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A PROJECT REPORT ON
A PROJECT STUDY ON NPA MANAGEMENT IN
BANKS
Undertaken At
ALLAHABAD BANK
1
SHIVA
STUDIES GHAZIABAD
INSTITUTE OF MANAGEMENT
July, 2009
In Partial Fulfillment of the Requirement for the Award of Two
Year
Full Time Post Graduate Diploma in Business Management.
(Equivalent to MBA) 2008-2010
TABLE OF CONTENT
Industry/Bank performance
Correlation between Industry and Allahabad Bank
Movement
Chapter 3:-Research Methodology
Significance of the study
Objective of the study
Scope of the study
Tools & techniques used
Applied principles and concepts
5
ACKNOWLEDGEMENT
I would like to express my gratitude to all those who gave me the opportunity to
complete this project. I would like to thank my institute authorities and my
internal guide Renuka verma first for providing me the
opportunity to work with one of the prestigious organizations .I want to thank the
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I would like to thank the company guide Digvijay singh and other
executives Who gave and confirmed this permission and encouraged me to go
ahead with my training .I am bound to thank other staff for their stimulating
support.
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Preface
Decision making is a fundamental part of the research process.
Decisions regarding that what you want to do, how you want to do,
What tools and techniques must be used for the successful
Completion of the project. In fact it is the researchers efficiency as
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a decision maker that makes project fruitful for those who concern
to the area of study.
Basically when we are playing with computer in every part of life, I
Used it in my project not for the ease of my but for the ease of
result explanation to those who will read this project. The project
Presents the role of financial system in life of persons.
I had toiled to achieve the goals desired. Being a neophyte in this
highly competitive world of business, I had come across several
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shown very good performance as far as the financial operations are concerned.
If we look to the glance of the financial operation, We may find that deposit of
public to the public sector Banks have increased from 859, 461, 95 crore to 1,
079, 393, 81 crore in 2003, the investments of the public sector Banks have
increased from 349,107.81 crore to 545,509.00 crore , and however the
advances have also been increased to 549,351.16crore from 414,989.36crore in
2003. The total income of the public sector banks has also shown good
performance since the last few years and currently it is 128,464.40crore.The
public sector Banks have also shown comparately good result. The gross
profits of the public sector Banks Currently29, 715,26crore which has been
doubled to the last to last year, and the net profit Of the public sector Banks is
12,295,47crore.However, the only problem of the public sector Banks these days
are the Increasing level of the non performing assets. The non performing assets.
The non performing assets of the public Sector banks have been increasing
regularly year by year. If we glance on the numbers of performing assets we may
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come to know that in the year 1997 the NPAs were 437,300crore and reached to
80.24crore in 2002. The only problem that hampers the possible financial
performance of the public Sector Banks is the increasing results of the non
performing assets. The non performing assets impacts drastically to the working
of the banks .The efficiency of a bank is not always reflected only by the size of
its Balance sheet but buy the level of return on its assets. NPAs do not generate
interest income for its Bank, but at the same time banks are required to make
provisions for such NPAs from their current profits.
NPAs have deleterious effect on the return on assets in several
ways: --(1) They erode current profits through provisioning requirements
(2) They result in reduced interest income
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Banks, the State Bank of India and its group banks, regional rural banks
and private sector banks (the old/ new domestic and foreign). These Banks have
over 67,000 branches spread across the country in every city and villages of all
nook and corners of the land. The first phase of financial reforms resulted in the
nationalization of 14 major Banks in 1969 and resulted in a shift from Class
banking to Mass Banking. This in turn resulted in a significant growth in the
geographical Coverage of banks. Every bank had to earmark a minimum
percentage of their loan portfolio to sectors identified as priority sectors. The
Manufacturing sector also grew during the 1970s in protected environs the
banking sector was a critical source. The next wave of reforms saw the
nationalization of 6 more commercial banks in 1980. Since then the number of
scheduled commercial banks increased four-fold and the number of bank
branches increased eight-fold. And that was not the limit of growth.
After the second phase of financial sector reforms and liberalization of
the sector in the early nineties, the Public Sector Banks (PSB) s found it
extremely difficult to compete with the new private sector banks and the
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foreign banks. The new private sector banks first made their appearance
after the guidelines permitting them were issued in January 1993. Eight
New private sector banks are presently in operation. These banks due to
their late start has access to state-of-the-art technology, which in turn
helps them to save on manpower costs. During the year 2000, the State Bank of
India (SBI) and its 7 associates accounted for a 25 percent share in deposits and
28.1 percent share in Credit. The 20 nationalized banks accounted for 53.2
percent of the deposits and 47.5 percent of credit during the same period. The
share of foreign banks (numbering 42), regional rural banks and other scheduled
Commercial banks accounted for 5.7 percent, 3.9 percent and 12.2 percent
respectively in deposits and 8.41 percent, 3.14 percent and B12.85 percent
respectively in credit during the year 2000.about the detail
Of the current scenario we will go through the trends in modern economy
Of the country.
Current Scenario:
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instances. For instance, HDFC Banks merger with Times Bank Icici
Banks acquisition of ITC Classic, Anagram Finance and Bank of
Madurai. Centurion Bank, Indusind Bank, Bank of Punjab, Vysya Bank
are said to be on the lookout. The UTI bank- Global Trust Bank merger
however opened a Pandora s Box and brought about the realization that
all was not well in the functioning of many of the private sector banks.
Private sector Banks have pioneered internet banking, phone banking,
anywhere banking, mobile banking, debit cards, Automatic Teller
Machines (ATMs) and combined various other services and integrated
them into the mainstream banking arena, while the PSBs are still
grappling with disgruntled employees in the aftermath of successful VRS
schemes. Also, following Indias commitment to the W To agreement in LTD.
respect of the services sector, foreign banks, including both new and the
existing ones, have been permitted to open up to 12 branches a year with
effect from 1998-99 as against the earlier stipulation of 8 branches.
Tasks of government diluting their equity from 51 percent to 33 percent
in November 2000 has also opened up a new opportunity for the takeover
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of even the PSBs. The FDI rules being more rationalized in Q1FY02 may also
pave the way for foreign banks taking the M& A route to acquire willing Indian
partners. Meanwhile the economic and corporate sector slowdown has led to an
increasing number of banks focusing on the retail segment. Many of
them are also entering the new vistas of Insurance. Banks with their
phenomenal reach and a regular interface with the retail investor are the
best placed to enter into the insurance sector. Banks in India have been
allowed to provide fee-based insurance services without risk
participation, invest in an insurance company for providing
infrastructure and services support and set up of a separate joint venture
insurance company with risk participation.
Aggregate Performance of the Banking Industry
Aggregate deposits of scheduled commercial banks increased at a
compounded annual average growth rate (Cagr) of 17.8 percent during K LTD.
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1969-99, while bank credit expanded at a Cagr of 16.3 percent per annum.
Banks investments in government and other approved securities recorded a Cagr
of 18.8 percent per annum during the same period. In FY01 the economic
slowdown resulted in a Gross Domestic Product (GDP) growth of only 6.0
percent as against the previous years 6.4 percent. The WPI Index (a measure of
inflation) increased by 7.1 percent against 3.3 percent in FY00. Similarly, money
supply (M3) grew by around 16.2 percent as against 14.6 percent a year ago. The
growth in aggregate deposits of the scheduled commercial banks at
15.4 percent in FY01 percent was lower than that of 19.3 percent in the
previous year, while the growth in credit by SCBs slowed down to 15.6 percent
in FY01 against 23 percent a year ago.
The industrial slowdown also affected the earnings of listed banks. The
net profits of 20 listed banks dropped by 34.43 percent in the quarter
ended March 2001. Net profits grew by 40.75 percent in the first quarter
of 2000-2001, but dropped to 4.56 percent in the fourth quarter of 20002001.
IDBI BANK LTD.
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On the Capital Adequacy Ratio (CAR) front while most banks managed to
fulfill the norms, it was a feat achieved with its own share of difficulties.
The CAR, which at present is 9.0 percent, is likely to be hiked to 12.0
percent by the year 2004 based on the Basle Committee recommendations. Any
bank that wishes to grow its assets needs to also shore up its capital at the same
time so that its capital as a percentage of the risk-weighted assets is maintained
at the stipulated rate. While the IPO route was a much-fancied one in the early
90s, the current scenario doesnt look too attractive for bank majors.
Consequently, banks have been forced to explore other avenues to shore
up their capital base. While some are wooing foreign partners to add to
the capital others are employing the M& A route. Many are also going in
for right issues at prices considerably lower than the market prices to
woo the investors.
Interest Rate Scene
The two years, post the East Asian crises in 1997-98 saw a climb in the
global interest rates. It was only in the later half of FY01 that the US Fed
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sectors. The restrictive regulatory norms led to the credit rationing for
the private sector and the interest rate controls led to the unproductive
use of credit and low levels of investment and growth. The resultant
financial repression led to decline in productivity and efficiency and
erosion of profitability of the banking sector in general.
This was when the need to develop a sound commercial banking system
was felt. This was worked out mainly with the help of the
recommendations of the Committee on the Financial System (Chairman: Shri M.
Narasimham), 1991. The resultant financial sector reforms called for interest rate
flexibility for banks, reduction in reserve requirements, and a number of
structural measures. Interest rates have thus been steadily deregulated in the past
few years with banks being free to fix their Prime Lending Rates(PLRs) and
deposit rates for most banking products. Credit market reforms included
introduction of new instruments of credit, changes in the credit delivery system
and integration of functional roles of diverse players, such as, banks,
financial institutions and non-banking financial companies (Nbfcs).
Domestic Private Sector Banks were allowed to be set up, PSBs were
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Kolkata and Delhi. In the early 20th century, with the start of Swadeshi
Movement, Allahabad Bank witnessed a spurt in deposits and the reserves
increased to over Rs. 30 lacks by 1910.
In 1920, the Bank was taken over by P&O Banking Corporation at a bid price of
Rs. 436 per share. The Head Office and the Registered Office of the Bank were
then shifted to Kolkata in 1923 for business considerations and operational
convenience. In 1927, the Bank went into the fold of Chartered Bank that
acquired the controlling interest in the P&O Banking Corporation.
The Bank passed through the critical period of Great Depression during the
early thirties, which caused a general stagnation in the global markets, without
sparing the Indian Banking Industry. The Bank dovetailed its functioning in
accordance with the exigencies of the Five Year Plans, which were started in
1951. In the post independence era, Allahabad Bank maintained a steady growth
and by 1964, the Bank had opened its 100th branch.
On July 19, 1969, along with 13 other major commercial banks, Allahabad Bank
was nationalized. At the time of nationalization, the Bank had a network of 151
branches, deposits of Rs. 114 crore and advances of Rs. 82 crore to its credit.
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With nationalization, the Bank spread its activities in the rural, unbanked and
under-banked areas. At the end of 1979, the branch network of the Bank
increased to 875 with the share of rural branches being 46.40%. Deposits of the
Bank grew to Rs. 735 crore at the end of 1979 while advances rose to Rs. 407
crore.
In order to bolster the rural economy, a plethora of Social Banking Schemes was
introduced. Thus, Lead Bank Scheme (1969), Regional Rural Banks (1975),
Twenty-point Programmed (1975), New 20-point Programme (1981), Integrated
Rural Development Program me (1980) etc. were introduced in the Indian
Banking industry. Directed lending to priority sectors, weaker sections,
Scheduled Castes/ Scheduled Tribes and Other Backward Castes were given a
greater thrust and the Bank responded to this initiative and increased its presence
in these areas also. As on March 31, 2007 the Banks priority sector credit stood
at Rs. 16230 crore, forming 38.7% of net bank credit and agriculture credit was
over Rs. 7200 crore constituting 17.2% of net credit. The Bank opened its
1000th. Branch on April 03, 1982. The Bank had also started opening specialized
branches such as Industrial Finance Branches, International Branches, SSI
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Finance Branches, Recovery Branches etc. The Bank made a foray into merchant
banking activity in 1984 and subsequently transferred the merchant banking
activities to All Bank Finance Limited, a wholly owned Subsidiary, in 1991. All
Bank Finance Limited was registered as a Category-I Merchant Banker with
SEBI and undertook activities such as project advisory services, loan
syndication, issue management, leasing, trusteeship and portfolio investment
services. Consequent upon the SEBI Rules and Regulations notified on
December 09, 1997 for segregation of Capital Market and fund based activities
into separate entities, the Company surrendered its Merchant Banking
registration with SEBI with effect from July 01, 1998 and got itself registered as
a NBFC with RBI on August 21, 1998. In October 1989, United Industrial Bank
Limited was amalgamated into Allahabad Bank . The Board of Directors of the
Bank had earlier taken a decision to merge the subsidiary company with the
Bank. But subsequently in view of emerging capital market Allahabad Bank
decided to revive the Company. It was thought prudent to go for fee-based
activities.
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Accordingly, the NBFC license held by the Company was surrendered to the
RBI and the Company has registered itself as category 1 Merchant Banker with
the SEBI. The Company is now engaged in only Merchant Banking activities.
One of the major challenges faced by the Bank was the accumulated losses
incurred by it for three consecutive years, i.e. from 1992- 93 to 1994-95, owing
to the adoption of prudential accounting norms, in line with RBI directives. To
overcome this situation and to strengthen the bank in various functional areas, a
major revamping exercise was initiated. The Bank put a greater thrust on areas
like technological up-gradation & modernization, improvement in customer
service, credit management with focus to reduce nonperforming assets etc. The
Bank staged a turnaround in 1995-96 with a net profit of Rs. 5.62 crore, which
has increased to Rs. 750.14 crore in 2006-07.
The Bank launched Gold Trading with the approval of Reserve Bank of India
for import of gold under open general license. The Bank became the first
nationalized bank in Eastern India to become a depository participant of National
Securities Depository Limited (NSDL) to offer demat and related services and
initiated Flexi-fix Deposit Scheme to mobilize resources. The Bank also
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The growth of the Bank over the years is given in the table below:
( RS IN CRORE)
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35
Year ended
1865
1890
1910
1930
1950
1970
1989
1999
2000
2001
2002
2003
2004
2005
2006
35
NO of Branches
1
4
15
37
58
211
1509
1884
1893
1903
1914
1923
1935
1951
1999
Paid- up Capital
0.02
0.04
0.20
0.36
0.46
1.05
57.50
246.70
246.70
246.70
246.70
346.70
346.70
346.70
446.70
Deposits
0.01
0.70
5.53
11.36
27.16
140.70
4,034.04
15,510.35
17642.10
20106.02
22665.94
25463.38
31476.61
40762.08
48499.69
36
2007
2060
446.70
59544.66
PRESENT STATUS
As on June 30, 2007, the Bank had 2107 branches, comprising 979 rural, 389
semi-urban, 441 urban and 298 metropolitan, which formed 46.46%, 18.46%,
20.93% and 14.15% of the total respectively. The branches include 52
specialized branches (i.e. 4 Industrial
Finance Branches, 18 SSI Finance Branches, 6 International Branches, 6
Recovery Branches, 1 NRI Branch, 1 Industrial Finance cum-International
Branch, 2 Specialized Personal Banking Branch, 1 Specialized Savings Bank
Branch, 3 Quick Collection Service Branches and 2 Trading Finance Branches, 1
Specialized commercial agriculture, 1 Forex cum Treasury Management, 3
Agriculture Finance & 3 Regional Processing Centre (Forex) besides 19 Service
Branches. The Bank has 105 Extension Counters. A number of Banks branches
and offices are housed in the Banks owned premises situated at prime locations
in major cities of the country.
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Pursuant to organizational restructuring, the Bank is currently operating with a 3tier structure since June 01, 2001 which was further restructured in November,
2004 by reducing the number of Regional Offices from 48 to 44 and renaming
them as Zonal Offices, on account of synergic reasons and improvement in level
of efficiency, reduction in overhead cost and other operating expenditures. Out of
the seven Regional Rural Banks (RRBs) sponsored by the Bank, six RRBs
operating in Uttar Pradesh have been amalgamated into Luck now Kshetriya
Gramin Bank (LKGB) and Triveni Kshetriya Gramin Bank (LKGB) with effect
from 1st March 2006. Thus the number of sponsored RRBs stand at 3; 2 in Uttar
Pradesh and one in Madhya Pradesh.The Bank has been entrusted with State
Level Bankers Committee (SLBC) convener ship in the newly formed state of
Jharkhand.
The Bank is continuing its utmost endeavor for economic uplift-ment of the state
through its various developmental programmes. The Bank has set up a
residential institute in the name of Birsha Munda Institute of Entrepreneurship
Development (BMIED) at Hazaribagh as a part of promotional measures for
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enhancement of flow of bank credit in Jharkhand State. The institute has so far
imparted training to 2144 unemployed youths of which 415 trained persons
received financial assistance amounting to Rs. 4.96 crore From our Bank till 3103-2007.
The Bank came out with its maiden Equity IPO in the month of October 2002.
The at par public issue evolved overwhelming response from the retail
investors. The Bank mobilized more than Rs. 370 crores against the offer size of
Rs. 100 crores. The number of applications from retail investors in the issue
exceeded 2.23 lacs. After the issue, the holding of the Government of India came
Down to 71.16%. Capital Adequacy Ratio improved to 11.15% as on March 31,
2003 due to increase in capital through maiden equity Public issue.
The Bank came out with its follow-on Equity public offer in the month of April
2005 through book building route. The issue Demonstrated a repeated
overwhelming response from the investors. The Bank mobilized more than Rs.
7380 crores against the Offer size of Rs.820 crores. After the issue, the holding
of the Government of India came down to 55.23%. Capital Adequacy Ratio
38
39
40
41
41
42
42
RC
SO
R
EP
BO
NR
KA
OT
I
DV
AE
E
E
V
A
F
N
I
43
B
A
N
K
The formal banking system in India comprises the Reserve Bank of India,
commercial banks, regional rural banks and the cooperative banks. In the recent
past, private non-banking finance companies also have been active in the
financial system, and are being regulated by the RBI. Today the overall
Commercial banking system in india may be distinguished into:
(1) Public Sector Banks
(2) Private Sector Banks
(3) Co-operative Sector Banks
(4) Development Banks
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CO-OPERATIVE SECTOR
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45
The Co-operative banking sector has been developed in the country to the
supplement the village money lender. The co-operative banking sector in india is
divided into 4 components.
1.
2.
3.
4.
5.
6.
7.
8.
DEVELOPMENT BANKS
1. Industrial Finance Corporation India (IFCI)
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46
2.
3.
4.
5.
6.
7.
8.
9.
46
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
47
48
49
50
51
52
53
54
55
56
These officers were also exposed to specialized training not only to serve the
customer better but also to sell the retail products, if need be, by adopting door to
door campaign. Total number of Boutiques was 127 with an outstanding of Rs.
2561.18 crores as on June 30, 2007. During the quarter ended June 2007,the total
disbursement under the various retail finance schemes was Rs. 211.77 crores.
Brief description of the Banks retail schemes is as under
Sr.
Scheme
Details
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57
57
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10
(b) Loans on Internet: The Bank sanctions educational loans and car loans via
Internet. The educational loan facility granted by the Bank was launched in 1997
and was subsequently made possible via Internet during 1999. Facility to apply
for educational loan on Internet for education loan is available to the students of
leading institutions like IIMs, IITs, Indian Institute of Science Bangalore,
Jamunalal Bajaj Institute of Management Mumbai, XLRI Jamshedpur & Indian
School of Mines Dhanbad. Bank has so far sanctioned 1014 educational loans
amounting to more than Rs. 29.28 crore through Internet.
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59
(d) Kisan Credit Card: The card aims to provide adequate and timely financial
assistance to the farmers for their agricultural activities amongst other
requirements. During the year 2006-07, the Bank issued 176876 cards. The
cumulative KCC numbered 940799 with a credit limit of Rs. 3393.08 crores as
on 31-03-2007 The Bank is also providing Group/Personal Accident insurance
cover to the holders of the Kisan Credit Card. Also on 140th foundation day of
Bank (April 24, 2004) new scheme by name of Kisan Shakti Yojana (KSY) was
launched. The scheme allowed the farmers to have flexibility and choice in
regards to selection of credit for agriculture, allied activities and domestic and
personnel purpose.
Allahabad Bank
The Bank had extended credit facility under the scheme to 43719 Kisan credit
cardholders involving credit limit of Rs. 574.96 crores as on March 31,2007.
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Cumulative number of Kishan Credit cardholders financed under the scheme was
138937 involving 1809.28
Crore as on 31-03-2007.
(e) Depository Services: The Bank has had the distinction of being the first
nationalized Bank in the eastern region to be a depository participant of NSDL at
Kolkata to offer Demat and other related services to its customers in 1998. . The
Bank had further spread its DP services to its customers by opening DP at Luck
now, Kanpur and Varanasi under agreement with CDSL. The bank also opened
its first Branch DP at Mumbai with main DP at Kolkata Main Branch.
The Bank earned an income of Rs. 80.37 lacks from 23913 accounts in financial
year 2006-07 and Rs. 60.08 lacks from 19720 accounts during quarter ending
June 2007.
The Bank is going to start a Branch DP at New Delhi very soon, which will be
connected through Back Office software at Kolkata Main DP.
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(f) Flexi- Fix Deposit Scheme: This scheme was launched to provide liquidity
of a savings bank account and higher yield of a fixed deposit.
(g) Banc-assurance: The Bank has entered into tie up arrangement with Life
Insurance Corporation of India for Life Insurance and with National Insurance
Company Limited and ECGC for Non-life Insurance and Export Credit
Insurance for selling of their products through its branches. The Bank is also
providing life insurance cover to the extent of Rs. 1.00 lacks to its depositors in
association with LICI on payment of a very nominal premium. The Bank also
has tie up arrangements with LICI for coverage of housing loans and
Educational loans being provided by our branches. The Bank is providing free
group personal accidental coverage of Rs. 1.00 lacks to SB Account holders
maintaining an average monthly balance of Rs. 5000/- as well as to all its ATM
cardholders.
The bank has earned an income of Rs. 767 lacks from Ban assurance during FY
a 2006-07 and Rs. 100 lacks in the first quarter of current FY i.e. June 2007.
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62
The Bank has entered into tie up arrangement with UTI-AMC, Principal-PNB
AMC, Kotak- Mahindra AMC and Reliance Capital Asset Management Ltd. for
selling of their Mutual Fund Products through our branches. This has generated
an income of Rs. 62.09 lacks during FY 2006-07 and Rs. 38.19 lacks during first
quarter of current FY.
(h) Other Services: The Bank has also been providing Cash Management
services through its QCS Branches/Centers at Kolkata, New Delhi, Mumbai,
Luck now and Chennai. Under CMS activities, the Bank is providing Local
Cheque collection service, Collect and pay service, assured credit up to day 7 to
various private and other Banks as well as to corporate clients. The bank has
earned an income of Rs. 355.19 lacks during FY 2006-07 and Rs. 94.12 lacks in
the first quarter of current FY.For expansion of CMS business, the Bank is in the
process of opening of Local Cheque Collection Hubs at 18 strategic locations,
which will be linked with existing QCS Branches/Centres.
BRANCH NETWORK OF THE BANK
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The Bank has 44 zonal offices, controlling 2107 branches and 105 extension
counters as on June 30, 2007, including 52 specialized branches.
The population group wise break up of branches of the Bank in India is as under:
Population Group
Number of Branches
Rural
979
Semi-Urban
389
Urban
441
Metropolitan
298
Total
2107
%S
46.4
18.4
20.9
14.1
100.
Number of Branches
% Sh
64
1
31
62
151
4
28
49
1
27
30
6
0.05
1.47
2.94
7.17
0.19
1.33
2.33
0.05
1.28
1.42
0.28
Jammu &Kashmir
Jharkhand
Karnataka
Kerala
4
100
19
6
0.19
4.75
0.90
0.28
64
65
Madhya Pradesh
Maharashtra
Manipur
Meghalaya
Nagaland
Orissa
Pondicherry
Punjab
Rajasthan
Sikkim
Tamil Nadu
Tripura
Uttar Pradesh
Uttaranchal
West Bengal
TOTAL
65
150
86
1
1
4
68
1
46
48
1
32
1
673
20
456
2107
0.19
4.08
0.05
0.05
0.19
3.23
0.05
2.18
2.28
0.05
1.52
0.05
31.9
0.95
21.6
100.
66
(2)
(3)
(4)
66
67
(5)
(6)
(7)
(8)
68
(6)
(7)
(1)
(2)
(3)
68
69
ALLAHABAD BANK
UNAUDITED FINANCIAL RESULTS
For Nine Months ended 31st December 2008
(RS IN LAKH)
PARTICULARS
1
A
69
Interest Ended
(a)+(b)+(c)+(d)
Interest/discoun
Quarter Ended
(Reviewed)
Quarter
Ended
(Reviewed)
31.12.2008
189804.45
31.12.2007
155623.33
31.12.2008
544962.25
31.12.2007
455985.72
145118.85
112953.62
404916.66
322785.35
70
B
C
D
2
3
4
5
70
t on advances/
bill
Income on
investments
Interest on
balances with
RBI and other
inter bank funds
Others
Other Income
Total
Income(1)+(2)
Interest
Expended
Operating
44230.27
42064.72
138298.60
129466.11
117.28
513.05
715.82
3615.47
338.04
40840.47
129390.46
91.94
40017.73
195641.06
1031.11
68365.53
613327.78
128.78
59616.09
515580.81
129390.46
113821.39
388346.14
322142.05
34648.49
29707.49
96281.23
82483.94
71
(a)
(b)
6
7
8
71
Expenses (a)+
(b)
Employee cost
23002.97
Other operating 11645.52
expences
Tax expenses
19361.22
Capital Adeqacy 12.20
ratio(%)
Earnings per share 8.27
(a) Basic and
diluted EPS
101601.00
18002.56
11704.93
60176.61
36104.62
49438.63
33045.31
3106.28
12.84
21076.12
12.20
12296.53
12.84
8.17
11.29
18.03
94225.00
101601.00
94225.00
72
10
72
42920.00
30384.00
`42920.00
30384.00
1.93
0.82
1.78
2.06
0.67
1.93
1.93
0.82
0.81
2.06
0.67
1.50
200000000
200000000
200000000
200000000
44.77
44.77
44.77
44.77
73
74
banks provide them good security to their deposits and so excess amount are
invested in the banks. Thus, banks have helped the people you achieve their
socio economic objectives.
The banks not only accept the deposits of the people but also provide them credit
Facility for their development. Indian banking sector has the nation in
developing the business and service sectors. But recently the banks are facing
the problem of credit risk.It is found that many general people and business
people borrow from the banks but due to some genuine or other reasons are not
able to repay back the amount drawn to the banks. The amount which is not
given back to the banks is known as non- performing assets which hamper the
business of the banks. Due to NPAs the income of the bank is reduced and the
banks have to make large number of the provisions that would curtail the profit
of the bank and debtor that the financial performance of the banks not shows
good results.
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becomes very essential for anyone to determine the problem of study. I have
adopted the following procedure in completing my report study.
(1)
(2)
(3)
(4)
(5)
(6)
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78
Research Design
The research design tells about the mode with which the entire
project is prepared.
My research design for the study is basically analytical. Because
I have utilized the large number of data of the public sector
banks.
(3)
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(6)
80
Project writing
81
This is the last step in preparing the project report. The objective
of the report writing was to report the findings of the study to the
concerned authorities.
Tools and Techniques
As no study could be successfully completed without proper
tools and techniques, same with my project. For the better
presentation and right explanation I used tools of statistics and
computer very frequently. And I am very thankful to all those
tools for helping me a lot. Basic tools which I used for project
from statistics are Bar Charts
Pie charts
Tables
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82
Bar charts and pie charts are really useful tools for every
research to show the result in a well clear, ease and simple
way. Because I used bar charts and pie charts in project for
showing data in a systematic way, so it need not necessary
for any observer to read all the theoretical detail, simple
on seeing the charts anybody could know that what is
being said.
Applied Principles and concepts
While I started to do the project the main thing which was
the matter of concern was that around what principles I
have to revolve my project. Because without having any
hypothesis and objective we cannot determine that what
output or result we are expecting from the project. And
second thing is that having only tools and techniques for
the purpose of project is not relevant until unless we have
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85
Secondary data for the base of the project I collected from intranet of
the Bank and from internet, RBI Bulletin, Journal by ICFAI University.
Limitation of the study
The limitations that left in my side are:
It was critical for me to gather the financial data of the every bank of the
public sector Banks so the better evaluations of the performance of the
banks are not possible.
Since my study is based on the secondary data, the practical operations as
related to the NPAs are adopted by the banks are not learned.
Since the Indian banking sector is so wide so it was not possible for me to
cover all the banks of the Indian banking sector.
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NON-PERFORMING ASSETS
The world is going faster in terms of services and physical products.
However it has been researched that physical products are available
because of service industries. In the nation economy also service
industry plays vital role in the boosting up of the economy. The nations
like US, UK, and Japan have service industries more than 55%.The
banking sector is one of appreciated service industry. The banking
sector plays large role in channelizing money from one end to other
end. It helps almost every person in utilizing the money at their best.
The banking sector accepts the deposits of the people and provides
fruitful return to people on the invested money. But for providing the
better returns plus principle amounts to the clients; it becomes
important for the bank to earn the main source of income for banks are
the interest that they earn on the loans that have been disbursed
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88
destroy the operational, financial conditions and would not affect the
image of the banks, recently,RBI has taken number steps to reduce
NPAS of the Indian banks. And it is also found that the many banks
have shown positive figures in reducing NPAs as compared to the past
years.
MEANING OF NPAS
An asset is classified as non performing assets (NPAs) if the borrower
does not pay dues in the form of principle and interest for a period of
180 days. However with effect from March 2004, default status would
be given to a borrower if dues were not paid for 90 days. If any
advance or credit facilities granted by bank to a borrower become nonperforming, then the bank will have to treat all the advances/credit
facilities granted to that borrower as non-performing without having
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any regard to the fact that there may still exist certain advances/credit
facilities having performing status.
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Performing Assets:
Loans where interest and /or principle are repayable regularly
as term and conditions sanction letter.
Non- Performing Assets:
Any loan the interest and/or installment of the principle
are overdue more than 90 days, the account becomes
NPA. According to the securitization and reconstruction
of financial assets and enforcement of security interest
ordinance, 2002 non- performing assets (NPA) means
an assets or account of a borrower, which has been
classified by a bank or financial institutions as substandard, doubtful or loss asset, in accordance with the
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Nature of
credit facility
95
Term Loans
Bill purchased An account should be treated as NPA if the bill remains overdue a
and Discounted unpaid for a period of four quarters during the year ended31st Ma
1995 and onwards.
Other Accounts Any other credit facility should be treated as NPA if any amount
received in respect of that facility remains past due for a period o
4
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96
quarters during the year ended 31st March 1993. Three quarters d
the year ended 31st March 1994 and two quarters during the year
31st March 1995 and onwards.
CLASSIFICATION:
S.N
1
96
Category of assets
Standard Assets
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97
3
4
Doubtful Assets
Loss Assets
98
Classification
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99
Standard
Agriculture&SME accounts
Residential housing Loan beyond RS 20 lakh
Loan and advances to capital market, personal loan, credit cards,
commercial rate state &NBFCS
Other
Sub-Standard (Secured)
Sub-Standard (Sanctioned originally as secured)
Doubtful(Unsecured portion)
Doubtful-1(Secured)
Doubtful-2(Secured)
Doubtful-3(Secured)
Loss asset
Notes on provisioning
99
100
(1)
(2)
100
101
101
102
Recession
Input/ power shortage
Price escalation
Exchange rate fluctuations
Accidents and natural calamities, etc\
Changes in government policies in excise /import duties ,pollution
control orders, etc.
Liberalization of economy /removal of restrictions/ reduction of
tariffs
A large number of NPA borrowers were unable to compete in a
competitive market in which lower prices and greater choices
were available to consumers. Further, borrowers operating in
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There are said to be many cases where loans granted for short
terms were used fund long term transactions.
High cost of funds
Interest rates as high as 20% were not uncommon. Coupled with
falling demand, borrowers could not continue to service high
cost debt.
Highly leveraged borrowers
Some borrowers were under capitalized and over burdened with
debt to absorb the changing economic situation in the country.
NPA MANAGEMENT
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(A)
(1)
(2)
(3)
(4)
(5)
Non-legal Measures:-
Reminder system
Seasonal/ Area based recovery drive
Follow up of Potential NPA
Review of NPA account
Preparation of village wise /Area wise
list
(6) Visit to Borrowers business
premise/Residence
(7) Allotment of NPA account to staff
(8) Recovery camps/Settlement camp
(9) Road shows
(10) Appointment of professional Recovery
Agents.
(11) Rehabilitation of sick units
(12) Corporate debt Restructuring
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(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
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(1)
(2)
(3)
(4)
(5)
(6)
108
undoubtedly the world economy has slowed down, recession is at its peak,
globally stock markets have tumbled and business itself is getting hard to do.
The Indian economy has been much affected due to high fiscal deficit, poor
infrastructure facilities, sticky legal system, cutting of exposures to emerging
market by FIIs, etc.
Further, international rating agencies like, standard & poor have lowered
Indias credit rating to sub-investment grade. Such negative aspects have often
outweighed positive such as increasing forex reserve and a manageable inflation
rate.
Under such a situation, it goes without saying the banks are no
exception and are bound to face the heat of global downturn. One would be
surprised to know that the banks and financial institutions in India hold nonperforming assets worth Rs 1, 10,000 crore. Bankers have realized that unless
the level of NPAs is reduced drastically, they will find it difficult to survive.
The actual level of Non Performing Assets in India is
around $ 40 billion much higher than governments estimation of $ 16 billion.
This difference is largely due to the discrepancy in accounting the NPAs
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followed by India and rest of the world. The Accounting norms of the India are
less stringent that those of the developed economies.
The Indian banks also have the tendency to extend the past dues. Considering the
GDP of India nearly $470 billion the NPAs are 8% of the total GDP which Was
better than many Asian countries, the NPA of china was 45% of the GDP< while
JAPAN had NPAs of 25% of the GDP and Malaysia had 42%.
The aggregate level of the NPAs in Asia has increased from
$1.5 billion in 2000 to $2 billion in 2002, looking to such overall picture of the
market, we can say that India is performing well and the steps taken are looking
favorable.
NPA CHARACTERISTICS IN INDIA
(1)
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(2)
110
111
111
112
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Sectoral segmentation
Agriculture
0%
16%
Corporate
Borrower
16%
4%
Joint sector
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11%
State owned industry
40%
Other
Sma
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115
115
116
116
117
Industry Classification
15%
Textiles
49%
Iron & steel
14%
Chemicals
Engineering
9%
5%
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8%
Meta
118
Ratio Analysis
The relationship between the related items of
financial statements is known as ratio. A ratio is
just one number expressed in terms of another. The
ratio is customarily expressed in three different
ways. It may be expressed as a proportion between
the two fig. second items is expressed in terms of
percentage. Third, it may be expressed in terms of
rates.
The use of ratio has
become increasingly popular during the last few
years only. Originally, the bankers used the current
ratio to judge the capacity of the borrowing
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100
Gross advances
119
120
S.No
Name of bank
1
2
3
4
5
6
7
8
9
10
11
12
120
Allahabad bank
Andhra bank
Bank of Baroda
PNB
IOB
Indian bank
CB of India
Corporation Bank
Dena bank
Syndicate bank
Union bank of India
United bank of India
17.66
6.13
14.11
18.45
11.81
21.76
16.05
5.40
25.34
7.84
21.84
21.84
121
13
14
15
16
17
18
19
20
Vijay a Bank
SBI
Uco bank
Syndicate bank
Indian bank
Canara bank
Bank of India
Bank of Maharashtra
10.0
12.93
11.64
7.87
21.76
7.48
10.25
12.35
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122
(2)
Gross NPA-Provision
NPA ratio= ------------------------------ * 100
Gross advances- Provision
122
S.NO
Name of Bank
Allahabad Bank
Net NPA+Net
advances
2001
11.23
123
2
3
4
5
6
7
8
9
10
11
12
13
14
15
123
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
CBI
Corporation Bank
Dena Bank
IOB
OBC
PNB
SBI
Uco Bank
Punjab and Sind Bank
2.95
6.77
6.72
7.41
4.84
9.72
1.98
18.37
7.01
3.60
6.74
6.03
6.35
12.27
124
124
125
(4)
S.NO
1
2
125
Name of Bank
Allahabad Bank
Andhra Bank
Problem Asset
Ratio
2201
.082576
.023056
200
.080
.025
126
3
4
5
6
7
8
9
BOB
BOI
BOM
Canara Bank
Dena Bank
PNB
SBI
.066102
.05765
.046022
.024602
.107672
.059473
.025513
.063
.053
.042
.022
.105
.056
.044
127
(5)
128
S.NO
Name of Bank
1
2
3
4
5
6
7
8
9
10
Allahabad Bank
Andhra Bank
Bank of Baroda
Canara Bank
CBI
Uco Bank
PNB
SBI
Indian Bank
Corporation Bank
Capital adequacy
Ratio
2001
10.5
13.4
12.8
9.84
10.02
9.05
11.42
12.79
-12.77
13.43
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129
130
(6)
2001
2002
131
Sub-standard Assets
Gross NPAs
14745
54674.47
15788
56476.13
Calculations of ratio
2001
26.96%
2002
27.95%
132
(7)
2001
33485
54674.47
2001
2002
133
61.24%
59.59%
133
134
Year
Loss Asset
Gross NPAs
2001
6544
54674.47
20
70
56
20
12
135
(2)
(3)
135
136
136
(4)
(5)
137
137
138
139
service sector that helps the people of the India to achieve the socio economic
objective. The Indian banking sector is developing with good appreciate as
compared to the global benchmark banks. The Indian banking system is
classified into schedule and non schedule banks. The public sector banks play
very important role in developing the nation in terms of providing good financial
service. The public sector banks have also shown good performance in the last
few years.
The only problem is that the public sector banks are facing today is the
problem of nonperforming assets. The non performing assets means those assets
which are classified as bad assets which are not possibly by return back to the
banks by the borrowers. If the proper management of the NPAs is not undertaken
it would be hampers the business of the banks. The NPAs would as try the
current profit, interest income due to large provisions of the NPAs and would
affect the smooth functioning of the recycling of the funds.
If we analyze the past years data, we
may come to know that the NPAs have increased very drastically after 2001, in
1997 the gross NPAs of the Indian banking sector was47,300 crore where as in
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140
2001 the fig was63,883 and which increase at faster rate in 2003 with 94,905
crore. The public sector banks involve its nearly 50% of share in the NPAs .The
RBI has been trying to take number of measures but the ratio of NPAs is not
decreasing of the banks. The banks must find out the measures to reduce the
evolving problem of the NPAs. If the concept of NPAs is taken very lightly it
would be dangerous for the Indian banking sector. The reduction of the NPAs
would help the banks to boost up their profits, smooth recycling of funds in the
nation. This would help the nation to develop more banking branches and
developing the economy by providing the better financial services to the nation
Allahabad Bank has set a target to bring down its net nonperforming asset (NPA) to below 1% by the end of current fiscal and expects its
balance sheet size to double during the next two-three years if it managed to
maintain the existing growth rate of 30-35%.
140
141
The bank is also planning to put in place the centralized banking solution (CBS)
by December this year. According to ON Singh, chairman and managing
director, Allahabad Bank: We are going to be one of the best in the industry in
terms of NPA management. We are targeting gross NPA of 5% and net npa of
less than 1% by March, 2005.
Incidentally, the net NPA of the bank has already come down to 1.7% or Rs
299.8 crore as in September from a high of 5.2% or Rs 683.4 crore as in
September, 2003. Mr. Singh said the bank was focusing on NPA provision
coverage, the ratio of which went up to 76.6% as in September from 73.8% as in
March and 60% as in September, 2003.
The bank has already crossed the Rs 55,000 crore business mark at Rs 55,330
crore during the second quarter of the current financial year and is confident of
crossing Rs 61,000 crore marks by the end of the fiscal. In March 2008 gross npa
declined to 1.8% from 2.00% .
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142
Recommendations
Through RBI has introduced number of measures to reduce the problem of
increasing NPAS of the bank such as CDR mechanism. One time settlement
schemes, enacted of SRFAESI ACT etc. A lot of measures desired in terms of
effectiveness of these measures. What I should suggest for introducing. The
evolutions of the NPAs of public sector banks as under:- Each bank should have its own independence credit rating agency which
should evaluate the financial capacity of the borrower before than credit
facility.
The credit rating agencies should regularly evaluate the financial condition
of the clients.
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144
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145
QUESTIONNAIRE
NAME .
AGE SEX: MALE/ FEMALE
145
146
ADDRESS ..
CITY .. CONTACT NO
147
1.7%
3.7%
4. What are the steps taken by Allahabad Bank to reduce NPA?
5. Name the Bank which comes in your mind at very first AND why?
6. Do you think Allahabad bank is a safe place for your money?
Yes
No
7. Your level of satisfaction with Allahabad Bank--8. If you will have option against Allahabad Bank you will go for SBI
147
148
PNB
Other
9. What is the current EPS of Allahabad Bank?
10. What are the total branches of Allahabad Bank?
148
149
Bibliography
149
150
150
151
151
152
152