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SYNDICATE BANK
BY
DEEPTI DEVASIA
1
CONTENTS PAGE NO.
CERTIFICATE
ACKNOWLEDGEMENTS 1
EXECUTIVE SUMMARY 2
CHAPTER I: INTRODUCTION 4
2
CHAPTER III: COLLECTION AND ANALYSIS OF
INFORMATION 63
APPENDIX 115
BIBLIOGRAPHY 127
3
ACKNOWLEDGEMENT
“The written word is the greatest gift mankind could ever have”
- Tom Coblin
Deepti Devasia
4
EXECUTIVE SUMMARY
The project was conducted in Syndicate Bank, Main Branch and
Syndicate Bank Regional office both located at Trivandrum, Kerala State. The
Project is titled “Analysis of Non-Performing Assets”. and the same was
carried out from 12th May 2005 to 20th July 2005. The project is divided into
four major chapters
CHAPTER I: INTRODUCTION
This chapter covers the project in brief and the purpose and scope of
the study of Non-Performing Assets. The project constraints are also covered
in this chapter.
5
CHAPTER IV: PROJECT FINDINGS AND RECOMMENDATION
6
CHAPTER I: INTRODUCTION
7
1.1 INDUSTRY PROFILE
8
1.1: BANK INDUSTRY PROFILE
Banking as defined in section 5 (b) of the Banking Regulation Act, 1949 is the
business of “accepting deposits of money from the public for the purpose of lending or
investment “. These deposits are repayable on demand or otherwise and withdrawable by
a cheque, draft, and order or otherwise.
These deposits accepted by a banking company are different from those accepted
by Non Banking Finance Company (NBFC) or any other company in the nature in which
these are repayable. Banks are the only financial institutions, which can accept demand
deposits (saving/ current), which can be withdrawn by a cheque.
Section 6 of Banking Regulation Act 1949 elaborately specifies the other forms of
business which a banking company may carry in addition to banking as defined in section
5. These include:
Custodial services
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Investment services
Doing all such other things as are incidental or conducive to the promotion or
advancement of the business of the company
Any other form of business which the central government may, by notification in the
official gazette, specify as a form of business in which it is lawful for a banking
company to engage
No banking company shall engage in any form of business other than those referred to
above.
BANKING INDUSTRY
The unleashing of products and services through the net has galvanised players at
all levels of the banking and financial institutions market grid to look anew at their existing
portfolio offering. Conservative banking practices allowed Indian banks to be insulated
partially from the Asian currency crisis. Indian banks are now quoting higher valuation
when compared to banks in other Asian countries (Hong Kong, Singapore, Philippines
etc.) that have major problems linked to huge Non-Performing Assets (NPAs) and
payment defaults. Co-operative banks are nimble footed in approach and armed with
efficient branch networks focus primarily on the ‘high revenue’ niche retail segments.
The Indian Banking has finally woken up to the competitive dynamics of the ‘new’
Indian market and is addressing the relevant issues to take on the multifarious challenges
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of globalisation. Banks that employ IT solutions are perceived to be ‘futuristic’ and
proactive players capable of meeting the multifarious requirements of the large customer’s
base. Private Banks have been fast on the uptake and are reorienting their strategies
using the internet as a medium. The internet has emerged as the new and challenging
frontier of marketing with the conventional physical world tenets being just as applicable
like in any other marketing medium.
The Indian Banking has come a long way from being a sleepy business institution
to a highly proactive and dynamic entity. This transformation has been largely brought
about by the large dose of liberalisation and economic reforms that allowed banks to
explore new business opportunities rather than generating revenues from conventional
streams (i.e. borrowing and lending). Banking in India is highly fragmented with 30 banking
units contributing to almost 50% of deposits and 60% of advances. Indian Nationalised
Banks (banks owned by the Government) continues to be the major lenders in the
economy due to their sheer size and penetrative networks which assures them high
deposit mobilisation.
The Reserve Bank of India (RBI) acts as a centralised body monitoring any
discrepancies and shortcomings in the system. It is the foremost monitoring body in the
Indian financial sector. The nationalised banks continue to dominate the Indian banking
arena. Industry estimates indicate that out of 274 commercial banks operating in India,
223 banks are in the public sector and 51 are in the private sector. The private sector bank
grid also includes 24 foreign banks that have started their operations here. Under the
ambit of the nationalised banks come the specialised banking institutions. These co-
operatives and rural banks focus on areas of agriculture, rural development etc. Unlike
commercial banks these co-operative banks do not lend on the basis of a prime lending
rate. They also have various tax sops because of their holding pattern and structure and
hence have lower overheads. This enables them to give a marginally higher percentage
on savings deposit.
Many of these co-operative banks diversified into specialised areas (catering to the
vast retail audience) like car finance, housing loans, truck finance etc. In order to keep
pace with their public sector and private counterparts, the co-operative banks too have
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invested heavily in information technology to offer high-end computerised banking services
to its clients.
India’s banking system has several outstanding achievements to its credit, the most
striking of which is its reach. An extensive banking network has been established in the
last thirty years, and India’s banking system is no longer confined to metropolitan cities
and large towns. In fact, Indian banks are now spread out in to the remote corners of our
country. In terms of the number of branches, India’s banking system is one of the largest,
if not the largest in the world today. An even more significant achievement is the close
association of India’s banking system with India’s development efforts. The diversification
and development of our economy, and the acceleration of the growth process, are in no
small measure due to the active role that banks have played in financing economic
activities in different sectors.
New phase of Indian banking with the advent of financial and banking sector
reforms after 1991
The first phase is from 1786 to 1969, the early phase up to the nationalisation of
the 14 largest Indian banks. It was also the traditional or conservative phase of Indian
banking. The advent of banking system of India started with the establishment of the first
joint stock bank, The General Bank of India in the year 1786. After this first bank, Bank of
Hindustan and Bengal Bank came into existence.
During the mid 19th century, East India Company established three banks:
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The Bank of Bombay in 1840
These banks were independent units and were called as the ‘Presidency Banks’.
These three banks were amalgamated in 1920 and a new bank, Imperial Bank of India
was established. All these institutions started as private shareholders banks and the
shareholders were mostly Europeans. The Allahabad Bank was established in 1865.
The next bank to be set up was The Punjab National Bank Ltd. which was
established with its headquarters at Lahore in 1894 for the first time exclusively by Indians.
Most of the Indian commercial banks, however owe their origin to the 20th century. Bank of
India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of
Mysore were established between 1906 and 1913. The last major commercial bank to be
set up in this phase was The United Commercial Bank of India in 1943. Earlier, the
establishment of Reserve Bank of India in 1935 as the Central Bank of the country was an
important step in the development of commercial banking in India.
The history of joint stock banking in this first phase was characterised by slow
growth and periodic failures. There were as many as 1100 banks, mostly small banks,
which failed during the period from 1913 to 1948. The Government of India concerned by
the frequent bank failures in the country causing loss to innumerable small depositors and
others enacted The Banking Companies Act, 1949. The title of the Act was changed to
‘Banking Regulations Act 1949’, as per amending Act of 1965 (Act no.23 of 1965).
The Act was the first regulatory step undertaken by the Government to stream line
the functioning and activities of commercial banks in India. Reserve Bank of India as the
central banking authority of the country was vested with extensive powers for banking
supervision. At the time of Independence of the country in 1947, the banking sector in
India was relatively small and extremely weak. The banks were largely confined to urban
areas, extending loans primarily to trading sector dealing with agricultural produce. There
were a large number of commercial banks, but banking services were not available at rural
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and semi–urban areas. Such services were not extended to different sectors of the
economy like agriculture, small industries, professionals, and self-employed
entrepreneurs, artisans, retail traders etc.
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SHORTCOMINGS IN THE FUNCTIONING OF NATIONALISED
BANKING INSTITUTIONS
The Reserve Bank of India (RBI) and Government of India had to step in at the
crisis hour to implement remedial steps. Reforms in the financial and banking sectors and
liberal recapitalisation of the ailing and weakened public sector banks followed. However,
it is relevant to mention here that the advent of banking sector reforms brought the era of
modern banking of global standards in the history of Indian banking. The emphasis shifted
to efficient and prudential banking linked to better customer care and customer service.
The old ideology of social banking was not abandoned, but the responsibility for
development banking is blended with the paramount need for complying with norms of
prudence and efficiency.
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INDIAN BANKING SYSTEM
The regional banks which operates in rural areas not covered by the scheduled
banks
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1.2 COMPANY PROFILE
17
1.2: COMPANY PROFILE
BRIEF HISTORY
The progress of Indian bank has been synonymous with the phase of progressive
banking in India. Spanning over 103 years of pioneering expertise, the bank has created
for itself a solid customer base comprising customers of two or three generations. Being
firmly rooted in rural India and understanding the grass root realities, the bank’s perception
had vision of future India. It has been propagating innovations in banking and also has
been receptive to new ideas, without however getting uprooted from its distinctive socio-
economic and cultural ethos. Its philosophy of growth by mutual sustenance of both the
bank and the people has paid rich dividends. The bank has been operating as a catalyst of
development across the country with particular reference to the common man at the
individual level and in rural/semi urban centres at the area level.
The bank is well equipped to meet the challenges of the 21st century in the areas of
information technology, knowledge and competition. A comprehensive IT plan is being put
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in place and the skills and knowledge of the bank’s personnel are being upgraded through
a variety of training programmes to promote customer delight in every sphere of its
activity.
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MEMORABLE MILESTONES IN AN 104 YEAR JOURNEY
1907:
1932:
Indian Bank opened a branch in Colombo including a Foreign Currency Banking Unit.
1935:
1940:
1941:
Indian Bank closed the Rangoon branch but opened branches in Singapore (where future
branch manager KB Pisharody (1915–1998) started his career in the same year), and
in Kuala Lumpur, Ipoh, and Penang. The rapid advance of the Japanese Army forced
Indian Bank to close all its branches in Malaya and Singapore.
1942:
Indian Bank closed the Colombo branch. Post-WWII: Indian Bank reopened its Malayan
and Singapore branches.
1948:
1960s:
Indian Bank acquired Mannargudi Bank (est. 1932) and Salem Bank (est. 1925).
1969:
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1973:
Indian Overseas Bank, Indian Bank and United Commercial Bank established United
Asian Bank Berhad in which IOB held 16.67% of the paid up capital, as a result of a new
banking law in Malaysia that prohibited foreign government banks from operating in the
country.
1978:
Indian Bank became a technical adviser to P T Bank Rama in Indonesia, the result of the
merger of P T Bank Masyarakat and P T Bank Ramayana.
1980:
Indian Bank, Bank of Baroda, and Union Bank of India established IUB International
Finance, a licensed deposit taker in Hong Kong. Each of the three banks took an equal
share in the joint venture.
1987:
Indian Bank acquired Bank of Tanjore (Bank of Thanjavur) in Tamil Nadu in a rescue.
1998:
Bank of Baroda bought out its partners in IUB Intl. Fin. in Hong Kong. Apparently this was
a response to regulatory changes following Hong Kong’s reversion. IUB became Bank of
Baroda (Hong Kong), a restricted license bank.
2007:
2008:
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A Front Runner in Specialised Banking
97 Forex Authorised branches inclusive of 1 Specialised Overseas Branch at
Chennai exclusively for handling forex transactions arising out of Export, Import,
Remittances and Non Resident Indian business
62 Special SME Branches extending finance exclusively to SSI units.
Pioneer in introducing Self Help Groups and Financial Inclusion Project in the
country
Award winner for Excellence in Agricultural Lending from Honourable Union
Minister for Finance
Best Performer Award for Micro-Finance activities in Tamil Nadu and Union
Territory of Puducherry from NABARD
Established 7 specialized exclusive Microfinance branches called "Microsate"
across the country to cater the needs of Urban poor through SHG (Self Help
Group)/JLG (Joint Liability Group) concepts
A special window for Micro finance viz., Micro Credit Kendras are functioning in 44
Rural/Semi Urban branches
Harnessing ICT (Information and Communication Technology) for Rural
Development and Inclusive Banking
Provision of technical assistance and project reports in Agriculture to entrepreneurs
through Agricultural Consultancy & Technical Services (ACTS)
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Diversified banking activities – 3 Subsidiary companies
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New schemes launched in Current Financial Year
A unique current account product ”Supreme Current Account” offering health and
wealth insurance cover has been introduced.
Jewel Loan for senior citizens.
Setting up for exclusive branches for Jewel Loan.
Combo loan for housing, vehicle and retail.
Application Supported by Blocked Amount (ASBA) has been implemented for all
categories of investors including qualified Institutional Buyers for applying to Public
Issues and Right Issues.
SME product –IB Contractors launched.
Tie up with Auto Bajaj Auto Ltd.for financing Three Wheelers.
Loan syndication desk setup.
Priority sector advances as at December 2010 were Rs.25, 211 crore accounting
for 42.38 % of Adjusted net bank credit as against the mandatory requirement of
40%.
During the year Bank has disbursed Rs 1185 crore to 56938 SHGs.
Issued 4.67 lakh Kisan Credit Cards to the farmers with credit limits of over
Rs.1251 crore.
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Interest concession of 0.50% on applicable card rate for Girl Students.
Under Financial Inclusion out of 1536 allotted villages 1423 will be covered through
ICT based smart card enabled BC Model, 53 villages through Banking Service
Centre / Branch and 60 villages through mobile vans.
293 villages have been provided with banking services under FI plan 2010-12 by
opening brick and mortar branch (1 village) through Banking Service Centre (19
villages), through Business Correspondent (267 villages) and through mobile
branch (6 villages) as on 31-12-2010.
24.96 Lakhs “NO FRILL” accounts are opened in various parts including villages
under FI plan.
However, the macro-economic conditions for India remained favourable with the
country posting a growth of 6.3% weathering several adverse factors including deficient
monsoons and hardening international prices of oil and steel. While the growth in
agricultural sector was only 1.1% on account of deficient monsoon, the growth in industrial
sector was 7.3% with services topping the growth chart at 8%. The manufacturing, mining
and electricity sectors recorded impressive growths of 8.9%, 5.3% and 6.3% respectively.
The year gone by witnessed an average annual rate of inflation of around 6.4%.
The money supply grew by 13.28% during the financial year which was well within the
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RBI’s projection of 14%. The aggregate deposits of Scheduled Commercial Banks (SCBs)
registered a growth of 11.45% while the aggregate credit at industry level showed a robust
growth of 27.47%. The expansion in non-food credit was a healthy 28.08%. On the
external front, the country’s exports went up by 19% while the imports clocked a higher
growth of 23%. The foreign exchange reserves of the country stood at USD 141.2 billion
as at the end of March 2005.
The bank turned in a highly encouraging performance during the year 2009–10,
keeping pace with the industry level growth trends.
PROFITABILITY
The bank achieved an operating profit of Rs.69.66 crore (Q3) and a net profit at
Rs.441.38 crore. Both operating and net profits would have been much higher but for the
amount that had to be appropriated towards depreciation of Rs.382 crore on account of
one time transfer of government securities to HTM category, lower profits from treasury
operations at Rs.250 crore as against the Rs.500 crore posted during the previous year
and an additional provision of Rs.92 crore towards wage revision.
GLOBAL BUSINESS
The bank’s global business reached a level of Rs. 1, 74, 937 crore in fiscal 2009-
2010 registering a fair growth of 23.02%. Credit deposit ratio improved to 73.18% in
December 2010 from 67.82% as in December 2010.
DEPOSITS
The global deposits of the bank were Rs.1, 01,015 crore in December 2010. On
the back of conscious efforts to reduce the share of high cost deposits, the deposit mix of
the bank improved in cost terms. Growth of CASA deposits was 22.65%. CASA
(Domestic) share to aggregate deposits higher at 32.9% from 31.8%.
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ADVANCES
The global advances of the bank rose by 28.63 % and was Rs.73,919 crore in
December 2010 registering a substantial growth year-on-year from Rs 57468 crore as on
December 2009. The retail credit grew from Rs.10605 crore in December 2009 to
Rs.11,365 crore in December 2010.
CAPITAL
The net worth of the bank has improved from Rs. 7052.23 crore as on 2009-2010 to
Rs 8322.24 crore as on December 2010. The Capital to Risk weighted Assets Ratio
(CRAR) of the bank was 12.35% as at 31.12.2010.
ASSET QUALITY
The bank has implemented the One Time Settlement (OTS) Scheme for small and
marginal farmers in consonance with the broad parameters communicated by Indian
Banks Association.
The bank is utilising the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest (SARFAESI) Act–2002 as an effective tool for recovery of
Non-Performing Assets. Notices were issued under the Act and bank could recover the
amount from the NPA accounts through the SARFAESI route.
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NATIONAL PRIORITIES
The bank has maintained its excellent track record of pre eminence in social
lending, which it views as a major business opportunity. The priority sector advances of
the bank reached a level of Rs.25, 211 crore constituting 42.38% of Net Bank Credit and
were well above the mandatory target of 40%. Adequate care has been taken to ensure
that the credit needs of the weaker and underprivileged section such as SC/ST, minority
communities and women are fully met.
The agricultural credit increased substantially during the year and reached the
level of Rs.10798 crore forming 18.15% of Net Bank Credit as against the mandatory
norms of 18%. In line with the policy of the government to step up the flow of credit to
agriculture, the bank’s disbursement of agricultural credit during the year amounted to Rs.
4188 crore recording an impressive increase over previous year.
COMMUNITY CONCERN
Indian bank has also contributed its share to projects and initiatives for promotion of
education, especially those with an accent on vocational and public health aspects.
ON INFORMATION TECHNOLOGY
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banking transactions besides offering longer business hours, ATM cards, instant fund
transfer, multicity cheque facility, personalised cheque books and a host of other customer
services. The bank is rapidly expanding the ATM network adding 80 new ATMs during the
year taking the tally of networked ATMs to 1085, spread across all centres.
Bank has a total of ATM cum Debit card base to 53.8 lakh from 40.42 Lakh as on 31-12-
2009. Bank has installed 78 biometric ATMs enabling joint operations by SHG members.
Customers can access 65,000 ATMs across the country through our sharing
arrangements with other banks and to all members’ establishments for merchandise
purchase / availing services under Maestro Debit cards.
SHAREHOLDER VALUE
The sound performance of the bank during the previous year impacted the capital
market sentiments positively as reflected in the bank’s market capitalisation, which has
risen substantially from 39.99% from December 2009 to 44.63 % in December 2010. The
book value of share has gone up from Rs.154.16 to Rs.184.34
RISK MANAGEMENT
The bank has given due recognition to the importance of risk management for its
growth and its stability and a well designed comprehensive risk management system has
been put in place. The risk management system comprises policies, procedures,
organisational structures and control systems for the identification, measurement,
monitoring and management of various risks. The bank is continuously upgrading and
enhancing the capabilities of its risk management system in tune with guidelines and
29
directions of the Reserve Bank of India and is well equipped to make the transition to
Basel II norms.
CORPORATE GOVERNANCE
The bank has adopted a highly effective system of Corporate Governance to ensure
continued growth of shareholder value keeping in view the interests of all stakeholders.
The system permits adequate autonomy to the Board of Directors and the top
management to take decisions that can further the progress of the bank within the
framework of regulatory prescriptions, corporate goals and social responsibilities. The
audit committee of the Board oversees the quality of the internal audit systems and
monitoring mechanism apart from reviewing the financial accounts. The bank has been
actively promoting greater transparency as a part of its measures through wider disclosure
of information that reflects the quality of governance.
Knowledge and skill levels of employees are upgraded through strengthening the
training infrastructure with computer labs and other modern teaching methods.
Bank’s constant focus is to provide innovative products and services for moving
towards customer delight.
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AWARDS WON BY THE BANK
Bank conferred with Skoch Financial Inclusion Award 2011 for SHG.
No.1 in Asset Quality & Efficiency for 2010 as per Business world and
Pricewaterhouse cooper’s study.
31
1.3 BRIEF DESCRIPTION OF THE PROBLEM
32
1.3: BRIEF DESCRIPTION OF PROBLEM
The banking business is of mobilising the deposits and utilising it for lending.
Lending business is generally encouraged because it has the effect of funds being
transferred from the system to production purposes which results into economic growth.
One of the major threats to the health of the Indian banking system comes from the
high level of Non-Performing Assets (NPAs). NPAs of banks are the loans which are
unlikely to be paid. This means either interest or principle payments have been
outstanding on these loans for more than 90 days.
Increasing NPAs have a direct impact on bank’s profitability as legally banks are
forced to make provisions on such assets as per the RBI guide lines.
The distribution of these NPAs was skewed in favour of big borrowers since large
borrowers with 11,000 individual accounts accounted for as much as Rs 40,000 crore of
total bad debts. Among public sector banks too, high value default involving 1,741
accounts over Rs 5 crore amounted to Rs 22,866 crore or 40 percent of the total.
Since this concentration of bad debt was among large borrowers, it should have
made recovery easier. But the actual record of recovery has been extremely poor. During
the preceding eight years less than Rs 5000 crore of bad debt has only been recovered.
33
A question that arises is how much risk can a bank afford to take? Recent
happenings in the business world-Enron, world com, Xerox etc do not give much
confidence to banks. In case after case, these giant corporations became bankrupt and
failed to provide investors with cleaner and more complete information thereby introducing
a degree of risk that many investors could neither anticipate nor welcome. The history of
financial institutions also reveals the fact that the biggest banking failures were due to
credit risk.
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CHAPTER II: PROJECT DETAILS
35
2.1: CHAPTER SUMMARY
This chapter explains the project brief, purpose and scope of the project and project
constraints.
PURPOSE AND SCOPE OF STUDY: The purpose and scope of the study
has been sub divided into the following topics:
(B) RESEARCH METHODOLOGY: Under this topic the research design and
the types of data are explained.
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2.2 PROJECT BRIEF
37
2.2: PROJECT BRIEF
Non-Performing Assets (NPAs) of banks are the loans which are unlikely to be
paid. This means either interest or principle payments have been outstanding on these
loans for more than 90 days. An asset is termed as NPAs when:
LOANS: Treated as NPAs if interest and/or principal remain overdue for a period of
more than 90 days.
OTHER ACCOUNTS: Any other credit facility shall be treated as NPAs if any
amount remains overdue for more than 90 days.
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In line with Reserve Bank of India (RBI) guide lines from time to time the loans
given by banks are classified as performing and non-performing for the purpose of income
recognition and provisioning. The criteria for classification are:
(A) SUB-STANDARD ASSETS: Sub-standard assets are those which are non-
performing for a period not exceeding two years. Also, in cases where the loans
repayment is rescheduled, RBI has asked banks to recognise the loans as sub-
standard at least for one year.
(B) DOUBTFUL ASSETS: Loans which have remained non-performing for a period
exceeding two years and which are not considered as loss asset. A major portion of
assets under this category relate to ‘sick’ companies referred to the Board for
Industrial and Financial Reconstruction (BIFR) and awaiting finalisation of
rehabilitation packages.
(C) LOSS ASSETS: A loss asset is one where loss has been identified but the amount
has not been written off wholly or partly. In other words, such an asset is
considered uncollectible except for some salvage value.
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PROVISIONS- The Reserve Bank of India has laid down provisioning rules for the Non-
Performing Assets. This means banks have to set aside a portion of their funds to
safeguard against any losses incurred on impaired loans. As and when an asset is
classified as an NPA, the bank has to further sub-classify it into sub-standard, loss and
doubtful assets. Based on this classification, banks make the necessary provision against
these assets.
In case of loss assets, guidelines specifically require that full provision for the
amount outstanding should be made by the concerned bank. This is justified on the
grounds that such an asset is considered uncollectible and cannot be classified as
bankable asset.
Also in case of doubtful assets, guidelines requires the bank concerned to provide
entirely the unsecured portion and in case of secured portion an additional provision of
20% to 50% of the secured portion should be made depending upon the period for which
the advances has been considered as doubtful.
GROSS NPAs: Total of all the non performing assets from the total advances
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STEPS TAKEN TO REDUCE NON-PERFORMING ASSETS
An effective solution to the huge rate of NPAs for long eluded the Indian financial
sector. Among the many routes that were pursued to deal with the accumulating bad-debt
legacy, there were some that received special attention.
The first and most obvious route was the restructure of existing loans and advances
so as to reduce the burden of payment and extend the dead line faced by
borrowers so that they could revive themselves. Such restructuring involved some
temporary sacrifice on the part of the banks aimed at encouraging revival of the
afflicted unit.
The second was to set aside potential profits as provisions for bad assets. Banks
have gone part of the way in this direction. The cumulative provisions against loan
losses of the public sector banks worked out to be 42.5% of gross NPAs for the
year that ended 31st March 2002.
The third was infusion of capital by the government into public sector banks. It is
estimated that the government had already injected a massive Rs 20,446 crore
towards recapitalization of public sector banks till end march 1999 to help them fulfil
the new capital adequacy norms which involved large sums of tax payer’s money.
The other step taken by RBI and the government of India was establishment of
DEBT RECOVERY TRIBUNALS to deal with defaulting borrowers accounts
of above Rs 10 lakh. This tribunal was established in 1993.
41
RECOVERY OF DEBT DUE TO BANKS AND FINANCIAL
INSTITUTION ACT 1993 was a welcome step taken by the legislature in
ensuring speedy recovery of bank dues. Civil courts had come to the conclusion
after decades of reviewing case laws, that in almost all cases in the litigation
instituted by banks and financial institutions there is hardly any defence and that the
delay in disposal of the cases in the court is not due to the fault of banks or financial
institutions. The rationale behind the Act is that the civil courts are burdened with
diverse types of cases. Recovery of dues due to the banks and financial institutions
is not given any priority by the civil courts. The banks and financial institutions like
any other litigants have to go through a process of pursuing the cases for recovery
through civil courts for unduly long period.
The committee of financial system chaired by Shri Narasimham in its report to the
ministry of finance, Government of India in 1991 endorsed the views for setting up special
legislation and special tribunals to expedite the recovery process in the financial sector.
Thus came the Recovery of Debt due to Banks and Financial Institutions Act, 1993.
Our existing legal framework relating to commercial transactions has not kept pace
with the changing commercial practices and financial sector reforms. This has resulted in
42
slow pace of recovery of defaulting loans and mounting levels of Non-Performing Assets of
banks and financial institutions.
The other significant steps taken by RBI and government of India were as follows :
(A) Lok Adalats were permitted to deal with smaller loans upto Rs 10 lakh.
(B) RBI also permitted the banks to form policy for non-discriminatory and non-
discretionary one time settlement for early recovery of NPAs.
43
(C) Issued guidelines on Corporate Debt Restructuring (CDR), which are not
coming under the purview of DRT and Board for Industrial and Financial
Reconstruction (BIFR).
RBI has also come down heavily on wilful defaulters. So far, it has only published
details of such defaulters to caution lenders. Now, the Central Bank has barred wilful
defaulters from getting further loans from scheduled commercial banks, development
financial institutions, government owned NBFC’s and investment institutions for five years
from the date of being classified a wilful defaulter. In case of companies, RBI has ordered
that directors on the board of defaulting companies should not be allowed on the board of
any company in which the financial institution concerned has a stake. This step should
take care of any circumvention of penal action by the directors by moving to other
companies.
The above measures spell a healthier balance sheet and bottom-line for banks.
Due to these steps taken the economic survey spelt good news for the banking industry
with the net Non-Performing Assets level dropping to 1.2% during fiscal year 2003-04 as
against 1.9% in the previous year.
44
THE PROBLEM STILL PERSISTS
Fourteen of the largest and major banks were nationalised in 1969 and Non–
Performing Assets figure were Rs 70,000 crore in year 2001-02 within the period of 23
years. The banks had to file a suite against their customers in civil court and after decision
of trial court there was an appeal in the high court. The banks practically did not recover
their dues. The government after 23 years had established Debt Recovery Tribunal for the
banks in 1993. The exclusive jurisdiction of the Debt Recovery Tribunal was not sufficient
remedy to recover the dues of the banks promptly for the debtors of the banks.
The Central Government has taken 32 years to pass an Act “Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 “. The
Act enables the setting up of assets management companies, addressing the problems of
Non-Performing Assets of banks and financial institutions and enhancing rights of the
creditors.
This is a classic case where Reserve Bank of India, State Bank of India and other
Banks and the Central Government did not apply their minds to find out the right remedy to
recover dues in time. Due to delay in finding out a remedy Non-Performing Assets have
increased to Rs 1, 10,000 crore at the end of year 2004-05.
There are number of other instances which can be given where decisions are not
taken at proper time, which has resulted in enormous loss of public money.
45
The opening up of the Indian economy and consequent pressure from western
powers to influence our banking system in the name of international standards of
accounting, congruence of banking supervision by Basle Committee, and so on has also
contributed in a big way in formulation of the banking policies in the last decade.
The latest two developments in this regards are more perplexing. The reported
recommendation by the sub-committee of Confederation of Indian Industry (CII) for closure
of weak banks plagued by the serious problem of Non-Performing Assets (later withdrawn
by them) and now the apparent move to form corporate debt recast body modelled on the
Corporate Debt-Recast Advisory Committee( CDRAC) of the bank of Thailand.
Second, it was adopted by the regulators in India as an integral part of the overall
liberalisation of the financial system in terms of the Uruguay round of conference of GATT
and, therefore, merely as a tool given to be implemented and not to be debated.
Third, that the implication of implantation of an idea from foreign source to the
domestic soil might be hazardous to the survival of the system itself was not given an
adequate consideration.
46
Fourth, both the government and the Reserve Bank of India did not possibly make
either the system i.e., the financial markets in general or the players i.e., the banks,
particularly the domestic state-owned ones, ready in terms of financial as well as human
resources that could counter such a swift move to bring the system totally open and
transparent in terms of global standards.
Fifth, the remedial measures were neither effective nor implemented with full
commitment. These were piecemeal in nature and lacked holistic approach. Some never
saw light of the day like Asset Reconstruction Fund (ARF).
Seventh, these frightening figures made the recently government -appointed bodies
like Verma panel, etc, to come out with extreme measures like Voluntary Retirement
Scheme(VRS) for the staff without understanding the social insurance and aspects thereof
in a country like India that does not have any social insurance including medical benefit
scheme. No doubt automation and the gradual transformation into e-banking did call for
certain amount of restructuring in human resources, but then that is no excuse for alluring
the staff for an apparently attractive looking VRS.
Eight, once NPAs do come into existence, the problem can be solved only if there
is enabling legal structure, since recovery of NPAs often require litigation and court orders
to recover stuck loans. With long winding litigation in India, debt recovery takes a long
time. To that extant it is to be appreciated that even though late, the enactment of
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 is an experiment that may lead to better and suitable legislation in management
of NPAs.
47
Another reason for lower NPAs has been reluctance on the part of public sector
bank to recognise bad loans as non performing assets. Instead they have tended to resort
to restructuring or even “ever greening” which refers to defaulters obtaining new loans so
that they can repay existing debt and be counted as good customers.
This year most banks have initiated drive to clean up their balance sheet. A
reduction in net NPAs does not necessarily imply that some of the loans have been
unexpectedly recovered. It just means that capital or profit have been set aside as a cover
for these bad loans. Though several banks meet the crucial criteria concerning NPAs in
the new RBI diktat, they are not overly enthusiast by the turn of events and play down the
significance of zero net NPAs which actually means that the provisions cover 100 percent.
They have been able to enhance provisions for bad loans because of windfall profits that a
plunge in interest rates bestowed on them.
48
The major objective of the study is to study the incidence of Non-Performing Assets
(NPAs) in the banking sector as a whole. It can help in identifying the reasons and causes
of this major problem faced by banks today. An important parameter in the analysis of
financial performance of banks is the level of NPAs.
The study was conducted in Syndicate Bank (Main branch) and to widen the scope
of study and for comparative analysis performance of Syndicate bank (Trivandrum region)
was taken as a whole.
The study will be of much help to the NPA monitoring Cell of Syndicate Bank,
Regional Office, Trivandrum and may help authorities in the close supervision and follow
up of accounts coupled with comprehensive risk assessment, which will help curtail the
NPAs. Moreover, the deployment of funds shall be made after proper evaluation of the
opportunities and their due application would result in better credit management. Timely
detection of problem loan accounts, initiation of immediate and appropriate action and
close monitoring can prevent their slippage into the NPA category and go a long way in
curtailing growth of NPAs
Maximizing the NPA recoveries will ensure minimizing the losses to the bank and
bring about net reduction in NPAs. Further, various suggestions to improve the recovery,
obtained from the authorities, if implemented successfully, can solve NPA problem to a
great extent. The study can help in analysing the reasons for default. It can also help in
identifying the group/sector where the incidence of default occurs more. The study can be
of much help in identifying the number of NPAs scheme wise.
49
2.3 PURPOSE AND SCOPE OF STUDY
50
2.3.1 PROBLEM DIAGNOSIS
51
Management of Non-Performing Assets (NPAs) assumes added importance in the
current scenario of low spread and the credit off-take does not adequately compensate for
fall in average yield on advances.
The entire banking industry has been seriously affected by the high incidence of
NPAs and if the banks are not in a position to arrest and reverse this trend, it will snowball
into a crisis in the industry crippling the economy itself. In response to this situation,
several initiatives have been taken to release huge amounts holed up in this manner.
NPAs are a drag on the bank’s balance sheet as they affect yield on advances,
return on assets and substantially reduce the earning capacity of assets. They are in the
nature of dead weight for the bank, as they make no contribution to the earnings, yet
adversely affect the Capital Adequacy Ratio. Moreover, the net profit is also lowered to the
extent of provisioning required. The carrying cost of NPAs is nearly 11% which consists of
cost of capital adequacy, cost of funds blocked and operating costs.
The main challenges facing the banking sector are the deployment of funds in
quality assets and the management of revenue and cost. The problem of NPAs and
overall credit recovery system still exists. There is continuous reforms and modernisation
in process. A number of recommendations of two Narasimham Committees have been
52
implemented. Foreign banks focuses on corporate and on the middle class consumers by
providing them with better service. Nationalised banks are also attempting to get on the
path of automation. Strong banks will acquire the weaker banks. The number of foreign
banks operating in India has increased significantly and their share of total assets has
increased. In the year 2001 foreign banks accounted for 14.7% of the total net profit of
commercial banking sector in India. Inspite of tangible progress and the contribution of
Narasimham Committee reports, the banking sector in India is suffering from systematic
and structural problems.
Non-Performing Assets is a real concern of any bank and keeping it under check is
a challenge to bank management.
53
2.3.2 RESEARCH METHODOLOGY
RESEARCH DESIGN
54
DESCRIPTIVE STUDIES
There is a general feeling that descriptive studies are factual and are very simple.
This is not necessarily true. Descriptive studies can be complex, demanding and need a
high degree of scientific skill on the part of the researcher.
NATURE OF DATA
There are two different types of data available in a broad classification. They are:
Primary Data
55
Secondary Data
PRIMARY DATA: Those data, which are collected first hand, either by the researcher or
by someone else especially for the purpose of the study is known as primary data.
SECONDRY DATA: Any data, which was gathered earlier for some other purpose, are
secondary data in the hand of the researcher.
Internally, i.e. within the firm. Internal secondary data are those which are
generated within the firm through accounting records, internal reports etc.
Externally, i.e. from one or more outside agencies. Various sources of secondary
data are government publications, non–publications, syndicated services, publications of
internal organizations etc.
COMMUNICATION METHOD
This method in effect is the method for designing questionnaires with a view to
collect the requisite information. The questionnaires can be classified into four types:
56
2. Structured – Disguised
A non–structured questionnaire is one in which the questions are not structured and
the order in which they are to be asked from the respondent is left entirely to the
researcher. He asks the questions in a manner, which he feels, fits in a particular
situation.
57
2.3.3 PROCEDURE FOR DATA COLLECTION
58
personal contact with the officials at Syndicate bank (Main Branch) and Syndicate bank
(Regional Office), Trivandrum.
From Syndicate bank (Main Branch) the data collected was through NON-
STRUCTURED-NON-DISGUISED communication method.
On the basis of data collected from Syndicate bank (Main Branch) a questionnaire
was formed in the form on STRUCTURED-NON-DISGUISED communication method.
This questionnaire was used for data collection purpose from Syndicate bank (Regional
Office) for data relating to status of Non–Performing Assets in Trivandrum Region
(Appendix- A).
59
2.4 PROJECT CONSTRAINTS
60
Required data with complete details at all India level for comparative study and
analysis was not available.
61
CHAPTER III: COLLECTION AND ANALYSIS OF
INFORMATION
Data pertaining to the Non Performing Assets in Syndicate Bank Trivandrum for
financial years 2003-2004 and 2004-2005 was collected, compiled and analysed under
two main categories. These are the Priority Sector and Non Priority Sector. The summary
of loans and advances given, NPAs and Provisions are given below:
62
GROSS LOANS AND ADVANCES
Total Advances ( Rs Total NPAs ( Rs in Total Provisions
in crore) crore)
2003-04 2004-05 2003-04 2004-05 2003-04 2004-05
Trivandrum 364.05 480.63 25.15 32.43 35.14% 46.23%
Region
Main 133.25 149.51 3.70 3.69 33.83% 79.68%
Branch
PRIORITY SECTOR
Total Advances (Rs Total NPAs (Rs in Total Provisions
in crore) crore)
2003-04 2004-05 2003-04 2004-05 2003-04 2004-05
Trivandrum 133.91 188.86 17.80 19.19 30.58% 46.23%
Region
Main 3.02 3.26 1.32 1.41 18.65% 70.12%
Branch
NON-PRIORITY SECTOR
A comparative analysis of the data pertaining to the entire Trivandrum Region and
Syndicate bank Main branch is also given in this chapter.
63
3.2 DATA COLLECTION AND ANALYSIS
64
3.2: DATA COLLECTION AND ANALYSIS
For the purpose of analysis, data was collected relating to Non-Performing Assets
from Syndicate bank (Main Branch).
In order to widen the research, data was collected pertaining to the bank’s
performance in relation to Non-performing Assets (NPAs) through out Trivandrum Region
from Syndicate bank (Regional Office).
The bank deals with two categories of loans and advances which are:
Priority Sector
Non-Priority Sector
65
PRIORITY SECTOR - Following schemes of loans and advances fall under priority
sector:
Agriculture Loans
Education Loans
Housing Loans
Banks Loans
66
Other Public Sector Units Loans
Housing Loans
Loans To Automobiles
The bank also deals in government schemes which are directed in nature. This
means that the bank is directed by the government to allocate loans under government
scheme.
The data was acquired on the basis of last two financial years 2003-2004 and 2004-
2005.
From Syndicate Bank (Main branch) the total amount of advances was Rs 133.25
crore for the financial year 2003-04 with Rs 3.02 crore under Priority Sector and Rs 130.23
crore under Non-Priority Sector. For the financial year 2004-05 the total amount of
advances increased to Rs 149 .51 crore with Rs 3.26 crore under Priority Sector and Rs
146.24 crore under Non-Priority Sector.
67
As far as Trivandrum Region is concerned the total amount of advances was Rs
364.05 crore for the financial year 2003-04 with Rs 133.91 crore under Priority Sector and
Rs 230.13 crore under Non-Priority sector.
While in the financial year 2004-05 the total amount of advances increased to Rs
480.63 crore with Rs 188.86 crore under Priority Sector and Rs 291.77 crore under Non-
Priority Sector.
The highest amount of loans and advances for the year 2003-04 was allocated to
housing loans under Trivandrum Region amounting to Rs 48.06 crore. For Main Branch
the highest amount of loans and advances in the same financial year was given to other
personal loans under personal banking schemes amounting to Rs 2.91 crore.
Continuing the same trend in the year 2004-05 also, the highest amount of loans
and advances was allocated to housing loans under priority sector under Trivandrum
Region amounting to Rs 83.51 crore. For Main Branch the highest amount of loans and
advances was given to other personal loans under banking schemes amounting to Rs
2.21 crore.
The lowest amount of loans and advances for the year 2003-04 was allocated to
Large and Medium Scale Industries under Trivandrum Region amounting to Rs 1.57
crore. From Main Branch the lowest amount of loans and advances was given to Small
Road and Transport Operators amounting to Rs 56,000.
In the financial year 2004-05 the lowest amount of advances came under Small
Road and Transport Operators for Trivandrum Region as well as Main Branch amounting
to Rs 1.90 crore and Rs 31,000 respectively.
68
But on the other hand for the Main Branch the total advances increased from Rs
133.25 crore to Rs 149.51 crore from 2003-04 to 2004-05. But unlike Trivandrum Region
the amount of Non-Performing Assets (NPAs) decreased from Rs 3.70 crore to Rs 3.69
crore respectively.
This shows that the Main Branch was able to keep a check on NPAs in 2004-05. It
should also be noted that the amount of Non-Performing Assets was Rs 2.14 crore for the
year 2002-03 which increased by 72% to Rs 3.70 crore in the next financial year 2003-04.
This drastic increase shows that the bank was unprepared to handle the increase in
NPAs which was to an amount of Rs 1.3 crore. However credit should be given to the
bank for reversing the trend in 2004-05.
This is not the case with Trivandrum Region which though shows a decrease
percentage wise of Non–Performing Assets but amount wise there was an increase of Rs
7.28 crore in 2004-05. This shows that unlike the Main Branch few branches of Syndicate
Bank all over Trivandrum could not keep a check of their Non-Performing Assets.
GROSS NPAs
69
8.00%
7.00%
6.00%
5.00%
Trivandrum Region
4.00%
Main Branch
3.00%
2.00%
1.00%
0.00%
2003-04 2004-05
2003-04 2004-05
Trivandrum Region 6.90% 6.74%
Main Branch 2.78% 2.47%
As discussed, the above figure shows that though percentage wise the Gross
NPAs have reduced it has increased amount wise by 28.94% in Trivandrum Region unlike
Main Branch, where the percentage as well as the amount of NPAs has reduced. The
bank has made better provisions also.
PRIORITY SECTOR
70
14.00%
12.00%
10.00%
4.00%
2.00%
0.00%
2003-04 2004-05
2003-04 2004-05
Trivandrum Region 13.29% 10.16%
Main Branch 4.2% 3.8%
If a close analysis of the graph above is made we find that the initial NPAs level
in both Trivandrum Region and Main Branch were low amount wise and went on to
71
increase in the financial year 2004-05 by 7.805 for Trivandrum Region and 6.815 for Main
Branch. On the other hand it can be seen that as compared to total advances the
percentage of NPAs have reduced. As far as provisions are concerned the percentage has
improved over the last two years.
5.00%
4.50%
4.00%
3.50%
3.00% Trivandrum
Region
2.50%
2.00% Main Branch
1.50%
1.00%
0.50%
0.00%
2003-04 2004-05
72
2003-04 2004-05
Trivandrum Region 3.19% 4.53%
Main Branch 1.36% 1.33%
As shown in the diagram the NPAs in Non-Priority Sector in Main Branch has
increased amount wise by 8.98%but reduced percentage wise as was in the case of
priority sector. On the other hand the NPAs have increased in the Trivandrum Region both
amount wise and percentage wise.
It should be noted that comparing both the figures it can be seen that the
Trivandrum Region and Main Branch has higher percentage of NPAs in Priority Sector as
compared to the non-priority sector.
73
The scheme wise analysis of Priority sector is shown below with the help of bar charts and
figures.
AGRICULTURE
12.00%
10.00%
8.00% Trivandrum
Region
6.00%
Main Branch
4.00%
2.00%
0.00%
2003-04 2004-05
2003-04 2004-05
Trivandrum Region 10.68% 6.28%
Main Branch - -
74
Total Advances ( Rs Total NPAs ( Rs in Total Provisions
in Crore) crore)
2003-04 2004-05 2003-04 2004-05 2003-04 2004-05
Trivandrum 27.28 32.44 2.80 1.97 37.68% 55.13%
Region
Main - - - - - -
Branch
100.00%
90.00%
80.00%
70.00%
60.00%
50.00% Trivandrum Region
40.00% Main Branch
30.00%
20.00%
10.00%
0.00%
2003-04 2004-05
2003-04 2004-05
Trivandrum Region 37.92 % 31.90%
Main Branch 90.80% 78.17%
75
ADVANCES VS. NPAs: SSI
Total Advances (Rs Total NPAs (Rs in Total Provisions
in crore) crore)
2003-04 2004-05 2003-04 2004-05 2003-04 2004-05
Trivandrum 15.63 18.74 5.93 5.98 42.50% 54.37%
Region
Main 1.39 1.62 1.27 1.26 41.65% 70.26%
Branch
Here the analysis shows that there is high incidence of NPAs under Main Branch
during financial year 2003-04. This has reduced in financial year 2004-05 and the
provisions have also improved from 41.65% to 70.26%. It should be noted that the Main
Branch has not followed the same trend as Trivandrum Region which has shown an
improvement in the percentage of NPAs. The main point to notice here is that though
Trivandrum Region has improved its NPAs percentage wise, amount wise it has increased
by 0.83%. It is noticeable that there is lower percentage of NPAs in Main Branch.
100.00%
90.00%
80.00%
70.00%
60.00%
50.00% Trivandrum Region
40.00% Main Branch
30.00%
20.00%
10.00%
0.00%
2003-04 2004-05
2003-04 2004-05
Trivandrum Region 33.17% 25.91%
Main Branch 100% 100%
76
ADVANCE VS. NPAs: SMALL ROAD TRANSPORTS
Total Advances ( Rs Total NPAs (Rs in Total Provisions
in crore) crore)
2003-04 2004-05 2003-04 2004-05 2003-04 2004-05
Trivandrum 1.87 1.90 0.6217 0.4931 48.77% 62.38%
Region
Main 0.005626 0.003149 0.005626 0.003149 60.89% 76.18%
Branch
As it can be seen clearly that the incidence of NPAs in Main Branch is very high
though the amount of advance allocated each year is low compared to the other schemes.
The amount of NPAs reduced from Rs56.26 thousand in 2003-04 to Rs 31.49 thousand in
2004-05. On the other hand the amount of NPAs in Trivandrum Region is much more than
Main Branch though the percentage is comparatively low because of the high amount of
advances. The provisions have improved in both Main Branch and Trivandrum Region.
77
RETAIL TRADE
40.00%
35.00%
30.00%
25.00%
20.00% Trivandrum Region
15.00% Main Branch
10.00%
5.00%
0.00%
2003-04 2004-05
2003-04 2004-05
Trivandrum Region 16.12 % 17.95 %
Main Branch 8.55% 37.90%
The analysis shows that there was a high increase in the percentage of NPAs in the
Main Branch. This can be due to the reason that there was a reduction in the amount of
advances given by 29.94%. It is also seen that the coverage through provisions has
improved. In the same way the percentage of NPAs in Trivandrum Region has increased.
Unlike Main Branch the total advances increased in Trivandrum Region by 5.23%.
78
SMALL BUSINESS
24.50%
24.00%
23.50%
23.00%
22.50%
Trivandrum
22.00%
Region
21.50%
21.00% Main Branch
20.50%
20.00%
19.50%
19.00%
2003-04 2004-05
2003-04 2004-05
Trivandrum Region 21.81% 21.90%
Main Branch 24.11% 21.00%
The percentage of NPAs has reduced in Main Branch but the amount has
increased by 109% from Rs. 71.63 thousand to Rs 1.49 lakh. The total provisions have
improved from 26.93% to 91.01% positively. On the other hand the percentage as well as
the amount of NPAs in Trivandrum Region has increased but the provision coverage has
also improved.
79
90.00%
80.00%
70.00%
60.00%
50.00%
Trivandrum Region
40.00%
Main Branch
30.00%
20.00%
10.00%
0.00%
2003-04 2004-05
2003-04 2004-05
Trivandrum Region 27.50 % 27.36%
Main Branch 52.92% 88.24%
Here it can be seen that the percentage of NPAs level in Trivandrum Region
decreased from 27.50% to 27.36% but amount wise increased by 24.03% from Rs 1.38
crore to Rs 1.72 crore. The provisions have also improved. On the other hand the NPAs
level has increased drastically in the Main Branch. It is also noticed that the provision level
has reduced from 88.68% to 65.53%.
EDUCATION
80
1.07%
1.07%
1.06%
1.06%
Trivandrum
1.05%
Region
1.05%
Main Branch
1.04%
1.04%
1.03%
1.03%
2003-04 2004-05
2003-04 2004-05
Trivandrum Region 1.04% 1.07%
Main Branch - -
Here it can be easily seen that the percentage of NPAs has increased in a minimal
way in Trivandrum Region percentage wise but has almost doubled amount wise from Rs
5.45 lakh to Rs 11.33 lakh resulting in 107.88% increase. The provisions though have
improved.
81
4.50%
4.00%
3.50%
3.00%
2.50% Trivandrum
Region
2.00%
Main Branch
1.50%
1.00%
0.50%
0.00%
2003-04 2004-05
2003-04 2004-05
Trivandrum Region 4.01% 3.32%
Main Branch - 1.69%
It is shown here that though the advances decreased in Main Branch there was
occurrence of new NPAs which is covered by just 19.99% of provision. On the other hand
the amount of NPAs increased by 44.27% in Trivandrum Region though percentage wise it
came down from4.01% to 3.32%. In Main Branch and Trivandrum Region the percentage
of provision is low.
82
OTHER PRIORITY SECTOR LOANS
18.00%
16.00%
14.00%
12.00%
10.00% Trivandrum
Region
8.00%
Main Branch
6.00%
4.00%
2.00%
0.00%
2003-04 2004-05
2003-04 2004-05
Trivandrum Region 6.44% 5.58%
Main Branch - 16.17%
It is evident in the case above that there were no NPAs in 2003-04 but in 2004-05
the amount increased to Rs 26.10 thousand which is covered by 60% provision. While in
83
the Trivandrum Region the NPAs has increased amount wise by 77.94% though the
percentage reduced from 6.44% to 5.58% and the provision has improved from 12.47% to
59.90%.
The following figures show few of the main schemes in Non - Priority Sector
WHOLE SALE
4.50%
4.00%
3.50%
3.00%
Trivandrum
2.50%
Region
2.00%
Main Branch
1.50%
1.00%
0.50%
0.00%
2003-04 2004-05
84
2003-04 2004-05
Trivandrum Region 1.50% 4.34%
Main Branch - -
As the figure shows the NPAs have increased in Trivandrum Region. It should be
noted here that the provision diminished from 30% to 9.99%. The Main Branch does not
deal in whole sale schemes.
85
30.00%
25.00%
20.00%
5.00%
0.00%
2003-04 2004-05
2003-04 2004-05
Trivandrum Region 9.83 % 14.60 %
Main Branch 21.47% 27.86%
From the above analysis it it’s shown that in Main Branch the percentage of NPAs
have increased from 21.47% to 27.86%. Interestingly it is seen that the advances reduced
from Rs 5.68 lakh to Rs 4.97 lakh in 2003-04 and 2004-05 respectively and with this the
provisions also reduced from 100% to 71.14%.
86
OTHER PERSONAL LOANS UNDER PERSONAL
BANKING SCHEMES(PBS)
50.00%
45.00%
40.00%
35.00%
30.00%
25.00% Trivandrum Region
20.00% Main Branch
15.00%
10.00%
5.00%
0.00%
2003-04 2004-05
2003-04 2004-05
Trivandrum Region 10.13% 12.13%
Main Branch 20.42% 47.99%
87
ALL OTHER LOANS IN NON-PRIORITY SECTOR
3.00%
2.50%
2.00%
0.50%
0.00%
2003-04 2004-05
2003-04 2004-05
88
Trivandrum region 2.10% 2.72%
Main branch 0.97% 0.83%
Here it can be seen that during 2003-04 the percentage of NPAs in Main Branch
was lower in comparison to Trivandrum Region and reduced in 2004-05. Though
percentage wise it reduced but amount wise the NPAs increased by 1.69%. The
provisions have improved for both Main Branch and Trivandrum Region.
The following figures show other schemes covered by the bank other than
priority and non – priority sector.
60.00%
50.00%
40.00%
Trivandrum
30.00% Region
Main Branch
20.00%
10.00%
0.00%
2003-04 2004-05
2003-04 2004-05
Trivandrum Region 44.64% 39.61%
Main Branch 46.62% 58.37%
89
ADVANCE VS. NPAs: GOVERNMENT SPONCERED SCHEMES
Total Advances (Rs Total NPAs (Rs in Total Provisions
in crore) crore)
2003-04 2004-05 2003-04 2004-05 2003-04 2004-05
Trivandrum 6.36 7.17 2.84 2.84 43.24% 47.73%
Region
Main 0.042 0.0409 0.0199 0.0239 41.32% 45.65%
Branch
As mentioned before government loans are directed loans which the bank has to
pay to the various classes of society covered under the schemes specially the
unemployed, poor and also for relief funds. This is the main reason of high NPAs in
government schemes as the customers are not in a position to pay back. In the Main
Branch the percentage as well as the amount of NPAs has increased while in Trivandrum
Region in totality have managed to keep the level low.
90
LOANS TO THE WEAKER SECTIONS
17.50%
17.00%
16.50%
16.00%
15.50% Trivandrum Region
15.00% Main Branch
14.50%
14.00%
13.50%
2003-04 2004-05
2003-04 2004-05
Trivandrum Region 17.33% 14.94%
Main Branch - -
91
Region
Main - - - - - -
Branch
It should be noted down here that unlike government schemes the percentage of
NPAs is low and has reduced over last two years. However amount wise it has increased
from Rs 1.81 crore to Rs 2.93 crore i.e. by 61.86%. The provisions have also improved in
this category of loan.
As part of the strategy for management of NPAs an ‘early alert system’ has been put in
place by the Bank. This system of monitoring Standard ‘ C ‘ assets has enabled the Bank
in containing fresh slippage of loan assets through appropriate measures including
recovery of critical amount, restructure, reschedulement, rephasement etc.
92
The Bank has framed a policy for One Time Settlement of NPAs based on a matrix
formula that aims at better negotiation skills, operational flexibility, delegation and
decentralisation of powers. For Trivandrum region in the financial year 2003-04 a total of
172 accounts involving an amount worth Rs 1.30 crore and for 2004-05 a total of 169
accounts involving a sum of Rs 9.51 crore were settled through One Time Settlement. In
Main branch Rs 2.01 crore was retrieved under One Time Settlement for the year 2003-
04 which decreased to Rs 7.60 lakh involving one account in 2004-05.
The bank is utilising the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest (SARFAESI) Act–2002 as an effective tool for recovery of
non-performing assets. In Trivandrum region, defaulters holding 12, 944 accounts
were issued notice involving an amount of Rs 89.86 crore in 2004-05 while in Main branch
150 account holders whose accounts were worth Rs 44.56 lakh were issued notice for
2004-05.
In Trivandrum region the total amount of NPAs written off as bad debt was Rs 54.86 lakh
in 2003-04 which went on to reduce to Rs 44.95 lakh in 2004-05. In Main branch Rs 3.56
lakh was written off as bad debt in 2003-04 which again reduced to Rs 3.75 thousand in
2004-05.
In Trivandrum region Rs 6.24 lakh worth of accounts were upgraded in 2003-04 which
increased to Rs 70.26 lakh in 2004-05. On the other hand in Main branch it is seen that for
the year 2003-04 there was no up gradation of NPAs to standard assets but for financial
year 2004-05 eight accounts were upgraded involving an amount of Rs 22.79 lakh.
93
94
CHAPTER IV: PROJECT FINDINGS AND
RECOMMENDATIONS
The bank was concentrating more on allocating advances under non priority sector
than priority sector.
The percentage as well as amount of NPAs is less in non priority sector than
priority sector.
95
The gross NPAs in Syndicate bank, Trivandrum region increased from Rs 25.15
crore to Rs 32.43 crore during financial year 2003-04 and 2004-05 respectively
whereas during the same period it reduced from Rs 3.70 crore to Rs 3.69 crore in
Syndicate Bank, Main branch.
Failure of business units due to change in technology, demand pattern, cost and
time over runs.
Wilful default.
96
Selling of assets to Assets Reconstruction Company.
97
4.2: CONCLUSIONS DERIVED FROM DATA ANALYSIS
The total loans and advance from Syndicate bank (Main Branch) increased from
Rs 133.25 crore in financial year 2003-04 to Rs 149.51 crore in financial year
2004-05 by 12.20 %. On the other hand the total advances given by Syndicate
bank (Trivandrum Region) increased from Rs 364.05 crore to Rs 480.63 crore by
32.02% in the same period. This shows that there has been positive growth in total
advances over the last two years though under Trivandrum region the growth was
more as compared to Syndicate bank (Main Branch).
98
the total amount of Gross NPAs of Syndicate bank (Trivandrum Region) increased
from Rs 25.15 crore to Rs 32.43 crore by 28.96% during financial year 2003-04 to
2004-05 though percentage wise it came down from 6.90% to 6.74%.
It is seen that the Syndicate bank (Trivandrum region) including Syndicate bank
(Main branch) concentrated more on allocating advances under Non–Priority
Sector than Priority Sector. It is also seen that the percentage as well as the
amount of NPAs is less in Non–Priority sector than Priority sector.
It should also be taken into consideration that Syndicate Bank (Trivandrum Region)
has higher percentage of NPAs compared to Syndicate Bank (Main Branch) in the
case of Priority Sector. In this category percentage of NPAs reduced from 13.29%
to 10.69% from financial year 2003-04 to 2004-05 for Trivandrum Region. On the
other hand the percentage of NPAs reduced from 4.2% to 3.8% from financial year
2003-04 to 2004-05 for Main Branch. This shows that the Main Branch has
performed better than other branches in Trivandrum Region in the case of Priority
Sector. While in the case of Non– Priority Sector the performance of Main Branch
and Trivandrum region is more or less same. The percentage of NPAs increased
from 3.19% to 4.53% in the last two financial years 2003-04 and 2004-05
respectively in Trivandrum Region while the percentage of NPAs reduced from
1.36% to 1.33% respectively for Main Branch for the financial years 2003-04 and
2004-05. This also bring to conclusion that the percentage of NPAs is reducing in
Priority Sector and increasing in Non–Priority sector for Trivandrum region while
for Main branch the percentage of NPAs in both the categories is reducing.
99
In the following cases it is seen that though the percentage of NPAs has reduced
the amount of NPAs has increased
(D) SMALL BUSINESS: Under this scheme the percentage of NPAs in Syndicate
bank (Main Branch) reduced from 24.11% to 21.00% while the amount of NPAs
increased from Rs 71.63 thousand to Rs 1.49 lakh.
(F) HOUSING SCHEMES : Under this the percentage of NPAs reduced from
4.01% to 3.32% for Trivandrum Region while the amount increased from Rs 1.92
crore to Rs 2.77 crore for the last two financial years 2003-04 and 2004-05.
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(G) OTHER PRIORITY SCHEMES: Under Trivandrum Region the percentage of
NPAs reduced from 6.44% to 5.58% while the amount of NPAs increased from Rs
12.47 lakh to Rs 22. 19 lakh.
(I) LOANS TO WEAKER SECTION: Under this for Trivandrum Region the
percentage came down from 17.33% to 14.94% but amount wise increased from Rs
1.18 crore to Rs 2.93 crore.
From the study above the conclusion can be drawn that though in percentage terms
the Non–Performing Assets (NPAs) have come down over the last two financial years
2003-04 and 2004-05, in absolute terms they have grown, signifying that while new NPAs
were being added to the bank’s operation every year, recovery of the old dues is also
taking too long specially in the case of other branches in Trivandrum Region other than
Main Branch.
Syndicate Bank ( Main Branch) has performed well in the following schemes of
loans and advances :
(A) GROSS NPAs: Here the percentage of NPAs reduced from 2.78% to 2.47%.
(B) SMALL SCALE INDUSTRIES (SSI): Here the percentage of NPAs reduced
from 90.80% to 78.17%.
(C) EDUCATION LOANS: The Main Branch did not accumulate any amount of
Non-Performing Assets in the last two years unlike Trivandrum Region.
101
(D) ALL OTHER NON-PRIORITY SCHEMS: Under Syndicate bank (Main
Branch) the percentage of NPAs has been more from Trivandrum Region as can be
seen from analysis.
(A) AGRICULTURE LOANS: Here the percentage of NPAs reduced from 10.68%
to 6.28%.
(B) SMALL ROAD AND TRANSPORT LOANS: Here the percentage of NPAs
reduced from 33.17% to 25.91%
In most of the schemes the Main branch performed better than Trivandrum Region
except for the following few:
(A) SMALL SCALE INDUSTRIES (SSI): Here the percentage of NPAs was
more than Trivandrum Region. For year 2003-04 and 2004-05 the percentage of NPAs
decreased from 90.80% to 78.17% while for Trivandrum Region the percentage of NPA
reduced from 37.92% to 31.90%.
(C) RETAIL TRADE: The percentage of NPAs for Main Branch was very low in
2003-04 which increased from 8.55% to 37.90% in 2004-05 which is quite high compared
to Trivandrum region.
102
(E) OTHER PRIORITY SECTOR LOANS: Under this there was no amount of
NPAs for the year 2003-04 in Main Branch. But in 2004-05 the percentage of NPAs was
16.17% which is much higher than Trivandrum Region.
(F) LOANS FOR CONSUMER DURABLE: In this as shown in the analysis the
percentage of NPAs for Main Branch for both years 2003-04 and 2004-05 was more than
Trivandrum Region.
Thus we draw to the conclusion that the Main Branch should concentrate in the
recovery process of the above shown schemes and try to perform better than the other
branches in Trivandrum Region.
There has been a positive increase in provisions for Trivandrum Region and Main
Branch in the last two year in most of the schemes. Due to this reason net NPAs
has reduced drastically.
The problem of NPAs is exacerbating by existing bad assets, due to poor debt
recovery and inadequate legal provision.
The analysis of the reasons as to why such a disproportionate amount of the bank
advances has degraded into bad category shows the following :
(A) Failure of a business unit either resulting from lack of its own competitive advantage
or from generic weakness of the industry (cyclical or otherwise), change in
technology, demand pattern and other policy, non-completion of project due to cost,
time, over run etc:
103
Any borrowing unit facing a problem because of the above reason is obviously
beyond its control and deserves from the financing institution a reasonable rehabilitation
treatment like, injection of further capital, postponement of recovery, recasting of debt,
conversion of debt into equity, etc. What is important in such cases is that bank officials
need to understand and appreciate the causes of Non-Performance of the unit and
prescribe possible remedial measures.
(B) Lack of adequate risk assessment and monitoring system within the bank:
The second given reason i.e. absence of proper credit management system is a
very serious issue with many of the India banks, particularly the Nationalised Banks. There
are several dimensions to the problem the most important being lack of trained man-power
i.e. analysts in adequate number to appraise critically the credit worthiness of the potential
client.
Thus the bank has to be very careful in checking the credit worthiness.
(C) Hesitation on part of the management of the borrowing units to repay the loans
irrespective of the superior performance and ability to pay back, in other words wilful
default.
The above two cited reasons are possibly inter-related. Apart from making the
banks more socially responsible and contributing to the economic development on an
equitable basis, the other important reason for nationalisation of banks in late sixties and
subsequently in eighties was to break the nexus between corporate and banks. The story
of Indian Banking since then has belied all expectations. Corporate interference was
substituted by government and political intervention not only in terms of government
nominees on the bank boards but also through politically motivated, guided and directed
bank credit. In Syndicate bank under government loans schemes the NPAs are very high
compared to other loans and advances.
104
This is due to the reason that the government loans are directed loans i.e. the bank
is directed by the government to allocate loans and advances under the various schemes
of the government including loans and advances to the unemployed, weaker society etc.
These sections of society are not in the position to pay back the loans. Thus the high
NPAs occur.
(E) Diversion of funds by the borrowers and inefficient management of the unit financed.
It should also be taken into consideration that another major constraints that has
been faced by the branch is in getting loans repaid from the following category of
people
(C) Self-employed
One of the major constraints that have been faced by the bank is in getting the
loans repaid from those falling under the first two categories i.e. business people and
salaried people. The business people do not have permanent source of income unlike
salaried people but the salaried people generally take loans for there personal lavishness,
which makes them feel that repayment for such loans are not necessary.
Given the dominance of red tapeism in India it is difficult to regain back the amount
of loan from government employees. One of the other reasons why the occurrence of
NPAs among salaried people is that the securities given by these categories of people is
of mostly of their relatives or other family members, therefore this gives them the
105
opportunity to delay in payment or avoid altogether the payment of loans taken as they are
not personally affected.
Large business houses create more problems. They delay in paying the loans
which are generally high in amount. These larger business institutions have more than one
company under them. So if they need further loans they take in the names of other
companies which sometimes are also fictitious in nature.
When the banks file cases in the Debt Recovery Tribunal (DRT) the large business
houses and even rich individuals delay in payment as much as possible through the
process of stay order etc.
Initially the policy adopted by the bank was that only customers who had accounts
with the bank for at least one year could be allowed to take loan from the bank. But this
policy was given up due to the aggressive drive of the bank to increase loans and
advances. Now the bank thoroughly scrutinises the background of the potential customer
like the balance sheet, income statement, if the person has ever taken loans before and
has paid it on time etc before allocation of any loans or advances. Due to the high
incidence of NPAs among salaried and large business houses and individuals the bank
should restrict their lending operations to secured avenues only with adequate collateral
on which to fall back upon in a situation of default.
The other main reason given by the bank authorities for increase in NPAs
especially in the year 2004-05 is the change in rule of classifying NPAs. The
reduction in number of days from which the bank can classify assets as NPAs from
180 days to 90 days has affected the bank. The general trend among the
customers is to pay interest on the loans and advances within a period of 90 days
or even later than that. Thus the bank has to make sure that the customers should
be punctual in paying the interest within 90 days.
Eventually increase in NPAs in the Trivandrum region or anywhere else means that
the funds locked are not being used properly or are not producing adequate
returns. In the worst case scenario the banks may not be able to earn enough to
pay depositors interest or repay their principal.
106
4.3 RECOMMENDATION
107
4.3: RECOMMENDATIONS
Syndicate bank should concentrate more on priority sector. Though the advance
is lower than non-priority sector the total Non-Performing Assets (NPAs) for both
financial years 2003-04 and 2004-05 is much higher than Non-Priority sector.
The branch should have stringent deterrents for non payment. The problem of
non payment of the advance occurs when the bank fails in properly diagnosing
the financial background of the person who applies for the loan. Therefore, strict
policies should be adopted to check this problem.
Measures for speedy recovery are to be taken when default persists. Presently
legal remedies take a long time and do not yield result in account with smaller
out standings. Therefore it will be better to adopt some other recovery measures
for speedy recovery of loans sanctioned. The following are few of the steps
suggested:
1. The bank should take advantage of Restructuring under Corporate Debt Scheme
(CDR): This scheme was announced as a policy statement by the finance minister
in 2000-01.The aim of CDR was to ensure timely and transparent restructuring of
corporate debts. The system is relevant for those corporate accounts, which are
viable but have been struck with uncertainties of business cycle.
108
2. The bank should try to sell assets to Assets Reconstruction Companies (ARC’s).
The bank should find a way to transfer uncovered loans to ARC’s. So far only 19
nationalised banks in the country have sold bad loans to Asset Reconstruction
Company of India Ltd (ARCIL), the only asset reconstruction company in India.
3. New generation private banks buy stressed assets from their public counterparts to
build up a bigger credit portfolio. Usually in such deals, one bank buys stressed
assets from another bank at a discount and thereafter, classifies it as standard
assets in its books of accounts. It is a win-win situation for both the parties involved
as the seller can reduce its NPA level, while buyer raises its loan portfolio level.
Syndicate bank may try out this option in case of loans and advances likely to fall
into NPA category.
The bank should take adequate and appropriate steps towards enhancing
the quality of credit appraisal mechanism. The origin of the problem of
burgeoning NPAs lies in the quality of managing credit risk by the banks
concern. What is needed is having adequate preventive measures in
place namely, fixing pre-sanctioning appraisal responsibility and having
an effective post-disbursement supervision. The bank should get into the
process of credit rating. Fundamentally credit rating implies evaluating
credit worthiness of a borrower by an independent rating agency. Here
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the objective is to evaluate the probability of default. As such, credit rating
does not predict loss but it predicts the likelihood of payment problems.
NPA as per prescribed norms. This requirement presupposes that adequate provision is
also made on an ongoing basis, as the net NPAs arrived at otherwise would be showing a
distorted/inaccurate picture. It is therefore advisable that the required provisions for NPAs
should be made at quarterly intervals at the end of June, September, December and
March so that the income and expenditure account for the respective quarters as well as
the profit & loss account and balance sheet for the year end would reflect a realistic
provision made for the NPAs.
The bank should prepare plans and policies in the key areas of
performance namely deposit, credit, investment, recovery, human-
resources development, internal control and computerization to improve
operational efficiency, productivity and profitability. The bank should
monitor closely the number of accounts that have migrated from standard
to sub-standard. Unless the bank is watchful slippage will occur.
110
process. Thus the bank should design its recovery process keeping in
mind these functional parameters.
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APPENDIX
111
Appendix- A
(Ref to page 60)
Syndicate Bank- Study of NPA Accounts
QUESTIONNAIRE: TRIVANDRUM REGION
1. Priority Sector
1. Priority Sector
2. Non-Priority Sector
1. Priority Sector
2. Non-Priority Sector
1. Priority Sector
2. Non-Priority Sector
112
Total Amount Of Gross NPAs
1. Priority Sector
2. Non-Priority Sector
1. Priority Sector
2. Non-priority Sector
FY 2003-04 FY 2004-05
Up gradation Of NPAs (Number Of
Accounts) to Standard Assets
1. Priority Sector
2. Non-Priority Sector
1. Priority Sector
2. Non-Priority Sector
1. Priority Sector
2. Non-priority Sector
1. Priority Sector
2. Non-Priority Sector
1. Priority Sector
2. Non-Priority Sector
113
Amount Involved Of Above
1. Priority Sector
2. Non-Priority Sector
1. Priority Sector
2. Non-Priority Sector
FY 2003-04 FY 2004-05
Amount Recovered From Above
1. Priority Sector
2. Non-Priority Sector
1. Priority Sector
2. Non-Priority Sector
1. Priority Sector
2. Non-Priority Sector
114
AGRICULTURE FY 2003 – 2004 FY 2004 – 2005
1. Total Number Of Accounts
2. Total Advances
2. Total Advances
2. Total Advances
RETAIL TRADE
1. Total Number Of Accounts
115
2. Total Advances
2. Total Advances
2. Total Advances
EDUCATION
1. Total Number Of Accounts
2. Total Advances
2. Total Advances
116
3. Total Number Of NPAs
2. Total Advances
WHOLE SALE
1. Total Number Of Accounts
2. Total Advances
2. Total Advances
2. Total Advances
117
3. Total Number Of NPAs
2. Total Advances
GOVERNMENT SPONCERED
SCHEMES
1. Total Number Of Accounts
2. Total Advances
5. Total Amount Of
Provisions
2. Total Advances
118
SYNDICATE BANK Appendix- B
HEAD OFFICE, MANIPAL - 576104, KARNATAKA
AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED MARCH 31, 2005
(Rs. in Lakh)
Year
Quarter Quarter ended Year
ended ended 31.03.20 ended
31.03.20 31.03.20 05 31.03.20
Sl 05 04 (Audited 04
No Particulars (Audited) (Audited) ) (Audited)
1 Interest earned (a+b+c+d) 98527 87815 375763 308485
Interest/discount on
a advances/bills 58182 47150 204210 159160
b Income on investments 39215 36239 156893 136881
Interest on balances with
Reserve Bank of India and other
c inter bank funds 1106 3713 14444 10201
d Others 24 713 216 2243
119
Paid-up equity share capital
(Face value of the share Rs.10/-
5 each) 47197 47195 47197 47195
120
Segment Report
( Rs. in crore)
BUSINESS
TREASURY OTHER BUSINESS TOTAL
SEGMENT
Year Year Year
Year Year
Year endedended ended ended
ended ended
PARTICULARS 31.03.2005 31.03.200 31.03.200 31.03.200
31.03.200 31.03.2004
(Audited) 4 5 5
4 (Audited) (Audited)
(Audited) (Audited) (Audited)
Revenue 1933 1863 2389 1998 4322 3861
Result (Operating
profit) 341 529 653 525 994 1054
Unallocated
Expenses 561 350
Income Taxes 30 270
Net profit 403 434
Segment Assets 20371 17917 31357 28942 51728 46859
Unallocated Assets 381 364
Total Assets 52109 47223
Segment Liabilities 22730 20513 27181 24752 49911 45265
Unallocated Liabilities 2199 1958
Total Liabilities 52109 47223
VRS expenses, being an extra-ordinary item, to the extent of Rs.159.86 crore has
1
been charged during the period.
There has been no material change in the Accounting Policies adopted during the
2 year ended 31st March 2005, to those followed in the immediate preceding financial
year 2003-04.
The financial results for the year ended 31st March 2005 have been arrived at after
considering provision for NPAs / Non Performing Investments / Standard Assets,
3
Taxation, Pension / Gratuity / Encashment of Leave, Depreciation on fixed assets
and other necessary provisions.
Payments to and Provisions for employee include and amount of Rs.92 crore towards
4
arrears for the proposed wage revision.
All mandatory Accounting Standards relevant for the financial results attached to the
5
extent applicable have been adopted.
121
6 The reconciliation / balancing / clearance of outstanding items is in progress.
The above results have been taken on record by the Board of Directors at its meeting
8
held on 09.05.2005.
The Board has declared a final dividend of 14% in addition to the interim dividend of
9
6% for the year, thus taking the total dividend to 20%.
122
BIBLIOGRAPHY
BIBLIOGRAPHY
123
Reference
Websites:
1. www.syndicatebank.com
2. www.rbi.org.in
3. www.hindustantimes.com
4. www.expressindia.com
5. www.yahoo.com
124