK LIMITED:
Elec
tion Process of TGMC Bank Limited:
The election will be held to appoint the Board of management of the bank.
All the share holders/ members of the bank are eligible to stand for election. Each
member can cast one vote. Through democratic process 18 members of Board of
management will be constituted. These 18 members will choose 1 president and 1
vice-president among them. The tenure of Board of management is 5 years.
Annual general body meeting of bank is preceded over by these members.
The members can also resign from their post, before completion of the terms, if
they desire to do so. President is supreme authority in the board of management.
ORGANIZATION STRUCTURE:
35 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
1 President
nt
1 Vice President 16 Directors + ( 2 inviters)
18 Members
A STUDY ON NPA IN TGMC BANK LIMITED 2008
36 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
SHARE HOLDERS
PRESIDENT
DEPUTY GENERAL MANAGER
GENERAL MANAGER/CEO
VICE PRESIDENT
BOARD OF DIRECTORS
ASSISTANT GENERAL MANAGER
MANAGER
ASSISTANT MANAGER
SENIOR ASSISTANT MANAGER
JUNIOR ASSISTANT MANAGER
SUB-STAFF & ATTENDERS
A STUDY ON NPA IN TGMC BANK LIMITED 2008
The bank has full time chairman/ president & also CEO & 18 board of
director who provide necessary vision & policy formulation. General and senior
manager for team formulation & implementation of strategies.
BOARD OF MANAGEMENT OF TGMC BANK LIMITED FOR;
N.R. JAGADISH- Industrialist
(President)
K.Y. SHIVANNA-Business
(Vice-president)
DIRECTORS:
R.J. Anantharajaiah-Business
M.N. Narasimhamurty nayak-Business
H.M. Divyananda murthy-Business
G.C. Murugappa-Business
Prabhu devaradhya-Business
T.M. Chennaih-Business
M.S. Dinesh jain-Business
T.R. Suresh-Business
M.P. Mahesh-Industrialist
37 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
G.S. Anup Kumar-Industrialist
K.B. Kanthraju-Industrialist
K.V. Srinath-Industrialist
* B.S. Suranarayanaguptha
* Mrs. Vijayasujay T.R
Various committees of TGMC Bank Limited:
The following sub committees are formed to carry out administrative
affairs of bank. President N.R. Jagadish and Vice-president K.Y. Shivanna are
part of it.
The bank has farmed 3 sub-committees:
1. Joint loan/hypothecation & Pledge loan committee
2. LMP/Machinery loan committee
3. Branch control/recruitment/investment & audit.
The sub committees will purse and render clear picture about loan proposal
and help board to take wise decisions.
38 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Department/section in TGMC Bank Limited:
The various departments and section at the Branch level comprising of,
♦ Deposit section
♦ Loan section
♦ Bills/clearing/DD/pay order section
♦ Cash section
♦ Saving bank/ current account
♦ Miscellaneous
At the level of administrative office:
♦ Administrative section-looks after conducting board meeting
♦ Shares section
♦ Management information & planning & development section
♦ Management section
♦ Recovery department
♦ Electronic data processing section
♦ Stores section.
39 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Each department function under the control of chief executive officer, who
ensures effective functioning of their respective duly assisted by manager etc.,
Bank logo:
Bank logo is designed from the beginning of the bank on 16-09-1963 &
logo shows bank’s motto.
VISSION STATEMENT & MISSION STATEMENT:
Working for your growth and your trust is our asset.
Business hours:
Monday to Friday, Working hour- 10:30 to 05:30 pm
Transaction hour- 10:30 to 02:30 pm
On Saturday, Working hours- 10:30 to 12:30 pm
Sunday holiday
40 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
FUNCTIONS OF TGMC BANK LTD:
The main functions of TGMC Bank Ltd. are as follows.
1. The main functions of TGMC Bank Ltd is they provide short term and
medium term loans to various sectors, and they are play a vital role in
finance.
2. They raise deposits from the members as well as non-members for the
purpose of the meeting the credit requirements of the bank.
3. Besides the above functions, they also carry on ordinary banking
operation such as acceptance of deposits from the public, leading the
loans and advances against proper securities. Collection of cheques,
receiving of valuable for safe custody discounting of bills, DD
arrangement and investing the surplus funds in government securities
etc.
Human resource management in TGMC Bank Ltd:
Human resource is very important for any concern. TGMC BANK limited
has very talented & gifted human resources.
41 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Number of employees and salary structure:
SL. No Job Title Number Salary Scale
1 Chief executive 01 10620-14960
2 Deputy general manager 01 9580-14200
3 Assistant general manager 02 8000-13440
4 Chief internal auditor 01 7400-13120
5 Manager/accountant 08 6300-11840
6 Assistant manager/accountant 16 5575-10620
7 Senior assistant 14 5200-9580
8 Junior assistant 53 4575-8400
9 Sub-staff at tenders 20 3300-6300
42 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Monthly salary is provided to employees. It varies with grade and level of
management they present.
Training: All the 114 employees are disciplined and honest. Training &
seminars are conducted for bank employees to improve their working & skills.
Computer training is also provided to cope with modern technological changes.
Presently the total staff members are:
Managers
Chief accountant / assistant manager
Cashier and clerks
Attendees and watchman.
Auditing & accounting system at TGMC Bank Limited:
Accounts are maintained under double entry system of book keeping.
Ledger is maintained to record each transaction. The bank is using “PENTA
BANK SOFTWARD & AILMENT SOFTWARD”. All accounts are
maintained under this software.
43 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Each department function under the control of chief executive officer, who
ensure effective functioning of their respective department duly assisted by
managers etc.,
Auditing system:
The bank has good auditing control system. Bank has appointed 2 internal
auditors to check the internal discrepancies & to strengthen the internal affairs of
the bank in accordance in the RBI guidelines & system & procedures.
External auditing is done by Assistant Director of co-operative societies
who are appointed by the govt. u/s 441 of KCS act external audit is done by
Mallayya, Assistant director, co-operative Union Audit Department, Tumkur
division, Tumkur.
Awards: in the year 2003 TGMC Bank Limited got the award of ‘The Best
Managed Urban Co-operative Bank in Karnataka.’
Strategic alliance:
TGMC Bank Ltd has strategic alliance with Karnataka State co-operative,
Apex bank under inland mutual arrangement scheme under the alliance.
Providing DD & cheques collection facilities all over India with the help of
44 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
ICICI bank Bangalore. TGMC Bank Ltd works towards mutual interest in
following areas.
1. Payment & transfer services
2. Collection of cheques and bills
3. Issues of DDs on members banks
4. Documentary credit and other forms of trade finance
5. Working capital & long term financing needs of each other clients.
Associated institution of TGMC bank limited:
G.M.A education trust
Sri Mahalakshmi charitable trust
Grain merchants charitable trust
Grain merchants association
Any Branch banking:
TGMC Bank limited introduced ABB facilities in 10-07-2003 to its
customers. The system has been introduced to widen the service and to take care
of needs of the public, at present no charge for these facilities.
ABB as the name suggests is the product for any Branch banking. In which
the customer of ABB Branch can carry out his banking transaction in any of the
above Branches.
45 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
For the following transaction this facility is available now;
♠ Balance enquiry
♠ Settlement of account
♠ Cash deposits
♠ Cash withdrawals
♠ Fund transfer credit
♠ Fund transfer debit
♠ Cheque book request
♠Cheque status request
♠ Stop payments of a Cheque
This scheme covers only saving bank account, current account, cash and
credit a/c etc.
Schemes in the TGMC Bank Limited:
The schemes are among the best in the banking sector:
1. Current account:
An account to take care of all business requirements with ‘Any Branch
Banking’ facility. These deposits contribute major portion of the bank circulating
media of exchange. Bank does not pay any interest for these deposits. Rs. 50 will
be charged for these deposits as bank charges for every half year and also charge
Rs. 2 for every cheque leaf.46 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
2. Savings Bank account:
People with steady monthly income save their earnings through this
account. There are certain restrictions in withdrawals. Bank pays interest at a
nominal rate. I.e. 4% and minimum balance is Rs. 500
3. Fixed deposit account:
Money is accepted for a fixed period. The rate of interest is higher than
other accounts. Minimum period is 15 days. Interest can be withdrawn on
monthly, quarterly or half yearly. The longer the period the higher the interest.
4. Mangala cash certificate:
In this scheme the capital amount gets doubled in 129 months. Interest will
accumulate quarterly minimum period is 3 years. Only matured dated interest can
be withdrawn on maturity date. Interest can be withdrawn along with principle
amount and compound interest.
5. Cumulative term deposit:
In this scheme it is specified amount is deposited every month.47 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Maximum period is one year. Interest can be drawn on matured date.
Interest can be accumulated quarterly.
6. Non-resident account:
Non-resident Indians can open savings bank accounts, fixed deposits and
mangala cash certificated accounts at designated Branches.
7. General insurance scheme:
The Bank has been providing General insurance scheme to their customers,
Influencing on M/s. Reliance General insurance & Reliance life insurance.
8. There are several other schemes of attract deposit from public.
Rate of interest on fixed deposit:
1. 15 to 90 Days 6%
2. 91 to 180 Days 7%
3. 181 to 1 Year 8%
4. Above 1Year to 3 Years 10%
5. Above 3 Years 9%48 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
[For senior citizens, widows 1% additional interest on term deposits of
above 1 year]
Advancing of loans:
The deposits received are invested by advancing loan to needs of the
borrowers for higher rates interest. This function is the source of profit for banks.
The various loan schemes are:
□ Working capital loan for traders
□ Term loan for acquiring capital assets, letters of credits, solvency
certificates for industrialists
□ Loans are also provided to buy buses, cars, tractors, earthmovers and all
types of vehicles for transport operator.
□ Personal loans for purchase of computers, consumer durables,
constructions, purchase of flat, house, complexes etc.
□ Pledge loan for whole sale dealer, loan against warehouse receipts, loan
against mortgage of property, loan against stocks held in cold storage of
property, loan against stocks held in cold storage ware houses
49 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
□ Loan for employed and professional. It includes term loan operating/
setting up clinics and for starting education institutions.
Other schemes/ services include:
Issue of DD
Issue of banker’s cheque
Gift cheques
Collection of cheques. /DD/bills
Safe deposit lockers.
Rising of funds:
The bank will raise its funds by the following ways, when there is need.
They are:
Issue of shares
Accepting deposits of various kinds & by issue of cash certificates.
Obtaining cash/ credit overdraft or other loans from Karnataka State co-
operative bank & with prior approval of registrar from any of the
nationalized commercial banks.
Donations
50 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Entrance Fee
Accepting subscription fund from members, Welfare funds or death relief
funds.
Distribution of profits:
At the general meeting, the net profit earned by the bank in the years as
calculated as per rule 22 of rules shall be announced & distributed as under.
Before distribution of profit & losses of previous year or years shall be deducted
out of net profit and remaining profit only shall be distributed.
The appropriation of profit is towards following mentioned funds:
Statutory reserve fund-25
Co-operative education fund-2%
Common good fund-10%
Bad debts reserve-25%
Building fund-10%
Propaganda fund-5%
51 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Investment fluctuation fund-10%
Staff welfare fund
Golden jubilee fund
Period divided equalization fund
Bonus
Contribution to society:
The bank has to contribute to so many social functions at various
occasions. The banking running G.M. Education center, G.M. Charitable Trust,
G.M. Medical Trust etc. where in the bank members can avail free medicines,
education to their children, G.M. Mahalakshmi temple Trust, etc…..
Silent features of TGMC Bank Limited:
The following are the salient features of the bank:
Very attractive interest rates on all deposits, more than nationalized banks.
Continuous increases in net profits
Rapid development in the new technology at a faster pace
All deposits having nomination facilities
52 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Tailor made deposits schemes to all classes of people
NRE/NRO accounts accepted
Providing short term loans at low rate of interest
Quick cheque collection facility
Working hours extended for 7 days a week at S.S Puram Branch, Tumkur.
Rajajinagar Branch, Bangalore.
All deposits up to Rs. 1 lakhs is guaranteed by deposits insurance scheme in
DICGC.
Easy procedure and documentation to avail loans
Total banking transactions are fully computerized with LAN system.
Objectives of the bank:
The following are the objectives of the bank:
To build up quality loan asset portfolio
To start new branches i.e. expansion
To reduce cost of deposits
To increase customer satisfaction
To set up net interest margin53 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
To provide ATM facilities to customers
To increase non-interest incomes
To reduce cash holding and bank balances
To reduce operating costs
To increase net profit
To provide safe lockers facility for all branches
To offer gold loans for customers
To innovate services
To absorb operational efficiency
To focus on skill development
To maintain personal integrity
To provide versatile banking services
Micro Finance Provide to small Business man
Introduce core Banking Facilities for feature.
Rate of interest on loans:
1. Pledge Loan 11.50%
54 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
2. Gold Loan & Housing Loan 12.50%
3. Joint Loan, Term Loan an Machinery Loan
Hypothecation Loan (Commercial)
12.50%
4. (Old Vehicle) 13.50%
5. (New Vehicle)
Hypothecation Loan (Personal/Private)
13.00%
6. (Old Vehicle) 13.00%
7. (New Vehicle)
Loan on Mortgage of Property,
12.50%
8. Consumable Article Loan, Cash Credit
Loan, Over Draft Loan,
NSC/LIC/Share/Bonds/ and all other Loans.
13.00%
Bird eye-view of Financial positions of the Bank for 2006-07
Total Business Crossed 47060.49
Net Profit 1150.57
Interest Income 2999.43
55 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Non-Interest Income 153.88
Non-Interest Expenditure 364.36
Profit Employee 10.75
Business per Employee 439.82
Earning Assets 28357.21
Total Income/Working Capital 9.34
C.R.A.R 14.13%
Return on Assets 3.05%
Coverage Ratio 9.04%
Total Income/Total Assets 9.29%
CD Ratio 83.14%
RESEARCH DESIGN:
NON PERFORMING ASSETS:
Definition:
56 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
♦ An asset which ceases to yield income is an NPA
♦ Income from NPA should not be recognized on accrual basis and should be
booked as income only when it in actually received. This will apply to all the
NPA’s.
♦ No interest should be applied on NPA, but calculation of interest (as prescribed
periodically) should be recorded in the account.
STATEMENT OF THE PROBLEM:
The problem is selected to analyze the non-performing assets in the
Janatha Co-operative Bank Ltd.
Hence the study is to be conducted to evaluate the level of NPA in the
Janatha Co-operative Bank Ltd, in Bangalore City, Study the effectiveness
measured taken by bank to reduce the level of NPA to minimum level and to
suggest the remedial measures to control the NPA and also to give better scope to
the management about dealing with the NPA of the bank.
OBJECTIVE OF THIS STUDY:
♦ To study the factors responsible for the cause of NPA in the bank.
♦ To study the trends in profitability & NPA for the last 4 years.57 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
♦ To study the effect of NPA on the profitability of bank.
♦ To study and provide suggestion and recommendation for the growth and
prospects of the bank.
Scope of the study:
The bank will be able to assess the efficiency with regard to management
of NPA, recovery of over dues and improvements of the profitability. It also
helps the banks to assess the further widening of the financial base and come out
with some valuable measures and methods.
♦ Selection of the suitable borrowers and in general banking and government
sponsored schemes.
♦ Involvement, Orientation and motivation of staff with system of the bank and
reducing the NPA.
Limitations of the study:
♦ The study concentrates only on the non-performing assets.
58 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
♦ The project period is short.
♦ There are some facts and figures which are considered to be confidential on the
part of the bank and those are not disclosed.
Research methodology:
Data sources:
The data collecting for the study is divided in to two ways.
1. Primary data.
2. Secondary data.
Primary data:-
Hence, the study is the finance management. Then the chance of primary
data is less, but the interviews from the managers and the chief accountants will
be made.
Secondary data:
Secondary data is from published materials that is Journals, news papers,
annual report and magazines.
Data Collection Tools:
59 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Questionnaire is used for collection of data from the sampling respondents.
Sampling design:
The researcher has identified this bank for the present study little
information has been collected from bank through the interview to manager and
staff. The causes for NPA were analyzed based on various parameters through
interviews. Further the data will be processed by applying statistical too to arrive
at valid conclusions.
Conceptual definition of this study:
1. Non performing Assets:
An asset is to be treated as non-performing asset when its ceases to
generate any income for the bank and if interest or installment remain past due to
two or more quarters as on the date of balance sheet.
In other words while classifying the advance as standard asset, there should
not be more than on one quarter installment or interest remaining past due on the
balance sheet date.
2. Past due concept:60 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
The interest or installment becomes past due after 30 days from the date
becomes due. For example the interest due of quarter ended 30th September
becomes due on 30th October.
3. Interest non collected account:
It is interest not collected account it is cumulative in nature and the new
interest due which is not collected would be added to the previous year interest
not collected account and recorded in their books of accounts.
4. Sub-standard assets:
An asset is classified as sub-standard if it remain as a non-performing for
period not exceeding two years. However RBI has reduced the period of two yrs
to18 months.
NOTE: The information stated on the basis of research methodology of O.R.
Krishna Swamy.
61 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
REVIEW OF LITERATURE:
Prof. Sanjay Kumar has discussed “NPA in regional rural banks, Impact
and Management’
The study was undertaken for a period of 1995-1999. The study was
conducted to analyze the loan asset, impact of NPA & Management of NPA.
NPA have become most critical factor governing the performance of banks. NPA
have various implications on profitability, liquidity & solvency of the regional
rural banks.
The study has shown that out of the legal, policy and operational support, it
is the latter which is critical to management of NPAs. The recovery of NPA’s
through crystallized collateral and other bank - stopping is subject to a prolix
process, as the present legal and other systems normally do not provide a fast and
effective exit route.
As regards policy support, it is time consuming if provided externally.
Hence, the RRBs have to mostly depend on the internal guidance and operational
support in devising suitable policy and strategies for NPAs have successfully
experimented in this regard and with internal interventions at the organizations
and staff level, have been able to contain the menace of NPAs and to improve
recovery to a great extent.
62 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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Some of the prominent practice adopted by the RRBs is hello borrowers’
campaign, liking of social status of borrowers with good and regular loan
accounts, effective involvement of revenue authorities and informal efforts. Thus,
RRBs should devise alternative strategies specific to their area, clientele and
environment to manage NPAs efficiently and effectively.
Management of non performing Assets:
An effective and prudent management of non-performing asset consists of:
♦ To check creation of NPAs in the first place particularly of fresh loans
♦ Improvement in the quality of NPAs i.e. to reduce slippage of a low grade NPA
to the next higher level
♦ Reduction of NPAs.
Thus, efforts to improve NPAs position or in other words quality of loan
portfolio can be broadly groped.
63 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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THEORETICAL BACKGROUND OF THE STUDY:
Non performing assets:
Definition:
As asset becomes non performing asset when it ceases to generate the
profit to its owner. Earlier assets were considered as non performing assets based
on the concept of “past due” or non performing asset was defined as credit in
respect of which interest and/installment of principal has remained “past Due” for
the specific period of time. The specific period was reduced in a phased manner
as under.
Year ending 31st March Specific Period
1993 4 quarters
1994 3 quarters
1995 2 quarters.
An amount is considered as past due when it remains outstanding for 30
days beyond the due date. However, with effect from March 31st 2001 the past
64 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
due concept has been dispensed with accordingly. Front the date 31st March 2004
the non performing assets is an advance where
1. Interest and/installment of principal remain over due for a period of
more than 90 days in respect of term loan.
2. The account remains out of order @ for a period of more than 90 days
in respect of an overdraft.
3. The bills remains overdue for a period of more than 90 days in the case
of bills purchased and discounted.
4. Interest or installment of principal remains overdue for two harvest
seasons but for a period not exceeding two half year in the case of and
advance granted for agricultural loans.
5. Any amount received remains overdue for a period of more than 90days
in respect to other accounts.
TREATMENT OF ACCOUNTS AS NPA:
Record of Recovery:
The treatment of assets as NPA should be based on the record of Recovery.
Banks should not treat an advance as NPA merely due to existence of some
deficiencies, Which are of temporary in nature Such as non availability of
adequate balance, Outstanding balance exceeding the limit and non submission of
stock statement, non renewable of the limits on the due date, etc.. Where there is
65 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
a threat of loss or the recoverability of the advances is in doubts, the assets should
be treated as NPA.
Borrowers wise not facility wise:
In respect of a borrower having more than one facility with a bank all the
facilities granted by the bank will have to be treated as NPA. However in respect
of financing under multiple banking arrangements, each bank may classify the
borrower accounts according to its own records recovery and other aspects.
Determination of NPA under different types of loans and advance:
1. TERM LOAN:
Term loan accounts will be treated as NPA if interest/installment remain
past due for period of two quarters i.e., there should not be more than one quarter
interest/installment remaining past due to avoid the account from NPA status.
Cash Credit and Overdraft: A cash credit or overdraft will be treated as NPA if
the account remains out of order for a period of 2 quarter during the year ending
31st March. An account should be treated as “out of order”’ if the outstanding
balance remains continuously in excess of sanctioned limit.
66 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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Drawing power in case where the outstanding balance in the principal
operation account is less than the sanctioned limit/drawing power but there are no
credit continuously for six months as on the date of the balance sheet or credit are
not enough to cover the interest debited during the same period, such account
should be treated as order.
2. BILLS PURCHASED AND DISCOUNTED:
The bill purchased/discounted should be treated as NPA if the bill remains
overdue and un-paid for a period of two quarters as on the date of balance sheet.
However, overdue interest should not be charged and taken to profit and loss a/c
in respect of over due bills unless they are realized.
3. OTHER ACCOUNTS:
Any other facilities should be treated as NPA if any account to be received
in respect of that facility remains past due for periods.
4. CASH CREDIT AND OVERDUES:
A cash credit overdrafts account will be located as NPA the account
remains out of order to a period of more than 180 days during a year. An account
should be treated as out of order, where out standing balance remains
continuously in cases of the sanctioned limit/drawing power.
The cases when the out standing as with in the limit/drawing power, but
67 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
no credit in the account continuously for a period of more than 180 days or on its
date of balance sheet of the bank. I.e. 1st March of the each year.
PROVISIONING FOR LOANS AND ADVANCES:
Taking in to accounts the time lag between an accounts becoming doubtful
of recovery. Its recognition as such, the realization of the security and the erosion
over time in the value of security and the erosion over time in the value of
security charged to the bank, it has been decided that bank should make provision
against sub standard assets, Doubtful assets and loss assets. Detailed instructions
in this regard are furnished bellow.
SUB-STANDARD ASSETS:
A general provision of 10% of total outstanding while arriving at the
provisioning requirement value of security in any form including term deposits.
NTSC’s surrender value of life policies could be deducted.
DOUBTFUL ASSETS:
68 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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1.100% of the extent to which the advance is not covered by the realizable value
of the security to which the bank has a valid resource and the realizable value is
estimated on a realistic basis
2. Over and above item 1 depending upon the period for which the assets have
remained doubtful. 20% to 50% of the secured portion on the following basis.
Consideration period of
Advances as doubtful
Up to 3years
3 to 5 years
More than 5 years
Doubt full assets are not covered by
% of provision.
20 %
30 %
50 %
100 %
69 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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Any securities
In case of the advances guaranteed by ECGC provision should be made
only after the realizable value of securities is deducted from the out standing.
The quantum of provision is based on the quality of loan assets. Standard
assets are perfectly good and no provision is required on these. Sub standard
assets are non-performing for less than tow years and there is a high chance of
recovery.
10 percent of the amounts due on sub standard assets need to be provided.
Doubt full assets are non performing assets for two or more years. These may be
covered by security or not covered by any society.
ASSETS CLASSIFICATION:
Co-operative banks should classify their advance in to two broad
Categories:
Standard assets:
70 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Standard assets is one which does not disclosed any problem and which
does not carry more than normal risk attached to the business such an asset is not
an NPA.
Non performing assets:
Banks are required to classify non-performing assets further into the
following three categories based on the period for which the assets has remained
non-performing and reliability of the dues.
Sub-standard Assets.
Doubtful Assets.
Loss Assets.
Sub-standard assets:
♦ A sub-standard assets is one, which has remained NPA for a period less than or
equal to 12 months.
♦ Further sub-standard assets shall be segregated in to secured exposure &
‘unsecured exposure’ for the purpose of determining the rate of provision. Un
secured-exposure is defined as an exposure where the realizable value of the
security, as assessed by the bank/approved values/ Reserve Bank’s inspecting
officers, is not more than 10% abilities, of the o/s exposure ‘exposure’ shall
71 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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include all funded and non-funded exposures (including underwriting & similar
commitments) ‘security’ means tangible security properly changed to bank and
will not including in intangible securities like guarantees, comfort letters et.
Therefore all clean loans and loans with security less than 0% under sub-standard
category may be treated as ‘unsecured exposure’.
It may be noted that each sub-standard asset shall be classified as either
secured exposure or un secured exposure & provision shall be made on o/s
balance.
DOUBTFUL ASSETS:
♦ A doubtful asset is one, which has remained NPA for period exceeding 12
months.
♦ Doubtful assets shall be bifurcated in to doubtful assets less than one year b/w 1
and3 years, above 3 years doubtful assets and above 3 years shall be further
bifurcated in to “existing stock”.
♦ Further each doubtful asset shall be bifurcated in to secured portion and
unsecured portion for provisioning purpose.
LOSS ASSETS:
A loss asset is one where loss has been identified by the bank or internal or
external auditors or RBI inspection. In other words, such as asset is considered un
72 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
collectable & of such little value that its continuance as a bankable asset is not
warranted although there may be some salvage or recovery value.
A NPA shall be treated as loss asset, irrespective of age of NPA, if it is un
collectible due to,
♦ Serious credit impairment viz fraud etc.
♦ Realizable value of securing has become nil or negligible due to erosion in the
value of security. (Value may be treated as negligible if it is less than 10% of the
o/s in the borrower account).
NPA AT DIFFERENT STAGE:
D1 stage: If NPA exists for more than two years but does not exceed 3 years than
the asset is said to be in the D1 stage.
D2 stage: The NPA exists for more than 3 years but up to 5 years.
D3 stage: If the NPA exists for the more than 5 years then assets is said to have
entered the D3 stage.
Adoption of 90 days Norm for Recognition of Loan Impairment:
73 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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At present, a loan is classified as non-performing when the interest and/or
installment of principal remain overdue for a period of more than 180 days as
against the international best practice of 90 days payment delinquency. With a
view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt the 90 days norm from the year ending
March 31, 2004.
NOTE: This information stated with the help of Indian Financial System by P.N.
Vershney and D.K. Mittal.
DATA ANALYSIS AND INTERPRETATION
Introduction:
Analysis and interpretation are giving meaning to the collected information
by comparing them with the existing information. Analysis is placing the
collected data in some order or format so that the data acquire a meaning. Raw
data become information only when they are placed in a meaningful form.
Interpretation involves drawing conclusions from the gathered data.
There are three tasks to be performed if the collected data are to be used in
the most effective manner.74 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
1. An intensive review must be made of all the data collected for the
project with reference to the studies objectives.
2. These data are then analyzed with the help of techniques selected
earlier.
3. The results emerging from these analyses are then related to the studies
objectives.
The collected data have to be analyzed fully on the basis of the data
collected, an analysis has been made. Some researchers make the mistake of
postponing the selection of their analytical techniques until they collect the data.
There are numerous articles published in various trade and academic
journals describing new models and techniques for analysis, besides text books
on statistics which outline various analytical techniques.
These documents should be consulted before deciding the framework of
analysis. The analysis may be descriptive analysis and casual analysis.
Interpretation means drawing inferences from the collected facts after the
analytical study. Interpretation helps the researcher to understand the abstract
principle that works beneath his findings. He can line up his finding with those of
other studies having relationship with the established concept. Interpretation also
enables the researcher to establish concepts, which will be the basis of future
research. Moreover, interpretation helps the target audience to understand the real
significance of his research findings.
75 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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TABLE: 1
TYPE OF DEPOSIT
(Rs. In lakhs)
Particulars 2006 2007
Fixed Deposit 18617.49 20223.61
Saving Deposit 2545.40 3078.55
76 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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Current Deposit 1313.64 2394.74
TOTAL 22476.53 25696.9
SOURCE: Annual Report
Fixed deposit includes cash certificates, R/D, Maturity deposit, NRE
deposit, NER certificate, Matured deposit, Matured R/D, Matured jayalaxmi
small deposit, matured cash certificate, etc.
TABLE: 2
TYPES OF LOAN (Rs. In lakhs)
Sl.No
Particulars 2006 TOTAL 2007 TOTAL
1 Short-term loan:
Joint loan Installment Joint loan
190.21 166.84
77 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Advanced loan R/D loan Cash Certificate loan Gold loan F/D loan Loan on NSC Pledged loan Loan on LIC Bond Bill purchases
TOTAL
3.84
2979.57
7.63
308.79
15.18
161.91
0.87
1847.83
0.28
11.45
5527.60
3.13
3234.81
6.78
276.22
18.99
179.96
0.27
763.65
0.00
12.59
4663.29
2 Medium-term loan:
Loan on mortgage property Vehicle loan Machinery loan Consumer loan Housing loan Staffing loan Festival loan Staff vehicle loan
TOTAL
11232.37
1496.76
1257.34
3.90
157.98
1.23
1.07
5872.02
1307.07
455.24
2.72
46.25
2.26
1.17
78 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
14150.69
0.15
7686.91
3 Long-term loan:
Long-term loan on mortgage property
Loan on vehicle Long-term installment loan Long-term housing loan
TOTAL
8229.12
42.32
651.99
89.91
9013.34
SOURCE: Annual Report.
TABLE: 3
FINANCIAL POSITION OF THE BANK
THE STATEMENT OF THE BANK POSITION AS UNDER
(Rs. In lakhs)
Year Members Share capital Deposit Loan Profit/Loss
79 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
1994-95 3927 111.33 1305.85 1361.29 101.90
1995-96 3662 138.87 1929.17 2018.10 143.27
1996-97 4084 195.70 3170.82 2928.45 212.97
1997-98 4662 291.66 4586.93 3925.25 242.45
1998-99 5242 348.58 6257.62 4843.12 272.54
1999-00 6000 400.61 8763.28 6515.67 399.14
2000-01 6411 435.81 12290.98 8666.20 446.478
2001-02 6850 463.13 14676.52 11491.18 805.26
2002-03 6970 459.64 16554.42 13151.89 685.53
2003-04 7374 458.94 18796.62 14398.60 852.51
2004-05 7384 457.49 20027.03 15359.63 859.91
2005-06 7550 477.39 22476.53 19270.30 916.15
2006-07 7867 496.90 25696.91 21363.58 1150.57
SOURCE: Annual Report.
TABLE: 4
PAID UP SHARE CAPITAL AND RESERVE AND OTHER FUNDS
(Rs in lakhs)
80 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
Sl. No Year Paid up share capital Reserves and other funds
1 2003-04 458.94 3003.81
2 2004-05 457.50 3672.06
3 2005-06 477.39 4445.37
4 2006-07 5361.50 5985.03
SOURCE: Annual Report.
Concepts:
The table shows the constant increasing in the reserves and other funds and
also paid up share capital should be increasing.
Analysis:
In the years 2003-04, 2004-05, 2005-06 and 2006-07, the paid up share
capital Rs458.94, Rs 457.50, Rs 477.39 and Rs 5361.50 respectively increasing,
And , bearing 2003-04, 2004-05,2005-06 and 2006-07 the reserves and other
funds is Rs 3003.81, Rs 3672.06, Rs 4445.37 and Rs 5985.03 respectively
increasing.
Interpretation:
It shows that it is a healthy trend of the bank.
81 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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PAID UP SHARE CAPTIAL AND RESERVE AND
OTHER FUNDS
TABLE: 5
82 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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DEPOSITS AND ADVANCES (Rs in lakhs)
Sl. No Year Advances Deposits
1 2003-04 14398.60 18796.62
2 2004-05 15359.63 20027.03
3 2005-06 19678.30 22476.54
4 2006-07 21363.58 25696.91
SOURCE: Annual Report.
Concepts:
The above table statement shows that advances and deposits of the TGMC
bank limited.
Analysis:
Here the bank advances shows in an increasing trend the years 2003-04,
2004-05,2005-06,and 2006-07 is Rs 14398.60,Rs 15359.63, Rs 19678.30 and
21363.58 is respectively increasing.
And, the 4th column of this table shows deposits of the bank it is also
increasing in year by year. for like 2003-04,2004-05,2005-06 and 2006-07 the
amount is Rs 18796.62 ,Rs20027.03,Rs22476.54,and 25696.91 is respectively.
Interpretation:83 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
The advances and deposits is gradually increasing year by year .This is a
healthier position of the bank.
DEPOSIT AND ADVANCES
84 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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TABLE: 6
NET PROFIT (Rs in lakhs)
Sl. No year Net profit
1 2003-04 852.51
2 2004-05 859.91
3 2005-06 916.15
4 2006-07 1150.57
SOURCE: Annual Report.
Concepts:
The bank has maintained good conditions when compared to 4years net
profit , it shows an increasing trend.
Analysis:
The net profit of the bank in 2003-04 was Rs. 852.51lakhs; in 2004-05 it
was Rs. 859.91lakhs, in 2005-06 it was Rs.916.15lakhs and 2006-07 is Rs
1150.57.
Interpretation:
85 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
The net profit is compared to last years is increasing, this shows the
healthier position of the bank.
NET PROFIT
86 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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TABLE: 7
QUALITY ASSETS (Rs. In lakhs)
Sl.No Year Standard Assets (%) NPA (%)
1 2003-04 13968 (97.01%) 14.90 (2.07)
2 2004-05 14878.80 (96.87%)
3 2005-06 19245.30 (97.80%)
4 2006-07 20722.60 (97%)
SOURCE: Annual Report.
Concepts:
As against the standard assets the movement of NPA is shown in the table.
Analysis:
Percentage of performance of the standard assets is in the increasing trend,
which can be called a healthier development of performance of the bank as a
whole, at the same time the level of NPA in percentage-wise shows the
decreasing trend.
Interpretation:
87 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
This shows that the bank is taking proper steps to recover the dues by the
customer, etc.; when the rate of NPA is decreasing it will help the growth of the
bank.
QUALITY ASSETS
88 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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\
TABLE: 8
89 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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ASSETS CLASSIFICATION AT TGMC BANK LTD (Rs. in lakhs)
Year Total loan Standard assets Sub-standard assets Doubtful assets
2003-04 14398.60 13968 421.89 298.04
2004-05 15359.63 14424.21 511.12 424.30
2005-06 19678.30 18730.97 553.39 393.95
2006-07 21363.58 20259.21 380.20 719.45
SOURCE: Annual Report.
Concepts:
The above table shows the bank total loan, standard assets, substandard
assets and doubtful assets.
Analysis:
The table shows the constant increasing in the standard assets from the
financial year 2003-04 to 06-07, the comparative of columns 1 and 2 reveals that
the standard assets as against total loans are increasing when the standard assets
will increasing from year to year. In sub-standard assets the data shows the assets
increasing from year to year. A doubtful asset shows that only in the financial
year 2003-04 is Rs. 298.04lakhs, in the year 2004-05 it was Rs. 424.30lakhs, in
2005-06 it was Rs. 393.95 lakhs and 06-07 it shows Rs. 719.45lakhs in doubtful
assets.
Interpretation:
90 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
It shows that it is a healthy trend of the bank.
CLASSIFICATION OF ASSETS
TABLE: 9
91 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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NPA & PROVISION MADE DURING THE LAST 4 YEAR
(Rs. in lakhs)
Year NPA’s Provision Amount
2003-04 14.90 2.98
2004-05 -------- --------
2005-06 -------- --------
2006-07 -------- --------
SOURCE: Annual Report.
Concepts:
Provision calls for keeping aside the specified amount safeguarding the
future mis-happening i.e., to cope up with the future contingencies.
Analysis:
The bank in the year 2003-04 the NPA amount is Rs. 14.90 lakhs and the
provision is Rs. 2.98 lakhs it shows the decreasing trend. In the last 3 years like
2004-05, 05-06 and 06-07 there is no NPA and provision.
Interpretation:
Through this we can analyze that the bank is in a healthier trend.
92 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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NON PERFORMING ASSETS AND PROVISIONS MADE FOR THE
LAST FOUR YEARS:
93 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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TABLE: 10
PROFIT & PROVISION OF TGMC BANK AN ANALYSIS
(Rs. in lakhs)
Year Gross profit NPA provision Net profit
2003-04 2675.60 2.89 852.51
2004-05 2627 -------- 859.91
2005-06 4010.10 -------- 916.15
2006-07 3153.30 -------- 1150.57
SOURCE: Annual Report.
Concepts:
The above statement shows the gross profit, provision made on NPA’s and
the Net profit of TGMC Bank ltd for last four years.
Analysis:
Here the researcher analyzed the impact of NPA on the profitability of the
NPA. In the year 2003-04 the bank earned a gross profit of Rs. 2675.60 while
provision made during the year was Rs. 2.89 lakhs. Provisioning norms were first
introduced to co-operative bank, RBI, the net elect was on the profit which had
sub statistically increased to posture figure it amounted to Rs.852.51 lakhs.
94 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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In the year 2004-05 the gross profit of Rs. 2627 lakhs whereas provision
made is Nil and the Net profit was 859.91 lakhs which was position figure.
Bearing 2005-06 and 06-07 the gross profit was Rs. 4010.10 lakhs and
3153.30 lakhs respectively and NPA provision made Nil in both the year and net
profit is Rs. 916.15 and 1150.57 lakhs.
Interpretation:
The profit rate compare to last years is increasing this shows the healthier
position of the bank.
PROFIT AND PROVISION OF THE BANK FOR THE LAST FOUR
YEAR
95 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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TABLE: 11
TURNOVER OF THE BANK IN LAST FOUR YEARS (Rs.in lakhs)
Year Previous year profit Current year profit Turnover of the year
2003-04 685.53 852.51 23111.87
2004-05 852.51 859.91 25016.49
2005-06 859.91 916.15 28315.45
2006-07 916.15 1150.57 33775.84
96 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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SOURCE: Annual Report.
Concepts:
The above table shows the compression of the bank previous year profit and
current year profit trends, and also increasing trend of the turnover.
Analysis:
The turnover of the bank in 2003-04 was Rs. 23111.87 lakhs, in 2004-05 it
was 25016.49 lakhs, in 2005-06 it was 28315.45 lakhs and in 2006-07 it was
33775.84 lakhs. There is a study increase in the turnover from year to year.
Current year profit – Previous year profit
Growth rate = ----------------------------------------------------- *100
Previous year profit or loss
Interpretation:
There is a steady increase in turnover from year to year.
TURNOVER OF THE BANK IN LAST FOUR YEARS
97 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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TABLE: 12
GROWTH RATE OF THE BANK
(Rs.in lakhs)
YearCurrent/Previous year profit*100
Previous year profit/lossPercentage
98 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
2003-04 0.2435 24.35%
2004-05 0.0086 0.86%
2005-06 0.065 6.5%
2006-07 0.2559 25.59%
SOURCE: Annual Report.
Concepts:
The term, bank growth rate percentage has been increasing trend from year to
year.
Analysis:
The growth rate of the bank is decreasing in the year 2003-04 i.e., 0.86%
but after 2004-05 it shows an increasing trend over the years. The growth rate of
the bank in 2006-07 is 25.59% it is very high when compared to 2003-04.
Interpretation:
The rate and growth is gradually increasing year by year and it shows a
very healthier trend of the bank.
GROWTH RATE OF THE BANK
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A STUDY ON NPA IN TGMC BANK LIMITED 2008
REASON FOR CAUSE OF NPA:
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A STUDY ON NPA IN TGMC BANK LIMITED 2008
♦ Willful-default/intentional default
♦ Due to unavoidable factor i.e. factors beyond borrowers and control.
Unfair market price
Loss of asset due to accidents.
♦ Diversion of funds/mis-utilization of funds for other purposes, other than for
actual purpose for which the loan was lent.
♦ Lack of awareness’ about consequences of default to borrowers.
♦ Due to loan waiver factor, which makes borrowers careless/non responsible to
make the prompt repayment of land.
♦ Delay in enforcing legal action against defaulters.
♦ Deficiency if the scheme i.e. let or subsidies of art of loan make the borrowers
irresponsible about default.
♦ Law differences between co-operative banks regional rural bank.
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EFFORTS MADE BY THE MANAGER TOWARDS RECOVERY OF
OVERDUE:
♦ Frequent & regular follow up by the field staff/manager.
♦ Issue of notices that is regular notices to borrowers regarding their account
becoming as default.
♦ Educating borrowers about default and its consequence.
♦ Recovery camps are conducted periodically.
♦ Interest/installment demand notice are sent to borrowers.
♦ Managers of branches accompanied by other staff conduit regular field visits.
♦ Awareness about the NPA being told.
♦ Advising the borrowers to pay the interest at least.
♦ Renewal of the account/loan is done i.e. further tending to the present
borrowers.
♦ Convincing for other schemes that directly motivate the borrowers to pay off
the loan and evil fresh to an intensive recovery campus & awareness campus it
harvesting seasons to initiate repayment.
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IMPORTANT STAGES FOR REDUCING THE NPA AND RECOVERY
OF LOANS:
Stage-1 Identification of beneficiary & scheme suitable to him.
Stage-2 Disbursement of loan & its granting.
Stage-3 The time when account enters “due for repayment”.
Stage-4 The time when account becomes doubtful/loss.
Among the above, first stage is very important because,
It will depend on the success of the schemes & prompts repayment.
Fixation of correct repayment schemes.
To see that the income is generated regularly.
Proper utilization of loan amount for the purpose actually meant for.
To see the funds are not diverted.
Not giving any scopes to default.
Suitable candidates are selected for the scheme.
To avoid forceful finance for activities not available to the beneficiaries.
To reduce over dues at the branch level.103 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
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VALUABLE SUGGESTION GIVEN BY THE MANAGER TO REDUCE
NPA:
Valuable suggestions to reduce NPA they are as follows:
Proper identification of schemes and beneficiary.
Suitable selection of borrowers.
Assessment of integrity & worth of the borrowers in the initial stage.
Advances for the need based activities only.
Proper follow up.
Timely visit by the field staff & making personal contacts with the
borrowers.
Regular issue of demand notice.
Promote renewals of loans.
Educating the borrowers in prompt repayment of loan consequences in
case of non-repayment of loan.
Filing of suits in the court & auction of security charged to the bank.
Compromise settlement with the default borrowers.
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Conducting of recovery campus along with State Government officials like
revenue department.
Getting help from the controlling authority in case of emergency.
Identification of the NPA in the initial stage & steps to be taken to recover
the loan & minimize the NPA.
Proper follow up with the support of all the staff members who where
having good touch with customers.
Giving wide publicity in local newspaper & distribution of pamphlets in
the villages for the repayment of loan.
The important steps to be taken by the bank in reducing the level of NPA
are as follows:
Accelerating the field visit and to have close follow-up.
Sending timely notice.
List out recoverable NPA and identifying minimum amount of recovery.
Identify the potential NPAs and arrive at minimum amount of recovery
required to continuance as standard assets.
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Legal action:
Proper follow up suit-fail cases.
Legal action should be initiated promptly. All suits faceted cases to be
reviewed property and specific action plans for such cases firmed up.
Where cases have been decreasing execution proceeding should be drown
up immediately.
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SUMMARY OF FINDINGS AND SUGGESTION
Summary:
The bank, paid up share capital and reserves and other funds can shows
an increasing trend from year to year.
The advances and deposits is gradually increasing year by year. This is
a healthier position of the bank.
According to financial report it is observed that the standard assets are
increasing every year for the year 2003-04, 2004-05,2005-06 and
2006-07.The standard assets are Rs.13968.0 lakhs (97.01%),14878.8
lakhs (96.87%), 19245.8 lakhs (97.80%),and 20722.6lakhs(97.0%).
The assets classification of NPA in TGMC Bank for the year 2006-06
Sub standard assets Rs 1219.86lakhs and doubt full assets is nil.
The position of the bank NPA in the year 2003-04 only is Rs
14.90lakhs .in year 2004-05,2005-06 and 2006-07 is respectively nil.
The provision made for NPA only in the year 2003-04 is Rs
14.90lakhs, during the years 2004-05, 2005-06,and 2006-07 there is no
NPA and no provision made.
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The net profit of the bank in years 03-04, 04-05, and 05-06 is
Rs852.51lakhs, 851.91lakhs, and 916.15lakhs respectively .During the
year 06-07 the net profit is increasing Rs1150.57lakhs it is a good sine
due to effective recovery of NPA.
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FINDINGS
Based on the analysis of the bank , the standard assets is increasing year by
year, at the same time the level of NPA has been decreasing and also
shows “Nil” in past three years . This shows the healthy trend in the
performance of the bank.
In the years 2004-05, 05-06, and 06-07 the bank has reached comfortable
position in terms of earning of the profit and effective recovery of NPA.
The efforts made by the managers and there subordinates is reducing the
level of NPA in their branches is satisfactory.NPA and the provision made
for the during the 2004-05, 05-06 and 06-07 is Nil.
The growth rate of the bank is decreasing in the year 2003-04 i.e., 0.86%
but after 2004-05 it shows an increasing trend over the years. The growth
rate of the bank in 2006-07 is 25.59% it is very high when compared to
2003-04.
In September 2000 bank was got schedule bank status by achieved deposit
of Rs 100 crores.
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Bank gives all types of loans and advances except agriculture loans and
educational loan.
Bank sanctions the loans and advances to all customers.
In every audit it getting “A” grade.
SUGGESTIONS
The steps taken by the bank in reducing the level of NPA is satisfactory.
They have to maintain the same steps in future also.
The growth rate of the bank is fluctuating year by year; it is not a good
sign to bank. Hence, they should take proper steps to increase their growth
rate efficiently.
Bank as to be introducing modern electronic machines like, ATM, Teller
System and password systems.
110 SRI SIDDHARTHA INSTITUTE OF MANAGEMENT STUDIES, TUMKUR.
A STUDY ON NPA IN TGMC BANK LIMITED 2008
CONCLUSION
I feel happy to express my views and share my knowledge and what I
learnt in my project study.
By analyzing NPA of the TGMC Bank Limited for the last four years. The
NPA is nil during the year 2004-05, 05-06 and 06-07 which is satisfactory. It is a
healthy and good sign of bank; it is possible by bank because of its increase in
efficiency in sanctioning the quality advances and recovery of over dues by
sincere efforts. The efforts taken by the management to reduce the level of NPA
is up to the mark... Performance of the bank is satisfactory in 2006-07 compared
to its previous year.
Tumkur Grain Merchants Co-Operative Bank Limited is having
satisfactory financial position.
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