A CASE STUDY ANALYSIS ON NON- PERFORMING ASSETS AT UNION BANK OF INDIA

CHAPTER 1

1.1 INTRODUCTION:

Banking in India originated in the last decade of the 18th century. The oldest bank in existence
in India is the State bank of India, a government-owned bank that traces its origins back to June
1806 and that is the largest commercial in the country. Central banking the responsibility of
the reserve bank of India, which in 1935 formally took over these responsibilities from the
imperial bank of India, relegating it to commercial banking functions. After India’s
Independence in 1947, the reserve bank of India was nationalised and given broader powers.
In 1969 the government nationalized the 14 largest commercial banks; the government
nationalized the six next largest in 1980.

As per the Reserve bank of India (RBI), India’s banking sector is sufficiently capitalised and
well-regulated. The financial and economic conditions in the country are far superior to any
other country in the world. Credit, market and liquidity risk studies suggest that Indian banks
are generally resilient and have withstood the global turmoil.

The Indian banking industry has also witnessed the roll out of innovative banking models like
payments and small finance banks. RBI’s new measures may go a long way in helping the
restructuring of the domestic banking industry.

1.2 History of Indian Banking Sector:

Banking in India originated in the last decades of the 18th century. The first banks were the
general bank of India, which started in 1786, and the Bank of Hindustan , both of which are
now defunct. The oldest bank in existence in India is the state bank of India, which originated
in the bank of Calcutta in June 1806, which almost immediately became the bank of Bengal.
This is one of the three presidency banks, the other two being the Bank of Bombay and the
Bank of Madras, all three of which were established under the charters from the British east
India Company. For many years the presidential banks acted as quasi-central banks, as did their
successors. The three banks merged in 1925 to form the Imperial Bank of India, which upon
India’s independence became the State bank of India.

Indian merchants in Calcutta established the Union bank in 1839, but it failed in 1848 as a
consequence of the economic crisis of 1848-1849. The Allahabad bank, established in 1865
and is still functioning today, is the oldest Joint Stock bank in India. It was not the first though.

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That honour belongs to the Bank of Upper India, which was in 1863 , and which survived until
1913 , when it failed, with some of its assets and liabilities being transferred to the Alliance
Bank of Shimla.

When the American Civil War sopped the supply of cotton to Lancashire from the Confederate
States, promoters opened banks to finance trading in Indian cotton. With large exposure to
speculative ventures, most of the banks opened in India during the period failed. The depositors
lost money and lost interest in keeping deposits with banks. Subsequently, banking in India
remained the exclusive domain of Europeans for next several decades until the beginning of
the 20th century.

Foreign banks too started to arrive, particularly in Calcutta, in 1860s. The Comptoire
d’Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862:
branches in Madras and Pondicherry, then a French colony, followed. HSBC established itself
in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade
of the British Empire, and so became a banking centre.

The first entirely Indian Joint Stock bank was the Oudh Commercial Bank, established in 1881
in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore,
1895, which has survived to the present and is now one of the biggest banks in India.

Around the turn of the 20th Century, the Indian Economy was passing through a relative period
of stability. Around five decades has elapsed since the Indian Mutiny, and the social, industrial
and other infrastructure had improved. Indians had established small banks , most of which
served particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also some exchange banks
and a number of Indian Joint Stock banks. All these banks operated in different sectors of the
economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign
trade. Indian joint stock banks were generally undercapitalized and lacked he experience and
maturity to compete with the presidency and exchange banks.

The period between 1906 and 1911, saw the establishment of banks inspired by the swadeshi
movement. The Swadeshi movement inspired local businessmen and political figures to found
banks of and for the Indian community. A number of banks established then have survived to
the present such as Bank of Baroda, Bank of India, Corporation bank, Canara Bank, Central
Bank of India and Indian Bank.

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The fervour of Swadeshi Movement lead to establishing of many private banks in Dakshin
Kannada an Udupi District which were unified earlier and known by the name South Canara
district.

From World War I to Independence:

the period during the First World War(1914-1918) through the end of the end of the second
World War(1939-1945), and two years thereafter until the independence of India were
challenging for Indian banking. The years of the first world war were turbulent, and it took its
toll with banks simply collapsing despite the Indian economy gaining indirect boost due to
war-related economic activities. At least 94 banks in India failed between 1913 and 1918 as
indicated in the following table.

Years Number of Banks that Authorized Capital (Rs. in Paid-up Capital

failed Lakhs) (Rs.in Lakhs)

1913 12 274 35

1914 42 710 109

1915 11 56 5

1916 13 231 4

1917 9 76 25

1918 7 209 1

Post- Independence:

The partition of India in 1947 adversely affected the economies of Punjab and West Bengal,
paralyzing banking activities for months. India’s independence marked the end of a regime of
the Laissez-Faire for the Indian banking. The government of India initiated measures to play
an active role in the economic life of the nation, and he Industrial Policy Resolution adopted
by the government in 1948 envisaged a mixed economy. This resulted into greater involvement
of the state in different segments of the economy including banking and finance. the major
steps to regulate banking included:

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● In 1948, the Reserve Bank of India, India’s central banking authority was nationalized,
and it became an institution owned by the Government of India.
● In 1949, the banking regulation act was enacted which empowered the Reserve bank
of India (RBI) “ to regulate, control and inspect the banks in India”
● The banking regulation Act also provided that no new bank or branch of an existing
bank could be operated without a license from the RBI, and no two banks could have
common directors.
however, despite these provisions, control and regulations, banks in India except the State Bank
of India , continued to be owned and operated by private persons. This changed with the
nationalisation of major banks in India on 19th July 1969.

Nationalisation:

By the 1960s the Indian banking industry had become an important tool to facilitate the
development of the Indian economy. The ,then ,Prime minister Indira Gandhi issued an
ordinance and instructed the Government of India to nationalize the 14 largest commercial
banks with effect from the midnight of July 19,1969.

A second dose of nationalization of 6 more commercial banks followed in 1980. The stated
reason for nationalization was to give the government more control of credit delivery. Thus the
government of India controlled around 91% of the banking business of India.

Liberalisation:

this period marked the policy of licensing a small number of private banks, which came to be
known as , tech-savvy banks, and included Global Trust Bank, which later amalgamated with
Oriental Bank of Commerce, UTI bank(now Axis bank), ICICI Bank and HDFC Bank.

The next stage was marked with setting up relaxed norms for Foreign direct investment, where
all foreign Investors in banks may be given voting rights which could exceed the present cap
with certain restrictions.

Currently, banking in India, is fairly mature in terms of supply, product range and reach even
across rural India. The banking industry has been the keen focus for the growth of the economy
through recapitalization of various banks into one such as- all subsidiaries of the State bank
into one, such as State bank of Travancore, State Bank of Bikaner and Jaipur, State Bank of
Patiala have all been clubbed into one as State Bank of India

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1.3 CURRENT STRUCTURE OF INDIAN BANKING SYSTEM:

1.4 INTRODUCTION TO NON-PERFORMING ASSETS:

Banking Industry in the current scenario has been under the sceptical eyes of the people due to
the rising NPAs. It not only increases the pressure on banks but also determines the financial
health of the banks. We have seen in the recent that the banks have been going under
recapitalization and NPA is one reason for it. In simple terms Non-Performing Asset is a
double-edged sword. While on one hand , it ceases generating income for the bank, on the other
it takes away a part of the profit earned through provisioning. It also poses great reputational
risk for the banks. Though the NPAs are inevitable, increasing trend is a matter of great
concern, which needs to be addressed on a war-footing and also on an on-going process.
Therefore proper credit monitoring and liquidity management are terms directly linked to the
term. Therefore to resolve the rising issues of NPA the related attributes also need to be duly
checked and revised.

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1.5 DEFINITIONS:

Non- Performing Assets have been defined differently by different analysts and economists as:

I. As per the Reserve Bank of India , “ In accordance with asset classification norms
brought in with effect from March 31, 2004, a non-performing asset (NPA) shall be a
loan or an advance, where:
1. Interest and /or instalment of principal remain overdue for a period of more than 90
Days in respect of a Term Loan,
2. The account remains 'out of order' for a period of more than 90 days, in respect of
an overdraft/ cash credit (OD/CC)
3. The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted,
4. Interest and/ or instalment 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
5. Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts. “
II. “A Non-performing asset (NPA) is defined as a credit facility in respect of which the
interest and/or instalment of principal has remained 'past due' for a specified period of
time.”

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CHAPTER 2

2.1 COMPANY PROFILE:

Core Members Designation

Shri. B Sreenivasa Rao Chief Financial Officer

Shri D. C. Chauhan Chief Compliance officer

Shri Mangesh Mandrekar Company secretary

Shri A Narayanan Board Secretary

A Glorious Past- A Brighter Future:

Union Bank Of India was established on 11th November 1919 with its headquarters in the city
of Bombay now known as Mumbai. The head office building of the Bank in Mumbai was
inaugurated by Mahatma Gandhi, the Father of the Nation in the year 1921, and he said on the
occasion:

"We should have the ability to carry on a big bank, to manage efficiently crore of rupees in the
course of our national activities. Though we have not many banks amongst us, it does not
follow that we are not capable of efficiently managing crore and tens of crore of rupees."

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His prescient words anticipated the growth of the bank that has taken place in the decades that
followed. The Bank now operates through over 4200+ branches across the country. The Bank's
core values of prudent management without ignoring opportunities is reflected in the fact that
the Bank has shown uninterrupted profit during all 96 years of its operations.
Union Bank has been playing a very proactive role in the economic growth of India and it
extends credit for the requirements of different sectors of economy. Industries, exports, trading,
agriculture, infrastructure and the individual segments are sectors in which the bank has
deployed credit to spur economic growth and to earn from a well diversified portfolio of assets.
Resources are mobilized through Current, Savings and Term Deposits and through refinance
and borrowings from abroad. The Bank has a large clientele base of over 5.7 crores.
On the technology front the Bank has taken early initiatives and 100% of its branches are
computerized. The Bank has also introduced Core Banking Solution with connectivity between
branches. 100% of the business of the Bank is under Core Banking Solution making it a leader
among its peers in infusion of technology. Many innovative products are developed using the
technology platform to offer an array of choices to customers, adding speed and convenience
to transactions. Technology will also enable the Bank to derive substantial cost reduction while
creating the requisite capacity to handle the ever increasing volume of business in a competitive
environment that offers immense opportunities.
At the end of March 2015 the Bank achieved total business level of Rs. 5,79,627 crore
(Rupees five lakh seventy Nine thousand six hundred and twenty seven crore).
Behind all these achievements is a dedicated team of staff, which is truly cosmopolitan in its
composition. Many generations of members of staff have contributed in building up the strong
edifice of the Bank. The present team of over 36,000 members of staff distinguishes itself with
its customer centricity, willingness to learn and adherence to values enabling us to be
recognized as a caring organization where people enjoy their work and relationship with
customers.

Vision:

“To become the bank of first choice in our chosen areas by building beneficial and lasting
relationship with customers through a process of continuous improvement.”

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Mission:

● To be a customer centric organization known for its differentiated customer service

● To offer a comprehensive range of products to meet all financial needs of customers
● To be a top creator of shareholder wealth through focus on profitable growth
● To be a young organization leveraging on technology & an experienced workforce
● To be the most trusted bank, admired by all stakeholders
● To be a leader in the area of financial inclusion

Joint Ventures/Subsidiaries:

In our Corporate Mission Statement, one of the points is “To offer a comprehensive range of
products to meet all financial needs of customers”. In order to move towards our cherished
goal of becoming a financial supermarket, Union Bank of India has setup Joint Ventures with
multinational companies which are well known and recognized as among the leaders in their
area of expertise

● Star Union Dai-ichi: Union Bank of India is distributing Life Insurance products under
corporate agency tie-up with Star Union Dai-Ichi Life Insurance Co. Ltd. (SUD Life
Insurance) which is a Joint Venture of Union Bank of India, Bank of India (two leading
Public Sector Banks in India) & Dai-ichi Life Holding Inc., Japan (a leading Japanese
Life Insurer in the Life Insurance market).
The Company has an authorized capital of Rs. 250.00 Crores. Consequent to increase
in FDI limit in insurance sector, in terms of revised shareholding pattern, shareholding
of Union Bank of India, Bank of India & Dai-ichi Life Holding Inc. is 26%; 30%; 44%
respectively.
Star Union Dai-ichi Life, with the strength of the domestic partners in the Indian
financial sector coupled with Dai-ichi Life’s strong domain expertise, is expected to
become a strong player in the Indian Life Insurance market in the long run. The
Company offers various life insurance products to cater to the needs of different
Customer Groups.
● Union Asset Management Company: Union Mutual Fund (Formally Union KBC
Mutual Fund) is sponsored by Union Bank of India. The Mutual Fund was originally
co-sponsored by Union Bank of India and KBC Participations Renta, a 100% subsidiary
of KBC Asset Management NV, Belgium.Union Bank of India acquired the entire

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shareholding held by KBC Participations Renta in Union Asset Management Company

Private Limited (Formally Union KBC Asset Management Company Private Limited)
and Union Trustee Company Private Limited (Formally Union KBC Trustee Company
Private Limited), which constituted 49% (forty nine per cent) of: (a) the paid-up equity
share capital of Union Asset Management Company Private Limited; and (b) the paid-
up equity share capital of Union Trustee Company Private Limited. The Board of
Directors of Union Asset Management Company Private Limited and Union Trustee
Company Private Limited approved the aforesaid transfer of shares on September 20,
2016. Consequently, Union Bank of India has become the sole Sponsor of Union
Mutual Fund.

Products:

Personal Corporate

Accounts and Corporate Loans

Deposits Loan Syndication and
Loans— Debt Restructuring
a)Retail b)MSME Corporate FAQs
Wealth Other services
Management-
Insurance, Mutual
funds and Demat
Account International
Government Schemes /Products/
Schemes Services
Financial NRI services
Inclusions Treasury and other
Agricultural and Products
Rural Remittances
Lockers/Other
Services

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Services available for Customers:

Digital Banking:

Application Based Banking:

1. Umobile
2. mPassbook and Selfie
3. Ucontrol
4. BHIM Union Bank Pay
5. Digipurse
6. Union Sahyog
7. BHIM Aadhar – Union Bank
Internet Banking:

1. Overview
2. Online security
3. Demo
4. Bharat Bill Payment System
5. Pay Tax Online
6. Online Shopping
Self Service Banking:

1. Credit card Log-in: Union Credit Card Bill

2. Online Account Opening: Savings Account
3. Online Loan Application: a) Home loan
b) Vehicle Loan
c) Education Loan
d) Loan against Property
e) Agriculture Loan
f) Apply Online MSME loan (up to 200 lacs)
g) Pradhan Mantri Mudra Yojana
h) Online Debit Card Application
4. Loan Application Status
5. Green Pin
6. Self ATM Pin Generation through IVR

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7. Link your Aadhar: a) Link your Aadhar

b) Consent Form for Aadhar and Mobile Seeding
c) Check your Aadhar Linked Status
d) Aadhar Authentication
8. Tabulous Banking
9. Call Centre 24x7: a) Call Centre Overview
b) Union Reach- IVR Banking
10. Digigaon
11. Union Cashless Campus
12. ATM Banking
13. SMS Banking
14. Point Of Sale Terminal
15. IMPS
16. Various Cards

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Organizational Structure:

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CHAPTER 3

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