CHAPTER -6

NPA ANALYSIS AND INTERPRETATION OF DATA OF

KENDRAPARA URBAN CO-OPERATIVE BANK

Introduction:
In today's world of healthy competition where all business units and
industries are trying to survive in the market, the banking sector too
cannot be aloof from competition in market. As liberalization and
globalization has opened door for free entry in any business, the co-
operative sector of banking has to face competition from not only
nationalized or commercial banks but also from private financial
instructions and foreign banks. Two or three decades back, profit had a
back seat and came as an end product. They never consciously planned
their business of banking from the profit point of view. But today profit
is a sign of vitality and success in a competitive scenario. It ensures
survival and growth and can eventually become the only parameter
for performance evaluation. Profit depends upon NPA provisions.
Hence, for a banker, NPA has become very significant. In this chapter
an attempt has been made to find out the importance of PA and NPA in
banking sector and to measure the level of NPA of banking sector using
accounting techniques of NPA analysis and statistical tools along with
graphs and charts.

1
Concept of NPA and its Importance in Banking Sector:
Guidelines issued by Reserve Bank of India regarding recognition, asset
classification and provisioning norms have compelled banks in India
not to show true financial picture in the balance sheet but also to take
corrective steps for improving their loan portfolio. With the adoption of
these guidelines, banks are now fully vigilant about quality of their loan
assets and various steps are being taken by them to reduce the NPAs. It
is always better to follow the proper policy for appraisal, supervision
and follow — up of advances to avoid NPAs. However, risks attached to
lending cannot be completely eliminated. If certain advances are
converted into NPAs, it is necessary to take corrective steps to reduce
them. Reduction in NPAs is necessary to improve profitability.

Common — Size Statement analysis of the Kendrapara Urban Co-

operative Bank:
The entire picture of the PA and NPA of the Kendrapara Urban Co-
operative Bank under study has been presented in the form of common —
size statement for the period spreading from 2010 to 2015. An attempt
to analyze the NPA of the Kendrapara Urban Co-operative Bank with
the help of their common - size NPA statement is made at this stage.
Here the figures of total advances have been taken as equal to 100 and
the percentage of individual items of PA and NPAs has been calculated.
Common - size NPA statement.

2
Assets Classification:
The primary (Urban) Co-operative banks should classify their assets into
the following broad groups, viz.

1. Standard Assets:- (Performing Assets)

Standard Asset is one which does not disclose any problems and which
does not carry more than normal risk attached to the business. Such an
asset should not be an NPA.

2. Sub — Standard Assets:-

With effect from March 31, 2005 an asset would be classified as
substandard if it remained NPA for a period less than or equal to 12
months. In such cases, the current net worth of the
borrowers/guarantors or the current market value of the security
charged is not enough to ensure recovery of the dues to the banks in
full. In other words, such assets will have well defined credit
weaknesses that 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. An asset where the terms of the
loan agreement regarding interest and principal have been
renegotiated or rescheduled after commencement of production, should
be classified as substandard and should remain in such category for at
least 12 months of satisfactory performance under the renegotiated or

3
rescheduled terms. In other words, the classification of an asset should
not be upgraded merely as a rescheduling, unless there is satisfactory
compliance of this condition.

3. Doubtful Assets:-
With effect from March 31, 2005 an asset is required to be classified as
doubtful, if it has remained NPA for more than 12 months. For Tier I
banks, the 12-months period of classification of a substandard asset in
doubtful category will be effective from April 1, 2008. As in the case
of substandard assets, rescheduling does not entitle the bank to upgrade
the quality of an advance automatically. A loan classified as doubtful
has all the weaknesses inherent as that classified as substandard, with
the added characteristic that the weaknesses make collection or
liquidation in full, on the basis of currently known facts, conditions and
values, highly questionable and improbable.

4. Loss Assets:-
A loss asset is one where loss has been identified by the bank or internal
or external auditors or by the Co-operation Department or by the
Reserve Bank of India inspection but the amount has not been written
off, wholly or partly. In other words, such an asset is considered un-
collectible and of such little value that its continuance as a bankable

4
asset is not warranted although there may be some salvage or recovery
value.

RECOVERY OF LOAN FOR THE LAST 5 YEARS (Rs in Lakhs)

Table No-9
YEAR DEMAN COLLECTION BALANCE %OF C
2010- 452.84 363.74 89.10 80.32
2011- D
3243.14 2892.67 350.47 89.23
2011
2012-
2012 6607.09 6237.01 370.08 94.39%
2013-
2013 8162.49 7717.44 455.05 94.55%
2014-
2014 8914.59 8477.85 436.74 95.10%
2015
(Source: KUCB's Annual Report)

Fromtheabovetable,weconcludethattherecoveryofthebankloanfromth
eborrowersincreasessteadilyfromyeartoyear.Thecollectioninpercentag
eincreasesatafasterratein2012from2011butin2014&2015itincreasedb
utataslowerrateascomparedtothepreviousyears.Butoverallwecansay,it
goodfortheorganization.Itshowsthecreditpolicyofthebankisgoodwhic
hhelpsorganizationformoveforwardinsmoothratefortheirgrowthandex
pansion.

5
Fromtheabove,weconcludethatthecumulativeamountoftheNPAincreasesa
ndincreasesinaupanddownmotion,butoverallwecansaytheNPAamountinc
reases,butthepercentageofNPAratedecreasesfromyeartoyear.TheNPArate
in2011is15.9%whichisnowin2015is13.12%,itislessthanthepreviousyear2
014is15.4%.

6
From the above table and graph, we conclude that the amount of the
Net NPA increases and increases in a up and down motion, but overall
we can say the NPA amount increases, but the percentage of NPA rate
decreases from year to year. The NPA rate in 2011 is 12.3% which is
now in 2015 is 9.35%, it is less than the previous year 2014 is 11.2%. It
shows the credit policy of the bank is good which helps organization
for move forward in smooth rate for their growth and expansion.
The recovery rate of loans and advances increases with a increasing rate
from year to year. In 2010-2011 the recovery percentage is 80.32%
which increases to 89.23% in 2011-2012, in the year 2015 the recovery
percentage increases up to the 95.10% which is the positive points
for organization to achieve the objectives of the organization in
future. It states that the credit policy of the bank is good. There are
need the credit awareness, interim review, periodic review, customer
awareness to increase the recovery rate.
There are the main important causes of default in payment of
installments is due to the irregularity in the monsoon, natural happenings

7
such as cyclone, flood etc., which affects the very much to the
customers, because most of the people taking loan for the agriculture in
the rural area. And also some other causes which affects the people who
taking loan for doing business, the causes such as the price hike in
market index rate, at that time there are more fund has been invested in
purchasing and holding goods, so that causes difficult to them for the
repayment of timely installments.
Gross NPA Ratio's:-
Gross NPA Ratio = (Gross NPA / Gross Advances) X 100 Table
No- 12
Year Gross Advances (Rs. In Lakhs) Gross NPA (Rs. In Lakhs)
Gross NPA Ratio (In %) 2011 2538.34 403.34 15.77% 2012
2721.81 105.84 3.88% 2013 3030.33 126.27 4.16°/0 2014 3484.49
140.65 4.03% 2015 4174.08 165.67 3.96%
(Source- KUCB's Annual Report)
20.00% 15.00% 10.00% 5.00% 0.00%
Gross NPA Ratio %
12
345
-Gross NPA %
Figure No-8 (Source- KUCB's Annual Report)
The above table and graph makes it very clear that the average gross
NPA percentage of the KUCB under study is very satisfactory. It is seen

8
that the gross NPA which was 15.77% in 2011 reduced marginally every
year and finally reached 3.96% in 2015 which is much lower than the
average gross NPA in 2011. It goes without saying that the KUCB are
taking good care and following ideal norms of granting advances, so that
the recovery is satisfactory leading to lower gross NPA.
There are the main important causes of default in
payment of installments is due to the irregularity in the monsoon,
natural happenings such as cyclone, flood etc., which affects the very
much to the customers, because most of the people taking loan for the
agriculture in the rural area. And also some other causes which affects
the people who taking loan for doing business, the causes such as the
price hike in market index rate, at that time there are more fund has
been invested in purchasing and holding goods, so that causes difficult
to them for the repayment of timely installments.

9
The above table and graph makes it very clear that the average gross
NPA percentage of the KUCB under study is very satisfactory. It is seen
that the gross NPA which was 15.77% in 2011 reduced marginally
every year and finally reached 3.96% in 2015 which is much lower
than the average gross NPA in 2011. It goes without saying that the
KUCB are taking good care and following ideal norms of granting
advances, so that the recovery is satisfactory leading to lower gross
NPA.

10
11
Above graph presents the Net NPA Ratio of all the KUC Bank. It can be
noticed that Net NPA ratio has resulted in the first five years of study i.e.
from 2011 to 2015, though reducing in effect. The Net NPA ratio during
these years can be ascribed to the high Net NPA position to low. It is
therefore, evident that the bank has been able to make enough provisions
against their gross NPA which is a very satisfactory position. The
management of the bank has taken enough care in granting advances and
they have been very meticulous in recovering from defaulters. Another
observation is that the above banks have strictly followed the RBI
guidelines by making provisions against NPAs.

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From the above chart, it has been observed that the advances amount of
the bank increases from year to year, whereas the net NPA decreases. It
indicates positive sign for the banks future growth and expansion. It
goes without saying that the KUC bank is taking good care and
following ideal norms of granting advances, so that the recovery is
satisfactory leading to lower gross NPA. It is very encouraging that the
gross NPA ratio in the last three years is very much lower than the
average NPA.
GENERAL CAUSES OF NON PERFORMING ASSETS
A bank with 100% performing assets is quite impossible as NPAs are
sure to occur at one stage or another. The causes of such NPAs are
many which may be broadly classified into three, viz. internal factors,
external factors and internal and external factors together.
INTERNAL FACTORS
The internal factors leading to NPAs may work at either institutional
level or borrower's level or both.
A. Institutional level:
The Institution's philosophy, its policy, procedure and people
should be well coordinated. Very often aggressive lending policy and
absence of well designed procedures for sanctioning advances result in
high NPA levels. Before sanctioning loans gathering, processing and
analyzing information are at the heart of decision making, failing
which the bank's loan portfolio gets ruined. Appraisal deficiencies

13
have put many banks in difficult conditions. In addition, delays in
sanctioning loans and inappropriate repayment schedules worsen the
situation. At post sanction stage inappropriate disbursement and Lack of
adequate supervision / monitoring develop problems and losses. For
example, sound loans at the initial stage are not good for any Bank.

From the above chart, it has been observed that the advances amount
of the bank increases from year to year, whereas the net NPA decreases.
It indicates positive sign for the banks future growth and expansion. It
goes without saying that the KUC bank is taking good care and

14
following ideal norms of granting advances, so that the recovery is
satisfactory leading to lower gross NPA. It is very encouraging that the
gross NPA ratio in the last three years is very much lower than the
average NPA.
GENERAL CAUSES OF NON PERFORMING ASSETS
A bank with 100% performing assets is quite impossible as NPAs are
sure to occur at one stage or another. The causes of such NPAs are
many which may be broadly classified into three, viz. internal factors,
external factors and internal and external factors together.
INTERNAL FACTORS
The internal factors leading to NPAs may work at either institutional
level or borrower's level or both.
A. Institutional level:
The Institution's philosophy, its policy, procedure and people
should be well coordinated. Very often aggressive lending policy and
absence of well designed procedures for sanctioning advances result in
high NPA levels. Before sanctioning loans gathering, processing and
analyzing information are at the heart of decision making, failing
which the bank's loan portfolio gets ruined. Appraisal deficiencies
have put many banks in difficult conditions. In addition, delays in
sanctioning loans and inappropriate repayment schedules worsen the
situation. At post sanction stage inappropriate disbursement and Lack of

15
adequate supervision / monitoring develop problems and losses. For
example, sound loans at the initial stage are not good for any Bank.

Other Causes:
Credit concentration deficiency causes NPAs as lack of information
regarding repaid or growing areas for financing hinder accuracy.
Secondly, credit process issues like sanctioning advances under
unsatisfactory terms, violating credit principles lead to destruction of the
bank. Over extension of credit to directors, large share holders and
lending under pressure from interested parties also cause trouble.
Technical in competence and lack of complacency also cause NPAs.
Inadequate supervision unfamiliar borrowers and dependence on oral
information instead of reliable complete financial data, optimistic
interpretation of credit weakness are dangerous.
Poor selection of risks involving highly leveraged loans to establish
business situation were bank financed share of required capitals is large
related to the equity investment of owners, may also cause unpleasant
situation. Lack of assessment of the credit worthiness of borrowers is
get another reason for high NPAs. Loans based on expectations of
successful completions of business rather than borrowers"
creditworthiness are always at risk. Loans made because of benefits
such as large balance in deposits in a bank rather than on sound security

16
or collateral are also not advisable. Loans against problematic
collaterals might also cause NPAs. Liquidation of such collaterals and
loans against collaterals without adequate margin create hurdles for a
bank.
B. Borrowers' Level;
Project related problems, managerial aspects like failure in marketing,
inefficient management; labor problems and product obsolescence cause
NPAs. Also, financial indiscipline like diversion of funds for different
purposes is another cause of this situation.
EXTERNAL FACTORS
The external factors are those factors that lead advances into NPA
beyond the control of borrowers or institution i.e. banks. Such factors
are natural calamities, state of economy, recession or competition, trade
policy, technological , advances, regulatory advances , environmental
pollution control requirements, lack of adequate support from the legal
system , loan waivers etc. These factors are not exhaustive but
inclusive. The factors that affect the NPAs would reflect in the policies
of the bank especially for lending, recovery management, monitoring and
effective supervision. If proper attention is not given to recovery
Management of NPAs, banks will lose their profitability and will not be
able to satisfy its creditors and share holders. The internal and external
factors lending accounts to NPAs are enlisted below:
INTERNAL FACTORS:

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1. Improper appraisal of the credit proposal / credit requirements.
2. Lack of Supervision and follow up.
3. Vested interest
4. Improper treatment to borrowers (attitude as well as system
constraints).

EXTERNAL FACTORS
1. Recession in economy / industry not visualized earlier.
2. Failure of the product or service to take off.
3. Internal conflict among the promoters.
4. Mismanagement of the unit.
5. Willful default.

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 Beneficial Scheme:-
• Fixed Deposits-:
Deposits accepted for fixed deposits. i.e for a minimum period of 15
days and above at higher rates of interest than to other banks.
 Recurring Deposits-:
Small saving accumulate in a big way. For monthly installments Rs
10/- and its multiples for a period of one year and above. An attractive
scheme for service holder and businessmen.
 Pragati Reinvestment Scheme-:

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 A long term plan multiples your money by reinvesting maximum
permissible interest governed by the R.B.I ideal investment for
children, students for future benefits.

Bhagyalaxmi Deposit Scheme-:

20
 The bank at your door step. The bank exclusively designed for the
benefit of businessmen, professionals and small savers. The authorized
agents of bank collect deposits from the prospective depositors daily.
Customers Accounts with the Banker
The relationship between the banker and his customer begins with
the opening of an account by the former in the name of the latter.
Initially all the accounts are opened with a deposit of money by the
customer and hence these accounts are called deposit accounts. The
bulk of resources of a bank are mobilized by accepting deposits from
the public, which is one of the essential functions of the banker,
according to the definition of Banking Regulation Act, 1949.
The banker solicits deposits from the members of the public
belonging to different walks of life, engaged in numerous economic
activities and having different financial status. Therefore the banks are
introduced types of accounts with various facilities and privileges.
That mainly includes the fixed deposits, the current deposits, the
savings bank deposits and some other deposits. In recent year a few new
types of accounts have also introduced by banks such as recurring
deposits, students deposit accounts, multi-purpose deposit scheme,
super saving scheme, janata deposit scheme, re-investment plan, etc.
These types of deposits are included under the other types of deposits.
Types of deposits accounts are discussed
below:- (1)Fixed Deposit Accounts

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 In this category are included the deposits with the banks for a
fixed period which specified at the time of making the deposits. Such
deposits are, therefore called Fixed Deposits or Term Deposits. A
fixed deposit is repayable on the expiry of a spiced period of time,
chosen by the depositor at the time of deposit.
The rate of interest and other terms and conditions on which the
banks accepted fixed deposits were regulated by the Reserve bank of
India in exercise of the powers conferred upon it by sections 21 and
35A of the banking regulation Ac,1949. In1992 fixed deposits were
classified in to different categories with varying periods of maturity
starting from 46 days.
Since 1992 reserve bank of India commenced the policy of
gradual deregulation over deposit interest rates. Reserve Bank of India
permitted the banks to prescribes their own rates of interest on fixed
deposits of different maturities, but the
maximum rate of-interest was fi-xedi:w it. This ceiling rate was revi
Sedseveraitines.

In Oct.1997, the ceiling rate itself was also withdrawn and thus
the deposit interest rates were totally freed from Reserve Banks
Regulations. Banks are now free to fix their own rates of interest on

22
fixed deposits of different maturities. further, On Apr.29,1998,the
minimum period of maturity of term deposits was reduced from 30
days to 15 days. Hitherto a restriction was imposed on the banks that
they must offer same rate on the deposits of the same maturity
irrespective of the size such deposits. This restriction has also been
removed since April 29, 1998. Banks are now
The max rate of interest paid by the Kendrapara Urban Co-
operative Bank is
8.75% whose maturity period is more than 5year less than 1 Oyear and
rate of interest is 4.00% whose maturity period is 15 days to 45 days.
The fixed deposits of the Kendrapara Urban Co-operative Bank of last
years, from 2010-2011 to 2014-2015.
Fixed Deposits of Last Five Years (Table No.-1)

23
 Figure No-1 ( Source- KUCB's Annual Report)
The fixed deposits in 2010-2011 is 855.31 which is decreases in
2011-2012 and also in 2012-2013.After that the fixed deposit increases

24
with a increasing rate, which is a positive sign for the banks growth in
future.

(2)Current Deposits:- A current account is a running and active

account which may be operated upon any number of times during the
working days. There is no restriction on the number and the amount of
withdrawals from a current account. As the banker under an obligation
to repay these deposits on demand, they are called demand liabilities of
a banker. To meet such liabilities the banker keeps sufficient cash
reserves against such deposits vis-à-vis the saving and fixed deposits.
Current accounts suit the requirement of big businessman, joint stock
companies, institutions, public authorities and public corporations etc.,
whose banking tractions happen to be numerous on every working day.
Special character of the current account is as follows,
 A current account is meant for the convenience of his customers.
 The banks not to pay any interest on the credit balance in the
current account.
 In case of un-remunerative accounts involving lot of work but
without the maintenance of sufficient balance, the banker charges
incidental expenses from the customer.

25
  A current account carries certain privileges which are not given to a
savings account holder.
The current deposit amounts of the Kendrapara Urban Co-operative
Bank of last 5-years are shown below.
Current Deposits of Last Five Years (Table No.-2)

26
27
Figure No-2 ( Source- KUCB's Annual Report)
The current deposits increases at a increasing rate from 2010-2011 to
2013-2014, after that there are small decreases in 2014-2015, because of
there is more increases in the fixed deposits in that year. The current
deposit is more in 2013-2014 and less in 20102011.
(3)Savings Bank Account
A savings bank account is meant for the people of the lower and
middle classes who wish to save a part of their current income to meet
their future needs and also intend to earn an income from the savings.
The banks therefore impose certain restrictions on the savings bank
account and also offer a reasonable rate of interest. The need of
keeping cash reserves against such deposits is comparatively larger and
vice-versa the fixed deposits but smaller as against the current deposits,

28
because of the restrictions on the no of withdraws. With the extension of
banking facilities during the last decade and the growth of banking
habit amongst the people, the saving deposits of all scheduled
commercial banks have gone up substantially.
There are certain restrictions on the savings account, such as
 Restrictions on withdraws regarding the number and amount of
withdraws within a specified period of time. The number of
withdraws over a period of six month is limited to 50 times. A
depositor cannot withdraws a amount of Rs smaller than Rs 1, or
any sum which is not a multiple of RS 1.The amount of cheque is
Rs 5.
 Bank restricts on minimum balance should to be maintained in
the account.
 The rate of interest payable by the banks on deposits maintained in
savings account is prescribed by the Reserve Bank of India.

The savings amount of the Kendrapara Urban Co-operative Bank of last

five years, from 2010-2011 to 2014-2015.
Saving Bank Deposits of Last Five Years (Table No.-3)

YEARS AMOUNTS(Rs in Lakhs)

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 2010-2011 1095.08
2011-2012 1230.37
2012-2013 1400.21
2013-2014 1646.31
2014-2015 1674.33

The savings account of the bank increases with a increasing rate from
the year 20102011 to 2014-2015, which implies the sound growth of the
bank. It shows the growth of the with a smoothen way.
(4)Other Deposits
A variant of savings bank account is the re recurring deposits or
cumulative deposit accounts introduced by banks in recent years. This
account is intended to inculcate the habit of saving in a regular basis as
an inducement is offered in the form of comparatively higher rate of
interest.

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 The other deposits mainly includes recurring deposits , students
deposit account , multipurpose deposit scheme, reinvestment plan,
pigmy deposit scheme etc., The rate of interest on this type of accounts
is comparatively same as with the savings account which is in
accordance with the Reserve Bank of India.
In case a depositor is compelled to close the accounts before its
maturity, the pays no interest if the deposits made for a period of less
than 3 month, interest at 1.5% is payable for deposits made up to 6
months, 4% on deposits made up to 12 months.
The recurring deposit account can be opened by any person, more
than one person jointly or severally, by minor in the name of guardian.
While opening an account the depositor is given a pass book which is
to be presented to the bank at the time of monthly deposits and
repayment of the amounts.

31
The other deposits of the Kendrapara Urban Co-operative Bank for
last five years from 2010-2011 to2014-2015 are shown below in
table with the graphical representation.

Other Bank Deposits of Last Five Years (Table No.-4)

YEARS AMOUNTS(Rs in lacs)
2010-2011 1310.08
2011-2012 1697.70
2012-2013 1896.86
2013-2014 2287.03
2014-2015 25.69

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The other deposits of the bank increases with a increasing rate from
2010-201 Ito 2013-2014 but due to there are more increases in the fixed
deposits, the other deposits affected heavily in the year 2014-2015.
TOTAL DEPOSITS
The total deposits of the Kendrapara Urban Co-operative bank is the
sum total of the fixed deposits, current deposit account, savings account
of the bank and the other deposits.
The total deposits for the last five year of the Kendrapara Urban Co-
operative Bank are shown below in both tabular and graphical form.

Total Deposits of Last Five Years (Table No.-5)

YEARS FIXE CURRENT SAVI OTH TOTAL

D DEPOSITS NGS ER DEPOSITS
33
DEPO DEPO DEPO
SITS SITS SITS
 2010-2011 855.31 57.09 1095.08 1310.08 3317.56
2011-2012 843.32 75.45 1230.37 1697.70 3846.84
2012-2013 839.05 125.48 1400.21 1896.86 4216.60

2013-2014 919.71 185.89 1646.31 2287.03 5038.94

2014-2015 4067.87 180.75 1674.33 25.09 5948.64

TOTAL DEPOSITS:-
In the year 2010-2011 the other deposits of the bank is most significant
part of the total deposits, in this year the savings bank deposit also
contribute the more to the bank. Where the current deposit is very low
in accordance with the others. Fixed deposits contribute a moderate
amount to the bank. In the year 2011-2012 there are the other deposits of
the bank increase. In the year 2011-2012 there are the other deposits of
the bank increases and also take significant part of the total deposits.
The deposits of the bank in this year are goes downward but the savings
deposit and current deposits of the bank with a increasing rate. The
current deposit of the bank in 2012-2013 is increases with a faster rate,
where the other deposit is more than the others. The savings deposit of
the bank is increases but the fixed deposit of the bank is moves
downward, which is somehow affects the growth of the bank.

34
FIXED CURRENT CURRENT SAVINGS OTHER
DEPOSITS DEPOSITS DEPOSITS DEPOSITS DEPOSITS

35
Figure No-5 (Source- KUCB's Annual Report)
In 2013-2014 the all types of deposits of the bank are increases. The
year 20142015 is the year of the fixed depositors, in this year the fixed
deposits of the bank is increases with a very faster rate than the
previous year, which affects the current deposits and the other
deposits, the current deposits of the bank falls with small amount but
the other deposit of bank affected heavily. After the entire total
deposits of the bank moves forward smoothly with an increasing rate.
From this we conclude that it is positive sign for bright future of the
bank.

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