No Inported

A
SUMMER INTERNSHIP PROJECT

On
TO STUDY OF NON-PERFORMING ASSETS AT VARACHHA COOPERATIVE BANK
AND PERFORMANCE WITH USE OF CAMEL MODEL
SUBMITTED BY:
GUIDED BY:
DHAVAL BHIKADIYA
Prof. RICHA PANDIT (College)

JIVAN.C.DEVANI (BANK)
ACADEMIC YEAR: 2014-2016

In partial fulfillment of the requirement for the
Summer Internship Project in the
MASTERS OF BUSINESS ADMINISTRATION
COLLEGE NAME:
SHRI CHIMANBHAI PATEL INSTITUTE OF MANAGEMENT &RESEARCH
[1]
Date:
Institutes Certificate
certified that this summer internship project report An Study of Non-performing Assets is the
bonafide work of Mr. DHAVAL J. BHIKADIYA (enrollment no-147680592009) who
carried out the research under my supervision also certify that to the best of my knowledge
the work reported herein does not form the part of any other project report or dissertation on
the basis of which degree or award was conferred on an earlier occasion on this or other
candidate.
Signature of faculty guide

Prof. Richa Pandit
signature of director
Dr.Arti Trivedi.
[2]
[3]
DECLARATION
I the undersigned hereby declare that the work incorporated in the Summer Internship report
titled TO STUDY OF NON-PERFORMING ASSETS AT VARACHHA COOPERATIVE BANK AND PERFORMANCE WITH USE OF CAMEL MODEL is
original and has not been submitted to any university as part fulfillment of award of any
degree or diploma.
The material obtained and used from other sources has been duly acknowledged in the report.
Date:
Place: Surat
Dhaval Bhikadiya
[4]
PREFACE
Life is a series of experience, each one of which makes us bigger
- Henry Ford
The Summer Internship Training has enriched my student life as a M.B.A. student. M.B.A
study is a bridge between the world of business education, management and the world of
practice. This helps the student to learn many new things, adopt new organization culture, etc.
Learning is most effective when put into practice. The management students can perform
better in an organization because of their familiarity with various techniques of management,
compared to those who merely obtain theoretical knowledge.
The practical training is an essential feature of business studies. The current rapidly changing
businesses demand for dynamic youths and personnel. During the academic year 2014-2016,
I have undergone Summer Internship Training THE VARACHHA
CO-OPERATIVE
BANKLTD.It is a matter of pride for me to explain this project work wherein I have put my
sincerest efforts.
[5]
ACKNOWLEDGEMENT
I believe an ocean is filled by drops and each and every drop should count,similarly I should
count favor of all my helpers here but this not possible. So forgive me for the same.
First of all I would like to thank to all the member of board of directors and especially to Mr.
Kanjibhai Bhalani who has given me the advice and permission fortraining.I am thankful to
manager Mr.Bhaveshbhai Kubhani.who has also given mepermission for the summer
training..
I want to express my sincere obligation to all the staff member of Varachha cooperative bank;
I worked so long in a homely pleasant atmosphere.
I am thankful to Dr. Arti Trivedi (Directer) and Prof. Richa Pandit for their guidance and
for the arrangement of summer placement.
[6]
EXECUTIVE SUMMARY
[7]
Introduction:
This chapter presents an introduction to the thesis and throws light on the introduction on
Indian banking sector and its current scenario. Further the chapter gives an overview of the
policies and practices of RBI and the types of cooperative banks.
Literature review:
This chapter deals with the research work done in the field of the different constructs
identified for the present study. These include the measurement of the customer perception.
The research work done in the field of finance with a particular reference to the banking
sector also features in this chapter.
Company profile:
This chapter presents an overview of the relevant concepts and constructs of banking and
financial services. The chapter focuses on the historical perspective and the growth scenario
of the varachha cooperative bank ltd. from the varied dimensions and its mission, vision,
milestones, etc. and also shows the introduction about the loan products of the bank.
Research Methodology:
The present chapter is aimed at explaining the research Methodology adopted for carrying out
the research work. In view of the objective to examine the effect of various variables such as
gender, age, education, income, occupation, etc that have impact on the loan products. And
while examining customer perception towards the service received, the adapted version of
SPSS was used for the present study. All the constructs are exhibited below with their
dimensions. This chapter shows the overview of pattern of analysis which is adopted, data
collection method, sampling details, research instrument, construction of questionnaire, etc.
Bibliography:
Annexure:
This chapter contains the questionnaire as well as other relevant material such as several
forms which are used in bank.
[8]
TABLE OF CONTENETS
SR. NO.
CONTENETS
Front Page
Certificate Institute
Certificate company
Declaration
Preface
Acknowledgement
Executive summary
Introduction
1
Introduction
Overview of banking
Co-operative bank
Introduction about the Varachha Co-Operative
Progress of the varachha bank
Objective of the varachha co-operative bank

Literature review
3
4
5
7
8
9
Research methodology
Data analisis
Findings
Recommendations
Conclusion
References
[9]
PG.NO.
CHAPTER 1
INTRODUCTION
ABOUT
NON-PERFORMING ASSETS AND CAMEL MODEL
[10]
NON PERFORMING ASSETS:

Action for enforcement of security interest can be initiated only if the secured asset is
classified as Non-Performing Asset.
Non-Performing Asset means an asset or account of borrower, which has been
classified by a bank or financial institution as sub-standard, 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 asset (NPA) shell be an advance where
ASSETS CLASSIFICATION:
The primary Co-operative banks should classify their assets into the following board groups:A. Standard Assets
B. Sub-standard Assets
C. Doubtful Assets
D. Loss Assets
A. Standard assets :Standard asset is one, which does not disclose any problems and which does not carry more
than the normal risk attached to the business. Such an asset not is an NPA.
B. Sub-standard assets :(a) With effect from 31-3-2001, the sub-standard asset is one which has remained as NPA for
a period not exceeding 18 months. However, with effect 31st march 2005 this period of 18
months has been reduced to 12 months.
(b) In case of sub-standard assets, the current net worth of the borrowers/ guarantors or the
current market value of the security charged is not enough to recovery of the dues to the
banks in full. In other words, such assets will have well defined credit weaknesses that
[11]
jeopardize the liquidation of the debt and are characterized by the distance possibility that the
banks will sustain some loss, if deficiencies are not corrected.
(c) An assets where the terms of the loan agreement regarding interest and principal have
been re-negotiated or rescheduled after commencement of production, should be classified as
sub-standard and should remain in such category for at least 18 months of satisfactory
performance under the re-negotiated or rescheduled terms. However, the period of 18 months
may be reduced to one year if the interest and installment of loans have been serviced
regularly as per the terms of re-schedulement. In other words, the classification of an asset
should not be upgraded merely as a result of rescheduling, unless there is satisfactory
compliance of this condition.
C. Doubtful Assets:(a) With effect from 31-3-2001, an asset s required to be classified as doubtful;, if it has
remained in the sub-standard category for 18 months. As in the case of sub-standard assets,
rescheduling does not entitle the bank to upgrade the quality of an advance automatically.
(b) A loan classified as doubtful has all the weakness inherent as that classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in
full, on the basis of currently known facts, conditions and values, highly questionable and
improbable.
[12]
D. loss Assets :A loss asset is one where loss has been identified by the bank or internal or external auditors
or by the Co-operation department or by the RBI inspection but the amount has not been
written off, wholly or partly. In other words, such little value that its continuance as a
bankable asset is not warranted although there may be some salvage or recovery value.
Period for which the advanced has been

Provision requirement in percentage (%)
considered as doubtful
Up to one year
20%
One to three years
30%
- 50% as on March 31,2004
1)Outstanding stock of NPAs
60 % with effect from March 31, 2005
as on March 31, 04
-75 % with effect from March
31, 2006
2)Advances classified as
100 % with effect from March 31, 2005
doubtful for more than three
years on or after April 1, 2004
Source: Annual Report 2005-2006 of Varachha Co-op. Bank
[13]
o TO KNOW ABOUT THE NPA CLASSIFICATION AND BANKS SYSTEM

FOR PROVISIONING THEM. (Introduction)
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/CC),
the bill remains overdue for a period of more than 180 days in the 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 the case of an advance granted for
agricultural purpose, and
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 from March 31, 2004, a non-performing asset (NPA) shell be a loan or an
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 remains 'out of order' for a period of more than 90 days, in respect of an
overdraft/ cash Credit(OD/CC),
the bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted,
Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts.
Overdue
Any amount due to the bank under any credit facility is 'overdue' if it is not paid on the due
date fixed by the bank. An amount outstanding under any facility is to be treated as past
due when it remains unpaid for 30 days beyond the due date. Thus an Amount, which
becomes due for payment on say, 31st march becomes past due on 30th April.
MANAGEMENT OF NON PERFORMING ASSETS
[14]
Why manage NPA:-
NPAs have multifold effect on the performance of the banks. It shows the weaknesses
of management of bank. It is necessary for managing non-performing asset for following
reasons:
To protect the interest of shareholders:
To protect the interest of depositors :
For profitability
High provision :
Credit worthiness of banks:
Expansion plan :
Welfare of employees:
CAMEL FRAMEWORK
Source: MANAGEMENT OF FINANCIAL INSTITUTIONS:

With Emphasis on Bank and Risk Management
By MEERA SHARMA
During an on-site bank exam, supervisors gather private information, such as details
on problem loans, with which to evaluate a bank's financial condition and to monitor its
compliance with laws and regulatory policies. A key product of such an exam is a
supervisory rating of the bank's overall condition, commonly referred to as a CAMELS
rating. The acronym "CAMEL" refers to the five components of a bank's condition that are
assessed: Capital adequacy, Asset quality, Management, Earnings, and Liquidity. A sixth
component, a bank's Sensitivity to market risk was added in 1997; hence the acronym was
changed to CAMELS.CAMELS is basically a ratio-based model for evaluating the
performance of banks. Various ratios forming this model are explained below:
[15]
1) C- Capital Adequacy:
Capital base of financial institutions facilitates depositors in forming their risk perception
about the institutions. Also, it is the key parameter for financial managers to maintain
adequate levels of capitalization. Moreover, besides absorbing unanticipated shocks, it
signals that the institution will continue to honor its obligations. The most widely used
indicator of capital adequacy is capital to risk-weighted assets ratio (CRWA). According to
Bank Supervision Regulation Committee (The Basle Committee) of Bank for International
Settlements, a minimum 9 percent CRWA is required. Capital adequacy ultimately
determines how well financial institutions can cope with shocks to their balance sheets. Thus,
it is useful to track capital-adequacy ratios that take into account the most important financial
risksforeign exchange, credit, and interest rate risksby assigning risk weightings to the
institutions assets. A sound capital base strengthens confidence of depositors. This ratio is
used to protect depositors and promote the stability and efficiency of financial systems
around the world. The following ratios measure capital adequacy
Capital Risk Adequacy Ratio:
CRAR is a ratio of Capital Fund to Risk Weighted Assets. Reserve Bank of India
prescribes Banks to maintain a minimum Capital to risk-weighted Assets Ratio (CRAR) of 9
% with regard to credit risk, market risk and operational risk on an ongoing basis, as against 8
% prescribed in Basel documents. Total capital includes tier-I capital and Tier-II capital.
Tier-I capital includes paid up equity capital, free reserves, intangible assets etc. Tier-II
capital includes long term unsecured loans, loss reserves, hybrid debt capital instruments etc.
The higher the CRAR, the stronger is considered a bank, as it ensures high safety against
bankruptcy.
CRAR = Capital/ Total Risk Weighted Credit Exposure
[16]
Debt Equity Ratio:
This ratio indicates the degree of leverage of a bank. It indicates how much of the
bank business is financed through debt and how much through equity. This is calculated as
the proportion of total asset liability to net worth. Outside liability includes total borrowing,
deposits and other liabilities. Net worth includes equity capital and reserve and surplus.
Higher the ratio indicates less protection for the creditors and depositors in the
bankingsystem.
Borrowings/ (Share Capital + reserves)
Total Advance to Total Asset Ratio:
This is the ratio of the total advanced to total asset. This ratio indicates banks
aggressiveness in lending which ultimately results in better profitability. Higher ratio of
advances of bank deposits (assets) is preferred to a lower one. Total advances also include
receivables. The value of total assets is excluding the revolution of all the assets.
Total Advances/ Total Asset
Government Securities to Total Investments:
The percentage of investment in government securities to total investment is a very

important indicator, which shows the risk taking ability of the bank. It indicates a banks
strategy as being high profit high risk or low profit low risk. It also gives a view as to the
availability of alternative investment opportunities. Government securities are generally
considered as the most safe debt instrument, which, as a result, carries the lowest return.
Since government securities are risk free, the higher the government security to investment
ratio, the lower the risk involved in a banks investments. Government Securities/ Total
Investment
[17]
2) A Asset Quality:
Asset quality determines the healthiness of financial institutions against loss of value
in the assets. The weakening value of assets, being prime source of banking problems,
directly pour into other areas, as losses are eventually written-off against capital, which
ultimately expose the earning capacity of the institution. With this backdrop, the asset quality
is gauged in relation to the level and severity of non-performing assets, adequacy of
provisions, recoveries, distribution of assets etc. Popular indicators include nonperforming
loans to advances, loan default to total advances, and recoveries to loan default ratios. The
solvency of financial institutions typically is at risk when their assets become impaired, so it
is important to monitor indicators of the quality of their assets in terms of overexposure to
specific risks, trends in nonperforming loans, and the health and profitability of bank
borrowers especially the corporate sector. Share of bank assets in the aggregate financial
sector assets: In most emerging markets, banking sector assets comprise well over 80 per cent
of total financial sector assets, whereas these figures are much lower in the developed
economies. Furthermore, deposits as a share of total bank liabilities have declined since1990
in many developed countries, while in developing countries public deposits continue to be
dominant in banks. In India, the share of banking assets in total financial sector assets is
around 75 per cent, as of end-March 2008. There is, no doubt, merit in recognizing the
importance of diversification in the institutional and instrument-specific aspects of financial
intermediation in the interests of wider choice, competition and stability. However, the
dominant role of banks in financial intermediation in emerging economies and particularly.
[18]
3) M-Management
Management is the most forward-looking indicator of condition and a key determinant of
whether a credit union possesses the ability to correctly diagnose and respond to financial
stress. The management component provides examiners with objective, and not purely
subjective, indicators. An assessment of management is not solely dependent on the current
financial condition of the credit union and will not be an average of the other component
ratings.
Reflected in this component rating is both the board of directors' and management's
ability to identify, measure, monitor, and control the risks of the credit union's activities,
ensure its safe and sound operations, and ensure compliance with applicable laws and
regulations. Management practices should address some or all of the following risks: credit,
interest rate, liquidity, transaction, compliance, reputation, strategic, and other risks.
Business Strategy / Financial Performance

The credit union's strategic plan is a systematic process that defines management's
course in assuring that the organization prospers in the next two to three years. The strategic
plan incorporates all areas of a credit union's operations and often sets broad goals, e.g.,
capital accumulation, growth expectations, enabling credit union management to make sound
decisions. The strategic plan should identify risks within the organization and outline
methods to mitigate concerns.
As part of the strategic planning process, credit unions should develop business plans
for the next one or two years. The board of directors should review and approve the business
plan, including a budget, in the context of its consistency with the credit union's strategic
plan. The business plan is evaluated against the strategic plan to determine if it is consistent
with its strategic plan. Examiners also assess how the plan is put into effect. The plans should
be unique to and reflective of the individual credit union. The credit union's performance in
achieving its plan strongly influences the management rating.
[19]
Information systems and technology should be included as an integral part of the

credit union's strategic plan. Strategic goals, policies, and procedures addressing the credit
union's information systems and technology ("IS&T") should be in place. Examiners assess
the credit union's risk analysis, policies, and oversight of this area based on the size and
complexity of the credit union and the type and volume of e-Commerce services' offered.
Examiners consider the criticality of e-Commerce systems2 and services in their assessment
of the overall IS&T plan.
Prompt corrective action may require the development of a net worth restoration plan
("NWRP") in the event the credit union becomes less than adequately capitalized. A NWRP
addresses the same basic issues associated with a business plan. The plan should be based on
the credit union's asset size, complexity of operations, and field of membership. It should
specify the steps the credit union will take to become adequately capitalized. If a NWRP is
required, the examiner will review the credit union's progress toward achieving the goals set
forth in the plan.
4) E-Earnings
The continued viability of a credit union depends on its ability to earn an appropriate
return on its assets which enables the institution to fund expansion, remain competitive, and
replenish and/or increase capital.
In evaluating and rating earnings, it is not enough to review past and present performance
alone. Future performance is of equal or greater value, including performance under various
economic conditions. Examiners evaluate "core" earnings: that is the long-run earnings
ability of a credit union discounting temporary fluctuations in income and one-time items. A
review for the reasonableness of the credit union's budget and underlying assumptions is
appropriate for this purpose. Examiners also consider the interrelationships with other risk
areas such as credit and interest rate.
[20]
Key factors to consider when assessing the credit union's earnings are:
Level, growth trends, and stability of earnings, particularly return on average assets;
Quality and composition of earnings;
Adequacy of valuation allowances and their affect on earnings;
Adequacy of budgeting systems, forecasting processes, and management information

systems, in general;
Future earnings prospects under a variety of economic conditions;
Net interest margin;
Net non-operating income and losses and their affect on earnings;
Quality and composition of assets;
Net worth level;
Sufficiency of earnings for necessary capital formation; and
Material factors affecting the credit union's income producing ability such as fixed
assets and other real estate owned ("OREOs").
5) L-Liquidity - asset/liability management

Asset/liability management (ALM) is the process of evaluating, monitoring, and
controlling balance sheet risk (interest rate risk and liquidity risk). A sound ALM process
integrates strategic, profitability, and net worth planning with risk management. Examiners
review (a) interest rate risk sensitivity and exposure; (b) reliance on short-term, volatile
sources of funds, including any undue reliance on borrowings; (c) availability of assets
readily convertible into cash; and (d) technical competence relative to ALM, including the
management of interest rate risk, cash flow, and liquidity, with a particular emphasis on
assuring that the potential for loss in the activities is not excessive relative to its capital. ALM
covers both interest rate and liquidity risks and also encompasses strategic and reputation
risks.
[21]
Interest Rate Risk

Interest-Rate Risk - the risk of adverse changes to earnings and capital due to
changing levels of interest rates. Interest-rate risk is evaluated principally in terms of the
sensitivity and exposure of the value of the credit union's investment and loan portfolios to
changes in interest rates. In appraising ALM, attention should be directed to the credit union's
liability funding costs relative to its yield on assets and its market environment.
When evaluating this component, the examiner considers: management's ability to
identify, measure, monitor, and control interest rate risk; the credit union's size; the nature
and complexity of its activities; and the adequacy of its capital and earnings in relation to its
level of interest rate risk exposure. The examiner also considers the overall adequacy of
established policies, the effectiveness of risk optimization strategies, and the interest rate risk
methodologies. These policies should outline individual responsibilities, the credit union's
risk tolerance, and ensure timely monitoring and reporting to the decision-makers. Examiners
determine that the ALM system is commensurate with the complexity of the balance sheet
and level of capital.
Key factors to consider in evaluating sensitivity to interest rate risk include:
Interest-rate risk exposure at the instrument, portfolio, and balance sheet levels;
Balance sheet structure;
Liquidity management;
Qualifications of risk management personnel;
Quality of oversight by the board and senior management;
Earnings and capital trend analysis over changing economic climates;
Prudence of policies and risk limits;
Business plan, budgets, and projections; and,
Integration of risk management with planning and decision-making.
[22]
Liquidity Risk
Liquidity Risk - the risk of not being able to efficiently meet present and future cash
flow needs without adversely affecting daily operations. Liquidity is evaluated on the basis of
the credit union's ability to meet its present and anticipated cash flow needs, such as, funding
loan demand, share withdrawals, and the payment of liabilities and expenses. Liquidity risk
also encompasses poor management of excess funds.
The examiner considers the current level of liquidity and prospective sources of
liquidity compared to current and projected funding needs. Funding needs include loan
demand, share withdrawals, and the payment of liabilities and expenses. Examiners review
reliance on short-term, volatile sources of funds, including any undue reliance on borrowings;
availability of assets readily convertible into cash; and technical competence relative to
liquidity and cash flow management. Examiners also review the impact of excess liquidity on
the credit union's net interest margin, which is an indicator of interest rate risk.
The cornerstone of a strong liquidity management system is the identification of the
credit union's key risks and a measurement system to assess those risks.
Key factors to consider in evaluating the liquidity management include:
Balance sheet structure;
Contingency planning to meet unanticipated events (sources of funds adequacy of

provisions for borrowing, e.g., lines of credit, corporate credit union membership,
FHLB agreements);
Contingency planning to handle periods of excess liquidity;
Cash flow budgets and projections; and
Integration of liquidity management with planning and decision-making.
[23]
INTRODUCTION OF BANKING
INTRODUCTION TO BANKING:
The development of banking is an inevitable pre-condition for the healthy repaid

development of national economic structure. Banking institution has contributed much in the
development of developed countries of the world. Today we cannot imagine the business
world without banking institutions.
Banking is as important as blood in human body. Due to development of banking

advance have increased and business activities have also developed, so it is rightly said, the
development of banking is not only the root but also result of development of businessworld. After independence the Indian government also has taken a series of steps to develop
banking sector. Due to considerable efforts of government today we have number of banks
such as reserve bank of India, state bank of India, nationalized commercial banks, industrial
banks and co-operative banks. Indian banks contribute a lot in the development of
agriculture, trade and industrial sectors. Even today banking system of India possesses certain
limitations but one cannot doubt its important role in the development of Indian economy.
DEFINITION:-
The bank is an institution that deals in money and provides other financial services.
Banks accept deposits and lend money as loans from which they derive profits by charging
interest on the principle amount.
Banking Company is a company, which transects the business of banking in any state of
India.
Section S (5) of banking company act 1949.

Bank is an establishment which makes, to individuals, such advances of money as
may be required and safely made and to which individuals entrust money which it is not
required by them for use.
WHAT DOES BANKING INDUSTRY MEANS:[24]
Banking industry means a group of all banks, which operate in co-operation as well as
in competition with each other. In India we have the following kinds of banks:
1. Government banks.
2. Private sector banks promoted by corporation and constitute as companies under
companies Act, 1956.
3. Co-operative banks, which are popularly called urban co-operative banks or USBs, which
are, incorporated under states co-operative societies Act.
4. Foreign banks operating India.
5. Regional rural banks, which are promoted by as subscribes of government, owned banks.
6. Many other banks, which were promoted by government, owned by government and in
corporate by government by special acts of parliament.
7. RBI, which is the countrys central banking institution with special status.
[25]
HISTORY OF BANKING SYSTEM 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.
In 1934 the reserve bank of India act was passed and reserve bank of India (RBI) was
constituted as an apex bank without major government ownership. Banking regulations act
was passed in 1949. These regulations brought RBI under government control. Under the act,
RBI got wide ranging power for supervision & control of banks. The act also vested licensing
power & the authority to conduct inspections in RBI.
The RBI acquired control of the imperial banks of India, which was renamed as state
bank of India, in 1955. SBI took over control of eight private banks floated in the erstwhile
princely states, making them as its 100% subsidiaries. In 1960, the RBI was empowered to
forced compulsory merger of weak banks with the string ones. The total number of banks was
thus reduced from 566 in 1951 in 1969. In July 1969, government nationalized 14 banks
having deposits of Rs.50 corers & above. In 1980, government acquired more banks with
deposits of more than Rs.200 crores.
[26]
1. COMMERCIAL BANKING SECTOR:-
Today the commercial banking system in India may be distinguished in to:
A. Public Sector Bank:

a) State banks of India and its associated banks called the state bank group.
b) Regional rural banks mainly sponsored by public sector banks.
B. Private Sector Bank:

a) Old generation private banks.
b) New generation private banks.
c) Foreign banks in India.
d) Scheduled co-operative banks.
e) Non Schedule Bank
2. DEVELOPMENT BANKS:-
1) Industrial Finance Corporation of India (IFCI)

2) Industrial Development Bank of India (IDBI)
3) Industrial Credit & Investment Corporation of India (ICICI)
4) Industrial Investment Bank of India (IIBI)
5) Small Industries Development Bank of India (SIDBI)
6) SCICI Ltd.
7) National Bank for Agriculture and Rural Development (NABARD)
8) Expert Import Bank of India.
[27]
3. CO-OPERATIVE SECTOR:-
The co-operative banking sector has been developed in the country to the supplement
the village money 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 development banks
8) State land development banks
Other types of banks such as follows:
Rural Bank:Rural Bank provides various advance facilities for manufacturing activities such as
business, industry, and for the aim of rural economic development, the Rural Bank Act is
passed in 1974. Rural Bank has given major contribution in the development of rural area.
Investment or Industrial Bank:Investment banks provide long-term credit to industries. They raise their funds by
way of share capital, debentures, and long-term deposits from the public. They also raise
funds by the issue of bonds for business corporations and government agencies.
Central Bank:A central bank is a special institution which controls and regulates the entire banking
structure of country. It also strives to maintain monetary stability of the country. It also
strives to maintain monetary stability of the country. Central bank is also the apex bank of
country. Since it functions in the best interest of the
FUCTIONS OF THE BANK :
[28]
1. Principal Function:
- Accounting Deposits
- Granting Advances
2.Ancillary Function:
- Discounting and collection of Bills &Cheque.
- Remittance.
- Safe Deposit Lockers and custody of articles.
- Issue of:
1. Letters of credit. 2. as a Guarantor.
[29]
INTRODUCTION
OF
CO-OPERATIVE BANKING
INTRODUCTION OF CO-OPERATIVE BANKING
Role of co-operative bank in structure of Indian banking system, According to various

structures studied in the Indian banking structure, this is drawn separately from structure of
reserve bank of India: as in India the various co-operative activities farming, co-operative
industries, co-operative marketing, consumer co-operative, co-operative insurance and cooperative banking. These co-operative banks render to carry on co-operative finance of long
term, short term and medium term advances to the public in village, town, district, city and
state level. So, they state co-operative banks is been established to look after the city and
primary credit societies to loot forward to area of village.
DEFINITION OF CO-OPERATIVE BANK
1) The primary object or principle of business is the transaction of banking business.

2) The paid up share capital and reserve of which are not less.
3) The buy-lows of which do not permit admission on any other co-operative society as a
members.
From the above definition it is clear that the area of operation of urban co-operative
bank should be limited up to municipality or taluka, its regulation should be done in district
only its paid up capital should be not less than Rs.1, 00,000 and it should carry the banking
activity and its function is to deposit from non-members and give them proper services. and
whenever the depositors from non-members and they immediately and bank should carry its
banking activity regularly the instruction provision and restriction laid by reserve bank of
India.
[30]
HOW CO-OPERATIVE DO BANKS COME INTO EXISTANCE?
The promoters of a co-operative bank have to draft bylaws of the proposed bank.
They have to collect at least 10 members and also collect the paid up share capital of Rs.1
lakh or more. They have to apply to registrar of co-operative societies for registration as a
primary co-operative society. A primary co-operative society with the object of doing
banking business will be called primary c-operative bank. After registration, it has to obtain a
license from RBI to open branch at suitable center and carry on the banking at business. After
the branch office, however, there are changes in the entry points norms.
ROLE OF CO-OPERATIVE BANK:-
1) They mobilize the deposits from publics.

2) They finance small borrowers such as small scales industries professionally and so on.
3) They finance hoe construction and repair of houses of members of banks.
4) They promote thrift, external credit facilities and banking services to customers.
5) They provide intelligent, experienced active leadership to co-operative movement.
HOW BANK WORKS:

Banks are crucial to the economy of the country. Their primary function is to their
account holders money to use by leading it out to others through loans of various kinds like
for buying homes, starting business, funding education etc.
When you deposit your money in the bank, it goes in to a big pool of money along
with everyoneelses and your account is credited with the amount of your deposits. When you
write cheques or make withdrawals that amount is deducted from your account balance.
Interest you earn on your balance is also added to your amount.
Banks are just like other business, where they must make profit to survive. Banks
make money by charging interest on loans which is higher than the interest they pay on
depositors accounts. Thus the difference in the rate of interest amount to profit.
Banks also charge fee for the services they provide like checking ATM access and
overdraft protection, and loans have their own set of fee that goes with them. Another source
[31]
of income for banks is investments and securities. Whatever money the bank the bank has
collected, it can invest safely in mutual funds or securities and earn money.
URBAN CO-OPERATIVE BANKS-STRUCTURE AND FUNCTIONS:The primary objective of a co-operative bank is to encourage thrift and self-help. And
to raise resources by way of deposits. Hence the basic tenant of co-operative banks is take toe
courage the saving habits of its members. Co-operative is definitely a school of thrift and cooperative; savings create first the basic of funds. Which are then employed for granting
credits and for securing the confidence of depositors and clients?
Another objective of co-operative banks is to lend money to these who may not have
acceptable assets to secure funds, but who is in need of it, especially to the weaker sections of
the community. While lending money the co-operative banks see that they are properly used
for productive purpose.
State Co-operative Banks:It is federation of central co-operative banks and its funds are obtained form share capital,
deposits, loans & overdraft from reserve banks of India. It is lend money to central cooperative banks, and primary societies and not directly to formerly.
Central Co-operative banks:It is federation of the primary credit societies in the district and the district and the funds of
the banks. i.e.
Share capital
Deposit
Loans
Overdrafts etc. from state co-operative bank and joint stock.
Primary Co-operative banks:-
[32]
Primary credit societies is reputed or association of borrowers in a particular locality.

The funds derived from central co-operative banks. The loans are given to members for the
purchase of cattle, feeder, fertilizers, pesticides, implements etc.
The functions of urban co-operative banks in India are governed by the banking
regulation Act, 1949. The banking regulation Act, was not applicable to urban co-operative
banks are till March 1966. Accordingly to section 6 of banking regulation act,
[33]
ABOUT
THE VARACHHA CO-OPERATIVE BANK LTD.
HISTORY OF VARACHHA CO-OPERATIVE BANK LTD.
HISTORY:-
The Varachha Co-operative bank was established on 27 January 1995 and license no.
UBD.guj 1153-p registers no 5A 2914.
The registered office of the bank is Afeel tower, L.H. Road, Surat. Then bank started
their work on 16th October, 1995 with opening of the bank by Swami Sachidanand with the
help of the progress of the Varachha Co-operative bank was introduced Kamrej branch on 7th
June, 1998.
The people of Saurashtra of Western Gujarat have moved away from their rainstarved native to Textile and Diamond city of Surat in search for income generation and
survival almost four decades ago. Since then Saurashtrians have considered Surat as their
home land. After coming to Surat, some individuals began trading business while majority of
them entered into labour front. In a phased manner, the population of the people, involved in
diamond trade, belonging to Saurashtra increased to a sizeable extent in Surat, particularly in
the area of Varachha, making it mandatory to have a Bank of their own.
Together with a well-known philanthropist, writer, columnist and social reformer Shri
P. B. Dhakecha and other individuals from Saurashtra, conceived an idea of a Bank, as a
result The Varachha Cooperative Bank Ltd. came into existence on 16th October 1995 which
was inaugurated by revolutionary Saint Shri Swami Sacchidanandji. Our board members are
not only from diamond trade but also from textile, real estate and service sectors.
[34]
At the end of the first financial year in 1996 the number of shareholders was 4484,
share capital was of Rs.57.44 lacs, deposits was of Rs.2.70 crores, advances was of Rs.2.07
crores and profit stood at Rs. 4.77 lacs. And as on today these figures stand at 18837, Rs.7.9
crores, Rs.289 crores and Rs.155 crores and Rs.5.5 crores respectively. This phenomenal
growth of the Bank is solely because of confidence reposed by the people of Surat upon our
Bank.
Technology has always remained on our fore-front and we are among the firsts to
introduce information technology to its best for the benefits of our customers and controlling
authorities. Currently we are providing branchless core banking services along with SMS
and internet banking.
All our branch premises, 11 in number, are owned by us and are equipped with selfservice kiosks to our customers. Bank owns state of the art data center having full disaster
management recovery plan. With the permission from RBI, Bank has already started direct
Real Time Gross Settlement (RTGS) and National Electronic Fund Transfer (NEFT) services
for the customers.
Bank has also acquired 10 ATMs, installed at various branches, which will not only
be connected among themselves but will have nationwide connectivity. This endeavor of
giving facility to our customers to have access to more than 118000 ATMs installed at other
nationalized and foreign banks across the country will make The Varachha Co-Op. Bank Ltd.
as one of the first Co-Op. Banks of Gujarat to do so.
By the attraction of the customer and good support of the directors, Varachha Cooperative bank Ltd. introduced second branch in ring road on 4th July 1999. In addition,
July 2, 2000, the Varachha co-operative bank introduce kadodra branch. Then the 4th
branch of Varachha co-operative bank introduce 28 January 2001 at kadodra. In addition, the
fifth branch, which was, introduce on 26th February 2001 at katargam.
[35]
On other hand, the well support of board of directors, the Varachha co-operative bank
decide that they would introduced few new branches in future.
The following are the branches of Varachha bank.
1. HEAD OFFICE, AFEEL TOWER

2. KAMREJ
3. RING ROAD
4. KADODRA
5. KAPODRA
6. KATARGAM
7. PUNAGAM
8. SACHIN
9. NAVSARI
10. AHMEDABAD
11. ANKLESHWER
12. YOGICHOWK
13.MOTA VARACHA
14.HIRABAG
15.SARTHANA
16.VED-DABHOLI
[36]
BOARD OF DIRECTOR
NAME
DESIGNATION
Shree P.B. Dhakecha
Founder Chairman
Shree Kanjibahi R. Bhalala
Chairman
Shree Prabhudasbhai T. Patel
Vice Chairman
Shree Bhavanbhai B. Navapara
Managing Director
Shree LavjiBhai M. Nakarani
Director
Shree G. R. Asodariya (C.A.)
Director
Shree Kanji R. Vadariya
Director
Shree VallabhBhai P. savani
Director
ShreematiVimlaben R. Vadhani
Director
Shree JivarajBhai K. Patel
Director
Shreemati Smrutiben L. Dobariya
Director
Shree BabuBhai V. Mangukiya
Director
Shree A.D. Bhalani
Adviser
Shree V.B. Dhanani
General Manager
Shree S.D. Kakadiya
Assistant General Manager
Shree P.D. Kelawala
Assistant General Manager
FINANCIAL HIGHLIGHTS OF VARACHHA CO-OPERATIVE BANK LTD.
No
particular
2010
2011
2012
1
Shareholder
13566
17192
18837
2
Share Capital (Rs)
5.91
7.69
7.9
3
Reserve Fund (Rs)
46.41
51.98
58.53
3
Total Deposit (Rs)
224.16 273.95 289.70
4
Total Loan (Rs)
94.89
115.88 155.88
5
Profit (Rs)
3.15
4.05
5.06
6
Working Capital (Rs) 320.38 347.09 374.31
7
Deposit Holder
7739
6593
7972
8
Account Holder
115528 121922 132277
9
Audit Class
"A"
"A"
A
10
Dividend
12%
15%
15%
[37]
RS. IN CRORES
2013
2014
21891
26953
9.11
10.96
66.25
77.04
345.58 452.43
217.40 280.40
5.3
6.41
439.29 566.013
11486
13649
156422 183121
A
A
15%
15%
2015
30317
13.16
89.00
621.31
385.25
9.18
753.45
15501
251042
A
15%()
OBJECTIVE OF THE VARACHHA CO-OPERATIVE BANK LTD.
To encourage thrift and mutual Co-operating among its members.
To create funds to be lend at moderate of interest to the members of the bank in

accordance with the processor specified in these byelaws
To give possible help and necessary guidance to members of the bank in the conduct
of business.
To do every kind of trust and agency business and particularly do the work investment
funds, sale of properties and of recovery or acceptance of money.
To accept money document, security calculate article and goods every description for
keeping them in safe custody or for sending them from one place to other.
To act as a balancing center for surplus funds of co-operative societies.
To organize and develop co-operative societies within the district.
CONTRIBUTION OF THE VARACHHA CO-OP. BANK TO THE SHARE

HOLDER:
Accident Insurance Scheme for Its Share Holder:The Varachha co-operative bank is providing Rs.200000/- accident insurance to its
shareholder.
Accident Insurance Scheme for Its Account Holder:The Varachha co-operative bank is providing Rs.50000/- accident insurance to its all
types of account holder.
Medical Relief Scheme: The Varachha Co-operative Bank is providing medical relief to its shareholder UP TO
Rs.2500
Scholarship Facility:The Varachha Co-operative Bank is providing scholarship to the children of
shareholder after 12th standard in his poor position.
[38]
Dividend:The Varachha co-operative bank is providing dividend to its member or shareholder.

The bank gives maximum 15% dividend to its shareholder. Bank cannot give more than 15%
interest on share capital
VISION AND MISSION OF THE VARACHHA CO-OPEATIVE BANK LTD.
Varachha co-operative bank is committed to satisfy its banking customers,

shareholders, employees and regulators through continually improving banking services,
innovation in products, technology up gradation, knowledge of team work and strengthening
customer relationship.
Varachha co-operative banks vision
1) Banking customers through faster services and invocative products.
2) Shareholders through regular dividend.
3) Regulators through higher ratings during inspections audits.
4) Technically qualified staff to meet challenges of high-tech banking
5) Inter branch connectivity
6) Banks presence in metros
7) Introduction of full-fledged specialized branch
8) No.1 urban co-operative bank for business & profit per employee
[39]
VARACHHA CO-OPERATIVE BANK SERVICES:
TELEBANKING FACILITY
VAT MACHINE
MOBILE BANKING
LOCKER FACILITY
DRAFT FACILITY AT ALL OVER INDIA
ACCIDENTS INSURANCE POLICY

o Rs. 2,00,000 for share holder
o Rs. 50,000 A/C holder.
FULLY DAY BANKING I.E.. 10.00 A.M. TO 4.00 P.M.
ATM SERVICE
OTHER SERVICES
o Senior citizens
o Safe deposit volt.
o Demat accounting services
o N.R.I. (Non-Resident of India)
o G.E.B. bills collection services.(Kapodra, Kadodra, Kamrej, Ring road)
o Gold coins
o ING vyasya life insurance
o Iffco-tokio general insurance
AWARDS
1) For best performance in Surat District Co-operative bank, that was first award for
Varachha co-operative bank in year 2000-2001.
2) RASHTRIYA RATNA AWARD international integration & growth society, in year
2004-2005.
[40]
VARIOUS TYPES OF DEPOSIT ACCOUNTS IN VARACHHA BANK:-
Bank Account:
The bank accepted deposits from the public and offers facilitates to the public according to
their requirements and economic status. Though bank accepts deposits as a fund-raising
device, its primary aim is to serve the society as financial institution and lend its might to
strengthen the capital market. Keeping all these in video a bank usually offers three types of
accounts in which it accepts deposits.
1) Fixed Time Deposit Account

2) Saving Deposit Account
3) Current Account
Details of Deposit Accounts:
1.Fixed Time Deposit Account:Fixed deposit accounts are made with the bank for a fixed period which is specified at
the time of making the deposit. This account attracts those customers who have money to
invest for a longer period but do not want to take much of risk.
The interest rate varies from one period to another. A deposit of 15 days attracts a smaller
rate of interest and deposits for 5 or more years the highest rate. Fixed
Deposit accounts are usually opened by the following kinds people.
1) Middle Income People.

2) Religious Societies
3) Trustee
4) Educational Institutions
5) Others who want to invest but at no risk at all.
[41]
2.Saving Deposit Account:The banks with a view to developing the peoples habit of savings the bank accept
saving deposits. Normally people having fixed income belonging to middle class, deposit
their savings in their accounts and the banks provide them facilities so that they may earn
interest.Saving account open with minimum amount is Rs.1000.
3. Current Account:Current accounts are also known as demand deposit accounts current account is
running an active account which may be operated upon any number of times during a
working day. There is no restriction on the number and the amount of withdrawals from a
current account. Current account deposit is known as bankers demand liability and in order
to fulfill its liabilities he keeps sufficient cash ready every moment.
Types of Current Account
Individual Account
Proprietary Account
Private account
Hindu Undivided Family (HUF)
Recurring Deposit Accounts:
The recurring deposit account has gained wide popularity these days. Under this the
depositor is required to deposit a fixed amount of money every month for specific period of
time. Each installment may vary from Rs.5 to Rs.500 or more per month and the total period
of account varies from 12 months to 10 years. After completion of the specified period, the
customer gets back all his deposits along with the cumulative interest occurred on them. This
type of accept is very popular amongst the salary people since it provides them an
opportunity to raise the enough funds. So that they can utilize it in the purchase of some
useful household good.
[42]
30 Days to 90 Days
6.50%
91 Days to 180 Days
7.00%
181 days to 365 days
8.00%
1 year to 2 years
9.00%
2 years to 3 Years
9.50%
3 Years to 5 Years
10.00%
More than 5 Years
10.50%
after 81 months it will double
Rs.100=Rs.200
MANAGEMENT TOWARDS PROVISION FOR PROFIT DISTRIBUTION
Net Profit
Deducted Provision
Reserve Fund
Share Dividend
Dividend Equalization Fund
Education Fund
Building Fund
Total
Rest Profit
25%
15%
2%
-
Deduction as per sub-rule:

Accident annual fund
5%
Other activity fund
20%
Donation fund
10%
Rebate Interest Fund
20%
Jubilee Festival Fund
10%
Staff Benefit Fund
10%
Member welfare Fund
20%
Co-operative Propaganda Fund 5%
Total
100%
[43]
VCB PROVIDES VARIOUS TYPES OF LOANS:o Mortgage loan

o Security loan on banks share certificate
o Vehicle loan
o Cash-Credit loan
o Overdraft again security loan
o Fixed deposit loan
o NSC/KVP (National saving certificate/ KissanVikasPatras )
o Machinery loan
o Term loan
o Consumer loan
o Flood loan
o Staff loan
o Surety loan
o Festival loan
o Staff-housing loan
o TUF loan
o Textile update creation funds
o Housing loan
o Self-employee loan
o Gold loan
[44]
Procedure of loan of Varaccha Co-operative bank
1. Submission of the application from with

2. Primary assessment
3. Appraisal of the application
4. Inspection through branch
5. Branch heads recommendation
6. Final assessment
If accepted : send to corporate office
If rejected : application is send to the applicant
7. Decision of the lending committee

8. Execution given by the branch
9. Completion of the formalities
10. Disbursement of loan
1. Types of loan (according to purpose)

1) Personal loans
2) Hypothecation loan
3) Housing loan
4) Business loan
5) TUF loan
2. Types of loan (as per time period)

1) Short term loan
2) Medium and long term loan
3) Consumption moan
[45]
PERSONAL LOAN:
In the personal surety loan the loan is issued only to the purpose of this loan are:
1) Housing repairing
2) Development of business
Two guarantors have to sign in the promissory note of the bank in case of amount is of
Rs.25,000/- If the amount is of Rs. 10,000/- then only one guarantor is required. Residential
and income proof is also required guarantor.
Bank is providing maximum Rs. 25,000/- at the interest rate of 12%
If the person takes loan of Rs. 25,000/- then he has to take 5% of the shares of the bank.
HYPOTHECATION LOAN :
Bank provides this loan to purchase house hold equipment, vehicle and professional
equipment or machinery. Bank charges 13 % interest rate on this loan the bank provides
maximum
Vehicle loan: two wheeler
80%
Four wheeler
100%
House hold
90%
Medical equipment
100%
For any other equipment
80%
Technology Up gradation fund Scheme (TUF)
Under TUF scheme, the bank provides the loan for purchasing new machines in textile
industry. Bank provides maximum amount up to Rs. 3 crores.
Special features:
1. Scheme for textile industries.
2. 5% interest subsidy from government of India and rebate on regular repayment.
3. Cheaper than the cheapest loan.
Present interest rate : 13%
Subsidy :5%
Attractive rebate :8%
4. 12% capital subsidy is available for small scale industries in lieu of interest subsidy.
Additional benefits
[46]
HOUSING LOAN :
Interest rate : present interest rate is as below:

Max. 10 years 11.00%
BUSINESS LOAN :
New machinery: 100%
Interest rate is charged by the bank :
Up to Rs. 2,00,000 :13 %
Above Rs.2,00,000 :14 %
GOLD LOAN :
Max. Rs. 100000 at 11%.
RECOVERY MANAGEMENT
What is recovery?
All credit entries in the borrower accounts may be treated is recovery. Similarly credit
transaction in the borrower accounts classified as NPAs indicate recovery of NPAs.
Credit received on an account of suit field & written off accounts is also treated as
recovery in NPAs only.
Importance of recovery:
Key factor in the strategy to combat NPA recovery.
Recovery results in:

1. Reduction in the level of to combat NPA to the extent of Amount of recovery.
2. Up gradation of NPA accounts to standard category there by reducing the level of
NPAs.
3. Increase in incomes
4. Decrease in provisioning requirements.
[47]
Component of recovery:Recovery in NPAs will have to be necessarily effective though either of the following:
1. Credits (installments / and interest dues) received in the borrower accounts classified
as NPA. The actual transaction will be recorder in the ledger account of the borrower.
2. The Varachha c0-operative bank ltd has limited performing assets.
3. Credits received on account of suit field accounts.
4. Payment received from DICGCI/ ECGC in respect of NPA accounts.
5. Credit received in NPA accounts which are written off.
Transaction in (2), (3),& (4) are not usually recorded in the ledger accounts of borrower.
Credits on account of written off dues, even though do not result in reduction of NPAs, are be
treated as part of recovery of NPAs only.
Current Problems
The current problems faced by the Banks in recovering their dues after the Decree/Certificate
is passed inter-alia include:
1. Difficulty in taking possession of the properties of the defaulters;
2. The properties are in the possession of third parties, who are not the defaulters;
3. Inability to fetch the market price as against the White declared price in auction sale;
4. Failure to attract bidders at the auction sale;
5. Disposal of objections takes eternity; and
6. Recovery officers are not trained in law, hence unable to deal with difficult questions
of law.
[48]
CHAPTER:2
REVIEW OF LITERATURE
[49]
CAMEL rating system (Keeley and Gilbert, 1991)

This study uses the capital adequacy component of the CAMEL rating
system to assess whether regulators in the 1980s influenced inadequately
capitalized banks to improve their capital. Using a measure of regulatory
pressure that is based on publicly available information, he found that
inadequately capitalized banks responded to regulators' demands for greater
capital. This conclusion is consistent with that reached by Keeley (1988).Yet, a
measure of regulatory pressure based on confidential capital adequacy ratings
reveals that capital regulation at national banks was less effective than at statechartered banks. This result strengthens a conclusion reached by Gilbert (1991)
Risk management in banks attracted several researchers worldwi
de with different arguments, this section briefly review arguments as follows:
Banks performance evaluation by CAMEL model (Hirtle and Lopez)(1988)

Despite the continuous use of financial ratios analysis on banks
performance evaluation by banks' regulators, opposition to it skill thrive with
opponents coming up with new tools capable of flagging the over-all
performance ( efficiency) of a bank. This research paper was carried out; to find
the adequacy of CAMEL in capturing the overall performance of a bank; to find
the relative weights of importance in all the factors in CAMEL; and lastly to
inform on the best ratios to always adopt by banks regulators in evaluating
banks' efficiency .
In addition, the best ratios in each of the factors in CAMEL were identified. For
example, the best ratio for Capital Adequacy was found to be the ratio of total
shareholders' fund to total risk weighted assets. The paper concluded that no one
factor in CAMEL suffices to depict the overall performance of a bank. Among
[50]
other recommendations, banks' regulators are called upon to revert to the best
identified ratios in CAMEL when evaluating banks performance.
CAMEL model examination (Rebel Cole and Jeffery Gunther)(1988)

To assess the accuracy of CAMEL ratings in predicting failure, Rebel
Cole and Jeffery Gunther use as a benchmark an off-site monitoring system
based on publicly available accounting data. Their findings suggest that, if a
bank has not been examined for more than two quarters, off-site monitoring
systems usually provide a more accurate indication of survivability than its
CAMEL rating. The lower predictive accuracy for CAMEL ratings older" than
two quarters causes the overall accuracy of CAMEL ratings to fall substantially
below that of off-site monitoring systems. The higher predictive accuracy of
off-site systems derives from both their timeliness-an updated off-site rating is
available for every bank in every quarter-and the accuracy of the financial data
on which they are based. Cole and Gunther conclude that off-site monitoring
systems should continue to play a prominent role in the supervisory process, as
complement to on-site examinations.
Check the Risk taken by banks by CAMEL model(2000)

The deregulation of the U.S. banking industry has fostered increased
competition in banking markets, which in turn has created incentives for banks
to operate more efficiently and take more risk. They examine the degree to
which supervisory CAMEL ratings reflect the level of risk taken by banks and
the risk-taking efficiency of those banks (i.e., whether increased risk levels
generate higher expected returns). Their results suggest that supervisors not
only distinguish between the risk-taking of efficient and inefficient banks, but
[51]
they also permit efficient banks more latitude in their investment strategies than
inefficient banks.
Bank soundness - CAMEL ratings Indonesia (Kenton Zumwalt)(19911995)
This study uses a unique data set provided by Bank Indonesia to examine
the changing financial soundness of Indonesian banks during this crisis. Bank
Indonesia's non-public CAMEL ratings data allow the use of a continuous bank
soundness measure rather than ordinal measures. In addition, panel data
regression procedures that allow for the identification of the appropriate
statistical model are used.
They argue the nature of the risks facing the Indonesian banking
community calls for the addition of a systemic risk component to the Indonesian
ranking system. The empirical results show that during Indonesia's stable
economic periods, four of the five traditional CAMEL components provide
insights into the financial soundness of Indonesian banks. However, during
Indonesia's crisis period, the relationships between financial characteristics and
CAMEL ratings deteriorate and only one of the traditional CAMEL
componentsearningsobjectively discriminates among the ratings.
[52]
CAMELs and Banks Performance Evaluation (Muhammad Tanko)(2005)
Despite the continuous use of financial ratios analysis on banks

performance evaluation by banks' regulators, opposition to it skill thrive with
opponents coming up with new tools capable of flagging the over-all
performance ( efficiency) of a bank. This research paper was carried out; to find
the adequacy of CAMEL in capturing the overall performance of a bank; to find
the relative weights of importance in all the factors in CAMEL; and lastly to
inform on the best ratios to always adopt by banks regulators in evaluating
banks efficiency. The data for the research work is secondary and was collected
from the annual reports of eleven commercial banks in Nigeria over a period of
nine years (1997 - 2005).The purposive sampling technique was used. The
findings revealed the inability of each factor in CAMEL to capture the holistic
performance of a bank. Also revealed, was the relative weight of importance of
the factors in CAMEL which resulted to a call for a change in the acronym of
CAMEL to CLEAM. In addition, the best ratios in each of the factors in
CAMEL were identified. The paper concluded that no one factor in CAMEL
suffices to depict the overall performance of a bank. Among other
recommendations, banks' regulators are called upon to revert to the best
identified ratios in CAMEL when evaluating banks performance.
When we were searching for the research paper for literature review, we
could not find a single report or any research paper on the CAMELS model
prepared on Indian Banks. Though it may be prepared by them but we have not
found. So we inspired to make the project report on CAMELS Model specially
on Indian Banks.
[53]
Ariffin (2009):
He investigated the risk management techniques of twenty eight banks thr
oughexamining the perception of senior banker toward risk. This study co
vers 14countries using a questionnaire and the result reveled that, banks are typi
cally
exposed to the same types of risk in conventional bank with different levels of
the risk.
Khan and Ahmed (2001):
They investigate risk management practices in 17 Islamic financial
Institutionsacross 10 countries. Data has been collected using questionnaire and
field levelinterview. The result revealed that, the most significant fact
or
in riskmanagement is rate of return risk as the general from murbaha contract c
annotbe hedged through conventional banking tools like interest rate swap and o
ther
derivatives tools which obstruct risk management in Islamic financial
institution.
Santomero (1996):
He argued that all financial institution facing three types of risk:
1) Risk that cans be eliminated or avoided by simple business practices.
2) Risk that can be transferred to other participants, and
3) Risk that must be actively managed at the firm level.
[54]
Oldfield and santomero (1997):

They suggest four steps for risk management system as follows:
1) Standard and reports,
2) Position limits or rules,
3) Investment guidelines or strategies
B M Misra and Sarat Dhal(2012)

This study provides an analysis of pro-cyclicality of bank indicators with a
focus on the non-performing loans (NPAs) of Indias public sector banks. The
empirical analysis demonstrates that banks NPAs are influenced by three major
sets of factors, i.e., terms of credit, bank specific indicators relating to asset size,
credit orientation, financial innovations (non-interest income), and regulatory
capital requirement and the business cycle shocks. Using panel regression
model, the study found that the terms of credit variables such as interest rate,
maturity and collateral and bank specific variables had significant effect on the
banks' non-performing loans in the presence of macroeconomic shocks. The
empirical findings support the policy approach to the banking in the Indian
context. The credit culture as reflected in the terms of credit variables could
play an important role in the banks management of business cycle impact on
loans and credit risk.
B. M. Misra is Adviser and Sarat Dhal is Assistant Adviser, Department of

Economic Analysis and Policy, Reserve Bank of India, Central Office, Mumbai.
The views expressed are of the authors only, and they have no bearing on the
organization to which the authors belong.
[55]
Prashanth k Reddy (2002)

Prashanth K Reddy is a post graduate student at The Indian Institute of
Management Ahmedabad. Prashanth has an undergraduate degree in Computer
Science from the Karnataka Regional Engineering College, Surathkal. It further
looks into the effect of the reforms on the level of NPAs and suggests
mechanisms to handle the problem by drawing on experiences from other
countries. After nationalization, the initial mandate that banks were given was
to expand their branch network, increase the savings rate and extend credit to
the rural and SSI sectors1. This mandate has been achieved admirably. Since the
early 90s the focus has shifted towards improving quality of assets and better
risk management. The directed lending approach has given way to more market
driven practices.
The Narasimhan Committee has recommended prudential norms on income

recognition, asset classification and provisioning. In a change from the past,
Income recognition is now not on an accrual basis but when it is actually
received. Past problems faced by banks were to a great extent attributable to
this. Classification of what an NPA is has changed with tightening of prudential
norms. Currently an asset is non-performing if interest or installments of
principal due remain unpaid for more than 180 days
[56]
MS. ASHA SINGH(2007-09)
ABSTRACT In India Non-performing assets are one of the major concerns

for banks.NPA is the best indicator for the health of the banking industry. NPAs
reflect the performances of banks. .NPAs are the primary indicators of credit
risk. NPAs are an inevitable burden on the banking industry. Hence the success
of a bank depends upon methods of managing NPAs. The Public Sector Banks
have shown very good performance over the private sector banks as far as the
financial operations are concerned. The Public Sector Banks have also shown
comparatively good result. However, the only problem of the Public Sector
Banks these days are the increasing level of the non-performing assets. The
nonperforming assets of the Public Sector Banks have been increasing regularly
year by year. On the contrary, the non-performing assets of private sector banks
have been decreasing regularly year by year except some years.
Generally reduction in NPAs shows that banks have strengthened their credit
appraisal processes over the years and increased in NPAs shows the necessity of
provisions, which bring down the overall profitability of banks. The Indian
banking sector is facing a serious problem of NPA. The magnitude of NPA is
comparatively higher in public sectors banks than private sector banks. To
improve the efficiency and profitability of banks the NPA need to be reduced
and controlled.
Periodic inspection of the unit and charged assets along with analysis of
financial data.
[57]
In the initial stages of sickness, rescheduling, restructuring, rehabilitation under

Banks Restructuring Policy, CDR mechanism, BIFR approved rehabilitation
etc. schemes shall be attempted to improve the health of the unit.
Recovery Measures-Legal measures:

Recovery through courts
Debt recovery tribunal
Corporate debt restructuring
National company law tribunal
Asst reconstruction companies
LokAdalats
RRC Act of state Government
Recovery Action
Innovations by banks
Research/reports etc.
All these means have to be effectively pursued for resolution of NPAs.
1. H.V.Upadhyay (1994)
H.V.Upadhyay (1994) in Recovery through SEIZURE: Some Aspects has
stated that the legal actions involve high cost and long time. Even after
settlement of the case, the decree has to be filed and executed periodically as per
the term which is an unpleasant and difficult task. This process also slows down
the speed of follow up and results in lethargic attitude by banker. The advocates
[58]
also do not cooperate as much in execution of decree as they cooperate in filing

of suits.
The rate of recovery after initiating legal actions has remained very low and,
therefore, few banks in the state of Gujarat have adopted a procedure of seizure
of the vehicles. These vehicles are trucks,matadors, autorickshaw and tractors.
The only advantage and biggest benefit is that the recovery of large over dues
could be made very speedily at a very low cost. The procedure also has a
demonstrative effect and the other borrowers in the village voluntarily come
forward to repay their dues.
2. Rajiv Aggarwal (1991)
Rajiv Aggarwal (1991) in his study entitled Designing Effective Credit
Recovery Management and Control System To ensure effective follow up and
timely repayment, organizational set up and systems, the quality of existing
credit portfolio, the organizational culture and the public image of banks need
improvement. Credit recovery seminars would have to be organized with an aim
of changing beliefs, attitudes and behavior of officers at various levels of
management.
3. A. Govil (2000)
A. Govil (2000), in his article Need for Revival of Loss Making Branches
says that Recovery management is useful in following strategies.
a) When we are associated with lending for government sponsored schemes,

branches will have to insist on the government agencies to help in the
enforcement of recovery. In each meeting, we will have to reinforce our
point and invite their involvement in recovery.
[59]
b) ABC analysis of the overdue by categorizing the quantum of overdue

where by more attention can be paid on such chronic accounts.
Segregation of overdue where the quantum of expected recovery is high
and the branch is willing.
c) The recovery drive should be planned well in advance.
4. Dr.J.B.Kulkarni (2003)
Dr.J.B.Kulkarni (2003), in Management of Non-Performing Assets stated
the non-legal Recovery Measures include-
1.Reminders Visits
2.Personal contacts
3.Rehabilitation of sick units / replacement
4.Loan compromise
5.Recovery Camps
5. N.V. Darshan (2001)
N.V. Darshan (2001), in The Secret of Recovery stated that the Elusive
recovery thus forms the core topic of this paper included-
i)
Eliciting relevant / required information
ii)
Maintain close rapport with the borrowers
iii)
Database
iv)
Ensuring end utilization.
[60]
6. Dr. K.C.Chakraborty (2005)

Dr. K.C.Chakraborty (2005) in Management of NPAs Trends and
Challenges has stated that the banks have to face several challenges in
managing NPAs. Besides ensuring better scrutiny of the credit proposals before
sanction, banks need to watch closely and monitor the assets from the selection
of borrowers. A continuous and consistent monitoring mechanism is a must for
ensuring the best quality of the assets. Symptoms of any sickness should be
addressed immediately and appropriate remedial action implemented.
Despite the availability of various avenues of recovery in ultimate analysis it

is the borrowers willingness to repay rather than his ability to repay. The
mindset of the borrowers from the beginning should be tuned insuch a way that
he is willing to repay rather than turn into a willful defaulter.
7. Dr. N. M. Bachhawat (2001)
Management of Non-Performing Assets in Commercial Bank has stated
as under: The prudential norm of 90 days for classifying the A/cs as NPA is
very much strict looking to the Indian conditions where whole of economy is
still based on Agriculture and Agri is based on Monsoon and which is uncertain
and erratic, instead of this Banks should recruit technical/ field officers for
vigorous follow up and supervision of such accounts. RBI should reassess to
bring fresh policy for recruitment of field staff for follow-up and supervision to
control NPAs.
NPA norms for agriculture advances should be relaxed to two years

criteria and not two seasons i.e. one year, as in our country in most of the areas
main crops are grown / cultivated once in a year, hence these norms are not
[61]
fruitful to large sections of farmers who have availed the credit facility. In case
of relief measures for natural calamities provided to the affected farmers on his
own request should be provided in such a manner that benefit of relief reaches
to ground level in real sense and after replacement and reschedule ement of the
loan the same should immediately be considered as Standard Asset and such
accounts should not be put under watch, period for which is one year for
substandard asset and two years for Bad & Doubtful assets. Banks is allowed to
treat such rephrased / rescheduled NPA accounts as standard assets during same
financial year.
8. K.Kannan (2001)
K.Kannan (2001) Creation of Performing Assets fromNPA to PA has
highlighted the expertise required and the mismatch of assets & liabilities,
restrained banks from steaming ahead. Hence there is a need to work out a
Loan Policy with risk limits as to rate, duration, security and follow up and
refinance if needed by securitization of the assets. Special branches rather than
all branches dealing with all products, catering to needs of specialized
customers were felt necessary, help in generating special data about the
customers and also helps centralized control on delinquency.
The strategy should be decided by each bank based its strength, area of
operation, type of customer quality of staff. The policy should decide which are
to be financed (Industry-big / small) Trade, Individuals (housing, car, other
white goods) etc. how many customer maximum amount of loan with
repayment and follow up mechanism necessary.
[62]
9. Dr. Kumar M.K., Reddy C.M. and Muktha K.C. (2004)
Dr. Kumar M.K., Reddy C.M. and Muktha K.C. (2004) in their article
Causes of NPAs and Remedial Measures observed that the Banks bottom
line improvement largely depends on reduction in NPA and preventing NPAs
would also help to improve the profitability of Banks. However good the credit
dispensation process may be total elimination of NPAs is not possible in
banking business owing to externalities but their incidence can be minimized.
The following steps may be taken to reduce NPAs

1. Massive recovery campaigns are launched.
2. Infrastructure / adequate machinery are provided to branch to render a
helping hand.
3. Branch managers are exhorted to exercise extraordinary care in the
selection of fresh borrowers so that new borrowal accounts does not Enter
in NPA list.
4.Lot off understanding needed among bank staff and customers to address
them selves to the problem of recovery.
5.Prompt control / follow up/ monitoring measures help to prove borrowal
accounts becoming irregular.
[63]
10. Dr. P. Mohan Reddy and D. L. Narayana Reddy (2004)

Dr. P. Mohan Reddy and D. L. Narayana Reddy (2004), write in their
Paper Non- Performing Assets in Regional Rural Banks:
A Study of RayalaseemaGrameena Bank tries to analyze the status and
trend of non-performing assets in ReyalseemaGrameena Bank (RGB)
through multi-dimensional classification of NPAs. It also examines the recovery
strategy of the RGB and offers certain remedial measures for the effective
reduction of NPAs in the Bank. A new credit insurance scheme for priority
sector lending, substantially improved legal system, meticulous loan
documentation, and gradual shift from bank based to market based system and
sound credit management skills will enable the Bank to meet the challenges in
business environment and kept its non-performing assets low.
11. Sastry S.R. (1996)
Sastry S.R. (1996) in Recovery Management stated that the Recoveries are
an essential / integral part of operations of all financial institutions, without
which these get into liquidity problems, as recycling of funds is adversely
affected.
Owing to adoption of mercantile system of accounting, which placed
overemphasis on security, recovery did not get in the past its due recognitions
and bankers were more complacent in view of the availability of enough
security to cover the risk of default in repayment. It is only through constant
recoveries (of interest / installment) that the proportion of performing assets in
the total portfolio could be kept in high. This alone can ensure better balance
sheet.
[64]
12. Sharma R. (2002)

Sharma R. (2002) in Non -Performing Assets stated that the burden being
immense, the reduction of NPAs of the Banking sector should be treated as a
national priority to make the Banking system stronger, more resilient and geared
to meet the challenges of globalization. The thrust of the policies of the
Government, RBI and the Banks should be on how best to tackle existing
NPAs, recovery of arrears, minimizing incidence of fresh NPAs, improving
asset quality and preventing deterioration of assets. Changes in the legal system
by introducing stringent foreclosure laws would be welcomed by entire
financial sector.
[65]
NPA depends on the nature of facility/limit granted:

Asset/Accounts are considered to be Non-performing when it cease to generate income for
the bank. The criteria a borrower Account as Non-performing asset depend on the nature of
facility/ limit granted and is as under
(1) Term Loan:(2) Cash Credit and Overdraft Accounts:(3) Agricultural Loan:(4) Project Finance:-
(1) Term loan:Here interest and/or 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 months through genuine sources. The account did not treated as Non-performing
asset, banks should, however, ensure that the Account remain 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 sale criterion for treating
the Accounts 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 3 months as on the date of balance sheet, or credit
are not enough to cover the interest debited the same period.
[66]
(3)Bill purchase and discount:A bill is treated non-performing asset, 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 and/or installment of principal remains overdue for two harvesting season
or two half year whichever is earlier, the loan is treated as Non-Performing Asset.
(5) Project finance:In the case project finance, where moratorium is given for payment of interest/
principal, the respective Amounts wills become due only after moratorium/gestation period is
over.
EXEMPTION:
1. Advance against term deposits, NSCs. And surrender value of life policies etc.
Advances against fixed and other term deposits, National savings Certificates eligible
for surrender, LIC policies, Indira VikasPatras and KikasVikasPatras have been exempted
from provisioning requirements.
Accordingly, banks need not treat such Accounts as Non-Performing Assets 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
Accounts on the Due dates, provide adequate margin is available in the accounts.
2.
Reversal Of Income On Accounts Becoming NPAs:If any advance including bills purchase and discounted becomes Non Performing
Assets as of 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
[67]
accrued should cease to accrue in the current period and should be reversed or provided for
with to past periods, if un collected.
3.
Interest Application:In case of Non-Performing Assets where interest has not been received for go days or
more, as prudential norms, there is no use in debiting the said Account by interest accrued in
subsequent quarters and tacking this accrued interest amounts income of the bank as the said
interest is not being received. It is simultaneously desirable to shoe such accrued interest
separately or part in a separate account. So, that interest receivable on such non-performing
asset 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 receive for any reason in these cases and the account
is to be treated as an NPA as per the guide lines, then the amount of interest so taken to
income should be reversed or should be provided for in fall.
[68]
o TO KNOW STRATEGY TO REDUCE NPA.
STRATEGIES FOR EFFECTIVE MANAGEMENT OF NPAs:
The following method could be considered for achieving the above objectives.
(1) Recovery :This is easier said than done, ongoing efforts have to be made by functionaries at each
level to show perceptible results. Each functionary has to take the subject in own way, viz,
persuasion, pressurization, frequent interaction at appropriate levels, showing sympathy,
treating the borrower as a friend etc. monitoring should be focused at critical branches having
concentration of high value NPAs. Recovery performance of all concerned officials should be
critically evaluated & outstanding performance should be appropriately recognized. Recovery
is not non-man job. Total involvement commitment of the staff is required. If any irregular
portion in any account is fully recovered, such account will be eligible for immediate reclassification as a standard asset.
(2) Replacement:All term loans, which have become sub-standard or doubtful asset on Account of
non-realization of interest or taken up for review and the repayment, should be rescheduled.
Although such a measure does not upgrade the quality of the accounts as per the rescheduled
repayment program but move the program upwards by 2 years.
Such replacement should be done on the basis of estimated fund flow in consolation
with the borrowers, so that the rephrased repayment program is meticulously adhered to &
the assets are upgraded in due course.
(3) Compromise :The mechanism for setting outstanding dues though compromise is a strategy of
recent origin. In the process of setting the dues through compromise, several factors need to
be examined in detail. It is not possible to lay down any straitjacket formula for arriving at
any compromise. Negotiation in this regard is to be handled skillfully on the basis of relative
strengths of borrower & the banker. A compromise does not & must mean an acceptance of
any offer- it has to be negotiated settlement in which both the parties would try to make theft
[69]
best out of worst. Bank should make all endeavors to strike a zero-loss deal or deal with
minimum sacrifice. This may not be always, possible & the banks may have to fore go
substantial amounts in some cases. However, accepting a compromise proposal, a realistic
statement of the expected loss must be made while making the estimate of expected loss, it
should be borne in mind that the unrealized portion will have to be written off, which will in
turn also give tax relief to the bank.
(4) Rehabilitation:Under this method, a sick but viable unit is nursed back to the health by giving a
package on the merits of the case. Once the sickness is established & the bank decides to
offer rehabilitation package or such package is approved by BIFR in case of sympathy,
sacrifice & speed. The bank has to have a sympathetic & positive approach and provide the
relief package in time. Such package has to aim at helping unit easing it debt burden, easing
its liquidity. Portion, improving its activity level & ultimately would be in a position to
continue to serve its repayment obligations as agreed upon including those forming part of
the package. Rehabilitation is a long drawn process. One should not look for results in short
run.
(5) Merger/ Acquisition:This is a process under which sick unit is merged with a healthy unit or sometimes, a
healthy unit acquires sick units. A part of the consideration paid to the sick unit by the
healthy unit is used to liquidate the NPA, wholly or partly very often, banks have to make
sacrifices to clinch the deal. The merger/acquisition is especially beneficial to the healthy unit
because under section 72. A of the income tax act, it is allowed to carry forward 7 set of
accumulated losses & unabsorbed depreciation of the sick unit. Such benefits are allowed
only if the merger is approved by government of India & is in public interest.
In case of merger, the NPA (i.e. the sick unit) will get immediately converted into a
performing asset because it will acquire the unit will be wiped out from the books of the
banks. This process thus gives quick relief to the bank holding the sick unit.
[70]
(6) Calling up the advances, in unviable:If all attempts at reviving a unit or merging it with a healthy unit fail, the tank has no
option but to recall the advances 7 cell the assets of such a unit. If case of corporate sick
units, this course can be adopted only when BIFR decides to wind up the company. The sale
of assets would, however result in some loss for the banks but, in many cases, the losses
would be far less if a quick decision is taken in regard to such sale. The balance amount will
have to be recovered from the personal asset of guarantors or ultimately written off. This
process also helps the bank to liquidate its NPA if it can secure a buyer for the assets of the
unit.
(7) Filing of civil suits :

The last option available to the bank for recovering its dues from the borrower and/or
the guarantor is by filling a suit against them, it has been seen that once a civil suit is failed
the bank officials feel that their job is over. Lack of adequate interest/ initiative on the part of
operating functionaries as also lethargy on the part of banks advocates extends the period of
litigation to, sometimes 10 to 15 years. Further courts generally give the benefits of simple
interest on suit amounts 7 repayment in convenient installments. Its impressive that pending
suits/certificates cases are periodically reviewed at structured meetings. All cases with
outstanding amount of Rs.10 lakhs or more should refer to the recovery tribunals for speedy
decisions. These tribunals are expected to give decision in 6 months time& the aggrieved
party can go in for appeal only after depositing 75% of the decrial amount.
(8) Lodging claims with DICGI/ECGC:Needless to say, all claims with DICGC/ECGC should be lodged in time, vigorously
follow up & progress reviewed from time to time. Personal meetings may be held with the
officials of DICGCI/ECGC in case large number of lodged claims is pending since long.
(9) Write-off:When all the above methods fail to be effective in the recovery process. The bank has
no option but to forego the dues by writing them off. Such write-off should however, be
permitted as the last resort after exhausting all other remedies. The only bank redeeming
feature of write-offs is that the bank gets tax-exemption on account of such write offs.
[71]
GENERAL STRATEGY:
Fixing up budget for profit and recovery rather than advance.
Fixing up finance strategy.
Large exposure/single project should be avoided.
Change approach from collateral security to viability and intrinsic strength of

promoters.
Upgrade the credit skills of staff.
Timely sanction/release
o TO KNOW WHICH FACTOR LEADS NPA.
CAUSES FOR ACCOUNTS BECOMING NPA
A. Internal factor
1. Institutional level
Institutions philosophy, policy, procedures and people (4 ps)
Ex. Aggressive lending policy and bad procedures for sanctioning a loan.
2. Pre-sanction level:
Appraisal deficiencies: like gathering, processing and analyzing information are at the heart
of good decision making fails to doing this can potentially rain the banks loan portfolio
Delay in sanction
Inappropriate repayment schedules 5*
Post sanction stage :W
Inappropriate disbursement
Lack of adequate supervision/monitoring: Ex: initially should loans may develop problems
and losses because of lack of supervision.
[72]
B. External factors:
The factors, which, lead to advances in to NPA and beyond the control of borrowers and
institutions (banks) are called external factors.
Natural calamities.
State of the economy- recession or competition- trade policies
Technological advances
Regulatory advances
Environment pollution control requirements
Lack of adequate support from the legal system
Other causes :
Credit concentration:- in terms of single/ group of borrowers,
Sectors- lack of information regarding repaid growing areas for financing.

o Credit process issues: Ex: compromise of credit principles loans it granted under
unsatisfactory terms granted with full knowledge of violation of credit principles
Connected lending :
Ex: overextension of credit to directors, large share holders, lending under pressures from
interested parties anxiety for over income: concern over earnings- outweighs the sound ness
of lending disciplines
Incomplete credit information:
complete credit information only accurate method of determining borrowers financial

capacity- information regarding purpose of borrowing-plan and secures of repayment.
Technical in competence :
Complacency :- manifest in adequate supervision, familiar borrowers and dependence

on oral information, rather than reliable complete financial data, optimistic
interpretation of known credit weaknesses.
Failure to monitor values of collateral.
Poor selection of risks involves the following:
Highly leveraged- loans to establish business in situations where bank financed share
of required capital is large relative to the equity investment of owners.
[73]
Creditworthiness not assessed- loan based on expectations of successful completion of

business rather than creditworthiness of borrowers.
Lure of benefits:- loans made because of benefits such as large balance in deposits in
a banks, rather than on sound net worth or collateral.
Loans against problematic collaterals: loans made on the strengths of collateral whose
liquidation may be problematic and loans against collaterals without adequate
margins.
C. Borrowers level:
Project related problems: Managerial aspects: like failures In marketing inefficient
management labor problems, product obsolescence.
Financial indiscipline : Ex: Diversion of funds- different borrowers divert for different
purpose.
o TO KNOW HOW TO CONVERT OF NON-PERFORMING ASSET IN TO
PERFORMING ASSET.
(1)With offer from 31st march, 2000 in respect of advances sanctioned against state
government guarantee, if the guarantee is invoked and remains in default for more than 90
days the banks should make normal provisions.
(2) Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs and policies are
exempted from provisioning requirements.
(3) However, advances against gold ornaments, government securities and all other kinds of
securities are not exempted from provisioning requirements.
(4) Treatment of interest suspense Account:
Accounts held in interest suspense account should not be reckoned as part of provisions.
Amounts lying in the interest suspense account should be deducted from the relative
advances and then after provisioning as per the norms, should be made on the balance after
such duration.
[74]
CHAPTER : 3
RESEARCH METHODOLOGY
[75]
1. Topic:TO STUDY OF NON-PERFORMING ASSETS AT VARACHHA CO-OPERATIVE

BANK AND PERFORMANCE WITH USE OF CAMEL MODEL.
2. Objective of study.
o To perform NPAS TREND ANALYSIS
o To perform Ratio (NPA) ANALYSIS OF Varachha co-op. bank
o To understand Bank performance with use CAMEL Model
3.
Scope of study.
Study covers only analysis of NPA of TheVarachhaco-operative bank Ltd.
The scope of the study is limited as it covers only one scheduled Urban Co-operative
Bank named The Varachha Co-operative Bank. To check the financial position of this bank,
the data of 3 years from the co-operative year 2012-13 to 2014-12 are considered.
4. DATA-TYPES.
Primary data
o Observation and interview
Secondary data
o Annual reports of the bank
o Loan departments manager
5.
Sources of Data.
o Through internet.
o Through personal visit.
o Through books.
o Through annual report.
6. Training Period.
Period of study and make the project report is of two month from 3 JUNE 2015 to 20th
July 2014.
[76]
7.
Tools and techniques.
Ratio and percentage
CAMEL MODEL
The study is descriptive in nature and it is based on secondary data drawn from the
annual reports of the VCB. For the purpose of analysis, the evaluation is done by using
CAMEL parameters, the latest model for financial analysis of banks. For applying this model,
five main dimensions of the performance (Capital adequacy, Assets quality, Management
capability, Earning capacity and Liquidity) are assessed using ratio analysis. For that purpose
the financial ratios are divided into five main categories.
C -Capital Adequacy Ratios
Capital Adequacy Ratio,

Debt -Equity Ratio,
Proprietary Ratio,
Interest Coverage Ratio,
Total Advances to Total Assets Ratio,
Government Securities to Total Investment
ratio.
A -Assets Quality Ratios:
Net NPA to Net Advances,

Gross NPA to Net Advances,
Loan Loss Cover,
Total Investments to Total Assets Ratio.
Total Advances to Total Deposits Ratio,
Diversification Ratio,
Earning Per Employee,
Business Per Employee.
Return on Assets,
Return on Equity,
Spread Ratio,
Net Interest Margin,
Operating Profit to Working Fund Ratio,
Interest Income to Total Income Ratio.
Current Ratio,
Quick Ratio,
Liquid Assets to total Assets Ratio,
Liquid Assets to Total Deposits Ratio,
Government Securities to Total Assets Ratio,
Investment to Deposits.
M -Management Capability Ratios:
E -Earning Ratios:
L -Liquidity Ratios:
Three statistical techniques i.e. Mean, Standard Deviation and Co- efficient of variation have
also been used as supportive techniques.
[77]
8.
Limitation of study.
o Analysis of NPA of only one bank has limited uses.
o It is not possible to gather all information about bank.
9. OBJECTIVE OF STUDY.
o The main objective behind this project is to analyze the actual position of NPA of
VCB.
(1) FOR 2009
As on 31-3-2009
Assets
Total NPA
Standard Assets
Total Advances
No. of A/C
31
9184
9215
% of NPA to Total advances
Amount
(in laces)
212.93
8990.24
9203.17
%
2.31
97.69
100
2.31%
As on 31-2-2009
Assets
Non-performing Assets
Sub-standard Assets
Doubtful Assets
Loss Assets
Total NPA
No. of A/C
Amount (in laces)
31
212.93
2.31
31
212.93
2.31
INTERPRETATION :In 2009, the NPA of The Varachha co-operative bank was in Rs.212.93 Lakhs which
is 2.31% of total advances. And total Advances were in Rs.9203.17 lakhs and standard assets
of Rs.8990.24 Lakh. There was a doubtful asset Rs.212.93 Lakhs.There was decline in NPA
of Rs.8.09 compare to last year. And there is also reduction in percentage of NPA compare to
last year.
[78]
(2) FOR 2010
As on 31-3-2010
Assets
Total NPA
Standard Assets
Total Advances
No. of A/C
Amount
(in laces)
23
7716
7739
222.63
9266.04
9488.67
%
2.35
97.65
100
2.35%
As on 31-2-2010
Assets
No. of A/C
Amount (in laces)
Sub-standard Assets
Doubtful Assets
Loss Assets
24.81
0.26
21
197.82
2.08
Total NPA
23
222.63
2.35
INTERPRETATION :In 2010, the NPA of The Varachha co-operative bank was Rs.222.63 Lakhs which is
2.35% of total advances.And total Advances were Rs.9488.67 lakhs and standard assets of
Rs.9266.04 Lakhs.There was sub-standard asset Rs.24.81 Lakhs. There was Loss assets
Rs.197.82 lakhs. There was increase in NPA of Rs.10.30 Lakhs compare to last year. And
there is an increase of 0.04% in NPA compare to last year.
[79]
(3) FOR 2011

As on 31-3-2011
Assets
Total NPA
Standard Assets
Total Advances
No. of A/C
Amount (in laces)
5
6588
6593
55.84
11532.14
11587.98
0.48
99.52
100
0.48%
As on 31-2-2011
Assets
No. of A/C
Amount (in laces)
Sub-standard Assets
Doubtful Assets
Loss Assets
55.84
0.48
Total NPA
55.84
0.48
INTERPRETATION :In 2011, the NPA of TheVarachha co-operative bank was Rs.55.84 Lakhs which is
0.48% of total advances and total Advances was Rs.11587.98 lakhs and standard assets was
Rs.11532.14 Lakhs. There was Loss assets of Rs.55.84 lakhs. There was decrease in NPA of
Rs.166.79 Lakhs compare to last year. And there is decrease of 1.87% in NPA compare to
last year.
[80]
(4) FOR 2012

As on 31-3-2012
Assets
Total NPA
Standard Assets
Total Advances
No. of A/C
5
7967
7972
Amount
(in laces)
55.62
15532.48
15588.1
%
0.36
99.64
100
0.36%
As on 31-2-2012
Assets
No. of A/C
Amount (in laces)
Sub-standard Assets
Doubtful Assets
Loss Assets
55.62
0.36
Total NPA
55.62
0.36
0.36% of total advances.And total Advances was Rs.15588.1 lakhs and standard assets was
Rs.15532.48 Lakhs. There was Loss assets of Rs.55.62 lakhs. There was decrease in NPA of
Rs.0.22 Lakhs compare to last year. And there is decrease of 0.12% in NPA compare to last
year.
[81]
(5) FOR 2013

As on 31-3-2013
Assets
Total NPA
Standard Assets
Total Advances
No. of A/C
3
11483
11486
Amount
(in laces)
50.83
21689.64
21740.47
%
0.23
99.77
100
0.23 %
As on 31-2-2013
Assets
No. of A/C
Amount (in laces)
Sub-standard Assets
Doubtful Assets
Loss Assets
50.83
0.23
Total NPA
50.83
0.23
0.23 % of total advances. And total Advances were Rs.21740.47lakhs and standard assets of
Rs.21689.64 Lakhs. There was Loss assets Rs.50.83 lakhs. There was decrease in NPA of
Rs.4.79 Lakhs compare to last year. And there is a decrease of 0.13% in NPA compare to last
year.
[82]
(6) FOR 2014

As on 31-3-2014
Assets
Total NPA
Standard Assets
Total Advances
No. of A/C
0
13649
13649
Amount
(in laces)
0
28049.78
28049.78
%
0
100
100
00%
As on 31-2-2014
Assets
No. of A/C
Amount (in laces)
Sub-standard Assets
Doubtful Assets
Loss Assets
--
Total NPA
--
INTERPRETATION :In 2014, the NPA of The Varachha co-operative bank was Rs.0 Lakhs which is 00 %
of total advances. And total Advances were Rs.28049.78lakhs and standard assets of
Rs.28049.78lakhs.
[83]
(7) FOR 2015

As on 31-3-2015
Assets
Total NPA
Standard Assets
Total Advances
No. of A/C
0
15501
15501
Amount
(in laces)
0
38523.29
38523.29
%
0
100
100
00%
As on 31-2-2015
Assets
No. of A/C
Amount (in laces)
Sub-standard Assets
Doubtful Assets
Loss Assets
--
--
--
Total NPA
--
--
--
INTERPRETATION :In 2015, the NPA ofTheVarachha co-operative bank was Rs.0 Lakhs which is 00 % of
total advances. And total Advances were Rs.38523.29 lakhs and standard assets of
Rs.38523.29 lakhs.
[84]
CHAPTER : 4
ANALYSIS AND INTERPRETATION
[85]
OB: 1 NPAS TREND ANALYSIS:

Year
2009
2010
2011
2012
2013
2014
2015
NPA (As a % of Total Advances )
2.31
2.35
0.48
0.36
0.23
NPA (As a % of Total Advances )

7
0.23
0.36
NPA (As a % of Total

Advances )
0.48
2.35
2.31
0
0.5
1.5
2.5
INTERPRETATION :From the above diagram we can conclude that there is overall declining in the NPA.
Which leads to good working system of the management towards the recovery. In 2014-15 the
position of the NPA in varachha bank was 0%.
NPA ANALYSIS:
In recent years a paradox has been observed in NPA management of Indian banks.
While the gross and net NPA level of most banks have come down in percentage terms, in
absolute terms the amount is increasing. It has been possible because of the repaid growth in
gross credit in recent times. Therefore the criteria of gross NPA as well net NPA percentage
cannot be the only yardstick for measurement rating of a bank for NPA reduction vary widely
and play a significant role in the quality of NPA management of banks.
[86]
The NPA reduction by maximum compromise and write off is significantly different
from the NPA reduction by up gradation. Similarly, the gross NPA to gross advances may be
higher in a banks: but its gross NPA to total Assets may be lower in comparison to other
banks: when RBI has adopted stringent prudential norms for maintaining good health of the
banks: it is therefore, necessary that for effective supervision, RBI/ bank boards should adopt a
standardized rating model to grade bank with respect to the quality of NPA management being
adopted by them.
The NPA management rating should be one of the parameter for evaluation
performance of all commercial banks
OB: 2 RATIO ANALYSIS
1. Gross NPA Ratio:
Gross NPA is the sum of all loan asset that are classified as the NPA as per guidelines as
on balance sheet date. Gross NPA ratio is the ratio of gross NPA to gross advances of the
bank. It is useful to know total Non-performing assets as a percentage of total advances.
Gross NPA
Gross NPA Ratio= -------------------- * 100
Total Advances
Year
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Gross NPA
212.93
222.63
55.84
55.62
50.83
0
0
Gross Advances
9203.17
9488.67
11587.98
15522.1
21740.47
28049.78
37523.29
[87]
Gross NPA Ratio

2.31%
2.35%
0.48 %
0.36%
0.23%
0%
0%
Gross NPA Ratio

2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
INTERPRETATION:Above table and chart indicate quality of credit portfolio of the bank. High gross NPA
ratio indicates low quality credit portfolio of the bank and vice-versa. We can see by graph
that gross NPA ratio is high in 2008-2009 which shows low quality portfolio and reason for
that is gross NPA has increased. It has reduced in year 2013-14-15 which shows 0% NPA.
[88]
PROBLEM ASSET RATIO:

It is the ratio of gross NPA to total assets of the bank. It indicateshow much percentage
of total assets is in the form of NPA.
Gross NPA
Problem Assets Ratio = --------------------* 100
Total Assets
Year
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Gross NPA
212.93
222.63
55.84
55.62
50.83
0
0
Total Assets
22690.56
28835.47
34423.47
37083.51
43459.55
49587.67
51458.67
Problem Asset Ratio

0.94%
0.77%
0.16%
0.15%
0.12%
0
0
Problem Asset Ratio

2014-15
2013-14
2012-13
2011-12
2010-11
2009-10
2008-09
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
INTERPRETATION:It has direct bearing on return on asset as well as the liquidity risk management of the
bank. High problem asset ratio means high liquidity. This ratio is gradually decreasing which
shows efficient management of NPA by the bank which is good indicator of banks
performance. In year 2011-12, and 2012-13 it is near to 0.10%. It is good performance of
bank.
[89]
DEPOSITORY SAFETY RATIO:

It is also known as standard asset to total deposit ratio. This ratio indicates how much
percent of total deposits are safe.
Total Standard assets

Depository Safety Ratio=----------------------------------*100
Total Deposit
Year
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Total standard Asset

7801.84
8,990.24
9,266.04
11,532.14
15,532.48
21,689.64
26,193.64
Total deposit
17539.55
18079.18
23829.53
28751.29
28889.13
34456.87
50080.2
DSR
44.48%
49.72%
38.88%
40.10%
53.77%
62.95%
52.30%
DSR
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
INTERPRETATION:It indicates the degree of the safety of depositors. It also shows that the ratio is lower in
respect to year 2009-10, which shows the lower safety to depositors. It is 62.95% in the year
2013-14, which indicates higher safety of depositors. Though it is good in 2014,this ratio is
fluctuating since 2007 so banks to try to make strong financial position.
[90]
2. SUB-STANDARD ASSET:
It is the ratio of total standard assets to gross NPA of the bank. We can know
that how much percent of gross NPA is a Sub-Standard asset.
Total Sub-standard Assets

Sub-standard Assets= ---------------------------------------*100
Gross NPA
Year
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Total Sub-standard asset

24.81
-
Gross NPA
212.93
222.63
55.84
55.62
50.83
0
0
Sub-standard asset ratio

11.14%
-
INTERPRETATION:It indicates scope of improvement in NPA. Above table of different value of

sub-standard ratio shows that the ratio is very high in year 2009-10, which indicates that there
is high scope for advance improvement because it will be very easy to recover the loan as
minimum duration of default. Again sub-standard asset is reduces since 2014-15 which shows
banks efficient management towards the NPA is 0%.
[91]
3. DOUBTFUL ASSET RATIO:

It is the ratio of total doubtful asset to Gross NPAs of the bank. We can know that how
much percent of gross NPA are Doubtful assets.
Total Doubtful Assets

Doubtful Assets Ratio = ---------------------------------*100
Gross NPA
Years
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Total Doubtful asset

212.93
-
Gross NPA
212.93
222.63
55.84
55.62
50.83
0
0
Doubtful asset ratio

100.00%
-
INTERPRETATION:This ratio indicates how much percent of total NPA are doubtful assets. Doubtful assets
means the possibility of recovery is less than 50%. It may realize in future or not. Here there
are no any doubtful assets since 2009-10 which indicates good recovery management of the
Varachha bank.
[92]
LOSS ASSET RATIO:

It is the ratio of total loss assets to gross NPA of the bank. We can know that how much
percent of gross NPA are loss assets.
Total Loss Assets

Loss Assets Ratio = ----------------------------*100
Gross NPA
Years
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Total Loss asset

197.82
55.84
55.62
50.83
0
0
Gross NPA
212.93
222.63
55.84
55.62
50.83
0
0
Loss asset ratio

88.86%
100%
100%
100%
0%
0%
Loss asset ratio

120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
INTERPRETATION:It indicates the least chance of recovery by the bank. In 2008-09 it is NIL. Than after is
ratio are increases up to 100%. It is bad situation for bank. So bank has to try to minimize its
Loss assets
[93]
RATING MODEL
The NPA rating model should be a comprehensive one and it should take into Account
all the aspect of NPA management. The performance of bank on above parameters is required
to compared with the benchmark standardize by the RBI/bank board as well as with the
performance of peer groups with that of industry. Best performance of the banking industry
averages. As the NPA management is an ongoing process or the bank for a particular year has
been compared with that of previous year to know the improvement in the quality of NPA
management adopted by the bank. In other words some weight age should be given to the
previous year.
There are the two part of model, Part-A and Part-B. In part A there is comparison of
two above parameters with the benchmark. For each parameter in Part-A either (+1) for
positive performance or (-1) for negative performance or minus (-0.25) for overall negative
performance will be awarded. For overall rating all the mark will be summed up and suitable
grade will be awarded depending upon the total marks obtained. Now rating model on the
basis of above parameter for purpose of rating bank is as follows.
A model for rating of a bank for its quality of NPA
Parameter
(
(1) Gross NPA Ratio
(2) Net NPA ratio
(3) Problem asset Ratio
(4) Depository safety Ratio
(5) NPA mix
(a) Sub-standard asset ratio
(b) Doubtful Asset Ratio
(c) Loss Asset Ratio
(6) Provision Ratio
Positive (+1)
Negative(-1)
5% and less
More than 5%
2.5% and less

2.5% and less
More than 80%
More than 2.5%

More than 2.5%
80% and less
35% and less

60% and less
5% and less
70% and above
More than 35%

More than 60%
More than 5%
Less than 70%
[94]
The NPA management rating model should be a comprehensive one and it should take care of
all aspect of NPA Management. Various parameters for rating of NPA management are
discussed below.
Range of marks
1) 11.50 to 14.50
2) 7.00 to 11.49
3) 2.00 to 6.99
4) -2.00 to 1.99
5) -7.00 to -2.01
6) Above -7.00
Source:-RBI NPA Ranking table (2014-15)
Grades
A+
A
B
C
D
E
Rating
Excellent
Very good
Good
Average
Poor
Very poor
On the basis of above grades/rating bank board should formulate bank/branch specific
action plan for improvement of the NPA management of the individual banks/branches. Even
RBI/ bank may think of fixing accountability and credit restriction on the bank/ branches with
A+, A and B grades for credit expansion and diversification. And what should be kept on the
working of C category banks through regular audit and visit at the branch offices.
[95]
OB: 3 CAMEL MODEL

DATA ANALYSIS AND INTERPRETATION:
Capital Adequacy
In the volatile economic environment the capital is the only protection that any of the banks
can have with them. By using their capital, banks can honor their obligations even in a case of
financial crises or breakdown. Therefore depositors are keen to know the risk perception of the
institute. Capital adequacy decides to a great extent that how well a bank can cope with the
unexpected losses. Following ratios has been taken into consideration to judge the capital
adequacy of VCB in Gujarat State.
Table :1 Capital Adequacy of VCB

12-13
13-14
1. CRAR (% )
2. D/E (Times)
3. Propritary(% )
4. OP/Int. (Times)
5. Adv/Ast (% )
6. G-Sec/Inv (% )
22.36
Nill
0.021
8.06
4.07
84.8
19.15
Nill
0.256
7.65
7.408
126.1
14-15
16.65
Nill
0.025
7.60
9.73
117.1
Table 1 clearly reveals that average CRAR was far above the standard norms of 19%
which is appreciable. Apart from that the CRAR remained above 20.00% all through the study
period. The average Debt Equity ratio was NILL. The average Proprietary ratio was
0.256% which is also worth appreciable. Interest Coverage Ratio registered very fluctuating
trend during the entire study period. It increased from 7.06 times in 13-14 to 7.65 times in 1415. The average ICR of 7.77 times disclose that the bank was not able to generate good
proportion of operating income to beat its obligations and to that extent the bank may not be
considered as solvent. The Total Advances to Total Assets Ratio is a measure of a banks
aggressiveness in lending. The average total advances to total assets ratio revels that the
management of VCB had been effective to convert its deposits into loans and advances which
is quite appreciable. Government Securities to Total Investments Ratio measures the amount
of risk free assets invested by a bank in government securities as a percentage of the total
investments held by the bank. . It the beginning of the study, the ratio increased from 84.8% in
12-13 to 126.1% in 13-14 as the amount of government securities increased considerably.
[96]
109.33The average government to total investment ratio of 64.83% indicates that the banks
have shown concern on investing much amount of investment in government securities.
ASSETS QUALITY:
The term assets quality and its management determines to a great extent the growth
and profitability of a firm. This is because, the deteriorating value of assets directly also
affects other areas because the loan losses are generally written off against capital. Apart from
this it also hampers profitability as the provision has to be made on Gross NPAs. So at the end
of the day quality of assets jeopardizes the earning capacity of the bank. The following ratios
were calculated to judge the assets quality of the VCBs of Gujarat state.
Table : 2 Assets Quality of VCB
N.NPA/N.Adv. (%)
G.NPA/N.Adv.(%)
Provision coverage(%)
T.Invst/T.Adv (%)
12-13
13-14
14-15
00
50.83
5.13
32.36
00
00
4.30
12.31
00
00
8.06
12.14
Table 2 indicates that Net NPA to Net Advances ratio remained at 0.00% throughout
study period as the amount of net NPAs was 0.00 lacs all through the study period which is
quite appreciable as it clearly indicates that the management of above VCBs is very effective
in providing loans to the customers. Gross NPAs to Net Advances ratio is a measure of the
quality of assets in a situation, where the management has not provided for loss on NPAs. This
ratio reveals decreasing trend throughout the study period except the year 13-14 in which it
decreased from 50.83% in 12-13 to 00% in 13-14-15. The average ratio remained on 16.94%
which is appreciable. Provision coverage ratio is the measure that indicates the extent to
which the bank has provided against the troubled part of its loan portfolio. The worst condition
was found regarding provision coverage ratio as it remained far below the generally accepted
standards as well as the consolidated average. The ratio depicted fluctuating trend during the
entire study period. Total Investment to total assets ratio is a standard measure to know the
percentage of total assets locked up in investments. The average total investments to total
advances ratio was 32.36% which clearly reveals that the bank invested approximately half of
its assets in investment.
[97]
MANAGEMENT EFFICIENCY:
Sound management is one of the most important factors behind Performance of any
bank. Management efficiency of bank includes its administrative ability to react in diverse
circumstances. The term management efficiency involves the capability of management in
generating business and in maximizing profits. To analyze the possible dynamics of
management efficiency affecting the financial performance of the banks, the following six
ratios are calculated in the present study.
Table : 3 Management Efficiency of VCB

12-13
13-14
Total Advances to Total
5.13
4.30
Deposits Ratio
Earning Per Employee
345.39
363.45
Diversification (%)
5.15
20.71
Business Per Employee
3.26
3.17
15-16
8.06
419.39
43.21
3.82
Diversification ratio is the measure of banks income other than the interest income in
total income. This ratio reveals fluctuating trend for the entire study period. The ratio
decreased from 10.82% in 13-14 to 5.63% in 14-15. Subsequently the ratio decreased from
43.21 in 14-15 to 20.71% in 13-14 as on one hand the amount 0of 9.18 net profit Business per
employee ratio indicates the efficiency of bank in terms of doing business with lesser number
of employees. Total business per employee ratio reveals constant increasing trend for the
entire study period except the year 12-13 in which it increased from Rs. 345.39 lacs in 13-14
to Rs.363.45 lacs in 14-15 to 419.39 lacs. The average business per employee ratio was Rs.
376 lacs.
EARNING QUALITY:
This parameter lays importance on how a bank earns its profits. The quality of
earning is very important decisive factor that determines the ability of a bank to earn
consistently. It basically determines the profitability of the bank. It also explains the
sustainability and growth in earnings in the future. Following six ratios were calculated for
evaluating the earning quality of banks.
[98]
1.ROA (% )
2. ROE (% )
3. Spread (% )
4. NIM (% )
5.OP/WF (% )
6. II/TI (% )
Table : 4 Earning Capacity of VCB

12-13
13-14
14-15
0.55
0.80
2.61
3.53
3.23
3.99
4.53
5.95
1.54
2.46
95.63
94.43
0.84
3.62
4.02
5.47
2.37
93.61
Table 4 clearly reveals that Return on Assets Ratio is a key profitability ratio which
measures banks efficiency in using its assets to generate net income. Return on assets ratio
showed fluctuating trend throughout the study period. In the beginning of the study, the
ratio increased from 0.55% in 12-13 to 0.80% in 13-14.The average return on assets ratio of
VCB was 0.73%. Return on Equity Ratio is a key profitability ratio for investors which
measure the profitability of shareholders investments. Return on equity ratio showed
fluctuating trend throughout the study period. The ratio increased from 2.61% in 12-13 to
3.53% in 13-14. The average return on equity ratio was 3.25%. Spread is the difference
between the interest earned and interest paid. Spread Ratio is expressed as a percentage of
total assets. This is a key profitability ratio especially in banking unit which measures
banks core income. Spread ratio registered fluctuating trend during the entire study period.
The ratio increased from 3.23% in 12-13 to 3.99% in 13-14. In the year 14-15 the ratio
increased from 4.02% in 09-10 to 3.99% in 13-14. The average spread ratio was 3.75%. Net
interest Margin Ratio is calculated as a percentage of interest bearing assets. In the year
12-13 the ratio increased from 4.53% in 13-14 to 5.95%. Eventually the ratio increased
from 5.47% in 14-15. Operating Profit to Working Fund Ratio indicates that how much a
bank can earn from its operations for every rupee spent on working fund. Operating profit
to working fund ratio registered fluctuating trend throughout the study period. In the
beginning of the study period the ratio decreased from 2.46% in 13-14 to 2.37% in 14-15.
The average operating profit to working fund ratio was 2.12%. Interest Income to total
income ratio indicates the ability of the bank in generating income from its lending. The
ratio increased from 95.63% in 12-13 to 94.43% in 13-14. In the year 14-15 the ratio
decreased
[99]
LIQUIDITY:
Liquidity is the banks capacity to meet its short term obligations as well as loan
commitments. Liquidity is most important parameter especially in banking sector as banks
are considered as liquidity creator in the market. Therefore, if the liquidity management of a
bank is not proper, it can adversely affect the performance of the banks. Following liquidity
ratios were taken for the study.
1. CR (Times)
2. QR (Times)
3. LA/TA (%)
4. LA/TD (%)
5.G-Sec/TA (%)
6. Inv./Depo. (%)
Table : 5 Liquidity of VCB

12-13
13-14
0.90
0.16
5.25
6.94
34.04
1.86
14-15
0.99
0.17
6.04
8.29
22.19
0.00
1.10
0.22
4.73
6.29
27.38
0.00
Table 5 indicates that the Current ratio registered fluctuating trend during the entire
study. The highest current ratio was recorded in 2014-15 being 1.10 times as the amount of
current assets increased at faster rate than the currents liabilities. The average current was
0.99 times. Quick ratio registered Fluctuating trend for the entire study period. The lowest
ratio was found in the year 2012-13 being 0.16 times. The highest quick ratio was found in
the year 2014-15 being 0.22 times. Liquid Assets to Total Assets Ratio also indicates the
overall liquidity of the unit by indicating the proportion of liquid assets in total assets. The
lowest ratio was found in the year 2014-15 being 4.73% as on one hand the amount of liquid
assets decreased whereas on the other hand the amount of total assets increased. The highest
liquid assets to total assets ratio was found in the year 2013-14 being 6.04% as in this was
the only year in which the amount of liquid assets increased considerably. Liquid Assets to
Total Deposits Ratio measures the liquidity available to the depositors of the bank. This ratio
also registered fluctuating trend during the entire study. The average liquid assets to total
deposits ratio remained 7.17%. Government Securities to Total Assets Ratio measures the
amount of risk free liquid assets invested by a bank in government securities as a percentage
of the total assets held by the bank. Government securities to total assets ratio showed
fluctuating trend for the entire study period. The highest growth rate was registered in the
year 12-13 being 34.04%. The lowest ratio was found in the year 13-14 being 22.19%. The
average government securities to total assets ratio remained on 27.87%. Short Term
[100]
Investments to Short Term Deposits Ratio designates the effectiveness of management of

SUCBs to convert their deposits in to investments. The highest ratio was found in 2012-13
being only 1.86% because in this year the amount of short term investment was highest
throughout the study period. The average short term investments to short term deposits ratio
remained on 0.62%.
CHAPTER : 5
FINDINGS
[101]
FINDINGS AND ANALYSIS:
o According to the NPA analysis, The Varaccha co-operative bank has good position;
there is also need to improvement for recovery of its NPA.
o The banks Gross NPA Ratio is high in year 2007-08; it is 2.75%. This is 0.23% in
2012-13. So it is good performance of the bank.
o Loss asset ratio is increasing so bank has to try to minimize its Loss asset.
o In most of year loss assets are of only one or two party. So bank has to take care in
scrutinizing loan application and its disbursement.
o Shareholders risk ratio is decreasing which indicate efficient recovery management
of the bank.
o Varachha Bank is maintaining A grade as per RBIs Rating model since last five
year. It is good for the bank.
[102]
CHAPTER : 6
Recommendations
[103]
Recommendations
1. It is advisable to the bank to fixed up budget for profit & Recovery.

2. Bank should avoid giving financial aid to the automer having single /small project.
3. A bank should change approach from collateral security to viability and intrinsic
strength of promoters.
4. Bank need to concentrate on increasing the current ratio by increasing in current
assets,as the current ratio of the bank is lower than stander ratio.
[104]
CHAPTER : 7
CONCLUSION
[105]
CONCLUSION
The overall state of capital adequacy of VCB was satisfactory in terms of capital
adequacy ratio and debt equity ratio but the average Interest coverage ratio of 7.77
times disclose that the bank was not able to generate good proportion of operating
income to beat its obligations and to that extent the bank may not be considered as
solvent.
Overall it can be said that the assets quality of VCB was satisfactory in terms of Net
NPA to Net Advances Ratio, Gross NPA to Net Advances Ratio and total
investments to total assets ratio as not only the amount of gross NPA was low but
also the amount of net NPA was nil. This indicates the active performance of
recovery departments of VCB. Moreover bank invested half of its assets in
investments which guard against loan loss. On the other hand provision coverage
ratio was unsatisfactory being as average of 5.83% only.
[106]
CHAPTER :8
BIBLIOGRAPHY
[107]
BIBLIOGRAPHY
Books
I.M.Pandey, Financial Management, 10th Edition, TATA Mc

Graw Hill Publication, pp.141-287
Prasanna Chandra, Financial Management ,8th Edition, TATA

Mc Graw Hill Publication,pp.72-110
Meera Sharma Management of Financial Institutions,8th

Edition,PHI,pp.71-130
Herta A Murphy Effective Business Communications, 7th

Edition, TATA Mc Graw Hill Publication,pp.210-220
Articles
Arora, S and Kaur, S (2008), Diversification by Banks in India: What are the
Internal Determinants?.The Indian Banker, Vol. III(7):pg. 37-41.
Bhattacharyya, A and Sahay, P (1997), The impact of liberalization on the

productive efficiency of Indian commercial banks. European Journal of
Operational Research, vol. 98(2): pg. 250-68.
Research paper
Dr. Ramchandram & Siva Shanmugam (2012) made a research paper entitled
An Empirical Study on Financial Performance of Selected Scheduled Urban
Co-operative Banks in India, Assian Journal of Research in Banking and
Finance, Volume 2, Issue 5, pp. 1-24
[108]
Lakhtaria Nilesh J. (April 2013), A Comparative study of the selected Public

Sector banks through CAMEL Model, Indian Journal of Research, Vol.2,
Issue 4, April 2013.
Prof. Dr. Mohi-ud-Din Sangmi and
Dr. Tabassum Nazir, (2010) Pak. J.
Commer. Soc. Sci. Vol. 4 (1), 40-55.
Annual Report
Annual Report of The Varachha Co-Operative Bank Ltd.(2008 to
2015)
Published Material
RBI Guidelines Circulars on Income Recognition and Asset Classification
Report on Trend and Progress of Banking in India 2009
Statistical Tables Relating to Banks of India
Master Circular of RBI
Websites
http://www.varachhabank.com
http://www.dnb.co.in/News_Press.asp?pid=1179
http://www.indiainfoline.com/Markets/Company/Background/C
ompany-Profile/Indian-Overseas-Bank/532388
http://mospi.nic.in/Mospi_New/upload/SYB2013/CH-24BANKS/BANKS-WRITEUP.pdf
http://www.rbi.org.in/home.aspx
[109]
[110]

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SUMMER INTERNSHIP PROJECT

Prof. RICHA PANDIT (College)

ACADEMIC YEAR: 2014-2016

Signature of faculty guide

Objective of the varachha co-operative bank

NON PERFORMING ASSETS:

Period for which the advanced has been

o TO KNOW ABOUT THE NPA CLASSIFICATION AND BANKS SYSTEM

Why manage NPA:-

To protect the interest of shareholders:

To protect the interest of depositors :

Credit worthiness of banks:

Source: MANAGEMENT OF FINANCIAL INSTITUTIONS:

CRAR = Capital/ Total Risk Weighted Credit Exposure

Debt Equity Ratio:

Total Advance to Total Asset Ratio:

Government Securities to Total Investments:

The percentage of investment in government securities to total investment is a very

Business Strategy / Financial Performance

Information systems and technology should be included as an integral part of the

Quality and composition of earnings;

Adequacy of valuation allowances and their affect on earnings;

Adequacy of budgeting systems, forecasting processes, and management information

Future earnings prospects under a variety of economic conditions;

Net interest margin;

Net non-operating income and losses and their affect on earnings;

Quality and composition of assets;

Net worth level;

Sufficiency of earnings for necessary capital formation; and

5) L-Liquidity - asset/liability management

Interest Rate Risk

Balance sheet structure;

Qualifications of risk management personnel;

Quality of oversight by the board and senior management;

Earnings and capital trend analysis over changing economic climates;

Prudence of policies and risk limits;

Business plan, budgets, and projections; and,

Integration of risk management with planning and decision-making.

Balance sheet structure;

Contingency planning to meet unanticipated events (sources of funds adequacy of

Contingency planning to handle periods of excess liquidity;

Cash flow budgets and projections; and

Integration of liquidity management with planning and decision-making.

The development of banking is an inevitable pre-condition for the healthy repaid

Banking is as important as blood in human body. Due to development of banking

Section S (5) of banking company act 1949.

HISTORY OF BANKING SYSTEM IN INDIA

1. COMMERCIAL BANKING SECTOR:-

Today the commercial banking system in India may be distinguished in to:

A. Public Sector Bank:

B. Private Sector Bank:

1) Industrial Finance Corporation of India (IFCI)

Other types of banks such as follows:

INTRODUCTION OF CO-OPERATIVE BANKING

Role of co-operative bank in structure of Indian banking system, According to various

DEFINITION OF CO-OPERATIVE BANK

1) The primary object or principle of business is the transaction of banking business.

HOW CO-OPERATIVE DO BANKS COME INTO EXISTANCE?

ROLE OF CO-OPERATIVE BANK:-

1) They mobilize the deposits from publics.

HOW BANK WORKS: