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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,
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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
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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
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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
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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/