A PROJECT REPORT ON

CREDIT RECOVERY MANAGEMENT

With specific to Karimnagar DISTRICT CENTRAL CO-OPERATIVE BANK

SUBMITTED BY

A.SUKUMAR REDDY ROLL NO: B4-02

UNDER THE GUIDANCE OF

Sri V.G CHARI

SSIM

DECLARATION
I Mr. A.SUKUMAR REDDY the undersigned, a student of Siva Sivani Institute of Management, declare that this project report titled CREDIT RECOVERY

MANAGEMENT IN KARIMNAGAR DISTRICT CENTRAL CO-OPERATIVE BANK submitted in partial fulfillment of the requirement for the summer internship project during the Post Graduate Diploma in Management-BIFAAS, a prestigious Post Graduate Diploma awarded by Siva Sivani Institute of Management.

This is my original work and has not been previously submitted as a part of another degree or diploma of another Business school or University. The findings and conclusions of this report are based on my personal study and experience, during the tenure of my summer internship.

Place: Secunderabad Date:

ACKNOWLEDGMENT
It gives me immense pleasure to present this project report on Credit Recovery Management carried out at Karimnagar District Central Co-Operative Bank.In partial fulfillment of Post Graduate Diploma in Management-BIFAAS.

No work can be carried out without the help and guidance of various persons. I am happy to take this opportunity to express my gratitude to those who have been helpful to me in completing this project report.

At the outset I would like to thank Mr.kanakaiah (DGM), for their valuable advice and guidance during my project completion, also Mr. Sridhar (branch manager) for timely help concerning various aspects of project. I am also thankful to all staff members of loans and advances department for their help in completing my summer internship program.

I would be failing in my duty if I do not express my deep sense of gratitude to V G CHARY Sir, without his guidance it wouldnt have been possible for me to complete this project work.

TABLE OF CONTENTS

S NO. 1.0 1.1 1.2 1.3 1.4 1.5 2.0 2.1 2.2 2.3 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8

PARTICULARS INTRODUCTION Significance of study Objectives of study Scope of study Limitations of study Literature Review RESEARCH METHODOLOGY Type of Methodology Data Collection Tools for Analysis INDUSTRY PROFILE Banking in India Structure of banks Regulating bodies National policy Co-operative banks Origin and growth of DCCBs Progress of DCCBs Primary agricultural credit societies

PAGE NO. 6 8 9 10 11 12 16 16 16 16 17 17 18 19 20 21 26 27 28

4.0 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 5.0 5.1 5.2 5.3 6.0 7.0 8.0 9.0

COMPANY PROFILE Mission Vision Objectives Management of the bank Deposits Loans and advances Organization chart of kdccb Funs and returns RECOVERY MANAGEMENT Pre- recovery arrangements Launching of recovery drive sarfaesi act, 2002 Analysis Problems and findings Suggestions Bibliography

29 30 30 31 32 33 34 35 36 37 38 39 41 51 61 62 64

INTRODUCTION

Co-operative banks are an important constituent of the Indian financial system. The Co-operative movement originated in the west, but the importance that such banks have assumed in India is rarely paralleled in the world. Their role in rural financing continues to be important even today, and their business in the urban areas also has increased in recent years mainly due to the sharp increase in the number of co-operative banks. A Co-operative is voluntary association of members of self-help, catering to the financial on a mutual basis. In India, the co-operative credit movement started with the chief object of catering to the banking and credit requirements of the urban middle class e.g. the small trader or workers, the salaried people with limited fixed income in urban or semiurban areas. The co-operative banking system in India is federal in structure. Structure of cooperative banking system is three-tier structure in India. 1. 2. 3. Primary Credit Structure (PCS's) Central Co-operative Banks (CCB's) State Co-operative Banks (SCB's)

Co-operative banking can divided mainly two types Agricultural sector and NonAgriculture sector. The DCCB's (District Central Co-operative Banks) have come into existence due to the failure of primary societies to attract required resources in the form of deposits from well to do sections of the village community on one hand and to inspire the habit of thrift and savings among their members to provide strong base on the purpose to give support to farmers and small industries, The objectives of DCCB's. Their democratic organization and management help in catering better to the local needs, mobilization of resources and recovery of the loan advanced. 6

They are best suited to guide, supervise and control their societies. They constitute the basic unit of planning and development of co-operative active at the district level In the view of importance of central co-operative banks, the study in undertaken to assess the performance of karimnagar District Co-operative Central Bank.

NEED & IMPORTANCE OF THE STUDY

i) Since the banks are playing a vital role in modern days. it is important to
understand the Recovery performance of loans in the Banks. In general sense the term Recovery is referred as repayment or reimbursement of loans issued to the customers for their respective needs according to the predetermined terms and conditions. Recovery plays a vital role in functioning of the bank as it acts as a source for earning interest through the loans already issued which are then recovered to continue the cycle of mobilization of loans.

OBJECTIVE OF THE STUDY

The main objective of the present study is to evaluate or appraise the recovery performance of THE KARIMNAGAR DISTRICT CO-OPERATIVE CENTRAL BANK in respect of loans for the time period of five years.

The specific objectives of the study are given below.

1. To study the recovery performance of the bank in relation to loans and advances. 2. To analyze the effectiveness of the bank performance in analyzing funds in the form of different types of loans for different purposes. 3. To assess the performance of the bank with regard to recovery of loans and advances and analyze the problems relating to the recovery of loans. 4. To know what measures are followed by the bank to recover the different types of loans? 5. Finally to make suitable suggestions for improving the recovery performance of the bank.

SCOPE OF THE STUDY

The DCCBs have come into existence due to the failure of primary societies to attract required resources in the form of deposits from well to do sections of the village community on one hand and to inspire the habit of thrift and savings among their members to provide strong capital base on the other. The present study covers exclusively the recovery measures followed and performance study of DCCB, Karimnagar District, For this purpose of study five years financial data (2005-09) has been taken into account.

10

LIMITATIONS OF THE STUDY

a) The study is based mainly on secondary data. b) Since the study is confined to only few aspects like loans and advances, so the
overall performance of the bank cannot be measured accurately.

c) Here, the calculations are approximated. d) . Here the accuracy of the results is subjected to the accuracy of the data
furnished by the annual reports

11

REVIEW OF LITERATURE

In this chapter, a review of past research works in the field has been compiled to Enable better understanding of the research in various regions, method of analysis on the Research subject. The chapter is presented under the following headings. 2.1. Recovery performance in each portfolio of lending by the banks 2.2 methods adopted for enhancement of recovery by the banks.

2.2. RECOVERY PERFORMANCE IN EACH PORTFOLIO OF LENDING BY THE BANKS

Balishter et al. (1991) studied overdues of loans in agriculture from the point of view

of current and old overdues, extent of willful defaults and the reasons for non-payment. The Study revealed that the affluent class of farmers was responsible for a large portion of overdues and about 90 per cent of them were willful defaulters. The old debts constituted about 71 per cent, and needed serious concerns. y Vaikunthe (1991) studied the agricultural credit utilization and recovery performance of KCC bank, Dharwad. The study pointed out that the percentage repayment was more in the case of the farmers in the non-irrigated area compared to the irrigated area. The overdues were larger in the case of small farmers compared to medium and big farmers in the irrigated area. y Ajjan (1994) studied the performance of the three-tier structure of cooperative credit

institution in Tamil Nadu in terms of their deposits, borrowing working capital, loans issued, loans outstanding for a decade (1982-83 to 1991-92). He revealed that the deposits, borrowing and working capital have increased more than 20 per cent in all the short-term and medium term cooperative credit institutions. The percentage of overdues has continuously declined from 46 to about 35 per cent during the study period reflecting the

12

poor recovery performance. He suggested that recovery performance should be improved by drawing suitable plans. y Shollapur (1995) studied the recovery performance of Karnataka state cooperative

apex bank. He revealed that the percentage of recovery to demand has declined from 94 per cent to 55 per cent in total credit and from 95 percent to 54 per cent in agricultural credit revealing the poor performance in credit collections. The total overdues have moved from Rs. 401.26 crores to Rs. 5059.32 crores establishing a rise by 13 times. He suggested that the bank should arrange training in recovery management involving central cooperative banks and other constituents. y Shiyani and Sima (1999) while comparing performance of credit institutions in

Promoting agricultural development in Gujarat opined that the total overdues of agriculture and allied activities in Gujarat was as high as Rs 421.52 crore. The situation of agriculture over dues in co-operative banks was warranted and needed immediate action, as its Proportion in the total overdues of all banks in Gujarat was more than 65 per cent. On to this The share of cooperative banks in the total credit flows to the agricultural sectors by all the banks was only 36 percent. y Dayanand and Shashikumar (1999) undertook comparative analysis of District

Central Co-operative (DCC) Banks in Kerala with the national level performance and revealed that the state level performance was behind the national level performance with regard to membership, old funds, borrowings, loan advanced etc., where as deposits was slightly higher than national level performance. But as long as there was no considerable decrease in rate of total loan overdue, profitability of the bank cannot be improved. y Zeratsion (2002) in his study on the performance of primary agricultural credit

societies in Karnataka revealed that total loan recovered by primary agricultural credit

13

societies in the state steadily increased recording a growth of 15.37 per cent. During the study period from 1986-87 to 1997-98 the overdues increased at 3.15 per cent annually and it was not significant. y Hatai (2006) while analyzing agricultural credit and overdues in Uttar Pradesh found

that out of total borrowing on marginal farms crop loan shared about 61 and 74 per cent in the west and east zones respectively. The term loan was only 25 and 38 per cent of the total borrowing in the east and west zone respectively on the marginal farms. The share of crop loans was further reduced to 32 per cent on large farms. He concluded that crop loan has inverse relationship with the size of holding, whereas the positive relationship was observed between the term loan and the size of holdings. y Ramappa and Sivasankaraiah (2007) attempted to study the recovery performance of

the Rayalseema Grameena bank in Andhra Pradesh and found recovery performance was improved as its overdues declined from 34 per cent in 2003 to 19 per cent in 2004. Sector wise analysis revealed that the repayment performance of non-priority sector was better Compared to that of priority sector. Among farm activities the percentage of overdues was high (68 per cent in 2003 and 58 per cent in 2004) in case of minor irrigation. The repayment \position of Self Help Groups was quite impressive as the members of these groups repaid more than 95 per cent of total demanded loans.

2.3. METHODS ADOPTED FOR ENHANCEMENT OF RECOVERY BY THE BANKS.

Rajeev and Deb (1998) during their study on institutional and non-institutional credit

in agriculture, revealed through interviews with bank officials that the recovery can be improved by assuring quick renewal of credit after repayment. They also opined that easy access to loans after one repays a previous loan plays an important role in loan recovery.

14

Interestingly the manager of a co-operative bank, Kultighari Samabay Krishi Unnayan Samiti, y Tarekeswar block Hooghli district, asserted that repayment of loans was almost 100 per cent (in spite of bad harvesting year) once he had given an assurance that a fresh loan would be immediately disbursed on repayment.

15

RESEARCH METHODOLOGY
Methodology is systematic procedure of collecting information in order to analyze and verifying a phenomenon. The collection of date is done through two principle source viz. 1. Primary Data 2. Secondary Data

Primary Data
It is the information collected directly without any reference. In the study, it was mainly interviews with concerned officer and staffs either individually or collectively. This study does not include any primary data.

Secondary Data
The Secondary data was collected from already published sources such as pamphlets annual, reports and internal records. The data includes: 1. Collection of required data from annual reports of THE KARIMNAGAR DISTRICT CO-OPERATIVE CENTRAL BANK. 2. Reference form text books and journals relating to financial management and articles published in business dairies like the Economics times, Business line etc.,

16

BANKING IN INDIA

Banking activities are undertaken in our country from ancient times. The era of Joint stock bank, Bank of Bengal were established. Bank of Bombay and Bank of Madras were also established in the year 1840 and 1843 respectively. Presidency Banks. Number of banking institutions came up during those years and most of them failed due to mismanagement, Frauds and speculative activities. The Reserve Bank of India was established in the year 1935 as countrys central Bank was nationalized in the year 1948. The State Bank of India was established in the year 1955,under State Bank of India Act 1955. These three were called as

Under State Bank of India (Subsidiary Bank) Act 1959, seven banks were established as subsidiaries of the State Bank of India. They are now called as associate Banks of the State Bank of India. Since very long time Co-operative Banks are also providing their services to the Indian Economy and Banking. These are traditionally rural oriented and are formed under Co-operative associates act, applicable in different states.

17

STRUCTURE OF CO-OPERATIVE BANKS RBI

NABARD

SCBS

SLDBs

UCBs

CCBs

CLDBs

PACs

PLDBs

Branches of SLDBs

SCBs SLDBs = UCBs CCBs CLDBs PACs PLDBs =

State Co-operative Banks

State Land Development Banks = = = = Urban Co-operative Banks or Primary Co-operative Banks Central Co-operative Bank Central Land Development Bank Primary Agricultural Credit Societies

Primary Land Development Banks.

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THE RESERVE BANK When the reserve bank of India was established in 1935 as central bank for the whole of India it was intended to assist co-operative banks as well. Section 17 of the reserve bank of India act authorized the bank to provide funds for the co-operative movement through the state co-operative banks for financing agricultural operations or marketing of crops. The bank made strenuous efforts to assist the co-operative movement in these directions even offering a reduction of 1 percent and, later 2 percent on the bank rate. Yet very few state cooperative banks took advantage of the offer.

NABARD

(NATIONAL

BANK

FOR

AGRICULTURE

AND

RURAL

DEVELOPMENT): The NABARD mainly secures its finances by issuing and selling bonds and debentures, borrowing money from reserve bank and the central government etc.. POWERS AND FUNCTIONS OF NABARD The main function of NABARD is to provide financial assistance necessary for promoting agriculture and rural development its other functions are: 1. co-ordinate its operations and the operations of various institutions engaged in the field of rural credit and maintain expert staff to study all problems relating to agriculture and rural development and be available for consultation to the central government, the reserve bank, the state governments and the others institutions engaged in the field of rural development. 2.act as the agent for the central government or a state government or the reserve bank in the transaction of any business in respect of loans and advances granted or to be granted, or bonds or debentures purchased or subscribed for or to be purchased or subscribed for. 3.provide facilities for training for discrimination of information and the promotion of research including the undertaking of studies, researches, techno-economic and other surveys in the field of rural banking, agriculture and rural development and it may for the 19

said purpose make grants including grants by way of provision for fellowships and chairs to any institution NATIONAL POLICY There are co-operative institutions throughout the country. They are governed by the concerned state enactment. But there is a underlying national perception on co-operative movement and its objectives. No state should normally do anything so as to affect the national perception as enumerated in the national co-operative policy resolution by the government of India which was endorsed and adopted by the conference of the state cooperative ministers held in 1977. Guidelines for development of co-operative movement. This resolution gives definite guidelines for the development of the co-operative movement. Such an explicit resolution by the government has come after two decades since the first resolution was adopted by the national development council in 1958. The government has elaborated the policy resolution by issuing 42 action point for implementation. The following are the major decisions incorporated in the resolution: 1. Co-operatives shall be built up as one of the major instruments of decentralized, laborintensive and rural oriented economic development. 2. Co-operatives at all levels shall be closely associated with the process of planning for economic development and social change. 3. The co-operative movement shall be developed as a shield for the weak Small and marginal farmers and agricultural laborers, rural artisans and ordinary consumers belonging to the middle and lower income groups shall be provided the maximum scope to participate in the co-operative programmes and a massive effort will be made for the involvement of our masses effort will be made for the involvement of millions of our masses in the co-operative movement.

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4. Co-operative development shall be promoted on a national basis, and regional imbalances in co-operative development shall be progressively removed. 5. The co-operative movement shall be built up as an autonomous, self-reliant movement, free from undue outside interference and excessive control, as also from politics. The autonomy of the co-operatives shall be based inter-alia on increasing generation of internal resources, mobilizing savings in rural and urban areas. And decreasing dependence on resources from outside financial institutions and government. 6. A vibrant co-operative democracy shall be built up based on enlightened participation of broad-based membership free from the nomination of vested interests. 7. Co-operatives movement shall be cleansed of corruption and malpractices which sully the fair name of co-operation and harm the very principles for which the moment stands. 8. In the rural areas a strong, viable and integrated co-operative system shall be built up to promote total and comprehensive rural development by progressively strengthening the links between credit, supply of agricultural inputs, agricultural production, including ancillary activities like diary, poultry, fishery and piggery , marketing and distribution of essential consumer articles. 9. A network of co-operative agro-processing and industrial units shall be built up tp provide gainful and economic links between the growers and the consumers. 10. The consumer co-operative movement shall be built up to strengthen the public distribution system and act as a bulwark of consumer protection and as an instrument of price stabilization. 11. Co-operatives shall be promoted as efficient institutions with streamlined organization and simple and rationalized procedures. 12. Professional management shall be built up in co-operative institutions through a sustained programme of recruitment of suitable personnel and their systematic training.

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CO-OPERATIVE BANKS : Co-operative banks are an important constituent of the Indian financial system, judging by the role assigned to the. The co-operative movement originated in the west, but importance which such banks have assumed in India is rarely paralleled anywhere else in the world. Their role in rural financing continues to be important even today, and their Business in the urban areas also has increased in recent years mainly due to the sharp increase in the number of primary co-operative banks. A credit co-operative is voluntary association of members for self-help, catering to the financial on a mutual basis. In India, the co-operative credit movement started with the chief object of catering to the banking and credit requirements of the urban middle class e.g. the small trader or businessman, the artisans, or factory worker, the salaried people with limited fixed income in urban or semi-urban areas. Besides protecting the middle classes and men of modest means from the clutches of the money lenders, the movement is also expected to indicate the habit of thrift and savings amongst the people. Origin and development : The urban co-operative credit movement originated in Germany when Herman Schultz started such societies for the benefit of artisans in the cities. In Italy, the credit of starting such societies goes to Livgi Luzzatti. Encouraged by the success of the urban credit institutions in these countries. Social workers in India began to think in terms as the co-operative as a means of bringing success to middle classes as early as to close of the 19th Century. In India the first credit society was set up in 1889 at Baroda. But no proper attention was paid for its

development. The government of India showed the golden seed of the co-operative banking in India in 1904 with introduction of co-operative societys act of 1904. In rural areas as far as agricultural and related activities ware concerned, the supply of credit, particularly, institution credit was woefully in adequate and unorganized money marked agencies, such as money 22

lenders, were providing credit often at exploitatively high rates of interest. The co-operative banks were conceived in order to substitute such agencies, provide adequate short term and long-term institutional credit at reasonable rates of interest and to bring about integration of the unorganized and organized segments of the Indian money market. Urban co-operative credit societies and bank occupy a prominent place among the agencies supplying credit needs of the people residing in the urban areas. They advance loans mostly to the traders, artisans and salary earners on personal security as well as against gold and silver. The urban banks cater primarily to the needs of the lower and middle-income structure of our society. Structure of Co-operative Banking System in India : The Co-operative banking system in India is federal in structure. It has a pyramid type of a three-ties structure constituted by : 1. 2. 3. Primary Credit Structure (PCS's) Central Co-operative Banks (CCB's) State Co-operative Banks (SCB's)

Co-operative banking can be divided into mainly two types agricultural sector and non-agricultural sector. Agricultural sector concerned to mainly rural credit. But nonagricultural sector is totally banks, industrial co-operative banks and employees cooperative different one; it includes urban co-operative society.

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2.2

Urban Co-operative Banks : Co-operative credit societies established in urban areas and referred to as urban co-

operative banks. In most states, however, no clear-cut definition of an urban co-operative bank is statutorily followed. Urban co-operative banks usually meet the needs of specific types or groups of members pertaining to a certain trade, profession, community or even locality. Urban banks almost function like commercial banks in providing essential banking and non-banking agency and utility services. UCBs are also called as Primary Co-operative Banks (PCBs) by the Reserve Bank. The RBI defines PCB's as small-sized co-operatively organized banking units which operate in metropolitan, urban and semi-urban centers to cater mainly to needs of small borrowers, viz., owners of small scale industrial units, retail traders, professionals and salaried classes. The RBI is the licensing authority for new banks a Act, Co-operative banks are subject to CRR and liquidity requirements at the level of 3% and 25% respectively at present, they have been advised to lend 60% of their total advances to the priority sectors. Role of Urban Co-operative Banks : Urban Co-operative Banks have an important role to play in several respects and some of them are listed below : First and foremost, they can organize and bring together middle and working classes kin urban and semi-urban areas and inculcate in them the habits of thrift and self-help and acquaint them with the elements of ordinary banking principles. The mobilization of savings by urban co-operative banks and the consequent drawing of urban resources into the apex and central co-operative banks which are in need of funds to finance the rural, industrial and other functional co-operatives can contribute to general economic development. 24

By providing credit on reasonable terms to the middle classes they can rescue them from the exploitation of money lenders and others unscrupulous agencies, which is particularly important in the context of rising price and by financing individual industrialist and artisans working in urban area, they can cost. This has a consequently effect also on non-operative lending; ;make a significant contribution to industrial development. They can make certain essential banking facilities such as remittance of funds etc; available in areas which ;may not be considered suitable for commercial banking and to persons who may not be able to get such civilities from commercial banks; and they can provide intelligent, experienced and active leadership to the cooperative movement including the central and apex cooperative banks, which in view of their federal character draw their directors from member's institutions. In the view of the importance of central cooperative banks, the study is undertaken to assess the performance of Karimnagar district cooperative central bank.

Functions of Rural Co-operative Bank

The main functions of the rural co-operative banks are: 1. To borrow funds from members and others to be utilized for loans to members for useful purpose. 2. To act as an agent for the joint purchase of domestic and other requirements of the Members. 3. To undertake collection of bills drawn accepted endorsed by members and Constituents and discount checks and bills of approved members. 4. To encourage for the safe custody of valuables and documents of the members. 5. To arrange for the safe custody of valuables and documents of the members.

25

6. Constituents. One of the main functions of these banks is to accept deposits from the members and non-members. The second main function is to lend its deposits to members for useful purposes. The third important function of these banks and societies is to undertake purchase and supply of essential consumers goods on an agency basis but this is not generally done. Finally the principal functions of cooperative Rural banks are to promote thrift and also to advances loans on personal security mortgage of house property agricultural land, Government securities, fixed deposit, Receipts and land mortgage of house property agricultural land, Government securities, fixed deposit, Receipts and land mortgage bank debentures.

2.3

ORIGIN AND GROWTH OF DISTRICT CO-OPERATIVE CENTRAL BANKS IN INDIA: The DCCBs have come into existence due to the failure of Primary Societies to

attract required resources in the form of deposits from well to do sections of the village community on one hand and to inspire the habit of thrift and savings among their members to provide strong capital base on the other. The Co-operatives Societies act. 1904 was amended kin 1912 incorporating a clause for the registration of Central Co-operative Societies consequently the number of Central Co-operative Societies have been registered under provisions of amended Act and have occupied a position of cardinal importance in the operative credit structure. Objectives of establishing District Central Cooperative Banks as follows:a) Their democratic organization and management help in catering better to the local needs, Mobilization of resources and recovery of the loans advanced. b) c) They serve as a cushion in absorbing a part of the over dues of societies. They are best suited to guide, supervise and control the societies.

26

d)

They constitute the basic unit of planning and development of cooperative active at the District Level.

2.4

Progress of DCCBs In Andhra Pradesh : Andhra Pradesh State was formed in the year 1956. The jurisdiction of the state is

\spread over an area of 2.76 lakhs square kilometers and divided into 23 districts comprising three regions of Coastal Andhra, Rayalaseema and Telangana.

Like the other states in Andhra Pradesh the cooperative movement made it's beginning as early as in k1920. Till the formation of the state there was separate Provincial cooperative act for Andhra region and Telangana region.

Primary Agricultural Credit Societies

Primary Agricultural Credit Societies are the kernel of the co-operative movement in India. These societies are existing at base level of the credit structure and are called primary Agricultural Credit Societies (PACS). The primary Agricultural Credit societies were with an idea of one society to one village. So, that the Area operation was restricted and the persons who own the land can only join as a member in the society. The agricultural labour and other village artisans are not permitted to join as a member and the services were restricted to one credit but co-operative credit instructions were no longer confirmed to the principle of one society one village and to the Land ownership. It was being restrictions on the criteria of economic viability wit broad based membership through open to everyone on application and later not only productive as also

27

for consumption purposes. The main function of the Primary Agricultural Credit Societies are to provide cheap credit to the agriculturists, the other important functions are as follows. 1. The associate itself with the program of the production. 2. To lend adequate amount of money to the members for the agricultural and other purposes. 3. To borrow adequate funds from the financing bank to fulfill the members needs. 4. To create saving habit among members. 5. To supervise the proper utilization of loans. 6. To distribute fertilizers, seeds, insecticides and agricultural implements. 7. To supply consumer goods like kerosene, sugar and general components. 8. To store the members produce till it is sold. 9. To procure / purchase the members produce. 10. To associate itself with the programs of economic and social

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ORGANISATION PROFILE
INTRODUCTION : The District CO-operative Central Bank Ltd., Karimnagar No.20976 is deemed to have been registered as a Co-operative society under the area of Andhra Pradesh Co-operative Act of 1964. The Karimnagar district co-operative bank ltd., has come into existence on 4-8-1917.the area of operation of the bank is confined to entire Karimnagar district comprising 51 Revenue Mandals out of which19 Mandals Head Quarter are cover with the banks branches.The Bank having 20 branches including central office branch covering 69 PACS financed by the Karimnagar District Central Co-operative bank.

The Karimnagar DCCB with its head quarters at Karimnagar was established in the year 1921 affiliated to Ap state Coop. Bank Ltd., Hyderabad is one of the pioneering institutions in the State of A.P catering to the needs of agriculture credit of the farming community of the Karimnagar district which is considered to be the fast developing district in the state of Andhra Pradesh. The bank provides loan to the farming community in the district for Agricultural production for mainly sugarcane, Groundnut, and paddy crops and development credit for minor irrigation farm mechanization Horticulture, Dairy, Poultry, sericulture etc., weavers through Hand loom and silk weavers credit societies. Apart from Rural development, Bank provides assistance for SHGs, RMGs, SGSY, weavers groups and govt. sponsored schemes. The bank provides banking services to semi urban and rural Population through its attractive deposit schemes and providing other services like, safe deposit lockers, cash credits, insurance facilities.

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VISION:

RURAL PROSPERITY

INVE ST WIT H US F OR RURAL PROSPERITY............. INVEST WITH US FOR A BETT ER CAUSE ........ . WE TAKE CARE OF EVE RY PAISE YOU INVEST.... .. LET US STRIVE F OR THE RURAL P ROSPERITY... ........ JOIN HANDS TOWARDS RURAL P ROSPERITY.... ...

The Cooperative banks in India started functioning almost 100 years ago. These banks were conceived as substitutes for money lenders, to provide timely and adequate short-term and long-term institutional credit at reasonable rates of interest.

We are moving ahead with a vision RURAL PROSPERITY and dedication to serve the rural masses, the deprived and denied, retail and agriculture sectors through improved processes to uplift and for the development of the rural community.

We feel that the exponential growth of Cooperative Banks in India is attributed mainly to their much better local reach, personal interaction with customers, their ability to catch the nerve of the local people/clients with a effort to create a new type of institution based on the principles of co-operative organization and management, suitable for problems peculiar to local conditions.

30

OBJECTIVES Its objectives shall be : y Primarily to finance the Primary Agricultural Credit Societies (PACs) registered or deemed to have been registered under the AP Co-operative Societies Act 7 of 1964 and secondarily to finance all other Co-operative Societies in the District To service members of erstwhile PADBs including disbursement of second and subsequent installments of loans directly to such members, and recovery of such loan of members till they are cleared and arrange for issue of fresh long term loans through PACs. y To finance individuals, firms companies corporations etc; by admitting them as 'B' class members for purposes approved by higher financing agencies from time to time either individually or jointly with other financing institutions. y To raise funds by way of posit, loans cash credits, overdraft and advances from Apex Bank, Government and other financing agencies. y To open regional offices, branches or sub-offices with the prior permission of the Registrar both for banking purposes and issue and recovery of ST, MT and LT loans To guarantee the loans and advances to be made to the member societies by and other agencies. y To advice develop assist and co-ordinate and supervise and inspect the functioning of the. y PACs and also to assist and supervise the functioning of other affiliated and indebted societies. y To buy, sell or deal with securities, debentures or bonds or scrip or other forms or securities on its behalf or on behalf of members or other cooperative institutions. y To maintain a library of Co-operative and banking literature. 31

To act on agent of Government or Apex Bank or any institution if financing loans for

Agricultural and Rural Development and allied activities and to accept and administer

y y

Any fund for such purposes. To carry on the general business of banking not repugnant to the provisions of the AP cooperative societies act 7 of 1964 and the rules framed there under or the Banking regulations act 1949 as applicable to cooperative societies and the rules made there under.

All such other things and acts as are necessary, conductive and incidental to the attainment of the foregoing and generally to promote the cause of cooperation in the district.

MANAGEMENT OF THE BANK : The management of the Bank shall vest in a Board consisting of such number of members and with such composition of members as prescribed in the A.P.C.S. Act and Rules at present the Board consists of 19 members.

ACCOUNTS AND RECORDS : Accounts to By-law 55-A of APCs, Act : "The chief executive officer of every bank by whatever name designation he is called, or the President of the bank, shall be bound to keep, maintain or cause to Maintain such accounts and books relating to that bank in such manner as may be prescribed. He shall be responsible for corrects and up-to-date maintenance of such

accounts and books, for producing or causing production of the same when called for in connection to audit, inquiry or inspection".

32

The Karimnagar District Co-operative Central Bank Ltd., maintains books of accounts and records in form prescribed by the registrar and RBI addition as Board of Directors find it necessary. The Registrar may prescribe such other statements as from time to time. The

statements shall be made as on 30th June of every year and copy of each shall be sent to the Registrar within 30 days after close of the Co-operative year ending 30th June.

DEPOSITS : Deposits may be received at any time within the limits determined under the PACs. Act and rules on such rate of interest on deposits are subject to rules and regulations fixed by Board of Directors and also to directive issued by Reserve Bank of India on behalf from time to time.

THE VARIOUS DEPOSITS RECEIVED BY THE BANK : y y y y y y y y Dhana Laxmi deposits Fixed deposits Current deposits Saving deposits Swayam Upadi deposits (day deposits) Thrift deposits Recurring deposits Security deposits

33

LOANS AND ADVANCES : The loans and advances may be granted to members on security subject to the direction issued by Reserve Bank of India from time and securities approved by Board of Directors, the securities such as: i) ii) iii) iv) Personal security and/sureties of other members/members; Collateral security of movable land immovable property Gold or silver ornaments or consumer durable; Industrial mercantile, Agricultural and other marketable commodities or machinery v) vi) Under pledge, hypothecation or charge of the society; Any other tangible security To take legal action against members of societies in case of failure of the Managing Committee of Societies to take legal action. vii) To institute, conduct defend compound, compromise or abandon legal proceedings by or against the Bank. viii) To sanction loans to employees as per loaning policy to be determined and with prior approval of Registrar ix) To purchase vehicles for the see of the bank as per special by laws governing their purchase and maintenance of such vehicles as approved by Registrar. x) To transact all other business incident to the administration of the Bank.

THE DIFFERENT TYPES OF LOANS ADVANCED TO MEMBERS : i) ii) iii) iv) v) vi) Agricultural Loans Loans on Deposits Festival Loans Vehicle Loans Gold and Jewel Loans Loans to owners of Bank 34

3.4 .

ORGANISATION DESIGN (CHART) OF THE KDCCB : The major functions and their inter-relationships of important structural aspects of

the KDCCB are given in chart. The chart can be considered as vertical chart as the line of command flows from top to bottom in a vertical line. The chart is as follows.

35

36

FUNDS AND RETURNS : FUNDS: i) ii) iii) iv) v) The Bank will ordinarily obtain funds from the following sources. Share Capital Deposits Other borrowing from various sources Entrance fee and miscellaneous receipts Grants from Government and other agencies The Bank shall prepare annual returns in such form as may be prescribed by the i) ii) iii) iv) Registrar and Apex Bank Statement showing receipts and disbursements A profit and Loss account & balance sheet Which were under the Madras Province and the Nizam government respectively. All the societies, which were established prior to the formation of the state, have come under the fold the Andhra Pradesh Co-operative Societies Act of 1964. In order to implement the provisions of the Act a separate department is constituted and Registrar is made in charge for it. Present Structure of Co-operative in A.P. Bank in Andhra Pradesh as per 1997 No. of PACs 6695 No. of DCCBs 22 No. of SCOB 1

RETURN :

State and District Co-operative Banks are providing rural credit through Primary Agricultural Credit Societies to the 50 lakhs of people. Among them 75% are small and marginal farmers. In A.P. 50% of rural credit is provided by Co-operative Bank

37

RECOVERY MANAGMENT
PRE-RECOVERY ARRANGEMENTS
1. The calendar of activities for the year 2009-10 as communicated by the APCOB have been circulated among all the Branch managers with an advice to below their personal attention on this essential schedule of activities to bring overall improvement of the health of the co-operative credit institutions in the District, as also achievement of various performance parameters/targets stipulated to the Branches/PACS staff. 2. The society staff has been advised to prepare member-wise dues list, village-wise, separately for short term, medium term (conv) and long term loans demands. The supervisors have been advices to verify the dues list with reference to amount over dues as per loan ledgers of the societies. They have also been advised to arrange to issue Demand Notices to all barrowers. Many of the societies have since completed these items and furnished the lists to the branches

3. Classification of defaults
The barrower-wise 5 area defaulter statement indicating the dues from the borrowers shall be prepared.

a) Big and willful defaulters, who have capacity to repay loans and non-officials public representatives having 5 acres and above. b) List of Employees working in Govt. and non-Govt. Departments/institutions. c) Tractors and power tiller defaulters; d) Poultry defaulters; e) Present and past Directors of the societies.

38

The list of above defaulters shall be prepared age-wise, i.e., 3-4 years, 4-6 years and above 6 years.

LAUNCHING OF RECOVERY DRIVE 1) Man power Deployment

In order to ensure proper follows up and supervision of the recovery activities of the field functionaries of society & Branch, the Bank has appointed Nodal officers for every 1 to 3 Branches. The Bank has constituted a special Recovery term for recovery of non-frame loans, Employees CCS loans CD loans etc. the Bank has a departmental officer to work as sale officer under the guidance and control of Dy registrar/OS (officer on special duties) The nodal officers shall coordinate their efforts with the Branch and PACS field functionaries and ensure that the targeted recovery of 80% is achieved.

2) Legal coverage
Issues of notices and issue of certificates under sec.71 have issued institutions to cover 100% legal action against Lt Areas cases. Coverage of legal action as envisaged shall be completed soon after the interest rebate cut-off date is over. Coverage of E.Ps is done for select cases-Land sales @5 cases per society. Legal action and sale of lands is a must in all cases where there is alienation/sale by barrower comes to the notices of the societies.

Further, it is decided to recover 100% amount. This staff of the society and branch concerned shall furnish the particulars of the properties held by judgment Debtors for ensuring collection by end of may, 2008 it

39

shall be endeavor of the staff of the society and the branch that no further cases of misappropriation takes place.

7. Involvement of Non-officials and Govt. Officials

In order to ensure that the members obtain loans to the extent of their IBP, the overdue loan amounts shall be recovered. To achieve this objective, it is the overdue loan amount shall be recovery efforts. Meeting of public representatives, gram sarpanches, local inflection people will be conducted though gram sabhas and the loss and hardship that would cause to the genuine farmer barrowers due non-repayment of loans by big defaulters. It is also decided to take the services of the personnel of the cooperative Department the district for effective supervision of recovery machinery. 8. Detailed instruction has been issued to the bank officials, nodal officers, Branch Managers, Supervisors & Securities about their duties and responsibilities in the matter of recoveries (copy enclosed). The Bank has conducted (5) Zonal Recovery Review Meetings once in every month. where the salient features of recovery action plan has Explained to the branch the Branch level and PACS level field functionaries.

9. Review of recovery Action plan

Frequent review meetings of Managers and Supervisors of the Branch and employees of the PACS shall be conducted and their achievement and progress of recovery vis--vis targets reviewed.

10. Management Information System

Apart from reporting daily collections to head office, the Branches shall Furnish Monthly demand, Collection & Balance Particulars with indicating the Recoveries, society-wise, to reach the Head Office (Recovery Ministering Cell) or before 5th succeeding month 40

SARF AESI ACT ,2002

Background

With an aim to provide a structured platform to the Banking sector for managing its mounting NPA stocks and keep pace with international financial institutions, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act was put in place to allow banks and FIs to take possession of securities and sell them. As stated in the Act, it has enabled banks and FIs to realize long-term assets, manage problems of liquidity, asset-liability mismatches and improve recovery by taking possession of securities, sell them and reduce non performing assets (NPAs) by adopting measures for recovery or reconstruction. Prior to the Act, the legal framework relating to commercial transactions lagged behind the rapidly changing commercial practices and financial sector reforms, which led to slow recovery of defaulting loans and mounting levels of NPAs of banks and financial institutions.

The SARFAESI Act has been largely perceived as facilitating asset recovery and reconstruction. Since Independence, the Government has adopted several ad-hoc measures to tackle sickness among financial institutions, foremost through nationalisation of banks and relief measures. Over the course of time, the Government has put in place various mechanisms for cleaning the banking system from the menace of NPAs and revival of a healthy financial and banking sector. Some of the notable measures in this regard include:

Sick Industrial Companies (Special Provisions) Act, 1985 or SICA: To examine and recommend remedy for high industrial sickness in the eighties, the Tiwari committee was set up by the Government. It was to suggest a comprehensive legislation to deal with the problem of industrial sickness. The committee suggested the need for special legislation for speedy revival of sick units or winding up of unviable ones 41

and setting up of quasi-judicial body namely; Board for Industrial and Financial Reconstruction (BIFR) and The Appellate Authority for Industrial and Financial Reconstruction (AAIRFR) and their benches. Thus in 1985, the SICA came into existence and BIFR started functioning from 1987.

The objective of SICA was to proactively determine or identify the sick/potentially sick companies and enforcement of preventive, remedial or other measures with respect to these companies. Measures adopted included legal, financial restructuring as well as management overhaul. However, the BIFR SARFAESI ACT 2002: An Assessment process was cumbersome and unmanageable to some extent. The system was not favourable for the banking sector as it provided a sort of shield to the defaulting companies. Recoveries of Debts due to Banks and Financial Institutions (RDDBFI) Act, 1993: The procedure for recovery of debts to the banks and financial institutions resulted in significant portions of funds getting locked. The need for a speedy recovery mechanism through which dues to the banks and financial institutions could be realised was felt. Different committees set up to look into this, suggested formation of Special Tribunals for recovery of overdue debts of the banks and financial institutions by following a summary procedure. For the effective and speedy recovery of bad loans, the RDDBFI Act was passed suggesting a special Debt Recovery Tribunal to be set up for the recovery of NPA. However, this act also could not speed up the recovery of bad loans, and the stringent requirements rendered the attachment and foreclosure of the assets given as security for the loan as ineffective.

42

Corporate Debt Restructuring (CDR) System: Companies sometimes are found to be in financial troubles for factors beyond their control and also due to certain internal reasons. For the revival of such businesses, as well as, for the security of the funds lent by the banks and FIs, timely support through restructuring in genuine cases was required. With this view, a CDR system was established with the objective to ensure timely and transparent restructuring of corporate debts of viable entities facing problems, which are outside the purview of BIFR, DRT and other legal proceedings. In particular, the system aimed at preserving viable corporate/businesses that are impacted by certain internal and external factors, thus minimising the losses to the creditors and other stakeholders. The system has addressed the problems due to the 43

rise of NPAs. Although CDR has been effective, it largely takes care of the interest of bankers and ignores (to some extent) the interests of borrowers stakeholders. The secured lenders like banks and FIs, through CDR merely, address the financial structure of the company by deferring the loan repayment and aligning interest rate payments to suit companys cash flows. The banks do not go for a one time large write-off of loans in initial stages. SARFAESI ACT 2002: By the late 1990s, rising level of Bank NPAs raised concerns and Committees like the Narasimham Committee II and Andhyarujina Committee which were constituted for examining banking sector reforms considered the need for changes in the legal system to address the issue of NPAs. These committees suggested a new legislation for securitisation, and empowering banks and FIs to take possession of the securities and sell them without the intervention of the court and without allowing borrowers to take shelter under provisions of SICA/BIFR. Acting on these suggestions, the SARFAESI Act, was passed in 2002 to legalise securitisation and reconstruction of financial assets and enforcement of security interest. The act envisaged the formation of asset reconstruction companies (ARCs)/ Securitisation Companies (SCs).

Provisions of the SARFAESI Act

The Act has made provisions for registration and regulation of securitisation companies or reconstruction companies by the RBI, facilitate securitisation of financial assets of banks, empower SCs/ARCs to raise funds by issuing security receipts to qualified institutional buyers (QIBs), empowering banks and FIs to take possession of securities given for financial assistance and sell or lease the same to take over management in the event of default.

44

The Act provides three alternative methods for recovery of NPAs, namely:

Securitisation: It means issue of security by raising of receipts or funds by SCs/ARCs. A securitisation company or reconstruction company may raise funds from the QIBs by forming schemes for acquiring financial assets. The SC/ARC shall keep and maintain separate and distinct accounts in respect of each such scheme for every financial asset acquired, out of investments made by a QIB and ensure that realisations of such financial asset is held and applied towards redemption of investments and payment of returns assured on such investments under the relevant scheme. Asset Reconstruction: The SCs/ARCs for the purpose of asset reconstruction should provide for any one or more of the following measures:

the proper management of the business of the borrower, by change in, or take over of, the management of the business of the borrower

the sale or lease of a part or whole of the business of the borrower rescheduling of payment of debts payable by the borrower

enforcement of security interest in accordance with the provisions of this Act settlement of dues payable by the borrower

taking possession of secured assets in accordance with the provisions of this Act. Exemption from registration of security receipt: The Act also provides, notwithstanding anything contained in the Registration Act, 1908, for enforcement of security without Court intervention: (a) any security receipt issued by the SC or ARC, as the case may be, under section 7 of the Act, and not creating, declaring, assigning, limiting or extinguishing any right, title or interest to or in immovable property except in so far as it entitles the holder of the security receipt to an

45

undivided interest afforded by a registered instrument; or (b) any transfer of security receipts, shall not require compulsory registration.

The Guidelines for SCs/ARCs registered with the RBI are:

act as an agent for any bank or FI for the purpose of recovering their dues from the borrower on payment of such fees or charges

y y

act as a manager between the parties, without raising a financial liability for itself; act as receiver if appointed by any court or tribunal.

Apart from above functions any SC/ARC cannot commence or carryout other business without the prior approval of RBI.

The Securitisation Companies and Reconstruction Companies (Reserve Bank) Guidelines and Directions, 2003

The Reserve Bank of India issued guidelines and directions relating to registration, measures of ARCs, functions of the company, prudential norms, acquisition of financial assets and related matters under the powers conferred by the SARFAESI Act, 2002.

Defining NPAs: Non-performing Asset (NPA) means an asset for which:

Interest or principal (or instalment) is overdue for a period of 180 days or more from the date of acquisition or the due date as per contract between the borrower and the originator, whichever is later;

interest or principal (or instalment) is overdue for a period of 180 days or more from the date fixed for receipt thereof in the plan formulated for realisation of the assets

interest or principal (or instalment) is overdue on expiry of the planning period, where no plan is formulated for realisation.

46

any other receivable, if it is overdue for a period of 180 days or more in the books of the SC or ARC.

Provided that the Board of Directors of a SC or ARC may, on default by the borrower, classify an asset as a NPA even earlier than the period mentioned above.

Registration:

Every SC or ARC shall apply for registration and obtain a certificate of registration from the RBI as provided in SARFAESI Act;

A Securitisation Company or Reconstruction Company, which has obtained a certificate of registration issued by RBI can undertake both securitisation and asset reconstruction activities;

Any entity not registered with RBI under SARFAESI Act may conduct the business of securitisation or asset reconstruction outside the purview of the Act.

Net worth of Securitisation Company or Reconstruction Company: Net worth is aggregate of paid up equity capital, paid up preference capital, reserves and surplus excluding revaluation reserve, as reduced by debit balance on P&L account, miscellaneous expenditure (to the extent not written off), intangible assets, diminution in value of investments/short provision against NPA and further reduced by shares acquired in SC/ARC and deductions due to auditor qualifications. This is also called Owned Fund. Every Securitisation Company or Reconstruction Company seeking the RBIs registration under SARFAESI Act, shall have a minimum Owned Fund of Rs 20 mn.

Permissible Business: A Securitisation Company or Reconstruction Company shall commence/undertake only the securitisation and asset reconstruction activities and the functions provided for in Section 10 of the SARFAESI Act. It cannot raise deposits.

47

Some broad guidelines pertaining to Asset Reconstruction are as follows:

Acquisition of Financial Assets: With the approval of its Board of Directors, every SC/ARC is required to frame, a Financial Asset Acquisition Policy, within 90 days of grant of Certificate of Registration, clearly laying down policies and guidelines which define the; norms, type, profile and procedure for acquisition of assets,

valuation procedure for assets having realisable value, which could be reasonably estimated and independently valued;

plan for realisation of asset acquired for reconstruction

The Board has powers to approve policy changes and delegate powers to committee for taking decisions on policy/proposals on asset acquisition.

Change or take over of Management/ Sale or Lease of Business of the Borrower: No SC/ARC can takeover/ change the management of business of the borrower or sale/lease part/whole of the borrowers business until the RBI issues necessary guidelines in this behalf.

Rescheduling of Debt/ Settlement of dues payable by borrower: A policy for rescheduling the debt of borrowers should be framed laying the broad parameters and with the approval of the Board of Directors. The proposals should to be in line with the acceptable business plan, projected earnings/ cash flows of the borrower, but without affecting the asset liability management of the SC/ARC or commitments given to investors. Similarly, there should be a policy for settlement of dues with borrowers.

Enforcement of Security Interest: For the sale of secured asset as specified under the SARFAESI Act, a SC/ARC may itself acquire the secured assets, either for its own use or for resale, only if the sale is conducted through a public auction.

48

Realisation Plan: Within the planning period a realisation plan should be formulated providing for one or more of the measures including settlement/rescheduling of the debts payable by borrower, enforcement of security interest, or change/takeover of management or sale/lease of a part or entire business. The plan should clearly define the steps for reconstruction of asset within a specified time, which should not exceed five years from the date of acquisition.

Broad guidelines with regards to Securitisation are as follows:

Issue of security receipts: A SC/ARC can set up trust(s), for issuing security receipts to QIBs, as specified under SARFAESI Act. The company shall transfer the assets to the trust at a price at which the assets were acquired from the originator. The trusteeship remains with the company and a policy is formulated for issue of security receipts.

Deployment of funds: The company can sponsor or partner a JV for another SC/ARC through investment in equity capital. The surplus available can be deployed in G-Sec or deposits in SCBs.

Asset Classification: The assets of SC/ARC should be classified as Standard or NPAs. The company shall also make provisions for NPAs.

Issues under the SARFAESI

Right of Title

A securitisation receipt (SR) gives its holder a right of title or interest in the financial assets included in securitisation. This definition holds good for securitisation structures where the securities issued are referred to as Pass through Securities. The same definition is not legally inadequate in case of Pay through Securities with different tranches.

49

Thin Investor Base

The SARFAESI Act has been structured to enable security receipts (SR) to be issued and held by Qualified Institutional Buyers (QIBs). It does not include NBFC or other bodies unless specified by the Central Government as a financial institution (FI). For expanding the market for SR, there is a need for increasing the investor base. In order to deepen the market for SR there is a need to include more buyer categories.

Investor Appetite

Demand for securities is restricted to short tenor papers and highest ratings. Also, it has remained restricted to senior tranches carrying highest ratings, while the junior tranches are retained by the originators as unrated pieces. This can be attributed to the underdeveloped nature of the Indian market and poor awareness as regards the process of securitisation.

Risk Management in Securitisation

The various risks involved in securitisation are given below:

Credit Risk: The risk of non-payment of principal and/or interest to investors can be at two levels: SPV and the underlying assets. Since the SPV is normally structured to have no other activity apart from the asset pool sold by the originator, the credit risk principally lies with the underlying asset pool. A careful analysis of the underlying credit quality of the obligors and the correlation between the obligors needs to be carried out to ascertain the probability of default of the asset pool. A well diversified asset portfolio can significantly reduce the simultaneous occurrence of default.

Sovereign Risk: In case of cross-border securitisation transactions where the assets and investors belong to different countries, there is a risk to the investor in the form of nonpayment or imposition of additional taxes on the income repatriation. This risk can be 50

mitigated by having a foreign guarantor or by structuring the SPV in an offshore location or have an neutral country of jurisdiction

Collateral deterioration Risk: Sometimes the collateral against which credit is sanctioned to the obligor may undergo a severe deterioration. When this coincides with a default by the obligor then there is a severe risk of non-payment to the investors. A recent example of this is the sub-prime crisis in the US which is explained in detail in the following sections.

Legal Risk: Securitisation transactions hinge on a very important principle of bankruptcy remoteness of the SPV from the sponsor. Structuring the asset transfer and the legal structure of the SPV are key points that determine if the SPV can uphold its right over the underlying assets, if the obligor declares bankruptcy or undergoes liquidation.

Prepayment Risk: Payments made in excess of the scheduled principal payments are called prepayments. Prepayments occur due to a change in the macro-economic or competitive industry situation. For example in case of residential mortgages, when interest rates go down, individuals may prefer to refinance their fixed rate mortgage at lower interest rates. Competitors offering better terms could also be a reason for prepayment. In a declining interest rate regime prepayment poses an interest rate risk to the investors as they have to reinvest the proceedings at a lower interest rate. This problem is more severe in case of investors holding long term bonds. This can be mitigated by structuring the tranches such that prepayments are used to pay off the principal and interest of short-term bonds.

Servicer Performance Risk: The servicer performs important tasks of collecting principal and interest, keeping a tab on delinquency, maintains statistics of payment, disseminating the same to investors and other administrative tasks. The failure of the servicer in carrying out its function can seriously affect payments to the investors.

51

Swap Counterparty Risk: Some securitization transactions are so structured wherein the floating rate payments of obligors are converted into fixed payments using swaps. Failure on the part of the swap counterparty can affect the stability of cash flows of the investors.

Financial Guarantor Risk: Sometime external credit protection in the form of insurance or guarantee is provided by an external agency. Guarantor failure can adversely impact the stability of cash flows to the investors.

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T ANALYSIS
LONG TERM LOANS

OPENING BALANCE
2005-06 2006-07 2007-08 2008-09 2009-10 544913206.69 551548758.16 504078485.28 407527627.41 329122131.46

ISSUED
99734463.30 38631658.36 51547375.00 124956174.63 83327868.13

TOTAL
644647669.99 590180416.52 555625860.28 532483802.04 412449999.59

RECOVERED
93098911.83 86101931.24 150642368.87 203352170.58 96239981.82

M.T. LOANS OPENING BALANCE

2005-06 2006-07 2007-08 2008-09 2009-10 29541341.87 22378935.87 21140824.87 17865936.87 16583175.87

ISSUES
3440602.00 2918814.00 200000.00 1781020.00 1210160.00

TOTAL
32981943.87 25297749.87 21340824.87 19646956.87 17793335.87

RECEIPTS
10603008.00 3802590.00 3474888.00 3063781.00 2276867.00

S.T. LOANS OPENING BALANCE

2005-06 2006-07 2007-08 2008-09 2009-10 1307912703.93 1142377963.18 1309448227.21 1365620485.63 1342603777.88

ISSUES
1213584740.50 1114599314.00 910017239.00 666838749.05 2549024072.00

TOTAL
2521497444.43 2256977277.18 2219465466.21 2032459234.68 3891627849.88

RECEIPTS
1379119481.25 1125230728.06 853844981.38 715361137.80 2562068322.85

53

LOANS TO INDIVIDUALS OPENING BALANCE

2005-06 2006-07 2007-08 2008-09 2009-10 103440521.20 100587951.95 100932827.95 102069409.95 163417393.15

ISSUES
153970958.00 157790974.00 184751940.00 269939641.00 478174926.00

TOTAL
257411479.20 258378925.95 285684767.95 372009050.95 641592319.15

RECEIPTS
156823527.25 157446098.00 183605158.00 208601877.80 325271880.00

L.T. LOANS (EPADB) OPENING BALANCE

2005-06 2006-07 2007-08 2008-09 2009-10 652886274.88 701127289.36 700697126.43 663084709.48 12246174.47

ISSUES
83820117.19 2777078.00 1529424.00 10967949.66 109222.33

TOTAL
736706392.07 703904367.36 702226550.43 674052659.14 12355396.80

RECEIPTS
35579102.71 3207240.93 39141840.95 661806484.67 7276902.80

CASH CREDIT OPENING BALANCE

2005-06 2006-07 2007-08 2008-09 2009-10 94882602.66 92534594.55 85104418.84 84435111.56 92785743.96

ISSUES
117795367.82 126994380.35 129239508.03 224978722.51 213212447.67

TOTAL
212677970.48 219528974.90 214343926.87 309413834.07 305998191.63

RECEIPTS
120143375.93 134424556.06 129908815.31 157369556.11 211277706.27

54

LIQUIDATE SOCIETIES opening balance

2005-06 2006-07 2007-08 2008-09 2009-10 6620.14 6620.14 6620.14 6620.14 16120.14

issues
0.00 0.00 0.00 0.00 0.00

total
6620.14 6620.14 6620.14 6620.14 16120.14

receipts
0.00 0.00 0.00 0.00 0.00

OTHER LOANS opening balance

2005-06 2006-07 2007-08 2008-09 2009-10 0.00 362085851.80 335415563.80 275614399.00 63894953.00

issues
367258070.80 5600.00 17331298.00 125903.00 410913741.00

total
367258070.80 362091451.80 352746861.80 275740302.00 474808694.00

receipts
5172219.00 26675888.00 77132462.00 245598202.00 25742749.00

LT LOANS & ADVANCES (TRACTOR)

opening balance
2005-06 2006-07 2007-08 2008-09 2009-10 0.00 0.00

issues
0.00 950000.00

total
0.00 950000.00

receipts
0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00

55

SAO/CKCC Loans & Advances

opening balance
2005-06 2006-07 2007-08 2008-09 2009-10 0.00 0.00

issues
0.00 262077734.00

total
0.00 262077734.00

receipts
0.00 84730390.91

0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00

TTHE TABLE SHOWS RECOVERY OF LOANS

2005-06 PARTICULARS 20926.97 a) Out standing at the beginning year 12777.34 b) Advances during the year 33704.31 c) Total (a+b) 19187.28 d)Recovery the year during 27336.91 e)Out standing at the end of the year 21389.16 18916.02 8012.69 13499.38 9114.43 10482.11 10481.26 12725.26 27357.97 34344.41 40300.63 8012.69 7541.62 12955.25 21384.60 7239.49 19816.35 21389.16 18916.03 8012.69 2006-07 2007-08 2008-09 2009-10

56

30000 27336.91 25000 20000 15000 10000 5000 0 2005-06 2006-07 2007-08 2008-09 2009-10 YEARS 8012.69 21389.16 18916.02 13499.38

INTERPRETATION
It is clear from the above graph shows last 5 years of advances and Recovery of loan and it shows also year ending outstanding loans (balances) 2005-2006 advances are 27336.91 so the total loans of this years is 33704.31 as the same year the recovery of loans is 19187.28 so, the balance loans or non recovery loans 14517.03

At the same time the last year that is 2008-09 the advance are 21384.60. So the total loans of this year 40300.63 as the same year recovery of loans are 10481.26, so the balance loans are 29819.37.

57

percentage of changes in Recovery of loans last 5 years

During the year Year Total loans Advances 2005-06 2006-07 2007-08 2008-09 2009-10 33704.31 27357.97 34344.41 40300.63 8012.69 Recovery of loans 19187.28 9114.43 10482.11 10481.26 12725.26 % Of Recovery of Loans

IN INTERPRETATION
The above Graph shows last 5 years percentages of recovery of loans in the year 200506 the percentage of recovery of loans 323.08 and 2006-07 it was increased 680.134 so in this view the bank recovery of loans are very satisfactory. But in last year that is 2009-10 it was decreased, 680.134 to 487.143 but overall the performance of bank recovery of loans satisfactory.

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The Increase of Deposits in KDCCB

Years
2005-06 2006-07 2007-08 2008-09 2009-10

Deposits
5567.75 5858.45 5651.94 5842.12 6312.96 -

Increase

Index %
100 105.22 96.29 103.42 108.46 -

Increase/ Decrease

290.7 -206.51 190.18 470.84

5.22 -3.71 3.42 8.46

GRAPH OF TOTAL DEPOSITS

30000 25000 Rs.In Lakhs 20000 15510.9 15000 10000 5000 0 2005-06 2006-07 2007-08 2008-09 2009-10 YEARS 10551.11 11357.44 24208.39 23213.4

Interpretation
The above table shows increase of last 5 years deposits in the year of 2005-06 the deposit was 10551.11 that is base year and after 2006-07, 2006-07 it was increased, but 2007-08 it was decreased and 2008-09, 2009-10 the deposit was increased respectively.

59

KDCCB Types of deposits Table showing the deposits of individuals for last 5 years.

S.No
1 2 3 4 5

Types of deposits
Current Deposits Saving Deposits Fixed Deposits Other Deposits Total

2005-06
318.59 1818.18 7958.44 455.90 10551.11

2006-07 2007-08 2008-09 2009-10

236.04 2047.52 8624.66 449.22 11357.44 295.05 311.04 10295.94 1808.87 12710.9 762.24 3766.95 12990.16 6689.04 24208.39 1743.53 3485.63 17660.73 323.51 23213.40

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PROBLEMS THE LOANS

FACED

BY

INSTITUTIONS

IN

RECOVERING

1) Lack of sufficient field staff to ensure follow-up supervision after the sanction of loan and heavy burden on the existing field staff since they have to cover large number of villages under loan recovery programme.

2) Staff are not willing to go to the rural and tribal areas due to lack of adequate educational and medical facilities and even the staff who are working in these areas do not have any motivation to serve the area.

3) Absence of any statutory powers to the banks to induce prompt repayment by borrowers is another hurdle which is hampering the recovery performance of the institutions. Statutes like the `Revenue Recovery Act' which empowered the co-operatives to recover the loans would have gone a long way in improving the recovery performance of banks.

4) Interference of local politicians is adversely affecting the repayment schedule of the borrowers in the rural areas, as village politics play a crucial role in the functioning of the co-op societies. The Governments populist policy of waiving of loans' has created mass psychology in the rural areas to withhold repayments and wait for some type of loan waiver programme to come to their rescue.

5) Frequent crop failures in the study area have been adversely affecting the repayment schedule of the cultivators. Since most of the cultivated area is unirrigated dry land the income from the crop yields is not sufficient to repay the loans while maintaining their families.

6) The local `Land Transfer Act' which prohibits alienation of land from tribals is another hurdle in executing any court decree of selling the land to recover the loans advanced by the

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credit institutions.

7) Priority given to the repayment of private loans by borrowers, which are used both for productive and consumption purposes has been adversely affecting the repayments to the banks and Co-ops.

STEPS

SUGGESTED

FOR

IMPROVING

THE

RECOVERY

POSITION
1) The Credit Institutions should ensure adequate and continuous supervision and follow-up action after the loan is disbursed. As the present staff structure does not permit this type of activity, the institutions should strengthen the field staff in their rural branches and motivate them towards better work norms and ethics.

2) While identifying the beneficiaries under Government sponsored schemes, a free hand should be given to the bank staff to carefully verify the bonafied, credit worthiness and the repayment capability of the borrower which will ensure a better repayment performance by the borrower.

3) Suitable enactments empowering the credit institutions to enforce recovery of loans from the borrower should be made, especially in tribal areas where normal laws are not applicable.

4) In the case of crop loans, overestimation of incomes from crops should be avoided by making a realistic assessment of the actual production which will reduce the burden of loan to the borrower besides preventing diversion of the excess amounts to other unproductive purposes.

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5) As most of the cultivated land of the sample households is unirrigated dry depending on the vagaries of nature, a better cropping pattern suitable to the area should be encouraged by the agriculture department to increase the crop yields which will ensure better repayment by the borrowers.

6) As the entire Mandal is located on the bank of perennial river Godavari, lift irrigation system may be developed in the area to irrigate the lands and increase crop production and productivity which will certainly induce the borrowers to repay the loans.

7) As far as possible the Governments at the State and Centre should avoid the populist programmes like `Waiving of Loans' which has adversely affected the psychology of the borrowers in the rural areas and encouraged absenteeism.

8) Frequent interference by local politicians in the functioning of credit institutions in the rural areas, especially, in the running of co-ops. Should be discouraged as far as possible as factional politics have been instrumental in increasing the amount of overdues on one plea or the other.

9) Credit institutions should extent consumption loan facilities also to the needy people in the rural areas in order to discourage resort to private loans which are cornering a major part of their earnings towards repayment of private loans on exorbitant interest rates.

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BIBLIOGRAPHY 1) Financial Institutions and Markets 2) Co Operative Banking Operations 3) Banking Theory & Practice 4) bank credit management 5) www.karimnagardccbap.in 6) www.nabard.ac.in 7) www.rbi.gov.in L. M. Bhole & Jitendra Mahakud Indian Institute of Banking & Finance Dr. P. K. Srivastav S. Murali

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