Summer Training Project on Non Performing Assets

Non Performing Assets

CHAPTER: 1

EXECUTIVE

SUMMARY

B.M. Collage of Business Administration Page 1


Executive Summary

A project has been prepared under the title of ‘Non Performing Assets in

Surat’.

First of all the information regarding the banking industry is given. In that

various facts regarding the bank industry is being provided. Also the various

types of non performing assets.

The brief introduction of non performing assets is given. In this the definition,

various benefits, objective, limitation etc. are mentioned. Then a analysis of

data is made.

Then the objective of doing the project is mentioned.

After that analysis comes. At the last me find Conclusion & Suggestion. Then

comes “facts and finding” part. In this part first of all the details about the non

performing assets by me is given. Then a comparison is made among the three

companies selected by me on various parameters.



CHAPTER: 2

RESEARCH

METHODOLOGY



RESEARCH METHODOLOGY

Research is a one kind of process to get knowledge about some topic.

Research is done so that systematic analysis can be done and problem can also

be solved.

TITLE OF STUDY

Here it is “NON-PERFORMING ASSETS”

BENEFITS FROM THE STUDY

©. It helps me to know more about NPA and the situation of NPA in

bank.

©. It helps me to know the strategies adopted by banks to reduce the

NPA level and to understand the NPA provisions norms in bank.

RESEARCH PROBLEM

NPA always affect the profit of bank and also the prestige of bank. So

here the research problem is to identify the causes for the NPA and to identify

the action plan to reduce the NPA.

RESEARCH DESIGN

Here the research design is exploratory which helps me to explore the

NPA problem of bank.

RESEARCH INSTRUMENT

As a research instrument I have taken guidance from the CEO of City

bank and also my faculty of college.

DATA COLLECTION



Primary Data

Secondary Data

Hence it is an exploratory research their is not any dependence on primary

data.

Sources of secondary data

1. Annual report

2. Journals

3. Websites

4. Books

ANALYSIS AND REPORT WRITING

Here I have done ratio analysis and used various charts for analysis

purpose. And also I have written report on it.



CHAPTER: 3

OBJECTIVEOF

PROJECT



Some objectives for the selection of this project are as follows

©. To study and understand the concept of NPA

©. To analyze the banks policy to recover the level of NPA

©. To understand the effect of NPA on banks profit and its prestige

©. To understand how corrective measures taken by bank for NPA

©. To understand RBI’S rules and regulations for the control of NPA

©. To understand the credit appraisal policy and NPA recovery policy of bank



CHAPTER: 4

LIMITATION



LIMITATION OF PROJECT

Some times bank officer was hesitant to give all data on NPA.

I have selected only one bank for NPA which is very small sample size.

I face difficulty in doing proper analysis as I don’t have prior experience

for making project report.



CHAPTER: 5

INTRODUCTIONOF

BANKING INDUSTRY



DEFINITION OF BANK

“An organization, usually a corporation, chartered by a state or federal

government, which does most or all of the following: receives demand

deposits and time deposits, honors instruments drawn on them, and pays

interest on them; discounts notes, makes loans, and invests in securities;

collects checks, drafts, and notes; certifies depositor's checks; and issues

drafts and cashier's checks.”

DEFINITION OF BANKING

In general terms, “The business activity of accepting and safeguarding

money owned by other individuals and entities, and then lending out this

money in order to earn a profit”

So we can say that Banking is a company,

which transacts the business of banking. The Banking

Regulations Acts defines the business as banking by

stating the essential function of a banker.

The term banking is defined as “Accepting for

the purpose of leading or investment, deposits of money

from the public, repayable on demand or otherwise and

withdrawal by cheque, draft, order or otherwise.”


http://www.investorwords.com/3880/profit.html

http://www.investorwords.com/3100/money.html

http://www.investorwords.com/623/business.html

http://www.investorwords.com/771/cashiers_checks.html

http://www.investorwords.com/3351/notes.html

http://www.investorwords.com/1576/drafts.html

http://www.investorwords.com/844/checks.html

http://www.investorwords.com/4446/securities.html

http://www.investorwords.com/2858/loans.html

http://www.investorwords.com/3351/notes.html

http://www.investorwords.com/2531/interest.html

http://www.investorwords.com/2507/instruments.html

http://www.investorwords.com/4977/time_deposits.html

http://www.investorwords.com/1398/demand_deposits.html

http://www.investorwords.com/1398/demand_deposits.html

http://www.investorwords.com/832/chartered.html

http://www.investorwords.com/1140/corporation.html


HISTORY OF BANKING IN INDIA

Without a sound and effective banking system in India it cannot have a

healthy economy. The banking system of India should not only be hassle free

but it should be able to meet new challenges posed by the technology and any

other external and internal factors.

For the past three decades India's banking system has several

outstanding achievements to its credit. The most striking is its extensive reach.

It is no longer confined to only metropolitans or cosmopolitans in India. In

fact, Indian banking system has reached even to the remote corners of the

country. This is one of the main reasons of India's growth process.

The government's regular policy for Indian bank since 1969 has paid

rich dividends with the nationalization of 14 major private banks of India.

Not long ago, an account holder had to wait for hours at the bank

counters for getting a draft or for withdrawing his own money. Today, he has

a choice. Gone are days when the most efficient bank transferred money from

one branch to other in two days. Now it is simple as instant messaging or dials

a pizza. Money has become the order of the day.

The first bank in India, though conservative, was established in 1786.

From 1786 till today, the journey of Indian Banking System can be segregated

into three distinct phases. They are as mentioned below:

©. Early phase from 1786 to 1969 of Indian Banks



©.Nationalization of Indian Banks and up to 1991 prior to Indian banking

sector Reforms

©. New phase of Indian Banking System with the advent of Indian

Financial & Banking Sector Reforms after 1991To make this write-up

more explanatory, we divide scenario in Phase I, Phase II and Phase III

PHASE I

The General Bank of India was set up in the year 1786. Next were

Bank of Hindustan and Bengal Bank. The East India Company established

Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843)

as independent units and called it Presidency Banks. These three banks were

amalgamated in 1920 and Imperial Bank of India was established which

started as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and first time exclusively by

Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at

Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank

of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up.

Reserve Bank of India came in 1935.

During the first phase the growth was very slow and banks also

experienced periodic failures between 1913 and 1948. There were

approximately 1100 banks, mostly small. To streamline the functioning and

activities of commercial banks, the Government of India came up with The

Banking Companies Act, 1949 which was later changed to Banking

Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965).

Reserve Bank of India was vested with extensive powers for the supervision

of banking in India as the Central Banking Authority.

PHASE II



Government took major steps in this Indian Banking Sector Reform

after independence. In 1955, it nationalized Imperial Bank of India with

extensive banking facilities on a large scale especially in rural and semi-urban

areas. It formed State Bank of India to act as the principal agent of RBI and to

handle banking transactions of the Union and State Governments all over the

country.

Seven banks forming subsidiary of State Bank of India was

nationalized in 1960 on 19th July, 1969, major process of nationalization was

carried out. It was the effort of the then City Minister of India, Mrs. Indira

Gandhi. 14 major commercial banks in the country were nationalized.

Second phase of nationalization Indian Banking Sector Reform was

carried out in 1980 with seven more banks. This step brought 80% of the

banking segment in India under Government ownership.

The following are the steps taken by the Government of India to

Regulate Banking Institutions in the Country:

©. 1949: Enactment of Banking Regulation Act.

©. 1955: Nationalization of State Bank of India.

©. 1959: Nationalization of SBI subsidiaries.

©. 1961: Insurance cover extended to deposits.

©. 1969: Nationalization of 14 major banks.

©. 1971: Creation of credit guarantee corporation.

©. 1975: Creation of regional rural banks.

©. 1980: Nationalization of seven banks with deposits over 200 crore.

Banking in the sunshine of Government ownership gave the public implicit

faith and immense confidence about the sustainability of these institutions.



PHASE III

This phase has introduced many more products and facilities in the

banking sector in its reforms measure. In 1991, under the chairmanship of M

Narasimham, a committee was set up by his name which worked for the

liberalization of banking practices.

The country is flooded with foreign banks and their ATM stations.

Efforts are being put to give a satisfactory service to customers. Phone

banking and net banking is introduced. The entire system became more

convenient and swift. Time is given more importance than money.

The financial system of India has shown a great deal of resilience. It is

sheltered from any crisis triggered by any external macroeconomics shock as

other East Asian Countries suffered. This is all due to a flexible exchange rate

regime, the foreign reserves are high, the capital account is not yet fully

convertible, and banks and their customers have limited foreign exchange

exposure.

RESERVE BANK OF INDIA (RBI)

The central bank of the country is the Reserve Bank of India (RBI). It

was established in April 1935 with a share capital of Rs. 5 crores on the basis

of the recommendations of the Hilton Young Commission. The share capital

was divided into shares of Rs. 100 each fully paid which was entirely owned

by private shareholders in the beginning. The Government held shares of

nominal value of Rs. 2, 20,000

Reserve Bank of India was nationalized in the year 1949. The general

superintendence and direction of the Bank is entrusted to Central Board of

Directors of 20 members, the Governor and four Deputy Governors, one

Government official from the Ministry of Finance, ten nominated Directors by



the Government to give representation to important elements in the economic

life of the country, and four nominated Directors by the Central Government

to represent the four local Boards with the headquarters at Mumbai, Kolkata,

Chennai and New Delhi. Local Boards consist of five members each Central

Government appointed for a term of four years to represent territorial and

economic interests and the interests of co-operative and indigenous banks.

The Reserve Bank of India Act, 1934 was commenced on April 1,

1935. The Act, 1934 (II of 1934) provides the statutory basis of the

functioning of the Bank.

The Bank was constituted for the need of following:

©. To regulate the issue of banknotes to maintain reserves with a view to securing monetary stability and

©. To operate the credit and currency system of the country to its advantage



ORGANISATION STRUCTURE OF RBI

THE BANKING SYSTEM

Almost 80% of the business is still controlled by Public Sector Banks

(PSBs). PSBs are still dominating the commercial banking system. Shares of

the leading PSBs are already listed on the stock exchanges.

The RBI has given licenses to new private sector banks as part of the

liberalization process. The RBI has also been granting licenses to industrial

houses. Many banks are successfully running in the retail and consumer

segments but are yet to deliver services to industrial finance, retail trade, small

business and agricultural finance.

The PSBs will play an important role in the industry due to its number

of branches and foreign banks facing the constraint of limited number of

branches. Hence, in order to achieve an efficient banking system, the onus is

on the Government to encourage the PSBs to be run on professional lines.

BANKING SECTORS IN INDIA

BANKS

Public Private Co-operative Regional Rural Foreign

Sector bank sector bank bank bank bank



CO-OPERATIVE BANKS

The Co-operative banks have a history of almost 100 years. The Co-

operative banks are an important constituent of the Indian Financial System,

judging by the role assigned to them, the expectations they are supposed to

fulfill, their number, and the number of offices they operate. The co-operative

movement originated in the West, but the importance that such banks have

assumed in India is rarely paralleled anywhere else in the world. Their role in

rural financing continues to be important even today, and their business in the

urban areas also has increased phenomenally in recent years mainly due to the

sharp increase in the number of primary co-operative banks.

Some of the co-operative banks are quite forward looking and have

developed sufficient core competencies to

challenge state and private sector banks.

According to NAFCUB the total

deposits & landings of Co-operative Banks is

much more than Old Private Sector Banks &

also the New Private Sector Banks. This

exponential growth of Co-operative Banks is

attributed mainly to their much better local

reach, personal interaction with customers, and

their ability to catch the nerve of the local

clientele.

Though registered under the Co-

operative Societies Act of the Respective States

(where formed originally) the banking related activities of the co-operative



banks are also regulated by the Reserve Bank of India. They are governed by

the Banking Regulations Act 1949 and Banking Laws (Co-operative

Societies) Act, 1965.

CO-OPERATIVE BANKS FINANCE RURAL AREA AS

UNDER

©. Farming

©. Cattle

©. Milk

©. Hatchery

©. Personal finance

CO-OPERATIVE BANKS FINANCE URBEN AREA AS

UNDER

©. Self-employment

©. Industries

©. Small scale units

©. Home finance

©. Consumer finance

©. Personal finance

FACTS ABOUT CO-OPERATIVE BANK

©. Some cooperative banks in India are more forward than many of

the state and private sector banks.



©. According to NAFCUB the total deposits & landings of

Cooperative Banks in India is much more than Old Private Sector

Banks & also the New Private Sector Banks.

©. This exponential growth of Co operative Banks in India is

attributed mainly to their much better local reach, personal interaction

with customers, and their ability to catch the nerve of the local client.



CHAPTER: 6

INTRODUCTIONOF

CITY CO-OP. BANK LTD




CITY

BANK


INTRODUCTION OF BANK

City is a name of the bank where the bank is ready to serve its banking

services to all customers.

The bank is governed by the Gujarat co-operative societies act, a

legislation enacted by the state of Gujarat in India.

The bank have follows continues “A” Grade Audit systems and it is

the Grade “A” bank till now.

The city co-operative bank was started in 1996.City co-operative bank

ltd was promoted by an experienced and visionary entrepreneur named Mr.

MANOJ PATEL; he is the Founder Chair person of the bank and continues to

supervise its growth and development.

The Bank started off with exemplary combination of talented Board &

potential staff team, stuffed with extreme professionalism and well designed

contours of working method. The bank started as a paperless unit employing

Tele-banking, Remote banking, Off-time banking, Sunday banking, Holiday

banking and many more allied methodologies from the very beginning right

from the D-day.

The bank emerged as an exemplary unit offering a wide range of

specialized services in various sectors. Unlike majority of the banks where

working timings are linked with employee-convenience, CITY BANK

decided to hold timings as per convenience of the cluster of clients whom it

caters.



In the line with the same philosophy some of their branches in the

residential area work all the seven days of the week, without a break. They

work on Sundays w/o any alternative drop during the week. Likewise to focus

special attention on the senior citizens the bank offers to credit monthly

interest in their account with any bank before 5th day of every month.

SOCIAL OBLIGATIONS

City bank does not lag behind in offering contribution for the social

activities, particularly in the field of education and medicines. Out of activities

particularly in the field of education and medicines, Out of the substantial

profits earned by the City bank every year after the year, several goodwill

gestures are made such as,

©. City Bank conference Hall at KP college of Commerce Surat

©. City Bank computer Center at the Engineering College runs by the

Sarvajanik Education Society of Surat

©. Contribution for relief services under the auspices of the service

organization “Chhaydo” offered at the civil medical campus for patients and

their caretakers coming from the surrounding villages.

©. Charity Contribution towards Mahavir Cardiac Hospital of Rs. 11,25,000/-

in the year 2000-01

BANK’S SERVICES

LIFE INSURANCE

Bank has tied with Aviva Life Insurance Co ltd. It is joint venture between

Dabur – Indian FMCG Co & AVIVA – UK’s No 1 & world’s No 5 insurance

co. All the branches are offering all the insurance products of AVIVA viz for

child education, daughter’s marriage, retirement solution, term plan etc.


http://www.avivaindia.com/


GENERAL INSURANCE

Bank has tied with IFFCO-TOKIYO General Insurance. It is joint venture

between IFFCO a big fertilizer company in co-operative sector & TOKIYO

General Insurance – Japan’s No 1 & world’s No 5 General Insurance Co. All

the branches are offering all the products viz Mediclaim, Accident insurance,

Vehicle Insurance, House Insurance, factory & Shop keeping Insurance.

MUTUAL FUND

Bank has tied with Principal PNB Mutual Fund, UTI, Benchmark, ICICI

Prudential, SBI Mutual Fund, Lotus India, Reliance Mutual Fund, Kotak

Mahindra, Birla Sunlight, Sundram BNP Pari Bar Mutual.

LOCKERS

Rent free locker facilities are available in Baroda at Kareli Baug, at Bharuch,

Navsari & at following branches of Surat

1. Ring Road Branch

2. Abhishek Branch

3. City Light Branch

4. Puna Kumbharia Road Branch

5. Udhna Magdalla Branch

6. Ved Road(Katargam)Branch

7. Patel Park Branch(Adajan)


http://itgi.co.in/


BOARD OF DIRECTORS

NO. NAME DESIGNATION

1Shri. Piyushbahi Patel Chairman

2 Shri. Balvanbhai Patel Vice Chairman

3 Shri. Manojbhai Patel Director

4 Shri. Dharmeshbhai Patel Director

5 Shri. Anandbhai Kalgude Director

6 Shri. Amaratbhai Brachmabhatt

Director

7 Shri. Dineshbhai Tamakuwala

Director

8 Shri. Gaurang Rushi Director

9 Shri. Jayshreeben Talati Director

10Shri. Umeshabhai Patel Director



ORGANISATION STRUCTURE

(CHAIRMAN)

(DIRECTORS)

(CEO)

(CHIEF MANAGER)

(DIVISIONAL MANAGER)

(AREA MANAGER)

(BRANCH MANAGER)

(OFFICER/CLERK)



BALANCE SHEET

(Rs. in lacs)

Liabilities 2006 2007 Assets 2006 2007

Share Capital

293.23 340.79 Cash & Bank

1919.33 1822.38

Reserve 1987.08 2282.11 Investment 9326.22 11106.55

Profit & Loss a/c

305.76 236.37 Advances 7093.63 10340.26

Deposits 15449.44 19946.37 Fixed Assets

154.86 284.70

Borrowing 0.11 69.38 Other Assets

181.01 648.88

Other Liab. & Prov.

639.43 1327.75

18675.05 24202.77 18675.05 24202.77

PROFIT & LOSS ACCOUNT

(Rs. in lacs)

Income 2006 2007 Expenses 2006 2007

Interest & Comm.

1443.10

1769.56

Interest paid 816.59 956.84

Other Income 129.04 109.45 Operating Exp. 390.48 526.34



Depreciation 46.45 46.52

Provisions 12.86 112.94

Profit for the year

305.76 236.37

1572.14

1879.01

1572.14

1879.01

BRANCHES

1 Main Branch

20, Belgium Chamber, Delhi Gate Ring Road Suart-3.

2. Rander Branch

11, Patel Park, Tadwadi,Rander Road, Surat-9.

3. Adajan Branch

2, River Park Row House, Adajan Surat-9.

4 Ved Katargam Branch

24 Ground Floor Parth Building,Singapoor (ved) Katargam, Surat.

5. Abhishak Branch

1,Balaji Market , Ring Road, Surat – 2.

6. Udhana Magdalla Branch

11,Udhana Magdalla Road, Surat – 7.



7. City Light Branch

UG-14 Hira Panna Shopping Mall, City Light Road Surat- 7.

8. Puna Kumbharia Branch

6,Trapti Plaza, Nr.Sahara Darwaja,Puna KumbhariaRoad Surat .

CHAPTER: 7

INTRODUCTIONOF



NON-PERFORMING ASSETS

NON-PERFORMING ASSETS

©. MEANING

An asset becomes non-performing when it ceases to generate income

for the bank. Earlier an asset was considered as non performing asset

based on the concept of “past due”.

©. DEFINITION

A NPA was defined as credit in respect of which interest and/or

installment of principal has remained “past due” for a specific period

of time. The specific period of time was reduced in a phased manner as

under:

Year ended March,31 Specific Period



1993 4 Quarters

1994 3 Quarters

1995 2 Quarters

2004 1 Quarters

An amount is considered as past due, when it remains outstanding for

30 days beyond the due date. However, with effect from March31,

2001 the “past due” concept has been dispensed with and the period is

reckoned from the due date of payment.

©. NORMS FOR IDENTIFICATION OF NPA

With an intense to use the international best practice and to

ensure greater transparency, “90 days” overdue norms are accepted

for the identification of NPA from the year ended March 31, 2004.

With effect from March 31, 2004, a NPA shall be counted on

loan and advances where:

A. Interest and / or installment of principal remain overdue for a period of

more than 90 days in respect of a term loan.

B. The account remains out of order for a period of 90 days, in respect of

an Overdraft/ Cash Credit (OD/CC).

C. The bill remains overdue for a period of more than 90 days in the case

of bills purchased and discounted.



D. Any amount to be received remains overdue for a period of more than

90 days in respect of any other accounts.

Tier 2 bank like all the Urban Co-Operative Banks (UCBs)

other than the Tier 1 bank i.e. Unit bank shall classify their

loan accounts as NPA as per 90 day norm as hitherto.

FACTORS RESPONSIBLE FOR NPA

©. Improper selection of borrower’s activities

©. Weak credit appraisal system

©. Industrial problem

©. Inefficiency in management of borrower

©. Slackness in credit management & monitoring

©. Lack of proper follow up by bank

©. Recession in the market

©. Due to natural calamities and other uncertainties

INDIAN ECONOMY AND NPA



Gross NPAs (non-performing assets) in Indian banking sector have

declined sharply to close to 3.0 per cent in 2006 (15.7 per cent at end-March

1997). Net NPAs of the banking sector are now at close to one per cent and

the gap between the gross and net NPAs has narrowed over the years.

Recovery of dues is also more than the fresh slippages.

The decline in NPAs is particularly significant as income recognition,

asset classification and provisioning norms were tightened over the years. For

instance, banks now follow 90-day delinquency norm as against 180-day

earlier. Banks are also required to make general provisioning (0.40 per cent)

for standard advances.

According to Reserve Bank of India, improved profitability,

underpinned by robust macroeconomic environment and upturn in interest rate

cycle, has enabled banks

to reduce the backlog of NPAs.

NARSIMHAN COMMITTEE

©. FIRST COMMITTEE

The committee on financial system, also known as Narsimhan Committee,

under the chairmanship of Shri M. Narsimhan, appointed by the RBI

recommended the introduction of these prudential accounting norms by Indian

Banks in its report submitted in December 1991. The committee was of view

of that…

A. If banks want to know the true and fair financial health of bank then

they should observed the prudential accounting norms while making

balance sheet and profit & loss account.

B. Classification of assets has to be done on the basis of objective criteria.



C. Provisioning should be made on the basis of classification into four

different categories.

The income recognition, Assets Classification and provisioning norms

also known as Prudential Accounting Norms, provided that a bank should not

show profit which is merely a book profit by resorting to practice like debiting

interest to a loan account irrespective of its chance of recovery and booking

the same as income or by not making provisions towards loan losses.

©. NARSIMHAN COMMITTEE’S RECOMMENATIONS

@. Committee has suggested that banks should operate on the basis of

financial autonomy and operational flexibility.

@. It has recommended “Capital Adequacy Norm” of 8%

@. These norms are applicable to all UCB’s from 1st April, 1992.

©. SECOND COMMITTEE

The first committee had made recommendations in 1991, which had

resulted in basic changes in the matter of treatment of income, assets

classification and provisioning norms, etc…it was considered necessary for

government to continue the improvement with striker rules in future also and

for that second committee was made to continue changes with certain

modifications.

The second committee includes the following points:

1. If bank is working in foreign countries at presently then for them the

“Capital Adequacy Norm” is 9% which was 8% earlier.



2. Banks can’t classify the account as NPA which are guaranteed by

the Central / State government, effective from the year 2000-2001.

3. As per the existing norms, no provisions for standard assets but

from March 31st 2000, there is a norm of 0.25 percent on standard

assets.

4. Banks have to make a provision of 2.5% on their investment in

Government securities with effect from the year ending 31st March,

2000. In future, this provision is likely to be raised to 5%.

5. The present norm is of 180 days for the account to be treated as

NPA but after 31st March, 2000, this period is reduced to 90 days only.

5. Banks have been asked to reduce the level of NPA to 5% of their total

advances till 31st March, 2000. The percentage has to be brought down

to less than 3% with effect from 31st March, 2002.

ASSETS CLASSIFICATION

©. CHART OF ASSETS CLASSIFICATION

ASSETS

PERFORMING ASSETS NON-PERFORMING

OR ASSETS



STANDERED ASSETS

SUB-STANDERED DOUBTFUL LOSS

ASSETS ASSETS ASSETS

LESS THAN 1 TO 3 ABOVE

1 YEAR YEARS 3 YEARS

©. DEFINITION AS PER THE CLASSIFICATION OF ASSETS

Reserve Bank of India (RBI) has issued guidelines on provisioning

requirement with respect to bank advances. In terms of these guidelines, bank

advances are mainly classified in to following categories:

1. STANDARD ASSETS :

Standard assets are one which does not carry any problems and which

does not carry more than normal risk attached to the business.Such assets

should not be an NPA.

2. SUB-STANDARD ASSETS :

These assets involved the two types of view as follows…



In respect to the norms of March 31, 2005 an asset would be classified as

Sub standard if it remained NPA for a period less than or equal to 12 months.

An assets where the terms of the loan agreement regarding interest &

principal have been regenerated or rescheduled after commencement of

production, should be classified as sub-standard and should remain in such

category for at least 12 months of satisfactory performance under the re-

negotiated terms.

3. DOUBTFUL ASSETS :

In respect to the norms of March 31, 2005 an asset is required to be

classified as doubtful, if it has remained NPA for more than 12 months.

A loan which is classified as doubtful has all the weaknesses inherent as that

classified as Sub-standard with the added characteristic that the weaknesses

make collection or liquidation in full, on the basis of the currently known

facts, conditions and values, highly questionable and improbable.

Some types of these assets are…

A. Less than 1 year

B. 1 to 3 year

C. 3 year and above

4. LOSS ASSETS

A loss asset is one where loss has been identified by the bank or internal

or external auditors or by the Co-operation department or by the RBI

inspection but the amount has not been written of, wholly or partly.



READY RECKONER FOR ASSET CLASSIFICATION

NO. WHEN DATE OF NPA

FALLS?

ASSET CLASSIFICATION

AS ON 31-03-2007

1.Between 1-10-2006 & 31-03-

2007Sub-Standard assets

2.Between 1-10-2005 & 30-09-

2006Doubtful up to 1 year

3.Between 1-10-2003 & 30-09-

2002

Doubtful asset of 1 year to 3

year

4. On or before 30-09-2003 Doubtful asset of more than 3



year

5. No NPA date Loss asset

6.No security or salvage value of

security is less than 5%

7.

Chance of realization of dues

from all available sources is

practically negligible or zero.

8.

Account has been identified by

the bank or internal/external

auditors or RBI inspectors as

loss assets, which has not been

written off.

GUIDELINES FOR CLASSIFICATION OF ASSETS

The guidelines are as follows…

1. BASIC CONSIDERATION:

In simple terms the classification of assets should be done by considering

the well defined credit weaknesses & extent of dependence on collateral

security for realization of dues.

In accounts where there is a potential threat to recovery on account and

existence of other factor such as fraud committed by borrowers it will not be



prudent for bank to classify that account first as sub-standard and then as

doubtful. Such account should be straight away classified as doubtful asset or

loss asset, as appropriate, irrespective of the period for which it has remained

as NPA.

2. ADVANCES GRANTED UNDER REHABILITATION

PACKAGES:

Banks are not permitted to do classification of any advances in respect of

which the term have been re-negotiated unless the package of re-negotiated

terms has worked satisfactory for a period of one year.

A similar relaxation is also made in respect of SSI units which are

identified as sick by banks themselves and where rehabilitation packages

programs have been drawn by the banks themselves or under consortium

arrangements.

3. INTERNAL SYSTEM FOR CLASSIFICATION OF ASSETS AS

NPA:

Banks should establish appropriate internal systems to eliminate the

tendency to delay or postpone the identification of NPAs, especially in respect

of high value accounts. The banks may fix a minimum cut-off point to decide

what would constitute a high value account depending upon their respective

business levels. The cut-off point should be valid for the entire accounting

year.

Responsibility and validation level for proper assets classification may be

fixed by bank.



The system should ensure that doubts in asset classification due to any

reason are settled through specified internal channels with in one month from

the date on which the account would have been classified as NPA as per

extant guidelines.

INCOME RECOGNITION POLICY

According to the act of 1st April, 1992 the income recognition policy is

as follows…

The policy of income recognition has to be objective and based on the

record of recovery. Income from non-performing assets is not recognized on

accrual basis but is booked as income only when it is actually received.

Therefore, banks should not take to income account interest on non-

performing assets on accrual basis.

However, interest on advances against term deposits, NSCs, IVPs, KVPs,

and Life policies may be taken to income account on the due date, provided

adequate margin is available in the accounts.

Fees and commissions earned by the banks as a result of re-negotiations or

rescheduling of outstanding debt should be recognized on an accrual basis

over the period of time covered by the re-negotiated or rescheduled extension

of credit.

If Government guaranteed advances becomes ‘overdue’ and there by NPA,

the interest on such advances should not be taken to income account unless

the interest has been realized.

PROVISIONING NORMS



According to the norms the provisions should be made on the

nonperforming assets on the basis of classification of assets as we have

already discussed.

Taking in to account this provisioning norms the banks have to make

provision on different assets like Loss Assets, Doubtful Assets and Standard

Assets as below :->

( | ). LOSS ASSETS

The entire assets should be written off after obtaining necessary approval

from the competent authority and as per the provisions act of C0-operative

society Act. If the assets are permitted to remain in the books for any reason,

100% of the outstanding should be provided for.

If expected salvage value of the loss asset is negligible then 100%

provision should be made on it.

( || ). SUB-STANDARD ASSETS

A general provision of 10% on the total outstanding should be made on the

advances given.

( ||| ). DOUBTFUL ASSETS

On doubtful assets provision is made from 20% to 100% as

per the period of asset. The table below shows the provision on

doubtful assets.



Period for which the advance has

remained in ‘doubtful’ categoryProvision Requirement

Up to one year 20%

One to Three year 30%

More than Three year

( | ) Outstanding NPA as on March 31,2007

- 50% as on March 31, 2007

- 60% as on March 31, 2008

- 75% as on March 31, 2009

- 100% as on March 31, 2010

( || ) Advances classified as ‘doubtful for

more than three years’ on or after April1,

2007

-100%

( |V ). STANDARD ASSETS

From the year ended March 31, 2000, the banks should make a general

provision of a minimum of 0.25% on the standard assets.

However, Tier 2 banks are required to do higher provisioning on standard

assets as under:-

A. General provisioning requirement is 0.40% from

the present level of 0.25%. But incase of agriculture or in SME investors the

provisioning rate is required to be 0.25%.

( V| ). HIGHER PROVISIONS

There is no objection if the banks create bad and doubtful debts reserve

beyond the specified limits on their own or if provided in the respective State

Co-operative Societies Acts.



MANAGEMENT OF NPA

t is very necessary for bank to keep the level of NPA as low as

possible. Because NPA is one kind of obstacle in the success of bank so, for

that the management of NPA in bank is necessary. And this management can

be done by following way:

©. Framing reasonably well documented loan policy and rules.

©. Sound credit appraisal on well-settled banking norms.

©. Emphasizing reduction in Gross NPAs rather then Net NPAs

©. Pasting of sale notice/ wall posters on the house pledged as security.©. Recovery effort starts from the month of default itself. Prompt legal action should be taken.

©. Position of overdue accounts is reviewed on a weekly basis to arrest slippage of fresh account to NPA.©. Half yearly balance confirmation certificates are obtained from the borrowers regularly.

©. A committee is constituted at Head Office, to review irregular accounts.

©. Due to lower credit risk and consequent higher profitability, greater encouragement is given to small borrowers.

©. Recovery competition system is extended among the staff members. The recovering highest amount is felicitated.

©. Adopting the system of market intelligence for deciding the credibility of the borrowers

©. Creation of a separate ‘Recovery Department’ with Special Recovery Officer appointed by the RCS

RECOVERY OF NPA

©. IMPORTANCE OF RECOVERY:



1. Increase in the income of bank.

2. Increase in the trust of share holder in bank.

3. Level of NPA reduces as the recovery done.

4. Decrease in provisioning requirements.

©. STEPS TAKEN BY GOVERNMENT TO RECOVERING NPA:

1. SECURITIZATION ACT

@. Now this act is also applicable to all Urban Co-Operative Banks.

@. According to this act Bank can take direct possession of the movable and

immovable property mortgages against loans and sell out the same for such

recovery, without depending on legal process in the court.

2. Gujarat state has also by amending under co-op soc, act empower co-op

bank to appoint their staff as recovery officer on getting order from the board

of nominees.

Above both act are benefited to bank for the recovery of NPA.



CHAPTER: 8

CITY BANK &B.M. Collage of Business Administration Page 47


NON-PERFORMING

ASSETS

CREDIT APPRAISAL POLICY AT CITY BANK

©. INTRODUCTION

At the time of registration of bank, Loan rules were framed and

approved by the DRCS, Surat. Thereafter with the approval of Board, loan

rules were changed considering guidelines issued by RBI from time to time.

Now in view to increasing branch network in numbers of geographically also,

one common document viz. Appraisal policy is framed.

©. POLICY ON PRE-SANCTION



1. Application for loan should be in standardized form as devised by the

bank.

2. Branch to collect all the papers/information/documents as suggested in

the respective application form.

3. Branch to visit the borrower’s office/factory/residence and to satisfy

themselves before recommending any loan to higher authority and to keep

record of such visit.

4. If applicant maintains loan/current/saving account with any other

bank/financial institutions, branch to verify such account statement and to

satisfy them.

5. Branch to ascertain the promptness of applicant in making payment of

Power bill/Property Tax/LIC Premium/Existing loan interest or installment,

before recommending the proposal to higher authority.

©. APPRAISAL

A. WORKING CAPITAL FACILITY

1. Working capital requirement to be assessed properly considering past

performance, holding period for debtors as also for inventory at various level,

sales, etc…

2. Working capital facilities beyond Rs. 5 lacs should not be considered in the

form of overdraft.

3. Margin for CC against stock be 30% and for receivables 50%.



B. TERM FINANCE

1. term loan limit to be arrived @ 25% margin in respect of

Machinery/Equipment and Vehicles while 50% against land & building,

electrification, furniture fixtures.

2. Sources for margin money to be ascertained.

3. Repayment capacity, considering existing earning to be ascertained.

4. Moratorium period to be fixed considering time required going in for

commercial production.

C. GENERAL

1. Credit facilities should not exceed segment wise, individual as also

group exposures.

2. in case of switch over from other bank, branch to obtain credit

information report from the concerned bank.

3. In case of existing borrower/group borrower, branch to satisfy

themselves about their dealing with the bank.

©. EXPOSURE

As per the RBI guidelines per party exposure is restricted to 15% of

share capital and Free Reserves and group exposures it is 40%. RBI has given

liberty to recalculate the exposure on the basis of profitability of September

half. However irrespective of these it is restricted at lower level i.e. Rs.1.55

crore for individual and Rs.3.50 crores for group.



©. SANCTIONING AUTHORITY

1. AGM

Rs.1.00 lac for all types of fresh loan except staff loan and Rs.2.00

lacs for renewal

2. CEO

Rs.2.00 lacs for all types of fresh loan except staff housing loan and

Rs.4.00 lacs for renewal

3. COE

Committee of executives comprising of all the executives shall have

authority to grant all type of fresh loan up to Rs.15.00 lacs except loan

against FDR/LIC/GOVT. security and staff housing loan as also

renewal of all working capital facilities irrespective of limit.

4. Chairman/Vice Chairman/Founder Chairman

Loan against FDR/LIC/GOVT. security and any adhoc request.

5. LOAN COMMITTEE

All types of loans to single borrower up to Rs.77.50 lacs and Rs.1.75

crores for group borrower.

6. BOARD

All types of loan within exposure ceiling for individual and group

borrower.

©. DISBURSAL FORMALITIES

A. WORKING CAPITAL FACILITY



1. Fresh/additional limit against stock to be released only after party obtains

adequate insurance for stock and submit stock/book debts statement.

2. In case of new unit, working capital facility to be released, only after the

unit starts commercial production.

B. TERM FINANCE

1. So far as possible, disbursement to be made by direct payment to seller.

2. At every time of disbursement, matching contribution to be made by the

borrower.

3. Immediately after disbursement, branch to follow up insurance policy,

receipt for payment made, invoice etc…

C. GENERAL

1. Disbursement to be made only after complying with all the terms and

conditions of sanction, complete documentation and obtaining disbursal

authority.

2. In case of Private Ltd. Company, charge with ROC to be registered

immediately on disbursal of credit facility.

3. Before disbursal branch to ensure that borrowers/guarantors become

member of the bank.

©. POST SANCTION

A. TERM FINANCE

1. On installation of machineries branch to inspect the unit and to ensure that

machineries as per sanction is received & place the inspection report on

record.



2. At least twice a year, branch to inspect the unit to ensure that machineries

financed by the bank are in running condition.

B. WORKING CAPITAL

1. No finance to be considered against inter-firm receivable and for the

receivables of more than 90 days.

2. Drawing power to be arrived at regularly every month on the basis of stock

statement/book debt statement submitted by the party.

3. Branch to ensure that receipt and payment through CC/OD accounts

represent genuine business transactions.

4. Branch to carry out inspection of the unit at least on quarterly basis.

@. Renewal of working capital facility

1. Personal balance sheet of proprietor/partner/directors is also to be obtained.

2. Branch to submit the renewal papers along with memorandum for renewal

to higher authority for renewal, with its comments on performance with the

bank, financial performance viz. sales, profit etc…

3. If financial performance does not justify the limit at current level, branch to

persuade the party to reduce the limit.



4. Where the accounts are statutorily required to be audited, branch to obtain

audited accounts at the time of renewal.

NPA NORMS OF CITY BANK

©. CLASSIFICATION:

1. SUB STANDARD ASSETS

Overdue of 90 days and for loan up to Rs.1.00 lacs overdue for 6 months

NPA up to 12 months remain in sub standard assets.

2. DOUBTFUL ASSETS

NPA for more than 12 months is doubtful assets.

©. PROVISION:

1. STANDARD ASSETS

0.25% of standard assets in SME and direct agriculture advances.

0.40% in case of all other standard loans

1.00% for personal loan, Commercial Real Estate Loan, Loan against

shares

And for housing loan up to Rs.20.00 lacs the provision is 2.00%.

2. SUB STANDARD ASSETS

10% of sub standard assets

3. DOUBTFUL ASSETS

20% for NPA from 13 months to 24 months

30% for NPA from 25 months to 48 months

50% for NPA from 49 months and above



100% for loss assets

RECOVERY POLICY AT CITY BANK

©. BANK’S POLICY:

At present they are making recovery but procedure for the same is not

documented in the form of policy. Although the bank is committed to

collection/recovery of its dues but the dignity of and respect for the customer

is central to their recovery policy. The policy is framed on the principal of

courtesy, fair treatment and persuasion.

©. GUIDELINES FOR BRANCH/RECOVERY STAFF:

All the branches of City bank have to follow the following

guidelines…

1. Branch to continuously inform the borrower about the due date of

repayment schedule. Recovery efforts to starts from the first month

of default itself.

2. Position of overdue account to be reviewed on the monthly basis to

arrest slippage of fresh accounts to NPA category.

3. If the branch does not get response from the borrower for paying

the amount, they have to visit the unit and meet with the borrower.

During visit to customer’s place for collection of dues, decency

and decorum would be maintained and customer’s privacy would

be respected as far as practicable.



4. If the branch does not get any favorable response, during personal

visit, they should write a notice letter to borrower.

5. If borrower still behaves irresponsible, they should meet the

guarantor and ask guarantor to peruse the borrower. Guarantor

must be informed about legal complication to arise if borrower

fails to repay the dues.

6. On failure of all the recovery steps, branch to contact Area

office/Control centre.

7. Area office/Control centre to call the borrower along with

guarantor and try to find out the reason for overdue. If borrower is

in genuine difficulty, problem to be resolved in a mutually

acceptable and in an orderly manner.

8. If party behaves indifferent, legal actions must be initiated. In such

case prompt legal action and seizure action to be taken. Preference

to be given for steps under Securitization Act rather than go for

filling a case in the court of Board of Nominees.

9. Reasonable notice would be given before Repossession of Security

and its realization, unless the borrower is about to dispose

of/remove the whole or any part of the security from the locality

where it ordinarily remained or by whom it is used or caused to be

remained or used, as the case may be, at the time of creation of

security.

10. The aim of possession under Securitization or State co-op. Act will

be to recover the dues and will not be aimed at whimsical

deprivation of the property. The bank shall resort to repossession



of the security only when the collection/recovery of dues is not

forthcoming in spite of request made and the policy for

repossession shall be in accordance with the terms and conditions

of the loan documents and with in the legal framework. The policy

fairness and transparency in repossession, valuation and realization

of security.

CHAPTER: 9



ANALYSISOF

DATA

YEAR WISE NPA AT CITY BANK

©. YEAR 2003 (RS. IN LACS)

Details Amount %of Total

STANDARD ASSETS 5912.67 91.90084

SUB-STANDARD ASSETS 189.75 2.949291

DOUBTFUL ASSETS 316.69 4.922324



LOSS ASSETS 14.64 0.22755

TOTAL 6433.75 100

NPA OF 2003

91.90084

2.949291

4.922324

0.22755

0 20 40 60 80 100

STANDARD ASSETS

SUB-STANDARD ASSETS

DOUBTFUL ASSETS

LOSS ASSETS

ASSE

TS-->

VALUES-->

%of Total

©. YEAR 2004

(RS. IN LACS)








TOTAL 7369.18 100

NPA OF YEAR 2004

93.95

1.95

3.95

0.15

0 20 40 60 80 100

STANDARD ASSETS

SUB-STANDARD ASSETS

DOUBTFUL ASSETS

LOSS ASSETS

ASSE

TS-->

VALUES-->

%of Total

©. YEAR 2005

(RS. IN LACS)








TOTAL 7707.72 100

NPA OF YEAR 2005

94.28

2.03

3.61

0.01

0 20 40 60 80 100

STANDARD ASSETS

SUB-STANDARD ASSETS

DOUBTFUL ASSETS

LOSS ASSETS

AS

SE

TS-->

VALUES-->

%of Total

©. YEAR 2006

(RS. IN LACS)






TOTAL 7093.63 100



NPA OF YEAR 2006

96.82

0.17

3.01

0

0 20 40 60 80 100 120

STANDARD ASSETS

SUB-STANDARD ASSETS

DOUBTFUL ASSETS

LOSS ASSETS

ASSE

TS-->

VALUES-->

%of Total

©. YEAR 2007

(RS. IN LACS)






TOTAL 10340.26 100



NPA OF YEAR 2007

94.78

1.16

2.5

1.54

0 20 40 60 80 100

STANDARD ASSETS

SUB-STANDARD ASSETS

DOUBTFUL ASSETS

LOSS ASSETS

AS

SETS

-->

VALUES-->

%of Total



SEGMENTWISE CLASSIFICATION OF NPA

SEGMENT

2005 2006 2007

NO OF A/C

AMOUNT NO OF A/C

AMOUNT NO OF A/C

AMOUNT

TOTAL ADVANCES

NPATOTAL

ADVANCESNPA

TOTAL ADVANCES

NPA

RETAIL TRADE 267 752.63 17.69 248 641.90 20.21 343 802.03 76.81

SMALL BUSINESS 31 46.48 4.38 25 44.17 20.15 122 88.02 50.93

SMALL SCALE IND 582 4021.55 210.74 642 3832.29 44.88 975 6323.86 180.86

CONSTRUCTION & REPAIRS

246 323.43 21.02 231 343.86 2.70 345 459.76 22.43

AGRICULTURE 2 3.72 0.00 0 0.00 0.00 517 115.64 0.12

SMALL ROAD & TRANSPORTATION

10 5.23 0.00 0 0.00 0.00 34 8.18 1.90

PROFESSIONAL 84 89.81 5.00 2 7.33 0.00 80 72.52 3.10

EDUCATION 2 10.71 0.00 8 3.41 0.00 3 7.26 0.00

OTHER PRIORITY SECTOR 0 0.00 0.00 55 41.82 3.47 326 68.05 16.42

OTHE NON PRIORITY SECTOR

375 2454.16 177.26 285 2178.85 134.41 310 2394.94 186.20

TOTAL 1599 7707.72 436.09 1496 7093.63 225.82 3055 10340.26 538.77

(RS. IN LACS)



RATIO ANALYSIS

To analyzed the NPA situation in bank and from that to know about the

banks credit appraisal system and level of risk in bank I have done the ratio analysis.

Ratio analysis is the tool which will help us to do financial analysis of bank.

Some names of ratio are as follows:

1. GROSS NPA RATIO.

2. NET NPA RATIO.

3. PROBLEM ASSETS RATIO.

4. SHAREHOLDER’S RISK RATIO.

5. PROVISION RATIO.

6. SUB-STANDARD ASSETS RATIO.

7. DOUBTFUL ASSETS RATIO.

8. LOSS ASSETS RATIO.



1. GROSS NPA RATIO

Gross NPA is the sum of the total assets which are classified as the NPA by bank

at the end of every year. Gross NPA is the ratio of Gross NPA to Gross Advances. It is

expressed in percentage form.

Gross NPA Ratio = Gross NPA * 100

Gross Advances

(RS. IN LACS)

YEAR GROSS NPAGROSS

ADVANCES

GROSS NPA

RATIO

(%)

2003 521.08 6433.75 8.10%

2004 445.44 7369.18 6.04%

2005 436.09 7707.72 5.68%

2006 225.82 7093.63 3.18%

2007 538.77 10340.26 5.21%



GROSS NPA RATIO

8.10%

6.04% 5.68%

3.18%

5.21%

0.00%

1.00%2.00%

3.00%4.00%

5.00%6.00%

7.00%8.00%

9.00%

2003 2004 2005 2006 2007

YEAR-->

PER

CEN

TAG

ES--

>

RATIO

©. ANALYSIS

Gross NPA ratio shows the bank’s credit appraisal policy. High Gross NPA ratio

means bank have liberal appraisal policy and vice-versa.

In city bank this ratio was 8.10% in March-2003 and it has been decreased from

year 2003 to 2006 from 8.10% to 3.18%. But again in March-2007 this ratio reach at

5.21%. This variation was come because City bank has merged with Baroda dist. Co-op.

bank in the financial year 2006-2007.

However it is revels from the chart that bank’s Gross NPA ratio is continuously

decreasing which is positive trend for bank and we can say that bank have good appraisal

system.



2. NET NPA RATIO

The Net NPA Ratio is the ratio of net NPA to Net Advances. This ratio shows the

degree of risk in bank’s portfolio. Net NPA ratio can be obtain by Gross NPA minus the

NPA provisions divided by Net advances.

Net NPA Ratio = Net NPA *100

Net Advances

(RS. IN LACS)

YEAR NET NPA NET ADVANCESNET NPA RATIO

(%)

2003 299.13 6211.80 4.82%

2004 0.00 6888.84 0.00%

2005 0.00 7236.74 0.00%

2006 0.00 6622.57 0.00%

2007 0.00 9733.62 0.00%



Net NPA = Gross NPA – Provision for NPA

Net Advances = Gross NPA – Provision for NPA

NET NPA RATIO

4.82%

0.00% 0.00% 0.00% 0.00%0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

2003 2004 2005 2006 2007

YEAR-->

PE

RE

CN

TA

GE

-->

NET NPA RATIO

©. ANALYSIS

Net NPA ratio shows the degree of risk in portfolio of bank. High net NPA ratio

means banks don’t have enough fund to do provision against the Gross NPA.

In City Bank Net NPA ratio was 4.82% in year March-2003 which shows that in

that year bank had not enough fund for provisions. But after that from March-2004 to

March-2007 Net NPA ratio is 0.00% which shows that bank has now enough provision

capacity. So, here the degree of risk is less.

City bank has done more provision every year which is good at one side but at other

side it also reduces the profit of bank. And shareholder will get fewer dividends.

When all bank will do provision then Net NPA will become zero but if we want to

know the true and fair situation of bank we must consider the Gross NPA of bank.



3. PROBLEM ASSETS RATIO

This ratio is also known as the Gross NPA to Total Assets ratio. This ratio shows

the percentage of risk on the total assets of the bank. High ratio means high risk for bank.

Problem Assets Ratio = Gross NPA *100

Total Assets

(RS. IN LACS)

YEAR GROSS NPA TOTAL ASSETS

PROBLEM

ASSETS RATIO

(%)

2003 521.08 13381.91 3.89%

2004 445.44 15935.97 2.80%

2005 436.09 16337.35 2.69%

2006 225.82 18675.05 1.21%

2007 538.77 24202.77 2.23%



PROBLEM ASSETS RATIO

3.89%

2.80% 2.69%

1.21%

2.23%

0.00%0.50%

1.00%1.50%

2.00%2.50%

3.00%3.50%

4.00%4.50%

2003 2004 2005 2006 2007

YEAR-->

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TA

GE

-->

PROBLEM ASSETSRATIO

©. ANALYSIS

This ratio shows the percentage of risk on the assets of bank. It shows the level of

risk on bank’s assets. High ratio shows the high risk on liquidity.

In City Bank this ratio was 3.89% in March-2003 and after that it has been

decreased from 3.89% to 1.21% in March-2006. But again it increase to 2.23% in March-

2007 because in that year City Bank was merged with Baroda dist. Co-op. bank in the

financial year 2006-2007.

This ratio is continuously decreasing in bank except in March-2007. But overall this

ratio is good for bank which indicates the level of risk is low in bank.



4. SHAREHOLDER’S RISK RATIO

It is the ratio of Net NPA to Total capital and reserve of bank.

Shareholder’s risk Ratio = Net NPA *100 Total Capital & Reserve

(RS. IN LACS)

YEAR NET NPATOTAL

CAPITAL & RESERVE

SHAREHOLDER’S RISK RATIO

(%)

2003 299.13 1793.76 16.68%

2004 0.00 2075.06 0.00%

2005 0.00 2262.39 0.00%

2006 0.00 2551.64 0.00%

2007 0.00 3014.58 0.00%



SHAREHOLDER’S RISK RATIO

16.68%

0.00% 0.00% 0.00% 0.00%0.00%2.00%

4.00%6.00%

8.00%10.00%

12.00%14.00%

16.00%18.00%

2003 2004 2005 2006 2007

YEAR-->

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SHAREHOLDER’S RISKRATIO

©. ANALYSIS

This ratio shows the degree of risk with share holder’s investment. High ratio

means high ratio with the investment.

In City Bank this ratio was 16.68% in year March-2003 which shows that in that

year risk on share holder’s investment was quite high but after that this ratio is 0.00% up

to year March-2007, which shows that Bank have enough capacity for provision and the

risk on investment is nil.

As we know that this ratio is 0.00% show the risk is nil but on the other side

because of more provision the profit will decrease and the shareholder will get less

dividends.



5. PROVISION RATIO

Provisions are to be made against the Gross NPA of bank. As bank make

provision for NPA it directly affects the profit of bank. This ratio shows the relation of

total provision to Gross NPA.

Provision Ratio = Total Provision *100

Gross NPA

(RS. IN LACS)

YEARTOTAL

PROVISIONGROSS NPA

PROVISION

RATIO

(%)

2003 221.95 521.08 42.59%

2004 480.34 445.44 107.83%

2005 470.98 436.09 108.00%

2006 471.06 225.82 208.59%

2007 606.64 538.77 112.60%



PROVISION RATIO

42.59%

107.83%108.00%

208.59%

112.60%

0.00%

50.00%

100.00%

150.00%

200.00%

250.00%

2003 2004 2005 2006 2007

YEAR-->

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-->

PROVISION RATIO

©. ANALYSIS

Provision ratio shows the degree of provision that is made against the Gross NPA

of bank. As bank made the provision it directly affect the profit of bank and also the

dividend payout ratio of bank too.

If Provision ratio is less then it means that bank has make under provision and if

provision is more then it means that it is over provision.

In City Bank they have made 42.59% provision in March-2003 which shows that

it was under provision but after that in March-2004 and March-2005 it is 107.83% and

108% respectively which indicate that provision was nearer to total amount of Gross

NPA but in March-2006 the provision ratio reach at 208.59% which indicate that it is the

very over provision. And again in March-2007 it is 112.60% which is fair ratio.



City bank should make the provision in the range of 100% to 115%. The

provision in March-2006 which is 208.59% is very high and it is not necessary to do that.

6. SUB-STANDARD ASSETS RATIO

Sub-standard Assets Ratio = Total Sub-standard Assets *100Gross NPA

(RS. IN LACS)

YEARSUB-STANDARD

ASSETSGROSS NPA

SUB-STANDARD ASSETS RATIO

(%)

2003 189.75 521.08 36.41%

2004 143.60 445.44 32.24%

2005 156.65 436.06 35.92%

2006 12.24 225.82 5.42%

2007 120.12 538.77 22.30%



SUB-STANDARD ASSETS RATIO

36.41%32.24%

35.92%

5.42%

22.30%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

2003 2004 2005 2006 2007

YEAR-->

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TAG

E-->

SUB-STANDARDASSETS RATIO

©. ANALYSIS

This ratio shows the percentage of Sub-Standard assets in the Gross NPA of bank. High

Sub-Standard ratio means more proportion of Sub-Standard asset in the Gross NPA.

High ratio shows that there is a chance of recovery of assets is high.

In City bank this ratio was 36.41% in March-2003 which is good for bank and it is 5.42%

in year March-2006 which is not good for bank.

As the level of Sub-Standard assets are more the chances of recovery of NPA are high.



7. DOUBTFUL ASSETS RATIO

It is the ratio of total doubtful assets to Gross NPA of the bank.

Doubtful Asset Ratio = Total Doubtful Assets *100Gross NPA

(RS. IN LACS)

YEARTOTAL

DOUBTFUL ASSETS

GROSS NPADOUBTFUL

ASSETS RATIO(%)

2003 316.69 521.08 60.78%

2004 291.00 445.44 65.33%

2005 278.40 436.09 63.84%

2006 213.58 225.82 94.58%

2007 258.80 538.77 48.03%



DOUBTFUL ASSETS RATIO

60.78%65.33%63.84%

94.58%

48.03%

0.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%90.00%

100.00%

2003 2004 2005 2006 2007

YEAR-->

PE

RC

EN

TAG

E-->

DOUBTFUL ASSETSRATIO

©. ANALYSIS

This ratio shows the percentage of Doubtful assets in the Gross NPA of bank. High

Doubtful assets ratio means more proportion of Doubtful asset in the Gross NPA.

More Doubtful assets means Bank should take action through recovery policy to reduce

the level of Doubtful assets.

As the Doubtful assets ratio is high which shows that bank should take quick action to

reduce that level.

This ratio should be less for the bank.

In City Co. Bank this ratio is in between from 60.00% to 65.00% in year from March-

2003 to March-2005 but in March-2006 this ratio reach at 94.58% which indicate that



bank must take some necessary action to recover it. And again in March-2007 this ratio

decrease to 48.03% which is good for bank.

8. LOSS ASSETS RATIO

It is the ratio of Total loss assets to Gross NPA of bank.

Loss Assets Ratio = Total loss Assets *100Gross NPA

(RS. IN LACS)

YEARTOTAL LOSS

ASSETSGROSS NPA

LOSS ASSETS RATIO

(%)

2003 14.64 521.08 2.81%

2004 10.84 445.44 2.43%

2005 1.04 436.09 0.24%

2006 0.00 225.82 0.00%

2007 159.85 538.77 29.67%



LOSS ASSETS RATIO

2.81% 2.43%0.24% 0.00%

29.67%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

2003 2004 2005 2006 2007

YEAR-->

PE

RC

EN

TAG

E-->

LOSS ASSETS RATIO

©. ANALYSIS

This ratio shows the percentage of loss assets in the Gross NPA of bank. High loss assets

ratio means more proportion of loss asset in the Gross NPA.

This should be less in bank. The high ratio indicates that bank has more fraudulent

account and it is bad for bank. The bank must take necessary action to reduce the level of

loss assets.

In City Co. Bank this ratio is 2.81% in March-2003 and from it reach at 0.00% in the year

March-2006. This ratio is decreasing in bank which is good for bank but again in March-

2007 this ratio reaches at 29.67% which is the very high increase and it is very bad for

bank. But the increase in the ratio of March-2007 is because bank was merged with

Baroda dist. Co-op. bank in that year.

Hence, bank should take some action to reduce the level of loss assets from the total

NPA.



FINDINGS FROM RATIO

As I have already analyze the ratio and from that I can say that bank’s financial

condition is good. Hence, there is correction in the ratio of year 2007. And this correction

is because of City bank was merged with Baroda Industrial co-op bank in year 2007. So,

this effect of merging can be showing from the ratio of year 2007.

From ratio I am able to find the following findings…

1. The Gross NPA ratio of bank is 8.10% in the year 2003 after then it reaches to

5.21% in the year 2007. Hence, the idle gross NPA ratio is 5.00% and bank have

5.21%. So, we can say that bank’s financial condition is good.

2. Bank’s Net NPA ratio is 4.82% in the year 2003 and from 2004 to 2007 it remains

0.00% which is positive for bank.



3. The Problem assets ratio was 3.89% in the year 2003 which was the highest ratio

and from that year it is decrease to 1.21% in the year 2006 which is good for

bank. And this ratio is 2.23% in the year 2007.

4. Provision ratio for the year 2003 is 42.59% which show that their was under

provision in that year but in year 2007 this ratio is 112.60% which shows that

bank have enough profit for the provision.

5. It will be considered good if the Sub-standard assets ratio is high. For City bank

this ratio is 36.41% in the year 2003 which is good but it reaches to 5.42% in the

year 2006 which is very bad for bank’s health.

6. Doubtful assets ratio should be low for the good health of bank and in City bank

this ratio is 94.58% in the year 2006 which is very bad but in year 2007 this ratio

decrease to 48.03% which is positive for bank.

7. Loss assets ratio should be zero and bank have 0.00% in the year 2006 which is

good but in year 2007 this ratio reaches to 29.67% which is very rapid change

with in a one year. And it is also bad for bank.



CLASSIFICATION OF TOTAL NPA

(RS. IN LACS)

YEAR2005 2006 2007

SUB-STANDARD

ASSETS156.65 12.24 120.12

DOUBTFUL ASSETS

278.40 213.58 258.80

LOSS ASSETS

1.04 0.00 159.85

TOTAL NPA

436.09 225.82 538.77



CLASSIFICATION OF TOTAL ADVANCES

(RS. IN LACS)

YEAR 2003 2004 2005 2006 2007

TOTAL

NPA521.08 445.44 436.09 225.82 538.77

STANDARD

ASSETS5912.67 6923.74 7266.63 6867.81 9801.49

TOTAL

ADVANCES6433.75 7369.18 7707.72 7093.63 10340.26


CLASSIFICATION OF NPA

0

100

200

300

400

500

600

2003 2004 2005 2006 2007

YEAR-->

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>

SUB-STANDARD ASSETS

DOUBTFUL ASSETS

LOSS ASSETS

TOTAL NPA


CLASSIFICATION OF TOTAL ADVANCES

0

2000

4000

6000

8000

10000

12000

2003 2004 2005 2006 2007

YEAR-->

RS IN

LAC

S--> TOTAL NPA

STANDARD ASSETS

TOTAL ADVANCES

CHAPTER: 10B.M. Collage of Business Administration Page 86


CONCLUSION&

SUGGESTION

CONCLUSION

Now as we know that NON-PERFORMING ASSETS is like a black spot on

diamond. They affect the profit of bank and also the financial health of bank. This NPA

have number of effects on banks working.

During my training in bank I gathered as much as possible information about

NPA from bank and on the basis my experience I conclude the following points:



City Co. bank’s NPA level is decreasing year by year which good for bank.

In year 2007 City bank’s own NPA is very low but because of merger with Baroda

industrial co-op bank the level of NPA was increase.

The Gross NPA ratio of bank is 8.10% in the year 2003 after then it reaches to 5.21%

in the year 2007. Hence, the idle gross NPA ratio is 5.00% and bank have 5.21%. So, we

can say that bank’s financial condition is good.

Bank’s Net NPA ratio is 4.82% in the year 2003 and from 2004 to 2007 it remains

0.00% which is positive for bank.

Loss assets ratio should be zero and bank have 0.00% in the year 2006 which is good

but in year 2007 this ratio reaches to 29.67% which is very rapid change with in a one

year. And it is also bad for bank.

City Co. Bank has sound credit appraisal system and also sound recovery policy.

City Co. Bank’s NPA level is decreasing year by year and because of that City Co.

Bank is being considered very good bank by citizens of Surat.

Hence in present time the position of NPA in bank is much better then the past

position. In year 1997 in India the Gross NPA was 15.7% but now it is 3.00% in the year

2007. This is very favorable to Indian economy and also banking sector of India.

Government’s act and also the Narsimhan committee on NPA are very useful to

reduce the level of NPA.

So, I can conclude that level NPA in any bank is important parameter to analyze the

health of bank.



SUGGSTIONS

1. City Co. bank’s NPA level is decreasing year by year which good for bank but

bank should follow the recovery policy strictly.

2. In year 2007 City Co. bank’s own NPA is very low but because of merger with

Baroda industrial co-op bank the level of NPA increase so City Co. bank should

have consider the NPA situation of that bank before merger.

3. In City Co. bank there is no any special recovery department so bank should

develop the department for the fastest recovery of NPA.

4. Bank should motivate the staff to do fast recovery NPA.

5. Bank have more NPA in Small Scale Industry so, they should try to reduce that

level of NPA.

CHAPTER: 11B.M. Collage of Business Administration Page 89


BIBILIOGRAPHY

JOURNALS

Co-Operative Banker’s Diary 2008 -by John D’salve

Annual Report of City Co-Operative Bank -year, 2003, 2004,2005,2006,2007

Periodical circular and statement of RBI regarding to NPA managing and UCB’s



WEBSITES

http://finance.indiamart.com/investment_in_india/banking_in_india.html

http://www.rbi.org.in/Home.aspx

http://www.banknetindia.com/banking/cintro.htm

http://www.investorwords.com/

http:// www.indiabankassociation.com /


http://www.indiabankassociation.com/

http://www.investorwords.com/

http://www.banknetindia.com/banking/cintro.htm

http://www.rbi.org.in/Home.aspx

http://finance.indiamart.com/investment_in_india/banking_in_india.html

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Summer Training Project on Non Performing Assets

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