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A PROJECT REPORT ON
A PROJECT STUDY ON “NPA MANAGEMENT IN
BANKS”

Undertaken At

ALLAHABAD BANK

Submitted for partial fulfillment of award of


Post Graduate Diploma in Management

SUBMITTED BY:-

MANISH KUMAR

ENROLLMENT NO: - 208224

PROJECT GUIDE: - Digvijay Singh


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SHIVA INSTITUTE OF MANAGEMENT STUDIES


GHAZIABAD

July, 2009

In Partial Fulfillment of the Requirement for the Award of Two


Year
Full Time Post Graduate Diploma in Business Management.
(Equivalent to MBA) 2008-2010

TABLE OF CONTENT

CERTIFICATE OF THE COMPANY

ACKNOWLEDGE

PREFACE

Chapter 1:- Introduction: Executive summary of the


project

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Chapter 2:- Industry Introduction &Allahabad Bank

Industry introduction

Allahabad Bank: All About

Industry/Bank performance

Correlation between Industry and Allahabad Bank


Movement

Chapter 3:-Research Methodology

Significance of the study

Objective of the study

Scope of the study

Tools & techniques used

Applied principles and concepts

Sources of primary and secondary data

Data collection

Statistical analysis

IDBI BANK LTD.


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Theoretical interpretations

Findings

Chapter 4:- Conclusions and Recommendations

Appendix 1: Questionnaire

Appendix 2: Bibliography

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ACKNOWLEDGEMENT
I would like to express my gratitude to all those who gave me the opportunity to
complete this project. I would like to thank my institute authorities and my
internal guide …Renuka verma…… first for providing me the
opportunity to work with one of the prestigious organizations .I want to thank
the
head of Training Department Shobhit yadav for giving me permission to
commence the summer training project in the first instance, to do necessary
research work and to use departmental data and resources.

I would like to thank the company guide …Digvijay singh and other
executives Who gave and confirmed this permission and encouraged me to go
ahead with my training .I am bound to thank other staff for their stimulating
support.

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I am deeply indebted to my faculty Guide whose constant help,


stimulating suggestions and encouragement helped me in giving the final shape
to this project.

I would like to give my special thanks to my parents; their constant


support enabled me to complete their project work.

Preface

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Decision making is a fundamental part of the research process.

Decisions regarding that what you want to do, how you want to do,

What tools and techniques must be used for the successful

Completion of the project. In fact it is the researcher’s efficiency as

a decision maker that makes project fruitful for those who concern

to the area of study.

Basically when we are playing with computer in every part of life, I

Used it in my project not for the ease of my but for the ease of

result explanation to those who will read this project. The project

Presents the role of financial system in life of persons.

I had toiled to achieve the goals desired. Being a neophyte in this

highly competitive world of business, I had come across several

difficulties to make the objectives a reality. I am presenting this

hand carved efforts in black and white. If anywhere something is

Found not in tandem to the theme then you are welcome with your
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Valuable suggestions.

Chapter 1:- Introduction: Executive summary of the project

After liberalization the Indian banking sector developed very appreciate.


The RBI also nationalized good amount of commercial banks proving socio
economic services to the people of the nation. The public Sector banks have
shown very good performance as far as the financial operations are concerned.
If we look to the glance of the financial operation, We may find that deposit of
public to the public sector Banks have increased from 859, 461, 95 crore to 1,
079, 393, 81 crore in 2003, the investments of the public sector Banks have
increased from 349,107.81 crore to 545,509.00 crore , and however the
advances have also been increased to 549,351.16crore from 414,989.36crore in
2003. The total income of the public sector banks has also shown good
performance since the last few years and currently it is 128,464.40crore.The
public sector Banks have also shown comparately good result. The gross
profits of the public sector Banks Currently29, 715,26crore which has been
doubled to the last to last year, and the net profit Of the public sector Banks is
12,295,47crore.However, the only problem of the public sector Banks these days
are the Increasing level of the non performing assets. The non performing
assets. The non performing assets of the public Sector banks have been
increasing regularly year by year. If we glance on the numbers of performing
assets we may come to know that in the year 1997 the NPAs were 437,300crore
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and reached to 80.24crore in 2002. The only problem that hampers the possible
financial performance of the public Sector Banks is the increasing results of the
non performing assets. The non performing assets impacts drastically to the
working of the banks .The efficiency of a bank is not always reflected only by the
size of its Balance sheet but buy the level of return on its assets. NPAs do not
generate interest income for its Bank, but at the same time banks are required to
make provisions for such NPAs from their current profits.
NPAs have deleterious effect on the return on assets in several
ways: ---
(1) They erode current profits through provisioning requirements
(2) They result in reduced interest income
(3) They require higher providing requirements affecting profits and
accretion to Capital funds recycling of funds, set in asset-liability
mismatches, etc.
The RBI has also tried to develop many schemes and tools to reduce the
non Performing assets the results are not up to the expectations. To
improve NPAs each bank should be motivated to introduce their own
precautionary steps. Before lending the banks must evaluate the feasible
financial and operational prospective results of the borrowing companies
by keeping in Considerations the overall impacts all the factors that
influence the business.

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Chapter 2:- Industry Introduction &Allahabad Bank

INDUSTRY INTRODUCTION
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The Indian Banking industry, which is governed by the Banking


Regulation Act of India, 1949 can be broadly classified into two major
Categories, non-scheduled banks and scheduled banks. Scheduled banks
Comprise commercial banks and the co-operative banks. In terms of
Ownership, commercial banks can be further grouped into nationalized
Banks, the State Bank of India and its group banks, regional rural banks
and private sector banks (the old/ new domestic and foreign). These Banks have
over 67,000 branches spread across the country in every city and villages of all
nook and corners of the land. The first phase of financial reforms resulted in the
nationalization of 14 major Banks in 1969 and resulted in a shift from Class
banking to Mass Banking. This in turn resulted in a significant growth in the
geographical Coverage of banks. Every bank had to earmark a minimum
percentage of their loan portfolio to sectors identified as “priority sectors”. The
Manufacturing sector also grew during the 1970s in protected environs the
banking sector was a critical source. The next wave of reforms saw the
nationalization of 6 more commercial banks in 1980. Since then the number of
scheduled commercial banks increased four-fold and the number of bank
branches increased eight-fold. And that was not the limit of growth.

After the second phase of financial sector reforms and liberalization of


the sector in the early nineties, the Public Sector Banks (PSB) s found it
extremely difficult to compete with the new private sector banks and the
foreign banks. The new private sector banks first made their appearance
after the guidelines permitting them were issued in January 1993. Eight
New private sector banks are presently in operation. These banks due to
their late start has access to state-of-the-art technology, which in turn
helps them to save on manpower costs. During the year 2000, the State Bank of
India (SBI) and its 7 associates accounted for a 25 percent share in deposits and
28.1 percent share in Credit. The 20 nationalized banks accounted for 53.2
percent of the deposits and 47.5 percent of credit during the same period. The
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share of foreign banks (numbering 42), regional rural banks and other scheduled
Commercial banks accounted for 5.7 percent, 3.9 percent and 12.2 percent
respectively in deposits and 8.41 percent, 3.14 percent and B12.85 percent
respectively in credit during the year 2000.about the detail
Of the current scenario we will go through the trends in modern economy
Of the country.

Current Scenario:

The industry is currently in a transition phase. On the one hand, the


PSBs, which are the mainstay of the Indian Banking system are in the
process of shedding their flab in terms of excessive manpower, excessive
non Performing Assets (NPAs) and excessive governmental equity, while
on the other hand the private sector banks are consolidating themselves
through mergers and acquisitions. PSBs, which currently account for more than
78 percent of total banking industry assets are saddled with NPAs (a mind-
boggling Rs 830 billion in 2000), falling revenues from traditional sources, lack
of modern technology and a massive workforce while the new private sector
banks are forging ahead and rewriting the traditional banking business model
by way of their sheer innovation and service. The PSBs are of course currently
working out challenging strategies even as 20 percent of their massive employee
strength has dwindled in the wake of the successful Voluntary Retirement
Schemes (VRS) schemes. The private players however cannot match the PSB’s
great reach, great size and access to low cost deposits. Therefore one of the
means for them to combat the PSBs has been through the merger and acquisition
(M& A) route. Over the last two years, the industry has witnessed several such
instances. For instance, HDFC Bank’s merger with Times Bank Icici
Bank’s acquisition of ITC Classic, Anagram Finance and Bank of
Madurai. Centurion Bank, Indusind Bank, Bank of Punjab, Vysya Bank
are said to be on the lookout. The UTI bank- Global Trust Bank merger
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however opened a Pandora ’s Box and brought about the realization that
all was not well in the functioning of many of the private sector banks.
Private sector Banks have pioneered internet banking, phone banking,
anywhere banking, mobile banking, debit cards, Automatic Teller
Machines (ATMs) and combined various other services and integrated
them into the mainstream banking arena, while the PSBs are still
grappling with disgruntled employees in the aftermath of successful VRS
schemes. Also, following India’s commitment to the W To agreement in LTD.
respect of the services sector, foreign banks, including both new and the
existing ones, have been permitted to open up to 12 branches a year with
effect from 1998-99 as against the earlier stipulation of 8 branches.
Tasks of government diluting their equity from 51 percent to 33 percent
in November 2000 has also opened up a new opportunity for the takeover
of even the PSBs. The FDI rules being more rationalized in Q1FY02 may also
pave the way for foreign banks taking the M& A route to acquire willing Indian
partners. Meanwhile the economic and corporate sector slowdown has led to an
increasing number of banks focusing on the retail segment. Many of
them are also entering the new vistas of Insurance. Banks with their
phenomenal reach and a regular interface with the retail investor are the
best placed to enter into the insurance sector. Banks in India have been
allowed to provide fee-based insurance services without risk
participation, invest in an insurance company for providing
infrastructure and services support and set up of a separate joint venture
insurance company with risk participation.

Aggregate Performance of the Banking Industry

Aggregate deposits of scheduled commercial banks increased at a


compounded annual average growth rate (Cagr) of 17.8 percent during K LTD.

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1969-99, while bank credit expanded at a Cagr of 16.3 percent per annum.
Banks’ investments in government and other approved securities recorded a Cagr
of 18.8 percent per annum during the same period. In FY01 the economic
slowdown resulted in a Gross Domestic Product (GDP) growth of only 6.0
percent as against the previous year’s 6.4 percent. The WPI Index (a measure of
inflation) increased by 7.1 percent against 3.3 percent in FY00. Similarly, money
supply (M3) grew by around 16.2 percent as against 14.6 percent a year ago. The
growth in aggregate deposits of the scheduled commercial banks at
15.4 percent in FY01 percent was lower than that of 19.3 percent in the
previous year, while the growth in credit by SCBs slowed down to 15.6 percent
in FY01 against 23 percent a year ago.
The industrial slowdown also affected the earnings of listed banks. The
net profits of 20 listed banks dropped by 34.43 percent in the quarter
ended March 2001. Net profits grew by 40.75 percent in the first quarter
of 2000-2001, but dropped to 4.56 percent in the fourth quarter of 2000-
2001.
IDBI BANK LTD.
On the Capital Adequacy Ratio (CAR) front while most banks managed to
fulfill the norms, it was a feat achieved with its own share of difficulties.
The CAR, which at present is 9.0 percent, is likely to be hiked to 12.0
percent by the year 2004 based on the Basle Committee recommendations. Any
bank that wishes to grow its assets needs to also shore up its capital at the same
time so that its capital as a percentage of the risk-weighted assets is maintained
at the stipulated rate. While the IPO route was a much-fancied one in the early
‘90s, the current scenario doesn’t look too attractive for bank majors.
Consequently, banks have been forced to explore other avenues to shore
up their capital base. While some are wooing foreign partners to add to
the capital others are employing the M& A route. Many are also going in
for right issues at prices considerably lower than the market prices to
woo the investors.
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Interest Rate Scene


The two years, post the East Asian crises in 1997-98 saw a climb in the
global interest rates. It was only in the later half of FY01 that the US Fed
cut interest rates. India has however
IDBI BANK LTD.
remained more or less insulated. The past 2 years in our country was
characterized by a mounting intention of the Reserve Bank Of India (RBI)
to steadily reduce interest rates resulting in a narrowing differential
between global and domestic rates.
The RBI has been affecting bank rate and CRR cuts at regular intervals
to improve liquidity and reduce rates. The only exception was in July
2000 when the RBI increased the Cash Reserve Ratio (CRR) to stem the
fall in the rupee against the dollar. The steady fall in the interest rates
resulted in squeezed margins for the banks in general.
Governmental Policy:
After the first phase and second phase of financial reforms, in the 1980s
commercial banks began to function in a highly regulated environment,
with administered interest rate structure, quantitative restrictions on
credit flows, high reserve requirements and reservation of a significant
proportion of lendable resources for the priority and the government
sectors. The restrictive regulatory norms led to the credit rationing for
the private sector and the interest rate controls led to the unproductive
use of credit and low levels of investment and growth. The resultant
financial repression’ led to decline in productivity and efficiency and
erosion of profitability of the banking sector in general.
This was when the need to develop a sound commercial banking system
was felt. This was worked out mainly with the help of the
recommendations of the Committee on the Financial System (Chairman: Shri M.
Narasimham), 1991. The resultant financial sector reforms called for interest rate
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flexibility for banks, reduction in reserve requirements, and a number of


structural measures. Interest rates have thus been steadily deregulated in the past
few years with banks being free to fix their Prime Lending Rates(PLRs) and
deposit rates for most banking products. Credit market reforms included
introduction of new instruments of credit, changes in the credit delivery system
and integration of functional roles of diverse players, such as, banks,
financial institutions and non-banking financial companies (Nbfcs).
Domestic Private Sector Banks were allowed to be set up, PSBs were
allowed to access the markets to shore up their Cars.
Implications Of Some Recent Policy Measures:
The allowing of PSBs to shed manpower and dilution of equity are moves
that will lend greater autonomy to the industry. In order to lend more
IDBI BANK LTD.
depth to the capital markets the RBI had in November 2000 also
changed the capital market exposure norms from 5 percent of bank’s
incremental deposits of the previous year to 5 percent of the bank’s total
domestic credit in the previous year. But this move did not have the
desired effect, as in, while most banks kept away almost completely from
the capital markets, a few private sector banks went overboard and
exceeded limits and indulged in dubious stock market deals. The
chances of seeing banks making a comeback to the stock markets are
therefore quite unlikely in the near future.
The move to increase Foreign Direct Investment FDI limits to 49 percent
from 20 percent
during the first quarter of this fiscal came as a welcome announcement
to foreign players wanting to get a foot hold in the Indian Markets by
investing in willing Indian partners who are starved of net worth to meet
CAR norms. Ceiling for FII investment in companies was also increased
from 24.0 percent to 49.0 percent and have been included within the
ambit of FDI investment.
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BANK & MANAGEMENT


HISTORY & BACKGROUND OF THE BANK

Allahabad Bank, the oldest joint Stock Bank of the country, was set up in the
historic town of Allahabad on April 24, 1865 by a Group of Europeans. At that
juncture, in India, organized industry, trade and banking had just started taking
shape.
The Bank was started with a subscribed capital of Rs. 2 lacks and by the end of
19th century, it had branches at Jhansi, Kanpur, Luck now, Bareilly, Nainital,
Kolkata and Delhi. In the early 20th century, with the start of Swadeshi
Movement, Allahabad Bank witnessed a spurt in deposits and the reserves
increased to over Rs. 30 lacks by 1910.
In 1920, the Bank was taken over by P&O Banking Corporation at a bid price of
Rs. 436 per share. The Head Office and the Registered Office of the Bank were
then shifted to Kolkata in 1923 for business considerations and operational
convenience. In 1927, the Bank went into the fold of Chartered Bank that
acquired the controlling interest in the P&O Banking Corporation.
The Bank passed through the critical period of ‘Great Depression’ during the
early thirties, which caused a general stagnation in the global markets, without
sparing the Indian Banking Industry. The Bank dovetailed its functioning in
accordance with the exigencies of the Five Year Plans, which were started in
1951. In the post independence era, Allahabad Bank maintained a steady growth
and by 1964, the Bank had opened its 100th branch.
On July 19, 1969, along with 13 other major commercial banks, Allahabad Bank
was nationalized. At the time of nationalization, the Bank had a network of 151
branches, deposits of Rs. 114 crore and advances of Rs. 82 crore to its credit.

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With nationalization, the Bank spread its activities in the rural, unbanked and
under-banked areas. At the end of 1979, the branch network of the Bank
increased to 875 with the share of rural branches being 46.40%. Deposits of the
Bank grew to Rs. 735 crore at the end of 1979 while advances rose to Rs. 407
crore.
In order to bolster the rural economy, a plethora of Social Banking Schemes was
introduced. Thus, Lead Bank Scheme (1969), Regional Rural Banks (1975),
Twenty-point Programmed (1975), New 20-point Programme (1981), Integrated
Rural Development Program me (1980) etc. were introduced in the Indian
Banking industry. Directed lending to priority sectors, weaker sections,
Scheduled Castes/ Scheduled Tribes and Other Backward Castes were given a
greater thrust and the Bank responded to this initiative and increased its presence
in these areas also. As on March 31, 2007 the Bank’s priority sector credit stood
at Rs. 16230 crore, forming 38.7% of net bank credit and agriculture credit was
over Rs. 7200 crore constituting 17.2% of net credit. The Bank opened its
1000th. Branch on April 03, 1982. The Bank had also started opening
specialized branches such as Industrial Finance Branches, International
Branches, SSI Finance Branches, Recovery Branches etc. The Bank made a
foray into merchant banking activity in 1984 and subsequently transferred the
merchant banking activities to All Bank Finance Limited, a wholly owned
Subsidiary, in 1991. All Bank Finance Limited was registered as a Category-I
Merchant Banker with SEBI and undertook activities such as project advisory
services, loan syndication, issue management, leasing, trusteeship and portfolio
investment services. Consequent upon the SEBI Rules and Regulations notified
on December 09, 1997 for segregation of Capital Market and fund based
activities into separate entities, the Company surrendered its Merchant Banking
registration with SEBI with effect from July 01, 1998 and got itself registered as
a NBFC with RBI on August 21, 1998. In October 1989, United Industrial Bank
Limited was amalgamated into Allahabad Bank . The Board of Directors of the
Bank had earlier taken a decision to merge the subsidiary company with the
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Bank. But subsequently in view of emerging capital market Allahabad Bank


decided to revive the Company. It was thought prudent to go for fee-based
activities.
Accordingly, the NBFC license held by the Company was surrendered to the
RBI and the Company has registered itself as category 1 Merchant Banker with
the SEBI. The Company is now engaged in only Merchant Banking activities.
One of the major challenges faced by the Bank was the accumulated losses
incurred by it for three consecutive years, i.e. from 1992- 93 to 1994-95, owing
to the adoption of prudential accounting norms, in line with RBI directives. To
overcome this situation and to strengthen the bank in various functional areas, a
major revamping exercise was initiated. The Bank put a greater thrust on areas
like technological up-gradation & modernization, improvement in customer
service, credit management with focus to reduce nonperforming assets etc. The
Bank staged a turnaround in 1995-96 with a net profit of Rs. 5.62 crore, which
has increased to Rs. 750.14 crore in 2006-07.
The Bank launched “Gold Trading” with the approval of Reserve Bank of India
for import of gold under open general license. The Bank became the first
nationalized bank in Eastern India to become a depository participant of National
Securities Depository Limited (NSDL) to offer demat and related services and
initiated “Flexi-fix Deposit Scheme” to mobilize resources. The Bank also
introduced “Kisan Card” to facilitate agriculture related activities as well as to
meet the domestic requirements of farmers. In order to boost credit off-take, the
Bank has launched user-friendly and attractive products namely, consumer
finance, car finance, educational loans, personal loan etc.

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The growth of the Bank over the years is given in the table below:

( RS IN CRORE)
Year ended NO of Paid- up Deposits Advances
Branches Capital
1865 1 0.02 0.01 0.01
1890 4 0.04 0.70 0.53
1910 15 0.20 5.53 4.66
1930 37 0.36 11.36 5.21
1950 58 0.46 27.16 14.97
1970 211 1.05 140.70 95.95
1989 1509 57.50 4,034.04 1831.77
1999 1884 246.70 15,510.35 7,057.07
2000 1893 246.70 17642.10 8240.06
2001 1903 246.70 20106.02 10315.80
2002 1914 246.70 22665.94 11815.01
2003 1923 346.70 25463.38 13486.94
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2004 1935 346.70 31476.61 16387.66


2005 1951 346.70 40762.08 22151.51
2006 1999 446.70 48499.69 30061.22
2007 2060 446.70 59544.66 41913.69

PRESENT STATUS
As on June 30, 2007, the Bank had 2107 branches, comprising 979 rural, 389
semi-urban, 441 urban and 298 metropolitan, which formed 46.46%, 18.46%,
20.93% and 14.15% of the total respectively. The branches include 52
specialized branches (i.e. 4 Industrial
Finance Branches, 18 SSI Finance Branches, 6 International Branches, 6
Recovery Branches, 1 NRI Branch, 1 Industrial Finance cum-International
Branch, 2 Specialized Personal Banking Branch, 1 Specialized Savings Bank
Branch, 3 Quick Collection Service Branches and 2 Trading Finance Branches, 1
Specialized commercial agriculture, 1 Forex cum Treasury Management, 3
Agriculture Finance & 3 Regional Processing Centre (Forex) besides 19 Service
Branches. The Bank has 105 Extension Counters. A number of Bank’s branches
and offices are housed in the Bank’s owned premises situated at prime locations
in major cities of the country.
Pursuant to organizational restructuring, the Bank is currently operating with a 3-
tier structure since June 01, 2001 which was further restructured in November,
2004 by reducing the number of Regional Offices from 48 to 44 and renaming
them as Zonal Offices, on account of synergic reasons and improvement in level
of efficiency, reduction in overhead cost and other operating expenditures. Out
of the seven Regional Rural Banks (RRBs) sponsored by the Bank, six RRBs
operating in Uttar Pradesh have been amalgamated into Luck now Kshetriya
Gramin Bank (LKGB) and Triveni Kshetriya Gramin Bank (LKGB) with effect
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from 1st March 2006. Thus the number of sponsored RRBs stand at 3; 2 in Uttar
Pradesh and one in Madhya Pradesh.The Bank has been entrusted with State
Level Bankers’ Committee (SLBC) convener ship in the newly formed state of
Jharkhand.

The Bank is continuing its utmost endeavor for economic uplift-ment of the state
through its various developmental programmes. The Bank has set up a
residential institute in the name of Birsha Munda Institute of Entrepreneurship
Development (BMIED) at Hazaribagh as a part of promotional measures for
enhancement of flow of bank credit in Jharkhand State. The institute has so far
imparted training to 2144 unemployed youths of which 415 trained persons
received financial assistance amounting to Rs. 4.96 crore From our Bank till 31-
03-2007.

The Bank came out with its maiden Equity IPO in the month of October 2002.
The “at par” public issue evolved overwhelming response from the retail
investors. The Bank mobilized more than Rs. 370 crores against the offer size of
Rs. 100 crores. The number of applications from retail investors in the issue
exceeded 2.23 lacs. After the issue, the holding of the Government of India came
Down to 71.16%. Capital Adequacy Ratio improved to 11.15% as on March 31,
2003 due to increase in capital through maiden equity Public issue.
The Bank came out with its follow-on Equity public offer in the month of April
2005 through book building route. The issue Demonstrated a repeated
overwhelming response from the investors. The Bank mobilized more than Rs.
7380 crores against the Offer size of Rs.820 crores. After the issue, the holding
of the Government of India came down to 55.23%. Capital Adequacy Ratio
Improved to 13.80% as on June 30, 2005 due to increase in capital through
follow-on equity public issue.

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The Bank’s performance was noticeable in implementation of ‘Kisan Credit


Card’ launched on 01.09.1998 to ensure easy and timely Supply of credit to
farmers for their short-term working capital requirements for agricultural
activities and also for domestic requirements e.g. education, consumable items,
medical expenses etc. of its existing clients. The Bank received third prize for
Exceeding the disbursement target in 2000-01. The Bank issued 176876 Kisan
Credit Cards involving a credit limit of Rs. 882.73crores during 2006-07. The
cumulative KCC numbered 940799 with a credit limit of Rs.3393.08 crores as
on 31-03-2007. With the ‘Kisan Credit Card’ a new feature of Group Personal
Accident Insurance cover has been provided. The Bank has been giving much
importance to Human Resource Development. It has sent some Officers for
overseas training also. Computerization and automation of operations continued
to receive focused attention from the Bank. The Bank has 2097 computerized
branches/ extension counters, which covers about 99.99% of total
branches/extension counters as on June 30, 2007 in addition to 208 ATMs. The
bank has entered into tie up with VISA for issuance of Debit Cards and with
aggressive marketing strategies. The bank has already issued 2.30 lakhs
International ATM Debit Cards. M/S TCS has been selected as the system
integrator for implementation of CBS in 900 branches of our Bank. 21 branches
(including 18 pilot branches) and 3 RPCs have already been made live under
CBS as on 30-06-2007. The Bank has undertaken strategic planning in order to
become one of the strongest banks in the country in near future through both
product and geographical diversification. For this purpose tie up arrangement
have been made/ being negotiated with various insurance companies and mutual
funds such as Franklin Templeton, Kotak Mahindra, PNB Mutual Funds, Life
Insurance Corporation, UTI Mutual Fund etc. The Bank has opened its maiden
overseas branch at Hong Kong and also representative office at Shenzhen,
China. With the Approval from Reserve Bank of India, General insurance
business is in the offing under Joint venture with Indian Overseas Bank,
Karnataka Bank Ltd, Dabour Ltd and Sampo Japan.
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Structure of Indian Banking Industry

The formal banking system in India comprises the Reserve Bank of India,
commercial banks, regional rural banks and the cooperative banks. In the recent
past, private non-banking finance companies also have been active in the
financial system, and are being regulated by the RBI. Today the overall
Commercial banking system in india may be distinguished into:

(1) Public Sector Banks

(2) Private Sector Banks

(3) Co-operative Sector Banks

(4) Development Banks

PUBLIC SECTOR BANKS

a. State Bank of India and its associate banks called the state Bank
group.
b. 20 nationalized banks
c. Regional Rural Banks mainly sponsored by Public Banks

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PRIVATE SECTOR BANKS

a. Old generation private banks


b. New generation private banks
c. Foreign banks in India
d. Scheduled Co-operative Banks
e. Non-scheduled Banks

CO-OPERATIVE SECTOR

The Co-operative banking sector has been developed in the country to the
supplement the village money lender. The co-operative banking sector in india is
divided into 4 components.

1. State Co-operative Banks


2. Central Co-operative Banks
3. Primary Agriculture Credit societies
4. Land Development Banks
5. Urban Co-operative Banks
6. Primary Agricultural Development Banks
7. Primary Land Development Banks
8. State Land Development Banks

DEVELOPMENT BANKS

1. Industrial Finance Corporation India (IFCI)


2. Industrial Development Bank of India (IDBI)
3. Industrial Credit and Investment Corporation of India (ICICI)
4. Industrial Investment Bank of India (IIBI)

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5. Small Industries Development Bank of India(SIDBI)


6. SCICI Ltd.
7. National Bank for Agriculture and Rural Development(NABARD)
8. Export Import Bank of India
9. National Housing Bank

PUBLIC SECTOR BANKS

1. Allahabad Bank
2. Andhra Bank
3. Bank of Baroda
4. Bank of India
5. Bank of Maharashtra
6. Canara Bank
7. Central Bank of India
8. Corporation Bank
9. Dena Bank
10.Indian Bank
11.Indian Overseas Bank
12.Punjab National Bank
13.Punjab and Sind Bank
14.Vijaya Bank
15.United Bank of India
16.Union Bank of India
17.Syndicate Bank
18.Oriental Bank of commerce
19.Uco Bank
20. State Bank of India
21.State Bank of India &Associate
1.State Bank of Hyderabad
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2.State Bank of Bikaner&Jaipur


3.State Bank of Saurashtra
4. State Bank of Indore
5.State Bank of Mysore
6.State bank Of Patila
7.State Bank of Travancore

MAIN OBJECTS OF THE BANK

The main object and business of the Bank, as laid down in the Bank
Nationalization Act is as under:
The main object of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970 under which the undertaking of the Bank was taken
over by the Central Government is as under: “An Act to provide for the
acquisition and transfer of the undertakings of certain Banking Companies,
having regard to their size, resources, coverage and organization, in order to
control the heights of the economy and to meet progressively, and serve better,
the needs of the development of the economy, in conformity with national policy
and objectives and for matters connected therewith or incidental thereto”.
The Main Object of the Bank enables it to undertake the activities for which the
funds are being raised and the activities, which it has been carrying on till date.

Business Sphere of the Bank

The Bank shall carry on and transact the business of Banking as defined in
Clause (b) of Section 5 of the Banking Regulation Act, 1949, and may engage in

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one or more of the other forms of business specified in Sub-Section (1) of


Section 6 of that Act.
Clause (b) of Section 5 of the Banking Regulation Act, 1949 defines Banking as
"the accepting for the purpose of lending or investment, of deposits of money
from the public, repayable on demand or otherwise, and withdraw able by
cheque, draft, order or otherwise."

Other Business that the Bank may undertake (Section 3 (7))

Sections 3 (7) of Chapter II of the Banking Companies (Acquisition) Act 1970


provides for the Bank to act as Agent of Reserve Bank.

1. The Bank shall, if so required by the Reserve Bank of India, act as agent
of the Reserve Bank at all places in India where it has a branch:

a. Paying, receiving, collecting and remitting money, bullion and securities on


behalf of the Government of India
b. Undertaking and transacting any other business which the Reserve Bank may
from time to time entrust to it .

2. The terms and conditions on which any such agency business shall be
carried on by the corresponding new Bank on behalf of the Reserve Bank
shall be such as may be agreed upon.

3. If no agreement can be reached on any matter referred to in Clause (2)


above, or if a dispute arises between the corresponding new Bank and the
Reserve Bank as to the interpretation of any agreement between them, the
matter shall be referred to the Central Government and the decision of the
Central Government, thereon, shall be final.

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4. The corresponding new Bank may transact any business or perform any
function entrusted to it under Clause (1) by itself or through any agent approved
by the Reserve Bank.

CORPORATE STRATEGY

The globalization of the economy and financial sector reforms have resulted in
increased competition and thin margins. To achieve the corporate goal, the
following strategies have been planned:
1. Proliferate the Bank’s business
2. Increase the banks' non-fund and non-interest income
3. Offer affable customer service
4. Open more specialized branches and expand personal banking, quick
collection service, retail banking, forex banking, small scale
industrial finance etc.
5. Use technology to boost credit off-take
6. Sharpen efficiency and efficacy
7. Reduction of non-performing assets

MISSION & VISION OF THE BANK

MISSION

To ensure anywhere and anytime Banking for the customer with latest state- of-
art technology and by developing effective customer
centric relationship and to emerge as a world-class service provider through
efficient utilization of human resources and Product
innovation.

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VISION

To put the Bank on higher growth path by building a strong customer-base


through Talent Management, Induction of State of art
Technology and through Structural Reorganization.

COMPETITIVE STRENGTHS

Many new banks, both private and foreign, have entered the industry and offer
new and innovative products at competitive rates. In this scenario, Allahabad
Bank believes that its competitive advantages are:
a) Rich tradition of more than 142 years
b) Large and loyal customer base
c) Wide branch network
d) Specialized branches to cope with modern demand pattern
e) Diversified product portfolio
f) Committed and experienced work force
g) Technology

Allahabad Bank
CORPORATE FOCUS

The corporate focus of the Bank is:

a) To improve efficiency to face competition especially in metropolitan and


urban centers
b) To increase productivity
c) To augment its market share of banking system deposits
d) To develop its management information system
e) To reduce NPAs
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f) To improve systems and control


g) To upgrade products and services
h) To provide adequate credit support to industry, trade and priority sector

BUSINESS OF THE BANK & ITS PRODUCTS AND SERVICES

Other than the offering traditional banking products such as corporate loans, the
Bank has made its presence felt by introducing certain new products and value
added services while continuing to popularize the existing products. Some of
these new products are:

(a) Retail Banking Boutiques: In the year 2000, Allahabad Bank came out with
a unique strategy for marketing its retail loans by putting in place dedicated
Retail Banking Boutiques at potential centers across the country to act as
exclusive delivery channels of various Retail Finance Schemes. The Bank posted
young & dynamic officers in these boutiques and delegated them with adequate
authority to sanction loan proposals related to the various schemes on the spot.
These officers were also exposed to specialized training not only to serve the
customer better but also to sell the retail products, if need be, by adopting door to
door campaign. Total number of Boutiques was 127 with an outstanding of Rs.
2561.18 crores as on June 30, 2007. During the quarter ended June 2007,the total
disbursement under the various retail finance schemes was Rs. 211.77 crores.
Brief description of the Bank’s retail schemes is as under –

Sr. Scheme Details

1 Allahabad Bank Personal Loan Loan for purchase of entire range of consumer
scheme durable, purchase of two wheeler any other
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tangible items.

2 Allahabad Bank personal loan Loan for meeting personal needs without
scheme for pensioners assigning any specific purpose.
3 Allahabad Bank personal Loan for any personal purpose including purpose
Loan scheme for doctors including purpose for meeting expenses of
professional requirement.
4 Allahabad Bank Housing Loan for construction of residential house on land
Finance Scheme already owned.
5 Allahabad Bank car Finance For purchase of new as well as pre owned
Scheme multi utility vehicle for personal use.
6 Allahabad Bank Loan against Loan against NSC/ KVP for any business/ personal
NSC/ KVP purpose.

7 Overdraft Facility in Savings To meet immediate exigencies of salaried


Bank A/Cs Persons
8 Allahabad Bank’ Educational To provide financial assistance on reasonable
Loan terms to the poor and needy to undertake
Scheme basic education and to meritorious students to
pursue higher/professional / technical education.
9 All Bank-Property Scheme Loan for meeting credit needs of business by
offering building as security in the form of
equitable mortgage .
10 All Bank Gold Loan Scheme Loan for any purpose for meeting credit needs by
offering Gold ornaments as security.

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(b) Loans on Internet: The Bank sanctions educational loans and car loans via
Internet. The educational loan facility granted by the Bank was launched in 1997
and was subsequently made possible via Internet during 1999. Facility to apply
for educational loan on Internet for education loan is available to the students of
leading institutions like IIMs, IITs, Indian Institute of Science Bangalore,
Jamunalal Bajaj Institute of Management Mumbai, XLRI Jamshedpur & Indian
School of Mines Dhanbad. Bank has so far sanctioned 1014 educational loans
amounting to more than Rs. 29.28 crore through Internet.

(d) Kisan Credit Card: The card aims to provide adequate and timely financial
assistance to the farmers for their agricultural activities amongst other
requirements. During the year 2006-07, the Bank issued 176876 cards. The
cumulative KCC numbered 940799 with a credit limit of Rs. 3393.08 crores as
on 31-03-2007 The Bank is also providing Group/Personal Accident insurance
cover to the holders of the Kisan Credit Card. Also on 140th foundation day of
Bank (April 24, 2004) new scheme by name of Kisan Shakti Yojana (KSY) was
launched. The scheme allowed the farmers to have flexibility and choice in
regards to selection of credit for agriculture, allied activities and domestic and
personnel purpose.

Allahabad Bank

The Bank had extended credit facility under the scheme to 43719 Kisan credit
cardholders involving credit limit of Rs. 574.96 crores as on March 31,2007.
Cumulative number of Kishan Credit cardholders financed under the scheme was
138937 involving 1809.28
Crore as on 31-03-2007.

(e) Depository Services: The Bank has had the distinction of being the first
nationalized Bank in the eastern region to be a depository participant of NSDL at
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Kolkata to offer Demat and other related services to its customers in 1998. . The
Bank had further spread its DP services to its customers by opening DP at Luck
now, Kanpur and Varanasi under agreement with CDSL. The bank also opened
its first Branch DP at Mumbai with main DP at Kolkata Main Branch.
The Bank earned an income of Rs. 80.37 lacks from 23913 accounts in financial
year 2006-07 and Rs. 60.08 lacks from 19720 accounts during quarter ending
June 2007.
The Bank is going to start a Branch DP at New Delhi very soon, which will be
connected through Back Office software at Kolkata Main DP.

(f) Flexi- Fix Deposit Scheme: This scheme was launched to provide liquidity
of a savings bank account and higher yield of a fixed deposit.

(g) Banc-assurance: The Bank has entered into tie up arrangement with Life
Insurance Corporation of India for Life Insurance and with National Insurance
Company Limited and ECGC for Non-life Insurance and Export Credit
Insurance for selling of their products through its branches. The Bank is also
providing life insurance cover to the extent of Rs. 1.00 lacks to its depositors in
association with LICI on payment of a very nominal premium. The Bank also
has tie up arrangements with LICI for coverage of housing loans and
Educational loans being provided by our branches. The Bank is providing free
group personal accidental coverage of Rs. 1.00 lacks to SB Account holders
maintaining an average monthly balance of Rs. 5000/- as well as to all its ATM
cardholders.

The bank has earned an income of Rs. 767 lacks from Ban assurance during FY
a 2006-07 and Rs. 100 lacks in the first quarter of current FY i.e. June 2007.
The Bank has entered into tie up arrangement with UTI-AMC, Principal-PNB
AMC, Kotak- Mahindra AMC and Reliance Capital Asset Management Ltd. for
selling of their Mutual Fund Products through our branches. This has generated
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an income of Rs. 62.09 lacks during FY 2006-07 and Rs. 38.19 lacks during first
quarter of current FY.

(h) Other Services: The Bank has also been providing Cash Management
services through its QCS Branches/Centers at Kolkata, New Delhi, Mumbai,
Luck now and Chennai. Under CMS activities, the Bank is providing Local
Cheque collection service, Collect and pay service, assured credit up to day 7 to
various private and other Banks as well as to corporate clients. The bank has
earned an income of Rs. 355.19 lacks during FY 2006-07 and Rs. 94.12 lacks in
the first quarter of current FY.For expansion of CMS business, the Bank is in the
process of opening of Local Cheque Collection Hubs at 18 strategic locations,
which will be linked with existing QCS Branches/Centre’s.

BRANCH NETWORK OF THE BANK


The Bank has 44 zonal offices, controlling 2107 branches and 105 extension
counters as on June 30, 2007, including 52 specialized branches.

The population group wise break up of branches of the Bank in India is as under:
Population Group Number of Branches % Share to Total
Rural 979 46.46
Semi-Urban 389 18.45
Urban 441 20.93
Metropolitan 298 14.15
Total 2107 100.00

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Geographical distribution of the branches of the Bank as under:-

State/union Territory Number of Branches % Share Total


Andaman& Nicobar Island 1 0.05
Andhra Pradesh 31 1.47
Assam 62 2.94
Bihar 151 7.17
Chandigarh 4 0.19
Chhattisgarh 28 1.33
Delhi 49 2.33
Goa 1 0.05
Gujarat 27 1.28
Haryana 30 1.42
Himachal Pradesh 6 0.28

Jammu &Kashmir 4 0.19


Jharkhand 100 4.75
Karnataka 19 0.90
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37

Kerala 6 0.28
Madhya Pradesh 150 0.19
Maharashtra 86 4.08
Manipur 1 0.05
Meghalaya 1 0.05
Nagaland 4 0.19
Orissa 68 3.23
Pondicherry 1 0.05
Punjab 46 2.18
Rajasthan 48 2.28
Sikkim 1 0.05
Tamil Nadu 32 1.52
Tripura 1 0.05
Uttar Pradesh 673 31.93
Uttaranchal 20 0.95
West Bengal 456 21.64
TOTAL 2107 100.00

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Performance of Allahabad Bank (2008-2009)

Business

(1) The business of Allahabad Bank stood as RS 144415 crore as on


31.03.2009 as against RS 1,21,929 crore as on 31.3.2009 as against Rs.
1,21,929 crore corresponding previous year registering a growth
18.44% year- on – year.
(2) Deposit of the Bank went up to Rs 84972 crore as on 31.03.2009 from
Rs 71616 crore as on 31.3.2008.year – on –year basis, Total Deposits
grew by 18.65%.
(3) Deposits under Differential Rate and certificate of deposits have been
reduced to Rs 16635 crore from Rs 19976 crore as on 31.03.2008.
(4) Gross credit to total Deposit ratio stood as 69.96% as March 2009 as
against 70.25% as on 31.03.2008.
(5) Priority sector advances increased from Rs 18774 crore as on
31.032008 to Rs 20435 crore as on 31.03.2009
(6) Agriculture credit was Rs 9,568 crore as on 31.03.2009
(7) Business per employee rose from Rs 6.04 crore as on 31.03.2008 to Rs
7.06 crore as on 31.03,2009.
(8) Business per Branch improved from Rs 56.61 crore as on 31.03.2008
to Rs 63.90 crore during the period.

Asset Quality Of Allahabad Bank

(1) Gross NPA declined to Rs 1.81% from 2.00% at March 08.


(2) Gross NPA stood at RS 1078.25 crore.
(3) Net NPA at Rs at .072% amounting Rs 422.11 crore.
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39

(4) Book value per share was Rs 131.00.


(5) Return on Asset was 0.90%.
(6) Earnings per share (EPS) was Rs 17.21
(7) Capital Adequacy Ratio was Rs 13.11% as at March 09 against the
stipulated norm of 9% speculated norms of RBI.

Technological Development

(1) Total CBS Branch 922 as 31.03.2009.


(2) More than 38000 ATMs across the country
(3) E-Payment for Direct and Indirect Taxes made available to customers
all CBS branches.

Human Resources of Allahabad Bank

(1) Total manpower as the strength of the Bank was 20,457 as


31.03.2009.
(2) 11828 personnel were imparted training during the year.

ALLAHABAD BANK
UNAUDITED FINANCIAL RESULTS
For Nine Months ended 31st December 2008

(RS IN LAKH)

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PARTICULARS Quarter Ended Quarter Nine Months Nine Months Ended Year end
(Reviewed) Ended Ended (Reviewed) (Audited)
(Reviewed) (Reviewed)
31.12.2008 31.12.2007 31.12.2008 31.12.2007 31.03.200

1 Interest Ended 189804.45 155623.33 544962.25 455985.72 617121.59


(a)+(b)+(c)+(d)
A Interest/discoun 145118.85 112953.62 404916.66 322785.35 446983.03
t on advances/
bill
B Income on 44230.27 42064.72 138298.60 129466.11 166946.96
investments
C Interest on 117.28 513.05 715.82 3615.47 4062.67
balances with
RBI and other
inter bank funds
D Others 338.04 91.94 1031.11 128.78 128.93
2 Other Income 40840.47 40017.73 68365.53 59616.09 713597.32
3 Total 129390.46 195641.06 613327.78 515580.81 713597.32
Income(1)+(2)
4 Interest 129390.46 113821.39 388346.14 322142.05 449887.95
Expended
5 Operating40 34648.49 29707.49 96281.23 82483.94 115758.34
41

Chapter 3 :-Research operation

Significance of the study

The main aim of any person is utilization money in the best manner since the
India is country were more than half of the population has problem of running
the family in the most efficient manner. However Indian people faced large
number of problem till the development of the full-fledged banking sector. The
Indian banking sector came into the developing nature mostly after the 1991
government policy. The banking sector has really helped the Indian people to
utilize the single money in the best manner as they want. People now have
started investing their money in the banks and banks also provide good returns
on the deposited amount. The people now have at the most understood that
banks provide them good security to their deposits and so excess amount are
invested in the banks. Thus, banks have helped the people you achieve their
socio economic objectives.

The banks not only accept the deposits of the people but also provide them credit
Facility for their development. Indian banking sector has the nation in
developing the business and service sectors. But recently the banks are facing
the problem of credit risk.It is found that many general people and business
people borrow from the banks but due to some genuine or other reasons are not
able to repay back the amount drawn to the banks. The amount which is not
given back to the banks is known as non- performing assets which hamper the

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business of the banks. Due to NPAs the income of the bank is reduced and the
banks have to make large number of the provisions that would curtail the profit
of the bank and debtor that the financial performance of the banks not shows
good results.

The main aim behind making this report is to know


how public sector Banks are operating their business and how NPAs play its role
to the operations of the public sector Banks. The report NPAs are classified
according to the sector, industry, and state wise. The present study also focuses
on the existing system in India to solve the problem of NPAs and comparative
analysis to understand which bank is playing what role with concerned to
NPAs.Thus, the study would help the decision makers to understand the
financial performance and growth of public sectors banks are compared to the
NPAs.

Objective of the study

Primary objective:

The primary objective of the making report is:

➢ To know why NPAs are great challenge to the public sector banks.
Secondary objectives:

The secondary objectives of preparing this report are:

➢ To understand what is Non performing Assets and what are the


underlying reasons for the emergence of the NPAs.
➢ To understand the impacts of NPAs on the operations of the public sector
Banks.
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43

➢ To know what steps are being taken by the Indian banking sector to reduce
the NPAs?
➢ To evaluate the comparative ratios of the public sector banks with
concerned to the NPAs.

Research methodology

The research methodology means the way in which we would complete our
prospected task. Before undertaking any task. Before undertaking any task it
becomes very essential for anyone to determine the problem of study. I have
adopted the following procedure in completing my report study.

(1) Formulating the problem


(2) Research design
(3) Determine the data sources
(4) Analyzing the data
(5) Interpretation
(6) Preparing research report

(1) Formulating the problem

I am interested in the banking sector and I want to my future in


banking sector so decided to make my research study on banking
sector. I analyzed first the factors that are important for the
banking sector and I came to know that providing credit facility
to the borrower is one of the important factors as far as the
banking sector is concerned. On the basis of the analyzed factor,
I felt that the important issue right now as far as the credit
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44

facilities are provided by the bank is non performing assets. I


started knowing about the basics of the NPAs and decide to the
study on the NPAs. So, I chose the topic “NON performing
Assets the great challenge before the public sector banks”.

(2) Research Design

The research design tells about the mode with which the entire
project is prepared.
My research design for the study is basically analytical. Because
I have utilized the large number of data of the public sector
banks.

(3) Determining the data source

The data source can be primary or secondary. The primary data


are those data which are used for the first time in the study.
However such data take place much time and are also expensive.
Whereas the secondary data are those data which are already
available in the market. These data are easy to search and are not
expensive too for my study I have utilized totally the secondary
data.

(4) Analyzing the data

The primary data would not be useful until and unless they are
well edited and tabulated. When the person receives the primary
data many unuseful data would also be there. So, I analyzed the
data and edited them and turned them in the unuseful data would
also be there. So, I analyzed the data and edited them and turned
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45

them in the useful tabulations. So, that can become useful in my


report study.

(5) Interpretation of the data

With use of analyzed data I managed to prepare my project


report. But the analyzing of data would not help the study to
reach towards its objectives.
The interpretation of the data is required so that the others can
understand the crux of the study in more simple way without any
problem so I have added the chapter of analysis That would
explain others to understand my study in simple way.

(6) Project writing

This is the last step in preparing the project report. The objective
of the report writing was to report the findings of the study to the
concerned authorities.

Tools and Techniques


As no study could be successfully completed without proper
tools and techniques, same with my project. For the better
presentation and right explanation I used tools of statistics and
computer very frequently. And I am very thankful to all those
tools for helping me a lot. Basic tools which I used for project
from statistics are-

• Bar Charts
• Pie charts
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• Tables

Bar charts and pie charts are really useful tools for every
research to show the result in a well clear, ease and simple
way. Because I used bar charts and pie charts in project
for showing data in a systematic way, so it need not
necessary for any observer to read all the theoretical
detail, simple on seeing the charts anybody could know
that what is being said.

Applied Principles and concepts

While I started to do the project the main thing which was


the matter of concern was that around what principles I
have to revolve my project. Because without having any
hypothesis and objective we cannot determine that what
output or result we are expecting from the project. And
second thing is that having only tools and techniques for
the purpose of project is not relevant until unless we have
the principals for which we have to use those tools and
techniques.

Mathematical Averages
Standard Deviation
Correlation

Sources of primary and Secondary data:

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For the purpose of project data is very much required


which works as a food for process which will ultimately
give output in the form of information. So before
mentioning the source of data for the project I would like
to mention the source of data for the project I would like
to mention that what type of data I have collected for the
purpose of project and what is exactly.

1. Primary Data:

Primary data is basically the live data which I collected on field


while doing cold calls with the customers and I shown them list of question for
which I had required their responses. In some cases I got no response from their
side and then on the basis of my previous experiences I filled those fields.

Source: Main source of primary data for the project was Questionnaires which I
got filled by the customers or sometimes filled myself on the basis of discussion
with the customers.

2. Secondary Data:

Secondary data for the base of the project I collected from intranet of
the Bank and from internet, RBI Bulletin, Journal by ICFAI University.

Limitation of the study

The limitations that left in my side are:

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➢ It was critical for me to gather the financial data of the every bank of the
public sector Banks so the better evaluations of the performance of the
banks are not possible.

➢ Since my study is based on the secondary data, the practical operations as


related to the NPAs are adopted by the banks are not learned.

➢ Since the Indian banking sector is so wide so it was not possible for me to
cover all the banks of the Indian banking sector.

NON-PERFORMING ASSETS

The world is going faster in terms of services and physical products.


However it has been researched that physical products are available
because of service industries. In the nation economy also service
industry plays vital role in the boosting up of the economy. The nations
like US, UK, and Japan have service industries more than 55%.The
banking sector is one of appreciated service industry. The banking
sector plays large role in channelizing money from one end to other
end. It helps almost every person in utilizing the money at their best.
The banking sector accepts the deposits of the people and provides
fruitful return to people on the invested money. But for providing the
better returns plus principle amounts to the clients; it becomes
important for the bank to earn the main source of income for banks are
the interest that they earn on the loans that have been disbursed
general person, businessman, or any industry for development. Thus,
we may find the input-output system in the banking sector. Banks first,
accepts the deposits from the people and secondly they lend this money

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to people who are in the need of it. By the way of channelizing money
from one end to another end, Banks earn their profits.
However, Indian banking sector has recently faced the serious problem
of Non performing Assets. This problem has been emerged largely in
Indian banking sector since three decade. Due to this problem many
public sector Banks have been adversely affected to their performance
and operations. In simple words Non Performing Assets problem is one
where banks are not able to recollect their landed money from the
clients or clients have been in such a condition that they are not in the
position to provide the borrowed money to the banks.
The problem of NPAs is danger to the banks because
it destroys the healthy financial conditions of the them. The trust of the
people would not be any more if the banks have the higher NPAs. So,
the problem of NPAs must be tackled out in such a way that would not
destroy the operational, financial conditions and would not affect the
image of the banks, recently,RBI has taken number steps to reduce
NPAS of the Indian banks. And it is also found that the many banks
have shown positive figures in reducing NPAs as compared to the past
years.

MEANING OF NPAS

An asset is classified as non –performing assets (NPAs) if the borrower


does not pay dues in the form of principle and interest for a period of
180 days. However with effect from March 2004, default status would
be given to a borrower if dues were not paid for 90 days. If any
advance or credit facilities granted by bank to a borrower become non-
performing, then the bank will have to treat all the advances/credit
facilities granted to that borrower as non-performing without having
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any regard to the fact that there may still exist certain advances/credit
facilities having performing status.

WHAT IS NPAs (NON PERFORMING ASSETS)

Action for enforcement of security interest can be initiated only if the


secured asset is classified as Nonperforming Assets means an assets or
account of borrower, which has been classified by a bank or financial
institutions as substandard doubtful or loss asset, in accordance with
the directions or guidelines relating to asset classification issued by
RBI.

➢ An amount due under any credit facility is treated as “past due”


when it has not been paid within 30 days from the due date. Due
to the improvement in the payment and settlement systems,
recovery climate, up gradation of technology in the banking
system etc, it was decided to dispense with ‘past due’ concept,
with effect from March 31, 2001. Accordingly, as from that
date, a Non performing assets(NPA) shell be an advance where
interest and/ or installment of principal remain overdue for a
period of more than 180 days in respect of a Term loan,

➢ The account remains ‘out of order’ for a period of more than


180 days, in respect of an overdraft/cash credit(OD/OC) .

➢ The bill remains overdue for a period of more than 180 days in
case of bills purchased and discounted.

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➢ Interest and/ or installment of principle remains overdue for two


harvest seasons but for a period not exceeding two half years in
case of an advance granted for agricultural purpose, and

➢ Any amount to be received remains overdue for a period of


more than 180 days in respect of other accounts.

With a view to moving towards international best practices and


to ensure greater transparency, it has been decided to adopt the
’90 days overdue’ norm for identification of NPAs, form the
year ending March 31, 2004 .Accordingly, with effect form
March 31, 2004, a non- performing assets(NPA) shell be a loan
or advance where;

➢ Interest and/or installment of principal remain overdue for


a period of more than 90 days in respect of a Term Loan,

➢ The account be remains ‘out of order’ for a period of


more than 90 days, in respect of an overdraft /cash credit
(OD/OC),
➢ The bill remains overdue for a period of more than 90
days in case of bills purchased and discounted,

➢ Interest and/ or installment of principal remains overdue


for two harvest seasons but for a period not exceeding
two half years in case of an advance granted for
agricultural purpose, and

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➢ Any amount to be received remains overdue for a period


of more than 90 days in respect of other accounts.

CLASSIFICATION OF LOANS

In India the bank loans are classified on the following


basis.

Performing Assets:

Loans where interest and /or principle are repayable regularly


as term and conditions sanction letter.

Non- Performing Assets:

Any loan the interest and/or installment of the principle


are overdue more than 90 days, the account becomes
NPA. According to the securitization and reconstruction
of financial assets and enforcement of security interest
ordinance, 2002 “non- performing assets” (NPA) means
“an assets or account of a borrower, which has been
classified by a bank or financial institutions as sub-
standard, doubtful or loss asset, in accordance with the
directions or guidelines relating to asset classifications
issued by the Reserve Bank”

Internationally, income from non-performing assets is not


recognized on accrual basis, but is taken into account as
income only when it is actually received. It has been
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Decided to adopt similar practice in our country also.


Banks have been advised that they should not charge and
take to income account the interest on all Non-
performing assets. An asset becomes non- performing for
a bank when it ceases to generate income.

INCOME RECOGNITION:

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S.N Nature of Basis for treating as NPA


credit facility
1 Term Loans A term loan is to be treated as NPA if interest remains past due for a
period of 4 quarters for the year ended 31-3-1993,3 quarters for the year
ended 31-3-1995 and onwards.
2 Cash Credit & A cash credit or overdraft account should be treated as NPA if the
overdrafts account remains out or order for a period of four quarters during the
years ended 31-3-1993, three quarters during the year ended 31-3-1994
and two quarters during the year ended 31-3-1995 and onwards.
OR
There are some credits but the credits are not enough to cover the interest debited
the same period.

3 Bill purchased An account should be treated as NPA if the bill remains overdue and
and Discounted unpaid for a period of four quarters during the year ended31st March,
1995 and onwards.
4 Other Any other credit facility should be treated as NPA if any amount to be
Accounts received in respect of that facility remains past due for a period of four
quarters during the year ended 31st March 1993. Three quarters during
the year ended 31st March 1994 and two quarters during the year ended
31st March 1995 and onwards.

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CLASSIFICATION:

S.N Category of Basis for Deciding the category


assets
1 Standard An asset, which does not disclose
Assets any problem and also does not
carry more than normal risk
attached to the business, it should
not fail under the category o NPA.
2 Sub- standard An asset, which has been
Assets identified as NPA for a period not
exceeding two years.
In the case of term loan, if the
installments of principal are
overdue for more than one year
but not exceeding two years, it is
to be treated as sub-standard asset.
3 Doubtful An asset, which remains NPA for

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Assets more than two years.


4 Loss Assets An asset where loss has been
identified by the bank or
internal/external auditors or by
RBI inspection but the amount has
not been written-off, wholly or
parity.

Potential NPA:- Standard assets which disclose


problem/irregularities beyond 45 days but less than 90
days.

Provisioning Requirement as per Asset


classification

Banks are required to make provision against each of the


NPA account. The minimum extent of provision to be
made against Sub-standard, doubtful and loss is different
and the same is indicated below:

Classification Provision of o/s balance

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Standard
Agriculture&SME accounts 0.25%
Residential housing Loan 1.00%
beyond RS 20 lakh 2.00%
Loan and advances to capital
market, personal loan, credit
cards, commercial rate state 0.40%
&NBFCS
Other
Sub-Standard (Secured) 10%
Sub-Standard (Sanctioned 20%
originally as secured)
Doubtful(Unsecured portion) 100%
Doubtful-1(Secured) 20%
Doubtful-2(Secured) 30%
Doubtful-3(Secured) 100%
Loss asset 100%

Notes on provisioning

(1) No provision should be made against non-founded


exposures in case of NPA accounts.
(2) Treatment of back –ended subsidy/ recoveries etc
against NPAs held in separate account- provision
requirement would be calculated on the

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“outstanding ledger balance less credit balance held


in separate account.”

Implication of NPA account

(1) NO interest income on NPA accounts.


(2) Provision on gross NPA accounts
(3) If one account of the borrower is NPA, his
all account would be NPA.
(4) Reputation loss to bank.

REASONS FOR NPAs IN INDIA

The following factors contribute to NPAs ---

Internal Factors

• Diversion of funds for

○ Expansion/ diversification/ modernization


○ Taking up new projects
○ Helping /promoting associate concerns time / cost overrun during
the project implementation stage
• Business (Product, marketing, etc) failure
• Inefficiency in management
• Slackness in credit management and monitoring
• Inappropriate technology/ technical problems
• Lack of co-ordination among lenders

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External factors

• Recession
• Input/ power shortage
• Price escalation
• Exchange rate fluctuations
• Accidents and natural calamities, etc\
• Changes in government policies in excise /import duties ,pollution
control orders, etc.
• 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 choices
were available to consumers. Further, borrowers operating in
specific industries have suffered due to political , fiscal and social
compulsions, compounding pressure from liberalization (e.g.,
sugar and fertilizer industries) .

• Over optimistic promoters


Promoters were often optimistic in setting up large projects and
in some cases were not fully above board in their intentions.
Screnning procedures did not always highlight these issues.
Often projects were set up with the expectations that part of the
funding would be arranged from the capital markets, which were
booming at the time of project appraisal. When the capital
markets subsequently crashed, the requisite funds could never be
raised, promoters often lost interest and lenders were left
standard with incomplete /unavailable projects.

• Funding mismatch
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There are said to be many cases where loans granted for short
terms were used fund long term transactions.

• High cost of funds


Interest rates as high as 20% were not uncommon. Coupled with
falling demand, borrowers could not continue to service high
cost debt.

• Highly leveraged borrowers


Some borrowers were under capitalized and over burdened with
debt to absorb the changing economic situation in the country.

NPA MANAGEMENT

(A) Non-legal Measures:-

(1) Reminder system


(2) Seasonal/ Area based recovery drive
(3) Follow up of Potential NPA
(4) Review of NPA account
(5) Preparation of village wise /Area wise
list
(6) Visit to Borrower’s business
premise/Residence
(7) Allotment of NPA account to staff
(8) Recovery camps/Settlement camp
(9) Road shows
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(10) Appointment of professional Recovery


Agents.
(11) Rehabilitation of sick units
(12) Corporate debt Restructuring
(13) Lok adalat /lok nayalaya
(14) Circulation of list of defaulters
(15) Recalling of advances
(16) Recovery through Recovery Branches
(17) Up gradation of NPA
(18) Cash Recovery
(19) Recovery through compromise cases
(20) Revival of failed compromise cases
(21) Recovery of written-off cases
(22) Restructuring / Rescheduling
(23) Sale of financial Assets (Asset
Reconstruction companies)
(24) Write-off

Legal Measures

(1) Recovery certificate (Tehsil


office)
(2) Recovery through Judicial
process (Filing of suit)
(3) Execution of decreed cases
(4) Debt Recovery Tribunals (DRT)
(5) Securitization and
Reconstruction of Financial
assets and Enforceability of

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security interest Act 2002


(SARFAESI)
(6) Other legal measures

INDIAN ECONOMY AND NPAS

undoubtedly the world economy has slowed down, recession is at its peak,
globally stock markets have tumbled and business itself is getting hard to do.
The Indian economy has been much affected due to high fiscal deficit, poor
infrastructure facilities, sticky legal system, cutting of exposures to emerging
market by FIIs, etc.
Further, international rating agencies like, standard & poor have lowered
India’s credit rating to sub-investment grade. Such negative aspects have often
outweighed positive such as increasing forex reserve and a manageable inflation
rate.
Under such a situation, it goes without saying the banks are no
exception and are bound to face the heat of global downturn. One would be
surprised to know that the banks and financial institutions in India hold non-
performing assets worth Rs 1, 10,000 crore. Bankers have realized that unless
the level of NPAs is reduced drastically, they will find it difficult to survive.
The actual level of Non Performing Assets in India is
around $ 40 billion much higher than government’s estimation of $ 16 billion.
This difference is largely due to the discrepancy in accounting the NPAs
followed by India and rest of the world. The Accounting norms of the India are
less stringent that those of the developed economies.
The Indian banks also have the tendency to extend the past dues. Considering the
GDP of India nearly $470 billion the NPAs are 8% of the total GDP which Was

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better than many Asian countries, the NPA of china was 45% of the GDP< while
JAPAN had NPAs of 25% of the GDP and Malaysia had 42%.
The aggregate level of the NPAs in Asia has increased from
$1.5 billion in 2000 to $2 billion in 2002, looking to such overall picture of the
market, we can say that India is performing well and the steps taken are looking
favorable.

NPA CHARACTERISTICS IN INDIA

(1) Size of NPA Portfolios Reviewed

On an overall, in comparison to the gross NPA portfolio of the


financial sector in India for the year ended March 31,2003,
approximately Rs 452 billion from the total gross NPAs of Indian
banking sectors

• Public Sector Banks cover 55% of gross NPAs


• Private Sector banks cover 11% of gross NPAs
• Foreign Sector banks cover 3.02% and
• Financial Institutions cover 29%

(1) Sect oral Segmentation

Banks in India are required to reserve a part of their lending for the
priority sector. Broadly this comprises the sub-sector such as
Agriculture, Small scale Industries, and other activities such as small
business, retail trade, small transport operators, professional and self
employed persons, education loans, micro-credit etc. In addition,
certain investments in bonds issued by state finance corporations

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(SFCs), state Industrial Development corporations (SIDCs), etc are


recognized as priority sector activities.

As seen from the chart below, around 23% of the NPA portfolio is in
the priority sector including agriculture, small scale and others. The
balance 77% belongs to NPAs in the non-Priority sector which
includes NPAs pertaining to public sector undertakings, corporate and
retail borrowers. Within the –priority sector, a large proportion of
NPAs (more than 96%) by gross value are in the corporate segment.
The largest proportion among the corporate borrowers is private sector
corporate borrowers.
Since the sect oral segmentation norms are applicable to banks only
the above graph is somewhat skewed (participant lenders included
financial institutions). Given below is the sect oral segmentation in
public sector banks only.
Priority sector NPAs constitutes 46% of the NPA portfolio of
Participant public sector banks by value. In the non-priority sector
corporate borrowers from the largest portion of NPAS.

(3) INDUSTRY SEGMENTATION


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Most of the participant lenders have provided us


with detailed NPA profile for large NPAs.The
remainder of our analysis for NPA profiling,
therefore, focuses on the large NPA portfolio. The
total large NPA (individual gross value above Rs
10 million) portfolio of the participating banks
amounts to Rs 357 billion approximately.

The top 5 industries with maximum large NPAs


(by gross value) for the participant lenders included
in the study are textiles, iron & steel, chemicals,
Engineering and (non ferrous)Metals. The large
NPAs of these industries alone comprise
approximately half of the total large NPA portfolio
(by gross value) of the participating lenders. At
15%, the textiles industry is the single largest
contributor to the gross large NPAs of the
participating lenders. It is followed by Iron& steel
with 14% chemicals with 9%, Engineering with8%
and Metals with 5%.
The participant lenders provided loan
grading segmentation of the large NPAs in the top
5 industries viz. textiles, iron steel, chemicals,
engineering and metals. Only about 20% of the
large NPA portfolio by gross value in sub-standard
assets. This indicates that the rehabilitation
potential of, about 80% of the large NPA portfolio
in each of the top 5 industries is somewhat limited.

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Nearly 68% of the gross NPAs by gross value


are in the doubtful category. Within this, 28% by
gross value are in the c3 subcategory. It might be
worth nothing that c3 category comprises assets
that have been non-performing for at least 5 years
and that there is no upper time limit on holding
assets in the c3 category if the lenders are able to
provide evidence that collateral exists. Also nearly
15% to 18% of the large NPAs in each of the top
industries (other
than chemicals) are loss assets.

Ratio Analysis

The relationship between the related items of


financial statements is known as ratio. A ratio is
just one number expressed in terms of another. The
ratio is customarily expressed in three different
ways. It may be expressed as a proportion between
the two fig. second items is expressed in terms of
percentage. Third, it may be expressed in terms of
rates.
The use of ratio has
become increasingly popular during the last few
years only. Originally, the bankers used the current
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ratio to judge the capacity of the borrowing


business enterprises to repay the loan and make
regular interest payments.

(1) Gross NPA ratio:-Gross NPA ratio of gross


NPA to gross advances of the bank. Gross
NPA is the sum of all loan assets that are
classified as NPA as per RBI guidelines .The
ratio is to be counted in terms of percentage
and formula for GNPA is as follows:-
Gross NPA
Gross NPA ratio = ---------------------- *
100
Gross advances

S.No Name of bank Gross


NPA to
Gross
advances
2001 2002 2003

1 Allahabad 17.66 16.94 13.65


bank
2 Andhra bank 6.13 5.26 4.89
3 Bank of 14.11 12.39 11.02

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Baroda
4 PNB 18.45 18.19 19.25
5 IOB 11.81 11.35 10.29
6 Indian bank 21.76 17.89 12.39
7 CB of India 16.05 14.70 13.06
8 Corporation 5.40 5.19 5.27
Bank
9 Dena bank 25.34 24.11 17.56
10 Syndicate 7.84 8.35 8.12
bank
11 Union bank of 21.84 18.32 16.36
India
12 United bank 21.84 18.32 12.35
of India
13 Vijay a Bank 10.0 9.36 6.16
14 SBI 12.93 11.95 9.34
15 Uco bank 11.64 9.59 8.24
16 Syndicate 7.87 8.35 8.12
bank
17 Indian bank 21.76 17.89 12.35

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18 Canara bank 7.48 6.22 5.96


19 Bank of India 10.25 9.37 8.15
20 Bank of 12.35 10.95 10.43
Maharashtra

The table above indicates the quality of credit


portfolio of the banks. High gross NPA ratio
indicates the low credit portfolio of banks and vice-
versa. We can see from the above table the PNB
and Sind Bank has the higher gross NPA ratio of
19.25% followed by Dena Bank with 17.86%.

(2) Net NPA ratio: --- The net NPA percentage


is the ratio of net NPA to net advances in
which the provision is to be deducted from
the gross advances. The provision is to be
made for NPA account. The formula for that
is

Gross NPA-Provision
NPA ratio= ------------------------------ * 100
Gross advances- Provision

S.NO Name of Net


NPA+Net

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Bank advances

2001 2002 2003


1 Allahabad 11.23 11.09 7.08
Bank
2 Andhra Bank 2.95 2.45 1.79
3 Bank of 6.77 4.79 3.72
Baroda
4 Bank of India 6.72 6.02 5.59
5 Bank of 7.41 5.81 4.02
Maharashtra
6 Canara Bank 4.84 3.89 5.59
7 CBI 9.72 7..98 6.74
8 Corporation 1.98 2.31 1.65
Bank
9 Dena Bank 18.37 16.37 11.88
10 IOB 7.01 6.32 5.23
11 OBC 3.60 3.2 1.4
12 PNB 6.74 5.32 3.86
13 SBI 6.03 5.63 4.5

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14 Uco Bank 6.35 5.45 4.36


15 Punjab and 12.27 11.7 10.89
Sind Bank

The ratio indicates the degree of risk in the


portfolio of the Banks. High NPA ratio indicates
the high quality of risky assets in the banks for
which no provision is to be made. From the table it
becomes that the clear NPA ratio of almost all
Banks have been improved quite well as compared
to the provision year.

(3) Provision Ratio-: Provision ratio are to be


made for to keep safety against the NPA &
directly affected on the gross profit of the
bank to gross of the banks. The formula is
that:-
Total Provision
Provision ratio= ------------------------- * 100
Gross NPAs

(4) Problem Asset Ratio: - It is the ratio of


gross NPA to total asset of the banks. The
formula for that is:-

Gross NPAs
Problem Asset Ratio= ---------------------*100
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Total Assets

S.NO Name of Problem


Bank Asset
Ratio
2201 2002 2003
1 Allahabad .082576 .080836 .065648
Bank
2 Andhra .023056 .025034 .023531
Bank
3 BOB .066102 .06331 .054499
4 BOI .05765 .053319 .044643
5 BOM .046022 .042217 .038422
6 Canara .024602 .022329 .025021
Bank
7 Dena Bank .107672 .105934 .08018
8 PNB .059473 .056773 .046072
9 SBI .025513 .04447 .035932

It has been direct bearing on return on asset as well


as liquidity risk management of the bank. High
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problem asset ratio, which means high liquid from


the above table it, becomes clear. Dena bank have
high ratio of 8.0% that’s ratio implies that the
Banks have liquid asset through which they will be
able to repay their liabilities of deposits quickly as
compared to other banks.

(5) Capital Adequacy Ratio:- It can be defined


as ratio of the capital of the banks to its
assets which are weighted/ adjusted
accounting to risk attached to them I.e.
Capital
Capital Adequacy Ratio = ----------------------
*100
Risk weighted assets

As per prudent Norms Banks were required to


achieve 8% CAR, increased to 9% by march 2000.
For the purpose of capital adequacy Achievement
the capital base I.e. Tire1+ Tire2 should not be less
than the prescribed % of total risk weighted assets
of the Bank.

S.NO Name of Capital


Bank adequacy
Ratio
2001 2002 2003

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1 Allahabad 10.5 10.62 11.5


Bank
2 Andhra Bank 13.4 12.59 13.62
3 Bank of 12.8 11.32 12.65
Baroda
4 Canara Bank 9.84 11.88 12.50
5 CBI 10.02 9.58 10.51
6 Uco Bank 9.05 9.64 10.04
7 PNB 11.42 10.70 10.43
8 SBI 12.79 13.35 13.50
9 Indian Bank -12.77 1.70 10.85
10 Corporation 13.43 15.65 18.50
Bank

The capital adequacy Ratio is important for the


maintain as per the Banking regulations, As far as
this ratio is concerned the corporation bank has
shown much appreciated result by acquiring the
ratio of 18.50% followed by the united bank of
India. But one remarkable performance done by the
Indian bank which had CAR is negative is -12.77%
in 2001 but improved its performance in 2003 by
acquiring CAR 10.85%.
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Tire 1:- Paid up capital, statutory Reserve, Revenue


capital reserves and other undisclosed reserve less
accumulated other intangible assets.

Tire2:- Property Revaluation Discounted by 55%,


subordinate fluctuations Reserve, provisions on
standard assets & Capital should not exceed Tire-1

(6) Sub- standard Assets Ratio:-It is the ratio


of total substandard Assets to gross NPA of
the Bank.

Sub-standard Asset Ratio


Total Sub-Standard Asset
= ……………………………..*100
Gross NPA

The ratio calculated below is for the entire public


Sector Banks:-

(RS IN CRORE)

Year 2001 2002 2003


Sub- 14745 15788 14909
standard
Assets
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Gross 54674.47 56476.13 54087.08


NPAs

Calculations of ratio

2001 2002 2003


26.96% 27.95% 27.56%

It indicates Scope of up gradation/ improvement of


NPA. Higher Sub-Standard Asset ratio means that
in whole NPA the Sub-Standard Ratio has major
proportion which indicates that there is a higher
scope of advances up gradation or improvement
because it will be very easy to recover the loan as
minimum duration.

(7) Doubtful Asset Ratio:- It is the ratio of total


doubtful Assets to gross NPAs of the bank.

Total doubtful assets


Doubtful Asset Ratio =
-------------------------*100
Gross NPAs

Year 2001 2002 2003

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Doubtful 33485 33678 32340


Asset
Gross 54674.47 56476.13 54087.08
NPAs

The ratio calculated below are for the entire public


sector banks:-

Year 2001 2002 2003


61.24% 59.59% 59.79

It indicates the scope of compromise for Npa


reduction .Above table shows the doubtful asset
ratio of PSB, which is quite that the banks will
have to go through compromise measure for
increasingly number of times as its Sub- Standard
Ratio has decreased in recent years.

(8) Loss Asset Ratio: - It is the ratio of total loss


asset to Gross NPA of the bank.

Total Loss Assets


Loss Asset Ratio= -------------------------- *
100
Gross NPA

Year 2001 2002 2003


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Loss 6544 7061 6840


Asset
Gross 54674.47 56476.13 54087.08
NPAs

The ratio below entire public sector banks are:-


Year 2001 2002 2003
11.96% 12.50% 12.65%

It indicates the proportion of bad loans in the bank.


Above table shows loss Asset Ratio, which
indicates that the banks have maintained lower
Asset Ratio, which indicates that the bank has
lower bad loans. The bank must take necessary
steps to control this ratio, as it’s the indication that
there in necessary steps to control this ratio, as it’s
the securities loan Accounts in the bank.

Recommendations for reducing NPAs

(1) Effective and regular follow-up of the end


use of the funds sanctioned is required to
ascertain any embezzlement or diversion of
funds

(2) A healthy Bankers- Borrower relationship


should be developed. Many instances have
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been reported about forceful recovery by the


banks, which is against corporate ethics.
Debt recovery will be much easier in a
congenial environment.
(3) Assisting the borrowers in developing his
entrepreneurial skills will not only establish
a good relationship between borrowers but
also help the bankers to keep a track of their
funds.

(4) Some tax incentive like capital gain tax


exemption ,carry forward the losses to set
off the same with other income of the
qualified Institutions Borrowers (QIBs)
should be granted so as to ensure their active
participation by way of investing sizeable
amount in distressed assets of banks and
financial institutions.

(5) So far the Public Sector Banks have done


well as far as lending to the priority sector is
concerned. However, it is not enough to
make lending to this sector mandatory, it
must be profitable by sharply reducing the
transactions costs. This entails faster
embracing of technology and minimizing
documentation.

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(6) Commercial Banks should be allowed to


come up their own measures to address the
problem of NPAs. This may include waiving
and reducing the principal and interest on
such loans, or extending the loans, or settling
the loan accounts. They should be fully
authorized and they should be able to apply
all the preferential policies granted to the
asset management companies.

Chapter 4:- Conclusions and


Recommendations

Conclusion to the problem

A report is not said to be completed unless and until the conclusion is given to
the reports. A conclusion reveals the explanations about what the report has
covered and what is the essence of the study. What my project report cover is
concluded below.
The problem on which I focused my study is NPAs the big challenge
before the public sector banks .The Indian Banking sector is the important
service sector that helps the people of the India to achieve the socio economic
objective. The Indian banking sector is developing with good appreciate as
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compared to the global benchmark banks. The Indian banking system is


classified into schedule and non schedule banks. The public sector banks play
very important role in developing the nation in terms of providing good financial
service. The public sector banks have also shown good performance in the last
few years.
The only problem is that the public sector banks are facing today is the
problem of nonperforming assets. The non performing assets means those assets
which are classified as bad assets which are not possibly by return back to the
banks by the borrowers. If the proper management of the NPAs is not undertaken
it would be hampers the business of the banks. The NPAs would as try the
current profit, interest income due to large provisions of the NPAs and would
affect the smooth functioning of the recycling of the funds.
If we analyze the past years data, we
may come to know that the NPAs have increased very drastically after 2001, in
1997 the gross NPAs of the Indian banking sector was47,300 crore where as in
2001 the fig was63,883 and which increase at faster rate in 2003 with 94,905
crore. The public sector banks involve its nearly 50% of share in the NPAs .The
RBI has been trying to take number of measures but the ratio of NPAs is not
decreasing of the banks. The banks must find out the measures to reduce the
evolving problem of the NPAs. If the concept of NPAs is taken very lightly it
would be dangerous for the Indian banking sector. The reduction of the NPAs
would help the banks to boost up their profits, smooth recycling of funds in the
nation. This would help the nation to develop more banking branches and
developing the economy by providing the better financial services to the nation
Allahabad Bank has set a target to bring down its net non-
performing asset (NPA) to below 1% by the end of current fiscal and expects its
balance sheet size to double during the next two-three years if it managed to
maintain the existing growth rate of 30-35%.
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The bank is also planning to put in place the centralized banking solution (CBS)
by December this year. According to ON Singh, chairman and managing
director, Allahabad Bank: “We are going to be one of the best in the industry in
terms of NPA management. We are targeting gross NPA of 5% and net npa of
less than 1% by March, 2005.”
Incidentally, the net NPA of the bank has already come down to 1.7% or Rs
299.8 crore as in September from a high of 5.2% or Rs 683.4 crore as in
September, 2003. Mr. Singh said the bank was focusing on NPA provision
coverage, the ratio of which went up to 76.6% as in September from 73.8% as in
March and 60% as in September, 2003.
The bank has already crossed the Rs 55,000 crore business mark at Rs 55,330
crore during the second quarter of the current financial year and is confident of
crossing Rs 61,000 crore marks by the end of the fiscal. In March 2008 gross npa
declined to 1.8% from 2.00% .

Recommendations
Through RBI has introduced number of measures to reduce the problem of
increasing NPAS of the bank such as CDR mechanism. One time settlement
schemes, enacted of SRFAESI ACT etc. A lot of measures desired in terms of
effectiveness of these measures. What I should suggest for introducing. The
evolutions of the NPAs of public sector banks as under:--
• Each bank should have its own independence credit rating agency which
should evaluate the financial capacity of the borrower before than credit
facility.
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• The credit rating agencies should regularly evaluate the financial condition
of the clients.
• Special accounts should be made of the clients where monthly loan
concentration report should be made.
• It is also wise for the banks to carry out special investigation audit of all
financial and business truncations and books account of the borrower
company when there is possibility of the diversion on the funds and
mismanagement.
• .Bank should evaluate the swot analysis of the borrower companies.ie how
they would face the environmental threats and opportunities with the use
of their strength and weakness, and what will be their possible future
growth in concerned to financial and operation performance.
• There should be proper monitoring of the restructuring accounts because
there is every possibility os the loan slipping into NPAs category again.
• Proper training is important to the staff of the banks at the appropriate
level either ongoing process. That hoe they should deal the problem of
NPAs and what continues steps should take to reduce the NPAs.
• Willful default of bank loans should be made a criminal offence.
• No loan is to be given to a group whose one or the other undertaking
became a defaulter.
• There should be proper monitoring of the restructured accounts because
there is every possibility of the loans slipping into NPAs category again.
• Independent settlement procedure should be more strict and faster and the
decision made by the settlement committee should be binding both
borrowers and lenders and any one of them failing to follow the decision
of the settlement committee should be punished severely.

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QUESTIONNAIRE

NAME …………………………………………….
AGE ………………………… SEX: MALE/ FEMALE
ADDRESS ………………………………………………..
……………………………………………………………
CITY ………………….. CONTACT NO ……………………

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1. Do you know about Allahabad Bank ?


 Yes NO

1. Allahabad bank is a –
 Private Bank
 Public Bank
 Other
1. What is the current NPA of Allahabad Bank?
 1.7%
 3.7%

1. What are the steps taken by Allahabad Bank to reduce NPA?

2. Name the Bank which comes in your mind at very first AND why?

3. Do you think Allahabad bank is a safe place for your money?

 Yes
 No

1. Your level of satisfaction with Allahabad Bank---

2. If you will have option against Allahabad Bank you will go for-
 SBI
 PNB
85
86

 Other
1. What is the current EPS of Allahabad Bank?

2. What are the total branches of Allahabad Bank?

86
87

Bibliography

➢ Banking Finance (FEB 2005)


➢ IBA Bulletin(JAN2005)
➢ My khan and public sector banks k Jain “managers Accounting
“Tata Mc Graw- hill publishing company ltd.
➢ www.rbi-org.com
➢ www.google.com

87
88

88

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