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Canara Bank

Analysis of NPA with special reference to SSI Sector

A dissertation submitted in partial fulfillment of the requirement of Post Graduate Degree in Master of Business Administration of Bangalore Univeristy

Submitted by :

SUDHEENDRA .B.S.

Register no. :

03XQCM6105

UNDER THE GUIDANCE OF

Prof. B.K. Ramaswamy

2004 – 2005

MP BIRLA INSTITUTE OF MANAGEMENT

Associate Bharatiya Vidya Bhavan

BANGALORE – 560 001.

Canara Bank

Analysis of NPA with special reference to SSI Sector

PRINCIPAL’S CERTIFICATE

This is to certify that the project entitled “An analysis of Non

performing assets with special reference to SSI Sector – a study at

Circle

office,

Mr.Sudheendra

Canara

.B.S.

Bank,

of

4 th

Bangalore”

has

been

prepared

by

Semester,

MBA

bearing

register

No.

03XQCM6105 under the guidance of Prof. B.K. Ramaswamy.

Place : Bangalore Date:

Dr. Nagesh .S. Malavalli Principal

Canara Bank

Analysis of NPA with special reference to SSI Sector

GUIDE’S CERTIFICATE

This is to certify that the project entitled “An analysis of Non

performing assets with special reference to SSI Sector – a study at

Circle

office,

Mr.Sudheendra

Canara

.B.S.

Bank,

of

4 th

Bangalore”

has

been

prepared

by

Semester,

MBA

bearing

register

No.

03XQCM6105 under my guidance.

Place : Bangalore Date:

Project Guide Prof. B.K. Ramaswamy.

Canara Bank

Analysis of NPA with special reference to SSI Sector

DECLARATION

I declare that this dissertation entitled “An analysis of Non

performing assets with special reference to SSI Sector – a study at

Circle office, Canara Bank, Bangalore” is an original and bonafide

work carried out in partial fulfillment of the requirement for the award of

MBA degree of Bangalore University.

I also declare that no part of this representation has been previously

published or submitted as a project representation for any degree or

diploma of Bangalore University or any other University

Place : Bangalore Date:

Mr. Sudheendra .B.S. Reg. No. 03XQCM6105

Canara Bank

Analysis of NPA with special reference to SSI Sector

AACCKKNNOOWWLLEEDDGEGEMMEENNTT

The completion of the project would have been impossible without

the valuable contributions of people from the industry, academics and

friends

I wish to thank MMr.r. RRaamanamananndd KKuukkiillaayyaa,, Senior Manager, Staff

Selection Workmen, who permitted to do a project in the circle office. I

would also like to thank MMr.r. SSrriinniivvaass GGoottaa (Manager, NPA cell),

MMr.Pr.Prarakkaasshh HHuuddaar,r, MMr.r. VVenenuuggooppaall and MMrrss CChhititrraa without whose help

this project would not have been possible.

RRaammaaswswaammyy,, and also my

academic guide whose guidance and feedback laid the frame work for this

I would like to thank PrProfof

BB.K

K.

project.

I

would

also

like

to

thank

faculty

KKaasshihi

NNaaggaarraajjaann

and

SSananththaannaamm MPBIMS, for his help in the area of Research methodologies.

Lastly I thank my friends whose support and guidance has meant a

lot to me personally and also for the completion of the project.

SUDHEENDRA B.S.

Canara Bank

Analysis of NPA with special reference to SSI Sector

ABSTRACT

The incidence of Non Performing Assets is affecting the performance of the Bank both financially and psychologically which has been reflecting ultimately on the Balance Sheet of the Bank. With the increase of concern towards the Circle Office's Non Performing Asset, with special reference to SSI sector, the study was undertaken to Analyse the reasons for Non Performing Assets. Attempts are also made analyze the movement of NPA in SSI sector.

Primary data form the Circle Office constituted the previous four years data relating to NPA. And also a survey was conducted to understand the perception of Managers/Officers of various branches on Non Performing Assets. A structured questionnaire was prepared to undertake the survey.

The primary data collected from the Bank were found out to be interesting. Usually, Non Performing assets are more in the Agriculture sector. Now, it is not agriculture in which Non Performing Asset is more, but it is more in SSI sector and non priority sector and to some extent in other priority sector.

This has

been

concluded

from the data which was

analysed

through calculating the growth rate for the previous four years

The recovery has been not effective in some of the Regional Offices. Finally all the analysis done has been arranged in a summary table, which tells the performance of the Circle Office during the previous four years related to SSI.

Canara Bank

Analysis of NPA with special reference to SSI Sector

Another objective of the study was to study all the NPA accounts during the previous four years were gone through and an ABC Analysis was made. The findings were that few accounts of the total NPA accounts, having amount more than one crore constitute the major chunk of the total NPA.

It was also found out that Debt Recovery Tribunal (DRT) which was set up just for recovering bank dues form the defaulters has not been effective. The average time taken to give a decree is one year and it is more than a year in some cases. There are also many formalities to be followed while referring a case to DRT.

All these findings were supported by the data got through the survey Manager/Officers' perception about the repayment form the customers vis-avis with respect to SSI sector and the ineffectiveness of functioning of DRT matched with the above findings.

Recommendations are made in the area of lending and recovery. New tools like credit Derivatives and setting up of Asset Reconstruction Company are suggested. Instead of referring the cases to DRT, it has been recommended to the Bank to take more rigorous steps in recovering the due amount from the defaulters.

More power should be given to the Branch managers to attach the property of the defaulter and in certain case to sell the property, like what cooperative banks do.

Canara Bank

Analysis of NPA with special reference to SSI Sector

LIST OF ABBREVIATIONS

NPA -

Non Performing Assets

PA

-

Performing assets

CO

-

Circle Office

RO

-

Regional Office

SLR

-

Statutory Liquidity Ratio

CRR

-

Cash Reserve Ratio

ARC

-

Asset Reconstruction Company

NBFC

-

Non Banking Finance Companies

BIFR

-

Board of Industrial and Financial Reconstruction

DICGC

-

Deposit Insurance and Credit Guarantee

ECGC

-

Export Credit Guarantee Corporation

ARDR

-

Agricultural and Rural Debt Recovery

DRT

-

Debt Recovery Tribunal

DRAT

-

Debt Recovery Appellate Tribunal

LPD

-

Loan Past Due

OTS

-

One Time Settlement

Canara Bank

Analysis of NPA with special reference to SSI Sector

TABLE OF CONTENTS

Executive summary

I

Abbreviation

II

List of tables

III

List of graphs

IV

CHAPTER I – INTRODUCTION OF THE TOPIC

Introduction

1

Committee Report

9

CHAPTER II – DESIGN OF THE STUDY

Problem of statement

16

Objectives of the study

16

Scope of the study

16

Sample of the study

17

collection of data

17

tools for collection of data

17

Data Collection mode

18

Methods for Analysis

18

limitations of the study

18

Operational Definition

19

Chapter overview

21

CHAPTER III – PROFILE OF THE RESPONDENT

Background of Canara Bank

22

Current performance of the Bank

30

CHAPTER IV – ANALYSIS OF THE STUDY

Analysis of the study

34

Interpretation

39

Canara Bank

Analysis of NPA with special reference to SSI Sector

NPA and recovery management

52

Impact of RBI guidelines

56

Role of DRT

57

Survey Analysis

59

CHAPTER V - SUMMARY OF FINDINGS, CONCLUSIONS

 

AND RECOMMENDATIONS

Findings

78

Conclusions

81

Recommendations

83

References

Annexure

Questionnaire

CHAPTER -1

INTRODUCTION

Banking system which constitutes the core of the financial sector

plays a crucial role in transmitting monetary policy impulses to the

economic system. Therefore its efficiency and development are vital for

enhancing growth and improving the chances for stability. During the

recent past, profits of the bank came under pressure due to rise in interest

rates, decrease in non interest income and increase in provisions and

contingencies. The biggest ever challenge that the industry facing is the

management of Non Performing Assets.

Canara Bank

Analysis of NPA with special reference to SSI Sector

High level of Non Performing Assets calls for provisioning for the same, thus profitability and operations are severely affected, which makes further lending increasingly difficult. The most crucial factor that governs the performance of the bank is spotting their NPA.

The incidence of Non Performing Assets is affecting the performance of the credit institutions both financially and psychologically. For the sake of uniformity and proper running RBI has given many guidelines to the banks in respect of NPAs. Before understanding the various committee recommendations on NPAs, the following concepts need to be understood. RBI has classified all the assets of a bank as performing assets and non performing assets, which are explained below.

Canara Bank

Analysis of NPA with special reference to SSI Sector

ASSET CLASSIFICATION:

All loan assets are broadly classified as performing assets or standard assets (PA) and Non-performing Assets (NPA). The classification is based on the record of recovery of interest/principal in these accounts.

Performing Assets - Standard Assets:

Performing Assets are standard assets which do not disclose any problem and which do not carry more than the normal risk attached to the business. The Performing Asset is one which generates income for the Bank.

An account is considered to be a Standard asset when it is !n order or where the overdue amount is within a period of 180 days and in respect of Direct Agricultural advance if the amount overdue is less than two Harvest seasons but for a period not exceeding two Half years.

For the purpose of Balance Sheet as at 31sl march 2002, the following accounts can be classified as Standard Assets.

a) Fresh running limits availed on or after 31.10.2001.

b) Fresh loans (including Term Loans) availed where date for payment falls on or after 3.10.2001.

c) Fresh Bills limit availed where due date for payment falls on or after 3.10.2001.

d) Advances guaranteed by the State Government to the extent of guarantee cover available.

e) Advances guaranteed by the State Government to the extent of guarantee cover available, if not invoked.

Canara Bank

Analysis of NPA with special reference to SSI Sector

f) Advances to staff members except cases mentioned elsewhere.

g) Loans/Advances against the Banks Term Deposits, LIC Policies, NSCs, IVPs and KVPs.

h) Existing loans and advances where interest/installment due on or up to 3.10.2001 have been paid,

i) Advances granted to Direct Agricultural purpose except allied activities where amount is overdue less than two Harvest seasons but a period not exceeding two Half years.

Non Performing Assets:

An amount is to be treated as Non Performing Asset when it ceases to generate income for the Bank. Such Non Performing Asset shall have well defined credit weaknesses, which jeopardize the liquidation of the debt and characterized by distinct possibility that the bank would sustain same loss, if the deficiencies are not corrected. Non Performing assets are further classified as Sub standard assets, Doubtful assets and Loss assets.

In respect of loan amount if any amount is overdue for a period of more than 180 days from the due date, the account should be classified as Sub Standard Assets, provided it is covered by adequate securities i.e. where erosion in securities is less than 50% of the value of securities (Value of securities means the value as assessed by the bank previously accepted by Reserve Bank of India at the time of last inspection). Such Non Performing asset accounts can remain in Sub Standard category for a maximum period of 18 months.

An account which has completed 18 months in Sub Standard category and which is covered by securities/ECGC/CGTJI cover where

Canara Bank

Analysis of NPA with special reference to SSI Sector

the realizable value is less than 10% of the value of security assessed earlier and the available value of securities is more than 10% of the outstanding liability should be classified as Doubtful Asset.

It is not necessary that there should be any gestation period to classify an account as Loss Asset. A Loss Asset is one where the loss has been identified by the Bank or the Internal/External Auditors or the Reserve Bank of India inspectors, but the amount has been written off wholly or partly. In other words, such an asset is considered uncollectible with salvage or recovery value.

Further, if the realizable value of the security as assessed by the Bank/approved valuers /RBI is less than 10% of the outstanding in the borrowal accounts, such accounts should be classified as Loss Assets.

Further accounts where there is a potential threat of recovery on account of erosion in the value of security or non availability of security and existence of other factors such as fraud, Bill discounted with fake documents, etc, should be classified as Doubtful Assets (where erosion in the value of securities is more than 50% of the value of securities assessed earlier and realizable value being more than 10% of the outstanding liability) or Loss Asset (where realizable value of securities is less than 10% of the outstanding liability), irrespective of the period it has remained as Non Performing asset.

In the annual accounts of the public sector bank according to the directives of RBI, two sets of NPA figures should be shown i.e. the gross NPA and the net NPA. Gross NPA refers to the percentage of bad loans on the total advances whereas net NPA is calculated after deducting from the gross NPA provisions and the claims received from the Deposit

Canara Bank

Analysis of NPA with special reference to SSI Sector

Insurance and Credit Guarantee Corporation (DICGC). The RBI wants these two NPAs for analyzing the performance of the banks because a lower NPA level depicts the fundamental strength of a bank.

Until 1992 there was no system of classification of assets, based on their income earning capacity. The debiting of interest used to be continued till the date on which the accounts were transferred to LPD and the entire interest so debited would have been accounted as income. The amount of provision required for each asset was decided based on the availability and value of securities.

The above system gave room for subjectivity. In order to standardise and introduce common norms to all the banks, Government of India had appointed a committee headed by Mr. Narasimhan. Based on the recommendation of the Narasimhan committee, the prudential norms relating to income recognition, Asset Classification and Provisioning were introduced by RBI from 1.4.92. Over the years, refinements in the norms have been brought about to take care of the changing requirements.

The above norms have three main criteria i.e. Asset Classification, Income Recognition and Provisioning.

INCOME RECOGNITION:

The income recognition is linked to the concept of performance of the assets. In other words the income from performing assets only is to be recognised. The income from Non-performing Assets is recognised only to the extent of actual recovery made during the accounting year. Interest is not at all debited to all NPAs from the day on which they are first recognised as Sub-Standard, Doubtful or Loss assets. Branches are also

Canara Bank

Analysis of NPA with special reference to SSI Sector

required to note in the required to note in the ledger the date from which interest is not debited to these accounts.

PROVISIONING:

The amount of provision required to be created for each assets depends on the classification of the asset, availability/value of security, amount of ECGC/other Guarantee available, the age of the NPA etc.

GENERAL

From the foregoing, it may be observed that the prudential Norms have twin effect on the profitability of the Banks. One, the income from the Non-performing Assets cannot be recognised (except to the extent of actual recovery). Two, Bank is required to create provision for the Non- performing Assets. Both these have a negative impact on our profitability. Hence, the endeavor of the Bank should be to prevent the loan accounts from slipping to NPA category. In case any asset becomes NPA, appropriate steps are to be initiated to upgrade the assets. However, if up gradation is not at all possible, immediate recovery steps are to be initiated. The Branches are also to be guided by the Circulars issued by the HO from time to time in this regard.

BORROWER-WISE CLASSIFICATION

The Asset Classification into performing and non performing is borrower wise and not account/facility wise. Accordingly, if one account of the borrower is NPA, the other accounts which are otherwise performing should be classified as NPA and such PA are called Deemed NPAs.

Canara Bank

Analysis of NPA with special reference to SSI Sector

"If the borrower is having more than one account and if anyone of the account is to be classified as doubtful, all other accounts of the borrower should be classified as Doubtful, though such account may qualify for classifying as standard and /or sub-standard asset."

Since the Asset Classification is borrower-wise, the total liability of the borrower and the securities available therefore should be considered/aggregated for Asset Classification and Provisioning.

REHABILITATION/ NURSING PACKAGE:

Nursing Program is sanctioned either as per the directives of BTFR or Team/other institutions/Banks. In such cases:

a) The existing facilities shall continue to be classified under category of Asset Classification before sanctioning of the package.

b) Additional limits sanctioned as per the package alone can be classified as Standard Asset and hence there is no need for making any Provision for a period of one year from the date of disbursement of additional facilities.

NPA with liability.

Appropriate Authority

1)

Less than Rs.5 lakhs

Regional office

2)

Rs. 5 lakhs to 25 lakhs

Circle office

3)

Rs.25 lakhs and above

Corporate Credit Wing / Credit Wing/Recovery Wing, HO

Canara Bank

Analysis of NPA with special reference to SSI Sector

PROVISIONING REQUIREMENT

FOR DOUBTFUL ASSETSREMARKS

First year of Doubtful Security Deficit + 20 % of Deficit - (Net Liability minus security available + ECGC Cover)

Second or Third year of Doubtful security

Deficit + 30 % of Realisable value of

tangible should be

Guarantor's worth should not be considered.

taken. Borrower/

Fourth year Onwards security Deficit + 50 % of Proportionate amount of ECGC cover only to be taken.

COMMITTEE REPORTS

Several committees were formed to study the NPAs in the Bank. The excepted committees are the Narasimham committee recommendations. The highlights were as follows.

NARASIMHAM COMMITTEE- FIRST REPORT-HIGHLIGHTS:

SLR and CRR are to be brought down.

 

Priority sector redefined and bank finance to be restricted to 10 %.

Interest rate to be deregulated.

 

Banks to

achieve capital

adequacy of

8

%

by 1996

of

Risk

Weighted assets

 

Adoption of uniform accounting practices particularly on income recognition asset classification and provision.

Canara Bank

Analysis of NPA with special reference to SSI Sector

Classification of Assets into performing and non performing assets (Sub standard Doubtful and Loss Assets) and interest on non performing Assets not to be recognised.

Provision to be made

Sub standard assets

10 %

Doubtful assets

20 % to 50 %

Loss assets

100 %

Transparency in Balance Sheet.

Formation of Assets Reconstruction Fund.

Merger and Acquisition of Banks into 4 international banks, 10 national banks, Local, Rural Banks and new Banks.

No more nationalisation of banks. New banks in private sector. No branch licensing and freedom on recruitment, good banks can issue Fresh capital etc.

Greater emphasis on internal Audit and inspection

Improve quality, greater autonomy to Banks, only to control.

NARASIMHAM COMMITTEE-SECOND REPORT- HIGHLIGHTS:

Capital adequacy to be increased from 8 % to 10 % in stages.

Asset Reconstruction Companies to be set up to issue bonds which would form part of Tier II capital.

Introduction of income recognition norms of 90 days in a phased manner.

Canara Bank

Analysis of NPA with special reference to SSI Sector

Provision to be made for standard asset and the period for sub standard asset to be reduced to 11/2 years.

Banks should adopt strategic risk management techniques like value-at-risk in respect of balance sheet items.

Actions to be under taken on reducing expenditure through value- at-risk in respect of balance sheet items.

The major parameters for the banks that seek to become international players could be return on equity, return on assets and employees, productivity measured not in terms of business volume but net profit.

Investment decisions should be taken by committee at various levels within the policy framed by the bank.

Accurate and timely information for strategic decisions-identify and provide profitable products to customers.

2 or 3 larger banks with international orientation, 8-10 national banks and large number of local banks proposed.

Minimum shareholding of government should be brought down to

33%

Training systems to address newer areas like product development, marketing skills, modern credit management skills and new internal audit skills.

Need

for

network

of

regional

data

warehouse

and

credit

information bureau.

 

Transfer of priority sector portfolio between high level and lower level banks.

Canara Bank

Analysis of NPA with special reference to SSI Sector

Single integrated system of regulation and supervision covering banks, FIs and NBFCs.

NPA AND BANK LENDING:

Phases of Bank Lending

The incidence of non-performing advances is affecting the performance of the banks both financially and psychologically. The successful banker-client relationship in the credit functions of bank involves three important and interlinked phases viz: loan availability, loan utilisation phase and loan repayment phase.

The successful management of the first phase presupposes that the right type and the right amount of credit are given to the right type of the client. This phase involves the following actions before the loan is leased.

a)

A prospective borrower approaches the bank for seeking financial assistance.

b)

The banker appraises the loan proposal, and

c)

The borrower complies with the formalities for the sanction and release of the amount.

The second phase envisages that the borrower makes proper use of the amount received from the bank. This phase involves actions such as mobilisation of non-credit inputs- the right type of technology, other material and inputs, services, and managerial skills and uses them for the initiation and completion of the productive activity for which the loan is taken. It also involves the mobilisation of supplementary financial resources wherever and to

Canara Bank

Analysis of NPA with special reference to SSI Sector

the extent the credit amount is not equal to the project cost. Usually, there is some gap between the credit availability from the banks and the actual financial requirements of the activity/project. This is a deliberate aspect of prudent credit policy so that the borrower has some stake in the project. This gap is usually bridged by the borrower's own funds/or the financial assistance from the government in the form of subsidy in specified cases.

The third phase expects that the borrower repays the outstanding loan along with the interest in time. This phase has two important aspects;

a) The project/activity generates enough income in the form of cash surplus which takes care of the borrower's obligation to the bank and his reasonable demands on the income generated by the project.

b) The borrower actually repays the cash borrowed from the bank and closes the account.

All these three are envisaged in the proper management of any project. However, in reality, things do not happen as they are expected to. That is why, many a time, there are various snags in the smooth banker client relationship

Some of them may be the following nature

a) The right amount may not have been given to the right borrower for the right activity and at the right time.

b) The amount might not have been properly utilized for the purpose or even when it had been used for the right purpose, there may not

Canara Bank

Analysis of NPA with special reference to SSI Sector

have been a proper match between the credit and the non credit

inputs.

c) The project might not have generated enough income and surplus.

d) Even if the income and the surplus generated by the project are

adequate for repayment the borrower may have deliberately

defaulted in repayment. In fact the repayment behavior of the

borrower in the field can take any of the following patterns.

Pattern

 

Links involved in the behavior

i

L

----- A ----- P ----- Y ----- R ----- C ----- I

ii

L

----- A ----- P ----- Y ----- R

 

R

iii

L

----- A ----- P ----- Y

 

C

R

iv

L

----- A ----- P ----- Y ----- C -----I

v

L

----- A ----- P ----- Y ----- I

vi

L

----- A ----- P ----- Y ----- C

vii

L

----- A ----- P ----- C

viii

 

R

L

 

C

ix

L

---------- C

x

L

---------- A

xi

L

---------- -A

Canara Bank

Analysis of NPA with special reference to SSI Sector

Notations used : Lending (L); Activity (A); Production (P); Income (Y); Repayment (R); Consumption (C); Investment (I).

The first pattern is the ideal situation where the lending leads to activity, which is productive and hence results into production. This production is supported by market infrastructure and hence, it is concerted into income of the borrower. This income is adequate and is judiciously put in for three uses viz., repayment, improvement in consumption of the family members, and further investments in the family economy, which would lead to the future income rise and better standard of living and so on.

The second pattern ends with repayment. It proposes a very high repayment ethos on the part of the borrower and/or very strict recovery machinery so that whatever income is generated in the process is used for repayment.

The third and the fourth pattern could be considered most prevalent ones where the income generated with the help of bank credit is used for partial repayment and for improving the consumption and/or investment levels of the family.

The fifth pattern may be called the diversion of the income for production purposes. In this process the economy may not suffer though the banker is initially a loser. This pattern results in a situation where the priorities of the borrowers differ from that of the bankers.

The sixth pattern is a case of clear diversion and default in repayment. This may happen in the situation where the additional income generated with the help of credit supported activity is less than the pressing consumption needs of the family.

Canara Bank

Analysis of NPA with special reference to SSI Sector

The seventh pattern may result on account of the nature of the activity. There are certain activities, which produce directly consumable items and if their level of production is low enough to meet only the family consumption needs then the borrower directly uses the produce without going to the market and selling the same for repayment.

The eighth pattern is a typical example of subsidy oriented credit schemes where the subsidy is prepaid and the loan is consumed. The ninth pattern is a pattern clear cut case of misutilization of loan. The tenth pattern indicates an unfortunate situation of future loans.

These patterns are indicative of many snags which are likely to emerge in the repayment behavior of the borrowers. As a result of these snags, the accounts will be termed as overdue and the banks may face a situation of non performing assets.

Magnitude of the NPA

The level of NPAs in the bank has reached an alarming proportion. In terms of absolute amount, aggregate NPA of the Canara Bank was Rs.956 crores as on March 2004. In relative terms, the magnitude of the problem could be seen from the fact that the NPA as percentage of total advances was 14.5%.

Canara Bank

Analysis of NPA with special reference to SSI Sector

CHAPTER II

DEIGN OF THE STUDY

The study was conducted for Circle Office of Canara Bank in Bangalore. The study comprised of analyzing the level of NPA in the SSI sector of the bank. Four years data was collected from the bank and was analyzed. A survey was also conducted to understand the perception of the Branch Managers about NPAs.

Statement of the problem

The incidence of NPA is affecting the performance of the Bank both financial and psychologically which has been reflecting ultimately on the balance sheet of the bank.

Objective of the study

To understand the nature of NPA in SSI

Manager perception about NPA

To analyse the quantum of NPA in SSI sectors.

To know why the level of NPA is increasing in SSI sectors.

To know the change in the movement of NPA in SSI before and after the RBI guidelines.

To know the effect of NPA in SSI to the performance of the Bank.

Scope of the study

The study is expected to reveal the hidden reasons for growing NPA level in the SSI sectors.

The study is also reveals the bank perception about NPA.

Canara Bank

Analysis of NPA with special reference to SSI Sector

Sample of the study

Respondents – bank managers and officers in charge of the bank

Sample size – 20 respondents

Collection of data

Primary data

Circle office and Various branches of Canara bank

Questionnaire

Secondary data

Websites

Bank journals

Annual reports

.

TOOLS FOR COLLECTION OF DATA

Sources of data

The data constituted of both primary data and secondary data.

Primary data

The primary data was collected from the Circle Office. Four years data was collected for the study. A survey was also conducted using a structured questionnaire to collect the primary data.

Secondary data

Secondary magazines etc.

data

was

collected

from

texts,

dailes,

internet,

Canara Bank

Analysis of NPA with special reference to SSI Sector

Data collection mode

The data collection instrument to be used for obtaining the desired information is questionnaire. The schedules will be designed for the Bankers.

The Banker will be approached through personal and telephone interviews in the respondents' bank.

METHOD OF ANALYSIS

The data from the bank was first analysed by making a comparative study for the previous four years and inferences were drawn . The data obtained from the respondents was edited and valid responses were retained for the purposes of analysis. Analysis involves converting the series of the recorded observations in to descriptive statements and to draw inferences about the perception of NPA and DRT from the respondents. Tabular analysis was carried out.

Statistical tools like graphs, tables, etc. were used for analysis. Findings, conclusions and recommendation were derived based on the analysis of the responses.

LIMITATION OF THE STUDY

The study is limited to only one commercial bank.

The study is limited to one Circle Office of the Bank.

Limited to only NPA section.

Canara Bank

Analysis of NPA with special reference to SSI Sector

OPERATIONAL DEFINITIONS

Performing assets: Performing Assets are standard assets which do not disclose any problem and which do not carry more than the normal risk attached to the business. The Performing Asset is one which generates income for the Bank.

Standard Assets: An account is considered to be a Standard asset when it is in order or where the overdue amount is within a period of 180 days and in respect of Direct Agricultural advance if the amount overdue is less than two Harvest seasons but for a period not exceeding two Half years.

Non Performing assets: An amount is to be treated as Non Performing Asset when it ceases to generate income for the Bank.

Sub-Standard Assets: lf the loan amount if any amount is overdue for a period of more than 180 days from the due date, the account is classified as Sub Standard Assets, provided it is covered by adequate securities i.e. where erosion in securities is less than 50% of the value of securities (Value of securities means the value as assessed by the bank previously accepted by Reserve Bank of India at the time of last inspection). Such Non Performing asset accounts can remain in Sub Standard category for a maximum period of 18 months.

Doubtful assets: An account which has completed 18 months in Sub Standard category and which is covered by securities/ECGC/CGTJI cover where the realizable value is less than 10% of the value of security assessed earlier and the available value of securities is more than 10% of the outstanding liability should be classified as Doubtful Asset.

Canara Bank

Analysis of NPA with special reference to SSI Sector

Loss Assets: A Loss Asset is one where the loss has been identified by the Bank or the Internal/External Auditors or the Reserve Bank of India inspectors, but the amount has been written off wholly or partly. In other words, such an asset is considered uncollectible with salvage or recovery

Value.

Loan Past Due Accounts(LPD): The account which is in the non performing assets category is passed to LPD accounts, which are then referred to DRT or handled by the recovery team of the bank.

Debt Recovery Tribunal: The judicial set up for the purpose of recovering the amount for banks from defaulting customers.

Canara Bank

Analysis of NPA with special reference to SSI Sector

OVERVIEW OF CHAPTERS Chapter - I This chapter contains details about the topic under study. Definitions, causes and reasons for accounts becoming NPA, in general and introduction on Debt Recovery Tribunal are all the part of this chapter.

Chapter-II

This chapter includes the design of the study - the statement of the problem, objectives and scope of the study, data collection tools and sampling methods.

Chapter-III

This chapter contains the report on banking industry and the profile of Canara Bank. Profile contains the Banks vision, achievements, performances and community concerns.

Chapter - IV

Analysis of both the data i.e. data collected from the bank and also the responses from the survey, are included in this chapter.

Chapter - V

This

chapter

contains

recommendations part.

the

findings,

conclusions

and

Canara Bank

Analysis of NPA with special reference to SSI Sector

CHAPTER - III

CANARA BANK

COMPANY PROFILE

FOUNDING PRINCIPLES:

Founded as 'Canara Bank Hindu Permanent Fund' in 1906, by late Sri. Arnmembal Subba Rao Pai, a philanthropist, this small seed blossomed into a limited company as 'Canara Bank Ltd.' in 1910 and became Canara Bank in 1969 after nationalisation.

Sound founding principles, enlightened leadership, unique work culture and remarkable adaptability to changing banking environment have enabled Canara Bank to be a frontline banking institution of global standards.

BRANCHES & OFFICES:

The Bank has a network of more than 2400 branches spread over 22 States/ 4 Union Territories of the country which are administered through

• 13 Circle Offices and 1 International Division

• 32 Regional Offices.

INTERNATIONAL OPERATIONS:

Canara Bank established its International Division in 1976, to supervise the functioning of its various foreign departments, to give required thrust to foreign exchange business, particularly exports and to meet the requirements of NRIs.

Canara Bank

Analysis of NPA with special reference to SSI Sector

Though small in size, the Bank's presence abroad has brought in considerable foreign business, particularly NRI deposits. The Bank has its presence abroad, as under;

Canara Bank, London, UK ( branch)

 

Indo Hong Kong International Finance Co. Ltd., Hong Kong (subsidiary)

Canara Bank, Moscow (representative office)

 

Al Razouki Intl. Exchange Company, Dubai, UAE. (Secondment agreement and DD drawing facility on Canara Bank)

Eastern

Exchange

Establishment.

Doha,

Qatar.

(Management

agreement and DD drawing facility on Canara Bank)

In addition, following Exchange Companies have DD drawing arrangement on Canara Bank.

• Al Fardan Exchange Company, Abu Dhabi, UAE.

• UAE Exchange Center, Abu Dhabi, UAE.

• Leela Megh Exchange Company, Dubai, UAE

• Thomas Cook Al Rostamani Exchange Co. Dubai, UAE

• Kuwait Bahrain Intl. Exchange Co. Kuwait

• Musandam Exchange, Muscat, Oman

• Laxmi Das Tharia Ved Exchange Co., Muscat, Oman

Canara Bank

Analysis of NPA with special reference to SSI Sector

HRD PRACTICES:

From a small town Bank, started way back in 1906, today Bank has grown to become a frontline Banking Institution of India with sound foundations. It considers its Human Resources as a most valuable asset.

Banks workforce has inherited a unique heritage of open and informal family culture. There are a series of people-building HRD initiatives.

The emerging challenges of a liberalised economy entails on it a responsibility for developing motivated and knowledgeable workforce to meet the requirements. :

Towards this end, Canara Bank has been a fore runner in establishing its own training system way-back in 1950s itself. Our Apex Level Training College at Bangalore ably supported by 13 Regional Centres spread over length and breadth of the country takes care of the knowledge, skill, and attitudinal development of the employees. Being proactive to the requirements of empowered workforce, the Bank also sponsors individuals to external training programmes both within and outside the country.

In order to ensure that a well-motivated workforce contributes towards the growth of the institution, our Bank has made inroads towards establishment of Quality Circle concept among its employees.

The growth of this concept can be gauged by the fact that as on date, it has over 700 active quality circles. These quality circles have carved out a niche for themselves at various National and International level competitions and have returned with handsome prizes.

Canara Bank

Analysis of NPA with special reference to SSI Sector

In the National Convention of Quality Circles organised by QCF1 (Quality Circle Forum of India) at Durgapur during November 1099, 3 of our Quality Circles won the prizes.

1. Best of the

Convention

- Garden QC of Langford Town,

Bangalore

2. Best of the Stream - Parklane QC of M.G.Road, Secunderabad

3. Best of the Session - Surge QC of Thousand Lights, Chennai

Banks Quality Circles have been participating in the international Conventions consistently since 1998.

Vision

QC

of

Overseas

Branch,

Chennai

participated

in

the

1CQCC '98 at Colombo

 

MIPLADEV QC of Circle Office, Madurai participated in the ICQCC '99 at Mauritius and

Garden QC of Circle Office participated in the ICQCC 2000 held at Singapore during November 2000.

In order to ensure that local area specific issues are addressed and redressed, development of HRD Cells/HRD Local Chapters at the local controlling offices of the Bank, viz., Circle Offices and Regional Offices, have boosted the morale and commitment of the workforce. These Cells which have been set-up for giving focused attention towards effective implementation of formal HRD systems of the Bank are really taking the concept of Human Resource Management to the grass-root levels.

Canara Bank

Analysis of NPA with special reference to SSI Sector

COMMUNITY CONCERNS:

Consistent with its philanthropic roots and genuine concerns for the needy, Bank has taken several initiatives including the following:

KPJ Prabhu Artisans Training, Production & Marketing Centre a Jogaradoddi, Bidadi, Bangalore Rural District and C.E.Kamath Institute for Rural Artisans at Karkala provide training for artisans wood carving, stone carving, sheet metal embossing and terra cotton and marketing their products

Rural Women Self Employment Training Institute at Harohalli, Mahila Abhyudaya Yojana Gramina Mahila Jagruthi Kendras Centre for Entrepreneurship Development for Women provide counselling, guidance & training to make women self-reliant.

A D Pai Institute for Rural Development at Vajrahalli and Rural Sel Employment Promotion and Resource Guidance Centre at Holalur Shimoga District provide training to rural youths for self employment.

Rural Clinic Service and Manila Shushrusha Yojana provide medical facilities in remote and backward villages and provide incentives doctors to set up clinics in such areas.

Cangrama Shikshana Kendra Adult education centres, Canara Ban Golden Jubilee Education Fund provide adult literacy and assist "student fraternity by providing books, equipments, sponsoring libraries etc.

Grama Jala Yojana

Canara Bank

Analysis of NPA with special reference to SSI Sector

Adarsha Grama Project & Jalayoga Scheme provide safe drinking water facility in backward villages.

Hari Kalyana Yojana, Tribal Counselling Centres, Dr.Ambedkar Self Employment Training Institute at Pudupudur and Subba Rao Pai Self Employment Training Institute at Wandoor train SC/ST and minority youths to take up self-employment training.

Rural Development and Self Employment Training Institutes and Rural Resource Development Centres provide training in adopting appropriate technology.

Computer Training Centre for Urban Poor at Bangalore trains urban poor in the IT field and computers.

Kalagrama - An art village, a complex of 18 houses (at K.P.J. Prabha Artisans Training, Production & Marketing Centre, Jogaradoddi) has been set-up to assist the artisans who have undergone training in traditional arts to pursue and practice art for mutual learning and benefit.

Canara Bank Institute of Information Technology (CBIIT), Alleppy has been set-up with an objective of imparting training to the rural youth of South Kerala in the field of Information Technology. The training is offered free of cost and backed up by post training follow up to ensure credit linkage and settlement.

Canara Bank Institute of Information Technology (CBIIT), Thiruvananthapuram has been set-up with an objective of imparting training in the field of Information Technology to the unemployed youth of Thiruvananthapuram and nearby districts. The training is

Canara Bank

Analysis of NPA with special reference to SSI Sector

offered free of cost in computer packages with emphasis on self employment/wage employment in the IT field.

Canara Bank Self-Employment Training Institute at Honnavar

The Institute has been set-up with an objective of imparting self employment training in rural development activities to the rural unemployed youth of North Kanara and the neighbouring districts The training is offered free of cost and backed up by post training follow-up to ensure credit linkage and settlement.

The first batch of training programme in Screen Printing Commercial Arts was commenced on 25.02.2002 and 27 candidate are undergoing the training.

PRODUCTS & SERVICES DEPOSIT PRODUCTS

• Fixed Deposits

• Kamadhenu Deposits

• Recurring Deposits

• Ashraya- A Deposit Scheme For Senior Citizens

• Canbank Auto Renewal Deposit (CARD)

• Canflexi Deposits

• Savings Bank Account

• Current Account

RETAIL BANKING PRODUCTS

Cancarry

Cancash

Canara Bank

Analysis of NPA with special reference to SSI Sector

Canmobile

Swarna Loan Scheme

Housing Loan Scheme

Home Improvement Loan Scheme

Loan Scheme for Traders & Business Enterprises

Teachers Loan

JnanaGanga

Loan Loans for Senior Citizens

Loans/Advance Against Resurgent India Bonds

Loans/Advance Against Flexi Bonds

Loans to buy Company Shares

Can budget Loan Scheme

Can rent Loan Scheme

Can mortgage Loan Scheme

Vidya Sagar - Educational Loan

For Senior citizens, interest rates on Term Deposits will be 1% over the rates as applicable for less than Rs.15 lacs under domestic category.

ANCILLARY SERVICES

- Depository Services

- Safe Deposit Lockers

- Safe Custody Services

Canara Bank

Analysis of NPA with special reference to SSI Sector

- Nominations

- Anywhere Banking

- 7 Day Banking

- Extended Banking

- DD Shoppe

- Specialised Branches Professionals Branch

- Gold Deposit Scheme

- 9% Relief Bonds, 1999

CREDIT CARD SERVICES

- Cancard (Proprietary)

- Cancard Mastercard

- Cancard Visa

- Cancard International Visa (Gold)

CURRENT PERFORMANCE OF THE BANK

2000

Canara Bank became the first public sector bank to join th MasterCard ATM network. It is planning to set up 60 ATMs.

Canara Bank has launched its gold deposit scheme in Bangalore, offering 3-3.5 per cent interest on the deposits.

The Canara Bank and Bank of India have envinced interest to provide loan to the Rs 6,500 crore joint venture Bharat Oman Refineries project in Madhya Pradesh.

Canara Bank

Analysis of NPA with special reference to SSI Sector

Public Sector Canara Bank has hiked prime lending rate and MTLR to 12.25 per cent from 11.75 per cent and 12 per cent respectively with effect from 10th August.

The Bank came up with a vanilla bonds issue of Rs 300 crore to increase the tier-II capital before September 30.

Bangalore - based Canara Bank has set up four corporate service branches in Bangalore, Mumbai, Delhi and Chennai and is likely to covert more branches for specialised services. - Canara Bank, the 100 per cent government-owned public sector bank will be roping in an overseas joint venture partner for its mutual fund subsidiary in the next three months.

Canara Bank has entered into an agreement with the Al Mirza group in Oman for opening an exchange house that will be managed by officer deputed by the bank.

Canara Bank will introduce its voluntary retirement scheme on January 1, 2001.

Canbank Factors Ltd., a subsidiary of Canara Bank, has launched it export-factoring activity and has appointed GE Capital International Finance, SPA as is import factor.

2001

Canbank Factors Ltd., a subsidiary of Canara Bank, has opened it eighth branch in New Delhi.

-The Public Sector Canara Bank has entered into an arrangement with the Infrastructure Development Finance Company for financing core sector projects.

Canara Bank

Analysis of NPA with special reference to SSI Sector

Canara Bank has named RV Shastri as its new chairman and Managing Director.

PERFORMANCE HIGHLIGHTS

Gross profit increased from Rs. 1131 crore for 2000-01 to Rs.2356 crore in 2003-2004registering a healthy 46.4%) growth.

Net profit shot up to Rs.963 from Rs.585 crore, posting an all-time high growth of 160%.

Profitability, as measured by Return on Assets, increased from 0.43% to 1.02 %.

Business per employee rose from Rs. 1.91 crore to Rs.2.15 crore. Profit per employee moved up from Rs.0.63 lakh to Rs.1.64 lakh.

Capital adequacy ratio went up by two percentage points to 11.88% as compared to 9.84% as at March 2004

Gross NPA declined from Rs.2243 crore to Rs.2155 crore, bringing down the Gross NPA ratio from 7.80% to 6.22% during the year. Net NPA came down from Rs.1345 crore to Rs.1288 crore, reducing the Net NPA ratio from 4.84% to 3.89%.

Global Business of the Bank rose from Rs.86902 crore to Rs.971 57 crore registering a growth rate of 12%.

Global deposits of the Bank rose to Rs.64030 crore compared to Rs.59070 crore as at March 2004:

Advances (net) increased to Rs.33127 crore as at March 2004 vis-à- vis Rs.27832 crore as at March 2001, registering a growth rate of

19%.

Canara Bank

Analysis of NPA with special reference to SSI Sector

Disbursals under retail lending stood at Rs.1700 crore, taking outstanding retail loans to Rs.3075 crore.

Priority sector advances, at Rs. 10536 crore, formed 41 % of net credit as against the stipulated norm of 40%.

Under Kisan Credit Card Scheme 2.96 lakh cards were issued as against the target of 2.75 lakh, taking the total number of cards issued to 7.4 lakh, with a credit coverage of Rs. 1633 crore.

Foreign business turnover aggregated to Rs.59333 crore.

 

Number of computerised branches rose to 1564 from 996, covering 65% of branch network and 81% of the Bank's business.

ATM strength rose to 103 from 31.

 

Bank's

subsidiaries/sponsored

entities

recorded

improved

performance during the year.

 

Number of branches under ISO 9001 certification went up to 122 from 14.

Canara Bank

Analysis of NPA with special reference to SSI Sector

CHAPTER – IV

ANALYSIS OF THE STUDY

The data collected for the study is data from the bank and the responses from the survey. The sample size was 20.The data collected form the bank is analysed first. Growth rate is calculated for all the four years for each type of assets classified. Then a comparison is made for the year ended 31 March 2004 with the year 31 March 2001. For the sake of clear understanding all the assets are analysed and presented in a pie chart graph. Data SSI is collected for each type of assets classified with respect to the SSI sector to which advances are made and the amount is outstanding in this sector.

The data collected from 2001 to 2004 for each type of asset are,

1. Non performing asset

2. Standard asset

3. Sub standard asset

4. Doubt full asset ( LPD)

5. Non LPD

Analysis was made on movement of NPA in SSI in past 4 years and

analysed information is put in graph and in pie charts. Analysis was also

made on impact of RBI guide lines on NPA

Canara Bank

Analysis of NPA with special reference to SSI Sector

TABLE-1

STATUS IN SSI FOR THE YEAR 2001

Status of SSI

Percentage

NPA

36%

Std assets

22%

Sub std assets

20%

Doubtful assets

12%

Non LPD

10%

STATUS IN SSI FOR THE YEAR 2001

10% 12% 36% 20%
10%
12%
36%
20%

22%

NPA Std assets Sub std assets Doubtful assets Non LPD

NPA

NPA Std assets Sub std assets Doubtful assets Non LPD

Std assets

NPA Std assets Sub std assets Doubtful assets Non LPD

Sub std assets

NPA Std assets Sub std assets Doubtful assets Non LPD

Doubtful assets

NPA Std assets Sub std assets Doubtful assets Non LPD

Non LPD

Canara Bank

Analysis of NPA with special reference to SSI Sector

TABLE-2

STATUS IN SSI FOR THE YEAR 2002

Status of SSI

Percentage

NPA

40%

Std assets

18%

Sub std assets

16%

Doubtful assets

12%

Non LPD

14%

STATUS IN SSI FOR THE YEAR 2002

14% 12% 40% 16% 18% NPA Std assets Sub std assets Doubtful assets Non LPD
14%
12%
40%
16%
18%
NPA
Std assets
Sub std assets
Doubtful assets
Non LPD

Canara Bank

Analysis of NPA with special reference to SSI Sector

TABLE-3

STATUS IN SSI FOR THE YEAR 2003

Status of SSI

Percentage

NPA

44.5%

Std assets

16%

Sub std assets

22.5%

Doubtful assets

10%

Non LPD

7%

STATUS IN SSI FOR THE YEAR 2003

7% 10% 44.50% 22.50% 16% NPA Std assets Sub std assets Doubtful assets Non LPD
7%
10%
44.50%
22.50%
16%
NPA
Std assets
Sub std assets
Doubtful assets
Non LPD

Canara Bank

Analysis of NPA with special reference to SSI Sector

TABLE-4

STATUS IN SSI FOR THE YEAR 2004

Status of SSI

Percentage

NPA

46.8%

Std assets

18.6%

Sub std assets

22.4%

Doubtful assets

8%

Non LPD

10%

STATUS IN SSI FOR THE YEAR 2004

10% 8% 46.80% 22.40% 18.60% NPA Std assets Sub std assets Doubtful assets Non LPD
10%
8%
46.80%
22.40%
18.60%
NPA
Std assets
Sub std assets
Doubtful assets
Non LPD

Canara Bank

Analysis of NPA with special reference to SSI Sector

INTERPRETATION The level of NPA has increased from 36% to 46.5% from 2001 to 2004. In 2001, 224 SSI cases were taken into consideration for analysis. But in 2004, 593 cases as taken into consideration for analysis. Thus also percentage of NPA increasing.

You can see in 2003 the percentage of NPA was 44.5% and in 2004 it is 46.5%. Only 2% is increase in the NPA level. And also STD assets percentage also increased from 16% to 18.6%. This is due to many reasons. It can be explained in next part of analysis from the above graph and detail analysis from the survey.

Canara Bank

Analysis of NPA with special reference to SSI Sector

Standard assets:

There is a growth in all the sectors except in SSI sector. There is a negative growth in the SSI sector. The growth rate as indicated in the graph below is from the year 2001 to 2004. There has been increase in this category of assets since the year 2001, in the non priority sector. The growth rate in this sector is 32.5%. There has been decrease in the amount in the SSI sector. This decrease is marginal in the SSI sector during the past four years. There is also a comparison made in terms of amounts between the year 2001 and the year 2002. The growth is in other non priority sector. It constituted 19% of the total advances in the year 2001 and has grown to about 30 %in the year

Sub standard assets

Amount locked in SUB STANDARD assets can be clearly analyzed from the above. The growth rate in various sectors is calculated. The numbers show a satisfactory performance. There has been negative growth of 9% in number of accounts. The negative growth rate tells that the there is a fall in accounts, classified under this category, from 2001 to 2004. But there is growth of about 8% in accounts under the SSI sector during the last four years.

There has been a decrease in the total amount locked in this category of assets. There is a decrease in the amount locked in the agriculture sector from 32 percent to 26 percent and a marginal decrease in SSI sector. It can also be seen that, there is an increase of about 10 percent in the Large and Medium industries sector during the last four years.

Canara Bank

Analysis of NPA with special reference to SSI Sector

Doubtful assets (LPD)

The growth rate is fairly satisfactory. There has been overall decrease in the number of accounts in all the sectors. The growth rate is about 35.7% and the actual number of accounts has decreased from 60,065 to 17,655 but there is a marginal decrease in amount i.e. from Rs. 206.20 crores in the year 2001 to Rs. 195.31 crores in the year 2004. The graphs below shows the amount locked in this asset category in the year 2001 and year 2004.

The performance in the agriculture and SSI sectors has been satisfactory. There is a negative growth of 10.8% and 10.5% in the above sectors. This means that the amount in this category of asset has been decreasing since the past four years. Where as the amount in the priority sector has grown by 22% during the past four years. The amount locked in Large and Medium industries sector has decreased from Rs. 109.23 crores in the year 2001 to Rs.60.62 crore year 2004.

Loss assets:

Unsatisfactory picture in the number of accounts in the loss assets category has been increasing. The danger seems to be more in the SSI and other priority sectors. SSI figures show a poor picture of the bank. The total advances made to all the sector have [shown a marginal growth. There is a growth of about 5.4% in the number of accounts during the last four years and also a growth of 6.5% in terms of total amount in this category of asset. There is an increase in amount locked in agriculture sector by about 23% and in SSI sector by about 15% and in other priority sectors by about 24%. This is reflected in the below graphs.

Canara Bank

Analysis of NPA with special reference to SSI Sector

TABLE - 5

POSITION OF GROSS NPA

(RS in Crores)

RO/BRANCH

31.3.00

31.3.01

31.3.02

30.9.03

31.3.04

GROWTH

BANGALORE

307.69

288.33

255.35

302.4

236.57

-4.15586

Operation

           

(TARGET)

247.05

230

245

238

138

-14.4566

MYSORE

44.68

45.63

43.95

45.09

41.01

-2.90342

(TARGET)

32

37

39

41

35

-1.16021

DAVANGERE

32.5

33.03

30.35

42.56

30.84

1.331864

(TARGET)

23

24

28

28

23

-1.26867

GULBARGA

58.07

69.32

66.99

70.33

64.17

-1.81275

(TARGET)

39

44

60

64

51

5.205422

KOLAR

31.64

35.2

34.23

32.28

29.98

-5.2587

(TARGET)

21

24

30

32

25

1.88764

ARM

137.71

172.03

157.85

154.88

180.31

1.227792

(TARGET)

100

106

148

147

178

16.74541

Canara Bank

Analysis of NPA with special reference to SSI Sector

Bangalore Circle Office shows the highest in the gross NPA position. Actual amount has always been above the targets. The quantum of NPA has decreased by 4% during the last four years. It can also be seen that, even though the target were reduced by about 14%, the actual were reduced by only 4%.

There is growth of NPA by 1% in the ARM branch during the last four years and this is inspite of the increase in the targets by 16%. The RO Davangere as shown a growth of 1% in NPA

Canara Bank

Analysis of NPA with special reference to SSI Sector

TABLE.-6

CASH RECOVERY TARGET/ ACHIEVEMENT

PARTCULARS

31.3.00

31.3.01

31.3.02

30.9.03

31.3.04

GROWTH

BIORE CO

Operation

65.49

62.24

39.64

12.97

38.97

-22.2896

(TARGET)

64.89

65

54.5

18.5

45

-19.6164

MYSORE

4.02

4.81

6.45

2.93

6.71

2.118405

(TARGET)

7

7

7

3

7

-8.12395

DAVANGERE

7.37

6.05

8.59

3.04

9.48

3.134491

(TARGET)

11.25

8

7

3

9

-4.81948

GULBARGA

6.34

8.3

10.33

4.61

11.02

0.436394

(TARGET)

8

8

10

5

11

2.656821

KOLAR

5.01

5.63

6.6

2.56

7.151

-0.82343

(TARGET)

6

6

6

3

7

-2.28054

ARM

9.96

20.63

5.44

3.49

21.57

-3,05444

(TARGET)

31

30

25.5

7.5

21

-20.4974

Canara Bank

Analysis of NPA with special reference to SSI Sector

GRAPH-5

CASH RECOVERY

25 22.28 20 15 10 5 3.13 2.11 0.8 0.4 0 -5 -3 BANGALORE CO
25
22.28
20
15
10
5
3.13
2.11
0.8
0.4
0
-5
-3
BANGALORE CO
MYSORE
DAVENGERE
BULBARGA
KOLAR
ARM
Growth RA

Regional Office

Recovery is satisfactory by the Bangalore Circle Office. The actual amount recovered is nearer to the targets in all the past four years. There is a growth of about 22 percent in cash recovery during the past four years. The growth is not convincing because the targets were also reduced by 19 %. One thing to note is that there was almost 100% recovery in the year ended 2004.

Canara Bank

Analysis of NPA with special reference to SSI Sector

MOVEMENT OF NPA

The table shows the movement of NPA throughout the year. The data for

the year 2000fi, Was not available. Hence the data of three previous years

has been analysed for finding out the movement of NPA.

TABLE-7

MOVEMENT OF NPA

(Amt in crs)

Particulars

31/03/00

31/03/02

31/03/03

31/03/04

Opening Balance

657.17

643.54

588.72

582.88

ADD: Additions during the year

108

76

59

132

Total

765.17

719.54

647.72

714

LESS: Reductions during the year

121.63

130

64.84

Balance at the end of the year

       

643.54

588.72

582.88

The Movement of NPA tables show that there is decrease in NPA

from Rs.643.5 crore in the year 2001 to Rs.582.88 crores during the year

2004. The figure for reduction during the year 2001 was not available.

From all the above data, a summary data can be prepared, through

which analysis can be easily made. The table below depicts the Banks

overall performance during the past four years. The table shows the

amount locked in various assets i.e., Standard, Sub Standard, Doubtful

and Loss assets. The total amount from the above tables is added without

taking the sectors into consideration. The amount locked in various

Canara Bank

Analysis of NPA with special reference to SSI Sector

sectors and in various asset classification are added and arrived at the following table.

TABLE-8

MOVEMENT OF NPA

AS AT

31/03/00

31/03/01

31/03/02

31/03/03

31/03/04

GROWTH

AGGT GRS NPA

657.17

643.54

588.72

647.54

582.88

-1.99757

( TARGET)

470

525

570

550

450

-4.85965

INT SUSP

86.67

87.47

44

47.81

31.06

-26.089

SLDICGC/ECGC

12.24

16.17

12.95

11.97

10

-14.1047

STANDARD

2331.87

25M.63

2881.7

2915.35

3437.4

9.095042

SUB-STANDARD

139.39

123.56

72.83

140.29

129.97

8.407969

DOUBTFUL

372.78

358.95

338.97

324.53

279.63

-7.62078

LOSS

144.97

161.03

173.97

182.72

173.28

2.726778

NET NPA

558.26

539.9

531.77

587.76

541.82

1.11373

GROSS NPA(PRIOR)

312.58

325.8

306.22

325.77

307.27

-1.13138

GROSS CREDIT

2988.94

3225.17

3467.47

3562.88

4020.28

7.124783

% CIRCLE'S GROSS NPA

         

TO ADVANCES

22

19.95

16.89

18.17

14.49

-8.48123

TOT OF BORWAL A/CS

409413

394643

358293

363906

355307

-2.95014

TOT A/Cs UNDER NPA

144253

135900

119332

115196

91954

-11.3715

CASH RECOVERY

96

108

77.05

29.6

95.26

-12.4819

(TARGET)

(145)

(127)

(110)

(40)

(100)

-15.8749

INFLOW

108

76

59

92.54

132

23.44567

REDUCTION

137

126

105

37.7

-

 

REC UNDER LOSS

10,11

6.81

5.6

22.1

23.99279

(TARGET)

-

(10)

(30)

 

(25)

 

Canara Bank

Analysis of NPA with special reference to SSI Sector

ABC Analysis:

All the NPA accounts were gone through and then have been arranged in the descending / ascending order. The accounts considered for the sake of convenience were those which were above 5 lakhs. The reason was to have an equal base for al! the three years. The accounts are arranged below.

TABLE - 9

ABC Analysis

(AMOUNT IN CRORES)

 

A/C

AMOUNT

 

A/C

AMOUNT

 

A/C

AMOUNT

 

5Lac-10 Lac

195

12.73

C

288

19.63

C

240

17.40

C

10Lac-50Lac

282

69.94

B

332

64.26

B

286

62,38

B

50Lac-1Cr

48

32.80

B

35

25.30

A

49

36.22

A

1Crs-10Crs

73

402.22

A

59

180.32

A

66

191.39

A

> 10Crs

9

208.00

A

5

85.22

A

6

80.20

A

TOTAL

725.71

374.75

387.61

A - 15% of the total accounts constitute for 85% of the total NPA amount.

B - 30% of the total accounts constitute for 10% of the total NPA amount.

C - 55% of the total accounts constitute for 5% of the total NPA amount.

The accounts above 1 crore, which account for 15% of the total NPA accounts constitutes about 85% of the total NPA amount. The increase in the NPA is the A category i.e. more number of accounts above 1 crore are becoming NPA.

Canara Bank

Analysis of NPA with special reference to SSI Sector

ABC ANALYSIS (in crores)

GRAPH-6

500 400 300 200 100 0 5Lac- 10Lac- 50Lac- 1Crs- > 10 Lac 50Lac 1Cr
500
400
300
200
100
0
5Lac-
10Lac-
50Lac-
1Crs-
>
10 Lac
50Lac
1Cr
10Crs
10Crs
Amount

Amount Range

2000 2001 2002
2000
2001
2002

NPA AND RECOVERY MANAGEMENT – WHY?

Ever since the introduction of reforms in the financial sector, " Non Performing Asset - NPA" has become one of the dreaded but most talked about phrases in the conferences, seminars, workshops, meetings etc conducted by the economists, bankers, trade associations, big wigs of the industries and of course the Govt. / Semi-Govt. Bodies. After the passage of nearly 8 years time since implementation of Narasimham Committee recommendations ( lst report) the tremors of the after effects of the same are being experienced in the banking sector in the new millennium. The management of NPA is gaining importance more than ever before and hence no neglect can be shown by any hanker lest it will be hazardous and fatal challenging the survival.

Canara Bank

Analysis of NPA with special reference to SSI Sector

CAUSES OF NPA - IN GENERAL

Diagnosis:

Before analysing the causes of the incidence of high NPA in public sector banks for evolving remedial measures, one must take care into account the prevailing ground realities in the banking scenario as reported results cannot be examined in isolation.

Banks being derivative institutions, the health of the real sector is reflected on the health of banking system. The Banks' health/well being is inextricably linked to the other sections of the economy. If the credit discipline in the real sector is weak and the state intervention is not supportive to the banks then there is every possibility that the banking system will be weak and unsound. Further, lack of experience, expertise, timely and adequate credit delivery and effective monitoring attempt of the banks will also be contributory factors for low recovery and escalation in NPA level in future. Before, drawing a map and blue print for a path to effective NPA management it is desirable to find out the major causes that build up high level of NPA. Some reasons for creation of NPA are

BANK RELATED

a) Internal Factors

Pre-sanction level - Appraisal

Delay in decision/disbursement

Non compliance of sanction terms

Improper documentation

Ineffective Credit Monitoring and Supervision

Canara Bank

Analysis of NPA with special reference to SSI Sector

b) External factors -Legal Systems/BIFR

Interference by External agencies

Genera] Causes

Causes for priority sector NPA

Reasons for slow recovery.

BORROWER RELATED

Internal factors:

Finance