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1.1> Introduction to co-operative Banks. 1.2> Structure of co-operative banking in India.

A bank is a business that provides banking services for profit. Traditional bankingservices include receiving deposit of money, lending money and processing transactions. Some banks (called Banks of issue) issue banknotes as legal tender. Many banks offer ancillary financial services to make additional profit; for example: selling insurance products, investment products or stock broking. Currently in most jurisdictions the business of banking is regulated and banks require permission to trade. Authorizations to trade is granted by bank regulatory authorities and provide rights to conduct the most fundamental banking services such as accepting deposits and making loans.

What is Bank?
Banking is an establishment which makes to individual, such advances of money as may be required & safely made to which individuals entrust money when not needed by them for use.

- Walter leat
in general sense, banking is writing of supplement, day-books ledger posting, balancing preparation of pass-books, carrying outstanding instruction, interest calculation, cash transfers, outward and inward cleaning, etc. Banks are such places where people can deposit their savings with the assurance that they will be able to withdraw money from the deposits whenever required. People who wish to borrow money for business and other purposes can also get loans from the banks at reasonable rate of interest. Bank is a lawful organization, which accepts deposits that can be withdrawn on demand. It also lends money to individuals and business houses that need it. Banks also render many other useful services like collection of bills, payment of foreign bills, safe-keeping of jewelers and other valuable items, certifying the credit-worthiness of business, and so on. Banks accept deposits from the general public as well as from the business community. Anyone who saves money for future can deposit his savings in a bank. Businessmen have income from sales out of which they have to make payment for expenses.

They can keep their earnings from sales safely deposited in banks to meet their expenses from time to time. Banks give two assurances to the depositors:

a. Safety of deposit, and b. Withdrawal of deposit, whenever needed On deposits, banks give interest, which adds to the original amount of deposit. It is a great incentive to the depositor. It promotes saving habits among the public. On the basis of deposits banks also grant loans and advances to farmers, traders and businessmen for productive purposes. Thereby banks contribute to the economic development of the country and well-being of the people in general. Banks also charge interest on loans. The rate of interest is generally higher than the rate of interest allowed on deposits. Banks also charge fees for the various other services, which they render to the business community and public in general. Interest received on loans and fees charged for services which exceed the interest allowed on deposits are the main sources of income for banks from which they meet their administrative expenses. The activities carried on by banks are called banking activity. Banking as an activity involves acceptance of deposits and lending or investment of money. It facilitates business activities by providing money and certain services that help in exchange of goods and services. Therefore, banking is an important auxiliary to trade. It not only provides money for the production of goods and services but also facilitates their exchange between the buyer and seller. You may be aware that there are laws which regulate the banking activities in our country. Depositing money in banks and borrowing from banks are legal transactions. Banks are also under the control of government. Hence they enjoy the trust and confidence of people .Also banks depend a great deal on public confidence. Without public confidence banks cannot survive

History of Banking In India:

Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dials a pizza. Money has become the order of the day. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:

Early phase from 1786 to 1969 of Indian Banks Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms.

New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991.

To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase III.

Phase I:

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders. In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canada Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority. During those days public has lesser confidence in the banks. As an aftermath deposit mobilization was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders.
Phase II:

Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over India.Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19th July, 1969, major process of nationalization was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country was nationalized Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership.

The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country:

1949: Enactment of Banking Regulation Act. 1955: Nationalization of State Bank of India. 1959: Nationalization of SBI subsidiaries. 1961: Insurance cover extended to deposits. 1969: Nationalization of 14 major banks. 1971: Creation of credit guarantee corporation. 1975: Creation of regional rural banks. 1980: Nationalization of seven banks with deposits over 200 Corer.

Banking Overview:
The major participants of the Indian financial system are the commercial banks, the financial institutions (FIs), encompassing term-lending institutions, investment institutions, specialized financial institutions and the state-level development banks, Non-Bank Financial Companies (NBFCs) and other market intermediaries such as the stock brokers and moneylenders. The commercial banks and certain variants of NBFCs are among the oldest of the market participants. The FIs, on the other hand, are relatively new entities in the financial market place.

Historical perspective:
Bank of Hindustan, set up in 1870, was the earliest Indian Bank. Banking in India on modern lines started with the establishment of three presidency banks under Presidency Bank's act 1876 i.e. Bank of Calcutta, Bank of Bombay and Bank of Madras. In 1921, all presidency banks were amalgamated to form the Imperial Bank of India. Imperial bank carried out limited central banking functions also prior to establishment of RBI. It engaged in all types of commercial banking business except dealing in foreign exchange. Reserve Bank of India Act was passed in 1934 & Reserve Bank of India (RBI) was constituted as an apex bank without major government ownership. Banking Regulations Act was passed in 1949. This regulation brought Reserve Bank of India under government

control. Under the act, RBI got wide ranging powers for supervision & control of banks. The Act also vested licensing powers & the authority to conduct inspections in RBI. In 1955, RBI acquired control of the Imperial Bank of India, which was renamed as State Bank of India. In 1959, SBI took over control of eight private banks floated in the erstwhile princely states, making them as its 100% subsidiaries. RBI was empowered in 1960, to force compulsory merger of weak banks with the strong ones. The total number of banks was thus reduced from 566 in 1951 to 85 in 1969. In July 1969, government nationalized 14 banks having deposits of Rs.50 corer & above. In 1980, government acquired 6 more banks with deposits of more than Rs.200 corer. Nationalization of banks was to make them play the role of catalytic agents for economic growth. The Narshimhan Committee report suggested wide ranging reforms for the banking sector in 1992 to introduce internationally accepted banking practices. The amendment of Banking Regulation Act in 1993 saw the entry of new private sector banks. Banking Segment in India functions under the umbrella of Reserve Bank of India - the regulatory, central bank. This segment broadly consists of:


The commercial banking structure in India consists of:

Scheduled Commercial Banks Unscheduled Banks

Scheduled commercial Banks constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (60 of the Act. Some co-operative banks are scheduled commercial banks albeit not all co-operative banks are. Being a part of the second schedule confers some benefits to the bank in terms of access to accommodation by RBI during the times of liquidity constraints. At the same time, however, this status also subjects the bank certain conditions and obligation towards the reserve regulations of RBI. This sub sector can broadly be classified into: 1. Public sector 2. Private sector (1) Public sector banks In the history of Indian banking, nationalization of imperial bank of India was considered as a landmark. Another land mark in the history of Indian banking was the nationalization of 14 large sized commercial banks on 19th July 1969. The nationalized commercial bank was considered as a separate corporate bodys establishment under the banking company act of1970. The new 14 banks came to be called public sector banks being owned managed by government of India. According to socialist thinkers financial institution are among the most important levers that any society has at its command for the achievement of its social and economic objectives. Public ownership, it was believed, would curb down the tendency open the part of the banks to provide for speculative and other unproductive purposes.

(2) Private sector banks Government of India nationalized private sector banks two times. First time in 1969 and second time in 1980. In 1980 the government nationalized only those banks whose hundred corer. Those private sectors banks which had deposited less than 2 hundred crore were left for private management. Those banks which were not nationalized had to function in conformity with banking regulation acts and the directives issued to the RBI from time to time. These banks function in the same way as that of private sector banks. The privates sector banks enjoy certain amount of freedom in opening branches and providing loans and advances. Though they are also required to provide loans and advances to priority sector, they take great precaution in selecting the beneficiaries. They are better managed than same of the public sectors banks.

Co-operative banks:
The Cooperative banks in India started functioning almost 100 years ago. The Cooperative bank is an important constituent of the Indian Financial System, judging by the role assigned to cooperative, the expectations the cooperative is supposed to fulfill, their number, and the number of offices the cooperative bank operate. Though the cooperative movement originated in the West, but the importance of such banks have assumed in India is rarely paralleled anywhere else in the world. The cooperative banks in India play an important role even today in rural financing. The businesses of cooperative bank in the urban areas also have increased phenomenally in recent years due to the sharp increase in the number of primary co-operative banks. Cooperative Banks in India are registered under the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

Cooperative banks in India finance rural areas under:

Farming Cattle Milk Hatchery Personal finance

Cooperative banks in India finance urban areas under:

Self-employment Industries Small scale units Home finance Consumer finance Personal finance

1. 2. 3.

Primary co-operative credit societies. Central / district co-operative banks. State co-operative banks (also called as apex banks) at the top.

Types of co-operative bank:

1. Primary co-operative credit societies:
Primary credit society is at the bottom of the three-tier structure of co-operative banks. The society normally contacts farmers. So, only a few people living within the area of society are admitted as members. Here individuals of a particular area meet together inspired by sentiment of co-operation. Every member has to pay his share In a share capital. The price of a share is nominal so that even a common man can be a member. The functioning of such society is limited. The society is managed by elected people. Hon-secretary and members of working committee. Such a society collects its funds by admission fees, share capital and deposit of people. In case of need such society also get finance from central co-operative banks or state co-operative bank. Normally society grants loans to members on individual responsibility. 2. District co-operative Bank: This bank is a link joining state co-operative bank with the primary credit society. After the report of all India rural advances inquiry committee in 1945, the central cooperative banks earned much importance the flow of rural advances reach to every farmer's home through this bank via credit society. In reality central co-operative banks were establish to supply financial help to primary credit society.


3. State Co-operative Banks:

This is the apex bank in the three tier structure set up of the country. Maclegan Committee appointed in 1974 recommended to establish at least one state co-operative bank per state. Today every state has the state co-operative bank. This bank especially co-operative ordinates them and give required guidance. There were approximately 26 state co-operative banks at the end of 77/78 in India. Since state co-operative bank is an apex bank, its main function is co-ordination of co-operative lending, its balance and controlling. The financial help for co-operative lending activity given by Reserve Bank is also given through state co-operative bank.


Present Set Up Of Banking Industry In India


Commercial banks

Co-operative banks

other institutes



State Co-operative State land Devilment banks

Foreign banks In India

Other Indian banks

Central land development Bank (PLBBI)

Primary Agriculture Credit

Urban co-operative bank

Formers Service societies

Governments Public PrivateCorporate bank


Chapter 2-Company Profile



First decade of 20th century was a very important era in the history of cooperation for entire country and Surat District as well. Many cooperative institutions were initiated during this period. First Coop. Society in Surat District was registered at Degam, Taluka Chikhli on 235-1906 (Now in Bulsar District). In the year 1909, with the efforts of Late Shri B.A.Modi and Late Shri K.G.Desai. The Surat Dist Co.op.(Urban) union Ltd., was registered on 17-6-1909. It was the institution which is later on known as THE SURAT DISTRICT CO.OP. BANK LTD. In the year 1921, this society had undertaken banking activities in absolute terms. In 1923 The Surat District Co.op. (Urban) union was converted into The Surat District Co.op. Bank Ltd., The work extended to the entire Surat District, which had 21 talukas and a vast working area with geographical variation. The coastal area which included city of Surat and towns like Navasari - Bulsar Bilimora, the fertile flat land and sizeable tribal area with hills and dense forests. The Vast Surat District was bifurcated in1965 and district of Bulsar was separated. At present there are 15 talukas in the Surat district, of which 9 are in the tribal area. Bank is having separate department for agriculture advances since 1944, and become an effective central agency for coordination and smooth flow of finance to cooperative sector in the district. Co-Operative Organizations like : The Surat District Milk Producers Co-op. Union Ltd.(SUMUL), The Purushottam Farmers Co-op. Ginning & Pressing Society Ltd., The Surat Distrcit Co-op. Spinning Mills Ltd., The Surat Jilla Sahakari Sale & Purchase Union., The Surat Central Co-op. Stores Ltd., Cotton Co-op Socities of Olpad Taluka, have since been developed and Bank has provided timely assistance to them. During this period, Forest Labourers Co-op. Societies were also very active in tribal area and were engaged in coop cutting activity for which substantial finance was provided to them. After 1956 when Shree Khedut Sahakari Khand Udyog Mandali Ltd., Bardoli came into existence, the entire Surat District gradually became a sugar belt. All existing eight sugar factories had toothing financial troubles in the beginning, However, Bank had provided them enough finance as also assisted even for meeting share capital also. By lapse of time Sugar cane has now become principal crop in the district and out of total cultivable area of 490000 hectares 83191 hectares is under sugar cane cultivation. This revolution in agriculture was amply supported by The Surat District Co.op. Bank Ltd., These factories have become main strength of the economic structure of the district, particularly for farmers. All together these factories have a crushing capacity of 35500 tons per day. Annual sugar production exceeds Rs.880/- crores. Bank has sanctioned enough financial limits to this sector. Now a days, bank has started financing projects for Drip irrigation, Medicinal crops, Fishery, Green house etc. and would like to escalate the same on substantial extent. As per the instructions/ guidelines


of NABARD, of-late, Bank has also started financing to the Non-farm sector including textile industry. Bank has been enjoying privilege of having prominent citizens in fields like Social, Cooperation and Agriculture, on its Board. The present and former members of the Board included outstanding Lawyers, Members of Parliament, District Panchayat Presidents, Mayor of Surat City and Leaders from various walks of life including Ministers. In the year 1965 The Surat Dist. Co-op. Bank was separated after formation of Bulsar District from old Surat District. After separation banks Financial Position is as under.

Deposit scheme (with effective from 16/02/2012):

INVESTMENT PERIOD From 7 Days to 14 Days (Above Rs. 15 Lacs) From 15 Days to 30 Days From 31 Days to 45 Days From 46 Days To 60 Days From 61 Days to 90 Days From 91 Days to 120 Days From 121 Days to 179 Days From 180 Days to 270 Days From 271 Days to 364 Days 1 Year & above but less then 2 Years 2 Years & above but upto 3 Years 2 Years & above but upto 5 Years 5 Years & Above

RATE 4.50% 5.50% 5.50% 6.25% 6.50% 6.50% 7.00% 7.50% 7.50% 8.75% 8.50% 8.50% 8.50%


Recurring Deposit:
SR. 1 2 3 4 5 MONTHS 12 24 36 48 60 AMOUNT 100 100 100 100 100 RATE 9.00% 9.50% 10.00% 10.00% 10.00% MATURITY AMOUNT 1260 2651 4208 5911 7791

BOARD OF DIRECTORS 2012-2013 SR NO. 1 NAME (Chairman) Shree Dilipbhai Bhikhabhai Bhakta (Vice Chairman) Shree Amarsinh Zinabhai Chaudhary ADDRESS TELEPHONE NO

At & Post - Bajipura (O) (0261) 2475772 Tal - Valod , Dist (R) (02625) 233226 Tapi At - Jesingpur, Tal - Vyara, Dist Tapi At - Jokha Tal - Kamrej Dist - Surat (O) (0261) 2470254 (R) (02626) 220036 (0) 0261- 2655524 (R)02621-247327 (02622) 255351 (02624) 222075 (02624) 221110 (02621) 2640331

Shree Bhagabhai Parbhubhai Patel

At - Varad Shree Maganbhai Ranchhodbhai Patel Tal - Bardoli Dist - Surat At - Songadh Shree Narayanbhai Harjibhai Donwala Tal - Songadh Dist - Tapi Shree Ramanbhai Ambelal Patel At - Saniyahemad, Tal - Choryashi Dist- Surat At - Pipload Tal - Nizar Dist - Tapi At Tarsadi(Kosamba) Tal - Mangroal

Shree Sharadbhai Shankarbhai Patel Shree Narendrabhai Dahiyabhai Solanki

(02628) 251039

(02629) 231287


Dist - Surat 9 AT & Post - Chitpur (02628) 222125 Shree Maganbhai Barkiyabhai Vasava Tal - Uchchhal, Dist (02628) 222112 -Tapi At - Dhanawad Tal - Umarpada Dist - Surat At - Palsana Tal - Palsana Dist - Surat (02629) 253542 (02622) 265237 (0261) 2256092

Shree Jaysinhbhai Dungariyabhai 10 Vasava 11 Shree Kiritbhai Ranchhodji Desai

12 Shree Prabhubhai Nagarbhai Vasava

At & Post- Sathvav, (O) (02623) 221169 Tal - Mandvi, Dis.(R) (02623) 271188 Surat 1, Sangam Society, Dumas Road, Surat - 395001 At - Barbodhan Tal - Olpad Dist - Surat At & Post - Kosh Tal - Mahuva Dist - Surat (0261) 2227655 (0261) 2227259 (M) 9879522010

13 Smt. Dr. Vikashben Kishorbhai Desai

14 Shree Dhansukhbhai Nathubhai Patel

15 Shree Balubhai Khushalbhai Patel

(M) 9427463739

Pandolni Pol, 16 Shree Nayan Naveenchandra Bharatiya Nanavat Dist - Surat Shree Lillachandbhai V. Patel 17 (Bank Nominees)

0261 2256928

The. Saraswati Gram Vidhya Peeth, Samod (Gunwada), -Tal - Shidhhapur Dist - Mehsana Raykavad Street, At - Vyara Tal - Vyara Dist - Tapi Jila Seva Sadan, A-Block, 1st Floor, In Front of Circut House, Athwa Lines, Surat. 02626 222157

Shree Ajaybhai Janakbhai Shah 18 Advocate (Professional Director)

District Registrar (Co-Op. Societies 19 Surat) (Registrar's Nominee) Shree Pradeepsinh Gemalsinh 20 Atodriya CA (Professional Director) 21 (Managing Director)

(0261) 2665051 (0261) 2666071

414, Lalbhai (O) (0261) 2475788 Contractor Complex, (R) (0261) 2233287 Nanpura, Surat At - Athwalines (O) (0261) 2474776


Shree Indrasinh Chandrasinh Mahida B.Sc, L.L.B(special), PGDLP, C.A.I.I.B, GDC & A (Consultant) 22 Shree Thakorlal Mohanlal Parekh B.Com, L.L.B.(Onars), C.A.I.I.B (Auditors) 23 V.J.Amin and Co. (Charter Accountant) (Bankers) 24 The Gujarat State Co-Op Bank Ltd. State Bank of India Registration No : S.E/526 OF 1965 25 License No : RPCD (AH) 23/2011-12

Dist - Surat

(R) (0261) 2667064

Rander Road Dist Surat Vadodra Ahmedabad Surat and Bardoli

(O )(0261) 2473902 (R) (0261) 2784497

(079) 25351970


















(Accountant) Objectives of the bank:

To encourage thrift and mutual co-operation among its members. 1) To create funds to be lending at moderate of interest to the members of the bank in accordance with the procedure specified in these byelaws. 2) To give possible help and necessary guidance to traders, artisans etc. who are members of this bank, in the conduct of their business.


3) To do hundi business To lends money on security to its members. With the previous permission of the registrar, to purchase any property for the business of or for the use of the bank, to construct it and / or to make suitable alternatives as may be necessary and to maintain the same. To provide safe deposit vault to facilitate safekeeping of ornaments and valuable, etc. To perform any function as may deemed lawful for the bank and that as the Central Government or the States Government may direct. 4) To do every kind of trust and agency business and particularly do work investment of funds, sale of properties and of recovery or acceptance of money. To undertake the management of trust and for that to accept any office of the trustee, executors or office to perform duties of such of confidence nature either independently or jointly with some other person as the deems fit. 5) To accept money, documents, securities, valuables articles and goods every description for keeping them in Safe-Custody or for sending them for one place to the other.

Banks registered office is at the LalDarvaja,Main road. Near Surat station. Banks main branch is in the Surat city. Bank has other 14 (total Branches) which is located in Surat district.

All branches of The Surat Mercantile co-operative bank are fully computerized.


Growth Table of The Surat Dist. Co-Op. Bank Ltd:

(Rs. In Lacks) SHARE

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12






The audit of the bank shall be conducted only by the Chartered Accountants from the Panel approved by NABARD. The auditors are Bankers: The Gujarat State Co-operative ltd. (Ahmadabad) State Bank of India. (Surat) Bank Of Baroda(Surat) I.C.I.C.I. Bank Ltd. (Surat) H.D.F.C Bank Ltd. (Surat) IDBI Bank Ltd. (Surat) AXIS Bank. Yes Bank. Union bank of India Indusence bank limited Kotak bank limited


Chapter 3-Product Profile


Product Details:
Customer Service Available in The Surat Dist. Co-operative Bank:
Current Account: The current accounts with The Surat Mercantile . Co-op. bank Ltd., promises you a unique banking experience through innovative features and best services for businessmen, firms, companies, public enterprises etc. that have numerous daily banking transact. Savings Accounts: A safe and easy way to save your money is with a bank savings account. Interest will be earned on the money you have on deposit at the bank. Fixed Deposit: Bank fixed deposits are one of the most common savings scheme open to an average investor. Fixed deposits also give a higher rate of interest than a savings bank account. Monthly interest facility also available in this scheme. Recurring Deposit: Recurring Deposit Scheme is meant for investor who wants to deposit a fixed amount every month. The scheme, a systematic way for long term savings is one of the best investment options for the low income group. Bank Enter In Insurance Sector: Bank is affiliated with AVIVA LIFE INSURANCE COMPANY INDIA PVT. LTD. for their customers life insurance. Bank is also affiliated with UNITED GENERAL INSURANCE COMPANY for their customer's general insurance

The Surat Mercantile Co-operative Bank provides different types of loan at less interest rate. The different type of loans as specified below: a. Loans Against Government Securities: Facility to get loan or overdraft against government securities like National Saving Certificates (N.S.C.), KishanVikasPatra (K.V.P.) Interest rate 8% and 9% subsequently. b. Home consumable Loan: Loan on purchase of home consumable product like Refrigerator, Washing Machine, Television etc. 75% to 90% of purchase bill or maximum limit to 1 lakh rupees. 36 to 60 monthly installments. Interest Rate 9.50%.


c. Individual Vehicle Loan: Up to 75% to 90% of purchase bill. Maximum limit of Rs.1 lakh for two wheeler vehicle purchase Maximum limit of Rs.10 lakh for heavy vehicle like Car, Jeep, Tempo, Truck, and Trailer. For 3 to 5 years on interest rate 9.50%. d. Loan for higher education studies: Provides education loan for business education like Medical, Engineering etc. Maximum limit up to 5 lakh for study in country and up to 15 lakh for abroad study. Interest Rate 9% to 10%. e. Individual Housing Loan: Loan available for employee, merchants and farmers for construction of new building and flats, Construction on their plots. Maximum installment credit is up to 10 years. Interest rate is 9% to 10% f. Loan against Fixed Deposit: Facility to get quick loan/ overdraft for accidental requirement on Fixed Deposit slip for bank fixed depositor.

g. Business Loan: Merchants can get cash based on their current product stock. Interest rate is 9.50% to 11.25%.

h. Loan for small Scale Industrial (S.S.I.) unit: Loan for individual/partnership firm, company, textile, engineering, printing press unit etc. Installment limits up to 5 years. Interest rate is 10% to 11%. i. Technology Up gradation Fund Scheme: Scheme by Central Government, valid up to 31 March 2007. Businessmen can get benefits by taking the scheme as follow: 1) 5% interest subsidiary or 15% Credit licked Capital subsidiary OR 2) 20% Credit licked Capital subsidiary (Maximum investment amount Rs.100 Lakh and Maximum subsidiary amount Rs.60 lakh). This loan is applicable to Textile S.S.I. and non S.S.I. Unit.








The procedure associated with a term loan involves the following principle steps.

Process of loan
1. Submission of application 2. Primary assessment 3. Branch head recommendation 4. Final assessment of various level of bank 5. Lending committee 6. Documentation of loan application 7. Disbursement of loan 8. Creation of security (1) Submission of application The main & the first step is the submission of the duty filled form or the loan application it is the choice customer that which types of application he wants to give depending upon the needs. (2) Primary assessment When the application is received, an officer of the recipient institution reviews it to ascertain whether it is complete for processing. If it is incomplete the borrower is asked to provide the required additional information. When the application is considered complete, the recipient institution prepares of flash report, which is essentially a summarization of the loan application, to be evaluated at the Senior Executive Meeting (SEM). Once the SEM, on the basis of its evaluation of the flash report, decides that the project justifies a detail appraisal, it nominates lead financial institutions. The factors taken in to account for designating lead institution are: location of the project, prior experience of institution in handling similar projects, representation of institutions in the state and promoter group, and existing work load of the institutions. (3) Branch head recommendation The appraisal is moving one step ahead that is to analysis the applicants eligibility as per the norms provided by the considering his gross income after detecting his liabilities, his actual repayment capacity is checked as per norms.


(4) Final assessment of various level of bank After referring the application form and appraisal branch head put his recommended action whether to accept the application or not & send it the corporate office. (5) Lending committee At the corporate office the final assessment is to be done & decision is taken to reject the application is forwarded to the particular branch from where the application has been received. Before it also lending committee decide whether to give loan or not. Example Loan for more than 10 lack Rs all BOD need to agree for that particular Loan. Also some of the lending committee is formed by bank in which Directors are included and they decide whether to give Loan or not. The branches have the power to take the major decision on the sanctioning of the loan if it is less than Rs 1 lack.

(6) Documentation of loan application Once the Loan is Sanction Banks need to check all the document of borrower as well as guarantor once again and only then and then they can proceed ahead. (7) Disbursement of loan If loan is sanction than Bank open the account of borrower in their bank and issue the check. Before the entire term loan is disbursed the borrowers must fully comply with all terms and condition of the loan agreement. (8) Creation of security The term loans (both rupee and foreign currency) and the differed guarantee assistance provided by the All-India financial institutions are secured through the first mortgage, by way of deposit of title deeds of immovable properties and hypothecation of movable properties. As the creation of mortgage, particularly in the case of land, tends to be a time consuming process, the institutions permit interim disbursement against alternate security (institution the form of guarantees provided by the promoters.


Chapter 4-Theoratical Background



A Man without money is like a bird without wings, the Rumanian proverb insists the importance of the money. A bank is an establishment, which deals with money. The basic functions of Commercial banks are the accepting of all kinds of deposits and lending of money. In general there are several challenges confronting the commercial banks in its day to day operations. The main challenge facing the commercial banks is the disbursement of funds in quality assets (Loans and Advances) or otherwise it leads to Non-performing assets.

NPAs means:
An asset which ceases to generate income of the bank is called non-performing asset. The past due amount remaining uncovered for the two quarter consequently the amount would be classified as NPA for the whole year. It includes borrowers defaults or delays in interest or principal repayment.

Definition Of Non-Performing:
The term Non-performing is, loans or advances whose credit quality has deteriorated such that full collection of principal and /or interest in accordance with the contractual repayment terms of the loan or advances is in question. For purposes of this Directive, loans or advances with pre-established repayment programs are non-performing when principal and or interest is due and uncollectible for 90 days or more beyond the scheduled payment date or maturity. For purposes of this Directive, overdraft and loans or advances that do not have a preestablished repayment program shall be considered as non-performing when; The debt remains outstanding for 90 consecutive days or more beyond the scheduled payment date or maturity. The debt exceeds the borrowers approved limit for 90 consecutive days or more. Interest is due and uncollected for 90 days or more or For overdrafts, the account has been inactive for 90 consecutive days and / or deposits are insufficient to cover the interest capitalized during the period.

Classification Of Loans Or Advances:

Banks shall classify all loans and advances into the following five categories.


A. Pass:
Loans or advances in this category are fully protected by the current financial and paying capacity of the borrower and or not subject to critics. In general, any loans or advance or portion thereof, this is fully secured, both as to principal and interest, by cash or cash substitutes, shall be classified under this category regardless of past due status or other adverse credit factors.

B. Special mention:
Any loan or advance part due 30 (thirty) days or more, but less than 90 (ninety) days shall be classified Special Mention.

C. Substandard:
Non-performing loans or advances past due 90(ninety) days or more but less than 180(onehundred- eighty days) days shall, at a minimum, is classified substandard. Without prejudice to the classification criteria used for the substandard category set out above, the following non-performing loans and advances shall be categorized as substandard; ii) Renegotiated non-performing overdraft facilities unless equivalent of all past due interest is paid by the borrower in cash at the time of renegotiation and the account shows at a minimum. A nil balance at least once; or A turnover rate of once the approved limit. iii) Renegotiated non-performing merchandise loans unless physical inventory of the merchandise taken by the bank at the time of renegotiation shows that the outstanding principal loan and interest thereof are fully covered and the safety margin determined, following the inventory is at least not lower than the margin stated in the loan contract entered into by the bank and the borrower at the time of initial extension of the loan.

D. Doubtful:
Non-performing loans or advances past due 180 days or more, but less than 360 days shall be classified, at a minimum, as doubtful.


E. Loss:
Non-performing loans or advances past due 360 days or more shall be classified as Loss.


A multiplicity of factor is responsible forever increasing size of NPAs in banks. A few prominent reasons for assets becoming NPAs are as under. Poor credit appraisal system Lack of proper monitoring Reckless advances to achieve the budgetary targets. There is no or lack of corporate culture in the Bank. In adequate legal provisions on foreclosure and bankruptcy. Change in economic policies/ environment. No transparent accounting policy and poor auditing practices. Lack of coordination between banks. Directed lending to certain sectors.

NPA arises due to a number of factors or causes like:

Speculation: Investing in high risk assets to earn high income. Default: Willful default by the borrowers. Fraudulent Practices:Fraudulent Practices like advancing loans to ineligible persons,

advances without security or references, etc.

Diversion of Funds: Most of the funds are diverted for unnecessary expansion and

diversion of business.
Internal Reasons: Many internal reasons like inefficient management, inappropriate

technology, labor problems, marketing failure, etc. resulting in poor performance of the companies.
External Reasons:External reasons like a recession in the economy, infrastructural

problems, price rise, delay in release of sanctioned limits by banks, delays in settlements of payments by government, natural calamities, etc.


Technical Aspects Of Non-Performing Assets:

A major element of the financial sector reform in India has been the introduction of prudential norms and regulation. These prudential norms and regulation are basically aimed at ensure the safety and soundness of the financial system; impart greater transparency and accountability in operation and restoring credibility and confidence in the India financial system. Prudential norms serve two primary purposes, which are 1. Bringing out the true position of a banks loan profitability, and 2. Help arrest its deterioration. A proper system for 1. Recognition of income, 2. Classification of assets, and 3. Provisioning for bad debts on prudential basis is necessary if balance sheet of a bank is to reflect its an actual financial health. The committee on financial system under the chairmanship of Shri M. Narshimhan had examined this issue, recommended that a policy of income recognition should be objective, and based on recovery rather than on any subjective consideration. Similarly, the classification of assets, which would ensure a uniform and consistent application of norms. The recommendation of Shri M. Narsimham committee regarding income recognition, asset classification and provisioning were sought to be implemented by RBI in a phased manner over a three year period commencing from the year 1992-93. in these regard RBI has issued a separate guidelines for different category of commercial scheduled banks (in April 1992), all financial institutions (in April 1992 with some modification considering their functioning) NBFCs ( in June 1994), RRBs (in March 1996) at a proper time with the adequate modification, In 1993 all the primary cooperative Banks have been told that they should comply with prudential norms on income recognition, assets classification, and provisioning with some modification. Later on a high power committee on Urban Co-operative Banks constituted in May 1999 under the chairmanship of K. MadhavaRao, was set up to review the performance of Urban Co-operative Banks and to make necessary changes to strengthen this sector. There was a need for structural reforms in the complete set up of the co-operative banks.


Income Recognition:
1. Effective form 1st April 1992: Interest on those loan accounts which have been identified as Non Performance Assets (NPA) cannot be taken to the income account of the bank unless it is actually realized. Such unrealized interest on NPA taken to the income account in the earlier year has to be provided for. In other words, income has to be recognized on the basis of Actual recovery and not on accrual basis. 2. Accrued interest on NPA: Interest accrued on NPA should not be debited to borrower accounts, but to interest Receivable Account and credited to Overdue interest Reserve Account and shown on the asset and liability side of the balance sheet respectively. (the amount held in the Overdue Interest Reserve Account, however, cannot be regarded as a Reserve or as part of the Owned funds of the Bank) 3. Accrued interest on performing assets: In respect of borrower accounts, which are treated as performing assets, accrued interest can be debited to the borrower account and taken to the income account. In cases, where such interest is not actually received before the end of the accounting year, an amount year, an amount equivalent to the unrealized interest should be reversed by debiting the profit and loss account and credited to the Overdue Interest Reversed Account. 4. Partial recovery of interest: Banks can take partial recovery of interest on NPA to their income account, but it should be ensured that such recovery is not of fresh/additional credit facilities sanctioned to the borrowers concerned. 5. Others: Wherever the state co-operative Societies Act prescribes a more stringent accounting procedure, it should be followed. Further, where the bank has a more stringent accounting procedure, it can continent follow such a procedure.


Non-Performing Assets And Exemptions:

An asset/account is considered to be nonperforming when it ceases to generate income for the bank. The criteria a borrower account as NPA depend on the nature of facility / limit granted and is as under: 1. Term Loans: Here interest and installment of principal remain overdue for the period of more than 90 days. If the account is regularized before the balance sheet date by repayment of overdue amounts through genuine sources, the account did not treated as NPA. Banks should, however, ensure that the account remains in order subsequently and solitary credit entry made in the account on or before the balance sheet date to adjust the overdue interest or installment of principal is not reckoned as the sole criterion for treating the account as a standard asset. 2. Cash Credit and Overdraft Accounts: An account is treated as out of order if the balance outstanding in the account is continuously in excess of the sanctioned limit or drawing power or where the outstanding balance in the principal operating account is within the sanctioned limit or drawing power, but there are no credits continuously for three months as on the date of balance sheet, or credits are not enough to cover the interest debited the same period. 3. Bill purchased and Discount: A bill is treated NPA, if it remains overdue and unpaid for period of more than 90 days. Overdue interest should not be charged and taken to income account in respect of overdue bills, unless it is realized. 4. Agricultural Loan: If interest or installment of principal remains overdue for two harvesting season or two half year whichever is earlier, the loan is treated as NPA. 5. Project finance: In the case project finance, where moratorium is given for payment of interest, the respective amounts will become due only after moratorium/ gestation period is over.



1) Advance against Term Deposits, NSCs. And Surrender Value of Life Policies etc: Advances against fixed and other term deposits, Nation Savings Certificates eligible for surrender, LIC policies, Indira VikasPatras and KhedutViKasPatras have been exempted from provisioning requirements. Accordingly, banks need not treat such account as NPAs and make provision in respect of such advances although interest there on has not been paid for three quarters as on 31st March 1994. Interest on such advances may also be taken to income account on the due dates, provided adequate margin is available in the account. 2) Reversal of Income on Accounts Becoming NPAs: If any advance including bills purchased and discounted becomes NPAs as the close of any year, interest accrual and credited to income account in the corresponding previous year, should be reversed or provided for if the same is not realized. This will apply to Government guaranteed accounts also. If interest income from assets in respect of a borrower becomes subject to nonaccrual, fees, commission and similar income with respect to same borrower that have been accrued should cease to accrue in the current period and should be reversed or provided for with to past periods , if uncollected. 3) Interest Application: In case of NPAs where interest has not been receive for 90 days or more, as a prudential norm, there is no use in debiting the said account by interest accrued in subsequent quarters and taking this accrued interest amount as income of the bank as the said interest is not being received. It is simultaneously desirable to show such accrued interest separately or park in a separate account so that interest receivable on such NPA account is computed and show as such, though not accounted as income of the bank for the period. The interest accrued in respect of performing assets may be taken to income account as the interest is reasonable expected to received however, if interest is not actually received for any reason in these cases and the account is to be treated as an NPA as per the guidelines, then the amount of interest so taken to income should be reversed or should be provided for in full.


Norms Or Criteria For Asset Classification:

Classification of agricultural and non-agricultural loans is required to be done into four categories, on the basis of age overdue, as under.

Good/standard Assets:
Good asset is one which can not disclose any problem and which does not carry more than normal risk attached to business. Thus, in general, all the current loans, ST agricultural and non-agricultural loan which have not become NPA may be treated as standard asset.

Sub-standard Assets:
A non-performing may be classified as sub-standard on the following basis of criteria. 1) An Asset which has remained overdue for a period not exceeding 3 years in respect of both agricultural and non-agricultural loan should be treated as substandard. 2) In case of all types of loans, where installments are overdue for a Period not exceeding 3 years, the entire outstanding in term loan should be treated as substandard. 3) An asset, where the terms and condition of the loans regarding payment of interest and repayment of principal have been renegotiated rescheduled after commencement of production, should be classified as substandard and should remain so in such category for at least two years of satisfactory performance under the renegotiated terms In other words, the classification of asset should be upgraded merely as a result of rescheduling unless there is satisfactory compliance of the above condition.

Doubtful Asset:
A non-performing asset may be classified as doubtful on the basis of following criteria. 1) An Asset which has remained overdue for a period exceeding 3 years in respect of both agricultural and nonagricultural loans should be treated as doubtful asset. 2) In case of all type of loans, where installments are overdue for more than 3 years, the entire outstanding in terms of loans should be treated as doubtful.


Loss Asset:
Loss asset are those where loss is identified by the bank inspectors but amount has not been written off wholly or party. In other words an asset which is considered un realizable or such little value of its continuance as a doubtful asset is not worthwhile, should be treated as a loss asset such loss asset will include overdue loans in which cases1) Decreases of executions petitions have been time barred or documents are loss or no other legal proof is available to claim the debt. 2) Where the members and their sureties are declared insolvent or have died leaving no tangible assets. 3) Where the members are left the area of operation of the society leaving no properly and their securities have also no means to pay the dues. 4) Where the loans is fictitious or when gross utilization is notified 5) An amount which cannot be recovered in case of liquidated societies.


Chapter 5-Research Methodology


Literature Review
Bloem and Gorter (2001) suggested that a more or less predictable level of non-performing loans, though it may vary slightly from year to year, is caused by an inevitable number of wrong economic decisions by individuals and plain bad luck (inclement weather, unexpected price changes for certain products, etc.). Under such circumstances, the holders of loans can make an allowance for a normal share of non-performance in the form of bad loan provisions, or they may spread the risk by taking out insurance. Enterprises may well be able to pass a large portion of these costs to customers in the form of higher prices. For instance, the interest margin applied by financial institutions will include a premium for the risk of nonperformance on granted loans. At this time, banks non-performing loans increase, profits decline and substantial losses to capital may become apparent. Eventually, the economy reaches a trough and turns towards a new expansionary phase, as a result the risk of future losses reaches a low point, even though banks may still appear relatively unhealthy at this stage in the cycle.

Non-Performing Assets in co-operative banks ByK. Ravichandran and R. Mayilsamy (2008) Non-Performing Assets (NPAs), as a syndrome, though not new to the Cooperative Banking Structure has been causing trouble and confusion during the recent past. Because NPAs as the percentage to total recoverable funds acts as a constraint on the efficiency of the lending institution and their capacity to borrow funds and lend to agriculture. Inordinate delay in recovery of loan builds up NPAs, which affect the health of Cooperative Banks. The Committee on Banking Sector Reforms reported that funds blocked in NPAs increase the cost of financial inter-mediation as banks resort to raising deposits and borrowings at a higher Costas a measure to minimize the balance between the cash outflow and cash inflow arising out of the NPAs and the money locked up NPAs are not available for productive uses and to the extent that banks seek to make provisions for NPAs. This has an adverse impact on the profitability of the banks both in short and long run.


Non-Performing Assets in commercial banks By Vibha Jain (2007) The book provides a comprehensive coverage of the challenges facing the banking industry in India in tackling the bargaining problem of Non-Performing Assets (NPAs). It traces the history of growth of NPAs in the banking industry caused initially by directed lending due to strong government hold on banks. The government control also kept the issue under wraps for a long time, understanding the enormity of the problem only at the advent of economic reforms in early nineties. The book elucidates the various measures taken by Reserve Bank of India to Control NPAs over the last decade and a half and critically analyses the success obtained in containing the same. Management of Non-Performing Assets in Banks and Financial Institutions By B. Ramachandra Reddy (2008) Non-performing assets (NPAs) not only eat into profitability and hamper their ability to recycle funds, but also shake the public confidence which is crucial for existence of any financial institution. The present trend of NPAs is alarming and calls for rigorous and concerted efforts by banks and financial institutions as well as government. This book is based on the selected papers presented by academicians and bankers in a national seminar which discussed various aspects of the issue in detail



Collecting Secondary Data:
Annual report of the Surat Dist Co-operative Bank ltd. Case Study Other necessary theoretical requirement The information has been collected from the other sources to make a project report effective and informative. That data are collected from various website and financial management for making concept very clear.

Studying Secondary Data:

After collecting secondary data from various sources, the next steps is to study various data and finding out relevant information and filtering it to further process.

The main objective of behind this project is to analysis the actual position of NPA deeply To know about the NPA classification and provisioning requirement for nonperforming asset: To calculate the total non-performing asset and compare with other banks and on the basis to decide the growth rate of different bank. The main object is known about the proper system of bank for reducing nonperforming asset or for conversion of non-performing asset. To know the various and strategies for non-performing asset for the bank. To learn about how to solve the problem of non-performing asset.


This project desires to understand the Non-Performing Asset at The Surat Mercantile CoOperative Bank Ltd.

The scope of analysis was last 3 years data (2010, 2011, and 2012).

Time factor is other limitation in this study, because the bank officials didnt have proper time to meet and solve mine queries of NPA. Some of my recommendations are not for all banks because they are basis on high cost. The amount of loans and advances are also limited so it is obvious that the nonperforming of this bank will less than the other comparatives banks.

Non-performing asset cannot be totally converted into performing asset but only these
are some solutions for reducing it.


This project is prepared on Non-Performing Assets. The methodology used in this project is as follows. First of all I have the basis studied the basic concept of NPA. After the introduction, the asset classification is described and the provisioning norms for it by NAABARD are shown. Then according to NPA statement the NPA analysis is done on the basis of previous years financial data. Comparative statement on the basis of various ratios is done. At, last the recovery part is shown & various reasons, strategies, warning signals, recovery procedure and steps for reducing NPA are included.


Chapter Analysis





Comparative Financial Statement:

As the name indicates we simply compare the changes, which have taken place in the various items of financial statements, in percentage terms. The increase and the decrease in various items of assets and liability and similarly the changes in the figures of profit and loss account indicate the effects of a business being conducted during certain period.


Standard Asset Sub-standard Asset Doubtful Asset Loss Asset Total Provision Capital & Surplus Interest Earned Interest Paid Total Assets






Standard Asset Sub-standard Asset Doubtful Asset Loss Asset Total Provision Capital & Surplus Interest Earned Interest Paid Total Assets




Ratio Analysis:
A ratio can be worked out to between two variables having either cause and effect relationship or connected with other in some other manner. These two variables can be selected either from balance sheet and another from profit and loss account. Ratios are expressed in mathematical terms, like percentage or the number of time of or in numbers. Some ratios are better expressed when worked out in percentage like the gross or operating profit to sales. But certain ratios appear to be more effective when expressed in number of times like the stocks turnover. The following ratios are found out for ratio analysis as well as comparative statement analysis.


Gross NPA Ratio Net NPA Ratio Problem Asset Ratio Shareholders Risk Ratio Provisions Ratio Interest Spread Ratio Sub-standard Asset Ratio Doubtful Asset Ratio Loss Asset Ratio


Gross NPA is sum of all the loan assets that are classified as NPA as per the RBI guidelines as on the balance sheet data. Gross NPA ratio is the ratio of gross NPA to gross advantages of the bank. When it is to be expressed in percentage, it is known as gross NPA percentage. Gross NPA Ratio = Gross NPAs x 100 Gross advances


2009-2010 2010-2011 2011-2012










Above table and chart indicates the quality of credit portfolio of the banks. High gross NPA ration indicates low quality credit portfolio of the bank and vice-versa. We can see from the above two banks gross NPA ratio that is Mercantile co-operative bank has stable at 8 to 12% and the sarvodayaSahakari bank ratio has decreasing from the last 3 year. It indicates that the quality of credit portfolio of The Mercantile co-operativebank is lower.


The net NPA percentage is the ratio of NPA to net advances, whereas the net NPA can be simply worked out as the gross NPA minus provisions held for NPA account, and net advances can be simply worked out as the gross advances minus provisions held for the NPA account. Net NPA Ratio = Net NPA Net Advances x 100

Net NPA Ratio =

Net NPA - provisions x 100 Gross advances - provisions


2009-2010 2010-2011 2011-2012





0.07% 2009-2010

0.09% 2010-2011

0.09% 2011-2012


Above table and charts indicates the degree of risk in the portfolio of the bank. High NPA ratio indicates high quantity of the risky assets in the bank for which no provision was made. Above table of two banks are indicates that the net NPA ration of the sarvodayaSahakaribank was higher than Mercantile co-operative. It saws that the sarvodayaSahakari bank consist of risky assets on which no provision has been made.


It is the ratio of gross NPA to total assets of the bank. Problem asset Ratio = Gross NPAs Total asset x 100


2009-2010 2010-2011 2011-2012





1.04% 2011-2012



It has been direct bearing on return of assets as well as liquidity risk management of the bank. High problem assets ratio means high liquid. Above table shows that the sarvodayaSahakari bank becomes successful in achieving lower problem asset ratio whereas mercantile co-operative bank have comparatively higher ratio indicates.



It is the ratio of Net NPA to total of capital and reserve of the bank. Shareholders Risk Ratio = Net NPAs Total Capital & Surplus x 100


2009-2010 2010-2011 2011-2012


SURAT MERCANTILE 22.76% 17.22% 11.89% 12.72% 9.21% SARVODAYA SAHKARI 21.47%




It indicates the degree of risk associated with the shareholders investment. High ratio means high risk to the shareholder. Above table of two bank are able to reduce the shareholders risk in the last three years while in case of Bank should keep constant eye on this ratio to maintain and attract the funds of shareholders.


It is the ratio of total provision held in respect to gross NPA of the bank. Provision ratio = Total Provision Gross NPAs x 100


2009-2010 2010-2011 2011-2012


4.78% 2009-2010

3.56% 2010-2011

3.72% 2011-2012

It indicates the degree of safety measures adapted by the banks. It has direct bearing on profitability, dividend and safety of the shareholders fund. If the provision ratio is less, it indicates that the bank has made under provision. The above table indicates the provision ratio of two banks which saws the SarvodayaSahakari bank has more than 30% of its gross NPA from last three year which saws over provision of NPA which indicates that bank believe in top keep higher safety for profitability, dividend and safety of shareholders funds. Mercantile co-operative bank has not more provision ratio so the bank has to improve this ratio.



This is the excess of total interest earn over the total interest expanded. (Interest earned during the yearInterest Spread ratio = Interest paid during the year) x Standard Assets 100


2009-2010 2010-2011 2011-2012


SURAT MERCANTILE 11.49% 8.99% 6.38% SARVODAYA SAHKARI 12.84% 11.13% 8.75%




This ratio indicates the efficiency of the bank in managing and marching the interest expenditure and interest income effectively. Interest spread is critical to a banks success as it exerts a strong influence on its bottom line. The above table shows that Mercantile cooperative bank is leading in interest spread ratio compare to the sarvodayaSahakaribank and we can also see that from last one year its interest spread ratio increasing which indicates that banks earning asset is increasing and non-performing account is rapidly converting in the performing account.


It is the ratio of total substandard assets to gross NPA of the bank. Substandard assets = Total substandard Assets Gross NPAs x 100


2009-2010 2010-2011 2011-2012


SURAT MERCANTILE SARVODAYA SAHKARI 38.38% 28.24% 19.14% 11.89% 8.35% 3.82% 2009-2010 2010-2011 2011-2012

It indicates the scope of up gradation / improvement in NPA. Above table of different ratio of substandard shows that the mercantile co-operative bank has not much scope of loan gradation or improvement as their ratio is very low but sarvodayaSahakari Bank has highest ratio which means in all NPA substandard ratio has major proportion which indicates that there is the highest scope for advance up gradation on improvement because it will be very easy to recover the loan as minimum duration of defaults.



It is the ratio of total doubtful assets to gross NPA of the bank. Doubtful Asset = Total doubtful Assets x Gross NPAs 100


2009-2010 2010-2011 2011-2012


SURAT MERCANTILE 86.35% 60.56% 45.42% 31.77% 14.13% SARVODAYA SAHKARI 90.54%




It indicates scope of compromise of up NPAs reduction. Above table shows the Mercantile co-operative bank it remains very stable in last two years while in theSarvodayaSahakari Bank ratio is considerably decreasing for the last three years, which implies that it has to go for compromise as its substandard assets consist highest portion in the total NPAs.



It is the ratio of the Total Loss Asset to gross NPA of the bank.

LOSS ASSET RATIO= Total loss Assets Gross NPAs

x 100


2009-2010 2010-2011 2011-2012





1.76% 2009-2010

1.19% 2010-2011

1.11% 2011-2012


It indicates the least chance of recovery by the bank. Loss asset ratio of theMercantile co-operative bank reduced in2010-2011 and2011-2012 which shows banks effort toward reducing NPA,while inSarvodayaSahakari bank has increased in 2010-2011 and 2011-2012, which shows that there are least chances of recovery.



Gross NPA Net NPA Gross NPA Ratio Net NPA Ratio Problem Asset Ratio Shareholders risk Ratio Provision Ratio Interest Spread Ratio Sub-Standard Asset Ratio Doubtful Asset Ratio Loss Asset Ratio THE SURAT DIST THE SURAT DIST (2010-11) (2011-12)



Working Notes:(Surat Dist Co Operative Bank Ltd: (2012-2013)


Gross NPA Ratio

= =

977.18x100 10144.08 9.63% 977.18 36.43x 100 10144.08 36.43 0.09%


Net NPA Ratio


Problem Asset Ratio

977.18 x 100 10144.07 9.63 % 977.18 x 100 4551.33 21.47 % 36.43 x100 977.18 3.72 %

= 4. Shareholders Risk Ratio = = 5. Provision Ratio =


Interest Spread Ratio

2083.94 1087.93 8676.89 11.49 %

x 100


Sub-standard Asset Ratio

= 81.60x100 977.18 = 8.35 % = 884.77 x100 977.18 90.54 %


Doubt-full Asset Ratio


9.Loss Asset Ratio

10.80 x100 977.18 1.11 %


Chapter 7-Findings & Suggestion


1) From the gross NPA Ratio of the bank in 2010is 8.01%. Which suddenly increases in 2011 i.e. 10.24% by 2.23%. It is goodfor the bank But in increases in 2012 i.e. 9.63% by 0.61%, which is bad for the bank. 2) Gross NPA Ratio i.e. Surat mercantilebank has stable 8 to 10 % and Sarvodaya bank ratio has decreased from the last three years. So quality of credit portfolio of Surat mercantilebank is lower. 3) Net NPA Ratio of The Sarvodaya Bank was higher than Surat mercantile Bank. It shows thatSarvodaya Bank consist of risky assets. It will become dangerous in the long term solvency. 4) The Sarvodaya bank reduce the shareholders risk in last three years while in case of Surat mercantile Bank increased the shareholders risk in two years but reduced in last one year socomparatively Surat mercantile bank performance in these area is good. 5) Provision ratio find that total provision divided gross NPAs of the bank in 2010 is 84.15% and it decreasing in 2011 i.e. 69.49% by 14.66% and it also increases in 2012 i.e. 78.90% by 9.41% increases. So we can say that Sarvodayacooperative bank keeps higher safety to compare the Surat mercantile bank. 6) The above table shows that Surat mercantile bank is leading in interest spread in year 2010 is 11.49% it decrease 11.13% by 0.36% increases and also increases 12.84% by 1.71% increases which is comparatively good, then Sarvodayabank. Interest spread ratio increasing which indicates that banks earning asset is increasing and nonperforming account is rapidly converting in the performing. 7) Substandard Asset Ratio find that total substandard asset upon gross NPAs of the Surat mercantile bank in 2010 is 11.89% it decreases in 2011 i.e. 3.82% by8.07% decrease and also increase in 2012 i.e. 8.35% by increase 4.53% in other side Sarvodaya bank ratio is very highly increases its ratio in each year. 8) Substandard ratio of Sarvodaya bank has much more rather than Surat mercantile bank, so Sarvodaya bank has scope of loan gradation or improvement. 9) Loss asset ratio indicates the least chance of recovery by the bank. Loss asset ratio of Sarvodaya bank has increased in 2010-2011 and 2011-2012, which shows that there are least chances of recovery but Surat mercantile bank reduced in2010-2011 and2011-2012, which shows Surat mercantile banks effort toward reducing NPA.


The Indian banking sector is facing a serious problem of NPA. The extent of NPA is comparatively higher in public sectors banks. To improve the efficiency and profitability, the NPA has to be scheduled. Various steps have been taken by government to reduce the NPA. It is highly impossible to have zero percentage NPA. But at last Indian banks can try competing with foreign banks to maintain international standard. NPA is a double-edged weapon, which effects bank profitability due to interest income not being recognized on NPA accounts and loan previously to be created from profit earned. The bank must adopt structured. NPAs management policy for elimination or reducing the NPAs in the bank. In general the trend of NPAs CBE are increasing trend, on the same time the CBC has been adopted very good techniques to control over the NPAS.

Proper identification of the guarantor should be check by the bank and his/her wealth also, so that he/she cant mislead the bank. In the bank there should be a proper manpower planning for recovering NPA. The bank must focus on recovery from those borrows who have the capacity to repay but are not repaying initiation of coercive action a few such borrows may help. Banks have to be assuring that the collateral security should not be disputed asset and neither any other loan is taken on that security.


Last three years (2010, 2011, 2012) Annual Reports of The Surat mercantile cooperative bank ltd and Surat Sarvodaya cooperative Bank Ltd. NABARD guidelines 2010(Norms For NPAs) Indian bankers, association bulletin, August 2008, August 2010.