A

SUMMER INTERNSHIP PROJECT REPORT

ON
“Management of Non Performing Assets”

“At PCC Bank”

Submitted to
ATMIYA Institute of Technology & Science

IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF

THE AWARD FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

Under
Gujarat Technological University
UNDER THE GUIDANCE OF

( Prof.Amit Raninga) (R.V.Trivedi)

(Assit. Professor) (Executive Officer)

Submitted by
(Dave Dehuti K.)
EnrollmentNo.1770030592027
M.B.A – SEMESTER III

ATMIYA Institute of Technology & Science

M.B.A PROGRAMME
Affiliated to Gujarat Technological University, Ahmedabad
July 2018
COMPANY INTERNSHIP CERTIFICATE

I
COLLEGE CERTIFICATE

II
PLAGIARISM CERTIFICATE

III
 PREFACE

Now a days, all industries demand for people who are able to manage and
develop the course providing knowledge about management. M.B.A is one the courses
providing knowledge about management. M.B.A covers theoretical as well as practical
aspect.
As a part of SUMMER INTERNSHIP PROJECT of M.B.A prescribed by
GUJARAT TECHNOLOGICAL UNIVERSITY, Student has to undergone for the industrial
training in any reputed organization. I have preferred PCC BANK for the same. This practical
training helped me a lot to expand my boundaries of thinking about the implication of
theoretical knowledge in this practical field. This report covers various departments.
I have prepared the report based on what I saw, felt and experienced during the
training in the best possible manner.

IV
 ACKNOWLEDGMENT

I am thanking full to all those people who have give me their support, guidance,
encouragement and co-operation to prepare this report.
I am thank full to PCC Bank for giving me an opportunity to make study of
practical training in their firm. I also convey my thanks to all the officers.
I am also thank full to our principle sir DR. HARIS BAPAT and PROF. AMIT
RANINGA who guided me thought my training report.

Yours faithfully,
Dave Dehuti K.

V
 DECLARATION

I am DAVE DEHUTI K., hereby declare that the report for “summer internship
project report” entitle “MANAGEMENT OF NON PERFORMING ASSETS” is a result of
my own work and my indebtedness to other work publications, references, if any, have been
duly acknowledge.

Place: Rajkot dave dehuti k.

Date: 22/7/2018 (DAVE DEHUTI K.)

VI
 Executive Summary

The report presented here in the following pages, represents the working of PCC bank
and especially research is done on the Non performing Assets Management of the bank..
The report is divided in to two parts. First part is related with introduction to the banking
sector and introduction to the bank. Full information about the bank is given is first part. The
second part is dealing with specialization objective. My specialization topic in the research
report is “Non Performing Assets management.
Summary about different ratio for NPA in PCC bank i.e. In bank Gross NPA ratio
indicate good credit portfolio ratio it means money will recover in less time and Net NPA is
moderate in PCC bank from last three years and Risk of liquidity is also low and Depository
safety increased day by day. Compromise in assets is lalso less in PCC bank.
PCC bank Loss their assets in very low criteria and substandard assets are improve day to
day and shareholder ratio is also high it indicates Positive sign for bank for attraction for their
bank holders. And in PCC bank Provision is also high for meet future challenges and
uncertainties.
So we can say that in PCC bank NPA ratio is very low and Bank is easily handle their
NPA holders. Maintain the Profitability of bank and assets of the bank.

VII
 TABLE OF CONTENTS

Sr.No. Particulars Page No.

Preface I
Acknowledgment II
Declaration III
Executive summary VI

1.0 Part-I Industry Information 1

1.1 About The Industry 2
1.2 World Market 4
1.3 Indian Market 5
1.4 The Growth of the industry 6

2.0 Part-II Organization Information 8

2.1 About Organization 9
2.2 Introduction to functional Department
2.2.1 Marketing Department 12
2.2.2 HR Department 13
2.2.3 Services Department 15
2.2.4 Finance Department 17
2.3 Organization Structure 20
2.4 SWOT Analysis 21

3.0 Part-III Primary Study 23

3.1 Introduction to the Study 24
3.2 Literature Review 25
3.3 Background of the study 28
3.4 Problem statement 32
3.5 Research Objective 33

4.0 Research Methodology

4.1 Research Design 34
4.2 Sources of Data 35
4.3 Data Collection Method 36
4.4 Data analysis and Interpretation 37

5.0 Findings 47
5.1 Conclusion 48

VIII
5.2 Limitation of the Study 49

6.0 References/Bibliography ( APA Style) 50

Annexure 51

IX
 Part – I
Industry
Information

1
 1.1 About the industry
Banking in India, in the modern sense, originated in the last decades of the 18th century.
Among the first banks were the Bank of Hindustan, Which was established in 1770 and
liquidated in 1829-32 and the General Bank in India, established in 1786 but tailed in 1791.
The largest bank and the oldest still in existence, is the State Bank of India. It originated
as the bank of Calcutta in June 1806. In 1809, it was renamed as a bank of Bengal. This was
one of the three funded by a presidency government, the other two were the bank of Bombay
in 1840 and the bank of Madras in 1843.the three banks were merged in 1921 to form the
imperial bank of India, which upon India’s independence, became the State Bank of India in
1955. For many years the presidency banks had acted as a quasi central bank, as did their
successor, until the Reserve Bank of India was established in 1935 under the reserve bank of
India act, 1934
In 1960, the State Bank of India was given a control of eight state associated banks
under the State Bank of India act, 1959.These are now called its associate banks. In 1969 the
Indian government nationalized 14 major private banks; one of the big banks was Bank of
India. In 1980, six more private banks were nationalized. These nationalized banks are
majority of lenders on the Indian economy. They dominant the banking sector because of
their large size and wide spread networks.
The Indian banking sector is the broadly classified into scheduled and non-scheduled
banks. The scheduled banks are those included under the second scheduled of the Reserve
Bank of India act 1934. The scheduled banks are further classified into: Nationalized banks;
State Bank of India and its associates; Regional Rural Bank; Foreign banks; and other Indian
private sector banks. The term commercial banks refer to both scheduled and non scheduled
commercial bank regulated under the Banking Regulation Act, 1949.
Generally banking in India is fairly mature in terms of supply, Product range and
reach-even though reach in rural India and to the poor still remains a challenge. The
government has developed initiatives to address this through the State Bank of India
expanding its branch network and through the- Bank for Agriculture and Rural development
with facilities like Micro finance.

2
The Indian banking system consist of,
➢ 27 Public sector Banks
➢ 26 Private sector Banks
➢ 46 Foreign Banks
➢ 56 Regional Rural Bank
➢ 1574 Urban co-operative Bank
➢ 93913Rural co-operative Bank

3
 1.2 World Market

An various crises debt crises, Interest crises. There are several king of challenges faces
by baking. But total assets are predetermine to climb to an estimate US $ 163,058 billion in
2017 with a CAGR of 8% over next five year.
The banking industry is highly fragmented and includes segments such as retail banking,
corporate banking and co-operative banking. In between 2007-2011 the banking sector
growth is very high and that’s why per capita income is also increase in Europe and other
asian countries and also investment is increase. The population in Indian and china offers
opportunity for banking company. The North American banking sectors are grow faster and
reach at their goal and near term.
Lucintel’s Research suggest that combination of margin pressure, sluggish growth in new
assets and decrease in income. There are More than 300 co-operative banking sector in world.
They provide Agricultural loan they are provide middle class people loan with very Low
interest rate. In today’s era Commercial as well as co-operative banks are provide the online
banking services it is easy for people to understand the banking cycle. The global banking
industry is divided into 12segments in world.
There is very huge banking sectors in World market and this all big banks are financial
related with each other.

4
 1.3 Indian Market
The concept of co-operation owes its origin to the history of mankind which is an
instinct to work in a group helping each other in the times difficulties. This principle has
given rise to the groups of individuals working for a common goal, laying down principle
voluntarily agreeing to poor their resources for mutual benefit. Such a group managed by the
members themselves is modern day cooperative society.
These Banks have a regulatory control of State Government through register of co-
operative and Reserve Bank of India. The ROC regulates the ownership management affairs
while as the RBI supervises the regulation with regard to banking operation.
Right from 1947 the Govt. of India has been guided by recommendation of various
expert committees to bring in reforms in cooperative banking sector owing to high rate of
failures in the segment. The first of such committee formed was saraiya committee (1948)
and main discussion of these for development of rural and urban independent India.
Following recommendations the working of these banks the Government acting through
regulator often tightened noose by laying stringent norms on various occasions. In the recent
report published by RBI a continuing concern has been expressed on working of cooperative
by RBI a continuing concern has been expressed on working cooperative institutions. The
report speaks them of being often plagued by financial health conditions. It also reports that
following consolidation by UCB’s the size of their balance sheet has increased while their
number has reduced to 1574 as on 2014-15-16 from 1579 as on 2015-16-17.RBI launched
recently some steps which included issuing of licensed to unlicensed banks and financial
assistance programmed in 2015-16 to help the UCB’s intending to shift over to centralized
banking solutions. Again the reports by RBI declare that number of rural cooperative
institutions has come down from 94718 in 2013-14 to 93913 in 2014-15-16.
The urban scenario is that most of UCB’s are community controlled having poor
management and lack of supervisory controls. Madhavpura central cooperative Bank of
Gujarat secondly the rural phenomenon is that human capital by up gradation of skills along
with close monitoring. UCB’s and RACB’s along with PACC’s needs to be upgraded and
Government at State and Central level have to earmark funding for the purpose. The budget
2018-19 of J&K has laid down the way which needs to be followed by other state
Government to revitalize the cooperative banking.

5
 1.4 The Growth of the Industry

A cooperative bank is as institution which is owned by its members. They are the
culmination of efforts of people of same professional or other community which have
common and shared interest, problems and aspiration. They cater to services like loans,
banking, deposits, etc... Like commercial banks widely differ in their values and governance
structures. They are usually democratically elected with each member entitled to one vote
each. In India, they are supervised and controlled by the official banking authorities and thus
have to abide by the banking regulations prevalent in the country. The basic rules, regulations
and values may differ amongst nations but they have certain common feature:

❖ Customers owned
❖ Democratic structures
❖ Profits are mainly pooled to form reserve while some amount is distributed to
members
❖ Involved in community development
❖ Foster financial inclusion by bringing banking to the doorstep of the lowest segment
of society

These banks are small financial institutions which are governed by regulations like
banking regulations act,1949 and Banking laws cooperative societies act,1965. They
operate both urban and rural areas under different structural organizations. Their
functions are decided by the level at which they operate and the type of people they cater
to. They greatly differ from the commercial banking entities.
❖ These are established under specific acts of cooperative societies operating in
different state mainstream commercial banks which are mainly joint stock
companies.
❖ They have a tiered network with a bank at each level of state, district and rural.
The state level bank forms the apex authority.
❖ Not all sections of banking regulations act are applicable to cooperative banks.
❖ The ultimate motive is community participation, benefit and growth as against
profit maximization for commercial banks.

6
Urban cooperative Banks:
❖ Net profit of UCB’s increased to Rs. 3900 cr in 2015-16-17
❖ The capital of UCB’s increased to Rs. 12200 crore in 2015-16-17.
❖ While reserves went up to Rs. 33500 crore during the period, deposits increased
to 4.43 lakh crore.

Rural cooperative Banks:

❖ 33 state cooperative, 28 recorded a profit of Rs. 700crore at the end of March
2015-16, five recorded a loss of Rs. 100crore.
❖ The Loans and advances of these cooperatives stood at Rs. 1.22 lakh crore, and
NPA’s at Rs. 5600 crore during the year.

7
 Part – II
Organization
Information

8
 2.1 About of Organization

❖ Profile of the organization

NAME Porbandar Commercial Co-

operative Bank Ltd.

ADDRESS Kasturba Gandhi Road, opp.

Municipality Building,
Porbandar-360575

PHONE NO. 0286-2245896

YEAR OF ESTABLISHMENT 1971

TYPE OF BANK Co-operative Bank

EMAIL bankpcc@gmail.com

NO. OF EMPLOYEES 15

RBI GRADATION “A”

AUDITIORS Diptiben Cholera

BRANCH MANAGER Mr.P.K.Ratanghariya

ADVISOR Divyeshbhai sodha

SLOGAN “Trust us, We Mean It, We

Fulfill It, We Have Value”

9
❖ Board of Directors

Name Designation

Anilkumar G. Karia Chairman

Rajeshkumar N. Buddhdev M. Director

Dhirajlal K. Dattani Director

Nareshbhai P. Makhecha Director

Subhasbhai C. Thakrar Director

Harishbhai A. Rughani Director

Yogibhai V. Dattani Director

Vijaybhai L. Majithiya Director

Jatinbhai V. Hathi Director

Vijaybhai M. Bharaniya Director

Tribhovandas k. Karia Director

Jagrutiben R. Karia Director

Shitalben A. Dixit Director

Divyeshbhai P. Sodha Advisor

Kasyapbhai Purohit Advisor

10
 ❖ History of Porbandar Commercial Co-operative Bank

Porbandar commercial Co-operative bank is established on 25-11-1971 under the strong,

effective leadership of shri Kantilal Bhagvanji Tejavala With the intention to help trading
community specifically the small trades of Porbandar.
The bank got banking license no. UBD/GUJ 0030Pon 12th July 2007. The Bank has
completed has completed 47 years on 25th November 2016-17.
Bank is enjoying the NON SCHEDULED BANK status since 1971. The Bank has
awarded “A” class of audit by the government of Gujarat. Here are some of the features of
Porbandar commercial co-operative Bank which signifies its greatness and effectiveness in its
tremendous achievement.
❖ Most convenient Bank timing
❖ Audit Classification “A”
❖ Loans for different purpose

At present the PCC bank has achived a key position in the co-operative banking sector
of Porbandar district. It is a unit having advanced technologies and educated staff, as it is said
that “ in the emerging competitive business environment co-operative banks who adhere to
strict financial discipline only will survive “ on this basis at present PCC bank is becoming
more prestigious in the banking sector.

11
 2.2 Introduction to Functional Department

2.2.1 Marketing Department

❖ Introduction

Marketing is very important management function to plan, promote and

deliver products to customers. Marketing is the primary resources for the finance and
management.

“Marketing is the process of planning and executing the conception, Pricing,

Promotion, and Distribution of ideas, goods and services to create exchange that
satisfy individual and organizational objectives.”

Marketing management represents important functional areas of business

management efforts for the flow of goods and services from the products to the
consumers. It looks after the marketing system of the enterprise. It has to implement
marketing strategies, Programmers and campaigns.

❖ Promotion strategy of PCC Bank

There are various promotional strategies used by the PCC BANK to attract
and retain its customers. The mediums as we saw are.

 Print media : Festival hoardings

 Sales promotion : Gifts, Discounts, Commission, Incentives

12
 2.2.2 Human Resource Department

❖ Introduction

Human Resource Management is the process of acquiring, training, appraising and

compensating employees, and of attending to their labour relations health and safety and
fairness concerns.

Most experts agree that there are five basic functions of all managers perform:
planning, organizing, staffing, leading, and controlling.

❖ Provident Fund

As in much company provide these provident fund schemes. In

which company’s some percent amount from their earning and employee’s some percent
amount from their basic salary will be add and whatever amount left it will given after
he/she retire from the job.
In PCC Bank 12% from basic salary of employee & 12% from company
itself. It means they provide this provident fund at 12% ratio.

❖ Welfare Facility

PCC Bank is providing following welfare facilities to the people:

 30 days leaves per year (18PL + 12CL)

 Provident fund facility 12%
 Tea allowance.
 Festival bonus.

13
❖ Wages and Salary Administration

Salary refers to usually monthly rates paid to administrant & personnel

employees.

PCC BANK follows salary system as per government law salary regulation act
for its worker. Salary start from Rs. 5000 and goes on according to the skill of the
employees.

Total salary paid 29, 40,245 to their employees in whole year by PCC bank.

❖ Grievances Handling

In PCC, an employee having a grievance will have free access to his

superior to put up his grievance and take it over.

This is the most important step in setting employee’s grievance as the

superior better knows the problem of his subordinate. Thus, PCC has an effective
producer to the grievance of employees.

14
 2.2.3 Service Department

❖ Introduction

Servicing unit it becomes necessary to operate its service or production

department efficiently and accurately to achieve desired goals and also to complete in
the market. Because for them their product is their identity so they have to concentrate
on this department.

❖ Banking Services

In the banking sector, banks are in the business of dealing with cash providing
its security and accessibility transfer of funds and advancing funds to customer for
meeting their saving tomorrow. The products of banks are ‘services”.

Deposits’

• Fixed deposits’
• Saving deposits’
• Current deposits’

Loans
• Housing loan
• Education loan
• Overdraft
• Loan against property

Other services

• Transfer
• Lockers
• Cheaper Demand Draft
• RTGS/NEFT facility

15
❖ Clearing Process

In the bank clearing process is start with deposites of cheque. The

cheque is delivered to the bank where it is drawn. If the funds are available and the
banker is satisfied about the genuineness of the instruments the cheque is passed for
payment.

When the cheque which are unpaid are returned to the presenting bank
through another clearing is called the return clearing. The realization of the funds
occurs after the completion of return clearing and by the absence of an unpaid cheque.

Generally ECC software i.e. EXPRESS CHEQUE CLEARINGS

SYSTEM is used by all banks clearing process. BIT BANKER software is used by
PCC bank for its all transaction.

Clearing system of PCC BANK

• The place where all banks are meet together is known as clearing house. In
Porbandar State Bank of India is head of claring house.

• If any mistake is found in the cheque then that cheque will return. The bank
will charge some amount.

• This charge is different from one bank to another bank also it maybe depend
on amount up to how much it is.

• Rs. 57 is charged on one cheque by this bank.

• The claering transaction is done by this bank on 25th every month with HDFC
Bank only.

16
 2.2.4 Finance Department

❖ Introduction

Finance is a life blood of any organization. It is very clear that human body
without blood can’t live. Like as any enterprise of industrial unit can’t without
finance. So, that any unit financial management is the most require tools. The
financial department provides accounting, budgeting,billing, collection services.

Finance management is that activity which is concerned with planning and

controlling of the firm’s financial resources. Success of every business largely
depends upon the financial policies and management finance is a universal lubricant
which helps running business activities. No matter business is small or big.
Government or non-government, finance management is equally important for profit,
as well as non-profit organization.

Financial management means raising the adequate funds at minimum cost &
using if effectively in business. Financial management is related with the arrangement
of cash & credit & it is concerned with planning & controlling of the firm’s financial
resources.

Finance consists of Raising Providing Managing of all the money capital or any
kind fund of to be based in connection with the business.

❖ Capital Structure

Capital structure is the important aspects of the financial management. It decide

the proportion of funds to be raised by ownership capital and borrowing capital take
into account the cost of capital and its depend on income & stability of the company
taking decision regarding the issues of various types of securities is called devising of
capital structure of company.

There are mainly 4 patterns of capital structure.

Capital structure with only equity share capital.

Capital structure with equity share capital & reference share capital.
Capital structure with equity and Debenture.
Capital structure with equity shares, Preference share and Debenture.

Capital structure of PCC Bank is their own capital. There is noequity shares or

17
Debenture or other borrowing fund in the Bank.

❖ Working Capital Management

Working capital refers to the money required for the day by day operation of
the organization. No business runs without the provision of adequate working capital.
There are 2 ways too use the concept of working capital i.e. Gross working capital &
Net working capital. In short current Asset means the assets Which can easily be
transferred into cash within the year.

(A) Gross Working Capital

Gross Working Capital refers to the firm’s investment in the total current
assets.

(B) Net Working Capital

It refers to the excess of current assets over company’s current liabilities.

In other words, Working capital management is concerned with the problem that
arises in attempting to manage the current assets, the current assets liabilities and
the inter relationships that exists between them.

Net Working Capital= Total current assets-Total current liabilities

In PCC Bank working capital is more than 40 lakh.

❖ Credit Management

Credit creation implies a situation when the bank may received interest
simply by permitting customers to overdraw their accounts or by purchasing securities
any paying for them its own cheque or bank may pay amount to borrower or directly
to seller of goods whom against borrower get amount.

• Meaning:

Credit management means the total process of lending start from

inquiry potential borrower to recover the lending amount from borrower.
Credit management in sense of banking sector is the set of activities like accept
application, Loan appraisal, Shakh posting, monitoring, recovery, NPA
management, et

18
• Credit policy:

Particulars Current Year

Cash Credit 13%

Overdraft Loan 15%

Gold Loan 11%

Term Loan 13%

Project Loan 13%

Housing Loan 11%

Personal Loan 13%

19
 2.3 Organization Structure

Share Holders

Board Of Director

Chairman

Managing Director

Manager

Officer

Clerks

PCC bank follows the Line Structure for the organization.

20
 2.4 SWOT Analysis

❖ Meaning

SWOT analysis is a framework used to evaluate a company’s competitive

position by identifying its strength, weakness, opportunities nad threats. Specially ,
SWOT analysis is foundation assessment model that measure organization can not do,
and its potential opportunities and threats.

• Strength

Strength is a strong brand, loyal customer base, a strong balance sheet.

Strength like connecting people, diversified services, sources of employment & GDP
growth.
For PCC bank strength is their customers, their services and their Strong
balance sheet.

• Weakness

Weakness stops an organization from performing at its optimum level. They are
areas where the business needs to improve to remain competitive: high level of debt,
lack of capital.

For PCC bank Weakness is they have not provided online banking services.
This is very big weakness for the bank. Because at this time online banking is
important for people.

21
 Strength Weakness

Opportunity Threats

• Opportunity

The opportunity section in a bank’s SWOT analysis should list the areas where
the bank has room for growth or could take advantage of opportunity in marketplace.
These areas ripe for development should be external components reflective of the
current business environment. Opportunity like growing economy, new investment,
less competitors.

For PCC bank opportunity like expansion of banking branches vise because
their customer relationship is very high in both area rural as well as urban area. They
easily expand their banking services in all Porbandar areas.

• Threats

The threats components in the bank’s SWOT analysis should list the areas
where the bank has the potential to decline or be harmed by the other factor in the
marketplace. This factor should also be external components reflective of current
business environment. Thetas like declining economy, increased capital gains taxes.

For PCC bank threats like more competitors of private sector banking in
Porbandar.

22
 Part – III
Primary Study

23
 3.1 Introduction to NPA

❖ Introduction

NPA reflect the performance of banks. A high level of NPA suggests high
profitability of a large number of credit defaults that affects the profitability and net worth of
banks and also erodes the value of the assets. The NPA growth involves the necessity of
provisions, which reduces the overall profits and shareholder’s value. The issue of non-
performing assets has been discussed at length for financial system all over the world. The
problem of NPA’s is not only affecting the banks but also the whole economy. In fact high
level of NPA in Indian banks is nothing but a reflection of the state of health of industry and
trade.
The Narasimhan Committee has recommended prudential norms on income
recognition, asset 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 problems
faced by banks were to a grate extent attributable to this. Classification of what NPA is has
changed with tightening of prudential norms. Currently an assets is “ NON-PERFOMING” if
interest or installments of principle due unpaid for more than 90 days.

❖ Definition

NON-PERFORMING ASSET means an assets or account of borrower, which

has been classified by a bank or financial institution as sub-standard, doubtful or
loss assets, In accordance with the direction or guidance relating to assets
classification issued by the Reserve Bank of India.

24
 3.2 Literature Review

Vighneswara Swamy (2013), “ Determinants of Bank assets quality and Profitability –

An empirical assessment” Study has established that private banks and foreign banks have
advantages in terms of their efficiencies in better credit management in containing the NPAs,
which indicates that bank privatization can lead to better management of default risk. These
findings infer that better credit risk management practices need to be taken up for bank
lending. Adequate attention should be paid to those banks with low operating efficiency and
low capitalizations also to macroeconomic cycles that appear to be playing some role in NPA
management. The state owned banks need to be toned up with adequate measures to sharpen
their NPA management practices. These findings assume crucial importance in view of the
significance. It is summarized that Private Banks (both Old and New) and Foreign Banks
appear to manage their NPAs efficiently.

Dr. A Ramachandran, D.Siva Shanmugam(2012), “ An empirical study on the financial

performance of Selected schedule Urban Co-operative Banks In India” Journal of
Asian research consortium.Volume 2. http://w.w.w. aijsh.org Analyzed that the urban
cooperative banks exhibited a greater emphasis on product diversification, customer
orientation thrust towards retail banking, adoption of IT for improved service, better MIS and
management and strategic mergers and acquisition across bank groups. The researcher
concluded that the future of urban cooperative banks is challenging because of the
competition from public sector banks and private sector banks. Public sector banks and
private sector banks are concentrating on their major expansion activities both vertically and
horizontally. The growth of urban cooperative banks depends on transparency in control and
operation, governance, customer-centric policies, technology-up gradation and efficiency.

Pacha Malyadri, S. Sirisha (2011), “a comparative Study of Non Performing assets in

Indian Banking Industry” International journal of Economic Practices and theories.
Vol.1. No.2. observed that the banking sector in India has responded very positively in the
field of enhancing the role of market forces regarding measures of prudential regulations of
accounting, in come recognition, provisioning and exposure, introduction of CAMELS
supervisory rating system and reduction of NPA’s and up gradation of technology. It is
suggested that government should formulate bank specific policies and should implement
these policies through Reserve Bank of India for up liftmen of Public Sector Banks. Public
sector banks should try to upgrade technology and should formulate customer friendly
policies to face competition at national and international level.

Mayilsamy,R and Revathi Bala,M (2009) in their work entitled “Management of Non
Performing Assets (NPAs)in District Central Co-operative Banks (DCCBs) in India”, felt that
the Narasimhamn Committee Report-1998, rightly pointed out that ‘NPAs constitute a real
economic cause to the nation in that they reflected the application of lacking capital and

25
credit finance to inefficient uses. They have concluded that high NPAs in the banks have
devastating efforts not only on the banks but also on the economy as a whole. They have
suggested that the formation of the good policy will be no use unless it is implemented in true
spirit.

Kulwant Pathania and Sabina Batra (2009), the NPA management in co-operative banks. It was
observed thatthe main factor responsible for NPAs was willful default i.e. able, but not willing
to pay followed by inadequacy of loans, ineffective management and supervision, utilization
of loans for unproductive purposes, political support, redemption ofpost debts, inadequate
infrastructure facilities and field staff for recoveries and poor socio economic conditions.
They have concluded that the poor recovery position of the banks concerned has adversely
affected the image of the bank among other banks and also in the public.

Jayalakshmi.G and Sumathy.M (2009),In their study on NPAs Management in Co-

operative Banks in India opined that a good management of NPAs requires pro-active actions
to be taken by banks at the time of taking decisions for granting advances by making proper
assessment of risk involved and strict adherence to the prudential norms. They concluded that
following prudential norms for NPAs management is compulsory for survival of co-operative
banks along with the confidence of the customer.

Mayilsamy,R (2007), Mayilsamy. R (2007) “Non-Performing Assets in short term co-

operative Credit structure – An overview”, Tamilnadu Journal of co-operation.
Vol.7,no.12.Oct, 2007,pp.62-66 FulNon-Performing Assets (NPAs) in short term co-
operative credit structure. He observed that the banks have to evolve recovery strategies and
plan for recovery management. He concluded that if they fail to improve the recovery, the
huge burden of NPAs is really breaking the backbone of the short term co-operative credit
structure in India.

Fulbag Singh and Balwinder Singh (2006), “Profitability of the central co-operative
Banks in Punjab- A Decomposition analysis”. Indian Co-operative Review, vol.44, No.I,
July, 2006,PP.41-55 examined the funds management in the Central Co-operative Banks in
Punjab. They observed that higher proportion of own funds in the working funds of the bank
and the concerned shown by the bank in the timely recovery of loans resulted in an increased
monetary boundary of the central co-operative banks in Punjab. They concluded that less
dependence on the new outside resources helped these banks in increasing their financial
margin.

Avinash V.Raikar (2006), “Co-operative Credit Institution in India: An overview”. Indian

CO-operative Review,Vol.44, No.1, July,2006 ,PP.1-20 Analyzed the issues, problems and
prospects of co-operative credit institutions (CCIs) in India. He has found that the major
problems of the CCIs are dual control, high overdue and low resource base. He concludes
that the future survival of these institutions would be determined by its ability to
technologically modernize themselves, innovation of new products and its reach among the
agrarian society.

26
Reddy, B. Rama Chandra and Reddy, S Vijayulu (2003), “ Banking sector Reforms in
Indian- A Review”, Internet Edition, Business Line, Nov 19,2003 View that the new
challenges faced by the banks are forcing to attempt all new things with the same old rigid
structure and system. What required is more managerial and administrative freedom to the
management with commensurate and result oriented accountabilities. They stressed that the
banks should move towards professional banking with requisite freedom to operate freely in
the market within the regulatory and prudential framework prescribed by the Reserve Bank of
India.

RBI study (1999), “Banking sector Reforms in Indian- A Review”, Internet Edition,
Business Line, Nov 19,2003 Stated that banks were required to closely monitor the
operations of the borrow units. In respect of accounts where the classification of asset
worsens, banks were required to take prompt steps to recover the dues and staff
accountability was required to be examined. Special emphasis was given on monitoring of
large NPA accounts, also on reduction of NPAs, through up-gradation, recovery, and
compromise settlements.

27
 3.3 Background of the NPA

❖ Meaning of NPA

A non performing assets is defined as a credit facility in respect of which the

interest and installment of principle has remained past due for specified period of time. In
simple terms, an assets is tagged as non performing when it ceases to generated income for
the lender.
Once the borrower has failed to make interest and principle payment for 90 days
the loan is consider to be a problematic for financial institutions since they depend on interest
payment for income.
With effects from march 31, 2004 a non performing assets(NPA) shell be a loan or an
advance where;
✓ Interest and installment of principle remain overdue for a period of more than 90 days
in respect of a term loan
✓ The account remains out of order for period of more than 90 days, in respect of an
overdraft/cash credit
✓ The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted.

❖ Categories Of NPA

✓ Standard Assets

Arrears of interest and the principle amount of loans does not exceeds 90 days at the
end of financial year.

✓ Substandard Assets

Which has remained NPA for a period less than or equal to 12 months.

✓ Doubtful Assets

This has remained in the sub-standard category for a period of more than 12 months.
o D1i.e. up to 1 year: 20% provision is made by the bank
o D2i.e. up to 2 year:30% provision is made by the bank
o D3i.e. up to 3 year: 100% provision is made by the bank

28
✓ Loss Assets

Where loss has been identified by the bank or internal or external auditors or external
auditors or the RBI inspection but the amount has not been written off wholly.

SR.NO. CATEGORIES PERIOD PROVI

SIONS

1 Standard assets 90 days 0.25%

1 Sub-Standard assets 1 year 10%

2 Doubtful one assets 1 year to 3 year 100%

3 Doubtful depth assets 3 year to 5 year 100%

4 Loss assets Up to 5 year 100%

29
❖ Impact of NPA

• Profitability

NPA means booking of money in terms of bad assets. This occurred due to wrong
choice of client. Because of the money getting blocked in NPA. NPA doesn’t affect
current profit but also future stream of profit, which may lead to loss of some long
term beneficial opportunity. Another impact in profitability is low ROI, which
adversely affect current earning of bank.

• Liquidity

Money is getting blocked, decreased profit lead to back of enough cash at hand
which lead to borrowing money for shortest period of time which lead to additional
cost to the company. Difficulty in operating the functions of bank is another cause of
NPA due to lack of money. Routine payments and dues.

• Involvement of management

Time and efforts of management is another indirect cost which bank has to bear due
to NPA. Time and efforts of management in handling and managing NPA would have
diverted to some fruitful activities, which would have given good return.

• Credit loss

Bank is facing problem of NPA then it adversely affect the value of bank in terms of
market credit. It will lose its goodwill and brand image and credit which have
negative impact to the people who are putting their money in the banks.

30
 ❖ Identification of NPA

• Term loan:

If the interest or installment of principal remains past due for a period of any
one quarters it becomes NPA.

• Cash credit and overdrafts:

If the account remains out of order for a period of any one quarter, it becomes
NPA. Out of order means, if the outstanding balance remains continuously in excess of the
sanctioned limit/drawing power. There is no credit continuously for six months or credit is
not enough to cover the interest debited during the same period.

• Bills purchase and discounting:

If the bills remains over due and unpaid for the period of one quarter during
the year it becomes NPA.

• Other credit facility:

If any amount to be received remains past due for a period of one quarter
during the year it becomes NPA.

• Long duration crops:

The installment of principal or interest remains overdue for 1 crop season.

• Securitization transaction:

The amount of liquidity facility outstanding for more than 90 days.

• Short duration crops:

The installment of principal or interest remains overdue for 2 crop seasons.

31
 3.3 Problem Statement

The important functions of banks is to maintain the quality of assets, Which requires
proper selection of borrower, appraisal of his/her project, adequate credit, close monitoring,
supervision and follow up. Non-performing assets is risk bearing assets. Banking sector will
always try to make power full strategy for accounts management.
Banking sector will always face the problem of NPA because of poor recovery of
advances granted by the bank and many other reasons for increase NPA because of poor
strategy of recovering of NPA by banking sector.NPA will be highly affect the balance sheet
and create the huge problem to the bank’s net profit.
Here, in this report we have study the significant difference in NPA by year to year in
the PCC bank. Increase NPA will decrease the image of the company and Decrease NPA will
create positive image of the company.

32
 3.4 Research Objective

• To study the concept and significant difference in NPA year to year in bank.
• To follow the guidelines issued by RBI about income recognition, assets
classification and provisioning norms in respect of both cooperative and
commercial banks.
• To review the strategies adopted by banks for arrest and control of NPA’s.
• To present and analyze the gross and net NPA in PCC during the study period.

33
 4.0 Research Methodology
4.1 Research Design

The researcher to utilized single approach that embraces feature of descriptive

research designs. Through research study on NPA in Indian banking sector are
available, the studies on a closer look validated NPA problem using secondary data
and also prefer ration analysis to manage the proper quality of assets. The research
methodology for this research design considered aspects to evaluate the assets quality
of the co-operative bank explained using the trend in movement of non-performing
assets by year to year. Here, I have utilized large number of data for measure the
efficiency.

34
 4.2 Sources of data

There are two types of sources data:

❖ Primary Data
The primary data are those data which are used in the first time in the
study. However such data take place much time and also expensive.

❖ Secondary Data

Secondary data are those data which are already available in the market.
For example, Books, journals, reports, magazines, newspaper, etc. As the data from
secondary sources help to decide what needs to be done.

So, far as my research is concerned, secondary data is the main source of

information. But somehow I have also used primary data in shape of taking for
information.

35
 4.3 Data Collection Method

Here in this project, we have used secondary data for data analysis and
interpretation. Secondary data provided by the organization. We have used internal
source for secondary data. Internal as well as external sources for data analysis.

PCC bank provide their annual report and many other information about
NPA and some other information will collected from other reports, periodicals and
books and different websites for information collection. And we have taking last three
years financial data for NPA ratios.

36
 4.4 Data Analysis & Interpretation

❖ Gross NPA Ratio

Gross NPA is sum of all the loan assets that are classified as NPA as per the
RBI guidelines as on the balance sheet data. Gross NPA ratio is the ratio of gross
NPA to gross advantages of the bank. When it is to be expressed in percentage, It is
known as gross NPA percentage.

= Gross NPA/Gross Advances*100

Year 2014-15 2015-16 2016-17

Ratio (in%) 3.46% 3.09% 2.95%

Gross NPA Ratio

3.5 3.46
3.4
3.3
3.2
3.09
3.1
Ratio

3 2.95
2.9
2.8
2.7
2.6
2014-15 2015-16 2016-17
Year

Interpretation:

Above the table and chart indicates the quality of credit portfolio of the
banks. High gross NPA ratio indicates low quality credit portfolio and low gross NPA
ratio indicates the high quality of credit portfolio. Here, in PCC bank gross NPA ratio
will be decreased from 2014-15-2015-16 and 2015-16-2016-17. So we can say that in
PCC bank credit portfolio is high

37
 ❖ Net NPA Ratio

The net NPA percentage is the ratio of NPA to net advances, whereas the net
NPA can be simply worked out as the gross NPA worked out as the gross NPA minus
provision held for NPA account, and net advances can be simply worked out as the gross
advances minus provision held for the NPA account.

=Net NPA/Net Advances*100

Year 2014-15 2015-16 2016-17

Ratio(in%) -9.83% -10.51% -9.29%

Net NPA Ratio

-8.6
-8.8 2014-15 2015-16 2016-17
-9
-9.2
-9.4 -9.29
-9.6
Ratio

-9.8
-10 -9.83
-10.2
-10.4
-10.6
-10.51
-10.8
Year

Interpretation:

Above table and charts indicates high quantity of risk in the portfolio of the
bank. High NPA ratio indicates high quantity of the risky assets in the bank for which
no provision was made. Above table Net NPA will moderate from last three year.
High Net NPA will become dangerous in long term solvency.

38
 ❖ Problem Asset Ratio

It is the ratio of gross NPA to total assets of the bank.

= Gross NPA/ Total assets*100

Year 2014-15 2015-16 2016-17

Ratio(In%) 9.11% 7.20% 6.53%

problem asset ratio

10 9.11
9
8 7.2
7 6.53
6
Ratio

5
4
3
2
1
0
2014-15 2015-16 2016-17
Year

Interpretation:

It has been direct bearing on return of assets as well as liquidity risk

management of the bank. High problem assets ratio means high liquid. Above table
shows that in PCC bank problem asset ratio is decrease by year to year. In 2016-17
Problem asset ratio is 6.53%.

39
❖ Depositors Safety Ratio

It is also known as standard assets to total outside liquidity ratio. Here

standard assets mean total standard assets means total standard loans assets and
investment. Outside liquidities are total liquidities minus capital and reserves.

= Total standard loan assets + investment/Total liabilities-Capital & reserves*100

Year 2014-15 2015-16 2016-17

Ratio (In %) 50.03 66.79 70.02

Depository Safety Ratio

80
70.02
70 66.79

60
50.03
50
Ratio

40
30
20
10
0
2014-15 2015-16 2016-17
Year

Interpretation:

It indicates the degree of safety of depositor’s money. The above table of

bank shows the ratio of depositor’s safety ratio is higher than last two years in PCC
bank. It should improve in order to win the confidence of depositors.

40
❖ Doubtful assets ratio

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

=Total doubtful assets/Gross NPA*100

Year 2014-15 2015-16 2016-17

Ratio (in%) 91.19% 93.73% 72.89%

Doubtful Assets Ratio

100 91.19 93.73
90
80 72.89
70
60
Ratio

50
40
30
20
10
0
2014-15 2015-16 2016-17
Year

Interpretation:

It indicates scope of compromise of up NPA’s reduction. Above table shows

the in PCC bank is considerably Increasing for the last one year. There is very high
change in Doubtful assets, which implies that it has to go for compromise as its
substandard assets consist very low portion in the total NPA’s.

41
❖ Loss Asset Ratio

As per RBI, “ Loss asset is considered uncollectible and of such little

value that its continuance as a bankable assets is not warranted, Although there may
be some salvage or recovery value.

= Total loss assets/Gross NPA*100

Year 2014-15 2015-16 2016-17

Ratio(in%) 2.76 2.9 2.56

Loss Assets Ratio

3
2.9
2.9
2.8 2.76

2.7
Ratio

2.6 2.56

2.5
2.4
2.3
2014-15 2015-16 2016-17
Year

Interpretation

Loss assets ratio shows the proportion of loss that the banks are likely to
suffer as compared to gross NPA. The ratio must be minimum, as it will indicates that
the assets to be lost would be lower as compared to gross NPA. In PCC bank Loss
assets ratio is minimum that’s why we can say that assets should lost lower at
minimum level.

42
 ❖ Sub-Standard Assets

It is ratio of total substandard assets to gross NPA of the Bank.

= Total Sub-standard assets/Gross NPA*100

Year 2014-15 2015-16 2016-17

Ratio (in %) 6.05% 3.35% 24.55%

Sub Standard Ratio

30
24.55
25

20
Ratio

15

10 Ratio
6.05
5 3.35

0
2014-15 2015-16 2016-17
Year

Interpretation
It indicates the scope of improvement in NPA. Above table of
different ratio of substandard shows that in PCC bank has increasing ratio which
means in all NPA’ substandard ratio has major proportion which indicates that there is
highest scope for advance up gradation on improvement because it will be very easy
to recover the loan as minimum duration of defaults.

43
 ❖ Shareholders Risk Ratio

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

=Net NPAs/Total Capital & reserves*100

Year 2014-15 2015-16 2016-17

Ratio (In %) 17.38% 18.22% 17.80%

Shareholder Risk ratio

18.4 18.22
18.2
18
17.8
17.8
Ratio

17.6
17.38
17.4
17.2
17
16.8
2014-15 2015-16 2016-17
Year

Interpretation
It indicates the degree of risk with the shareholders investment. High
ratio means high risk to the shareholders. Above table of PCC bank indicates that
shareholders risk ratio is moderate from last three years which may leads to divert
their funds to other bank which is lower risk. Bank should keep constant eye on this
ratio to maintain and attract the funds of shareholders.

44
❖ Provision Ratio

It is the ratio of total provision held in respect to gross NPA of the bank.

= Total provision/Gross NPAs*100

Year 2014-15 2015-16 2016-17

Ratio ( In %) 188.51 164.27 212.71

Provision Ratio
250
212.71
200 188.51
164.27
150
Ratio

100

50

0
2014-15 2015-16 2016-17
Year

Interpretation

It indicates the degree of safety measures adapted by the bank. It has

direct bearing on profitability, dividend and safety of shareholders fund. It the
provision ratio is less than 30%, it indicates that bank has made under provision. The
above table indicates the provision ratio of PCC bank which is increasing more than
200 % it is positive sign for PCC bank.

45
❖ Interest spread Ratio

This is the excess of total interest earned over the total interest expanded.

= Interest earned during year-Interest paid during year/standard asset*100

Year 2014-15 2015-16 2016-17

Ratio ( In %) 11.01% 10.55% 9.44%

Interest Spread Ratio

11.5
11.01
11
10.55
10.5
Ratio

10
9.44
9.5

8.5
2014-15 2015-16 2016-17
Year

Interpretation

This ratio indicates the efficiency of the bank in managing and marching
the interest expenditure and interest income effectively. Interest spread is critical to a
bank’s success as it exerts a strong on its bottom line. The above table shows that in
PCC bank we can see that from last three year its interest spread ratio decreasing
which indicates that bank earning assets is decreasing.

46
 5.0 Findings
1. From the gross NPA Ratio of the bank in 2014-15 is 3.46%.Which suddenly decrease
in 2015-16 i.e. 3.09% and in 2016-17 i.e. 2.95%. It is good for Bank. So, Credit
portfolio of PCC bank is good.

2. Net NPA ratio of the PCC bank is higher than 2014-15. In 2014-15 net NPA ratio is
9.83% and in 2015-16 ratio is 10.51%. But in 2016-17 net NPA ratio is decreased and
become new ratio is 9.29%. In PCC bank net NPA ratio is moderate from last three
years.

3. Depository’s safety ratio is more than last two years. In 2016-17 Depository safety
ratio is 70.02% It is improve from year to year. It is good for the PCC bank.

4. In the PCC bank shareholder risk is moderate in last three years there is no change in
risk of shareholder. Shareholder risk ratio in 2016-17 is 17.80%. It is moderate but
increasing. SO bank is divert their funds to other banks.

5. Provision ratio find that total provision divided gross NPA Of the bank. In 2014-15 is
188.51% and it is decreasing in 2015-16 and become a 164.27% and it also increase
in 2016-17 i.e. 212.71%. So we can say that firm keep higher safety compare than last
two years.

6. Substandard asset ratio find that total substandard assets upon gross NPA of the bank
in 2014-15 is 6.05% it also decrease in 2015-16 and become 3.35% and 2016-17
suddenly increase and become 24.55%. So we can say that for PCC bank gradation
and improvement as their ratio is very high.

7. Interest spread ratio indicates that for PCC bank i.e. ratio decrease it means earning
assets also decreasing. And loss assets ratio is moderate in PCC bank that’s why loss
of assets risk is also low.

8. Problem assets ratio in PCC bank decreasing from year to year that’s why we can say
that risk of liquidity is low. Doubtful assets ratio is indicate about compromise about
assets. In PCC bank in 2014-15-16 is doubtful ratio is decrease but in 2016-17 that is
increase and this is negative sign bank.

47
 5.1 Conclusion

A report is not said to be completed unless and until the conclusion is given to the
report. A conclusion reveals the explanation about what the report has covered and what is
essence of the study. What my project report covers is concluded below. The problem
statement on which I focused my study is “Impact of changes in NPA on PCC bank” The
only problem that the bank is facing today is the problem of nonperforming assets. The
nonperforming assets means those assets which are classified as bad assets which are not
possibly be returned back to the banks by the borrowers The NPA would destroy the current
profit, interest income due to large provision of NPAs, and would affect the smooth
functioning of recycling of the funds. The reduction of the NPAs would help the bank to
boost up their profits.

❖ PCC bank shows very much good ratios of NPA.

❖ NPAs represent moderate level of risk and low level of credit appraisal.
❖ There are certain guideline provide by RBI for NPAs which are adopted by banks.
❖ In PCC bank provision ratio is also high this good for bank.
❖ Depositor are increased in the PCC bank because bank high safety to their bank
holder.

48
 5.2 Limitation of the study

❖ My study is based upon secondary data, the practical operations as related to NPAs
are adopted by the bank are not learned.
❖ This research study based on secondary data collected form annual report of PCC
bank. The limitation of secondary data and its findings depend entirely on the
accuracy of data.
❖ The study is limited to three years only.
❖ PCC bank will data provide only for three years.

49
 5.3 Bibliography

❖ Secondary Data
From Website like
Shodhganga.com

❖ Annual reports of PCC bank

2014-15
2015-16
2016-17
❖ Literature Review

1. Vighneswara swamy (2013), “ Determinants of Bank assets quality and Profitability

– An empirical assessment”
2. Dr. A Ramachandran. D.Siva Shanmugam (2012), “ An empirical study on the
financial performance of Selected schedule Urban Co-operative Banks In India”
Journal of Asian research consortium.Volume 2. http://w.w.w. aijsh.org
3. Pacha Malyadri, S. sirisha (2011), “a comparative Study of Non Performing assets in
Indian Banking Industry” International journal of Economic Practices and theories.
Vol.1. No.2.
4. Mayilsamy. R (2007) “Non-Performing Assets in short term co-operative Credit
structure – An overview”, Tamilnadu Journal of co-operation. Vol.7,no.12.Oct,
2007,pp.62-66
5. Fulbag Singh and Balwindar Singh (2006), “ Profitability of the central co-operative
Banks in Punjab- A Decomposition analysis”. Indian Co-operative Review, vol.44,
No.I, July, 2006,PP.41-55
6. Avinash V. Raikar (2006), “Co-operative Credit Institution in India: An overview”.
Indian CO-operative Review,Vol.44, No.1, July,2006 ,PP.1-20
7. Reddy .B. Rama Chandran and Reddy. S. Vijayulu (2003), “ Banking sector Reforms
in Indian- A Review”, Internet Edition, Business Line, Nov 19,2003
8. RBI study (1999), “some aspects and issues relating to NPAs in commercial Banks.
Reverse Bank of India Bulleting 50.3 (July 1999):913-936

50
 Annexure
(Rs. In lakhs)
Particulars 2014-15 2015-16 2016-17

Gross NPA 44.99 42.63 48.43

Gross advances 1299.19 1381.03 1643.71

Net NPA -107.24 -127.25 135.64

Net advances 1141.96 1211.15 1459.64

Total assets 494.04 592.44 745.25

Total loans 1229.19 1381.03 1643.71

Investment 938.007 2135.56 3041.48

Total liabilities 4940.73 5963.41 7452.59

Capital and Reserve 616.92 698.39 762.19

Total doubtful assets 41.03 39.96 35.30

51
Total loss Assets 1.24 1.24 1.24

Total substandard 2.72 1.43 11.89

Assets

Total provision 84.81 70.02 103.021

Interest earned 398.79 486.43 540.49

Interest Paid 260.67 345.20 389.49

Standard Assets 1254.20 1338.40 1595.28

52