Somesh Npa Project

7/28/2019 Somesh Npa Project

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A STUDY ON NON-PERFORMING ASSET -VIJAYA BANK

KARNATAKA STATE OPEN UNIVERSITY Page 1

SECTION-A

NON PERFORMING ASSETS

EVOLUTION:

After nationalization, the entail norms initial mandate that banks were given

was to expand their branch network, increase the savings rate and extend credit to

the rural and SSI sectors. This mandate has been achieved admirably- since the

early 90,s the focus has shifted towards improving quality of assets and better

management. The directed lending approach has given way to more market

driven practices.

The Narashimhan Committee has recommended prudential norms on income

recognition, assets classification and provisioning. In a change from the past,

Income recognition is now not on an accrual basis but when it is actually received.

Past problem faced by banks were to a great extent attributable to this.

Classification of what an NPA is changed with tightening of prudential

norms. Currently an asset non-performing if interest or installments of principal

due remain unpaid for more than I80 days.


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INTRODUCTION:

A Man without money is like a bird without wings, the Rumanian proverb

insists the importance of the money. A bank is an establishment, which deals with

money. The basic functions of Commercial banks are the accepting of all kinds of

deposits and lending of money. In general there are several challenges confronting

the commercial banks in its day to day operations. The main challenge facing the

commercial banks is the disbursement of funds in quality assets (Loans and

Advances) or otherwise it leads to Non-performing assets.

NPAs -MEANING:

An asset which ceases to generate income of the bank is called non-

performing asset. The past due amount remaining uncovered for the two quarter

consequently the amount would be classified as NPA for the whole year. It

includesborrowers defaults or delays in interest or principal repayment.

DEFINITION OF NPA:

NBE [Supervision of Banking Business Directives (Directive No.

SBB/3212002)] defines, the term Non-performing is, Loans or advances whose

credit quality has deteriorated such that full collection of principal and/or interest

in accordance with the contractual repayment terms of the loan or advances is inquestion.


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A loan or lease that is not meeting its stated principal and interest payments.

Banks usually classify as nonperforming assets any commercial loans which are

more than 90 days overdue and any consumer loans which are more than 180 days

overdue. More generally, an asset which is not producing income.

For purposes of this Directive, loans or advances with pre-establishedrepayment programs are non-performing when principal and or interest is due

and uncollectible for 90 days or more beyond the scheduled payment date or

maturity.

For purposes of this Directive, overdraft and roans or advances that do not havea pre established repayment program shall be considered as non-performing

when;

1. The debt remains outstanding for 90 consecutive days or more beyondthe scheduled payment date or maturity.

2. Interest is due and uncollected for 90 days or more or3. For overdrafts, the account has been inactive for 90 consecutive days and

/ or deposits are insufficient to cover the interest capitalized during the

period.


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GENERAL REASONS FOR ASSETS BECOMING NPAs

A multiplicity of factor is responsible forever increasing size of NPAs in

banks. A few prominent reasons for assets becoming NPAs are as under.

Poor credit appraisal system.Lack of proper monitoring.

Reckless advances to achieve the budgetary targets.Change in economic policies/ environment.No transparent accounting policy and poor auditing practices. Banks were

also Lack of sincere corporate culture, inadequate legal provisions on

foreclosure and bankruptcy.

Change in economic policies/environment Banks not in the position to press enough securities to cover the

loans in calls of timings.

Lack of coordination between banks.REASONS FOR NON PERFORMANCE IN LOAN ASSETS:

1.Most of the NPAs have the cover of collaterals by way of EM of landedproperties. But real estate market is depressed & thus impacted

recoveries. Many large corporate borrowers have turned "wish

defaulters" taking shelters under BIFR umbrella.


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2.NBFCs are in doldrums, their recoveries are adversely affected &strictures on accepting deposits has caused further resource crunch

ultimately defaulting the banks, top priority being repayment of deposits.

The bank has the highest exposure under this sector where the incidence

of non performance is higher.

3.Textile industry is plagued by high cost of production & row returns, & isrunning in loss and many units are being closed down.

4.The bank got fairly good exposure in real estate. The depressed realestate market has resulted in poor recovery rate in almost the entiresegment.

5.In agriculture sector poor recovery has been due to various factors-recovery advances has been affected by the sharp fall in rubber prices.

Throughout the country aqua culture miserably failed due to reasons

beyond the control of the borrowers we are not an exception.

6.Poor recovery in schematic loans is mainly due to willful default by theborrowers.

90 DAYS OVERDUE EFFECT:

As a facilitating measure for smooth transition to 90 days norm, banks have

been advised to move over to charging of interest at monthly rests, by April 1,

2002. However, the date of classification of an advance as NPA should not be

changed on account of changing of interest at monthly rests. Banks should,

therefore, continue to classify an account as NPA only if the interest charged


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during any quarter is not serviced fully within l80 days from the end of the quarter

with effect from April l, 2002 and 90 days from the end of the quarter with effect

from 31,2004.

There are two aspects to the adoption of the 90 days, overdue norm for

identification of NPAs. The negative aspect is that NPAs will increase in the short

term. But the positive aspect is that banks will be become pro-active in detecting

smoke signals about an account becoming bad and accordingly initiate remedial

steps.

I. CREDIT INFORMATION BUREAU (CIB):

It is in this context that the facility of credit Information Bureau (CIB)

becomes relevant, A CIB provides an institutional mechanism for sharing of credit

information on borrowers and potential borrowers among banks and FIs. Ii acts as

a facilitator for credit dispensation and helps mitigate the credit risk involved in

lending.

Based on cross-country experiences, initiatives have been taken in India to

establish a credit information bureau. The Bureaus established in these countries

collect information on both individual borrowers (retail segment) and the corporate

sector


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WARNING SIGNALS:

1. Default in servicing periodic installments and interest.2. Accumulation of stock & non-movement of stock.3. Operating loss / net loss.4. Slow turnover of debtors & fall in level of sundry creditors.5. Return of outward bills for collection / return of cheque.6. Labor troubles.7. High turnover of key personnel.8. Loss of critically important customers.9. Court cases against the unit.10.Avoidance of contacts with the bank.11.Delayed submission of financial statements.12.Disputes among partners / promoters.

THE NPA PROBLEM:

1. The origin of the problem of burgeoning NPAs lies in the quality of

managing credit risk by the banks concerned, what is needed is having adequate

preventive measures in place namely, fixing pre-sanctioning appraisal

responsibility and having an effective post-disbursement supervision, Banks

concerned should continuously monitor loans to identify accounts that have

potential to become non-performing.


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2. The performance in terms of profitability is a benchmark for any business

enterprise including the banking industry. However, increasing NPAs have a

direct impact on banks profitability as legally banks are not allowed to book

income on such accounts and at the same time banks are forced t make

provision on such assets as per the RBI guidelines.

3. Also, with increasing deposits made by the public in the banking system, the

banking industry cannot afford defaults by borrowers since NPAs affects the

repayment capacity of banks.

4. Further, RBI successfully creates excess liquidity in the system through

various rate cuts and banks fail to utilize this benefit to its advantage due to the

fear of burgeoning non-performing assets.

CREDIT RISK AND NPA:

Quite often credit risk management (CRM) is confused with managing non-

performing assets (NPAs). However there is an appreciable difference between the

two. NPAs are a result of past action whose effects are realized in the present. i.e.

they represent credit risk that has already materialized and default has already

taken place.

On the other hand, managing credit risk is a much more forward-looking

approach and is mainly concerned with managing the quality of credit portfolio

before default takes place. In other words, an attempt is made to avoid possible

default by properly managing credit risk.


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Considering the current global recession and unreliable information in

financial statements, there is high credit risk in the banking and lending business.

EXCESS LIQUIDITY:

Now banks are faced with the problem of increasing liquidity in the system.

Further, RBI is increasing the liquidity in the system through various rate cuts.

Banks can get rid of its excess liquidity by increasing its lending but, often shy

away from such an option due to the high risk of default.

In order to promote certain prudential norms for healthy banking practices,

most of the developed economies require all banks to maintain minimum liquid

and cash reserves broadly classified in to Cash Reserve Ratio (CRR) and the

Statutory Liquidity Ratio (SLR).

Cash Reserve Ratio (CRR) is the reserve which the banks have to maintain

with itself in the form of cash Reserve or by way of current account with the RBI,

computed as a certain percentage of its demand and time liabilities. The objective

is to ensure the safety and liquidity of the deposits with the banks.

On the other hand, Statutory Liquidity Ratio (SLR) is the one which every

banking company shall maintain in India in the form of cash, gold or

unencumbered approved securities, an amount which shall not, at the close of

business on any day be less than such percentage of the total of its demand and

time liabilities in India as on the last Friday of the second proceeding fortnight, as

the RBI may specify from time to time.


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A rate cut (for instance, decrease in CRR) results into lesser funds to be

locked up in RBIs vaults and further infuses greater funds into a system. However,

almost all the banks are facing the problem of bad loans, burgeoning non-

performing assets, thinning margins, etc. As a result of which, banks are little

reluctant in granting loans to Corporates.

As such, through in its monetary policy RBI announces rate cut but, such

news are no longer warmly greeted by the bankers.

HIGH COST OF FUNDS DUE TO NPA:

Quite often genuine borrowers face the difficulties in raising funds from

banks due to mounting NPAs. Either the bank is reluctant in providing the requisite

funds to the genuine borrowers or if the funds are provided, they come at a very

high cost to compensate the lenders I losses caused due to high level of NPAs.

Therefore, quite often corporate prefer to arise funds through commercial

papers (CPs) where the interest rate on working capital charged by banks is

higher.


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CLASSIFICATION OF LOANS OR ADVANCES:

As per the NBES Directive, banks shall classify all loans and advances into

the following five categories.

A. Pass:

Loans or advances in this category are fully protected by the current

financial and paying capacity of the borrower and or not subject to criticism. In

general, any loans or advance or portion thereof, this is fully secured, both as to

principal and interest, by cash or cash substitutes, shall be classified under this

category regardless of past due status or other adverse credit factors.

B. Special mention:

Any loan or advance part due 30 (thirty) days or more, but less than 90

(ninety) days shall be classified Special Mention.

C. Substandard:

Non-performing loans or advances past due 90(ninety) days or more but less

than 180(one-hundred-eighty days) days shall, at a minimum, is classified sub

standard.

D. Doubtful:

Non-performing loans or advances past due 180 days or more, but less than360 days shall be classified, at a minimum, as doubtful.


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E. Loss:

Non-performing loans or advances past due 360 days or more shall be

classified as Loss.

CLASSIFICATION OF ASSETS:

CATEGORIES OF NPAs:

Banks are required to classify non-performing assets further into the

following three categories based on the period for which the asset has remained

non-performing and the realisability of the dues:

A. Sub-Standard Assets.B. Doubtful Assets.C. Loss Assets.

SUB-STANDARD ASSETS:

A sub-standard asset was one, which was classified as NPA for a period not

exceeding two years. With effect from 3l March 2001, a sub-standard asset is one,

which has remained NPA for a period less than or equal to 12 months. In such

cases, the current net worth of the borrower/guarantor or the current market value

of the security charged is not enough is not enough recovery of the dues to the

banks in full. In other words, such an asset will have well defined credit weaknessthat jeopardize the liquidation of the debt and are characterized by the distinct

possibility that the banks will sustain some loss, if deficiencies are not corrected.


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With effect from 3l March 2005, a sub-standard asset would be one, which has

remained NPA for a period less than or equal to l2 months.

DOUBTFUL ASSETS:

A doubtful asset was one, which remained NPA for a period exceeding two

years. with effect from 3l March 2001, as asset is to be classified as doubtful, if it

has remained NPA for a period exceeding 12 months, A loan classified as doubtful

has the weaknesses inherent in assets that were classified as sub-standard, with the

added characteristic that the weaknesses make collection or liquidation in full, - onthe basis of currently know facts, conditions and values- highly questionable and

improbable.

With effect from 31 March, 2005, an asset to be classified as doubtful if it

remained in the sub-standard category for 12 months.

LOSS ASSETS:

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

external auditors or the RBI inspection but the amount has not been written off

wholly. In other words, such an asset is considered uncollectible and of such little

value that its continuance as a bankable asset is not warranted although there may

be some salvage or recovery value.

It should be noted that the above classification is only for the purpose ofcomputing the amount of provision that should be made with respect to bank

advances and certainly not for the presentation of advances in the bank balance


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sheet. The Third Schedule to the Banking Regulation Act l949, solely governs

presentation of advances in the balance sheet. Banks have started issuing notices

under The securitization Act 2002 directing the defaulter to either pay back the

dues to the bank or else give the possession of the secured assets mentioned in the

notice, However, there is a potential threat to recovery if there is substantial

erosion in the value of security given by the borrower or if borrower has

committed fraud, Under such a situation it will be prudent to directly classify the

advances as a doubtful or loss asset, as appropriate.

UPGRADATION OF LOAN ACCOUNTS CLASSIFIED AS NPAs:

If arrears of interest and principal are paid by the borrower in the case of

loan accounts classified as NPAs, the account should no longer be treated as non-

performing and may be classified as standard accounts.

Asset classification to be borrower-wise and not facility-wise:

I. It is difficult to envisage a situation when only one facility to borrowerbecomes a problem credit and not others, Therefore, all the facilities granted

by a bank to a borrower will have to be treated as NPAs and not the

particular facility or part thereof which has become irregular.

II. If the debts arising out of development of letter of credit or invokedguarantees are parked in a separate account, the balance outstanding in that

account for should be treated as a part of the borrowers principal operatingaccount for the purpose of application of prudential norms on income

recognition, asset classification and provisioning.


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Accounts where there is erosion in the value of security:

I. A NPA need not go through the various stages of classification in cases ofserious credit impairment and such assets should be straightaway classified

as doubtful or loss asset as appropriate, Erosion in the value of security can

be reckoned as significant when the realizable value of the security is less

than 50 percent of the value assessed by the bank or accepted by RBI at the

time of last inspection as the case may be, Such NPAs may be straightaway

classified under doubtful category and provisioning should be made as

applicable to doubtful assets.

If the realizable value of the security, as assessed by the bank/approved

valuers/ RBI is less than l0 percent of the outstanding in the borrowable

accounts, the existence of security should be ignored and the asset should be

straight away classified as loss ass6t, It may be either written off or fully

provided for by the bank..

PROVISIONING REQUIREMENTS:

As and when an asset is classified as an NPA, the bank has to further sub-

classify it into sub-standard, loss and doubtful assets. Based on this classification,

bank makes the necessary provision against these assets.


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

requirements of bank advances where the recovery is doubtful. Banks are also

required to comply with such guidelines in making adequate provision to the

satisfaction of its auditors before declaring any dividends on its shares.

In case of loss assets, guidelines specifically require that full provision for

the amount outstanding should be made by the concerned bank. This is justified on

the grounds that such an asset is considered uncollectible and cannot be classified

as bankable asset.

Asset Type Percentage of provision

Sub-Standard (age upto 18 months) 10%

Doubtful 1 (age upto 2.5 Years) 20%

Doubtful 2 (age upto 4-5 Years) 30%

Doubtful 3 (age upto 4-5 Years) 50%

Loss Asset 10%


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GENERAL METHODS OF MANAGEMENT OF NPA

The management of NPA \is the difficult task in practice. Management of

NPAs means, how to settle the NPAS account in the books. In simple it focuses on

the methods of settlement of NPAs account, The methods are differs from bank to

bank. The following paragraph explains some general methods of Management of

NPAs by the banks. The same information is given below:

CompromiseLegal remediesRegular training programWrite offsSpot visitRehabilitation of potentially viable units

Other methods

COMPROMISE:The dictionary meaning of the term compromise is settlement of dispute

reached by mutual concessions. The following are the detailed guidelines for

compromise/negotiated settlements of NPAs.

The compromise should be a negotiated settlement under which the bankshould


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ensure recovery of its dues to the maximum extent possible of minimum

expenses.

Where security is available for assessing the realizable value, proper weightage

should be given to the location, condition and marketable title and

possession of

sub security.

An advantage in settlement cases is that banks can promptly recycle thefundsinstead of resorting to expensive recovery proceedings spread over a long

period.

Proposal for write off/compromise should be first by a committee of seniorexecutives of the bank.

Special recovery cells should be set up at all regional levers.

LEGAL REMEDIES:The legal remedies are one of the methods of management of NPAs. The

banks observed that the borrower is making will full default; no more time should

be lost instituting appropriate recovery proceedings. The legal remedies are filling

of civil suits.


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REGULAR TRAINING PROGRAM:The all levels of executives are compelling to undergrowth the regular

training program on credit and NPA management. It is very useful and helpful to

the executives for dealing the NPA properly.

RECOVERY CAMPS:

The banks should conduct the regular or periodical recovery camps in the

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

the level of NPAs in the Banks.

WRITE OFFS:Write offs is also one of the common management techniques of NPAs. The

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

ultimate aim of the write off is to cleaning the Balance sheet.

SPOT VISIT:The bank officials should visit to the borrowers, business place or borrowers

field regularly or periodically. It is also help full to the bank to control or reduce

the NPAs limited.


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2. Debt Recovery Tribunals: DRTs which have been set up by the Government to

facilitate to speedy recovery by banks /DFIs, have not been able to make much

impact on loan recovery due to a variety of reasons like inadequate number, lack of

infrastructure, under-staffing and frequent adjournment of cases. It is essential that

the DRT mechanism is strengthened and DRTs are vested with a proper

enforcement mechanism to enforce their orders. Non-observance of any order

passed by the Tribunal should amount to contempt proceedings. The DRTs could

also be empowered to sell the assets of the debtor companies and forward the

proceeds to the Winding-up Court for distribution among the lenders. Also, DRTscould be set up in more centers preferably in district headquarters with more

presiding officers. 22 DRTs have been set up in the country during the half last a

decade.

DRTs have not been able to deliver, as they got swamped under the burden of

large number of cases filed with since their inception.

3. Corporate Debt Restructuring: Corporate Debt Restructuring (CDR)

mechanism is an additional safeguard to protect the interest of the creditors and

revive potentially viable units, The CDR system was set up, .in accordance with

the guidelines of RBI evolved in consultation with Government of India. The

objective of the CDR system is to ensure a timely and transparent mechanism for

restructuring of corporate debts of viable entities and to minimize the losses to the

creditors and other stakeholders through an orderly and co-ordinate re-structuring

programme. With CDR, banks can arrest fresh slippage of performing assets into

the magnitude of assets. under the system standard, sub-standard and doubtful


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assets can be restructured. The CDR mechanism is based upon effective coordinate

among banks.

4. Asset Reconstruction companies (ARCs): One of the most effective ways of

removing NPAs from the books of the banks / DFIs would be to move these out to

a separate agency which would buy the assets and make its own efforts for

recovery. on this front, the SRES Act has provided a frame work for setting up to

Asset Reconstruction companies (ARCs) in India. A pilot company called Asset

Reconstruction company (India) Ltd (ARCIL) has been set up under the joint

sponsorship of IDBI, ICICI Bank SBI and other banks which is likely to provide an

effective mechanism for banks to deal with the defaulting companies. RBI has

already issued final guidelines on the regulatory frame work for ARCs in April,

2003.

However, the success of ARCs will again depend upon the legal frame work which

has to be addressed first, Legal provisions are required for transfer of the existing

loan portfolio to the ARCs without the consent of the borrowers, for exercise of the

power of private foreclosure by ARCs, authorizing ARCs to take recourse to the

Debt Recovery Tribunals and granting exemption to ARCs from income-tax in

order to mobilize resources by issue of bonds and exemption to ARCs from

payment of stamp duty on conveyance / transfer of loans assets.


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REDUCTION IN NPAs:

The problem of the existing NPAs is currently being tackled in several ways.

Efforts are made through negotiations and discussions with the borrowers to bring

them around to settle the dues, Such settlements in the form of one-time settlement

(OTS) and Negotiated Settlement (NS) are now being increasingly used by banks

to reduce the level of NPAs, under these schemes banks focus on maximum

payment under the settlements being received up-front, and balance within the

same financial year for quicker realization of locked up proceeds. However,

despite such efforts made by the lenders, many defaulting borrowers exhibit

reluctance to co-operate, leaving the banks no option but, to seek the legal route.

Here lies the importance of a transparent legal system reforms in the existing.

EFFECTIVE APPRAISAL AND MONITORING OF LOANS:

In the present liberalized environment, globalization has a far reaching

impact on the fortunes of the domestic industry and the bankers have to be alert

and equip themselves with the knowledge of the knowledge of the latest global

trends and also study on an ongoing basis its implications on the industries

financed by them. Thus, the appraisal and monitoring mechanism for loans needs

to be revamped for control of NPAs. Banks need a robust end-to-end credit

process. A robust credit process begins with an in depth appraisal focused on risks

inherent in a loan proposal. Along with appraisal close monitoring of the loan

account is equally important. It is a well-known fact that loans often go bad due to


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poor monitoring. An account does not become an NPA over night. Systems should

be in place such that the banker should be alert to catch signals of an account

turning into NPA and quickly react, analyze, and take corrective action.

Banks should have a proper system in place to ensure that to the extent

possible the assets are performing and do not turn into NPAs. ,In cases where the

problems are of a short term nature and borrowers agree to clear the overdues with

in a short time period, temporary deferment is generally granted by the banks. In

cases where the company requires longer time, depending upon the problems faced

and the expected future cash flows, the proposals are considered for restructuring /

re-phasement of the dues.

ASSETS RECOVERY BRANCH:

Assets Recovery Branches are specified branches for recovering NPA. The

personnel in the branches are professionally competent to deal with defaulters and

ensure repayment. It is meant for Sifting the work of high problem loans

recovery of main branches to specialized branches. It gives time to other branches

to concentrate more upon branchs business development activities.

CREDIT APPRAISAL SYSTEM:

Prevention of standard assets from migrating to non performing status is mostimportant in NPA management, This depends on the style of credit Management

Mechanism available in banks. The quality of credit appraisal and the effectiveness


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of post credit appraisal and effectiveness of post credit follow up influences the

asset quality of the banks in a big way

At Pre-Credit Stage:

1. Extensive enquiry about the character and the credit worthiness of theborrower.

2. Viability of the project to be financed is meticulously studied.3.

Adequate coverage of collateral is ensured to the extent possible.

4. Financial statement of the borrower is obtained and poor analysis of theirfinancial strength is done.

5. Apart from the published financial statements independent enquires aremade with previous bankers.

6. Pre-credit inspection of the assets to finance is made.At Post-Credit Stage:

1. Operations in the account are closely monitored.2. Unit visit is done at irregular intervals.3. Asset verification is done on a regular basis.4. Borrowers submit control returns regularly.5. Accounts are periodically to evaluate the financial health of the unit.


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6. Early warning signals are properly attended to.7. Close contract with the borrower is maintained.8. Potential NPAs are kept under special watch list.9. Potentially viable units are restructured.10.Repayment program of accounts with temporary cash flow problem is

rescheduled. Immediate legal action is initiated in cases where the default is

willful and the intention of the borrower is bad.

CREDIT MONITORING:

Credit Monitoring System is for:

1. Preventing the slippage of quality assets through the monitoring of standardassets.

2. Up gradation of quality of impaired loan asset through recoveries by meansof legal or otherwise.

3. Up gradation of loan assets through nursing in deserving and viable cases.


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SECTION-B

IINNDDUUSSTTRRYY PPRROOFFIILLEE::

The word Bank is used in the sense of commercial bank. It is of Germanic

origin though some persons trace its origin to the French word Banqui, and the

Italian word Banca, it referred to a bench for keeping, lending and exchanging of

money or coins in the market place by moneylenders and moneychangers. In fact

the early Jews in Lombardy transacted their banking business by sitting on

benches.

Banking Regulation Act of India, 1949 defines Banking as accepting, for

the purpose of lending or investment of deposits of money from the public,

repayable on demand or otherwise and withdrawal by cheques, draft, order or

otherwise.

HISTORY OF BANKING IN INDIA:

Banking in India originated in the last decades of the 18th century. The

oldest bank in existence in India is the State Bank of India, a government-owned

bank that traces its origins back to June 1806 and that is the largest commercial

bank in the country. Central banking is the responsibility of the Reserve Bank of

India, which in 1935 formally took over these responsibilities from the then

Imperial Bank of India, relegating it to commercial banking functions. After India's

independence in 1947, the Reserve Bank was nationalized and given broader


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powers. In 1969 the government nationalized the 14 largest commercial banks; the

government nationalized the six next largest in 1980.

Currently, India has 88 scheduled commercial banks (SCBs) - 27 public

sector banks (that is with the Government of India holding a stake), 29 private

banks (these do not have government stake; they may be publicly listed and traded

on stock exchanges) and 31 foreign banks. They have a combined network of over

53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a

rating agency, the public sector banks hold over 75 percent of total assets of the

banking industry, with the private and foreign banks holding 18.2% and 6.5%

respectively

Without a sound and effective banking system in India it cannot have a

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


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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.

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 1991.

To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II

and Phase III.

PHASEI

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

Hindustan and Bengal Bank. The East India Company established 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
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Imperial Bank of India was established which started as private shareholders

banks, mostly Europeans shareholders.

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 the

supervision of banking in India as the Central Banking Authority.

During those days public has lesser confidence in the banks. As an aftermath

deposit mobilization was slow. Abreast of it the savings bank facility provided by

the Postal department was comparatively safer. Moreover, funds were largely

given to traders.


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PHASEII

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 specially 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 Prime Minister of India, Mrs. Indira Gandhi. 14 major

commercial banks in the country were nationalized.

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 inIndia under Government ownership.


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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.

After the nationalization of banks, the branches of the public sector bank India rose

to approximately 800% in deposits and advances took a huge jump by 11,000%.

Banking in the sunshine of Government ownership gave the public implicit faith

and immense confidence about the sustainability of these institutions.

PHASEIII

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.


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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 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.

Before the steps of nationalization of Indian banks, only State Bank of India (SBI)

was nationalized. It took place in July 1955 under the SBI Act of 1955.

Nationalization of Seven State Banks of India (formed subsidiary) took place on

19th July, 1960.

The State Bank of India is India's largest commercial bank and is ranked

one of the top five banks worldwide. It serves 90 million customers through a

network of 9,000 branches and it offers -- either directly or through subsidiaries --

a wide range of banking services.


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Structure

The Indian banking system can be classified into nationalized banks,private banks and specialized banking institutions. The industry is highly

fragmented with 30 banking units contributing to almost 50% of deposits and 60%

of advances. The Reserve Bank of India is the foremost monitoring body in the

Indian Financial sector. It is a centralized body that monitors discrepancies and

shortcomings in the system.

Industry estimates indicate that out of 274 commercial banks operating in

the country, 223 banks are in the public sector and 51 are in the private sector.

These private sector banks include 24 foreign banks that have began their

operations here. The specialized banking institutions that include cooperatives,

rural banks, etc. form a part of the nationalized banks category.


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YEAR OF THE EVENTS:

1980 - The Bank came into existence on 15th April, as a consequence of the

Government of India taking over the undertaking of Vijaya Bank Ltd. The Bank is

engaged in transacts all types of banking business including foreign exchange and

is a Government of India undertaking.

1984 - Capital worth Rs 10 lakhs subscribed by Government.

1985 - The Bank sponsored its first Regional Rural Bank under the name and style

"Visweswaraya Grameena Bank" in March. This Regional Rural Bank would cater

to the needs of the target group belonging to Mandya district of Karnataka State.

- Capital worth Rs 772 lakhs subscribed by Government.

1986 - Capital worth Rs 1000 lakhs subscribed by Government.

1989 - Rs 800 lakhs subscribed by Government.



- The bank has introduced automatic renewal facility up to four times in

respect of short term deposits accepted for periods from forty six days to

one year for the convenience of the stomers.



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- The Bank has installed 68 ALPMs in 25 branches.


- The Bank had entered into the Memorandum of Understanding with the

Reserve Bank of India, undertaking to fulfill definite performance commitments.

- The Bank introduced the new schemes viz. Vijaya Gift Bond Scheme and

Vijaya Service Card for enlarging its services to its business clientele.

1995-- The Bank opened its third exclusive NRI branch at Mapuca (GAO) and

established special NRI Cells at the branches in Tiruvalla, Kottayam, Trivandrum

and Kozhencherry (all in the Kerala State).

- The Bank launched its "V-Invest" Scheme in January. 1995 - Rs 6231 lakhs

subscribed by Government.

- The Bank opened 33 new branches taking the total to 810 branches.

- The Bank entered into strategic alliance with leading private sector banks and

branches of foreign banks in India viz City Bank, N. A. India, Catholic Syrian

Bank Ltd, HDFC Bank Ltd, Centurion Bank Ltd, UTI Bank Ltd, etc.

- The Bank introduced Office Automation by providing state-of-the-art word

processors at 45 branches, 13 Regional Offices and Head office departments.


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1996 - The Bank opened its first subsidiary, VIBANK HOUSING FINANCE LTD

to add impetus to housing finance.

- Vijaya Bank introduced three new loan schemes, namely, 'Vijaya Nivruthi',

'Vijaya Krishi Vikas' and 'Vijaya Mangala' to cater to the credit needs of

pensioners, farmers and working women respectively.

1997 - Vijaya Bank has introduced a novel way to improve customer service.

- The bank has recently introduced a system of rating its branches once in six

months to evaluate the quality of service and the facilities extended to the clientele.

- Vijaya Bank has launched a special agriculture credit plan targeted

specifically at agriculture and other, rural advances.

- The Bank has recently introduced a new `trade finance' scheme.

1998 - Vijaya bank has introduced a jewel scheme under which loans are granted

by the bank to fund the purchase of jewellery by keeping the purchased item as

collateral till the loan has been repaid.

1999 - Vijaya Bank has entered into a Rs 200-crore take-out financing agreement

with the Housing and Urban Development Corporation (HUD co) for funding

infrastructure projects.


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-Vijaya Bank has unveiled a new electronic fund remittance facility

called V-REMIT, under which the bank customers can electronically remit funds

to the account holders in any bank.

-P A Sethi has been appointed as the Executive Director of the Vijaya

Bank.

-Vijaya Bank has signed a Memorandum of Understanding with M/s

National Insurance Company Limited for marketing banc assurance products.

-Vijaya Bank decides to open training centre for employees in Bangalore

-The Union government has bought back Rs 240-crore high-yielding

government securities from Vijaya Bank.

2004 -Vijaya Bank ties up with NIC to offer free insurance policy

-US-based Principal Group enters distributorship tie-ups with Vijaya Bank

-Delhi based Punjab National Bank (PNB) and Bangalore-based Vijaya Bank

enter into a four-way partnership with Principal Financial of the US and Berger

Paints to set up an insurance broking company

-Vijaya bank Housing Finance Ltd. becomes wholly owned subsidiary of

Vijaya Bank


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- Vijaya Bank has entered into a memorandum of understanding (MoU) with

two tractor manufacturers International Tractors and Mahindra Gujarat Tractors to

provide finance on softer terms to farmers for purchase tractors and power tillers

-VIJAYA Bank signs pact with Nabard to co-finance agriculture, agro

processing, hi-tech agriculture and rural development projects.

-Vijaya Bank too enters RTGS bandwagon

-Principal Asset Management Company (AMC) formally relaunches itself

as Principal PNB Asset Management Company in association with Vijaya Bank on

July 2, 2004

-Vijaya Bank launched the bank's second city specific credit card - the

'Hyderabad Card'

2005 -Vijaya Bank ties up with TAFE

-Vijaya Bank sets up new branches

2007 - Vijaya Bank has informed that Shri G B Singh has been nominated as GOI

Nominee Director of the Bank vice Shri Atul Kumar Rai, vide letter dated August

20, 2007 received from Government of India, Ministry of Finance, Department of

Financial Services with immediate effect.

2008 - Vijaya Bank inked a memorandum of understanding with credit rating

agency, Crisil, for rating its corporate customers.


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- Vijaya Bank has inked a pact with Credit Analysis & Research Ltd

(CARE), one of the RBI accredited rating agency, to provide bank loan ratings to

its corporate clients at a concessional fee.

-Vijaya Bank has informed that Shri. Sridhar Cherukuri has been nominated

as part-time non-official Director of the Bank with immediate effect, vide letter

dated July 10, 2008 received from Government of India, Ministry of Finance,

Department of Financial Services.

Vijaya Bank is an India-based bank. During the fiscal year ended March 31,

2008, the Bank opened 73 new branches, upgraded five extension counters into

full-fledged branches. As of March 31, 2008, the Bank had 1,051 branches across

28 states and four union territories. Total credit cards issued by the Bank was 1,

43,000 at March 31, 2008. As of March 31, 2008, it had issued 3,95,000 debit-

cum-automated teller machine (ATM) cards

The organized Banking System in India can be broadly divided into 3

categories, viz., the central Bank of the country known as the Reserve Bank of

India, the commercial banks and the Co-operative banks, The Reserve Bank of

India is the supreme monetary and Banking authority in the country and has the

responsibility to control banking system in the country.


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Commercial banks mobilize savings in urban areas and make them available

to large and small industrial and trading units mainly for working capital

requirements. After 1969 commercial banks are broadly classified into nationalized

banks or public sector banks and private sector banks, The State Bank of India and

its associates banks along with other 20 banks are the public sector banks, The

private sector banks include a small number of Indian scheduled banks.

Which have not been nationalized, and branches of foreign banks operating

in India commonly known as foreign exchange banks.

The Regional Rural (RRBs) banks came into existence since the middle of

1970s with the specific objective of providing credit and deposit facilities

particularly to the small and marginal farmers, agricultural labourers and artesian

and small entrepreneurs. The RRB, are essentially commercial banks but their area

of operation is limited to district.

Primary co - operative credit (or banks) was originally set up in villages topromote thrift and savings of the farmers and to meet their credit needs for

cultivation. To support them, central or District co - operative banks and above

them State co - operative banks were established, The funds of the Reserve Bank

of India meant for the agricultural sector actually pass through the state co -

operative banks and central co - operative credit banks. originally based in the rural

sector, the co - operative credit movement has now spread to urban areas also and

there are many urban co - operative banks coming under state co-operative banks.


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REGULATORY FRAMEWORK:

REGULATORS:

The different segments of the Indian Financial System (IFS) are monitored

and controlled by statutory bodies called regulatory institutions. These institutions

have been given adequate Powers by legal acts or by acts of parliament to enable

them to supervise the segments assigned to them, It is the duty of the regulator to

ensure that the players in the segments work within recognized business

parameters maintain sufficient levels disclosure and transparency of operations anddo not act against national interests. At present, the IFS have 2 regulatory arms that

is:

Reserve Banks of India (for Banks and NBFCs) Security and Exchange Board of India (for capital markets)

THE RESERVE BANK OF INDIA:

Reserve Bank of India, the central bank of the country, is at the heart of the

Indian Financial and Monetary system. It was established on April l, 1935 as a

private shareholders, institution under the Reserve Bank of India Act I934. It was

nationalized in January l949, under the Reserve Bank (Transfer of Public

ownership) of India Act, 1948. This act empowers the central Government, in

consultation with the Governor of the bank; to issue such directions to RBI as

might be considered necessary in the public interest. A Central Board of Directors

with 20 members consisting of the Governor and the Deputy Governors governs


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RBI. The Governors and Deputy Governors of the bank are Government of India

appointees.

Indian Banking has become strong, stable and vibrant following banking

reforms during l99l - 92 and thereafter and it has acquired international standards

with regard to capital adequacy and NPA percentage, Banks have become tech -

savvy and have fine-tuned their risk management policies, The Reserve Bank of

India has taken up the issue of Rear - Time Gross settlements (RTGS) among

various banks. Now banks and regulators have to face the challenges of

consolidation, convergence and competition besides financial inclusion.

GLOBAL DEVELOPMENTS AND NPAS:

The core banking business is of mobilizing the deposits and utilizing it for

lending to industry, Lending business is generally encouraged because it has the

effect of funds being transferred from the system to productive purposes which

results into economic growth.

However lending also carries credit risk, which arises from the failure of

borrower to fulfill its contractual obligations either during the course of a

transaction or on a future obligation.

A question that arises is how much risk can a bank afford to take? Recenthappenings in the business world - Enron, WorldCom, Xerox, Global Crossing do

not give much confidence to banks. In case after case, these giant corporate


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became bankrupt and failed to provide investors with clearer and more complete

information thereby introducing a degree of risk that many investors could neither

anticipate nor welcome. The history of financial institutions also reveals the fact

that the biggest banking failures were due to credit risk.

Due to this, banks are restricting their lending operations to secured avenues

only with adequate collateral on which to fall back upon in a situation of default.

INDIAN ECONOMY AND NPAS:

Undoubtedly the world economy has slowed down, recession is at its peak,

globally stock markets have tumbled and business itself is getting hard to do. The

Indian economy has been much affected due to high fiscal deficit, poor

infrastructure facilities, sticky legal system, cuffing of exposures to emerging

markets by FIs, etc.

Further, international rating agencies like, Standard & Poor have lowered

Indias credit rating to sub-investment grade. Such negative aspects have often

outweighed positives such as increasing forex reserves and a manageable inflation

rate.

Under such a situation, it goes without saying that banks are no exception

and are bound to face the heat of a global downturn. One would be surprised to

know that the banks and financial institutions in India hold non-performing assets

worth Rs. 1,10,000 crores. Bankers have realized that unless the level of NPAs is

reduced drastically


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COMPANY PROFILE IN BRIEF

INTRODUCTION:Vijaya bank has been able to maintain a standard profile since it was born a

Detailed discussion on the profile of the organization is carried on below.

ORIGIN AND GROWTH OF THE ORGANISATION:

Vijaya Bank was founded by late Shri A.B Shetty. He was an ardent

Gandhian and he was closely associated with the Indian freedom movement.

Vijaya Bank was established in the year 1931, in Mangalore, Karnataka. The Bank

commenced its business operations on 23rd October 1931 with an authorized

capital of Rs.5 lakhs and a paid of capital of Rs.8670.

The bank was founded essentially to promote banking habit, thrift and

entrepreneurship among the farming community of Dakshina Kannada district,

Karnataka. The Bank became a scheduled Bank in 1958.Vijaya Bank steadily grew

into a major All India Bank, with nine smaller Banks merging with it during 1963-

1968. The credit for the successful execution of the merger plan should go to late

Shri M Sunder Ram Shetty, who was the then Chief Executive of the Bank. TheBank was nationalized on 15th April 1980. The Bank has built a network of 1027

branches spread over 29 states of the country and 3 union territories. The Bank


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took several initiatives for effective implementation of various Governments

directed lending schemes.

Vijaya Bank has the highest number of branches in its home state,

Karnataka. In recent years the Bank has opened 40 branches that offer specialized

banking for industrial finance, small scale industries, agricultural (hi-tech) finance,

capital market, commercial and personal banking, asset recovery management,

overseas banking, corporate banking and funds transfer.

Presently the Bank has 1027 branches spread over in 29 states of the countryand 3 union territories. Very few banks have spread their branch network in so

many states and union territories. The Bank has highest number of branches in the

state of Karnataka (406). In recent years the Bank has opened as many as 99

specialized branches via Industrial Finance Branch (3), SSI branches (7), Capital

Market Services Branch (4), Specialized Commercial and Personal Banking

Branches (71), Asset Recovery Management Branch (7), Overseas Branch (3),

Corporate Banking Branch (1), Regional Forex cell (2).In line with the prevailing

trends, the bank has been giving greater thrust toward technological up-gradation

of its operations. As on March 2003, 356 branches have been computerized,

covering 78.26% of the Banks total business. Besides this, the Bank has also

installed ATM.s at 18 of its branches.

The Vijaya Bank has diversified its services by entering several new areas

such as credit card, merchant banking, hire purchase, leasing and electronic

remittance services.


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Vijaya Bank is one among the few banks in the country to take up principal

membership of VISA International and Master Card International. The driving

force behind Vijaya Banks every initiative has been its strong dedicated workforce.

INTERNATIONAL BANKING DIVISION

Vijaya Bank has obtained an AD License in 1971 and permanent license

after nationalization in 1980.The branches dealing in foreign business are called

Overseas Branches and are categorized into A,B and C Category Branches. All

the branches have SWIFT connectivity.34 designated branches have Core Banking

System (CBS).The Bank maintains 16 Nostro Accounts in ten currencies. The

vostro accounts are ten in number comprising of six private exchange houses and

four Banks. The Bank has entered in to agency arrangements with 156 Banks in 65

countries. It maintains exchange positions in 8 internationally quoted quotations.

The dealings operations handled at Forex and Treasury Management Division arelocated in the Head Office.

MISSION:

Our mission is to emerge as a prime national backed by modern technology,

meeting

Customers aspirations with professional banking services and sustained growth

contributing to national development


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SERVICES:

When the bank commenced operation in 1931, the banks services primarily

focused on the growth and development of the agricultural sector. Today a variety

of specialized banking services are offered through 43 branches.

The banks expertise now extends to the prime areas of capital market,

corporate banking, Industrial finance, small scale industries and hi-tech agriculture,

apart from personal banking, Funds transfer overseas banking and asset recovery

management. Vijaya bank has been Giving mainly two types of services, those areenlisted below:

1)DEPOSIT SCHEMES:

!) SAVING BANK ACCOUNT:

Save as much as you can. Spend as little as you can. And see your money grow.

!!) CURRENT ACCOUNT:

Pool your cash here, pay conveniently trough cheques.


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!!!) TERM DEPOSITS:

a) recurring deposits save a definite sum every month for handsome gains with an option to vary

The monthly installments.

b) fixed deposits a safe way to high return, the only thing fixed is time

c) Vijaya shree units save lump sum and interest more than simple, stretches when you are in

need

d)jeevan nidhi deposits Helps you to save at your door steps, opens the gate way for bright future.

e)

Vijaya cash certificates Your friend in need when it comes to education marriage of the benefit of

exemption from capital gains income to invest into capital gains account.


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f) Vijaya raksha a life insurance scheme for deposit account holders

g) capital gains accounts scheme Income tax assessee can avail of the benefit of exemption from capital gains

income to invest into capital

h)v-stock invest deposits scheme Earn a handsome return through invest in v-stock scheme as much as you

can

2) RETAIL LENDING SCHEMES

!) Vijaya home loan

Own your dream home/ flat at the lowest interest rate 7.5% p a in thebanking industry

!!) Vijaya wheels

Drive your dream vehicle at the affordable PLR rate


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!!!) v-equip schemes

A friend who can always equip you with your choicest consumer durablesand improve your life style at PLR +1 rate

!v) v- trade scheme

Avail instant bank finance against business assets at the PLR rate (presently11.5%p a) for loans up to Rs 2 lakh and as the of PLR+2 there

v) Jewel loan

a barrower friendly scheme against jewels to meet your urgent needs at thePLR rate

V!) Loans to small road transport operators (SRTOs)

right choice for the transport operators who want to make transport businessa success loans at PLR rate for priority sector and at PLR +1 rate for non

priority sector

\ (presently 12.5%p a)


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V!!) V-rent schemes

Take cash today at the PLR rate against tomorrows rent

V!!!) Education loan

Avail our education loan and draw your wards life line. Loans up to Rs 4lakh at PLR rate .loans above Rs 4 lakh at PLR + 1

!x) v-professionals scheme:

Professional like doctors ,engineers, advocates, chartered accountants, etcwho Wish to set up their practice/business activity, in rural/semiurban

areas can avail Loans up to Rs 15 lakh at 1% in metro urban areas

x) v-kanyadan scheme:

marriages are made in heaven, but v- kanyadan helps to celebrate this onEarth Loans at the lowest affordable interest rate of PLR-1 (presently

10.5%p a)

X!) V-mangala scheme:

Special scheme to fulfill the dreams of working women at the lowest rateThat is PLR -1 (presently 10.5%p a)


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3)OTHER SERVICE:

The bank also offers various services in the areas of credit cards, merchant

Banking, hire purchasing, and leasing and NRI (non-resident Indians) services.

1) For cash paymenta) Trough teller

b) Trough cashier

3 to 8 minutes

8 to 15 minutes

2) Receipt cash 10 to 20 minutes

For issuance of demand

raft/

Traveler cheques/ fixed

deposit receipt

15 to25 minutes

4) Payment of fixed

deposit receipt

15 to 20 minutes

5) Payment of demand

draft

10 to 20 minutes

6) Opening of an account 20 to 25 minutes


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Times-

norms for

various banking

transaction:

7) Retirement of bills 20 to 30 minutes

8) Updating of pass book 5 to 15 minutes

9) Statement of accounts Within 1 days

10) Collection of cheques

Local-

Out station-

1 to 2 days

5 to 7 days


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ORGANISATION CHART

Today living up to the ideals of the founding visionaries is the management

at Vijaya bank. The management includes dedicated professionals, who bring with

then a considerable amount of expertise and experience in the banking industry.

Currently the banks boards of directors consist of 10 directors.


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PRAKASH P MALYA

Chairman and mana in director

T.VALLIAPPAN

ASHOK KUMAR SHETTY ASHOK KUMAR

NISHANK KUMAR JAIN

K.VENKATAPPA G.B.SINGH

R.VAIDYANATHAN

SHANTHARAM SHETTY BRIJMOHAN SHARMA


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FUNCTIONAL DEPARTMENTS OF VIJAYA BANK:

ADMINISTRATION DEPARTMENT

PERSONNEL DEPARTMENT:

The personnel department frames the various policies related to the Recruitment,

training, promotion and transfer. It is also instrumental in managing the various

activities regarding the training of employees with the help of the Officers.

Training college. It also manages the promotion and transfer procedures. It also

helps in the management and control of industrial relations.


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TREASURY MANAGEMENT DEPARTMENT:

Treasury department has two wings- Domestic and Forex treasury. Domestic

treasury handles the security liquidity ratio. Security that is required to maintain

security liquidity ratio is handled by the department. The Forex treasury maintains

banks. Foreign accounts with the foreign banks called nostru accounts. Forex

treasury apart from covering merchant transactions also maintains trade in foreign

currency on behalf of bank. It also maintains mirror account of foreign currency inall restrained bank accounts by the branches of the bank.

GENERAL ADMINISTRATION DEPARTMENT:

General administration department looks after the matters related to

maintenance of head office building and other bank premises owned by bank. It

also deals with furnishing and purchase of furniture and fixtures for the bank

branches. It is also into matters relating to lease agreements of branch premises and

renewal of lease agreements and work related to printing of forms, ledgers,

statements and supply of computer stationary. It also maintains all the vehicles

owned by the bank.


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PLANNING DEPARTMENT:

It prepares vision document for the bank. It also fixes targets to various

regional offices and branches to achieve corporate goals of the bank. For this

purpose the planning department follows a system of performance budgeting.

CREDIT DEPARTMENT:

The credit department has 4 wings- Credit policy, Credit operations, Credit

supervision & monitoring and Credit Review & Recovery. Credit policy

department frames banks. Credit policy inline with the policy laid down by RBI

and Government of India. The Credit Operations department lays down procedures

and rules and also delegates power for sanction of loans by field functionaries.

Credit supervision & monitoring provides offset audit of credit portfolio by

obtaining reports and statements from sanctioning authorities at head office. The

main purpose of the department is to ensure that the credit portfolio of the bank

continues to be healthy. Credit Review & Recovery department handles recovery

matters in respect of nonperforming assets like irregular accounts.

DEPARTMENT OF INFORMATIONAL TECHNOLOGY:

The Bank has created a .Department of Information Technology. at its headoffice. The primary objective of this department is to promote computer literacy

among employees, to upgrade communication and information technology and to


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develop electronic banking capabilities. The Bank has initiated action for

implementing Core Banking solution, Integrated Risk Management System and

Networking of ATMs with addition of 100 ATMs.

RISK MANAGEMENT DEPARTMENT:

The Bank recognizes that management of risk is fundamental to the business

of banking. The Banks approach to risk management is proactive. The primary

goal of risk management is not to avoid or minimize risks inherent in business but

to steer them consciously and actively. The basic objective is to strike a balance

between risk and rewards.

CENTRAL ACCOUNT DEPARTMENT:

Central account department is very instrumental in consolidation of balance

sheet. It is also involved in reviewing the Management, Financial statements with

special emphasis on accounting policies and practices, compliance of accounting

standards and other legal requirements concerning financial statements,

qualifications in the audit report, compliance with stock exchange and legal

requirements concerning financial institutions, related party transactions, etc.


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CENTRAL INSPECTION DEPARTMENT:

Central Inspection Department involves audit, inspection & vigilance.

Inspection of branches is one of the tools for internal control in the Bank. Based on

the finding of the Inspection, every branch is rated on a prescribed rating scale.

The rating of branches also enables the Bank to ensure that sufficient attention is

paid to the performance of those branches that have been awarded unsatisfactory

ratings. The focus of the Vigilance Department has been to constantly intervene

and upgrade the Systems & Procedures of the Bank and prevent intrusions that

spread the malaise of permissiveness.


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REVIEW OF LITERATURE

According to AjitReddy N A:

Non-performing asset (NPA) is a loan or an advance where

Interest or installment of principal remain overdue for a period of more than 90

days in respect of a term loan, The account remains out of order, in respect ofan

Overdraft or Cash Credit. The bill remains overdue for a period of more than 90

days in the case of bills purchased and discounted. A loan granted for short

duration crops will be treated as NPA, if the installment of principal or interest

thereon remains overdue for two crop seasons. A loan granted for long duration

crops will be treated as NPA, if the installment of principal or interest thereon

remains overdue for one crop season.

According to G.P Muniappan:

The NPAs Internal Diversion of funds for expansion/modernisation/setting

up new projects/ helping or promoting sister concerns. Time or cost over run whileimplementing the project. Deficiencies on the part of the banks viz. in credit

appraisal, monitoring and follow-up, Delay in release of limits, delay in settlement

of payments or subsidies by Govt. bodies willful Default or Misappropriation of

funds. Inefficient management, Strained labour relations, Inappropriate technology

or technical problems External Recession in the economy External factors like raw

material shortage, raw material/input price escalation, power shortage, industrial

recession, excess capacity, natural calamities like floods, accidents. Business

failure like product failing to capture market, inefficient management,


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Strike/strained labour relations, wrong technology, technical problems, product

obsolescence, etc. Govt. policies like excise, import duty changes, deregulation,

pollution control orders. Failure, non-payment/overdues in other countries,

recession in other countries, externalisation problems, adverse exchange rate, etc.

According to Sergio :

In a study of non-performing loans in Italy found evidence that, an increase

in the riskiness of loan assets is rooted in a banks lending policy adducing to

relatively unselective and inadequate assessment of sectoral prospects. The study

emphasised that increase in bad debts as a consequence of recession alone is not

empirically demonstrated.

The empirical analysis by Fuentes and Maquieira on the Credit market

examined different factors that may effect loan repayment Limitations on the

access to credit Macroeconomic stability Collection technology Bankruptcy code

Information sharing The judicial system Prescreening techniques Major changes in

financial market regulation.

Impact of NPAs on Banks: NPAs have a deleterious effect on the return on

assets because They erode current profits through provisioning requirements They

result in reduced interest income They require higher provisioning requirements

affecting the capacity to increase good quality assets in future pressure on net

interest margin thereby reducing competitiveness They limit recycling of funds, set


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in asset-liability mismatches, etc Shift in concentration from core banking to credit

risk management.

RESEARCH DESIGN

TITLE OF THE PROJECT

Non-performing asset

(With reference to VIJAYA BANK, BANGALORE)

STATEMENT OF PROBLEM

This particular topic is to analysis Non-performing asset level of

VIJAYA BANK and their impact on the performance of the bank.

Non-performing asset is the major bone for the banks in India, so as in the

case of VIJAYA BANK the study has been undertaken to know the

status, practice and impact of NPAs in the performance of bank, the

problem lies in understanding and analyzing the NPAs.


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OBJECTIVES OT STUDY

To have an overview of the history, growth and development, vision,value schemes and facilities of VIJAYA BANK.

Analyzing the prudential norms on asset classification and incomerecognition.

Understanding the concept of Non-performing asset. To intimate timely steps to identify the Non-performing assets. To know the policies, procedures followed by VIJAYA BANK with

respect to Non-performing asset.

To study the causes for NPA level in the bank. To study the general reasons for asset become NPAs.

SCOPE OF THE STUDY

The study is conducted in the branch of VIJAYA BANK. BANGALORE..

The scope of study stretches from the NPA and its effect on profitability.

The main trusted area of Indian banking is extending credit to the needy.

The qualities of the assets determine the viability of the system. The crucial factors

that decides the performance of the banks and financial institution is spotting NPA.


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The study covers the management of Non-performing asset with respect to

VIJAYA BANK. Study mainly focuses on:

Concept/evolution of NPAs. Status of NPAs Causes of NPAs.

3.4.METHODOLOGY OF THE STUDY

Due to the vastness of the subject an attempt is made to understand the

main spheres of the problem of Non-performing assets and its effects on the

financial stability of the bank. The study is descriptive in nature and is based on the

primary data and secondary data.

Primary Data:Primary source are original source which are collected through direct

interaction with Asst. Manager and employees of the bank. Information is collected

through direct interaction with advisor of VIJAYA BANK BANGALORE,

chiknayakanhalli.

Secondary Data:

Secondary data is collected from the text books, annual reports andinternet.

TOOLS FOR ANALYSIS


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Simple statistical and arithmetic methods are used to analyze the data that

were collected and tabulated.

PLAN FOR ANALYSIS:

The study will be based on the data collected and it will be interpreted in

the way of tables and charts.

LIMITATIONS OF STUDY

The study is conducted on the basis of data which was provided by theVIJAYA BANK, BANGALORE. Only consolidated figures are available.

Access to the information is limited and complete dependency on the annualreport of VIJAYA BANK.

The data are extracted from the records covering a period of only 5 years. The report is prepared and analyzed presuming that the data and information

given are correct

Organizational Structure of VIJAYA BANK Bank


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BOARD OF DIRECTORS

CHAIRMAN

EXECUTIVE MANAGER

DEPUTY GENERAL MANAGER

ASSISTANT GENERAL MANAGER

CHIEF MANAGER

SENIOR MANAGER

MANAGER

OTHER STAFFS


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DATA ANALYSIS AND INTERPRETATION

Table No:1 The movement of NPA for last five years at VIJAYA BANK.

Year Level of NPA (Rs in lakhs)

2007-08 22.80

2008-09 22.00

2009-10 20.00

2010-11 36.10

2011-2012 37.28

ANALYSIS

NPA of the bank is showing decreasing trend, it has decreased by 2.80 lakh

compare to 2007-08, but there is 14.48 lakh increases in NPA in the year 31 March

2012


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Chart no:1 The movement of NPA for last five years at VIJAYA BANK.

INTERPRETATION

Here the bank is good in its recovery, but in 31March 2012 it has increased by

14.28 lakh, So the bank should aim at complete recovery in order to reduce NPA

completely.

0

10

20

30

40

2007-

08

2008-

09

2009-

10

2010-

11

2011-

12

Level of NPA (Rs in lakhs)


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Table No:2. Movement of GNPA & NNPA for last five years at VIJAYA

BANK

year GNPA (Rs in lakhs) NNPA (Rs in lakhs)

2007-08 22.80 22.00

2008-09 22.00 21.27

2009-10 20.00 19.90

2010-11 36.10 36.00

2011-12 37.28 37.00

ANALYSIS

Gross NPA of the bank has been decrease from year to year. But it has

increased fromm 2010 as compared to previous 3 years. NNPA has been decreased

as compared to GNPA.


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Chart no:2 Movement of GNPA & NNPA for last five years at VIJAYA

BANK

INTERPRETATION

From the above analysis we can infer that GNPA is showing decreasing trend

in the year 2008-09 compare to 2007-08, it shows that banks has made less

provisions in the year 2008-09

0

5

10

15

2025

30

35

40

2007-08 2008-09 2009-10 2010-11 2011-12

22.8

22 20

36.1 37.28

22 21.27 19.9

36 37

GNPA(Rs in lakhs) NNPA(Rs in lakhs)


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Table No:3. The percentage change in the Gross NPA to total advances given

at VIJAYA BANK

Year Total advance GNPA GNPA as % to

advance

2007-08 705.33 22.80 3.2325

2008-09 803.19 22.00 2.7390

2009-10 961.25 20.00 2.0806

2010-11 1285.08 36.10 2.8091

2011-2012 1455.42 37.28 2.5614

ANALYSIS

Total advance of the bank has increases Rs 705.33 lakh in 2007-08. GNPA

decreases in 2008-09. In 2011-12 the GNPA increases to 2.085% to total advance

of 1455.42 % which is alarming to the bank


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Chart-3 The percentage change in the Gross NPA to total advances given at

VIJAYA BANK

INTERPRETATION

From the above analysis we can infer that advances of the bank is showing

positive sign and it is showing the growth rate and GNPA of the bank has also

increased and GNPA to total advance of the bank. It shows that bank should take

some measures to reduce its NPA.

0

200

400

600

800

1000

1200

1400

1600

2007-08 2008-09 2009-10 2010-11 2011-12

Total advance

GNPA

GNPA as % to advance

Somesh Npa Project

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