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    CHAPTER: 1

    EXECUTIVE

    SUMMARY

    Executive Summary

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    A project has been prepared under the title of Non Performing Assets in

    Surat.

    First of all the information regarding the banking industry is given. In that

    various facts regarding the bank industry is being provided. Also thevarious types of non performing assets.

    The brief introduction of non performing assets is given. In this the

    definition, various benefits, objective, limitation etc. are mentioned. Then

    a analysis of data is made.

    Then the objective of doing the project is mentioned.

    After that analysis comes. At the last me find Conclusion & Suggestion.

    Then comes facts and finding part. In this part first of all the details

    about the non performing assets by me is given. Then a comparison is

    made among the three companies selected by me on various parameters.

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    CHAPTER: 2

    RESEARCH

    METHODOLOGY

    RESEARCH METHODOLOGY

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    Research is a one kind of process to get knowledge about some

    topic. Research is done so that systematic analysis can be done and

    problem can also be solved.

    TITLE OF STUDY

    Here it is NON-PERFORMING ASSETS

    BENEFITS FROM THE STUDY

    . It helps me to know more about NPA and the situation of NPA

    in bank.

    . It helps me to know the strategies adopted by banks to reduce

    the NPA level and to understand the NPA provisions norms in bank.

    RESEARCH PROBLEM

    NPA always affect the profit of bank and also the prestige of bank.

    So here the research problem is to identify the causes for the NPA and to

    identify the action plan to reduce the NPA.

    RESEARCH DESIGN

    Here the research design is exploratory which helps me to explore

    the NPA problem of bank.

    RESEARCH INSTRUMENT

    As a research instrument I have taken guidance from the CEO of

    City bank and also my faculty of college.

    DATA COLLECTION

    Primary Data

    Secondary Data

    Hence it is an exploratory research their is not any dependence on primary

    data.

    Sources of secondary data

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    1. Annual report

    2. Journals

    3. Websites

    4. Books

    ANALYSIS AND REPORT WRITING

    Here I have done ratio analysis and used various charts for analysis

    purpose. And also I have written report on it.

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    CHAPTER: 3

    OBJECTIVE

    OFPROJECT

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    Some objectives for the selection of this project are as

    follows

    . To study and understand the concept of NPA

    . To analyze the banks policy to recover the level of NPA

    . To understand the effect of NPA on banks profit and its prestige

    . To understand how corrective measures taken by bank for NPA

    . To understand RBIS rules and regulations for the control of NPA

    . To understand the credit appraisal policy and NPA recovery policy of

    bank

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    CHAPTER: 4

    LIMITATION

    LIMITATION OF PROJECT

    Some times bank officer was hesitant to give all data on NPA.

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    I have selected only one bank for NPA which is very small sample size.

    I face difficulty in doing proper analysis as I dont have prior

    experience for making project report.

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    CHAPTER: 5

    INTRODUCTION

    OF

    BANKING

    INDUSTRY

    DEFINITION OF BANK

    An organization, usually a corporation, chartered by a state or

    federal government, which does most or all of the following: receives

    demand deposits and time deposits, honors instruments drawn on them,

    http://www.investorwords.com/1140/corporation.htmlhttp://www.investorwords.com/832/chartered.htmlhttp://www.investorwords.com/1398/demand_deposits.htmlhttp://www.investorwords.com/4977/time_deposits.htmlhttp://www.investorwords.com/2507/instruments.htmlhttp://www.investorwords.com/1140/corporation.htmlhttp://www.investorwords.com/832/chartered.htmlhttp://www.investorwords.com/1398/demand_deposits.htmlhttp://www.investorwords.com/4977/time_deposits.htmlhttp://www.investorwords.com/2507/instruments.html
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    and pays interest on them; discounts notes, makes loans, and invests in

    securities; collects checks, drafts, and notes; certifies depositor's checks;

    and issues drafts and cashier's checks.

    DEFINITION OF BANKING

    In general terms, The business activity of accepting and

    safeguarding money owned by other individuals and entities, and then

    lending out this money in order to earn aprofit

    So we can say that Banking is a company,

    which transacts the business of banking. The Banking

    Regulations Acts defines the business as banking by

    stating the essential function of a banker.

    The term banking is defined as Accepting for

    the purpose of leading or investment, deposits of

    money from the public, repayable on demand or

    otherwise and withdrawal by cheque, draft, order or

    otherwise.

    HISTORY OF BANKING IN INDIA

    Without a sound and effective banking system in India it cannot

    have a healthy economy. The banking system of India should not only be

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    hassle free but it should be able to meet new challenges posed by the

    technology and any other external and internal factors.

    For the past three decades India's banking system has several

    outstanding achievements to its credit. The most striking is its extensive

    reach. It is no longer confined to only metropolitans or cosmopolitans in

    India. In fact, Indian banking system has reached even to the remote

    corners of the country. This is one of the main reasons of India's growth

    process.

    The government's regular policy for Indian bank since 1969 has

    paid rich dividends with the nationalization of 14 major private banks of

    India.

    Not long ago, an account holder had to wait for hours at the bank

    counters for getting a draft or for withdrawing his own money. Today, he

    has a choice. Gone are days when the most efficient bank transferred

    money from one branch to other in two days. Now it is simple as instant

    messaging or dials a pizza. Money has become the order of the day.

    The first bank in India, though conservative, was established in

    1786. From 1786 till today, the journey of Indian Banking System can be

    segregated into three distinct phases. They are as mentioned below:

    . Early phase from 1786 to 1969 of Indian Banks

    .Nationalization of Indian Banks and up to 1991 prior to Indian banking

    sector Reforms

    . New phase of Indian Banking System with the advent of Indian

    Financial & Banking Sector Reforms after 1991To make this write-up

    more explanatory, we divide scenario in Phase I, Phase II and Phase III

    PHASE I

    The General Bank of India was set up in the year 1786. Next were

    Bank of Hindustan and Bengal Bank. The East India Company established

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    Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras

    (1843) as independent units and called it Presidency Banks. These three

    banks were amalgamated in 1920 and Imperial Bank of India was

    established which started as private shareholders banks, mostly Europeansshareholders.

    In 1865 Allahabad Bank was established and first time exclusively

    by Indians, Punjab National Bank Ltd. was set up in 1894 with

    headquarters at Lahore. Between 1906 and 1913, Bank of India, Central

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

    Mysore were set up. Reserve Bank of India came in 1935.

    During the first phase the growth was very slow and banks also

    experienced periodic failures between 1913 and 1948. There were

    approximately 1100 banks, mostly small. To streamline the functioning

    and activities of commercial banks, the Government of India came up with

    The Banking Companies Act, 1949 which was later changed to Banking

    Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965).

    Reserve Bank of India was vested with extensive powers for thesupervision of banking in India as the Central Banking Authority.

    PHASE II

    Government took major steps in this Indian Banking Sector

    Reform after independence. In 1955, it nationalized Imperial Bank of India

    with extensive banking facilities on a large scale especially in rural and

    semi-urban areas. It formed State Bank of India to act as the principal

    agent of RBI and to handle banking transactions of the Union and State

    Governments all over the country.

    Seven banks forming subsidiary of State Bank of India was

    nationalized in 1960 on 19th July, 1969, major process of nationalization

    was carried out. It was the effort of the then City Minister of India, Mrs.

    Indira Gandhi. 14 major commercial banks in the country were

    nationalized.

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    Second phase of nationalization Indian Banking Sector Reform was

    carried out in 1980 with seven more banks. This step brought 80% of the

    banking segment in India under Government ownership.

    The following are the steps taken by the Government of India to

    Regulate Banking Institutions in the Country:

    . 1949: Enactment of Banking Regulation Act.

    . 1955: Nationalization of State Bank of India.

    . 1959: Nationalization of SBI subsidiaries.

    . 1961: Insurance cover extended to deposits.

    . 1969: Nationalization of 14 major banks.

    . 1971: Creation of credit guarantee corporation.

    . 1975: Creation of regional rural banks.

    . 1980: Nationalization of seven banks with deposits over 200 crore.

    Banking in the sunshine of Government ownership gave the public implicit

    faith and immense confidence about the sustainability of these institutions.

    PHASE III

    This phase has introduced many more products and facilities in the

    banking sector in its reforms measure. In 1991, under the chairmanship of

    M Narasimham, a committee was set up by his name which worked for the

    liberalization of banking practices.

    The country is flooded with foreign banks and their ATM stations.

    Efforts are being put to give a satisfactory service to customers. Phone

    banking and net banking is introduced. The entire system became more

    convenient and swift. Time is given more importance than money.

    The financial system of India has shown a great deal of resilience.

    It is sheltered from any crisis triggered by any external macroeconomics

    shock as other East Asian Countries suffered. This is all due to a flexible

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    exchange rate regime, the foreign reserves are high, the capital account is

    not yet fully convertible, and banks and their customers have limited

    foreign exchange exposure.

    RESERVE BANK OF INDIA (RBI)

    The central bank of the country is the Reserve Bank of India (RBI).

    It was established in April 1935 with a share capital of Rs. 5 crores on the

    basis of the recommendations of the Hilton Young Commission. The share

    capital was divided into shares of Rs. 100 each fully paid which was

    entirely owned by private shareholders in the beginning. The Government

    held shares of nominal value of Rs. 2, 20,000

    Reserve Bank of India was nationalized in the year 1949. The

    general superintendence and direction of the Bank is entrusted to Central

    Board of Directors of 20 members, the Governor and four Deputy

    Governors, one Government official from the Ministry of Finance, ten

    nominated Directors by the Government to give representation to

    important elements in the economic life of the country, and four nominated

    Directors by the Central Government to represent the four local Boards

    with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local

    Boards consist of five members each Central Government appointed for a

    term of four years to represent territorial and economic interests and the

    interests of co-operative and indigenous banks.

    The Reserve Bank of India Act, 1934 was commenced on April 1,

    1935. The Act, 1934 (II of 1934) provides the statutory basis of the

    functioning of the Bank.

    The Bank was constituted for the need of following:

    .To regulate the issue of banknotes to maintain reserves with a view

    to securing monetary stability and

    . To operate the credit and currency system of the country to its

    advantage

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    ORGANISATION STRUCTURE OF RBI

    THE BANKING SYSTEM

    Almost 80% of the business is still controlled by Public Sector

    Banks (PSBs). PSBs are still dominating the commercial banking system.

    Shares of the leading PSBs are already listed on the stock exchanges.

    The RBI has given licenses to new private sector banks as part of

    the liberalization process. The RBI has also been granting licenses to

    industrial houses. Many banks are successfully running in the retail and

    consumer segments but are yet to deliver services to industrial finance,

    retail trade, small business and agricultural finance.

    The PSBs will play an important role in the industry due to its

    number of branches and foreign banks facing the constraint of limited

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    number of branches. Hence, in order to achieve an efficient banking

    system, the onus is on the Government to encourage the PSBs to be run on

    professional lines.

    BANKING SECTORS IN INDIA

    BANKS

    Public Private Co-operative Regional Rural Foreign

    Sector bank sector bank bank bank bank

    CO-OPERATIVE BANKS

    The Co-operative banks have a history of almost 100 years. The

    Co-operative banks are an important constituent of the Indian Financial

    System, judging by the role assigned to them, the expectations they are

    supposed to fulfill, their number, and the number of offices they operate.

    The co-operative movement originated in the West, but the importance

    that 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

    phenomenally in recent years mainly due to the sharp increase in the

    number of primary co-operative banks.

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    Some of the co-operative banks are quite forward looking and have

    developed sufficient core competencies to

    challenge state and private sector banks.

    According to NAFCUB the total

    deposits & landings of Co-operative Banks is

    much more than Old Private Sector Banks &

    also the New Private Sector Banks. This

    exponential growth of Co-operative Banks is

    attributed mainly to their much better local

    reach, personal interaction with customers, and

    their ability to catch the nerve of the local

    clientele.

    Though registered under the Co-

    operative Societies Act of the Respective States

    (where formed originally) the banking related activities of the co-operative

    banks are also regulated by the Reserve Bank of India. They are governed

    by the Banking Regulations Act 1949 and Banking Laws (Co-operative

    Societies) Act, 1965.

    CO-OPERATIVE BANKS FINANCE RURAL AREA AS

    UNDER

    . Farming

    . Cattle

    . Milk

    . Hatchery

    . Personal finance

    CO-OPERATIVE BANKS FINANCE URBEN AREA AS

    UNDER

    . Self-employment

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    . Industries

    . Small scale units

    . Home finance

    . Consumer finance

    . Personal finance

    FACTS ABOUT CO-OPERATIVE BANK

    . Some cooperative banks in India are more forward than many of the

    state and private sector banks.

    . According to NAFCUB the total deposits & landings of Cooperative

    Banks in India is much more than Old Private Sector Banks & also the

    New Private Sector Banks.

    . This exponential growth of Co operative Banks in India is attributed

    mainly to their much better local reach, personal interaction with

    customers, and their ability to catch the nerve of the local client.

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    CHAPTER: 6

    INTRODUCTION

    OF

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    CITY CO-OP. BANK

    LTD

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    INTRODUCTION OF BANK

    City is a name of the bank where the bank is ready to serve its

    banking services to all customers.

    CITY

    BANK

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    The bank is governed by the Gujarat co-operative societies act, a

    legislation enacted by the state of Gujarat in India.

    The bank have follows continues A Grade Audit systems and it

    is the Grade A bank till now.

    The city co-operative bank was started in 1996.City co-operative

    bank ltd was promoted by an experienced and visionary entrepreneur

    named Mr. MANOJ PATEL; he is the Founder Chair person of the bank

    and continues to supervise its growth and development.

    The Bank started off with exemplary combination of talented

    Board & potential staff team, stuffed with extreme professionalism and

    well designed contours of working method. The bank started as a paperless

    unit employing Tele-banking, Remote banking, Off-time banking, Sunday

    banking, Holiday banking and many more allied methodologies from the

    very beginning right from the D-day.

    The bank emerged as an exemplary unit offering a wide range of

    specialized services in various sectors. Unlike majority of the banks where

    working timings are linked with employee-convenience, CITY BANK

    decided to hold timings as per convenience of the cluster of clients whom

    it caters.

    In the line with the same philosophy some of their branches in the

    residential area work all the seven days of the week, without a break. They

    work on Sundays w/o any alternative drop during the week. Likewise to

    focus special attention on the senior citizens the bank offers to credit

    monthly interest in their account with any bank before 5th day of every

    month.

    SOCIAL OBLIGATIONS

    City bank does not lag behind in offering contribution for the social

    activities, particularly in the field of education and medicines. Out ofactivities particularly in the field of education and medicines, Out of the

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    substantial profits earned by the City bank every year after the year,

    several goodwill gestures are made such as,

    . City Bank conference Hall at KP college of Commerce Surat

    . City Bank computer Center at the Engineering College runs by the

    Sarvajanik Education Society of Surat

    . Contribution for relief services under the auspices of the service

    organization Chhaydo offered at the civil medical campus for patients

    and their caretakers coming from the surrounding villages.

    . Charity Contribution towards Mahavir Cardiac Hospital of Rs.

    11,25,000/- in the year 2000-01

    BANKS SERVICES

    LIFE INSURANCE

    Bank has tied with Aviva Life Insurance Co ltd. It is joint venture between

    Dabur Indian FMCG Co & AVIVA UKs No 1 & worlds No 5insurance co. All the branches are offering all the insurance products of

    AVIVA viz for child education, daughters marriage, retirement solution,

    term plan etc.

    GENERAL INSURANCE

    Bank has tied with IFFCO-TOKIYO General Insurance. It is joint venture

    between IFFCO a big fertilizer company in co-operative sector &

    TOKIYO General Insurance Japans No 1 & worlds No 5 General

    Insurance Co. All the branches are offering all the products viz Mediclaim,

    Accident insurance, Vehicle Insurance, House Insurance, factory & Shop

    keeping Insurance.

    MUTUAL FUND

    http://www.avivaindia.com/http://itgi.co.in/http://www.avivaindia.com/http://itgi.co.in/
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    Bank has tied with Principal PNB Mutual Fund, UTI, Benchmark, ICICI

    Prudential, SBI Mutual Fund, Lotus India, Reliance Mutual Fund, Kotak

    Mahindra, Birla Sunlight, Sundram BNP Pari Bar Mutual.

    LOCKERS

    Rent free locker facilities are available in Baroda at Kareli Baug, at

    Bharuch, Navsari & at following branches of Surat

    1. Ring Road Branch

    2. Abhishek Branch

    3. City Light Branch

    4. Puna Kumbharia Road Branch

    5. Udhna Magdalla Branch

    6. Ved Road(Katargam)Branch

    7. Patel Park Branch(Adajan)

    BOARD OF DIRECTORS

    NO. NAME DESIGNATION

    1 Shri. Piyushbahi Patel Chairman

    2 Shri. Balvanbhai Patel Vice Chairman

    3 Shri. Manojbhai Patel Director

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    4 Shri. Dharmeshbhai Patel Director

    5 Shri. Anandbhai Kalgude Director

    6Shri. Amaratbhai

    BrachmabhattDirector

    7Shri. Dineshbhai

    TamakuwalaDirector

    8Shri. Gaurang Rushi

    Director

    9 Shri. Jayshreeben Talati Director

    10 Shri. Umeshabhai Patel Director

    ORGANISATION STRUCTURE

    (CHAIRMAN)

    (DIRECTORS)

    (CEO)

    (CHIEF MANAGER)

    (DIVISIONAL MANAGER)

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    (AREA MANAGER)

    (BRANCH MANAGER)

    (OFFICER/CLERK

    )

    BALANCE SHEET

    (Rs. in lacs)

    Liabilities 2006 2007 Assets 2006 2007

    Share

    Capital

    293.23 340.79 Cash &

    Bank

    1919.33 1822.38

    Reserve 1987.08 2282.11 Investment 9326.22 11106.55

    Profit &

    Loss a/c

    305.76 236.37 Advances 7093.63 10340.26

    Deposits 15449.44 19946.37 Fixed

    Assets

    154.86 284.70

    Borrowing 0.11 69.38 Other

    Assets

    181.01 648.88

    Other Liab.

    & Prov.

    639.43 1327.75

    18675.05 24202.77 18675.05 24202.77

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    PROFIT & LOSS ACCOUNT

    (Rs. in lacs)

    Income 2006 2007 Expenses 2006 2007

    Interest &

    Comm.

    1443.1

    0

    1769.5

    6

    Interest paid 816.59 956.84

    Other Income 129.04 109.45 Operating Exp. 390.48 526.34

    Depreciation 46.45 46.52

    Provisions 12.86 112.94

    Profit for theyear

    305.76 236.37

    1572.1

    4

    1879.0

    1

    1572.1

    4

    1879.01

    BRANCHES

    1 Main Branch

    20, Belgium Chamber, Delhi Gate Ring Road Suart-3.

    2. Rander Branch

    11, Patel Park, Tadwadi,Rander Road, Surat-9.

    3. Adajan Branch2, River Park Row House, Adajan Surat-9.

    4 Ved Katargam Branch

    24 Ground Floor Parth Building,Singapoor (ved) Katargam, Surat.

    5. Abhishak Branch

    1,Balaji Market , Ring Road, Surat 2.

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    6. Udhana Magdalla Branch

    11,Udhana Magdalla Road, Surat 7.

    7. City Light BranchUG-14 Hira Panna Shopping Mall, City Light Road Surat- 7.

    8. Puna Kumbharia Branch

    6,Trapti Plaza, Nr.Sahara Darwaja,Puna KumbhariaRoad Surat .

    CHAPTER: 7

    INTRODUCTION

    OF

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    NON-PERFORMING

    ASSETS

    NON-PERFORMING ASSETS

    . MEANING

    An asset becomes non-performing when it ceases to generate income for

    the bank. Earlier an asset was considered as non performing asset based onthe concept of past due.

    . DEFINITION

    A NPA was defined as credit in respect of which interest and/or

    installment of principal has remained past due for a specific period of

    time. The specific period of time was reduced in a phased manner as

    under:

    Year ended March,31 Specific Period

    1993 4 Quarters

    1994 3 Quarters

    1995 2 Quarters

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    2004 1 Quarters

    An amount is considered as past due, when it remains outstanding for 30days beyond the due date. However, with effect from March31, 2001 the

    past due concept has been dispensed with and the period is reckoned

    from the due date of payment.

    . NORMS FOR IDENTIFICATION OF NPA

    With an intense to use the international best practice and to ensure

    greater transparency, 90 days overdue norms are accepted for the

    identification of NPA from the year ended March 31, 2004.

    With effect from March 31, 2004, a NPA shall be counted on loan

    and advances where:

    A. Interest and / or installment of principal remain overdue for a

    period of more than 90 days in respect of a term loan.

    B. The account remains out of order for a period of 90 days, in respect

    of an Overdraft/ Cash Credit (OD/CC).

    C. The bill remains overdue for a period of more than 90 days in the

    case of bills purchased and discounted.

    D. Any amount to be received remains overdue for a period of more

    than 90 days in respect of any other accounts.

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    Tier 2 bank like all the Urban Co-Operative Banks (UCBs)

    other than the Tier 1 bank i.e. Unit bank shall classify their

    loan accounts as NPA as per 90 day norm as hitherto.

    FACTORS RESPONSIBLE FOR NPA. Improper selection of borrowers activities

    . Weak credit appraisal system

    . Industrial problem

    . Inefficiency in management of borrower

    . Slackness in credit management & monitoring

    . Lack of proper follow up by bank

    . Recession in the market

    . Due to natural calamities and other uncertainties

    INDIAN ECONOMY AND NPA

    Gross NPAs (non-performing assets) in Indian banking sector have

    declined sharply to close to 3.0 per cent in 2006 (15.7 per cent at end-

    March 1997). Net NPAs of the banking sector are now at close to one per

    cent and the gap between the gross and net NPAs has narrowed over the

    years. Recovery of dues is also more than the fresh slippages.

    The decline in NPAs is particularly significant as income

    recognition, asset classification and provisioning norms were tightened

    over the years. For instance, banks now follow 90-day delinquency norm

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    as against 180-day earlier. Banks are also required to make general

    provisioning (0.40 per cent) for standard advances.

    According to Reserve Bank of India, improved profitability,

    underpinned by robust macroeconomic environment and upturn in interestrate cycle, has enabled banks

    to reduce the backlog of NPAs.

    NARSIMHAN COMMITTEE

    . FIRST COMMITTEE

    The committee on financial system, also known as Narsimhan

    Committee, under the chairmanship of Shri M. Narsimhan, appointed by

    the RBI recommended the introduction of these prudential accounting

    norms by Indian Banks in its report submitted in December 1991. The

    committee was of view of that

    A. If banks want to know the true and fair financial health of bank

    then they should observed the prudential accounting norms while

    making balance sheet and profit & loss account.

    B. Classification of assets has to be done on the basis of objective

    criteria.

    C. Provisioning should be made on the basis of classification into four

    different categories.

    The income recognition, Assets Classification and provisioning norms

    also known as Prudential Accounting Norms, provided that a bank should

    not show profit which is merely a book profit by resorting to practice like

    debiting interest to a loan account irrespective of its chance of recovery

    and booking the same as income or by not making provisions towards loan

    losses.

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    . NARSIMHAN COMMITTEES RECOMMENATIONS

    @. Committee has suggested that banks should operate on the basis of

    financial autonomy and operational flexibility.

    @. It has recommended Capital Adequacy Norm of 8%

    @. These norms are applicable to all UCBs from 1st April, 1992.

    . SECOND COMMITTEE

    The first committee had made recommendations in 1991, which

    had resulted in basic changes in the matter of treatment of income, assets

    classification and provisioning norms, etcit was considered necessary

    for government to continue the improvement with striker rules in future

    also and for that second committee was made to continue changes with

    certain modifications.

    The second committee includes the following points:

    1. If bank is working in foreign countries at presently then for them the

    Capital Adequacy Norm is 9% which was 8% earlier.

    2. Banks cant classify the account as NPA which are guaranteed by the

    Central / State government, effective from the year 2000-2001.

    3. As per the existing norms, no provisions for standard assets but from

    March 31st 2000, there is a norm of 0.25 percent on standard assets.

    4. Banks have to make a provision of 2.5% on their investment in

    Government securities with effect from the year ending 31st March, 2000.

    In future, this provision is likely to be raised to 5%.

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    5. The present norm is of 180 days for the account to be treated as NPA

    but after 31st March, 2000, this period is reduced to 90 days only.

    5. Banks have been asked to reduce the level of NPA to 5% of theirtotal advances till 31st March, 2000. The percentage has to be

    brought down to less than 3% with effect from 31st March, 2002.

    ASSETS CLASSIFICATION

    . CHART OF ASSETS CLASSIFICATION

    ASSETS

    PERFORMING ASSETS NON-PERFORMINGOR ASSETS

    STANDERED ASSETS

    SUB-STANDERED DOUBTFUL LOSS

    ASSETS ASSETS ASSETS

    LESS THAN 1 TO 3 ABOVE

    1 YEAR YEARS 3

    YEARS

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    . DEFINITION AS PER THE CLASSIFICATION OF ASSETS

    Reserve Bank of India (RBI) has issued guidelines on provisioning

    requirement with respect to bank advances. In terms of these guidelines,

    bank advances are mainly classified in to following categories:

    1. STANDARD ASSETS :Standard assets are one which does not carry any problems and which

    does not carry more than normal risk attached to the business.Such assets

    should not be an NPA.

    2. SUB-STANDARD ASSETS :

    These assets involved the two types of view as follows In respect to the norms of March 31, 2005 an asset would be classified

    as Sub standard if it remained NPA for a period less than or equal to 12

    months.

    An assets where the terms of the loan agreement regarding interest &

    principal have been regenerated or rescheduled after commencement of

    production, should be classified as sub-standard and should remain in such

    category for at least 12 months of satisfactory performance under the re-

    negotiated terms.

    3. DOUBTFUL ASSETS :In respect to the norms of March 31, 2005 an asset is required to be

    classified as doubtful, if it has remained NPA for more than 12 months.

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    A loan which is classified as doubtful has all the weaknesses inherent as

    that classified as Sub-standard with the added characteristic that the

    weaknesses make collection or liquidation in full, on the basis of the

    currently known facts, conditions and values, highly questionable andimprobable.

    Some types of these assets are

    A. Less than 1 year

    B. 1 to 3 year

    C. 3 year and above

    4. LOSS ASSETS

    A loss asset is one where loss has been identified by the bank or

    internal or external auditors or by the Co-operation department or by the

    RBI inspection but the amount has not been written of, wholly or partly.

    READY RECKONER FOR ASSET CLASSIFICATION

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    NO.WHEN DATE OF NPA

    FALLS?

    ASSET CLASSIFICATION

    AS ON 31-03-2007

    1.Between 1-10-2006 & 31-03-

    2007

    Sub-Standard assets

    2.Between 1-10-2005 & 30-09-

    2006Doubtful up to 1 year

    3.Between 1-10-2003 & 30-09-

    2002

    Doubtful asset of 1 year to 3

    year

    4. On or before 30-09-2003Doubtful asset of more than 3

    year

    5. No NPA date Loss asset

    6.No security or salvage value of

    security is less than 5%

    7.

    Chance of realization of dues

    from all available sources is

    practically negligible or zero.

    8.

    Account has been identified by

    the bank or internal/external

    auditors or RBI inspectors as

    loss assets, which has not been

    written off.

    GUIDELINES FOR CLASSIFICATION OF ASSETS

    The guidelines are as follows

    1. BASIC CONSIDERATION:

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    In simple terms the classification of assets should be done byconsidering the well defined credit weaknesses & extent of dependence on

    collateral security for realization of dues.

    In accounts where there is a potential threat to recovery on account andexistence of other factor such as fraud committed by borrowers it will not

    be prudent for bank to classify that account first as sub-standard and then

    as doubtful. Such account should be straight away classified as doubtful

    asset or loss asset, as appropriate, irrespective of the period for which it

    has remained as NPA.

    2. ADVANCES GRANTED UNDER REHABILITATION

    PACKAGES:

    Banks are not permitted to do classification of any advances in respect

    of which the term have been re-negotiated unless the package of re-

    negotiated terms has worked satisfactory for a period of one year.

    A similar relaxation is also made in respect of SSI units which are

    identified as sick by banks themselves and where rehabilitation packages

    programs have been drawn by the banks themselves or under consortium

    arrangements.

    3. INTERNAL SYSTEM FOR CLASSIFICATION OF ASSETS AS

    NPA:

    Banks should establish appropriate internal systems to eliminate thetendency to delay or postpone the identification of NPAs, especially in

    respect of high value accounts. The banks may fix a minimum cut-off

    point to decide what would constitute a high value account depending

    upon their respective business levels. The cut-off point should be valid for

    the entire accounting year.

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    Responsibility and validation level for proper assets classification maybe fixed by bank.

    The system should ensure that doubts in asset classification due to anyreason are settled through specified internal channels with in one month

    from the date on which the account would have been classified as NPA as

    per extant guidelines.

    INCOME RECOGNITION POLICY

    According to the act of 1st April, 1992 the income recognition

    policy is as follows

    The policy of income recognition has to be objective and based on therecord of recovery. Income from non-performing assets is not recognized

    on accrual basis but is booked as income only when it is actually received.

    Therefore, banks should not take to income account interest on non-

    performing assets on accrual basis. However, interest on advances against term deposits, NSCs, IVPs,KVPs, and Life policies may be taken to income account on the due date,

    provided adequate margin is available in the accounts.

    Fees and commissions earned by the banks as a result of re-negotiations or rescheduling of outstanding debt should be recognized on

    an accrual basis over the period of time covered by the re-negotiated or

    rescheduled extension of credit.

    If Government guaranteed advances becomes overdue and there byNPA, the interest on such advances should not be taken to income account

    unless the interest has been realized.

    PROVISIONING NORMS

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    According to the norms the provisions should be made on thenonperforming assets on the basis of classification of assets as we have

    already discussed.

    Taking in to account this provisioning norms the banks have to make provision on different assets like Loss Assets, Doubtful Assets and

    Standard Assets as below :->

    ( | ). LOSS ASSETS

    The entire assets should be written off after obtaining necessary

    approval from the competent authority and as per the provisions act of C0-

    operative society Act. If the assets are permitted to remain in the books for

    any reason, 100% of the outstanding should be provided for.

    If expected salvage value of the loss asset is negligible then 100%provision should be made on it.

    ( || ). SUB-STANDARD ASSETS

    A general provision of 10% on the total outstanding should be made onthe advances given.

    ( ||| ). DOUBTFUL ASSETS

    On doubtful assets provision is made from 20% to100% as per the period of asset. The table below shows the provision on

    doubtful assets.

    Period for which the advance has Provision Requirement

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    remained in doubtful category

    Up to one year 20%

    One to Three year 30%

    More than Three year( | ) Outstanding NPA as on March

    31,2007

    - 50% as on March 31, 2007

    - 60% as on March 31, 2008

    - 75% as on March 31, 2009

    - 100% as on March 31, 2010

    ( || ) Advances classified as doubtful for

    more than three years on or after April1,

    2007

    -100%

    ( |V ). STANDARD ASSETS

    From the year ended March 31, 2000, the banks should make a generalprovision of a minimum of 0.25% on the standard assets.

    However, Tier 2 banks are required to do higher provisioning onstandard assets as under:-

    A. General provisioning requirement is 0.40%

    from the present level of 0.25%. But incase of

    agriculture or in SME investors the provisioning

    rate is required to be 0.25%.

    ( V| ). HIGHER PROVISIONS

    There is no objection if the banks create bad and doubtful debts reservebeyond the specified limits on their own or if provided in the respective

    State Co-operative Societies Acts.

    MANAGEMENT OF NPA

    It is very necessary for bank to keep the level of NPA as

    low as possible. Because NPA is one kind of obstacle in the success of

    bank so, for that the management of NPA in bank is necessary. And this

    management can be done by following way:

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    . Framing reasonably well documented loan policy and rules.

    . Sound credit appraisal on well-settled banking norms.

    . Emphasizing reduction in Gross NPAs rather then Net NPAs

    . Pasting of sale notice/ wall posters on the house pledged as security.

    . Recovery effort starts from the month of default itself. Prompt legal

    action should be taken.

    . Position of overdue accounts is reviewed on a weekly basis to arrest

    slippage of fresh account to NPA.

    . Half yearly balance confirmation certificates are obtained from the

    borrowers regularly.

    . A committee is constituted at Head Office, to review irregular accounts.

    . Due to lower credit risk and consequent higher profitability, greater

    encouragement is given to small borrowers.

    . Recovery competition system is extended among the staff members.

    The recovering highest amount is felicitated.

    . Adopting the system of market intelligence for deciding the credibility

    of the borrowers

    . Creation of a separate Recovery Department with Special Recovery

    Officer appointed by the RCS

    RECOVERY OF NPA

    . IMPORTANCE OF RECOVERY:

    1. Increase in the income of bank.

    2. Increase in the trust of share holder in bank.

    3. Level of NPA reduces as the recovery done.

    4. Decrease in provisioning requirements.

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    . STEPS TAKEN BY GOVERNMENT TO RECOVERING NPA:

    1. SECURITIZATION ACT

    @. Now this act is also applicable to all Urban Co-Operative Banks.

    @. According to this act Bank can take direct possession of the movable

    and immovable property mortgages against loans and sell out the same for

    such recovery, without depending on legal process in the court.

    2. Gujarat state has also by amending under co-op soc, act empower co-op

    bank to appoint their staff as recovery officer on getting order from the

    board of nominees.

    Above both act are benefited to bank for the recovery of NPA.

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    CHAPTER: 8

    CITY BANK &

    NON-PERFORMING

    ASSETS

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    CREDIT APPRAISAL POLICY AT CITY BANK

    . INTRODUCTION

    At the time of registration of bank, Loan rules were framed and

    approved by the DRCS, Surat. Thereafter with the approval of Board, loan

    rules were changed considering guidelines issued by RBI from time to

    time. Now in view to increasing branch network in numbers of

    geographically also, one common document viz. Appraisal policy is

    framed.

    . POLICY ON PRE-SANCTION

    1. Application for loan should be in standardized form as devised by

    the bank.

    2. Branch to collect all the papers/information/documents as

    suggested in the respective application form.

    3. Branch to visit the borrowers office/factory/residence and to

    satisfy themselves before recommending any loan to higher

    authority and to keep record of such visit.

    4. If applicant maintains loan/current/saving account with any other

    bank/financial institutions, branch to verify such account statement

    and to satisfy them.

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    5. Branch to ascertain the promptness of applicant in making payment

    of Power bill/Property Tax/LIC Premium/Existing loan interest or

    installment, before recommending the proposal to higher authority.

    . APPRAISAL

    A. WORKING CAPITAL FACILITY

    1. Working capital requirement to be assessed properly considering past

    performance, holding period for debtors as also for inventory at various

    level, sales, etc

    2. Working capital facilities beyond Rs. 5 lacs should not be considered in

    the form of overdraft.

    3. Margin for CC against stock be 30% and for receivables 50%.

    B. TERM FINANCE

    1. term loan limit to be arrived @ 25% margin in respect of

    Machinery/Equipment and Vehicles while 50% against land & building,

    electrification, furniture fixtures.

    2. Sources for margin money to be ascertained.

    3. Repayment capacity, considering existing earning to be ascertained.

    4. Moratorium period to be fixed considering time required going in for

    commercial production.

    C. GENERAL

    1. Credit facilities should not exceed segment wise, individual as also

    group exposures.

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    2. in case of switch over from other bank, branch to obtain credit

    information report from the concerned bank.

    3. In case of existing borrower/group borrower, branch to satisfythemselves about their dealing with the bank.

    . EXPOSURE

    As per the RBI guidelines per party exposure is restricted to 15%

    of share capital and Free Reserves and group exposures it is 40%. RBI has

    given liberty to recalculate the exposure on the basis of profitability of

    September half. However irrespective of these it is restricted at lower level

    i.e. Rs.1.55 crore for individual and Rs.3.50 crores for group.

    . SANCTIONING AUTHORITY

    1. AGM

    Rs.1.00 lac for all types of fresh loan except staff loan and

    Rs.2.00 lacs for renewal

    2. CEO

    Rs.2.00 lacs for all types of fresh loan except staff housing loan

    and Rs.4.00 lacs for renewal

    3. COE

    Committee of executives comprising of all the executives shall have

    authority to grant all type of fresh loan up to Rs.15.00 lacs except loan

    against FDR/LIC/GOVT. security and staff housing loan as also renewal

    of all working capital facilities irrespective of limit.

    4. Chairman/Vice Chairman/Founder Chairman

    Loan against FDR/LIC/GOVT. security and any adhoc request.

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    5. LOAN COMMITTEE

    All types of loans to single borrower up to Rs.77.50 lacs and Rs.1.75

    crores for group borrower.

    6. BOARD

    All types of loan within exposure ceiling for individual and group

    borrower.

    . DISBURSAL FORMALITIES

    A. WORKING CAPITAL FACILITY

    1. Fresh/additional limit against stock to be released only after party

    obtains adequate insurance for stock and submit stock/book debts

    statement.

    2. In case of new unit, working capital facility to be released, only after the

    unit starts commercial production.

    B. TERM FINANCE

    1. So far as possible, disbursement to be made by direct payment to seller.

    2. At every time of disbursement, matching contribution to be made by the

    borrower.

    3. Immediately after disbursement, branch to follow up insurance policy,

    receipt for payment made, invoice etc

    C. GENERAL

    1. Disbursement to be made only after complying with all the terms and

    conditions of sanction, complete documentation and obtaining disbursal

    authority.

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    2. In case of Private Ltd. Company, charge with ROC to be registered

    immediately on disbursal of credit facility.

    3. Before disbursal branch to ensure that borrowers/guarantors become

    member of the bank.

    . POST SANCTION

    A. TERM FINANCE

    1. On installation of machineries branch to inspect the unit and to ensure

    that machineries as per sanction is received & place the inspection report

    on record.

    2. At least twice a year, branch to inspect the unit to ensure that

    machineries financed by the bank are in running condition.

    B. WORKING CAPITAL

    1. No finance to be considered against inter-firm receivable and for the

    receivables of more than 90 days.

    2. Drawing power to be arrived at regularly every month on the basis of

    stock statement/book debt statement submitted by the party.

    3. Branch to ensure that receipt and payment through CC/OD accounts

    represent genuine business transactions.

    4. Branch to carry out inspection of the unit at least on quarterly basis.

    @. Renewal of working capital facility

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    1. Personal balance sheet of proprietor/partner/directors is also to be

    obtained.

    2. Branch to submit the renewal papers along with memorandum forrenewal to higher authority for renewal, with its comments on performance

    with the bank, financial performance viz. sales, profit etc

    3. If financial performance does not justify the limit at current level,

    branch to persuade the party to reduce the limit.

    4. Where the accounts are statutorily required to be audited, branch to

    obtain audited accounts at the time of renewal.

    NPA NORMS OF CITY BANK

    . CLASSIFICATION:

    1. SUB STANDARD ASSETSOverdue of 90 days and for loan up to Rs.1.00 lacs overdue for 6 months

    NPA up to 12 months remain in sub standard assets.

    2. DOUBTFUL ASSETS

    NPA for more than 12 months is doubtful assets.

    . PROVISION:

    1. STANDARD ASSETS

    0.25% of standard assets in SME and direct agriculture advances. 0.40% in case of all other standard loans 1.00% for personal loan, Commercial Real Estate Loan, Loan againstshares

    And for housing loan up to Rs.20.00 lacs the provision is 2.00%.

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    2. SUB STANDARD ASSETS

    10% of sub standard assets

    3. DOUBTFUL ASSETS

    20% for NPA from 13 months to 24 months 30% for NPA from 25 months to 48 months 50% for NPA from 49 months and above100% for loss assets

    RECOVERY POLICY AT CITY BANK

    . BANKS POLICY:

    At present they are making recovery but procedure for the same is

    not documented in the form of policy. Although the bank is committed to

    collection/recovery of its dues but the dignity of and respect for the

    customer is central to their recovery policy. The policy is framed on the

    principal of courtesy, fair treatment and persuasion.

    . GUIDELINES FOR BRANCH/RECOVERY STAFF:

    All the branches of City bank have to follow the following

    guidelines

    1. Branch to continuously inform the borrower about the due date

    of repayment schedule. Recovery efforts to starts from the first

    month of default itself.

    2. Position of overdue account to be reviewed on the monthly

    basis to arrest slippage of fresh accounts to NPA category.

    3. If the branch does not get response from the borrower for

    paying the amount, they have to visit the unit and meet with the

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    borrower. During visit to customers place for collection of

    dues, decency and decorum would be maintained and

    customers privacy would be respected as far as practicable.

    4. If the branch does not get any favorable response, during

    personal visit, they should write a notice letter to borrower.

    5. If borrower still behaves irresponsible, they should meet the

    guarantor and ask guarantor to peruse the borrower. Guarantor

    must be informed about legal complication to arise if borrower

    fails to repay the dues.

    6. On failure of all the recovery steps, branch to contact Area

    office/Control centre.

    7. Area office/Control centre to call the borrower along with

    guarantor and try to find out the reason for overdue. If

    borrower is in genuine difficulty, problem to be resolved in a

    mutually acceptable and in an orderly manner.

    8. If party behaves indifferent, legal actions must be initiated. In

    such case prompt legal action and seizure action to be taken.

    Preference to be given for steps under Securitization Act rather

    than go for filling a case in the court of Board of Nominees.

    9. Reasonable notice would be given before Repossession of

    Security and its realization, unless the borrower is about to

    dispose of/remove the whole or any part of the security from

    the locality where it ordinarily remained or by whom it is used

    or caused to be remained or used, as the case may be, at the

    time of creation of security.

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    10. The aim of possession under Securitization or State co-op. Act

    will be to recover the dues and will not be aimed at whimsical

    deprivation of the property. The bank shall resort to

    repossession of the security only when the collection/recoveryof dues is not forthcoming in spite of request made and the

    policy for repossession shall be in accordance with the terms

    and conditions of the loan documents and with in the legal

    framework. The policy fairness and transparency in

    repossession, valuation and realization of security.

    CHAPTER: 9

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    ANALYSISOF

    DATA

    YEAR WISE NPA AT CITY BANK

    . YEAR 2003

    (RS. IN LACS)

    Details Amount %of Total

    STANDARD ASSETS 5912.67 91.90084

    SUB-STANDARD ASSETS 189.75 2.949291

    DOUBTFUL ASSETS 316.69 4.922324

    LOSS ASSETS 14.64 0.22755

    TOTAL 6433.75 100

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    N P A O F 20

    91.9008

    2.94929

    4.92232

    0.2275

    0 20 40 60 80 100

    ST AN D AR D ASSE TS

    SU B- ST AN D AR D ASSE TS

    D OU BT F U L ASSE TS

    L O S S A S S E TS

    ASSETS-->

    V AL UE S -

    % of To t

    . YEAR 2004

    (RS. IN LACS)

    Details Amount %of Total

    STANDARD ASSETS 6923.74 93.95

    SUB-STANDARD ASSETS 143.60 1.95

    DOUBTFUL ASSETS 291.00 3.95

    LOSS ASSETS 10.84 0.15

    TOTAL 7369.18 100

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    N P A O F Y E A R 2

    93.9

    1 .9

    3 .9

    0 .1

    0 2 0 4 0 6 0 8 0 1 0 0

    S T A N D A R D A S S E TS

    S U B - S TA N D A R D A S S E T S

    D O U B T F U L A S S E T S

    L O S S A S S E TS

    ASSETS-->

    V A L U E S -

    % o f T o t

    . YEAR 2005

    (RS. IN LACS)

    Details Amount %of Total

    STANDARD ASSETS 7266.63 94.28

    SUB-STANDARD ASSETS 156.65 2.03

    DOUBTFUL ASSETS 278.40 3.61

    LOSS ASSETS 1.04 0.01

    TOTAL 7707.72 100

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    N P A O F Y E A R 2

    94.2

    2.03

    3.61

    0.01

    0 20 40 60 80 100

    S T A N D A R D A S S E T S

    S U B - S TA N D A R D A S S E T S

    D OU B TFU L A S S E TS

    L O S S A S S E TS

    ASSETS-->

    VA L U ES-

    % of To t

    . YEAR 2006

    (RS. IN LACS)

    Details Amount %of Total

    STANDARD ASSETS 6867.81 96.82

    SUB-STANDARD ASSETS 12.24 0.17

    DOUBTFUL ASSETS 213.58 3.01

    LOSS ASSETS 0.00 0.00

    TOTAL 7093.63 100

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    N P A O F Y E AR

    9 6 .8

    0 .1

    3 .0 1

    0

    0 2 0 4 0 6 0 8 0 1 0 0 1 2 0

    S T A N D A R D A S S E TS

    S U B - S TA N D A R D A S S E TS

    D O U B T F U L A S S E TS

    L O S S A S S E TS

    ASSETS-->

    V A L U E S

    % o f T o t

    . YEAR 2007

    (RS. IN LACS)

    Details Amount %of Total

    STANDARD ASSETS 9801.49 94.78

    SUB-STANDARD ASSETS 120.12 1.16

    DOUBTFUL ASSETS 258.80 2.50

    LOSS ASSETS 159.85 1.54

    TOTAL 10340.26 100

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    N P A O F Y E A R 2

    94.7

    1.16

    2.5

    1.54

    0 20 40 60 80 100

    S TA NDA RD A S S E TS

    SUB-STANDARD ASSETS

    DOUBTFUL ASSETS

    LOS S A S S E TS

    ASSETS-->

    VA L U ES-

    % of To t

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    SEGMENTWISE CLASSIFICATION OF NPA

    (RS. IN LACS)

    B.M. Collage of Business Administration Page 61

    SEGMENT

    2005 2006 2007

    NO

    OF

    A/C

    AMOUNT NO

    OF

    A/C

    AMOUNT NO

    OF

    A/C

    AMOUNT

    TOTAL

    ADVANCESNPA

    TOTAL

    ADVANCESNPA

    TOTAL

    ADVANCESNPA

    RETAIL TRADE 267 752.63 17.69 248 641.90 20.21 343 802.03 76.81

    SMALL BUSINESS 31 46.48 4.38 25 44.17 20.15 122 88.02 50.93

    SMALL SCALE IND 582 4021.55 210.74 642 3832.29 44.88 975 6323.86 180.86

    CONSTRUCTION &

    REPAIRS246 323.43 21.02 231 343.86 2.70 345 459.76 22.43

    AGRICULTURE 2 3.72 0.00 0 0.00 0.00 517 115.64 0.12

    SMALL ROAD &

    TRANSPORTATION10 5.23 0.00 0 0.00 0.00 34 8.18 1.90

    PROFESSIONAL 84 89.81 5.00 2 7.33 0.00 80 72.52 3.10

    EDUCATION 2 10.71 0.00 8 3.41 0.00 3 7.26 0.00

    OTHER PRIORITYSECTOR 0 0.00 0.00 55 41.82 3.47 326 68.05 16.42

    OTHE NON

    PRIORITY SECTOR375 2454.16 177.26 285 2178.85 134.41 310 2394.94 186.20

    TOTAL 1599 7707.72 436.09 1496 7093.63 225.82 3055 10340.26 538.77

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    RATIO ANALYSIS

    To analyzed the NPA situation in bank and from that to know about the

    banks credit appraisal system and level of risk in bank I have done the ratio analysis.

    Ratio analysis is the tool which will help us to do financial analysis of bank.

    Some names of ratio are as follows:

    1. GROSS NPA RATIO.

    2. NET NPA RATIO.

    3. PROBLEM ASSETS RATIO.

    4. SHAREHOLDERS RISK RATIO.

    5. PROVISION RATIO.

    6. SUB-STANDARD ASSETS RATIO.

    7. DOUBTFUL ASSETS RATIO.

    8. LOSS ASSETS RATIO.

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    1. GROSS NPA RATIO

    Gross NPA is the sum of the total assets which are classified as the NPA by bank

    at the end of every year. Gross NPA is the ratio of Gross NPA to Gross Advances. It is

    expressed in percentage form.

    Gross NPA Ratio = Gross NPA * 100

    Gross Advances

    (RS. IN LACS)

    YEAR GROSS NPAGROSS

    ADVANCES

    GROSS NPA

    RATIO

    (%)

    2003 521.08 6433.75 8.10%

    2004 445.44 7369.18 6.04%

    2005 436.09 7707.72 5.68%

    2006 225.82 7093.63 3.18%

    2007 538.77 10340.26 5.21%

    GRO SS NPA RA

    8.10

    6.045.68

    3.18

    5.21%

    0.00%

    1.00%

    2.00%

    3.00%

    4.00%

    5.00%

    6.00%

    7.00%

    8.00%

    9.00%

    2 003 2 004 2 00 5 2 006 200 7

    YEAR--

    PERCENTAGES-->

    RATIO

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    . ANALYSIS

    Gross NPA ratio shows the banks credit appraisal policy. High Gross NPA ratio

    means bank have liberal appraisal policy and vice-versa.

    In city bank this ratio was 8.10% in March-2003 and it has been decreased from

    year 2003 to 2006 from 8.10% to 3.18%. But again in March-2007 this ratio reach at

    5.21%. This variation was come because City bank has merged with Baroda dist. Co-op.

    bank in the financial year 2006-2007.

    However it is revels from the chart that banks Gross NPA ratio is continuouslydecreasing which is positive trend for bank and we can say that bank have good appraisal

    system.

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    2. NET NPA RATIO

    The Net NPA Ratio is the ratio of net NPA to Net Advances. This ratio shows the

    degree of risk in banks portfolio. Net NPA ratio can be obtain by Gross NPA minus the

    NPA provisions divided by Net advances.

    Net NPA Ratio = Net NPA *100

    Net Advances

    (RS. IN LACS)

    YEAR NET NPA NET ADVANCESNET NPA RATIO

    (%)

    2003 299.13 6211.80 4.82%

    2004 0.00 6888.84 0.00%

    2005 0.00 7236.74 0.00%

    2006 0.00 6622.57 0.00%

    2007 0.00 9733.62 0.00%

    Net NPA = Gross NPA Provision for NPA

    Net Advances = Gross NPA Provision for NPA

    NET NPA RATIO

    4.82%

    0.00% 0.00% 0.00% 0.00%

    0.00%

    1.00%

    2.00%

    3.00%

    4.00%

    5.00%

    6.00%

    2003 2004 2005 2006 2007

    YEAR-->

    PERECNTAGE--

    NET NPA RATIO

    . ANALYSIS

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    Net NPA ratio shows the degree of risk in portfolio of bank. High net NPA ratio

    means banks dont have enough fund to do provision against the Gross NPA.

    In City Bank Net NPA ratio was 4.82% in year March-2003 which shows that in

    that year bank had not enough fund for provisions. But after that from March-2004 to

    March-2007 Net NPA ratio is 0.00% which shows that bank has now enough provision

    capacity. So, here the degree of risk is less.

    City bank has done more provision every year which is good at one side but at other

    side it also reduces the profit of bank. And shareholder will get fewer dividends.

    When all bank will do provision then Net NPA will become zero but if we want to

    know the true and fair situation of bank we must consider the Gross NPA of bank.

    3. PROBLEM ASSETS RATIO

    This ratio is also known as the Gross NPA to Total Assets ratio. This ratio shows

    the percentage of risk on the total assets of the bank. High ratio means high risk for bank.

    Problem Assets Ratio = Gross NPA *100

    Total Assets

    (RS. IN LACS)

    YEAR GROSS NPA TOTAL ASSETS

    PROBLEM

    ASSETS RATIO

    (%)

    2003 521.08 13381.91 3.89%

    2004 445.44 15935.97 2.80%

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    2005 436.09 16337.35 2.69%

    2006 225.82 18675.05 1.21%

    2007 538.77 24202.77 2.23%

    PROBLEM ASSETS RATI

    3.89%

    2.80% 2.69%

    1.21%

    2.23%

    0.00%

    0.50%

    1.00%

    1.50%

    2.00%

    2.50%

    3.00%

    3.50%

    4.00%

    4.50%

    2003 2004 2005 2006 2007

    YEAR-->

    PER

    CENTAGE-->

    PROBLEM AS SET

    RATIO

    . ANALYSIS

    This ratio shows the percentage of risk on the assets of bank. It shows the level of

    risk on banks assets. High ratio shows the high risk on liquidity.

    In City Bank this ratio was 3.89% in March-2003 and after that it has been

    decreased from 3.89% to 1.21% in March-2006. But again it increase to 2.23% in March-

    2007 because in that year City Bank was merged with Baroda dist. Co-op. bank in the

    financial year 2006-2007.

    This ratio is continuously decreasing in bank except in March-2007. But overall this

    ratio is good for bank which indicates the level of risk is low in bank.

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    4. SHAREHOLDERS RISK RATIO

    It is the ratio of Net NPA to Total capital and reserve of bank.

    Shareholders risk Ratio = Net NPA *100

    Total Capital & Reserve

    (RS. IN LACS)

    YEAR NET NPATOTAL

    CAPITAL &

    RESERVE

    SHAREHOLDERSRISK RATIO

    (%)

    2003 299.13 1793.76 16.68%

    2004 0.00 2075.06 0.00%

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    2005 0.00 2262.39 0.00%

    2006 0.00 2551.64 0.00%

    2007 0.00 3014.58 0.00%

    SHAREHOLDERS RISK RA

    16.68%

    0.00%0.00% 0.00%0.00%

    0.00%

    2.00%

    4.00%

    6.00%

    8.00%

    10.00%

    12.00%

    14.00%

    16.00%

    18.00%

    2003 2004 2005 2006 2007

    YEAR-->

    PERC

    ENTAGE-->

    SHAREHOLDERS RIS

    RATIO

    . ANALYSIS

    This ratio shows the degree of risk with share holders investment. High ratio

    means high ratio with the investment.

    In City Bank this ratio was 16.68% in year March-2003 which shows that in that

    year risk on share holders investment was quite high but after that this ratio is 0.00% up

    to year March-2007, which shows that Bank have enough capacity for provision and the

    risk on investment is nil.

    As we know that this ratio is 0.00% show the risk is nil but on the other side

    because of more provision the profit will decrease and the shareholder will get less

    dividends.

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    5. PROVISION RATIO

    Provisions are to be made against the Gross NPA of bank. As bank make

    provision for NPA it directly affects the profit of bank. This ratio shows the relation of

    total provision to Gross NPA.

    Provision Ratio = Total Provision *100

    Gross NPA(RS. IN LACS)

    YEARTOTAL

    PROVISIONGROSS NPA

    PROVISION

    RATIO

    (%)

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    2003 221.95 521.08 42.59%

    2004 480.34 445.44 107.83%

    2005 470.98 436.09 108.00%

    2006 471.06 225.82 208.59%

    2007 606.64 538.77 112.60%

    PROVISION RATIO

    42.59%

    107.83%108.00%

    208.59%

    112.60%

    0.00%

    50.00%

    100.00%

    150.00%

    200.00%

    250.00%

    2003 2004 2005 2006 2007

    YEAR-->

    PERCENTAGE--

    PROVISION RATIO

    . ANALYSIS

    Provision ratio shows the degree of provision that is made against the Gross NPA

    of bank. As bank made the provision it directly affect the profit of bank and also the

    dividend payout ratio of bank too.

    If Provision ratio is less then it means that bank has make under provision and if

    provision is more then it means that it is over provision.

    In City Bank they have made 42.59% provision in March-2003 which shows that

    it was under provision but after that in March-2004 and March-2005 it is 107.83% and

    108% respectively which indicate that provision was nearer to total amount of Gross

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    NPA but in March-2006 the provision ratio reach at 208.59% which indicate that it is the

    very over provision. And again in March-2007 it is 112.60% which is fair ratio.

    City bank should make the provision in the range of 100% to 115%. The

    provision in March-2006 which is 208.59% is very high and it is not necessary to do that.

    6. SUB-STANDARD ASSETS RATIO

    Sub-standard Assets Ratio = Total Sub-standard Assets *100

    Gross NPA

    (RS. IN LACS)

    YEARSUB-STANDARD

    ASSETSGROSS NPA

    SUB-STANDARD

    ASSETS RATIO

    (%)

    2003 189.75 521.08 36.41%

    2004 143.60 445.44 32.24%

    2005 156.65 436.06 35.92%

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    2006 12.24 225.82 5.42%

    2007 120.12 538.77 22.30%

    SUB-STANDARD ASSETS R

    36.41%

    32.24%

    35.92%

    5.42%

    22.30%

    0.00%

    5.00%

    10.00%

    15.00%

    20.00%

    25.00%

    30.00%

    35.00%

    40.00%

    2003 2004 2005 2006 2007

    YEAR--

    PER

    CENTAGE-->

    SUB-STANDAR

    ASSETS RATI

    . ANALYSIS

    This ratio shows the percentage of Sub-Standard assets in the Gross NPA of bank. High

    Sub-Standard ratio means more proportion of Sub-Standard asset in the Gross NPA.

    High ratio shows that there is a chance of recovery of assets is high.

    In City bank this ratio was 36.41% in March-2003 which is good for bank and it is 5.42%

    in year March-2006 which is not good for bank.

    As the level of Sub-Standard assets are more the chances of recovery of NPA are high.

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    7. DOUBTFUL ASSETS RATIO

    It is the ratio of total doubtful assets to Gross NPA of the bank.

    Doubtful Asset Ratio = Total Doubtful Assets *100

    Gross NPA

    (RS. IN LACS)

    YEAR

    TOTAL

    DOUBTFUL

    ASSETS

    GROSS NPA

    DOUBTFUL

    ASSETS RATIO

    (%)

    2003 316.69 521.08 60.78%

    2004 291.00 445.44 65.33%

    2005 278.40 436.09 63.84%

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    2006 213.58 225.82 94.58%

    2007 258.80 538.77 48.03%

    D OU BTF U L ASSE TS R

    60.7865.33 63.84

    94.58

    48.03

    0.00%

    10.00%

    20.00%

    30.00%

    40.00%

    50.00%

    60.00%

    70.00%

    80.00%

    90.00%

    100.00%

    2 00 3 2 00 4 2 00 5 2 00 6 2 00 7

    YEAR--

    PERC

    ENTAGE-->

    D OU BT F UL ASS E

    RATIO

    . ANALYSIS

    This ratio shows the percentage of Doubtful assets in the Gross NPA of bank. High

    Doubtful assets ratio means more proportion of Doubtful asset in the Gross NPA.

    More Doubtful assets means Bank should take action through recovery policy to reduce

    the level of Doubtful assets.

    As the Doubtful assets ratio is high which shows that bank should take quick action to

    reduce that level.

    This ratio should be less for the bank.

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    In City Co. Bank this ratio is in between from 60.00% to 65.00% in year from March-

    2003 to March-2005 but in March-2006 this ratio reach at 94.58% which indicate that

    bank must take some necessary action to recover it. And again in March-2007 this ratio

    decrease to 48.03% which is good for bank.

    8. LOSS ASSETS RATIO

    It is the ratio of Total loss assets to Gross NPA of bank.

    Loss Assets Ratio = Total loss Assets *100

    Gross NPA

    (RS. IN LACS)

    YEARTOTAL LOSS

    ASSETSGROSS NPA

    LOSS ASSETS

    RATIO

    (%)

    2003 14.64 521.08 2.81%

    2004 10.84 445.44 2.43%

    2005 1.04 436.09 0.24%

    2006 0.00 225.82 0.00%

    2007 159.85 538.77 29.67%

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    LOSS ASSETS RATI

    2.81% 2.43%0.24% 0.00%

    29.67%

    0.00%

    5.00%

    10.00%

    15.00%

    20.00%

    25.00%

    30.00%

    35.00%

    2003 2004 2005 2006 2007

    YEAR-->

    PERCENTAGE-->

    LOSS ASSETS RATI

    . ANALYSIS

    This ratio shows the percentage of loss assets in the Gross NPA of bank. High loss assets

    ratio means more proportion of loss asset in the Gross NPA.

    This should be less in bank. The high ratio indicates that bank has more fraudulent

    account and it is bad for bank. The bank must take necessary action to reduce the level of

    loss assets.

    In City Co. Bank this ratio is 2.81% in March-2003 and from it reach at 0.00% in the year

    March-2006. This ratio is decreasing in bank which is good for bank but again in March-

    2007 this ratio reaches at 29.67% which is the very high increase and it is very bad for

    bank. But the increase in the ratio of March-2007 is because bank was merged with

    Baroda dist. Co-op. bank in that year.

    Hence, bank should take some action to reduce the level of loss assets from the total

    NPA.

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    FINDINGS FROM RATIO

    As I have already analyze the ratio and from that I can say that banks financial

    condition is good. Hence, there is correction in the ratio of year 2007. And this correction

    is because of City bank was merged with Baroda Industrial co-op bank in year 2007. So,

    this effect of merging can be showing from the ratio of year 2007.

    From ratio I am able to find the following findings

    1. The Gross NPA ratio of bank is 8.10% in the year 2003 after then it reaches to

    5.21% in the year 2007. Hence, the idle gross NPA ratio is 5.00% and bank have

    5.21%. So, we can say that banks financial condition is good.

    2. Banks Net NPA ratio is 4.82% in the year 2003 and from 2004 to 2007 it remains

    0.00% which is positive for bank.

    3. The Problem assets ratio was 3.89% in the year 2003 which was the highest ratio

    and from that year it is decrease to 1.21% in the year 2006 which is good for

    bank. And this ratio is 2.23% in the year 2007.

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    4. Provision ratio for the year 2003 is 42.59% which show that their was under

    provision in that year but in year 2007 this ratio is 112.60% which shows that

    bank have enough profit for the provision.

    5. It will be considered good if the Sub-standard assets ratio is high. For City bank

    this ratio is 36.41% in the year 2003 which is good but it reaches to 5.42% in the

    year 2006 which is very bad for banks health.

    6. Doubtful assets ratio should be low for the good health of bank and in City bank

    this ratio is 94.58% in the year 2006 which is very bad but in year 2007 this ratio

    decrease to 48.03% which is positive for bank.

    7. Loss assets ratio should be zero and bank have 0.00% in the year 2006 which is

    good but in year 2007 this ratio reaches to 29.67% which is very rapid change

    with in a one year. And it is also bad for bank.

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    CLASSIFICATION OF TOTAL ADVANCES

    (RS. IN LACS)

    YEAR 2003 2004 2005 2006 2007

    TOTAL

    NPA521.08 445.44 436.09 225.82 538.77

    STANDARD

    ASSETS5912.67 6923.74 7266.63 6867.81 9801.49

    TOTAL

    ADVANCES6433.75 7369.18 7707.72 7093.63 10340.26

    B.M. Collage of Business Administration Page 81

    CLASSIFICATION OF NPA

    0

    100

    200

    300

    400

    500

    600

    2003 2004 2005 2006 2007

    YEAR-->

    PER

    CENT

    AG

    E--

    >

    SUB-STANDARD ASSETS

    DOUBTFUL ASSETS

    LOSS ASSETS

    TOTAL NPA

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    C L A S S IF IC A T IO N O F T O T A L A D

    0

    2000

    4000

    6000

    8000

    10000

    12000

    2 00 3 2 00 4 2 00 5 2 00 6 2 00 7

    YEAR--

    RS

    IN

    LACS--> TOTAL NP A

    S TA N D A R D A S S

    TOTA L A DV A NC

    CHAPTER: 10

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    CONCLUSION&

    SUGGESTION

    CONCLUSION

    Now as we know that NON-PERFORMING ASSETS is like a black spot on

    diamond. They affect the profit of bank and also the financial health of bank. This NPA

    have number of effects on banks working.

    During my training in bank I gathered as much as possible information about

    NPA from bank and on the basis my experience I conclude the following points:

    City Co. banks NPA level is decreasing year by year which good for bank.

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    In year 2007 City banks own NPA is very low but because of merger with Baroda

    industrial co-op bank the level of NPA was increase.

    The Gross NPA ratio of bank is 8.10% in the year 2003 after then it reaches to 5.21%

    in the year 2007. Hence, the idle gross NPA ratio is 5.00% and bank have 5.21%. So, we

    can say that banks financial condition is good.

    Banks Net NPA ratio is 4.82% in the year 2003 and from 2004 to 2007 it remains

    0.00% which is positive for bank.

    Loss assets ratio should be zero and bank have 0.00% in the year 2006 which is good

    but in year 2007 this ratio reaches to 29.67% which is very rapid change with in a one

    year. And it is also bad for bank.

    City Co. Bank has sound credit appraisal system and also sound recovery policy.

    City Co. Banks NPA level is decreasing year by year and because of that City Co.

    Bank is being considered very good bank by citizens of Surat.

    Hence in present time the position of NPA in bank is much better then the past

    position. In year 1997 in India the Gross NPA was 15.7% but now it is 3.00% in the year

    2007. This is very favorable to Indian economy and also banking sector of India.

    Governments act and also the Narsimhan committee on NPA are very useful to

    reduce the level of NPA.

    So, I can conclude that level NPA in any bank is important parameter to analyze the

    health of bank.

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    SUGGSTIONS

    1. City Co. banks NPA level is decreasing year by year which good for bank but

    bank should follow the recovery policy strictly.

    2. In year 2007 City Co. banks own NPA is very low but because of merger with

    Baroda industrial co-op bank the level of NPA increase so City Co. bank should

    have consider the NPA situation of that bank before merger.

    3. In City Co. bank there is no any special recovery department so bank should

    develop the department for the fastest recovery of NPA.

    4. Bank should motivate the staff to do fast recovery NPA.

    5. Bank have more NPA in Small Scale Industry so, they should try to reduce that

    level of NPA.

    CHAPTER: 11

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    BIBILIOGRAPHY

    JOURNALS

    Co-Operative Bankers Diary 2008

    -by John Dsalve

    Annual Report of City Co-Operative Bank

    -year, 2003, 2004,2005,2006,2007

    Periodical circular and statement of RBI regarding to NPA managing and UCBs

    WEBSITES

    http://finance.indiamart.com/investment_in_india/banking_in_india.html

    B.M. Collage of Business Administration Page 86

    http://finance.indiamart.com/investment_in_india/banking_in_india.htmlhttp://finance.indiamart.com/investment_in_india/banking_in_india.html
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    http://www.rbi.org.in/Home.aspx

    http://www.banknetindia.com/banking/cintro.htm

    http://www.investorwords.com/

    http://www.indiabankassociation.com/

    http://www.rbi.org.in/Home.aspxhttp://www.banknetindia.com/banking/cintro.htmhttp://www.investorwords.com/http://www.indiabankassociation.com/http://www.rbi.org.in/Home.aspxhttp://www.banknetindia.com/banking/cintro.htmhttp://www.investorwords.com/http://www.indiabankassociation.com/