Non Performing Assets

APGB, KADAPA

ABOUT BANKING INDUSTRY1.1 THE BANK: The word bank means an organization where people and business can invest

or borrow money; change it to foreign currency etc. According to Hals bury “A

Banker is an individual, Partnership or Corporation whose sole pre-dominant business

is banking, that is the receipt of money on current or deposit account, and the payment

of cheque drawn and the collection of cheque paid in by a customer.’’

1.2 THE ORIGIN AND USE OF BANKS: The Word ‘Bank’ is derived from the Italian word ‘Banko’ signifying a

bench, which was erected in the market-place, where it was customary to exchange

money. The Lombard Jews were the first to practice this exchange business, the first

bench having been established in Italy A.D. 808. Some authorities assert that the

Lombard merchants commenced the business of money-dealing, employing bills of

exchange as remittances, about the beginning of the thirteenth century. About the

middle of the twelfth century it became evident, as the advantage of coined money

was gradually acknowledged, that there must be some controlling power, some

corporation which would undertake to keep the coins that were to bear the royal stamp

up to a certain standard of value; as, independently of the ‘sweating’ which invention

may place to the credit of the ingenuity of the Lombard merchants- all coins will, by

wear or abrasion, become thinner, and consequently less valuable; and it is of the last

importance, not only for the credit of a country, but for the easier regulation of

commercial transactions, that the metallic currency be kept as nearly as possible up to

the legal standard. Much unnecessary trouble and annoyance has been caused

formerly by negligence in this respect. The gradual merging of the business of a

goldsmith into a bank appears to have been the way in which banking, as we now

understand the term, was introduced into England; and it was not until long after the

establishment of banks in other countries-for state purposes, the regulation of the

coinage, etc. that any large or similar institution was introduced into England. It is

only within the last twenty years that printed cheques have been in use in that

establishment. First commercial bank was Bank of Venice which was established in

1157 in Italy.

MANAGEMENT OF NON-PERFORMING ASSETS 1 S.V PG COLLEGE: KADAPA

APGB, KADAPA

1.3 HISTORY OF BANKING IN INDIA:

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 was 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 charters from the British East India Company. For

many years the Presidency banks acted as quasi-central banks, as did their successors.

The three banks merged in 1921 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 1848-49. The Allahabad Bank,

established in 1865 and still functioning today, is the oldest Joint Stock bank in India.

(Joint Stock Bank: A company that issues stock and requires shareholders to be held

liable for the company's debt) It was not the first though. That honor belongs to the

Bank of Upper India, which was established in 1863, and which survived until 1913,

when it failed, with some of its assets and liabilities being transferred to the Alliance

Bank of Simla. Foreign banks too started to arrive, particularly in Calcutta, in the

1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and

another in Bombay in 1862; branches in Madras and Puducherry, 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 center.

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 in 1895, which has survived to the present and is now one

of the largest banks in India. 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.


APGB, KADAPA

A number of banks established then have survived to the present such as Bank

of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central

Bank of India. The fervour of Swadeshi movement lead to establishing of many

private banks in Dakshina Kannada and Udupi district which were unified earlier and

known by the name South Canara ( South Canara ) district. Four nationalized banks

started in this district and also a leading private sector bank. Hence undivided

Dakshina Kannada district is known as "Cradle of Indian Banking". · The Reserve

Bank of India, India's central banking authority, was nationalized on January 1, 1949

under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act,

1948 (RBI, 2005b). 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 opened without a license from the RBI, and no

two banks could have common directors.

1.4 NATIONALIZATION OF BANKS:Banks Nationalization in India: Newspaper Clipping, Times of India, July, 20,

1969 Despite the provisions, control and regulations of Reserve Bank of India, banks

in India except the State Bank of India or SBI, continued to be owned and operated by

private persons. By the 1960s, the Indian banking industry had become an important

tool to facilitate the development of the Indian economy. At the same time, it had

emerged as a large employer, and a debate had ensued about the nationalization of the

banking industry. Indira Gandhi, then Prime Minister of India, expressed the intention

of the Government of India in the annual conference of the All India Congress

Meeting in a paper entitled "Stray thoughts on Bank Nationalization.

"The meeting received the paper with enthusiasm. Thereafter, her move was

swift and sudden. The Government of India issued an ordinance and nationalized the

14 largest commercial banks with effect from the midnight of July 19, 1969.

Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke

of political sagacity." Within two weeks of the issue of the ordinance, the Parliament

passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it

received the presidential approval on 9 August 1969.


APGB, KADAPA

A second dose of nationalization of 6 more commercial banks followed in

1980. The stated reason for the nationalization was to give the government more

control of credit delivery. With the second dose of nationalization, the Government of

India controlled around 91% of the banking business of India. Later on, in the year

1993, the government merged New Bank of India with Punjab National Bank. It was

the only merger between nationalized banks and resulted in the reduction of the

number of nationalized banks from 20 to 19. After this, until the 1990s, the

nationalized banks grew at a pace of around 4%, closer to the average growth rate of

the Indian economy.

1.5 LIBERALIZATION OF BANKING IN INDIA:In the early 1990s, the then Narsimha Rao government embarked on a policy

of liberalization, licensing a small number of private banks. These came to be known

as New Generation tech-savvy banks, and included Global Trust Bank (the first of

such new generation banks to be set up), which later amalgamated with Oriental Bank

of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This

move, along with the rapid growth in the economy of India, revitalized the banking

sector in India, which has seen rapid growth with strong contribution from all the

three sectors of banks, namely, government banks, private banks and foreign banks.

The next stage for the Indian banking has been set up with the proposed relaxation in

the norms for Foreign Direct Investment, where all Foreign Investors in banks may be

given voting rights which could exceed the present cap of 10%,at present it has gone

up to 74% with some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till

this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4)

of functioning. The new wave ushered in a modern outlook and tech-savvy methods

of working for traditional banks. All this led to the retail boom in India. People not

just demanded more from their banks but also received more. Currently (2007),

banking in India is generally fairly mature in terms of supply, product range and

reach-even though reach in rural India still remains a challenge for the private sector

and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are

considered to have clean, strong and transparent balance sheets relative to other banks

in comparable economies in its region.


APGB, KADAPA

The Reserve Bank of India is an autonomous body, with minimal pressure

from the government. The stated policy of the Bank on the Indian rupee is to manage

volatility but without any fixed exchange rate-and this has mostly been true. With the

growth in the Indian economy expected to be strong for quite some time-especially in

its services sector-the demand for banking services, especially retail banking,

mortgages and investment services are expected to be strong. One may also expect

M&As, takeovers, and asset sales. In March 2006, the Reserve Bank of India allowed

Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank)

to 10%. This is the first time an investor has been allowed to hold more than 5% in a

private sector bank since the RBI announced norms in 2005 that any stake exceeding

5% in the private sector banks would need to be vetted by them.

1.6 LIST OF BANKS IN INDIA: CENTRAL BANK (RESERVE BANK OF INDIA)

NABARD

NATIONALIZED BANKSAllahabad Bank , Andhra Bank , Bank of Baroda · Bank of India · Bank of

Maharashtra · Canara Bank · Central Bank of India · Corporation Bank · Dena Bank ·

IDBI Bank · Indian Bank · Indian Overseas Bank · Oriental Bank of Commerce ·

Punjab & Sind Bank · Punjab National Bank · Syndicate Bank · UCO Bank · Union

Bank of India · United Bank of India · Vijaya Bank.

STATE BANK GROUPState Bank of India · State Bank of Bikaner & Jaipur · State Bank of Hyderabad ·

State Bank of Indore · State Bank of Mysore · State Bank of Patiala, State Bank of

Travancore

PRIVATE BANKSAxis Bank · Bank of Rajasthan · Bharat Overseas Bank · Catholic Syrian Bank ·

Dhanalakshmi Bank · South Indian Bank · City Union Bank · Federal Bank · HDFC

Bank · ICICI Bank · IndusInd Bank · ING Vysya Bank · Jammu & Kashmir Bank ·

Karnataka Bank Limited · Karur Vysya Bank · Kotak Mahindra Bank · Lakshmi

Vilas Bank · Nainital Bank · Ratnakar Bank ·Saraswat Bank · Tamilnad Mercantile

Bank Limited · Yes Bank


APGB, KADAPA

FOREIGN BANKSABN AMRO · Abu Dhabi Commercial Bank · Antwerp Diamond Bank · Arab

Bangladesh Bank ·Bank International Indonesia · Bank of America · Bank of Bahrain

& Kuwait · Bank of Ceylon · Bank of Nova Scotia · Bank of Tokyo Mitsubishi UFJ

·Barclays Bank · Citibank India · HSBC · Standard Chartered · Deutsche Bank ·

Royal Bank of Scotland.

REGIONAL RURAL BANKSNorth Malabar Gramin Bank · South Malabar Gramin Bank · Pragathi Gramin Bank ·

Shreyas Gamin Bank

FINANCIAL SERVICESReal Time Gross Settlement (RTGS) · National Electronic Fund Transfer (NEFT) ·

Structured Financial Messaging System (SFMS) · Cash Tree · Cash net · Automated

Teller Machine (ATM)

BANKS IN ASIASovereign states Afghanistan · Armenia1 · Azerbaijan1 · Bahrain · Bangladesh ·

Bhutan · Brunei ·Burma2 · Cambodia · People's Republic of China · Cyprus1 · East

Timor3 · Egypt4 ·Georgia4 ·India · Indonesia · Iran · Iraq · Israel · Japan · Jordan ·

Kazakhstan4 · North Korea · South Korea ·Kuwait · Kyrgyzstan · Laos · Lebanon ·

Malaysia · Maldives · Mongolia · Nepal · Oman ·Pakistan · Philippines · Qatar ·

Russia4 · Saudi Arabia · Singapore · Sri Lanka · Syria · Tajikistan · Thailand ·

Turkey4 · Turkmenistan · United Arab Emirates · Uzbekistan · Vietnam · Yemen

STATES WITH LIMITED RECOGNITIONAbkhazia1 · Nagorno-Karabakh · Northern Cyprus · Palestine · Republic of China5 ·

South Ossetia1

DEPENDENCIES, AUTONOMIES OTHER TERRITORIESAche · Adjara1 · Akrotiri and Dhekelia · Altai · British Indian Ocean Territory ·

Buryatia ·Christmas Island · Cocas (Keeling) Islands · Guangxi · Hong Kong · Inner

Mongolia · Iraqi Kurdistan · Khakassia · Macau · Nakhchivan · Ningxia · Papua ·

Sakha Republic · Tibet · Tuva · West Papua · Xinjiang


APGB, KADAPA

ABOUT APGB

2.1 HISTORY

Andhra Pragathi Grameena Bank was established on 1st June, 2006 after

amalgamation of 3 RRBs namely Rayalaseema Grameena Bank (established on

06.08.1976), Sree Anantha Grameena Bank (established on 01.11.1979) and Pinakini

Grameena Bank (established on 11.6.1982). These Regional Rural Banks were

established under the provisions of RRB Act, 1976 and consequent to the Government

of India Notification dt.1.6.06, were amalgamated and formed as a new entity called

Andhra Pragathi Grameena Bank with its Head Office at Kadapa.

The bank is operating in Kadapa, Anantapur, Kurnool, Nellore and Prakasam

districts of Andhra Pradesh and having Regional Offices in each District Head

Quarters. The bank is catering to the needs of rural poor covering Agriculture, Small

Industries, Village Artisans, Small business besides catering to the needs of Non

Priority sector also. The Bank is having a total business of 7493.46 cores as on

30.09.2010. The bank is assisting the SHGs in a massive way and financed to more

than 105587 SHGs with outstanding SHG advances of 792.88 crores.

The bank is progressing with all-round development and introducing new

products to cater the needs of the people in its service area. The Bank is improving

customer service by computerizing all its branches. The bank has been propagating

innovations in Rural Banking and also has been receptive to new ideas.

2.2 BUSINESS HIGHLIGHTS OF APGB AS ON 30.09.2010 1. Andhra Pragathi Grameena Bank occupied No.1 position in Net worth among all

the RRBs in the country. The Bank has 372 branches in 5 districts. VIZ., Kadapa,

Anantapur, Kurnool, Nellore and Prakasam districts. The operating profit of the Bank

for the year Half year ended 30.09.2010 touched 106.53 crores.

2. Total business crossed 7493.46 crores.

3. Deposits crossed 3656.04 crores with a Y-O-Y growth rate of 14.12%.

4. Advances crossed 3837.42 crores, with a growth rate of 17.03% over the

September-2009.


APGB, KADAPA

5. The Bank has customer base with 30.91 lakhs deposit accounts and 9.12 lakhs

borrower accounts.

6. Priority sector advances reached a level of 3386.38 crores, constituting 88.25% of

total advances. Agriculture advances touched a level of 2984.56 crore, constituting

77.78% of total advances. The Y-O-Y growth under Priority sector advances is

20.46% and Agl. Advances is 25.93% .

7. 406102 Kisan Credit Card accounts are outstanding with a loan amount of

1468.56 crore.

8. Actively participated in the scheme of achieving 100% Financial Inclusion in all

the 5 districts–Kadapa, Kurnool Anantapur, Nellore and Prakasam.

9. The Bank has computerized all its 372 branches and 3 ECs with Total Branch

Mechanization and 100% of its business is computerized.

10. The highest number of 7.99 lakhs Pragathi Janatha No-Frill accounts SB accounts,

are opened under total Financial Inclusion.

11. 105587 SHGs loan accounts are outstanding with loan amount of 792.88 crores.

Provided additional financial assistance to the SHGs under the special Dairy

Development Project.

12. Per branch business and Per-employee business stood at 19.67 crores and

3.65 crores respectively.

13. Opened 12 new branches during the first half of the current financial year.

2.3 FUTURE PLANS OF APGB:

The Bank is aiming to cross the following mile-stones in the year (2010-11).

1. Achieve a business level of 8600 crores.

2. Planning to open 28 more branches during the current year in the in the area of

operation of the bank in tune with the policy of Govt. of India.

3. CBS: The Bank has finalized C-Edge software for implementation of Core

Banking Solution in its branches. The bank is planning to implement Core Banking

Solution in 5 Pilot branches before 31.12.2010 and in 150 branches by 31.03.2011.

4. Planning to engage Business Correspondents under Total Financial Inclusion.

We are hopeful of achieving the set goals in the present year (2010-11) with

the cooperation of one and all, more particularly the clientele of the Bank and


APGB, KADAPA

Government Agencies. We thank the media both print and electronic for their

cooperation in projecting the image of our Bank in good stead.

2.4 SOCIAL RESPONSIBILITIES OF APGB:The Bank is catering to the needs of the Rural Community and actively associated

with Rural Development. Apart from the business development, the Bank is

undertaking Social Responsibilities for bringing desired change in the rural

community and moving them towards improving the living standards of the rural

community. The Bank has initiated the following steps in this direction.

1. Establishment of Farmers’ Clubs: The Bank has established 321

Farmers Clubs through which the Bank is undertaking activities for enriching the

Farmers with latest Technology and improving the cultivation methods by way of

expert lectures, study tours and demonstrations. The progressive Farmers of the

village are the members of the club and they play active role in dissemination of the

farming techniques to the other farmers in the village. One of our clubs has secured

the Best Club Award from the NABARD. These clubs will play major role in

transforming the traditional farmers to progressive farmers.

2. Establishment of Training Institutes: The Sponsor Bank i.e. Syndicate

Bank has established training institutes (SIRD) at Kadapa and Kurnool for training the

Rural Youth. The Bank is actively associated with providing of training and imparting

the skills to the unemployed rural youth. Further, the SIRDs are also extending help to

the trained candidates to establish the business activity by coordinating with the banks

for extending loans to them. The trainings are provided in the fields of photography,

tailoring, Mobile phone repairing, Embroidery, Computer courses like graphics, DTP,

MS-Office etc. The practical training is provided in the above fields by the institute,

which enables the trained youth to establish their own businesses.

3. Conducting of extension activities: The Bank is conducting extension

programmers through its branches for educating the farmers in various fields like,

post harvest technologies, improved agricultural practices, insect and pest

management in prominent crops, techniques in water & soil conservation methods,

integrated pest management and dairying. These programmer are most useful to the

farmers to equip themselves with latest technologies in the field of Agriculture and

help them to improve the productivity of the crops.


APGB, KADAPA

4. Improving the water resources: As a part of Social Responsibility, the

Bank has undertaking the clearing/ cleaning of village ponds to improve the water

retention capacity of the village tanks. The supply channels are also cleaned with the

assistance of the Bank which will help for free flow of water. The Bank is

contributing some amount and involving all the villagers for undertaking the above

works. The villagers are voluntarily participating in the above programmer and

making the programme successful. The Bank has extended assistance for cleaning/

clearing of 123 village ponds so far and the same is being continued.

5. Contribution to Renewable Energy: The Bank has entered MoU with

the suppliers of Solar Energy Systems and extending financial assistance for

installation of Solar Energy Systems. Further, the Bank has established renewable

energy Systems in 30 branches for un-interrupted power supply. Thus the Bank is

promoting the renewable energy sources there by contributing its might to maintain

the ecological balance.

2.5 SECURITY MEASURES & OTHER DEVELOPMENTS OF

APGB:

1. Security Measures: The Bank has provided fire extinguishers and security

alarms to all the branches. During the financial year, the Bank has provided Strong

Room facility to 8 branches taking the total number of branches having strong room

facility to 77. The Bank has also provided 115 BB class safes to the branches, where

the jewel loan port folio has crossed 100 lakhs and another 50 BB class safes will be

provided during the current fiscal.

2. Safe Deposit Lockers: In order to improve the customer service, the Bank is

providing Safe deposit lockers facility in all urban and Semi-urban branches and also

in some rural branches, where business potential is available. During the financial

year, the Bank has provided 16 Safe Deposit Lockers, thus taking the total available

lockers at the branches to 106.

3. Cash counting Machines: The bank has provided 289 cash counting

machines to branches so far and taken steps to supply another 75 machines during the

current year.


APGB, KADAPA

4. Co-financing: NABARD, Andhra Pradesh Regional Office has entered into

Memorandum of Understanding (MoU) with Andhra Pragathi Grameena Bank

(APGB) on Co-financing at YSR (Kadapa) today with an objective to increase the

flow of ground level credit to agriculture and allied activities in the State. Under this

agreement, while NABARD will leverage its technical appraisal and financial

resources, APGB would utilize its domain knowledge of the local area. Under Co-

financing, NABARD and APGB jointly finance new projects or even projects for

modernization & expansion. Projects involving sunrise technology and large financial

outlays and long gestation period, would merit consideration. The thrust areas under

co-financing would cover projects in Agro Processing, Post Harvest Management,

Contract Farming, Organic Farming, Bio Fertilizers/Organic Manures, Plantation &

Horticulture, Dairy, Poultry, Fisheries, Eco-tourism, Non-farm Sector & Allied

activities, Carbon Trading & Allied activities etc.

Andhra Pragathi Grameena Bank has responded to the initiative of NABARD

to join it for co-financing innovative projects in agriculture and rural development

sector so as to increase its business further. Andhra Pragathi Grameena Bank has its

presence in 5 districts of the State viz. YSR, Kurnool, Prakasam, Nellore and

Ananthapur and operates through 372 branches among which 36 branches are in

urban, 84 in semi-urban and 252 in rural areas. The Memorandum of Understanding

between NABARD and APGB was signed on 30th September 2010 with a common

objective of financing agri/ agro–industrial projects in the state.

While Shri P. Maharajah, CGM signed the MoU on behalf of NABARD, Shri

K. Preetam Lal, Chairman signed the MoU on behalf of Andhra Pragathi Grameena

Bank. This MoU between NABARD and Andhra Pragathi Grameena Bank would

facilitate accelerated flow of institutional credit to larger units in agriculture and agro

processing, agri marketing and allied sectors.

2.6 APGB VISION:“ Placing our Organization at the Highest Altitude among the RRB's in the country

and making it financially strong, viable, vibrant and an effective proactive instrument

of social change, with an eye to work for overall development of the people and the

economy of the operational area, through aggressive banking.”


APGB, KADAPA

2.7 OUR MISSION:

To increase the business on a sustainable manner with consistent efforts and bring

all the house holds in the operational area into banking folds.

To fine tune the existing products and design new products and services to match

the competition prevailing in the market.

To mould the staff of the bank as computer literate and technologically savvy and

to achieve hundred percent computerization of branches.

To continue to be a true friend, philosopher and guide to customers with

dedicated service and accelerate the pace of development of the operational area for

accomplishing the Bank's Object.

2.8 BOARD OF DIRECTORS

Sl.

No.

Name Occupation Nominee Director

of

1. Sri K.Preetam Lal Chairman --

2. Sri A.Sreerami Reddy, Deputy General Manager,

Syndicate Bank,

Regional Office,

Ritwik Enclave,A.K. Nagar,

NELLORE – 524 004.

Sponsor Bank

3. Sri C.Sambashiva

Reddy,

Asst. General Manager,

Syndicate Bank,

Regional Office,

ANANTAPUR – 515 001.

Sponsor Bank

4. Sri Artatran Sethy, Asst. General Manager,

Rural Planning & Credit

Dept.,

Reserve Bank of

India


APGB, KADAPA

Reserve Bank of India,

6-1-56, Secretariat Road,

Saifabad,Hyderabad – 500

004.

5. Sri M.Prem Kumar, Deputy General Manager,

NABARD,Regional Office,

1-1-61 RTC “X” Roads,

Musheerabad,

HYDERABAD 500020.

NABARD

6. Smt. Vasudha Mishra,

IAS.,

Principal Secretary to

Government (IF)

Finance Department,

Government of Andhra

Pradesh, HYDERABAD -

500 001.

State Government

7. Sri V.Anil Kumar, IAS., District Collector,

KADAPA

State Government

8. Smt.K.Padmaja Prasad

37-1-307 (144),

Opp. to Srinivasa Public

School,

Near Dist. Registrar Office,

Bhagya Nagar, II line,

ONGOLE - 523 001.

Non-official

Director from

Govt. of India

9. Sri P.Pitchi Reddy D.No.7/468-1,

N.G.O. Colony,

Sabhapathi Road,

KADAPA.

Non-official

Director from

Govt. of India


APGB, KADAPA

2.9 INTEREST RATES ON LOANS & ADVANCES WITH

EFFECT FROM 22.09.2011

PURPOSEINTEREST

RATE (% p.a.)

A. FARM SECTOR

I. Short Term Loans xxx

1.Crop/Pragathi KCC/Rythu Mitra Groups / Joint Liability

Groups / JL Agriculture

i. During Interest Subvention Period

xxx

a) Upto & inclusive of 3.00 lakhs 7.00

b) Above 3.00 lakhs 14.50

ii. Beyond Interest Subvention Period

a) Upto & inclusive of 25.000/- 11.50

b) Above 25,000/- &upto & inclusive of

50,000/-

11.50+2.00% OD

interest

c) Above 50000/- & upto & inclusive of

1.00 lakh

12.50+2.00% OD

interest

d) Above 1.00 lakh & upto & inclusive of

3.00 lakhs

13.50+ 2.00% OD

interest

e) Above 3.00 lakhs 14.50+2.00% OD

interest

2. Produce Loans xxx

a) Upto & inclusive of 2 lakhs 10.50

b) Above 2.00 lakhs 11.00

II. Agricultural Term Loans Xxx

1. Agriculture Term Loans & Allied Activities

a) Upto & inclusive of 50000/- 13.00

b) Above 50000/- 13.50

2. APMIP 13.00


APGB, KADAPA

3. Pragathi Capital Investment Scheme for Organic Farming 13.00

4. Pragathi Agri Business & Clinic Centres 14.00

5. Pragathi Land Purchase Scheme As applicable to

Agl. term loans

6.Rescheduled Loans As applicable to

Agl. Term loans

The above rates under Agriculture Term Loans are applicable to all Agriculture

Term Loans other than those specifically mentioned.

B. INDIRECT FINANCE TO AGRICULTURE

a) Finance to APFSCS i) ST/MT/LT 10.50

ii) ODC/ODj/ODH 13.00

b) Loans/Working Capital limits to Dealers of inputs to

Agriculture (fertilizers, pesticides, seeds, minor and micro

irrigation equipment, etc.)

As under C (for

Non Farm sector

advances)

C. NON FARM SECTOR

1. Retail Trade, Small Business, Small Scale Industries, SME

Sector, Road Transport Operators, GCC etc. (Working Capital

& Term Loans)

A) Upto & inclusive of 50000/- 13.00

B) Above 50000/- & Upto & inclusive of 1.00 lakh 13.50

C) Above 1 lakh & Upto & inclusive of 2.00 lakhs 14.00

D) Above 2.00 lakhs 15.00

The above rates under Non Farm Sector are applicable to both Priority and Non

Priority Sector advances other than those specifically mentioned.

D. OTHER PRIORITY SECTOR LOANS xxx

1. Self Help Group Loans [SHGs] (irrespective of any amount) 14.00

2. Education Loans xxx

A) Upto & inclusive of 4.00 lakhs 13.00


APGB, KADAPA

B) Above 4.00 lakhs 14.50

3. Housing Loans to public (incl. under Gruhini, Rajiv

Gruhakalpa, Pragathi Farm House, Individual Housing

Loans under Indiramma Schemes)

xxx

A) Upto repayment period of 5 years 10.50

B) Above 5 years & upto 10 years 11.00

C) Above 10 years 11.50

4. Vehicle Loans (2/3/4 wheelers) to Professional & Self

Employed persons/Business people, Salaried persons

xxx

A) Upto 3.00 lakhs 14.00

B) Above 3.00 lakhs 15.00

5) Pragathi Doctors’ Plus 11.00

6) Pragathi Solar Home Lighting/Heating System

Normal Scheme 11.00

Under JNNSM 5.00

7) Pragathi Swarojgar Credit Card Scheme 13.00

8) SGSY/ Rajiv Yuvasakthi/Other Govt sponsered schemes As applicable to

purpose of loan &

quantum

9) Loans under DRI 4.00

E. NON PRIORITY SECTOR LOANS xxx

1) Loans/OD against approved securities like NSCs, LIC

policies

14.00

2) Personal Banking Loans to employees xxx

a)Employees drawing their salaries through our Bank 15.00

b) Employees drawing their salaries through other Banks 18.00


APGB, KADAPA

3) Branch Premises loans 14.00

4) Jewel Loans (non agrl) 14.00

5) BGs paid (incl. OD interest) 18.00

6) Commercial complexes/School or College buildings, etc. 18.00

7) Multi Purpose Mortgage Loans 16.00

8) Pragathi Rent Plus 16.00

8) CDD – Discount to be collected by way of interest

(both priority & non priority)

Xxx

a) for a minimum period of 10 days @ 16.00

b) From 11th day (quarterly compounded) @ 18.00

9) Debit Balances in SB/Current A/cs 18.00

10) Loans on Deposits / ODDs Xxx

a) Against Nitya Nidhi Deposit 11.00

b) Against other term deposits 2.00 above the

deposit rate without

any ceiling


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c) Against term deposits prematurely withdrawn within 15

days

15.00

OVERDUE/PENAL RATES OF INTEREST

A. Overdue interest rate over the applicable normal rate

i) DRI Advances Nil

ii) Aggregate Credit Limits not exceeding 5000/- in the

case of Non Priority Sector advances and 25000/- in the case

of Priority Sector advances

Nil

iii) Aggregate Credit Limits exceeding 5000/- in the case of

Non Priority Sector advances and 25000/- in the case of

Priority Sector advances

2.00

B. Penal interest over the applicable normal rate

i) For non-submission/delayed submission of monthly stock

statements to be charged for delayed period

1.00

ii) For diversion of funds 2.00


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iii) For non-submission of renewal proposal/ additional

information/requirements on the renewal proposal for the

delayed period

a) up to 3 months from the date of expiry of credit limit till the

date of receipt of renewal proposal

2.00

b) beyond 3 months from the date of expiry of credit limit till

the date of receipt of renewal proposal

2.00

c) beyond 30 days from the date of calling for additional

information/requirements on the renewal proposal

2.00

C. Loans pre-closed by taking over by other banks/

institutions

2.0% of loan

balance

D. The total Overdue interest / penal interest to be charged

on account of any of the above reasons should not exceed

2.00


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MANAGEMENT OF NON–PERFORMING ASSETS

3.1 INTRODUCTION:

1. There is a general concept commonly accepted “A Man or Woman with no

money is equal to a dead.” Here it is suitable to insist the importance of

money.

2. A Rumanian proverb says that “A man without money is like a bird with no

wings.”

3. The basic functions of banks are accepting all kinds of deposits and supply

money. “The life blood of business concerns”. By lending process.

4. The banks supply the money for all activities. To concentrate on the

development of rural economy, the govt of India extended help for the rural

Farmers, artesians, entrepreneurs by opening region rural banks, in addition to

commercial banks and co-operative banks.

5. In the present Indian economical arena, the regional rural banks are supposed

to play a vital role in achieving the objective of economic development by

providing effective credit support to various regions, sectors and sections.

3.2 CONCEPTS AND TYPES:

1. Non-Performing assets are those assets of the banks that do not generate

income.

2. It has been well defined by “Securization and Reconstruction of Financial

Assets are Enforcement of Security Interest”.(SARFAESI)

3. An asset or account of borrower, which has been classified by a bank or

financial institution as sub-standard, doubtful and loss assets in accordance

with the direction issued by the RBI.

4. The asset of the banks are classified as performing and Non-Performing

assets .which generate income for the bank. A Non-Performing assets is an

asset which fails to generate income for the bank.

5. As per the regulation, an asset is considered to have gone due, the past due

amount remaining uncovered where the borrower has defaulted as principal


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and interest repayment for more than one quarter or 90 days is called as Non-

Performing asset. According to guide lines of RBI.

6. NPAs consist of Sub-Standard, Doubtful and Loss assets. It is said that any

asset of the bank generally turn into NPAs when they fail to yield income

during a certain period.

7. As a result a doubtful asset finds its ways from Sub-standard assets after 18

months in Indian context against one year under the international norms and

finally. When it is found one year under the it moves to loss assets category.

3.3 PROVISIONING FOR NPAS:

In the light of the Narasimhan committee recommendations, from time to

time, the Reserve bank of India has issued the guidelines in respect of recognition of

NPAs, and their classification and provisioning. The following are the RBI guidelines

for the provisions for NPAs.

3.3.1 STANDARD ASSETS:

The regional rural banks advised to make a general provision for standard

assets at the following rates:

a) Direct advances to agricultural and SME sectors at 0.25%

b) All other advances at 0.40%

3.3.2 SUB-STANDARD ASSETS:

A general provision of 10% of net outstanding should be made

without making any allowances for export credit guarantee corporation guarantee

cover and securities available .The ‘unsecured exposures’ which are identified as sub-

standard would attract additional provision of 10%, i.e. a total of 20% on the

outstanding balance.


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3.3.3 DOUBTFUL ASSETS:

Provision should be made made for 100% of the extent to which the

advance is not covered by the realizable value of the security to which the bank has a

valid resource and the realizable value is estimated on a realistic basis with regard to

the secured portion, the provision is to be made as specified below.

NON-PERFORMING ASSETS PROVISIONING:

Doubtful status Percentage of provisioning as secured

portion

Up to One year 20%

>1<=3 years 30%

>3years 100%

3.3.4 LOSS-MAKING ASSETS:

It is advised by RBI to the banks that in cases where loss assets are

more than two years old, the banks submit a review note to their management

committee/boards of directors giving specific reasons as to why steps have not been

taken for recovery.

3.3.5 OTHER PURPOSES:

Usually, banks have retirement benefits namely provident fund, gratuity.

Now banks have pension’s schemes also. Most of banks have set up recognized

gratuity or pension fund to fund the relative liability.

Technically the standard assets are performing assets. The remaining

categories of Sub-standard, doubtful and less assets are NPAs. According to RBI

direction, all the banks are required to maintain NPAs-both on gross and net basis.


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3.4 RBI’S GUIDELINE FOR NPAS RECOGNITION:

Loans& Advances Guideline applicable

from 31.03.2001

Guideline applicable

from 31.03.2004

Term loan interest and/or

installment remain over

due for more than 180 days 90 days

Overdraft/credit A/C. Remains out of order Remains out of order

Bill purchased and

discounted remains over

due for more than 180 days 90 days

Agricultural loan interest

and or installments remain

over due for

Two harvest seasons but

not exceeding two and half

years.

Two harvest seasons but

not exceeding two and half

years

Other accounts any amount

to be received remains

over due for more than

180 days 90 days

3.5 CAPITAL ADEQUACY:

Non-performing assets do not earn any income. They adversely affect

the capital adequacy ratio that reveals the financial health condition of a bank.

The capital adequacy ratio is defined as the ratio between a bank’s

capital and its risk-weighted assets. Capital signifies the strength of an organization.

This is truer in case of banks, because adequate capital not only infuses depositors

‘and regulators’ confidence, but also acts as a cushion against possible losses arising


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out of normal risks inherent in banking. Like all other businesses, banks hold capital

as a buffer against unforeseen losses. Unlike other enterprises, however, one of the

main functions of banks is to perform financial intermediation between other

participants in the economy.

To ensure confidence and to protect the interest of depositors, banking

activities are subject to licensing, to specific regulations and to supervisions. it is the

supervision of banks that has been on a rise due to regulatory capital requirement.

Regulatory capital is the minimum capital that the supervisory authorities require

banks to set aside in order to meet potential losses. This is meant to ensure that the

banks can absorb losses arising from their activities on an ongoing basis. A minimum

capital adequacy ratio (ratio of capital to risk-weighted assets-CRAR) of 9% has been

prescribed for all scheduled commercial banks and also primary(urban) co-operative

banks in the country under the ‘Basel1’ framework.

Commercial banks are also set to over to the more sophisticated

requirements under the new capital adequacy requirements (‘Basel2’). However, no

such norms have been specified for regional rural banks so far. Regional rural banks

should disclose the level of CRAR as on march 31, 2008 in their balance sheet as

“Notes on accounts”. “Regional rural banks may be advised to maintain a minimum

level of capital to risk-weighted assets ratio (CRAR) which would be progressively

raised to the current level of CRAR as per the Basel 1 norms”.

Dr. D. Subbarao, Governor, RBI has said at the time of meeting to

announce the Annual policy 2009-2010 that the phased introduction of capital to risk-

weighted assets ratio(CRAR) to the regional rural banks has to be done by 2012.

Honourable union Finance Minister Sri. Pranab Mukherji, in the meeting to review

the performance of regional rural banks held on 18 th August, 2009 said that, “Having

recapitalized the regional rural banks by over 1700crore,the central government is

decided to setup a committee to assess the need further capital infusion.


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3.6 REASONS FOR ASSETS BECOMING NPAS:

Multiple factors are responsible for the increasing size of NPAs in banks.

A few prominent reasons are:

Poor credit appraisal system.

Lack of proper monitoring.

Reckless advances to achieve the target.

No or lack of corporate culture.

Inadequate legal provisions on for closure and bankruptcy.

Change in economic policy and poor auditing practices.

Lack of co-ordination between banks.

Directed lending to certain sectors.

3.7 BASIC METHODS OF MANAGEMENT OF NPAS:

Management of NPAs is a difficult task in practice. Management

of NPAs means how to settle NPAs account in the books. In simple terms, it focuses

on the method of settlement of NPAs account. The methods may differ from bank to

bank. The following facts are some of the basic methods of management of NPAs.

Compromise

Legal remedies

Regular training program

Recovery camps

Write off

Spot visits

Rehabilitation of potentiality viable units

Other methods

3.7.1 COMPROMISE:


APGB, KADAPA

One of the basic methods of management of NPAs is compromise. The

term compromise stands with the meaning of “Settlement of dispute reached by

mutual concessions.” The following are the ways for bringing about a compromise in

settlements of NPAs.

It is negotiated settlement under which the bank should ensure recovery of its

dues at maximum with a minimum expense.

An advantage in settlement cases is that banks can promptly recycle the funds

instead of restoring to expensive recovery proceedings spread over a long

period.

All compromise proposals approved by any functionary should be promptly

reported to the next higher authority for post facto scrutiny.

Proposal for writing off/compromise should be first by a committee of senior

executives of the bank.

Special recovery cells should be setup at all regional levels.

3.7.2 LEAGAL REMEDIES: One of the methods of management of NPAs is legal remedies. When the

banks observe that the borrower is making willful default, no more time should be lost

instituting appropriate recovery proceedings. The legal remedies are filing of civil

suits.

3.7.3 REGULAR TRAINING PROGRAM: It should be made mandatory that all levels of executives are required to

undergo the regular training program on credit and NPA management. It is very

useful and helpful to the executives for dealing with the NPAs properly.

3.7.4 RECOVERY CAMPS: The banks should conduct regular or periodical recovery camps in the bank

premises or some other common places; such type of recovery camps reduces the

level of NPAs in the banks.

3.7.5 WRITE OFFS:


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Write offs are also one of the common management techniques of NPAs.

The assets are treated as loss assets, when the bank writes off the balances. The

ultimate aim of the write off is to clean the balance sheet.

3.7.6 SPOT VISITS: The bank officials should visit the borrowers’ business place or borrowers

field regularly or periodically. It is also helpful for the bank to control or reduce the

NPAs limit.

3.7.7 REHABILITATION OF POTENTIALLY VIABLE UNITS: The unit is sick due to technical obsolescence of inefficient management or

financial irregularities. When the Bank settles the dues of such companies through the

compromise or through the legal actions, the better is to be followed.

3.7.8 OTHER METHODS: Continuous phone calls to defaulters and borrowers.

Media announcement regarding the non-payment of loans

.

3.8 CAUSES AND CONSEQUENCES OF NPAS:

One of the reasons for the accumulators of large portfolio of NPAs with

banks is that offered lending is not linked to productive investment and recovery of

credit is not linked with to product sale. The borrowers are mainly farmers and small

scale industries owners whose financial conditions are generally bad. The volume of

bank credit stacked in sick industries is the evidence of this problem.

Many of these causes are related to faulty credit management like defective

credit recovery mechanism, lack of efficiency in the work force, longtime lag between

sanctions and disbursements, unscientific repayment schedule, ones utilization of

loans by the borrowers.

Untimely communication to the borrower regarding their due date, lack of

legal mechanism, political intervention at all levels etc., have also been contributing

for mounting NPAs. If the level of NPAs is not controlled timely, they will:


APGB, KADAPA

Reduce the earning capacity of assets and badly affects Return On Assets

(ROA).

Higher provisioning requirement on mounting NPAs adversely affects the

capital adequacy and also the profitability.

Cost of capital will increase due to NPAs require economic value added.

NPAs cause a decrease in the value of shares.

NPAs affect the market competitiveness.

NPA becomes a cause for the reduction in availability of funds for further

credits expansion due to the unproductiveness of the existing portfolio.

NPAs affect the risk taking ability.

On the whole, it affects the credibility of the bank and bank will be in a

difficult position in raising fresh capital.


APGB, KADAPA

RESEARCH METHODOLOGY

4.1 RESEARCH:Research refers to search for knowledge. Research is an art of scientific

investigation. A careful investigation or inquiry especially through search for new

facts in any branch of knowledge. One can visualize the fact that a detailed study is

required in each practical situation for better results. Any effort which is directed to

study for better results is known as research. In other words a research is an organized

set of activities to study and develop a model or procedure/technique to find the

results of a realistic problem supported by literature and data such that its objectives

are optimized and further make recommendations interferences for implementations.

Descriptive Vs Analytical: Descriptive research includes surveys and fact finding enquiries of different

kinds. The major purpose of descriptive research is description of the state of affairs

as it exists at present. In analytical research, on the other hand the researcher has to

use facts or information already available, and analyze these to make a critical

evaluation of the material.

Fundamental research:

It is also called as basic or pure research. “Gathering knowledge for

knowledge” sake is termed as pure research. Fundamental research is concerned with

generalizations and with the formulation of theory.

Quantitative Vs Qualitative research: Quantitative research is based on the measurement of quantity or amount. It is

applicable to phenomenon that can be expressed

in terms of quantity. Qualitative research is concerned with qualitative phenomenon

relating to or involving quality or kind.

Exploratory research:


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Exploratory research is an initial research which analyses the data and

explores the possibility of obtaining as many relationships as possible between

Different variables without knowing their end-applications this means that a general

study will be conducted without having any specific end-objective except to establish

as many relationships as possible between variables of the study.

4.2 LITERATURE REVIEW

Keeton and Morris (1987) present one of the earliest studies to examine the

causes of loan losses. In the latter paper the authors examined the losses by 2,470

insured commercial banks in the United States (US) over the 1979-85. Using NPLs

net of charge-offs as the primary measure of loan losses Keeton and Morris (1987)

shows that local economic conditions along with the poor performance of certain

sectors explain the variation in loan losses recorded by the banks. The study also

reports that commercial banks with greater risk appetite tend to record higher losses.

Meanwhile, Rajan and Dhal (2003) utilise panel regression analysis to report

that favourable macroeconomic conditions (measured by GDP growth) and financial

factors such as maturity, cost and terms of credit, banks size, and credit orientation

impact significantly on the NPLs of commercial banks in India.

Using a pseudo panel-based model for several Sub-Saharan African countries,

Fofack (2005) finds evidence that economic growth, real exchange rate appreciation,

the real interest rate, net interest margins, and inter-bank loans are significant

determinants of NPLs in these countries. The author attributes the strong association

between the macroeconomic factors and non-performing loans to the undiversified

nature of some African economies.

More recently Huetal (2006) analyse the relationship between NPLs and

ownership structure of commercial banks in Taiwan with a panel dataset covering the

period 1996-1999. The study shows that banks with higher government ownership

recorded lower non-performing loans. Huetal (2006) also show that bank size is

negatively related to NPLs while diversification may not be a determinant.


APGB, KADAPA

4.3 NEED FOR THE STUDY:

India is an agriculture based country. Money is essential for the development of

agriculture sector. The requirement of long term and short term funds are supplying

by Regional rural banks. In the present Indian economical arena, the regional rural

banks are supposed to play a vital role for flourishing economic development by

providing effective credit support to various regions, sectors and sections. The failure

of the banking sector may have an adverse impact on other sectors. Non- performing

Assets are one of the major concerns for banks in India. Non- performing assets are

those assets of the bank that do not generate income. The purpose of the study is to

know how effectively banks are recollecting loans from the customers.

4.4 OBJECTIVES OF THE STUDY:

The objectives of the present study are to examine the performance of loan

portfolios and procedures of decision making in the area of management of NPAs in

Regional Rural Banks. For an-depth examination of management of NPAs, APG

Bank, Kadapa is chosen as a case study. The objectives are:

1. To point out the amount of Non-Performing Assets of APG Bank, Kadapa.

2. To find out the problems of bank due to NPAs.

3. To highlight Loans and Advances trend of APG Bank, Kadapa.

4. To offer suggestions to overcome the problems regarding NPAs

4.5 HYPOTHESES OF THE STUDY:

H01 : There is no significant difference between performing and non-performing

assets.

H02: There is no significance difference in the means of sub-standard assets, doubtful

assets and loss assets in recovery of mounting of NPAs.

H03: The priority and Non-priority sectors are independent.


APGB, KADAPA

4.6 SURVEY DESIGN:

The study was undertaken to analyze the non-performing assets of the ANDHRA

PRAGATHI GRAMEENA BANK, KADAPA. The analysis purely depends on the

secondary data. It was collected from the annual reports of APG Bank, Kadapa, the

facts published in the annual reports and bulletin of RBI, referred books, journals,

newspapers and magazines.

4.7 RESEARCH DESIGN:

Research Approach: Analytical in nature. The calculated ratios have been

analyzed to interpret the results of the study.

Research period: The period for evaluating MANAGEMENT OF NON-

PERFORMING ASSETS in this study is five years, i.e. from financial year 2006-07

to 2010-11.

Sources of Data: The data is collected from various sources as follows.

Primary Data: Primary data collected from the Bank’s Balance Sheets, NPA’s, and

statements and also by taking personal visit to the employees of the banks.

Secondary Data: Secondary data was collected from journals, bank’s prospectus,

bank’s annual reports and internet.

Tools and Techniques of analysis: To measure the management of non-

performing assets for some statistical tools has been used.

4.8 STATISTICAL TOOLS:

. The statistical tools used for data analysis are percentages analysis; Chi-square

test, ANOVAs test and co-efficient of correlation are used to understand the impact of

NPAs on profitability, liquidity and solvency of the selected Bank.


APGB, KADAPA

4.8.1 Pearson's product-moment coefficient:

The most familiar measure of dependence between two quantities is the

Pearson product-moment correlation coefficient, or "Pearson's correlation." It is

obtained by dividing the covariance of the two variables by the product of their

standard deviations. Karl Pearson developed the coefficient from a similar but slightly

different idea by Francis Galton.

The population correlation coefficient ρX,Y between two random variables X and Y

with expected values μX and μY and standard deviations σX and σY is defined as:

Where E is the expected value operator, cov means co-variance, and, corr a

widely used alternative notation for Pearson's correlation.

The Pearson correlation is defined only if both of the standard deviations are

finite and both of them are nonzero. It is a corollary of the Cauchy–Schwarz

inequality that the correlation cannot exceed 1 in absolute value. The correlation

coefficient is symmetric: corr(X,Y) = corr(Y,X).

The Pearson correlation is +1 in the case of a perfect positive (increasing) linear

relationship (correlation), −1 in the case of a perfect decreasing (negative) linear

relationship (anti correlation), and some value between −1 and 1 in all other cases,

indicating the degree of linear dependence between the variables. As it approaches

zero there is less of a relationship (closer to uncorrelated). The closer the coefficient is

to either −1 or 1, the stronger the correlation between the variables.

If the variables are independent, Pearson's correlation coefficient is 0, but the

converse is not true because the correlation coefficient detects only linear

dependencies between two variables. For example, suppose the random variable X is

symmetrically distributed about zero, and Y = X2. Then Y is completely determined by

X, so that X and Y are perfectly dependent, but their correlation is zero; they are

uncorrelated. However, in the special case when X and Y are jointly normal ,

uncorrelatedness is equivalent to independence.


http://en.wikipedia.org/wiki/Pearson_product-moment_correlation_coefficient

http://en.wikipedia.org/wiki/Bivariate_Gaussian_distribution

http://en.wikipedia.org/wiki/Uncorrelated

http://en.wikipedia.org/wiki/Statistical_independence

http://en.wikipedia.org/wiki/Linear_dependence

http://en.wikipedia.org/wiki/Absolute_value

http://en.wikipedia.org/wiki/Cauchy%E2%80%93Schwarz_inequality

http://en.wikipedia.org/wiki/Cauchy%E2%80%93Schwarz_inequality

http://en.wikipedia.org/wiki/Covariance

http://en.wikipedia.org/wiki/Expected_value

http://en.wikipedia.org/wiki/Standard_deviation

http://en.wikipedia.org/wiki/Expected_value

http://en.wikipedia.org/wiki/Random_variables

http://en.wikipedia.org/wiki/Francis_Galton

http://en.wikipedia.org/wiki/Karl_Pearson

http://en.wikipedia.org/wiki/Standard_deviation

http://en.wikipedia.org/wiki/Covariance

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If we have a series of n measurements of X and Y written as xi and yi where i =

1, 2, ..., n, then the sample correlation coefficient can be used to estimate the

population Pearson correlation r between X and Y. The sample correlation coefficient

is written

Where x and y are the sample means of X and Y, and sx and sy are the sample standard

deviations of X and Y.

This can also be written as:

If x and y are measurements that contain measurement error, as commonly happens in

biological systems, the realistic limits on the correlation coefficient are not -1 to +1

but a smaller range.

4.8.2 ANOVA

The analysis of variance has been studied from several approaches, the most

common of which use a linear model that relates the response to the treatments and

blocks. Even when the statistical model is nonlinear, it can be approximated by a

linear model for which an analysis of variance may be appropriate.

Partitioning of the sum of squares

The fundamental technique is a partitioning of the total sum of squares S into

components related to the effects used in the model. For example, we show the model

for a simplified ANOVA with one type of treatment at different levels.


http://en.wikipedia.org/wiki/Sum_of_squares_(statistics)

http://en.wikipedia.org/wiki/Nonlinear_regression

http://en.wikipedia.org/wiki/Statistical_model

http://en.wikipedia.org/wiki/Linear_model

http://en.wikipedia.org/wiki/Standard_deviation#With_sample_standard_deviation

http://en.wikipedia.org/wiki/Standard_deviation#With_sample_standard_deviation

http://en.wikipedia.org/wiki/Arithmetic_mean

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So, the number of degrees of freedom f can be partitioned in a similar way and

specifies the chi-squared distribution which describes the associated sums of squares.

See also Lack-of-fit sum of squares.

4.8.3 CHI-SQUARE TEST

Adapted by Anne F. Maben from "Statistics for the Social Sciences" by Vicki

Sharp

The chi-square (I) test is used to determine whether there is a significant difference

between the expected frequencies and the observed frequencies in one or more

categories. Do the numbers of individuals or objects that fall in each category differ

significantly from the number you would expect? Is this difference between the

expected and observed due to sampling error, or is it a real difference?

Chi-Square Test Requirements

1. Quantitative data.

2. One or more categories.

3. Independent observations.

4. Adequate sample size (at least 10).

5. Simple random sample.

6. Data in frequency form.

7. All observations must be used.

The chi-square formula used on these data is

X2 = (O - E)2 where O is the Observed Frequency in each category. E E is

the Expected Frequency in the corresponding category _ is _sum of_ df is the "degree

of freedom" (n-1) X2 is Chi Square.


http://en.wikipedia.org/wiki/Lack-of-fit_sum_of_squares

http://en.wikipedia.org/wiki/Chi-squared_distribution

http://en.wikipedia.org/wiki/Degrees_of_freedom_(statistics)

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DATA ANALYSIS AND INTERPRETATION

Analysis of Management of NPAs in APG Bank, Kadapa:

For the banking system, the quality of loan assets is the most essential

factor for the basic viability. Excess of overdue advances of rural banks in India are

mounting and in consequences, the Non-Performing Assets in their portfolio are on

the rise, impinging on the bank’s viability. This not only eats into the bank’s

profitability, but also hampers their ability to recycle the funds in an effective manner.

Avoidance of losses due to loan is one of the pre occupations of the management of

all banks. Complete elimination of such losses in not possible. The bank’s

management aims to keep the losses at low level. In fact, it is the level of non-

performing assets.

Which to great extent, differentiates between a good and worse bank? For

clear understanding of the effective management of NPAs in APG Bank, Kadapa, data

is presented in the heads of NPAs per cent to total assets and advances, Sector-wise

NPAs, asset-wise NPAs, etc. as shown in the table1 to table3, and table 5 to 8 in

shows analysis of sector wise overdues. Hence, for all data, interpretations were made

and tables have been used to support the discussion related to findings. Finally,

conclusion and recommendations were made accordingly. The statistical tools used

for data analysis are correlation with t-test, Chi-squre test, ANOVA test and

percentage analysis are used to understand the impact of NPAs on profitability,

liquidity and solvency of the selected bank.


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Table1: NPAs percentage to Total Assets of APG Bank, Kadapa ( in Lakhs)

Year Gross NPAs to Total

Assets

Net NPAs to Total Assets Total Assets

% %

2006-07 4700.53 1.31 1621.20 0.45 356484.50

2007-08 7650.74 1.74 4165.02 0.94 439238.86

2008-09 6356.11 1.38 2526.78 0.54 460294.70

2009-10 5827.16 1.04 0.00 0.00 558031.39

2010-11 8252.91 1.20 1927.03 0.28 683028.18

Source: Compiled from the Annual reports of APG Bank, Kadapa.

INTERPRETATION:

Table1 shows the Gross and Net NPAs to total assets of APG Bank,

Kadapa. From the period 2006-07 to 2010-11. The ratio of gross NPAs to total assets

of APGB in the year 2006-07 is 1.31% and Net NPAs is 0.45% in the year. Gross

NPAs slightly increasing to 1.74% in 2007-08 and net NPAs slightly increasing to

0.94% in 2007-08. Then the gross NPAs gradually come down to 1.04% in 2009-10

and net NPAs totally fall down to 0.00% in 2009-10. Showing a decreasing trend and

having slight increase in the year 2010-11. On seeing this it can be concluded that

bank is Performing is better way in NPAs recovery.


APGB, KADAPA

Table2: NPAs percentage to Total Advances of APG Bank, Kadapa ( in Lakhs)

Year Gross NPAs to Total

Advances

Net NPAs to Total

Advances

Total

Advances % %

2006-07 4700.53 1.98 1621.20 0.68 237793.87

2007-08 7650.74 2.57 4165.02 1.40 297217.49

2008-09 6356.11 2.06 2526.78 0.81 308232.68

2009-10 5827.16 1.63 0.00 0.00 356355.07

2010-11 8252.91 1.92 1927.03 0.44 429101.49


INTERPRETATION:

Table2 shows the Gross and net NPAs to total Advances of APG Bank kadapa.

From the period 2006-07 to2010-11.The ratio of gross NPAs to total advances of

APGB in the year 2006-07 is 1.98% and net NPAs is 0.68%. the Gross NPAs

increasing in the year 2007-08 is 2.57% and net NPAs is increasing to 1.40%. Then

the gross NPAs gradually comes down to 1.63% in the year 2009-10 and net NPAs

totally fall down to 0.00% in the year 2009-10. Showing a decreasing trend having

slight increase in the year 2010-11. This shows norms are followed effectively by the

recovery, the bank’s net NPAs to Advances ratio has been reached below the


APGB, KADAPA

international standard level of two to three percent. This is evident for best

performance in reducing of mounting NPAs.

Table3: Asset classification of Performing and Non- Performing assets of NPAs

in APG Bank Kadapa ( in Lakhs)

Year

Standard assets

(Performing assets)

Non-Performing assets

Gross Advances

Sub-standard

assetsDoubtful assets Loss assets

As%

of g

ross

adv

ance

s

As%

of g

ross

adv

ance

s

As%

of g

ross

adv

ance

s

As%

of g

ross

adv

ance

s

Tota

l (%

)

2006-07 233093.40 98.02 1222.59 0.51 2585.26 1.09 892.68 0.38 237793.87 100

2007-08 289566.75 97.42 4028.58 1.36 2676.42 0.90 945.74 0.32 297217.49 100

2008-09 301876.57 97.94 1570.94 0.51 3826.42 1.24 958.75 0.31 308232.68 100

2009-10 350527.91 98.37 1158.15 0.32 3735.54 1.04 933.47 0.27 356355.07 100

2010-11 420848.58 98.07 3861.77 0.90 3562.03 0.84 829.11 0.19 429101.49 100



APGB, KADAPA


APGB, KADAPA


APGB, KADAPA

INTERPRETATION:

In The Table3 Asset Classification Of Performing And Non-Performing

Assets Of APGB Kadapa From The Period 2006-07 To 2010-11. In The Table

Showing The Standard Assets Are As percentage of Gross Advances Is 98.02% In

The Year 2006-07.Then The Slightly Decreasing To 97.42% In The 2007-08. After

Standard Assets Increasing To 98.37% In The 2009-10. After Slightly decreasing to

98.07% in the year 2010-11. In the table sub-standard assets are as percentage of

gross advances is 0.5% in the year 2006-07. After slightly increasing to 1.36% in the

Year 2007-08.then the gradually decreasing to 0.90% in the year 2010-11. In the table

doubtful assets are as on percentage of gross advances is 1.09% in the 2006-07. After

doubtful assets slightly increasing to 1.24% in the year 2008-09. After decreasing to

0.84%in the year 2010-11. In the table loss assets as on percentage of gross advances

is 0.38% in the year 2006-07. After gradually decreasing to 0.19% in the year 2010-

11.It shows that APGB is decreasing the loss assets year by year.

t- test for the significance of Correlation Coefficient between the performing and

Non- performing assets:

t table for 3 d.f at 5% level of significance= 2.35

t Cal < t table value, H01 is accepted.

The co-efficient of correlation(r) between the performing and non-performing

assets. It shows a moderate degree of positive correlation of 0.69. And T-test is


APGB, KADAPA

applied. H01 is accepted. Hence we conclude that there is no significant difference

between performing and Non-performing assets.

TABLE4: ANOVA TABLE

source of

variation

degree of

freedom

Sum of

squares

mean

square

F-

valueTable value

Between 2 14235243.35 7117621.67

8.6 3.88 at 5% level

significance

Within 12 9843472.35 820289.36

Total 14

To sum up, the null hypothesis that there is no significance difference in the

asset-wise recovery of mounting of NPAs of the APGB over the study period, for

which ANOVA test is employed and the results are presented in table4. The

calculated value of F is greater than the table value, the hypothesis H02 is rejected.

Hence, there is a significance difference in the means of sub-standard assets, doubtful

assets and loss assets in recovery of mounting of NPAs.

Table5: Priority and Non- priority sectors wise Over dues of APGB Kadapa (

in Lakhs)

Year Farm

sector(a)

Non-

Farm

sector(b)

S.H.G

(c)

Indirect

finance

(d)

Priority

sector(a+b+c+d)

Non-Priority

sector

Total

% % %

2006 20298.64 2198.38 332.60 42.68 22872.30 93.31 1639.85 6.69 24512.15 100

2007 26651.12 2606.01 469.40 100.15 29826.68 92.71 2341.95 7.29 32168.63 100

2008 49831.46 3353.63 971.95 323.38 54480.43 93.30 2688.55 4.70 57168.98 100

2009 51513.65 3099.04 2482.62 196.80 57292.12 96.60 2021.20 3.40 59313.32 100

2010 54442.35 4510.11 2789.30 0.34 61742.10 95.10 3176.68 4.90 64918.78 100

Chi-


APGB, KADAPA

squar

e

830.41

Table

value 9.49% at 5% level of significance


The total NPAs of the bank can also be classified as priority sector and non-

priority sector. The position of NPAs of these sectors is shown given table5. In table5,

the sector-wise analysis of NPAs of APGB shows that the proportion of NPAs in

priority sector is in fluctuating manner over the study period from 2006 to 2010. The

proportion of NPAs in the non-priority sector is also in a fluctuating manner over the

study period from 2006 to 2010.

To sum up, the null hypothesis was set up is to measure the significant

difference among the priority sector and non-priority sector for which chi-square test

is employed, The calculated vale of Chi-Square test is 830.41, which is more than 9.

49 at 5% level of significance, the hypothesis H03 was rejected. Hence, the priority

and non priority sectors are not independent (or dependent).


APGB, KADAPA

Table6: Sector wise over dues of APGB Kadapa ( in Lakhs)

YearFarm-Sector Non-Farm sector Total

% % %

2006 20298.64 90.2 2198.38 9.8 22497.02 100

2007 26651.12 91.1 2606.01 8.9 29257.13 100

2008 49831.46 93.7 3353.63 6.3 53185.09 100

2009 51513.65 94.3 3099.05 5.7 54612.70 100

2010 54442.35 92.3 4510.11 7.7 58952.46 100



APGB, KADAPA

Table7: Farm sector over dues of APGB Kadapa ( in Lakhs)

Year

Crop LoansMinor

irrigationAgrl.Tractors Agrl.allied Other Agrl. Total

% % % % % %

2006 19256.45 94.86 229.37 1.13 223.83 1.11 344.05 1.69 244.94 1.21 20298.64 100

2007 23136.55 86.82 122.44 0.45 120.83 0.45 305.71 1.15 2965.59 11.13 26651.12 100

2008 43535.59 87.37 159.14 0.32 152.40 0.30 311.14 0.63 5673.19 11.38 49831.46 100

2009 43775.41 84.97 183.61 0.35 159.94 0.32 418.96 0.82 6979.73 13.54 51513.65 100

2010 45967.79 84.43 350.53 0.64 260.52 0.48 797.96 1.47 7065.55 12.98 54442.35 100

Table8: Non- Farm sector over dues of APGB Kadapa ( in Lakhs)

YearRural artisian Service&PSE Retail Trade Other NFS Total NFS

% % % % %

2006 467.33 21.26 152.24 6.92 1345.02 61.18 233.79 10.64 2198.38 100

2007 571.98 21.95 129.47 4.97 1566.12 60.09 338.44 12.99 2606.01 100

2008 552.27 16.47 248.98 7.42 1954.86 58.30 597.52 17.81 3353.63 100


APGB, KADAPA

2009 535.63 17.29 240.11 7.74 1797.91 58.01 525.40 16.96 3099.05 100

2010 578.26 12.82 231.38 5.13 2401.70 53.25 1298.77 28.80 4510.11 100


INTERPRETATION:

In the above tables in the shows sector wise over dues of APGB, Kadapa. The

farm sector over dues is 90.20% in the year 2006-07. And Non-Farm sector over dues

is 9.8%. The farm sector gradually increased to 94.3% in the year 2009-10. And Non-

Farm sector over dues are gradually decreased to5.7% in the year 2009-10. Then the

farm sector over dues is decreased to 92.3% in the year 2010-11. And Non-Farm

sector over dues are increased to 7.7% in the year 2010-11.


APGB, KADAPA

FINDINGS:From the year 2006-07 to 2010-11 the percentage of Gross NPAs to Total assets is

1.31, 1.74, 1.38, 1.04 and 1.20 respectively and the percentage of Net NPAs to

Total assets is 0.45, 0.94, 0.54, 0.00 and 0.20 respectively. This is evident for the

better way in reduction of mounting NPAs.

From the year 2006-07 to 2010-11 the percentage of Gross NPAs to Total

advances is 1.98, 2.57, 2.06, 1.63 and 1.92 respectively. And the percentage of

Net NPAs to Total advances is 0.68, 1.40, 0.81, 0.00 and 0.44 respectively. This is

evident for the better way in reduction of mounting NPAs.

It is observed that there is moderate degree of positive correlation r=0.69, between

performing and non-performing assets. And t-test is applied. H01 is accepted.

Hence we conclude that there is no significant difference between performing and

non-performing assets.

The null hypothesis was set up to know whether there is significance in the means

of non-performing assets, for which ANOVAs test is employed, the hypothesis

H02 is rejected. it is observed that there is a significant difference in the means of

non-performing assets. i.e. sub-standard assets, doubtful assets and loss assets

over the study period in recovery of mounting NPAs.

The hypothesis was set up to measure the significant difference among the priority

sector and non-priority sector, for which chi-square test is employed, the

hypothesis H03 was rejected. It is observed that priority sector and non-priority

sector are not independent.(i.e. they are dependant).


APGB, KADAPA

SUGGESTIONS:

After going through the summary of findings and the results of hypotheses

testing, the following are suggestions offered to improve the effective management of

mounting NPAs of the APGB.

1. The bank may consider that the NPAs should be avoided in initial stages of credit

consideration by putting in place appropriate credit appraisal system.

2. The percentage of Doubtful Assets are more by comparing to the percentage of

Sub-standard assets, so bank need to take necessary steps to reduce the percentage of

Doubtful assets, which makes to reduce Loss assets to 0%.

3. The bank may send circulation of informant and defaulters, which will serve as a

caution list which considers request for new additional credit limits from defaulting

borrowers and also file criminal cases in regard to willful defaulters.

4. The bank may take steps to constitute more legal cells and tribunals, recovery

branches, Lok Adalts etc., for speedy recovery of NPAs.

5. The bank should adopt the technological changes by converting their banks to

computerized banks, which may lead to a prompt and easy service for their customers.


APGB, KADAPA

CONCLUSION:

In the liberalized banking scenario, APGB, Kadapa is one of the leading

Regional Rural Banks, which welcomes the radical changes and makes the

organization fit for the changes without much difficulty. The performance highlights

of the bank exposed that it has achieved the tasks and targets from time to time and

has continuously retained a good position in financial strength. It is time when the

bank should go for the use of information technology and other electronic methods for

banking in this changing scenario of the banking sector, by fully computerizing its

bank branches to provide prompt service to the customers. The bank should frame

new policies and procedures, which should not go out of the regulation framed by the

RBI for regional rural banks. The management should also design a roadmap to raise

the bar of the bank equal to international standard. If it is done, it is sure that

“Andhra Pragathi Grameena bank, Kadapa” will be the number one bank among

the Regional Rual banks in India.


APGB, KADAPA

BIBLIOGRAPHY:

Books:

1. C.R. Kothari, “Research Methodology Methods & Techniques”, New Age

International Publishers, Hyderabad, 2re 2004.

2. Anand Sharm, “Statistics for Management”, Himalaya Publishing House,

Mumbai, 2re 2008.

3. R.M Srivastava & Divya Nigam, Management of Indian financial Institutions,

Himalaya Publishing House, Mumbai, 10e 2010.

4. Anderson, Sweeney & Williams “Quantitative methods for Business”

Thomson India Edition, Haryana, 10e 2007.

5. Parameswaran.R and Natarajan.S, “Indian Banking” Sulthan chand and sons,

New Delhi,2002.

Journals:

1. R. Suresh, “ Management of NPAs of Pandyan Grama Bank, Virudhunagar,

Tamil Nadu” Indian Journal of Finance, oct 2010, p 37-47.

2. Dr. K. Rajender & S. Suresh, “Management of NPAs in Indian Banking a

case study of State Bank of Hyderabad” The Mnagement of Account, Sept

2007, p. 740-749

Reports:

1. MASTER CIRCULAR On Income Recognition, Asset Classification,

Provisioning & Other Related Matters, RESERVE BANK OF INDIA, June

30, 2008.

2. Shri M. Narashimhan Working Group Recommendations (1975).


APGB, KADAPA

3. Prudential guidelines on restructuring of advances, Prashant Saran, Chief

General Manager-in-Charge, RBI, 2008-09.

4. Annual reports of APGB, KADAPA, from 2006-07 to 2010-11.


Non Performing Assets

Documents

himalaya publishing

solar energy

deputy general

punjab national

total financial

regional rural

interest subvention

sample correlation