Vinay Full Final Project

8/12/2019 Vinay Full Final Project

1/65

K.L.E.COLLEGE OF ENGINEERING AND TECHNOLOGY, BELGAUM

Page 1

This project has been undertaken in State Bank of India, which highlights the detail study of

Non - performing assets management.

The objective of this project is to get the good knowledge about banking and NPA management.

This project is divided into 2 parts:

Part A deals with history of bank Part B deals with introduction to NPA, RBI guidelines

Part A gives detail information about banking industry, objectives which helps to know about

the bank in detail.

Part B helps to know about the introduction to NPA, what and how the NPA is ascertained.

1. To identify the nature of the problem in NPAs.

2. To minimize the amount of provision required for NPA.

3. To study the amount of NPA under different segments over the years.

4. To analyze the reasons associated with the underperformance of all the sectors.

SBI is the leading bank among all nationalized banks having largest banking network in the

country. Since this branch comprises of Personal, Retail and Commercial banking under one

roof, there is a wider scope for the study NPA management in the main branch, which consists

variety of advances in all the fields. There are many chances of advances getting NPA in many

shapes. In this project, an attempt is made to understand the process and nature of NPA

management methods in SBI, RBI guidelines and NPA trend in SBI.

EXECUTIVE SUMMARY

Objectives of the study

SCOPE OF STUDY


2/65

K.L.E.COLLEGE OF ENGINEERING AND TECHNOLOGY, BELGAUMPage 2

Sources of Data collection:

1. Primary Data: The project report of this kind will really need first hand information which

will be collected by referring some Bank Statements and collected through the interaction with

Senior Managers and Bank Staffs

2. Secondary Data: Some Banking booklets and Banking prospectus have been used as a

reference for the study and companys websites.

Shortage of time:

Time is very short for research, so that is very difficult can get the knowledge about

everything.

Information not sufficiently available:

The source of data collection is secondary so the information available is not sufficient.

No direct source of information available:

The information is collected from indirect sources so in some information data is not

available.

Secondary data:

Information is not reliable because of secondary data

METHODOLOGY

Limitations of the study


3/65


Human being is always in need of money for his survival either for his personal use or for

business purpose, so, it is always not possible for him to arrange money from his own sources.

On that time, he seeks to borrow from banks, co-operative society, pawn broker etc, among all

these sources he prefers to borrow from banks as the consideration of availability of funds,

terms and conditions.

The word bank is derived from the word baneus or banque from the French language which

is known as bench as banking in the earlier days was done by sitting on the bench. The history

of banking can be traced to Europe from the middle ages. Earlier banking was limited to the

exchange of money.

According to some others the name bank is derived from the German word bank which means

a joint stock fund or common funds sources from the public to finance the media. On account

of the multi various activities of the modern banks it has been found very difficult to define

exactly the word bank. However various attempts have been made to define the term banking,

bank and essential characteristics of bankers.

Banking activities were sufficiently important in Babylonia in the second millennium B.C. that

written standards of practice were considered necessary. These standards were part of the Code

of Hammurabi the earliest known formal laws. Obviously, these primitive banking transactions

were very different in many ways to their modern-day counterparts. Deposits were not of

money but of cattle, grain or other crops and eventually precious metals. Nevertheless, some of

the basic concepts underlying todays banking system were p resent in these ancientarrangements, however. A wide range of deposits was accepted, loans were made, and

borrowers paid interest to lenders.

A BRIEF HISTORY OF BANKING

INDUSTRY PROFILE


4/65


Similar banking type arrangements could also be found in ancient Egypt. These arrangements

stemmed from the requirement that grain harvests be stored in centralized state warehouses.

Depositors could use written orders for the withdrawal of a certain quantity of grain as a means

of payment. This system worked so well that it continued to exist even after private banks

dealing in coinage and precious metals were established

The modern-day banking activities can be traced to the practices in the Medieval Italian cities of

Florence, Venice and Genoa. The Italian bankers made loans to princes, to finance wars and

their lavish lifestyles, and to merchants engaged in international trade. In fact, these early

banks tended to be set up by trading families as a part of their more general business

activities. The Bardi and Peruzzi families were dominant in Florence in the 14th century and

established branches in other parts of Europe to facilitate their trading activities, both these banks extended substantial loans to Edward III of England to finance the 100 years war against

France. But Edward defaulted, and the banks failed.

The primary functions of the banker are to accept the deposits from the persons who have

surplus money and lending the same to the needy persons. The deposits are accepted at the

lower rate of interest and lended at the higher rate of interest. Difference in interest rate would

be the case of profit or expenses for the banks.

Day to day with the emergence of the new banks and due to the severe competition the banks

were not able to earn the profits and maintain their profit margin with their primary functions of

accepting the deposits and lending the loans.

In order to keep the profit percentage high the banks started giving the auxiliary or subsidiary

services to its customers besides the basic functions of deposits and lending.

These subsidiary services such as remitting the money from one place to another, offering thefacility of safe deposit lockers, accepting the articles for safe custody, exchange of currency etc.

For providing such services the banks were charging nominal fees from the customers and the

customers were happy to pay the fees and utilize such services as both the creation and the risk

of such transactions were passed on to the bankers.

CHARACTERSTICS AND IMPORTANCE OF BANKING


5/65


The development of modern banking in India started with the banking activities which were

undertaken by the English agency houses at Calcutta and Bombay which combined banking

with trading. The earliest bank on the western line was established at madras at 1683, the first

joint stock bank was the bank of Hindustan established at Calcutta in 1770, the bank was wound

up in 1872. The other joint stock bank established at that time were the bank of Bengal (1806),

bank of Bombay (1840), the bank were called presidency bank.

Besides the normal commercial functions they were also performing certain central banking

finance in their respective region. All these banks were amalgamated in 1921. It was taken over

by the government and was renamed as state bank of India.In 1899 ouch commercial bank was established it was the first pure Indian joint stock bank it

was followed by the Punjab national bank (1894), the peoples bank (1901) and so on.

Growth of the banks was very slow during the first half of the 20th century as the Indian

commercial banking system had to pass through a series of financial aims; and the banking was

mainly vested in the hands of the money lenders. It is only after the independence the Indian

commercial banking system has made the rapid progress. Today the Indian banking system is

one of the developed commercial banking systems in the world.

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 thenationalization of the 14 major private banks in India.

HISTORY OF BANKING IN INDIA


6/65


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 started with the advent of Indian Financial & Banking

sector reforms after 1991.

PHASE1

The General Bank of India was set up in the year 1786. Next came 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. Thesethree banks were amalgamated in 1920 and Imperial Bank of India was established which

started as private shareholders banks, mostly European 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.

During those days public has lesser confidence in the banks. As an aftermath deposit

mobilization was slow. Abreast of it the savings bank facility provided by the Postal departmentwas comparatively safer. Moreover, funds were largely given to traders.

Phase2

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


7/65


8/65


not yet fully convertible, and banks and their customers have limited foreign exchange

exposure.

NATIONALIZATION OF BANKS:

On July 19th 1969, 14 major Indian commercial banks having aggregate deposits of not less

than 50 crores were taken over by the government of India through an ordinance caused,

Banking Companies Acquisition of 1969

The 14 Major Commercial Banks Are

Bank of India

1. The Central Bank of India

2. The Punjab National Bank

3. Bank of Baroda4. United Commercial Bank

5. Canara Bank

6. United Bank of India

7. Dena Bank

8. State Bank of India

9. Allahabad Bank

10. Syndicate Bank

11. Bank of Maharashtra

12. Indian bank

13. Indian Overseas Bank

On 15th April 1980 the government has nationalized 6 more banks having the deposits of 200

crores or more

They are-

1. Andhra Bank

2. Corporation Bank3. New Bank of India

4. Oriental Bank of Commerce

5. Punjab and Sindh Bank

6. Vijaya Bank


9/65


The nationalization of commercial banks constitutes an important landmark in the banking

history of the company as a result more than 90% of the banking came under the direct control

of the government. The broad objectives of the nationalization of banks were framed to avoid

the following crises.

1) Ownership and control in few hands -

The Indian commercial banks were controlled by a very small number of shareholders. Those

who are able to determine the pattern of association and investment of bank finance according

to their interest of convenience. As the ownership and control was in the few hands it lead to the

concentration of power and disparity of income in a country. This was against the principle of

Indian constitution which demanded deduction of disparities in income and wealth.

2) Failure to mobilize the resources-

Commercial banks have failed to mobilize the resources of the community. Especially in therural sector, small towns and lower income groups. Moreover the banks have shifted the savings

of some states and directed those to the other states. Thus, they are responsible for the lopsided

development.

3) Resources utilized by the director-

The savings of the general public were used by the director to promote their personal interest as

to provide loans to those business connections in which the directors were interested. That

means the funds of the commercial banks were not utilized for the promotion of the agriculture

and the industrial sector.

4) Discrimination against the small business units -

The commercial banks failed to provide assistance to small scale units. Such a policy of the

bank went against the policy of government for the encouragement of small scale units.

5) Indifference to the needs of agriculture-

Agriculture was completely ignored by the commercial banks. This is the main reason for the

failure of the planning in the agriculture sector and consequently for the failure of general

planning.6) Misuse of funds-

The funds of the commercial banks were not used for holding the essential goods instead they

were used for speculation purposes i.e. the banks were giving the loans for the anti social

elements who were able to get the funds for the large project through the exploitation of


10/65


shortage of essential goods. The rise in the price level was due to the activities of the anti social

elements that had the support of the banks for their activities.

Progress of the nationalized banks-

The major achievement of the nationalized banks was in the field of branch expansion, deposit

mobilization, funds for the small scale industries and agriculture, expansion of credit for the

development purpose and certain other neglected sectors.

Branch Expansion-

Branch expansion gained much importance after commercialization of major commercial banks.

The number of branches have gone up 834 in June 1969 to 6528 at the end of the march 1992

that is the number of branches have increased by more than 500% during the last two decades.

As a result of opening the new branches the average population served per bank office was

around 65000 in 1969 has come down to 11,000 in 1992 i.e. 8 offices to 1,00,000 populationindicating greater availability of banking facilities to the public at large. Undoubtedly the

growth has been rapid but it is not been sufficient when compared to the average population

served per bank office in developed countries which varies between 2000 and 3000 so, Indian

banks have still a long way to go in terms of their average and extension of banking facilities.

Deposit Mobilization-

There has been rise in the rate of deposits mobilization during the last 2 decades. The aggregate

deposits of the commercial banks have gone up from 4636 crores in 1969 to 2, 02,179 crores in

1993.The annual rate of the growth of the deposits has varied from the high of 23% during

1993/94 to a low of 15.3% in 1990/91. Along with this the share of rural deposit to the total

deposits developed from 3% in 1969 to above 15% presently indicating the share of rural

population.

Expansion of Credit-

Along with the deposits the flow of the total credit has also reorder the market rise. Bank credit

has gone up from rs.3599 crores in June 1969 to rs.1, 55,550 crores in July 1993.i.e. up by about

44 times. Since, one of the important objectives of bank nationalization was channelized the

flow of credit to the priority sectors and the banks have made the considerable progress in this

direction. In June 1969 the priority sectors including agriculture, small scale industries and

small retail trade accounted for only 14% of the commercial bank credit. This proportion has

gone up to 37% In June 1992bbalong with the fast expansion o the branch network.


11/65


Expansion of activities-

There has been the dimensional expansion in activities, the banks also took up externally new

activities which in the earlier period were considered as foreign beyond the scope of the Indian

banking. The new business areas includes leasing, neutral fund etc.

Since the nationalization of the commercial banks has given up their traditional aim of

maximizing profit and they have come to recognize the major instrument of development effort.

The nationalization of banks introduced the lead bank scheme under this scheme all the districts

of the country are allotted to some banks or the other. The main functions of the lead bankers

were:

To survey for the resources and potential for the banking development in the district. To survey the number of commercial and industrial units and other establishments which

do not have bank accounts, i.e. who are primarily dependent on the money lenders. To examine the facilities for marketing the agriculture produce and industrial production

storage and ware housing space and the linking of the credit with the marketing in this

districts.

To survey the facilities for storing of the fertilizers and other agriculture imports and

repairing and servicing of the various equipments used.

To security and trained staff offering the advice to small borrowers and farmers, and for

inspection of the end use of the loan. To assist other primary lending agencies.

It has also introduced the differential interest rate scheme under which the public sector banks

are giving loan at the concessional rate of interest to the weaker sections of the society, who

have no tangible security to offer but who can improve the economic condition through the

financial assistance from the bank.

Factors That Influence the Choice of Banks-

Recognition-

The recognition of a bank institute counts a lot for the customer, the customer in general does

not want to take risk in case of service of an organization. He feels secured with a recognized

institution.


12/65


Reputation-

A long customer to a particular bank helps tend to influence the new customer. While choosing

financial institution and in the matter of money, reputation matters a lot.

Working hours-

The working hours, convenient to the customers is one of the factors influencing the level of

satisfaction of the customers in the banking industry. The flexible hours of working in the

afternoons help the office going customers to a large extent. Otherwise they have to wait in their

office hours to finish off the work in the banks. This proves to be very helpful in times of

emergency.

Locker facility-

The customers owing lockers at bank are provided with the facility to operate their lockers on

their own. This involves certain procedure for confirmation. Every time a person approaches a bank for operating the lockers it involves some time it should be seen that a customer is not

have been waiting for the long time.

Computerization-

Even though the concept of computer is a new concept to the Indian banking system advances

in technology are allowing delivery of banking products and services conveniently and

effectively than ever before thus creating the new base of competition. At the same time banks

are facing increasing competition from non banking financial corporations. Rapid access to the

critical information and the ability to act quickly and effectively will distinguish successful

banks in the future.

Computerization in commercial banks has indeed traveled a long way it is growing by leaps and

bounds. Starting with the reconciliation of inter branch terms action and providing, whole MIS

reports on the selective basis, computerization was confined to the bank head offices alone for

quite some time. In the second phase, computers came to the branches in the term of the branch

office computerization, mainly as an aid to housekeeping, viz., balancing of books, day end

consolidation and accounting of transactions. Some banks went a step further to introduce,

customers module along with bank office computerization. To take care of posting and updating

of customers accounts at the end of the day through batch processing.


13/65


Computers made things easy and in a satisfying manner both for the bank and for the customers,

even in the rural areas banks are utilizing the service of the computers, but the transition is in

the first phase in this areas.

ATMs-

ATMs are the future banking. ATMs can be connected either on line or off line, ATM service

can be supported to both the local and inter branch. It supports both online inter face and ATM

network.

In an online ATM interface, the interface to ATM is provided and supports anytime banking

with a wide range of functions like cash with drawl and deposits, transfer, inquiry, statement

request and message to bank.

Tele banking-

It provides round the clock service to its customers. Request for cheque books, demand drafts,and renewal of deposits can be captured. The customers can check on the last few transactions

that have taken place online account.

Internet banking-

Internet is another service delivery channel. It allows the user to access the account information

over a secure line, request cheque books and stop payment and even transfer of funds between

the accounts. In coming years it plans to allow ordering a DD, information of ATM cards and so

on.

Credit cards-

It is provided for the credit worthy customers. Users are provided with a card, on producing of

which, their signature is accepted on bills in shops and establishments participating in the

scheme. The banks thereby guarantee to meet the bill and recover from the card holder through

a single account presented periodically. In some, users also are required to pay a regard

subscription for the use of services as well. An extension of scheme allows the repayment of

large sums over a period at interest.


14/65


The origins of State Bank of India date back to 1806 when the Bank of Calcutta (later called the

Bank of Bengal) was established. In 1921, the Bank of Bengal and two other Presidency banks

(Bank of Madras and Bank of Bombay) were amalgamated to form the Imperial Bank of India.

In 1955, the controlling interest in the Imperial Bank of India was acquired by the Reserve Bank

of India and the State Bank of India (SBI) came into existence by an act of Parliament as

successor to the Imperial Bank of India. Today, State Bank of India (SBI) has spread its arms

around the world and has a network of branches spanning all time zones. SBI's InternationalBanking Group delivers the full range of cross-border finance solutions through its four wings -

the Domestic division, the Foreign Offices division, the Foreign Department and the

International Services division.

The SBI was formed in 1955, through nationalization of imperial banks in India. The imperial

bank of India has been formed by the amalgamation of three existing presidency banks. With

the nationalization of imperial bank in India, all its assets and liabilities were transferred to the

state bank of India.

It was converted into SBI on 1/07/1955 on the recommendations of the committee for All India

Rural Credit Survey, headed by Shri. A.D. Gorwala (the committee recommended the

establishment of one strong, integrated, state sponsored, state partnered commercial banking

institution). At that time SBI had three circles, Bombay, Calcutta and Madras besides a central

office at Bombay, SBI was the first bank to set up as the public sector.

The SBI has, over the years, richly verified its status as flagship of Indian banking; the bank has

pioneered innovative measures and contributed significantly to the growth of the Indianeconomy. It has been taking new initiatives with the changing economic environment and is

poised to establish itself in the new millennium as a premier Indian financial services group

with a global perspective and world class standards of efficiency.

COMPANY PROFILE

STATE BANK OF INDIA

THE NATION BANKS WITH US


15/65


The SBIs powerful corporate banking formation deploys multiple channels to deliver

integrated solutions for all financial challenges faced by the corporate universe. The Corporate

Banking Group and the National Banking Group are the primary delivery channels for corporate

banking products. The Corporate Banking Group consists of dedicated Strategic Business Units

that cater exclusively to specific client groups or specialize in particular product clusters.

Foremost among these specialized groups are the Corporate Accounts Group (CAG), focusing

on the prime corporate and institutional clients of the countrys biggest business centers. The

others are the Project Finance unit and the Leasing unit. The National Banking Group also

delivers the entire spectrum of corporate banking products to other corporate clients, on a

nationwide platform.

State Bank of India is the premium commercial bank of the country and among its strengths, the

following would merit attention.The largest commercial bank in the country with branches spread all over India, besides having

presents in all the time zones of the world covering several countries.

As the largest financial institution In India, SBI is well positioned to capture growth in Indias

dynamic banking market and is seen as a macroeconomic proxy for the Indian economy.

SBI is an excellent brand name that is synonymous with trust and security. SBI is the only bank

in India to be ranked among the top 100 banks in the world and also among the top 20 banks in

Asia in the annual survey by The Banker.

The bank has developed an excellent in-house staff training infrastructure including a College,

an Academy an Institute for Rural Development and an institute for Information Management

and Communication Technology. Efforts are continuously made to improve the motivation and

morale of the banks employees through on -going training and on-site initiatives.

Separate business units viz. Agri-Business Unit, Government Business Unit, P-segment

business unit and SME Business unit created for focused attention to respective segments.

MISSION, VISION AND VALUES OF STATE BANK OF INDIA:

VISION-

My SBI: First in customer satisfaction.


16/65


MISSION-

We will be prompt and proactive with our customers, we will speak the language of young

India, we will create products and services that help our customers achieve their goals, we will

go beyond the call of duty to make our customers feel valued, we will be in service even in the

remotest part of our country, we will offer excellence in services to those abroad as much as we

do those in India, we will imbide state of art technology to drive excellence.

VALUES-

We will always be honest, transparent and ethical. We will respect our customers and fellow

associates we will be knowledge driven. We will learn and we will share our learning. We will

never take the easy way out. We will do everything we can to contribute to the community we

work in. we will nurture pride in India.

DEPOSIT LOANS CARDS DIFFERENTCREDIT CARDS

Savings Account Home Loans Consumer Cards SBI Internationalcards

Life Plus Senior CitizensSavings Account

Loan Against Property Credit Card SBI Gold cards

Fixed Deposits Personal Loans Travel Card SBI Gold Mastercards

Security Deposits Car Loan Debit Cards Your City YourCardsRecurring Deposits Loans againstSecurities

Commercial Cards

Tax-Saver FixedDeposit

Two Wheeler Corporate Cards Partnership Cards

Salary Account Pre-approved Loans Prepaid CardAdvantage WomanSavings Account

Retail Asset Purchase Card SBI EmployeeCards

Rural Savings Account Farmer Finance Distribution CardsPeople's SavingsAccount

Business InstallmentLoans

Business Card SBI AdvantageCards

DIFFERENT PRODUCTS


17/65


ORGANIZATION-

The organization of the SBI can be discussed under the following heads:

1) Capital-

The SBI has an authorized capital of Rs.20 crores which has been divided into 20 lakhs shares

of Rs. 100 each. The shares are held by the reserve bank, insurance companies and the general

public.

2) Management-

The management of SBI is under the control of a central board of directors consisting of 20

members, the breakup of a central board is given below:

A chairman and vice president are to be appointed by the central government in

consultation with reserve bank. Two managing directors are to be appointed by the central board with the approval of

central government.

Six directors are to be elected by the private shareholders. Eight directors are to be appointed by the central government I consultation with the

reserve bank to represent territorial and economic interests. No less than two of them

should have special knowledge in the working of co-operative institutions and of the

rural economy.

One of the directors to be appointed by the central government. One director is to be appointed by the reserve bank.

3) Subsidiary banks-

The state bank of India has the following six Associate Banks (ABs) with controlling interest

ranging from 75% to 100%.

1. State Bank of Bikaner and Jaipur (SBBJ)

2. State Bank of Hyderabad (SBH)

3. State Bank of Indore (SBIr)

4. State Bank of Mysore (SBM)

5. State Bank of Patiala (SBP)

6. State Bank of Travancore (SBT)


18/65


The 6 associated banks have a combined network of 4502 branches in India which are fully

computerized and 2410 ATMs networked with SBI ATMs, providing value added services to

clientele.

The combined net profit of these banks Rs 91.66 crores. Deposits and advances grew by 7%,

respectively, during the year. The combined Net NPA ratio of all associated banks was at 1.72%

as on 31st March 2010.The highlights of performance of the six ABs for the year 2010-11 are as

follows:

(Rs in crores) for the year 2010-11

Deposits 8041.16

Loans 6319.14

Investments 2857.90

Total Assets 10534.13Return on Assets 0.86%

No. of Branches 4502

The state bank of India has been established to operate on the normal commercial

principle.

With the only difference that, unlike other commercial banks in country, it takes into

consideration and responds progressively to the small scale industries particularly in the

rural areas of the country.

To act in accordance with the broad economic principle of the government. To encourage and mobilize the savings by operating branches in the rural and semi-

urban and to promote rural credit.

To extend financial help for the establishment of licensed warehouse and co-operative

marketing societies.

To provide financial help to small scale and cottage industries. To provide remittance facilities to banking institutions.

Ob ectives of SBI


19/65


1) Central Banking functions-

The SBI acts as an agent of the reserve bank in all these places where the latter does not have its

branches. As an agent of the reserve bank, the State Bank performs the following functions:

It acts as the government bank i.e. it collects money and makes payments on behalf of

the government and manages public debt.

It acts as the bankers bank. It receives deposits from and gives loan to the commercial

banks. It also acts as a clearing house for the commercial banks, rediscounts the bills of

exchange of the commercial banks and provides remittance facilities to the commercial

banks.2) Ordinary banking functions-

The SBI performs all kind of commercial banking functions.

It receives deposits from the public It gives loans and advances against eligible securities including goods, bills of exchange,

promissory notes, fully paid share of companies, immovable property or documents of

title, debenture etc.

3) Other functions-

The SBI also performs the following other functions

It buys and sells gold and silver It acts as agent of co operative banks It under rights issues of stocks, shares, debenture and other securities in which it is

authorized to invest.

It draws bill of exchange and grants letter of credit payable out of India.

The business operations of SBI can be broadly classified into the key income generating areas

such as National Banking, International Banking, Corporate Banking, & Treasury operations.

Areas of Operations-

FUNCTIONS


20/65


Strategy: Strategy State Bank of India is to strengthening the overall agricultural sector in the district and

to provide financial support for the rural development. For this purpose bank is raising funds

through share capital, deposits and from NABARD through Apex bank and lending money

through agricultural credit co operative societies.


21/65


Structure:

Organization Structure

Click to edit Master title style

Click to edit Master text styles Second level

Third level Fourth level

Fifth level

-

CHAIRMAN

CORPORATECENTRE DMD&CCO

DMD&CCO

DMD(I&MA) DMD(I&MA)

CVO CVO DMD&CDO DMD&CDO

BUSINESS GROUPS MD&GE(CB) MD&GE(CB) MD&GE(NB) MD&GE(NB) DMD&GE(IB) DMD&GE(IB) DMD&GE(A&S) DMD&GE(A&S)

DMD&CFO

DMD(IT) DMD(IT) Chief Economic Advisor Chief Economic Advisor


22/65


SystemSystem in the 7-S framework refers to all the rules regulation and procedure both formal &

informal that complements the organization structure. It includes planning and control system,

capital budgeting system, recruitment training & development system, and performance

evolution system.

Planning & Control System in State Bank Of India

This is very important function, which is done by top management. It prepares plan every

year by considering the potentiality, infrastructure facility and past performance. It is a master plan which consisting plan of all departments. While dreaming plan top management considers

bank as a whole unit. Thus plan is the standard course of action prescribed for one year. The

actual performance can be compared with this plan and reviewed by the Board of directors, MD

to take decision on any investment/ expansion plan.


23/65


Recruitment and Selection System

The administration & staff department in State Bank of India undertakes the recruitment &

selection process. It follows the government obligation for the purpose of recruitment. The board of director & MD will be in the selection committee when recruitment & selection

become necessary. Recruitment process in State Bank of India is purely on merit basis. Written

test and personal interview is been carried out to select the candidates. Bank recruits for SDC

post with a minimum qualification of degree or equivalent course from a recognized institute.

Seniority and eligibility is the bases of promotion in the State Bank of India

Performance Evaluation System

The immediate superiors evaluate the performance of the employees. In State Bank Of India

respective Assistance general manager evaluate their subordinates. General Manager evaluates

Assistant General Manager. Which managing director should approve.

Style:

Leadership style in State Bank of India is of autocratic. It has top to bottom or top down system

style. All the major decisions are taken by the board of directors.

Staff:

Total number of staff in State Bank of India is 2, 00,229.

Bank has divided its staff into following categories:1. Managing director

2. Deputy managing director

3. Touring auditors / Taluk control officer / Branch managers

4. Branch managers / bank inspectors5. First division clerk

6. Second division clerk

7. Peon / gun man / drivers


24/65


Skills:

In the Mc Kinsey 7-S framework, skill is one of the most crucial attribute or capabilities of an

organization. The term skill includes those characteristics, which most people use to describe a

company. In other words skill refers to dominant skills or distinctive competence of an

organization. Staffs of State Bank of India are highly qualified in accounting writing skills

which are very essential for providing banking services. Rural orientation is one of the essential

skills present with State Bank of India Belgaum.

Shared values:The core or fundamental values that are widely share in the organization and serve as guidelines

that are important, these values have greater meaning because they focus attention and provide

broader since of purpose.

The values of State Bank of India are:We will always be honest, transparent and ethical. We will respect our customers and fellow

associates we will be knowledge driven. We will learn and we will share our learning. We will

never take the easy way out. We will do everything we can to contribute to the community we

work in. we will nurture pride in India.

Sr. No. Name of DirectorSec. of SBI Act,

1955

1.Shri O.P. Bhatt

Chairman19(a)

2.Shri R. Sridharan

Managing Director19(b)

3. Dr. Ashok Jhunjhunwala Director 19(c)

4. Shri Dileep C. Choksi Director 19(c)

5. Shri S. Venkatachalam Director 19(c)

6. Shri D. Sundaram 19(c)

BOARD OF DIRECTORS


25/65


Director

7. Shri. G. D. Nadaf

Officer Employee Director

19 (c, b)

8. Dr. (Mrs.) Vasantha Bharucha Director 19 (d)

9. Dr. Rajiv Kumar Director 19(d)

10 Shri Ashok Chawla Director 19(e)

11. Smt. Shyamala Gopinath Director 19(f)

Competitors and other players-Top Performing Public Sector Banks-

1.AndhraBank

2.AllahabadBank

3.PunjabNationalBank

4. Dena Bank

5. Vijaya Bank

Top Performing Private Sector Banks-1. HDFC Bank

2.ICICIBank

3.AXISBank

4.KotakMahindraBank

5. Centurion Bank of Punjab

Top Performing Foreign Banks-

1.Citibank2.StandardChartered

3.HSBCBank

4.ABNAMROBank

5. American Express

Competitors


26/65


STRENGTHS WEAKNESS

Brand name Minor hindrances

Market leader Hierarchical management

Wide distribution network Lags modernisation

Government owned

Diversified portfolio

OPPORTUNITIES THREATS

Merger of associate banks with SBI Advent of MNC banks

New branches and ATMs CRMExpansion on foreign soil Private banks venturing into rural

Employee strike

Delay in technology up gradation

Awards and Recognition

SWOT ANALYSIS


27/65


28/65


Ratios 2010 2009 2008

Current Ratio 0.04 0.04 0.07

Quick Ratio 9.07 5.74 6.15

Return on Assets 1038.76 912.73 776.48

Total Assets Turnover Ratio 0.09 0.09 0.09

Return on Net Worth (%) 13.89 15.74 13.72

Dividend Payout Ratio 23.36 22.90 22.64

Return on Equity 14.84 15.07 17.82

Net NPA Ratio 1.72 1.79 1.78

Capital Adequacy Ratio 12.00 12.97 13.54

Cash Deposit Ratio 7.56 8.37 8.29

Learning Experience:

I got an opportunity to interact with the bank officials thoroughly and gained knowledge about

the topic as well as about the SBI. I had experienced a lot in the bank by working over there and

knowing about the banking operations. I got an experience to see the banking records and

interacted with the top management of the bank which has helped me in this project a lot. I wantto thank all the bank officials and top management of the bank in the branch.

Analysis of financial statement


29/65


With a view to move towards internationally accepted norms for asset classification and

income recognition, RBI has been tightening the definition of NPAs in a phased manner.

Thus, from the norm of classifying only those assets as non-performing which are four quarters

past due, which was applicable until 1993, RBI moved to the norm of three quarters past due in

1994 and then to two quarters (90 days) past due in 1995. In 2001, RBI tightened this further by

removing the past due concept. As a result, NPAs are to be recognized 30 days earlier than

they were to be before 2001.

RBI has now advised banks to move to the 90 days norm for recognizing loans as non-

performing, with effect from March 31, 2004.

This tightening of norms, coupled with the year of economic recession, resulted in an increasein the recognized stock of NPAs in the Indian financial system. The same time, the ratio of

gross NPAs in to gross advances has shown a declining trend.

The definition of NPAs is prescribed in the prudential norms on asset classification and

advances laid down by RBI. Accordingly, with the effects from March 31, 2004, an advance is

classified as NPA where in the case of:

I. Terms Loan the interest and/or installment of principal remain overdue for a period of more

than 90 days.

II. Overdraft/cash credit (OD/CC) the account remains out of order.

III. Bills purchased and discounted the bill remains overdue for a period of more than 90 days.

IV. Advance granted for agricultural purposes interest and/or installment of principal remain

overdue for two harvest seasons but for a period not exceeding two half year, and

V. Other accounts any amount to be received remains overdue for a period of more than 90

days.

An asset, which ceases to yield income for the bank, should be treated as NPA, and any income

from loan assets should not be booked as income until it is actually recovered. So, banks, whichcharge interests to loan Accounts Park it in Interest Not Collected Account (INCA) until

recovery, and on recovery, reverse it from INCA and credit interest account.

NPA ratio: The net non-performing assets to loan (advances) ratios are used as a measure of the

overall quality of the banks. Net NPAs are calculated by reducing cumulative balance of

General Introduction


30/65


provisions outstanding at a period end from gross NPAs. Higher ratio reflects rising bad quality

of loans.

NPA ratio = Net non-performing assets

Loans given

To begin with, it seems appropriate to define non performing advance, popularly called NPA.

Non Performing Advance is defined as an advance where payment of interest of repayment of

installment of principal (in case of term loans) or both remains unpaid for a period to two

quarters or more. An amount under any of the credit facilities is to be treated as past due

when it remains unpaid for 30 days beyond due date.What is NPA Management?

A bank creates an asset by lending 50% to 90% of the project cost. The bank has major stroke

in an asset than the borrower, so it should be the responsibility of the bank to see and maintain

the health of the asset, while creating an asset the Bank wants that the asset should be

performing one from the beginning and remains so till its liquidation. But, sooner or later, it

becomes or tends to become NPA; unless managed properly; due to various reasons. Then it

becomes a problematic asset and needs intensive care.

Effective NPA management involves the following Aspects:

1. Understanding of NPA amount.

a. Understanding of NPA concept

b. Understanding of income recognition norms

c. Understanding of asset classification norms

d. Understanding of provisioning norms

e. Understanding of asset cycle.

2. Identification of NPAs;a. Term loans

b. Agricultural advances

c. Cash credit and overdraft credit facilities.

d. Bills purchased and discounted

What is NPA?


31/65


e. Other credit facilities.

3. Prevention of NPAs

a. Credit risk management

b. Credit marketing

c. Management of potential NPAs

d. Replacement of loans.

4. Proper NPA accounting system

a. Accounting system in NPA accounts]

b. Maintenance of NPA records.

5. Up-gradation of fresh NPAs

a. Recovery of critical amount

b. Replacement of NPA amount.6. Liquidation of chronic NPAs

a. Cash recovery through The bank staff The government agencies The private recovery agents The legal bodies/methods

b. Settlement of claims with DICGC/ECGC

c. Compromise

d. Written off

7. Use of MIS and IT in NPA management.

8. Formulation of comprehensive NPA management policy/strategies.

9. Rating of NPA management


32/65


Non-performing Assets came into the Indian Financial System consequent to the

introduction of prudential accounting norms. An era of taking profits (even unrealized) was

changed to providing for expected loss.

From the financial year 1991-1992, the new system of accounting came into existence.

More and more new reforms were introduced institution this year. New accounting system for

classification of loan and interest come into effect.

The financial institutions and banks adopted income recognition rule. Reserve Bank of

India also took keen interest in this direction and came out with specific guidelines.

As a result the method of Asset classification came into force, whi le introducing these

guidelines internationally accepted standards of Basis Committee recommendations were alsotaken into considerations. As per the norms of these standards income was recognized only in

respect of standard/performing loans.

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

into:

1. Standard Assets : Such an asset is not a non-performing asset. In other words, it carries not

more than normal risk attached to the business.

2. Sub-Standard Assets : It is classified as non-performing assets for a period not exceeding 18

months.

3. Doubtful Assets : Assets that has remained NPA for a period exceeding 18 months is a

doubtful asset.

4. Loss Assets : Here loss is identified by the bank concerned or by internal auditors or by

external auditor or by Reserve Bank India (RBI) inspection. In terms of RBI guidelines, as and

when an asset become a NPA, such advance would be first classified as a sub-standard one for a

period that should not exceed 18 months and subsequently as doubtful assets. It should be not

MODERN CONCEPT

RBI GUIDELINES ON CLASSIFICATION OF BANKASSETS


33/65


that the above classification is only for the purpose of computing the amount of provision that

should be made with respect to banks advance and certainly not for the purpose of presentation

of advance in the bank balance sheet.

1) Cash Credits/ Overdraft:

When an account is not of order for any 2 quarters out of 4 quarters of the years ending 31 st

March, the account will be treated as an NPA. Out of Order:-

Out standings exceeding the limit/drawing power for any two quarters (continuous or

otherwise)

Out standings are well within the Limit/drawing power, but

A. No credit in the account for the last 6 months.

B. Credits in the accounts are not sufficient to meet interest debits for any 2

quarters.

2) Term Loans:

If interest/installments of principal remain unpaid for any 2 quarters of the year ending 31 st

March the account will be NPA Past Due Grace period of 30 days is NOT to be reckoned in

your bank. Its means that quarters interest/Installments up to 31 st December should be

recovered before 31st

March, as otherwise account will be treated as NPA.3) Agricultural Term Loans/Cash Credits.

If interest/installments of principal (after it has become due) has not been paid during the last

two seasons of harvest (covering two half years), the account will be NPA.

Past Due- Grace period of 30 days is not applicable in our bank to Agricultural Loans. Date for reckoning interest/installment due is the date as stipulated in the sanction.

4) Bills purchased and discounted:

The bills purchased will become NPA if they remain overdue and unpaid for 2 quartersas on 31 st march.

Overdue Interest:

Overdue interest should not be charged and taken to income account in respect f overdue

bills unless it is realized.

Types of Loans Provided by SBI


34/65


5) Other Accounts:

The account becomes NPA if the account remains unpaid for any 2 quarters or more as on 31 st

march.

7) Consortium advance:

Each member bank will classify the account in accordance with the conduct in its books

8) Government Guaranteed Advances:

Though, credit facilities backed by the government guarantee may became past due with income

not being booked, they need not be treated s NPAs. In some case it is observed that banks have

to file suits against the borrower after invoking the government guarantees with a view to

overcome the limitation period. In such circumstances, the branches may treat the advances

guaranteed by the government as NPAs only when the government concerned when invoked.

1. Internal checks and control:

Since high level of NPAs dampens the performance of the bank identification of potential

problem accounts and there close monitoring assumes importance.

The EWS enable a bank to identify the borrower accounts, which show signs of credit

deterioration and initiate remedial action. Many banks have evolved and adopted an elaborate

EWS, which allows them to identify potential distress signals and plan their options before

hand, accordingly. The major components/process of an EWS followed by banks in India as

brought out by study conducted by Reserve Bank of India at the instance of the Board of

financial supervision are as follows.

i) Designing Relationship Manager/credit Officer for Monitoring account

ii) Preparation of Know your Client profile

iii) Credit rating system

iv) Identification of watch-list/ special mention category accounts

v) Monitoring of early warning signals.

Procedures for Identification of NPA and

Resolution


35/65


2. Management / resolution of NPAs:

Reeducation in the total gross and net NPAs in the India financial system indicates a

significant improvement in management of NPAs. This is also on account of various resolution

mechanism introduced in the recent past, which include the SARFESI act. One-time settlement

schemes, setting u of the CDR mechanism, strengthening of DRTs

3. Credit Information Bureau:

State Bank of India, HDFC Limited M/s Dun incorporated credit Information Bureau (India)

Limited (CIBIL) in Jan 2001 and Bradstreet Information services (India) Pvt. Information

between banks and FIs for curbing the growth of NPAs. The CIBIL is in the process of getting

operationalised.

4. Willful Defaulters:

RBI has revised guidelines in respect of detection of willful default and diversion and

siphoning of funds. As per these guidelines a willful default occurs when a borrower defaults in

meeting its obligations to the leader when it has capacity to honor the obligations or when funds

have been utilized for the purposes other than those for which finance was granted. RBI has

advised the lenders to initiate legal measures including criminal actions, wherever required, and

undertake a proactive approach in change in management, where appropriate.

5. Legal and Regulatory Regime:

A. Debt Recovery Tribunals

B. Lokadalats

C. Enactments of SARFAESI Act

D. Assets reconstruction companies

E. Institution of CDR Mechanism

F. Compromise settlement schemes

Underlying Reasons for NPAs:

An internal study conducted by RBI shows that in order of prominence, the following factor

contribute to NPAs,


36/65


Internal Factors:

1. Diversion of funds for expansion/diversification/modernization taking up new projects,

helping/promoting associate concerns.

2. Time/cost overrun during the project implementation stage.

3. Business (product, marketing, etc) failure

4. Inefficiency in management.

5. Slackness in credit management and monitoring.

6. Inappropriate technology/ technical problems.

7. Lack of co-ordination among leaders.

External Factors:

1. Recession

2. Input / power shortage

3. Prince escalation

4. Exchange rate fluctuation

5. Accidents and natural calamities, etc

6. Changes in government policies in excise/import duties, pollution control orders.

The above mentioned cause were reaffirmed, some other were also Mentioned. A brief

discussion is provided below.

a) Liberalization of economy/removal of restrictions/reduction of tariffs:

A large number of NPA borrowers were unable to compete in a competitive market in which

lower prices and greater choice were available to consumers. Further borrower operating in

specific industries has suffered due to political, fiscal and social compulsions, compounding

pressures from liberalization.

b) Lax monitoring of credit and failure to recognize early warning signal:

It has been stated the approval of loan proposals is generally thorough many levels beforeapproval is granted. However, the monitoring of sometime complex credit files has not received

the attention it needed, which meant that early warning signals were not recognized and

standard assets slipped to NPA category without banks being able to take proactive measure to


37/65


prevent this. Partly due to this reason, adverse trends in borrowers performance were not noted

and the position further deteriorated before action was taken.

c) Over optimistic promoters:

Promoters were often optimistic in Setting up large projects and in some cases were not fully

above board in their intentions. Screening procedures did not always highlight these issues.

Often projects where set up with the expectation that part of funding would be arrange from that

capital Market, which were booming at the time of project appraisal. When the capital market

subsequently crashed, the requisite funds could never be raised, promoters often lost interest

and lenders were left stranded with incomplete/unviable projects.

d) Directs Lending:

Governments police rather than commercial imperatives dictated loans to some segments.

e) Highly leveraged borrowers:

Some borrowers were undercapitalized and over burdened with debt to absorb the changing

economic situation in the country. Operating within a protected market resulted in low

appreciation of commercial/market risk.

f) Funding mismatch:

There are said to be many cases where loans granted for short term were used to fund long

term transaction.

g) High cost of funds:

Interest rates as high as 20% were not uncommon. Coupled with high leveraging and

falling demand, borrowers could not continue to service high cost debt.

h) Willful Defaulters: -

There are a number of borrowers who have strategically defaulted on their debt service

obligations realizing that the legal recourse available to creditors is slow in achieving results.


38/65


39/65


India. Government exercised multiple role and concerns, and the instinct to act as a watchful

shareholder and increase the shareholders value of these corporate bodies (banks & financial.

Institution) was never felt/experienced by the government.

Credit management on the part of the leader to the borrower to secure their genuine and

bonfire interests was not based on pragmatically calculated anticipated cash flows of the

borrower concern, while recovery of installments of term Loan was not out of profit and surplus

generated but through recourses to the corpus of working capital of the borrower concerns. This

eventually led to the failure of the project financed leaving idle assets. Functional inefficiency

was also caused due to over-staffing, manual processing of over-expanded operations and

failure to computerize banks in India, when elsewhere throughout the world the system was to

switch over to computerization of operations.

Action Plan for the Operating Functionaries:

a) Analyze the NPAs and delineate them in sub-groups.

b) Do age-wise sub grouping

c) ABC analyses of advances.

d) Targets for recovery of various categories

e) Monthly reporting and monitoring in preview meetings.

a) Regular/timely contact with the borrowers should be maintained on one-to-one basis in

order that the loans/advances are monitored effectively.

b) The recovery work should be specifically entrusted to the identified loan officers/ clerks who

will have regular contacts with the borrowers particularly at the time, which is more suitable

for recovery, like pre and post-harvest period in case of agricultural advance.

c) The high value advance should be specifically monitored and in case of advance, which

displays signals of slipping to sub-standard category, intensive follow-up is necessary.

d) The repayment programmes should be fixed up realistically keeping in view the probability

of cash accruals taking place as per the projections.

PREVENTIVE MEASURES


40/65


e) In case where units are facing genuine difficulty in adhering to the repayment schedule fixed

while sanctioning the loan, the loan can be rescheduled so that the advance does not turn out

of order or past due.

f) Borrower should be counseled to route the sales proceeds through the account, which will

ensure that the account does not turn out of order merely on account of interest application.

g) A written communication be sent to all borrowers advising them about the need to ensure

that there advance remain standard assets to enable the bank to consider favorably their

future request for financial assistance, if needs.

1. Regular meetings with the borrowers and interaction with them on their business prospects

and their position of their accounts should take place.

2. Periodical meetings with group of borrowers particularly those financed under government-

sponsored schemes and in rural areas should be held in which the need for prompt payments

of dues should be explained. It needs to be made clear to these borrowers that there will not

be any further debt relief scheme in future and that they will benefit in the long run by paying

the banks dues.

3. Recovery camps/recovery workshops can be organized in co-ordination with the government

authorities in rural areas or in respect of SBI advance under government sponsored schemes.

4. In case of suck units, viability studies need to be conducted promptly and quick dispensation

of rehabilitation packages is essential so that the advance to them can be upgraded.

5. Close monitoring of sick units, which are under nursing is important to ensure that they abide

by the stipulation made under the nursing program and thereby there borrowal account are

upgraded.

6. Target for recovery should be fixed for individual functionaries and their performance should

be closely is closely monitored.

7. Periodical inspection of the units financed and follow-up for recovery of the overdue amount

should be closely monitored.

REMEDIAL MEASURES


41/65


8. For smaller advance, Lok Adalat is an effective avenue for on the spot settlement of bank

loan case and this mechanism should be used effectively.

9. As regards cases involving debt for over Rs.10 lakhs, the forum of Debt Recovery Tribunal

should be effectively used.

10. Periodical meetings should be held with the lawyers handling Banks cases to discuss

various issue connected with the ending loans case with a view to reducing the delays in

settlement of the cases.

11. Settling the cases out of court and entering into compromises, wherever considered

appropriate, may prove to be quicker and more effective than legal action. However, any

tendency to get undue advantage from the bank should be guarded against.

12. Realization of securities in cases of advances under litigation needs greater attention. Itshould be our endeavor to obtain permission of the court for attachments and disposal of

securities charged to the bank before judgment. Where such permission is granted or where

suit is decreed in banks favors, the securities covered by the su it should promptly realize.

13. The portfolio of the loss assets has to be critically examined to weed out all such assets

where there is no hope of any recovery. In such cases, the ultimate step of writing off the

advance needs to be taken and any delay in the matter is of no benefit.

14. The services of Non-Government Organizations (NGOs) may also be utilized in area where

these are active, for counseling the small borrowers. These borrowers may be organized in-

group and financed, if considered appropriate and prudent, through the NGOs concerned.

The major tools for tackling assets, which have already turned into non-performing assets, are

the following: - Recovery through legal action including the forum of debt recovery tribunals and lok

adalats.

Utilizing the machinery of state government for recovery of rural death. Entering into comprises through negotiations.

TACKLING NPAs


42/65


Rehabilitation packages for potentially viable sick units. Rescheduling/ rephrasing of dues in case of irregular advances of viable units. Recovery of overdue amount through persistent follow up and by counseling / educating

the borrowers.

FOCUSED STRATERGIES:

1. Constant follow up and periodically dialogue with the borrower to know the prospects of his

business and difficulties, if any, faced. Case to case review of NPAs and replacement of loan

to suit the revised income generation pattern so that he is able to repay dues of the bank has

per his cash generation capacity.

2. Branch recovery team consisting of 2/3 resourceful staff members/ Officials, should be

formed (if not so) at each critical branch. The team member should be exhorted to set up

recovery endeavors and produce quick tangible results.

3. Establishment of district Recovery Team at each District Headquarter with the help of

District headquarter with the help of district co- ordinates / lead bank officers/Nodal officers

of the concerned district to liaise with the local Government functionaries/Lok

Adalats/certificate Officers, etc. this team may co- ordinate the activities of the Branch

Recovery Team within the district.

4. Lawyer Meet may be organized at all district headquarters by the concerned Asst. general

Manager and AGM (Law) where other officials from local head office may also participate. Suit field case of high value loan amount should be reviewed individually to

expedite the recovery process. Involvement of law officers in follow up recovery efforts

through debt recovery tribunals is necessary.

5. To ensure that Target of Recovery has been allotted to all the critical branches for reducing

NPAs/INC/AUC by their respective controlling authorities and the controllers concerned

monitor their performance. The Dy. General Manager should oversee the position on

monthly basis.

6. One time settlement (OTS) has been found to be another method whereby the bank would

finally recover its due depending upon the repayment capacity of the borrower from all

sources.


43/65


44/65


i) A Sizable portion of NPA is in substandard category. It should be possible to upgrade

account in this segment.

ii) Ensure that substandard account does not slip down to doubtful and loss category.

iii) Efforts should be made to upgrade the account to standard categories NPAs affect our

balance sheet four ways:

We cannot book income Capital adequacy ratio gets affected NPAs require provisioning from post tax profits. Affects image in international level.

iv) Once the amount becomes NPA verify weather documentation is in order. If not rectify itfirst.

v) Rectify all irregularities in documentation as pointed out by branch inspectors.

vi) Regular counsel and educate defaulting borrower. Maintain regular contact with the

borrowers and monitor the asset. Keep the branch manager informed of the developments at

regular intervals.

vii) Do not permit excess drawing unless otherwise necessary for three unit to run. If the

situations warrants, renew/review the account record excess drawings, if any, permitted in the

account and insists for letters and document it.

viii) In case of sick units if satisfied about the problems of sickness strengthen the assets with

collaterals. This will help in making small provision against such advances. Chalk out a

rehabilitation programme in consultation with the controllers immediately failing which we may

not have any assets to fall back upon later. A quick action is needed. If give a chance, grab the

earliest to palm off the account from our books to any other financial agency.

Substandard Assets


45/65


a. Experience in the previous years indicate that there has been steady slippage in the qualityof assets in the NPA categories from sub standard to doubtful assets and then to loss assets. One

reason could be that appropriate action as mentioned above is not taken in case of sub standard

assets. Secondly suit field accounts in various civil courts\ debts recovery tribunal is not

followed up in the manner required ad or are getting very little attention. These accounts

particularly suit field /decreed account required constant review at the operating level so that

appropriate steps like enforcing decree, facilitating compromises or write off if need be

initiated instead of holding such un-remunerative accounts on long term basis in your books as

NPAs.

b. Issues raised by advocates should be tackled to get the suits disposed of and executive thedecreased so obtained to reduced the NPAs.

c. Where branches have got backlog in settlement to DICGC claims such claims shouldfollowed up rigorously. For this purpose dealing official at the branch should explore the

possibilities of getting the claim settled at an earliest in consideration with the DICGC Chennai

/ Mumbai.

d. Compromise as a strategy for reducing NPAs is receiving attention of branch functionaries.

Encourage compromise proposal selectively without giving wrong signals to the other good borrowers. Branches should view such compromise proposals based on the net present value,

nature and value of value of assets presently available to us.

i) Write off Doubtful and loss assets was initiated by branches from the first quarter of the year

itself.

ii) High value doubtful and loss assets where DICGC has settled the claims and / or rejected the

such case should be first dealt with write-off proposals with additional information should be

submitted immediately where ever assets are not available.

Doubtful Assets

LOSS ASSETS


46/65


iii) Identify all loss assets where full provision is available to write off. Where ever suits are

pending and prospect of recovery exists such account can be parked in advance under

collections accounts.

iv)Write off out standings where provision is short up to Rs 25000 may be sent immediately

without further loss of time.

v) Where ever compromises are / where entertained earlier and write-off the balance still exist

arrange to sent such write-off proposals and ensure that the account does not appear in balance

sheet of the bank.

INTEREST NOT COLLECTED ACCOUNT:-

i) Few branch operating functionaries are still not aware of the IRAC norms. Even though

account is classified as NPA interest is being applied blindly without thinking of consequence

of such application of interest. It inflates the INCA figures.ii) Serious efforts in upgrading the assets from NPA category will results in reduction of INCA.

Pressurize induce the borrowers to bring down their outstanding levels compared to the

previous year. This will enable the bank to book income on partial recovery basis.

iii) Where fundamentals of the industry/unit/borrowers are sound rehabilitation of the unit may

be taken up on priority.

ADVANCE UNDER COLLECTION ACCOUNT:

i) The number of advance under collection account and out standings there in is the rise.

ii) Due to the policy decision taken to write-off loss assets irrespective of suit position may add

a few more account to advance under collection account.

iii) There will be very marginal recovery during the years.

iv) Review all accounts parked in advance under collection account on priority basis and efforts

should be made to recover full dues and remove such accounts from advance under collection

account.

v) Encourage compromise proposals.

vi) Regular view of the recovery prospects and removal of such accounts from advance under

collection account does not appear to be receiving of attention.

vii) This area needs a special attention of the operating staff.


47/65


SARFESI the Security Interest Legislation

SARFESI provides for the enforcement of security interests in movable (tangible) or

intervention of court, by way of a simplistic, expeditious and a cost effective process.

Where any borrower makes any default in repayment of secured debt or nay installment thereof,

and his account in respect of such debt has been classified by the secured creditor as non-

performing asset, then, the secured creditor may call upon the borrower by way of a written

legal; notice to discharge in full, his liabilities within sixty days from the date of the notice

failing which the secured creditor would be entitled to exercise all or any of the rights set outunder SARFESI. The notice must contain details of debt and secured assets.

Any bank or public financial institution or any other institution or non-banking financial

company as specified by central government or international finance corporation or a

consortium there of, and his account in resects of such debt has been classified by the secured

creditor as non-performing assets, then the secured creditor may call upon the borrow by the

way of a written legal notice to discharge in full, his liabilities within 60 days from the date of

the notice failing which the secured creditor would be entitled to exercise all or any of the rights

set out under SARFESI.

The provision of SARFESI relating to security of interest can be invoked by any bank or

public financial institution under section 4A of the Companies Act, 1956 or any institution

specified by central government under sub clause (ii) of clause (h) of section 2 of recovery of

debt due to banks and financial institutions Act, 1993 or any other institution or non banking

financial company as specified by central government or international finance corporation or a

consortium thereof.

ENFORCEMENT OF SECURITY INTERESTACT 2002


48/65


Generation of more NPAs is one of the biggest problems faced by bank. Loans and advances

given are becoming NPAs. Bank is facing problem in recovering the loans and advances. The

research should be identified, analyzed and possible solutions be suggested for solving the

important problem.

1. To identify the nature of the problem in NPAs.

2. To minimize the amount of provision required for NPA.

3. To study the amount of NPA under different segments over the years.

4. To analyze the reasons associated with the underperformance of all the sectors.

SBI is the leading bank among all nationalized banks having largest banking network in

the country. Since this branch comprises of Personal, Retail and Commercial banking under one

roof, there is a wider scope for the study NPA management in the main branch, which consists

variety of advances in all the fields. There are many chances of advances getting

NPA in many shapes. In this project, an attempt is made to understand the process and nature of

NPA management methods in SBI, RBI guidelines and NPA trend in SBI.

Sources of Data collection:

1. Primary Data: The project report of this kind will really need first hand information which

will be collected by referring some Bank Statements and collected through the interaction with

Senior Managers and Bank Staffs

2. Secondary Data: Some Banking booklets and Banking prospectus have been used as a

reference for the study and companys websites.

OBJECTIVES OF THE STUDY

SCOPE OF STUDY

METHODOLOGY

Statement of the problem


49/65


Shortage of time:

Time is very short for research, so that is very difficult can get the knowledge about

everything.

Information not sufficiently available:

The source of data collection is secondary so the information available is not sufficient.

No direct source of information available:

The information is collected from indirect sources so in some information data is not

available.

Secondary data:

Information is not reliable because of secondary data

Limitations of the study


50/65


Segment wise classification of assets as on 31/3/10 (Rs in crores)

Items assets SSI SBF C&I Personal loan TOTAL

Sub-standard asset 2663 168112 538465 1510251 2219491

D1 228440 7701 0 3312126 3548267

D2 1366102 478447 0 2370183 4214732

D3 262039 585362 0 1271600 2119001

Loss assets 0 0 99000 5794325 6784150

Total provisions 1859244 1239622 637465 14258485 18885641

Interpretations: In the above chart Small Scale Industries total provision is the highest i.e. 1859244 crores

as compare to Small Banking Finance and Commercial &Industrial loan.

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

2000000

Sub-standard

asset

D1 D2 D3 Loss assets Totalprovision

SSI 2663 228440 1366102 262039 0 1859244

SBF 168112 7701 478447 585362 0 1239622

C&I 538465 0 0 0 99000 637465

Segment wise 2010

ANALYSIS AND FINDINGS


51/65


52/65


Sector wise classification of assets as on 31/03/10 ( in crores)

Items assets Priority Others Total

Sub-standard asset 799447 1420044 2219491

D1 1244915 2303352 3548267

D2 3257102 957630 4214732

D3 1145608 973393 2119001

Loss assets 4976477 1807673 6784150

Total provision 11423549 7462092 18885641

Interpretations:

In the above data the priority sector total provision is the highest i.e. 11423549.

Loss assets are the highest i.e. 4976477.

In others sector D1 has the highest proportion i.e. 2303352 as compare to other assets.

0

2000000

4000000

6000000

8000000

10000000

12000000

Sub-standard

asset

D1 D2 D3 Lossassets

Totalprovision

Priority 799447 1244915 3257102 1145608 4976477 11423549

Others 1420044 2303352 957630 973393 1807673 7462092

Sector wise 2010


53/65


Interpretations:

In the chart we can see that total provision has the highest amount i.e. Rs 18885641.

From the chart we can come to know that D3 has the least total by taking overall totals

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

1800000020000000

Sub-standard

asset

D1 D2 D3 Lossassets

Totalprovision

Total 2219491 3548267 4214732 2119001 6784150 18885641

Total Column 2010


54/65


55/65


If we see the assets under the Term Loan then, D1 has the highest portion i.e. 3153874

as compare to other assets in Term Loan.

Interpretations:

In the above chart among the facility wise, RA has the highest provision i.e.7698476 as

compare to DD provision.

In the chart if we see the total column then, D3 has the least amount i.e.2119001 as

compare to the totals of all the other assets.

In RA facility, Loss assets i.e.5671006 has the highest proportion as compare to other

assets in RA.

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

18000000

20000000

Sub-standard

asset


DD 17697 57644 782090 0 198061 1055492

RA 0 2373 1096586 928511 5671006 7698476

TOTAL 2219491 3548267 4214732 2119001 6784150 18885641

Facility wise 2010


56/65


57/65


Interpretations:

From the chart we can see that Small Banking Finance has the least amount in total provision i.e.1196724 crores as compare to Small Scale Industries and Commercial &

Industrial Loans provisions.

In the chart we can see that Sub-Standard Assets is zero for all the 3 segments for theyear 2009.

We can also see that in the Commercial & Industrial Loans segment only loss assets arethere, were as all other assets is zero.


58/65


Interpretations: Asset D1 overall total has the highest i.e.5937148 as compare to other assets.

Under Personal loan segment asset D2 and D3 amount is same there is no change and it

has the least amount among other assets i.e. 608476 and even the total provision of

Personal Loan has the highest i.e. 9671189 as compare to other segments.

0

2000000

4000000

6000000

8000000

10000000

12000000

14000000

16000000

18000000

20000000

Sub-standard

asset


PER 1619009 2924555 608476 608476 4103516 9671189

TOTAL 1619009 5937148 4043684 1604196 4816303 18020340

Segment wise 2009


59/65


Sector wise classification of assets as on 31/03/09 (Rs in crores)

Items assets Priority Others Total

Sub-standard asset 846476 772533 1619009

D1 3260379 2676769 5937148

D2 901974 3141710 4043684

D3 1349467 254729 1604196

Loss assets 1655235 3161068 4816303

Total provision 8013531 10006809 18020340

Interpretations:

In the above chart we can see that in the priority sector, asset D1 has the highest amount

i.e. 3260379 as compare to other assets.

0

2000000

4000000

6000000

Date post:	03-Jun-2018
Category:	Documents
Upload:	srachana130
View:	217 times
Download:	0 times

Vinay Full Final Project

Documents