Declaration

I, Mehta Nirmit hereby by declare that the project work entitled “A Study
on Different Types of Loans and Loan Procedure” under the guidance of Miss
Desai Swati submitted in partial f
Fulfillment of the requirement for the award of the degree of Bachelor of
Business Administration to Veer Narmad South Gujarat University, Surat is my
own work and other matter as a reference has been duly acknowledged.

Place: Surat

Date: 07/03/2008 (Nirmit P Mehta)

1
 Acknowledgement

It is my great pleasure to express my heartily thank to “VEER NARMAD

SOUTH GUJARAT UNIVERSITY” who has included Project Work in 6 th semester
B.B.A... I m really grateful to the Co-ordinator of Vivekananda College for B.B.A.,
Surat for allowing me to take the training and also thankful to Mr.Rahul Mishra for
directing me during training.

I wish to be grateful to Mr.Sudhir Shah who is the General Manager of The

Surat People’s Co-operative Bank Ltd. For permitting me for this Project Work in
their bank and me also thanks to Miss.Swati Desai for support and diligent efforts
of guiding and counseling me. I owe much to the entire The Surat People’s Co-
operative Bank Family and a number of people, both collectively and individually
for giving me an opportunity of getting trained in their reputed bank. At last, I
would like to say it was really a memorable experience which will definitely help
in my future career.

Thanking All.

2
 Preface:-

Entering this project, I had little knowledge of types of loans and what is
the procedure about loan inside of a bank. I’m thankful that The Surat People’s
Co-operative Bank Ltd. gave me an opportunity for Project Work. This was a
great and helpful experience.

The Project Work at The Surat People’s Co-operative Bank Ltd. gave me
a better understanding of what it’s like in a bank. I learned the history of Prime
Co-operative Bank Ltd. and also it’s Loan Scheme.

In India, Co-Operative sector is growing continuously; this growth

encourages me to work in a bank. Management is a developing field and it has
great demand around the world. The Veer Narmad South Gujarat University,
Surat has kept Project Work as part of B.B.A. course. Thus, it’s my obligatory
duty to undergo training whole-heartedly.

While starting any business or a project if an individual or a firm does not

have sufficient funds for commencing their business then loan proves to be an
important option. In global world it is not easy for an individual to select proper
loan option as they are available in different schemes and complexity Thus: my
motive through this project is to learn and also to educate others about different
loan schemes.

3
 Executive Summary:-

During the training period of 1st January to 1st march, I had taken the
project training in the “Rander people’s co-operative bank ltd.” On the topic of
“None performing assets” which is situated in Rander, Surat. I had done this
trainning as a subject of 6th semester.

I have taken great experience of the non- performing assets. I got

knowledge on this topic that is how the bank manage its assets. The managers
of the bank help me for whole training.

Mr. Sudhirbhai shah, give me training on my topic. He explained me about

various aspects of NPAs like, economic, financial, technological etc. he had also
given me one case- study, which was appraised by the bank in the past. With the
help of that study, it was easy for me to understand the project appraisal topic.

It was really a very imaging experience for me to get the training from
Rander people’s co-operative bank ltd.

4
 OBJECTIVES OF THE STUDY:-

 To calculate the total non-performing asset and compare with other banks
and on the basis to decide the growth rate of different bank.

 The main object is known about the proper system of bank for reducing
non-performing asset or for conversion of non-performing asset.

 To know the various and strategies for non-performing asset for the bank.

 To learn about how to solve the problem of non-performing asset.

5
 RESEARCH METHODOLOGY:-

My topic is non performing assets. The methodology used in this project is

as follows.

 First of all I have the basis studied the basic concept of project appraisal
from book.

 After the introduction, I had collected information from bank.

 I collected balance-sheet of the company, who were applying for loan.

 Then according to projected balance-sheet, the project appraisal analysis

is done on the basis of previous year’s financial data.

 Comparative statement on the basis of various ratios and method of

appraisal is done.

• At last, I conclude the summary of the project, after annalist the balance-
sheet and various aspects.

6
 LIMITAION OF STUDY:-

 The bank I have chosen is totally on rural or agricultural bases, so the

bank cannot provide some English literature for helping me in project.

 It is on rural basis, and other banks, which are comparing and with it are
not only rural basis so comparison will not made properly.

 The amount of loans and advances are also limited so it is obvious that
the project appraised by this bank were less than the other comparatives banks.

 The time period is also very less, the project appraisal is quite a long
process and it require more time.

7
• INTRODUCTION TO INDIAN BANKING INDUSTRY:-

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.

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 dial a pizza. Money
have 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 1991.

8
To make this write-up more explanatory, I prefix the scenario as Phase I,
Phase II and Phase III.

Phase I

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 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 My sore 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 day’s 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.

9
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 Prime Minister of India, Mrs. India Gandhi. 14 major
commercial banks in the country was 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 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.

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%.

10
 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 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.

11
 Present scenario:
As far as the present scenario is concerned the banking industry is in a
transition phase. The Public Sector Banks (PSBs), which are the foundation of
the Indian Banking system account for more than 78 per cent of total banking
industry assets. Unfortunately they are burdened with excessive Non Performing
assets (NPAs), massive manpower and lack of modern technology.

On the other hand the Private Sector Banks in India are witnessing
immense progress. They are leaders in Internet banking, mobile banking, phone
banking, ATMs. On the other hand the Public Sector Banks are still facing the
problem of unhappy employees. There has been a decrease of 20 percent in the
employee strength of the private sector in the wake of the Voluntary Retirement
Schemes (VRS). As far as foreign banks are concerned they are likely to
succeed in India.

Indus land Bank was the first private bank to be set up in India. IDBI, ING
Vyasa Bank, SBI Commercial and International Bank Ltd, Dhanalakshmi Bank
Ltd, Karur Vysya Bank Ltd, Bank of Rajasthan Ltd etc are some Private Sector
Banks. Banks from the Public Sector include Punjab National bank, Vijaya Bank,
UCO Bank, Oriental Bank, Allahabad Bank, Andhra Bank etc.

ANZ Grindlays Bank, ABN-AMRO Bank, American Express Bank Ltd,

Citibank etc are some foreign banks operating in India.

12
 TYPES OF BANK

OVERVIEW

Co-operative movement is quite well established in India. The first

legislation on co-operation was passed in 1904. In 1914 the Maclagen committee
envisaged a three tier structure for co-operative banking viz. Primary Agricultural
Credit Societies (PACs) at the grass root level, Central Co-operative Banks at the
district level and State Co-operative Banks at state level or Apex Level. The first
urban co-operative bank in India was formed nearly 100 years back in Baroda.

Co-operative Institutions are engaged in all kinds of activities namely

production, processing, marketing, distribution, servicing, and banking in India
and have vast and powerful superstructure. Co-operative Banks are important
cogs in this structure.

In the beginning of 20th century, availability of credit in India, more

particularly in rural areas, was almost absent. Agricultural and related activities
were starved of organized, institutional credit. The rural folk had to depend
entirely on the money lenders, who lent often at usurious rates of interest.

The co-operative banks arrived in India in the beginning of 20th Century

as an official effort to create a new type of institution based on the principles of
co-operative organisation and management, suitable for problems peculiar to
Indian conditions. These banks were conceived as substitutes for money lenders,
to provide timely and adequate short-term and long-term institutional credit at
reasonable rates of interest.

13
 In the formative stage Co-operative Banks were Urban Co-operative
Societies run on community basis and their lending activities were restricted to
meeting the credit requirements of their members. The concept of Urban Co-
operative Bank was first spelt out by Mehta Banal Committee in 1939 which
defined on Urban Co-operative Bank . Provisions of Section 5 (CCV) of Banking
Regulation Act, 1949 (as applicable to Co-operative Societies) defined an Urban
Co-operative Bank as a Primary Co-operative Bank other than a Primary Co-
operative Society were made applicable in 1966.

With gradual growth and also given Philip with the economic boom, urban
banking sector received tremendous boost and started diversifying its credit
portfolio. Besides giving traditional lending activity meeting the credit
requirements of their customers they started catering to various sorts of
customers vessel-employed, small businessmen / industries, house finance,
consumer finance, personal finance etc.

14
 CATEGORIES:-

The co-operative banking structure in India is divided into following main 5

categories :

1. Primary Urban Co-op Banks:

2. Primary Agricultural Credit Societies:
3. District Central Co-op Banks:
4, State Co-operative Banks:
5. Land Development Banks:

15
 Features:-

Co-operative Banks are organized and managed on the principal of co-

operation, self-help, and mutual help. They function with the rule of "one
member, one vote". Function on "no profit, no loss" basis. Co-operative banks, as
a principle, do not pursue the goal of profit maximization.

Co-operative bank performs all the main banking functions of deposit

mobilization, supply of credit and provision of remittance facilities.
Co-operative Banks provide limited banking products and are functionally
specialists in agriculture related products. However, co-operative banks now
provide housing loans also.

Cubs provide working capital loans and term loan as well.

The State Co-operative Banks (SCBs), Central Co-operative Banks

(CCBs) and Urban Co-operative Banks (UCBs) can normally extend housing
loans unto Rs 1 lakh to an individual. The scheduled UCBs, however, can lend
upto Rs 3 lakh for housing purposes. The UCBs can provide advances against
shares and debentures also.

Co-operative bank do banking business mainly in the agriculture and rural

sector. However, UCBs, SCBs, and CCBs operate in semi urban, urban, and
metropolitan areas also. The urban and non-agricultural business of these banks
has grown over the years. The co-operative banks demonstrate a shift from rural
to urban, while the commercial banks, from urban to rural.

16
 Definition of Banking:-

A banking company is defined as a company, which transacts the

business of banking in India. The Banking Regulation Act defines the business
as banking by stating the essential functions of a banker. It also states the
various other businesses a banking company may be engaged in and prohibits
certain business to be performed by it.

The term ‘Banking’ is defined as “Accepting”, for the purpose of lending or

investment, of deposits of money form the public, repayable on demand or
otherwise, and withdrawal by cheque, draft, order or otherwise.

Banking Structure In India :-

Reserve Bank Of India

Foundation :- 1st April 1935 ( as a private bank )

Nationalisation :- 1st January 1949

First Governor :- Sir Obsborn Ardsmith ( 1935-19)

First Indian Governor :- C.D. Deshmukh ( 1943-1949 )

Governor Of Present :- Bimal Jalan

17
 Function Of RBI :-

1. Rule currency notes greater than one rupee.

a. As a bank of Government, State Government, Commercial and

Co-operative banks.

2. Monetary regulation.

3. Regulation on exchange value of rupee.

a. As deregulations of India in IMF (International Monetary

Federation)

State Bank Of India :-

In 1955, the Imperial Bank Of India was nationalized and renamed as

State Bank Of India. Today it is largest bank of India. As a commercial bank and
view pointing to branches; it is world’s largest bank with 10,836 branches.

18
 Nationalized Banks:-

Below mentioned 14 banks were nationalized on the date of 19th July

1969.

1. Bank Of India

2. Union Bank Of India

3. Bank Of Maharashtra

4. Bank Of Baroda

5. Punjab National Bank

6. Indian Overseas Bank

7. Indian Bank

8. Central Bank

9. Canara Bank

10. Syndicate Bank

11. United Commercial Bank

12. Allahabad Bank

13. United Bank Of India

14. Dena Bank

Other 6 Bank were nationalized on 15th April 1980.

1. Andhra Bank

2. Corporation Bank

3. New Bank Of India

4. Oriented Bank Of India

5. Punjab & Singh Bank

6. Vijaya Bank

19
 In October 1993, the new bank of India and Punjab National Bank were
uninfected.

Types Of Bank :-

Indian Banks can be classified on the basis of their Working are as follows:

Commercial Bank :-

It provides
various kinds of services

20
21
 INTRODUCTION OF CO-OPERATIVE BANK

Unlike commercial banks which are engaged in serving the industrial and
commercial sectors of the economy, the cooperative banks, on the other hand
provide credit and allied facilities to the rural and agricultural sectors. The dawn
of this country saw the evolution cooperative movement in India. Cooperative
societies came into being when the Cooperative Societies Act, 1904, was
enacted. The movement was started with the aim of providing farmers funds with
low rates of interest so that exploitation by the village moneylenders is foiled. The
Act provided for the formation of cooperative credit societies and a number of
small primary credit societies were established in various parts of the country.
These societies, however, could not mobilize enough resources as compared to
loans demanded by its members. This led to the enactment of a new act in 1912.
The Cooperative Societies Act of 1912 provided for starting Central Cooperative
Banks with headquarters located in urban centers. In 1914, necessary steps
were taken by the then government to strengthen the cooperative movement
.The government appointed the Maclagan Committee to look into and make
recommendations for the improvement of a State Cooperative Bank for each
State. The state Cooperative Bank is formed by the federation of Central
Cooperative Banks functioning at the district level. The present organisation of
the cooperatives in India is based on the recommendation made by the
Maclagan Committee. In 1919, the Montague Chelmsford Act made Cooperation
a provincial subject. Since then, separate Cooperative Societies Acts have been
passed by all state governments.

Although cooperative banks in India have shown progress since their

establishment, there still exist a number of defects in the organisation. This has
led qualitative improvement to suffer. However, the Reserve Bank of India took
the initiative to revitalize, reorganize and promote the growth of cooperative
banking in India. Under the Banking Regulation Act of 1949, Cooperative banks
have been brought under the control of the Reserve Bank of Bank.

22
 Farmers in India are scattered all over the country and need short-term
small borrowings for agricultural purposes. This need is not fulfilled by
commercial banks which are unsuited for financing agriculture. Land which these
farmers can offer to cover bank advances is not generally accepted as security
by commercial banks. Therefore, special types of banks are necessary for the
financing of agriculture. Co-operative banks are best suited for this purpose. The
object of co-operative banks is to offer banking facilities to persons of limited
means requiring credit for productive purposes in the use of the land and labor at
their disposal.

The co-operative banking structure in India may be divided into three

component parts, viz.

1. Primary co-operative credit societies.

2. Central / district co-operative banks.

3.State co-operative banks (also called as apex banks) at the top.

23
1.Primary co-operative credit societies: -

Primary credit society is at the bottom of the three-tier structure of co-

operative banks.

The society normally contacts farmers. So, only a few people living within
the area of society are admitted as members. Here individuals of a particular
area meet together inspired by sentiment of co-operation. Every member has to
pay his share in a share capital. The price of a share is nominal so that even a
common man can be a member. The functioning of such society is limited. The
society is managed by elected people. Hon-secretary and members of working
committee. Such a society collects its funds by admission fees, share capital and
deposit of people. In case of need such society also get finance from central co-
operative banks or state co-operative bank? Normally society grants loans to
members on individual responsibility.

2.District co-operative Bank: -

This bank is a link joining state co-operative bank with the primary credit
society. After the report of all India rural advances inquiry committee in 1945, the
central co-operative banks earned much importance the flow of rural advances
reach to every farmer's home through this bank via credit society. In reality
central co-operative banks were establish to supply financial help to primary
credit society.

3.State Co-operative Banks: -

This is the apex bank in the three tier structure set up of the country.
MacLean Committee appointed in 1974 recommended establishing at least one
state co-operative bank per state. To day every state has the state co-operative
bank.

Since state co-operative bank is an apex bank, its main function is co-
ordination of co-operative lending, its balance and controlling. The financial help
for co-operative lending activity given by Reserve Bank is also given through
state co-operative bank.

24
 HISTORY OF THE RANDER PEOPLES CO-OPERATIVE
BANK LTD.

Before independence of our country, when there was no banking services

invented, people use balter system for transaction means they transect service
instead of service and things on behalf of the service. Rander, in which this bank
was established, was developed as a town instead of village. It is in the category
of town at that time. It was developing very faster compare to other villages. At
that time there was necessities of money for the transaction. Money lenders
misuse of that situation by getting more interest on the lending money from the
poor and illiterate people. That was they have to pay very huge amount for the
development.

At that time the some literate people done long thought for poor and
illiterate people against those money-lenders. And they had decided to
established bank. For that reason on the day of 1st AUGUST, 1923 THE
RANDER PEOPLES CO-OPERATIVE BANK LTD. was came into existence.
Now he was finished it’s 84 years and come in its 85 th year. After the
establishment years the company had faced many difficulties.

This bank had started first “women development” by primary girl’s school
and had provided ambulance to THE SURAT MUNICIPAL CORPORATION to
facilitate that time people. And also help to “KURUKSHATRA
SMASHANBHUMI”, situated at jahangirpura and LOKMANYA VIDHYALAYA...

During the flood-august 2006, in that situation also with the help of Shree
Navnitbhai Patel, the chairman of the bank and madhubhai sarang, the managing
director, employees and other directors, they revolution the bank and ring road
branch. They computerized the existence branch and also done air-conditioner in
the bank. And also joint venture with the south Gujarat electricity board and
Gujarat gas and made the opportunity to help the people.

25
 They had celebrated 85th anniversary of the bank on the 5th AUGUST
2007 between 9:00 am to 12:00 pm at GURUKRUPA COACHING CLASS,
MORABHAGAL, with the help of staff member and gurukrupa class they had
planned to BLOOD-CAMP to the SURAT BLOOD CENTRE.

26
 MISSION OF THE BANK

The bank has its following mission: -

Before two years, the bank incurred loses continually for two years, but
last year it was earned profit. In the 2006-07, the company got B grade which
was C grade in earlier. So the mission of the company to achieve A grade in next
years.

The bank has its following goals to fulfillment-

☻ To provide education loan facilities to the student.

☻ To provide loans to the people of the society.

☻ To provide various camps for society.

☻ To increase social satisfaction towards bank.

☻ To fulfill social responsibilities.

27
 OBJECTIVES OF THE BANK:-

☻ To Computerize and air-conditioner infrastructures and modern facility.

☻ Demand draft of 10000/- rs without any commission.

☻ Locker facilities.

☻ Special facilities for sr. citizens.

☻ Interest rate on securities.

☻ Collection of bills of SOUTH GUJARAT ELECTRICITY CO. LTD.

☻ Collection of bills of GUJARAT GAS CO. LTD.

☻ Faster loan at low rate.

☻ Insurance service with the joint venture of the BAJAJ ALLIENCE

INSURANCE CO.

28
 FACILITIES PROVIDED BY THE BANK:-

☻ Loan facility to the people.

☻ Vehicles loan facility.

☻ Locker facility.

☻ Computerize and air-conditioner infrastructure.

☻ Bills collection of G.E.B.

☻ Bills collection of GUJARAT GAS.

☻ Saving account and current account facility.

☻ Loans to business unit.

☻ Education loan at low rate.

29
 Introduction:-

It’s a known fact that the bank and financial institutions in India face the
problem of swelling non performing assets (NPAs) and the issue is becoming
more and more unmanageable. In order to bring the situation under control,some
steps have been taken recently. The Securitization and Reconstruction of
financial Assets and Enforcement of Security Interest Act,2002 was passed by
passed by parliament, which is an important step towards elimination or
reduction of NPAs. With the enactment of the Securitization and Reconstruction
of financial assets and enforcement security interest Act, 2002, bank can issue
notice to the defaulters to pay up the dues and the borrows will have to clear their
dues within 60 days. Once the borrower receives a notice from the concerned
bank and the financial institution, the secured assets mentioned in the notice can
not be sold or transferred without the concept of the lenders.

No action can be taken if :

It is agricultural land.

When amount due is less than rs One Lac.

When amount due is less than 20% of the principal amount and interest there on,
i.e. the borrow has repaid more than 80% of the principal amount and interest.

The main purpose of this notice is to inform the borrower either the sum
due to the bank or financial institution is paid by the borrow or else the former will
take action by way of taking over the possession of assets. Besides assets, bank
can also take over the management of the company. Thus the banker under the
aforementioned act will have the much-needed authority to either sell the assets
of the defaulting companies/person or change their management.

30
 Meaning:-

An assets is classified as non-performing assets (NPAs) if the borrower

does not pay dues in the from of principal and interest for a period of 180 days.
However with effect from March 2004,default status would be given to a borrows
if dues are not paid for 90 days. If any advance or credit facility granted by bank
to a borrows becomes non-performing, then the bank will have to treat all the
advance/credit facility granted to that borrower as non-performing without
having any regard to fact that there may still exist certain advance/credit facilities
having performing status. A Non Performing Assets(NPAs) shell be an advance
where

• Interest and/or installment of principal remain over due for a period of

more then 180 days in respect of a term loan,

• The account remains ‘Out Of Order’ for a period of more than 180 days, in
respect of an overdraft/cash credit (OD/CC),

• The bill remain over due for a period of more than 180 days in the case of
bills purchased and discounted,

• Interest and/or installment of principal remains over due for two harvest
seasons but for a period not exceeding two half years in the case of an advance
granted for agricultural purpose, and

• Any amount to be received remains over due for a period of more than
180 days in respect of other accounts.

With a view of moving towards international best practices and to ensure

greater transparency, it has been decided to adopt the ’90 days overdue’ norm of
identification of NPAs , from the year ending March 31,2004. Accordingly, with
effect form March 31, 2004, a non performing assts(NPAs)shell be a loan or an
advance.

31
 An assets becomes non-performing when it cases to generate income for
the bank. A non-performing assets is defined as a credit facility in respect of
which the interest and/or installment of principal has remained ‘past due’ for a
specified period of time.

Securitization act:

The new law, officially called the Securitization and Reconstruction of

Financial Assets Enforcement of security interest Law, has three salient points:

Bank can now recover their assets by issuing notice to a default to pay up.
If the defaulter does not do so within 60 days, bank can take the permission of a
magistrate and take over the assets – a factory, land or machinery – and sell it
off.

Bank can now and sell loans via ‘securitization ‘. Loans can be traded
between banks, like bonds and shares.

The law provides for the setting up of can asset reconstruction Company
(ARC). It will buy up dead loans from banks, restructure them and sell them off.
Since the recovery of bad loans require special skills that banks tend to lack, they
can sell off their bad loans to a company that has those skills.

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

requirement with respect to bank advances. In terms of this guidelines, bank
advance are mainly classified into:

32
1. Standard Assets:

The loan a/c that do not disclose any problem other than normal risk and
which are not NPA. In other words, it carries not more than normal risk attached
to the business.

2. Sub – standard Assets:

Those a/c which are identified as NPA for not more than 18 months (it will
be reduced up to 12 month from year 2005). In case of cash credit, etc. the
account that are NPA for not more than 2 years will be classified as substandard.

If a loan is renegotiated after commencement of production that has the

effect of artificially upgraded the status of credit, such a loan will continue to be
treated as sub-standard assets. The status of the account may be upgraded after
one year, If the account shows satisfactory performance.

3.Doubtful Assets:

Assets that has remained NPA for a period exceeding 18 months is a

doubtful assets.

4.Loss Assets:

Here loss is identified by the banks concerned or by internal auditors or by

external auditors or by Reserve Bank India (RBI) inspection.

In terms of RBI guidelines, as and when an assets becomes an NPA, such

advances would be first classified as a sub-standard one for a period that.

33
 Should not exceed 18 month and subsequently as doubtful assets. It
should be noted that the above classification is only for the purpose of
computing the amount of provision that should be made with respect to bank
advance and certainly not for the purpose of presentation of advance sheet.

Bank have started issuing notices under the Securitization Act ,2002
directing the defaulter to either pay 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 classify the advance as a doubtful or loss assets , as
appropriate.

34
 Provision requirements of bank:

As and when 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.

1.Loss Assets:

The entire assets should be written of after obtaining necessary approval

from the component authority and as per the provision act rules. If the assets are
permitted to remain in the books for any reason, 100 percent of out standing
should be made.

In respect of an assets identified as a lost assets, full provision at 100%

should be made if expected salvage value of the security is negligible.

2.Doubtful assets :

100% of the extent to which the advance is not covered by the realizable
value of the security to which the bank has a valid resources should be made
and the realizable value is estimated on a realistic basis

In regard to secured portion, provision may be made on following bases, at

the rates ranging from 20% to 50% of the secured portion depending upon the
period for which the assets at remained doubtful.

35
Period for which the advances has Percentage of provision
been considered as doubtful

NPA > 18 months and NPA < 30 20%

Months

NPA > 30 months and NPA < 54 30%

Months

NPA > 54 months 50%

For instance , for NPAs which are up to 1 year old, provision should be made of
20% of secured portion, in case of one-days three year old NPAs up to 30% of
the secured portion and finally in case of more than three 3-year-old. NPAs up to
50% of secured portion should be made by the concerned bank.

36
1. Sub-standard assets:

A general provision of 10 % on total outstanding shod be made without

making any allowance for DICGC/ECGC.

2. Standard assets:

From the year ending 31/03/2000, the banks should make a provision of
minimum of 0.25 percent on standard assets.

Reserve bank of India (RBI) has merely laid down the minimum
provisioning requirement that should be complied with by the concerned bank on
a mandatory basis however where there is a substantial uncertainty to recovery,
higher provisioning should be made by the bank concerned.

37
Facility wise criteria to determine whether an advance is
NPA or not:-

Term Loan

Term loans, demand loans, bridge loans, personal loan, crop loans,
against government securities, shares\ debentures, housing loans, educational
loans, staff loans, etc that is. loans having fixed due dates of repayment.

In this case the entire loan outstanding to be treated as NPA, even if there
is default in payment of interest\ installment.

Cash credit c.c / Over draft o.d.

Cash credit (hypothecation, pledge), packing credit, overdrafts against

securities/ shares, etc.

AC\C or O\D facility is NPA, if it is out of order for 2 quarters in a year. in

case of C\C account if the account remains out of order in last quarter in addition
to anyone of the remaining three quarters, it will be treated as NPA. in other
words if the account is out of order in any two quarter but regular in last quarter, it
will not be treated as NPA.

Bills purchased\ bills discounted

Bills purchase \ bills Discount will be treated as NPA if remains overdue

and unpaid for 2quarters after the due date.

Admissible grace period or transit\ negotiation period shall only be given in

conformity with established banking practices to be given.

Other accounts

Advance bills, advance against duty drawback, bills due, etc. if any amount
to be received in respect of the facility remains overdue for 2 quarters.

38
 Warning signals of NPA:-

Following are the warning signals of NPA

Continuous irregularities in cash credit \ overdraft account such as inability to

maintain stipulated margin on continuous basis or drawings frequently exceeding
sectioned limit, periodical interest debited remaining unrealized.

 Outstanding balance in cash credit account remaining continuously at the

maximum.

 Failure to make timely payment of installments of principal and interest on

term loans.

 Complaints from suppliers of raw materials, water, power, etc. about non-
payment of bills.

 Non-submission or undue delay in submission or submission of incorrect

stock statements and other control statements.

 Attempt to divert sale proceeds through account with other bank.

 Downward trend in credit summation.

 Frequent return of cheques or bills.

 Steep decline in production figures.

 Downward trends in sales and fall in profits.

 Rising level of inventories, this may include large proportion of slow or

non-moving items.

Large period of credit allowed on sale documents negotiated through the

bank and frequent return by customers of the same as also allowing large
discount on sales.

39
 Various steps for reducing NPAs:-

 Study the problem of NPAs – branch wise, amount wise, and age wise.

 Prepare Loans Recovery Policy and Strategies for reducing NPAs.

 Create special Recovery cells at Head office/Branch office.

 Identify critical branches for recovery.

 Fix target of recovery and draw time bound action plan.

 Select proper techniques for solving the problem of each NPA.

 Monitor implementation of the time bound action plan drawn.

 Take possession of the secured assets of the borrower including the right
to transfer by way of lease, assignment or sale for realizing the secured assets.

 Take corrective steps whenever found necessary while implementing the

action plan and make changes in the original plan if necessary.

40
 Strategies for reducing NPA:-

Guidelines issued by reserve bank of India regarding income recognition,

assets classification and financial picture in the balance sheet but also to take
corrective steps for improving their loan portfolio. After implementing of these
guidelines bank will have to fully vigilant about the different banks to reduce their
NPAs. As a prudent banker it is always better to follow the proper policy for
appraisal, supervision and follow up of advances to avoid NPAs. However, risk
attached to lending cannot be completely eliminated.

Therefore, if certain advances are converted into NPAs, it is necessary to

take corrective steps to reduce them. Reduction in NPAs will necessarily result
into improving profitability of banks.

In the above backdrop, each bank should evolve a “Loan Recovery Policy” giving
details of the strategies to be adopted for recovery of dues period wise targeted
level of reduction in NPAs, norms for entering into compromise proposals
involving sacrifice\waiver, factors to be taken into consideration. The policy
framed should be placed before its board for its approval. Proper monitoring of
the policy at periodical intervals is equally necessary. While judging the
performance of staff sufficient emphasis\ weight age should be laid on the
recovery of loan.

41
ANALYSIS:-

Loan Disbursement at Ring Road Branch:

PERTICULARS YEARS
2005 2006 2007
loan against govt. securities 0.67 0.54 0.43
machinery loan 3.90 3.56 5.89
vehicle loan 5.87 5.80 7.76
goods loan 7.06 6.56 4.96
goods(hypo) loan 0.72 0.08 0.34
loan against book debt 1.69 1.88 2.56
loan against fixed deposit 2.73 3.89 2.96
housing loan 0.97 0.98 0.92
Loan against assets 58.90 56.14 65.84
business loan 12.69 13.58 14.42
ISL 0 0 0.12
jewelry loan 4.87 0.78 1.66
Bills secured 0.08 0 0.3
Bills unsecured 0 0.13 0.67
secured loans 0.89 7.32 6.35
Total 100 100 100

42
43
 BUSINESS LOAN

PERTICULARS 1 2 3
12.69 13.58
BUSINESS LOAN % % 14.42%

BUSINESS LOAN

15.00%
14.50%
14.00%
13.50%
PERCENT
13.00%
12.50%
12.00%
11.50%
1 2 3

From the last three years data given in the table as well, as represented
graphically we can see that bank has increased iota disbursement in the area of
business loans.

44
 LOANS AGAINST FIXED DEPOSITS

PERPICULARS 2005 2006 2007

LOAN AGAINST
FIXED DEPOSIT 2.43% 3.89% 2.96%

LOAN AGAINST FIXED DEPOSITS

0.08

0.06 LOAN AGAINST FIXED

PERSENT

DEPOSIT
0.04
2007
0.02

0
1 2 3 4
YEAR

From the above chart and table we can observe that there was a sufficient
increase in the percent loan given against fixed exposit.

45
46
 MACHINARY LOAN

PERTICULAR 2005 2006 2007

MACHINARY LOAN 3.90% 3.56% 3.91%

From the above table we can see there is gradual increase the amount of loan
for machinery, as the small entrepreneurs have been motivated to go for self-
employment.

300000.00%

200000.00%

100000.00%

0.00%
1 2 3
MACHINARY 3.90% 3.56% 3.91%
LOAN 3.90%
3.56% 3.91%
PERTICULAR 2005 2006 2007

MACHINARY LOAN 3.90% 3.56% 3.91% PERTICULAR

47
 NPA IN RINGROAD BRANCH

YEAR NPA (%)

31/3/03 14.18%

31/3/04 15.87%

31/3/05 21.64%

31/3/06 22.86%

31/3/07 30.30%

The above table represents the NPA occurred in past 5 years. It is

clearly seen that there is a lot of increase in the percentage of NPa,which is a
dangerous signal for the bank and has to consider the problem very seriously.

Bank should increase their recovery activities and should take care
in sanctioning the loan so they can put a check on the increasing NPA.

48
 EXAMPLE-1

LOAN A/C :

No of borrower : Mr. ABC

Purpose : housing loan

Limit sanctioned Rs. : 555000

Period : 5 years monthly installment

Interest rate : 12%

Type of loan : Transportation loan

49
DATE PERTICULAR DEBIT CREDIT BALANCE
27/06/05 To loan 480000.00 480000.00
30/06/05 To int. debit 631.00 480631.00
31/07/05 To int. debit 4898.00 485530.00
to int. panel 1.00
30/08/05 To int. debit 4948.00 490492.00
To int. panel 14.00
03/09/05 To transfer 70000.00 560492.00
10/09/05 By transfer 29000.00 531492.00
29/09/05 To int. debit 5282.00 536782.00
To int. panel 8.00
31/10/06 To int. debit 5471.00 542266.00
To int. panel 13.00
18/11/06 By cash 5000.00 537266.00
29/11/06 By cash 5000.00
29/11/06 To int. debit 5324.00 537612.00
To int. panel 22.00
22/12/06 By cash 5000.00 532612.00
31/12/06 By back date 1120.00 531492.00
correction
01/01/07 By cash 10000.00 528009.00
To int. 6607.00
01/01/07 To charge 3000.00 531099.00
05/01/07 By cash 5000.00 526099.00
23/01/07 By cash 8600.00 517499.00

50
 housing loans

600000
500000
S eries1
transaction

400000
300000 S eries2
200000 S eries3
100000
0
To int. To int. To int. To int. By cas hBy cas h
debit panel debit panel

29/09/05 31/10/06 18/11/0629/11/06

loa ns

51
From the above a/c , we observe that

Loan a/c is irregular and is NPA

Date of default is 01/07/05

Date of NPA is 01/01/06

NPA category is SUB STANDARD

After NPA, bank cannot book in the income from the assets therefore, the
interest income of Rs 35862 should not book by the bank and keep it in to
separate a/c called as interest suspense.

Bank to providing provision on this a/c as under :-

1. Total outstanding Rs 517499.00

2. Interest suspense Rs 35862.00

3. Net amount Rs 481637.00

4. Realization value of assets Rs 350000.00

5. Secured portion Rs 350000.00

6. Unsecured Rs 131637.00

7 Provision=[131637+(350000*10%) ] Rs 166637

52
 LOAN A/C :

No of borrower : Mr. XYZ

Purpose : jewelry

Limit sanctioned Rs. : 7200

Period : 1 years monthly

installment
Interest rate : 12.50%

Type of loan : jewelry loan (short term)

DATE PERTICULAR DEBIT CREDIT BALANCE

27/07/05 To transfer 7200.00 7200.00
30/07/05 To int. debit 63.00 7263.00
31/07/05 To int. debit 77.00 7341.00
To int.panel 1.00
10/08/05 To int. debit 80.00 7422.00
To int. panel 1.00
27/09/05 To int. debit 81.00 7505.00
To int. panel 2.00
10/09/05 To int. debit 79.00 7586.00
To int. panel 2.00
29/09/05 To int. debit 83.00 7672.0
To int. panel 3.00 M0
31/10/05 By transfer 100.00 7572.00

18/11/05 By back date 454.00 7200.00

correction

From the above account, we observe that,

53
• Loan a/c is irregular and is NPA

• Date of default is 30/06/05

• Date of NPA is 31/12/05

• NPA category is SUB STANDARD

After NPA, bank can not book the income from the assets, therefore, the
interest income of Rs 554.00 should not book by the bank, and keep it in to
separate account called as interest suspense.

Bank to provide provision on this account as under :-

1. Total outstanding Rs 7200.00

2. Interest suspense Rs 554.00

3. Net amount Rs 6646.00

4. Realization value of assets Rs 7200.00

5. Secured portion Rs 7200.00

6. Unsecured portion Rs 7200.00

7. Provision = [00+(7200*10%) ] = Rs 720.00

54
 FINDING AND SUGGESTIONS:-

Findings:

 From the study conducted at Rander Peoples Co-Operative Bank LTD. It

was found that the there was a gradual increase in the percent of NPA in the
bank.

 It has been seen that increase in the NPA for the past two years is
because of the problem occurred in the case of madhvpura Bank

 Where Rander Peoples Co-Operative Bank had invested a huge amount

in terms of giving them loan.

 The bank professional (of recovery department) has done a great job by
conducting rigorous recovery programs with the help and support of the top
management and the respective branch manager which have kept the check on
increasing present of NPA.

55
 Suggestion:-

 Bank has to take almost all precautions during appraisal of loan proposal
that can avoid sanctioning of bad proposal.

 After disbursement of loan, bank should monitor account regularly and

take necessary steps for recovery in time, that can help bank regularized the loan
accounts.

 Bank should study individual accounts, purpose-wise and age wise NPA
account and prepare a strategy looking a local situation for NPA reduction.

 Bank should create special recovery cells at Head office/branch

 Office.

 Bank should identify the critical branches for recovery and take quick
action against it.

 Bank should fix target of recovery and draw time bound action plan.

 Bank should monitor implementation of time bound action plan drawn.

56
 BALANCE SHEET OF RING ROAD BRANCH ON 31-3-2005

CAPITAL AND LIABILITIES AMOUNT 31-03-2005

1)Share Capital
-Authorized share capital
-Issued share capital

2)Reserve Fund and others reserves

-Reserve fund
-Other reserves

3)Deposits and other account

-Fixed deposits 131883945
2
-Saving bank deposits 418503123
8
-Current deposits 117638820 185498139.
2 6

4)Borrowings 3834008.9
2

5)Bills for collections 718697.6

7

6)Branch Adjustment

7)Overdue Interest Reserves

-Accumulated
-Current year 193540
4
-Overdue interest reserves NPA 78540891.1 80476295.1
3 3

8)Other liabilities 1331981

9)Interest payable 472772.

5

10)Profit and loss 8062275.9

6

11)contingent Liabilities 13340

0

TOTAL 280394170.7

57
 BALANCE SHEET AS ON 31-3-2005

PROPERITERS AND ASSETS AMOUNT AMOUNT

1)Cash
a)On hand 274403
9
b)In current deposits 357680.2 3101719.2
9 9
2)Balance with other banks
a)Current deposits
b)Saving bank deposits
c)Fixed deposits
3)Money at call & short notice
4)Investment
5)Advances
a)Short term loans & overdrafts 18526478.
8
b)Medium term loans 53199288.7
2
c)Long term loans 66887339.4 138613106.
2 9
6)Interest receivable 78540891.1
3
7)Bills receivable 718697.6
7
8)Branch adjustment 57663897.9
5
9)Premises 1038562.
5
10)Furniture & fixtures 290601.39 290601.3
7
11)Other Assets 426693.8
7

TOTAL 280394170.7

58
 RANDER PEOPLES CO-OPERATIVE BANK LTD
BALANCE SHEET AS ON 31-03-2005

31-3-2004 CAPTIAL AND AMOUNT 31-3-2005

LIABLITIES

1)SHARE CAPTIAL
100000000 -Authorized share 100000000
capital
74837050 -Issued share capital 72893250
728919 shares each 72891900
Rs 100
54shares each Rs 25 1350

540292935 2)RESERVE FUND 643483909.4

AND OTHER
RESERVES
520342931 -Reserve fund 520342931
19950004 -Other reserves 19950004

3)SUB STATE P’SHIP

FUND A/C

4)DEPOSITS AND
OTHER A/C
137466880 -Fixed deposits 1211677825.65
2
629931699 -Saving bank 510452857.5
deposits
351604223 -Current deposits 295190221.2

5)CALL AND SHORT

TERM

41599053 6)BILLS FOR 27008524.1

COLLECTION

10390029 7)BRANCH 3751243.92

ADJUSTMENT

300123774 8)OVERDUE 338193787.5

INTEREST r
18086291 -Accumulated 14145339
104889985 -Arbitration 127385001.4
79127682 -Decreed 162929032.9
98019816 -Overdue interest 33734414.2
reserves

59
21105766 9)OHER LIABILITIES 31568236.89

8055893 10)INTEREST 4886039.45

PAYABLE

42341671 11)PROFIT AND 20022979.65

LOSS

17295016 12)CONTIGENT 7822570

LIABILITIES

339495089 TOTAL 7822570 3159108872

5

31-03-04 PROPERTIES & AMOUNT 31-03-05

ASSETS

149594270 1) CASH 139746983.15

32079879 -On hand 26822436.89
117514391 -In RBI, SBI & state 112924546.3
co-operative

818123126 2) DEPOSITS IN 877170335.3

OTHER BANKS
21930088 -Current deposits 17278997.91
931 -Saving bank 988.45
deposits
796192107 -Fixed deposits 859890348.9

15000000 3) MONEY AT CALL 27000000

AND SHORT NOTICE

768561090 4) INVESTMENT 643925052

5) INVESTMENT IN
SUB P’SHIP

6) ADVANCES
38546252 -Short term loan 351347610.57
368570598 -Medium term loan 286230927.38
460461672 -Long term loan 381620663.4

312643399 7) INTEREST
RECEIVABLE
30605916 -On investment 24875967.57
104889985 -On arbitration 127385001.4

60
79127682 -On decreed 162929032.9
98019816 -On NPA 33734414.2

42599053 8) BILLS RECEIVABLE 27008524.1

9) BRANCH
ADJUSTMENT

22076502 10)BANK PREMISES 20407070.76

27885 11)PURCHASED 27885

ASSETS AGAINST
BANK OR

8083080 12) FURNITURES 7230601.71

36328880 13)OTHER ASSETS 40995521.21

339495089 TOTAL 3159108872

5

61
 BIBLIOGRAPHY

I had taken the help of following instrument during my project work.

⇒ Internet
⇒ Books

1. K Aswatthapa for financial management

2. Project analysis book of prasanna Chandra

⇒ Annual report of the bank

⇒ Publication of the bank

62
63
64
65
66
67
68