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A STUDY ON NON-PERFORMING ASSETS

INDUSTRY PROFILE
INTRODUCTION Co-operative movement as an economic system and as a best instrument to eradicate the poverty of the people and to protect them for the economic exploitation from the haves was introduced for the first time in the world with the organization of consumers Co-operative society in 1844 at London. Later on the Co-operative movement was introduced in Germany with an organization of Agriculture Credit Co-operative Societies in rural areas and with the organization of non-agricultural credit Co-operatives (Urban Co-operative Banks) in towns and cities. Hence, if the England is the motherland for the whole Co-operative movement, the Germany is the cradle for the Co-operative credit and Banks organizations. The Co-operative movement in India was introduced with the organization of Primary Agricultural Co-operative Credit Societies (PACS) in villages and Urban Cooperative banks in town s and cities offer passing the Co-operative Credit societies act 1904 with an objective to emancipate the poor people in the rural and urban areas from the clutches of money lenders and middlemen in the market and also to accelerate the pace of agriculture and industrial developments in these areas. With the passing of second Act, viz, Co-operative Societies Act, 1912; the Co-operative movement in India entered into all spheres of economic activities besides organizing DCC banks and State Cooperative Apex Banks. Profiteering (at more prices) and usury (more interest) are the greatest evils constantly grinding the poor people down and hang them till their death. To do way profiteering, consumers marketing, processing industrial and other Co-operatives were organized and to minimize the usury the Co-operative credit and banking organizations were organized to protect the poor people from the exploitation by middle men in the market and to eschew them from the clutches of unbridled money lenders. Growth and Developments Even though Co-operative banking was introduced from the year 1905 , the real development in the country was started only after the passing of a separate banking
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A STUDY ON NON-PERFORMING ASSETS Regulation act for Co-operative banks called Banking regulation Act, 1949 ( as applicable to Co-operative societies) 1966. Co-operative banks are organized and controlled as per the provisions of concerned state Co-operative societies Acts, but their banking, operations are regulated by the BR Act 1949 (as applicable to Co-operative societies) 1966 and are also controlled by Reserve Bank of India ( RBI) When one looks at Indian Banks map, a maximum number of banks widely seen are Co-operative banks, as Indian Co-operative Banking System in 2002 consisted of 30 State Co-operative Apex Banks at state level, 368 DCC banks at District level and 1431 Urban Co-operative Banks in addition to 101000 PACS at the village level, 20 state Cooperative agriculture and rural development banks at state level and 768 Primary Agriculture and Rural Development Banks at Talus Level. However, Co-operative banks are small in size, operation and also have limited area of operation. Characteristic Features of Co-operative Banks The characteristic features of Co-operative banks are given as follows: Self Help and Mutual Help One man, one vote Motivated by service Mainly Agriculture Finance

INDIAN SCENARIO The Indian banking system of today can be compared with finest banking system in the whole world. Today the Indian banking system is on very sound lines with a network of branch spared all over the country and serving all sections of the society with innovative banking programs. Todays Indian banking system comprises of 27 public sector banks,30 private sector non schedule commercial banks, several private sector new commercial banks, 27 foreign schedule banks, 196 regional rural banks, several thousands Co-operative banks and several land development banks. Institutions like Life Insurance Corporation of India and Unit Trust Bank of India also plays an important role in Indian banking system.
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A STUDY ON NON-PERFORMING ASSETS Banking structure or banking system in India The constituents in the banking sector of India are The Reserve Bank of India The State Bank of India and its subsidiaries The Nationalized and the Private Sector Indian Commercial Banks The Private Sector Foreign Exchange Banks in India The Co-operative banks and the land development banks The regional rural banks

Indian commercial banks Banks that carry on commercial banking operation such as acceptance of deposits from the public, repayable on demand or alter a short period and the granting of short term credit mainly to trade, commerce and industry with a wide network of branches throughout the country. Commercial banks can be classified as 1} public sector banks 2} private sector banks Banking Activities The law governing Banking activities in India is called Negotiable instruments act 1881 The banking activities can be classified as 1. Accepting deposits from public/others (Deposits) 2. Lending money to public (Loans) 3. Transferring money from one place to another (Remittance) 4. Acting as trustees 5. Acting as intermediaries 6. Keeping valuables in a safe custody 7. Collection business

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A STUDY ON NON-PERFORMING ASSETS Structure of Co-operative Banks

RESERVE BANK OF INDIA

NABARD

CO-OPERATIVE BANKS

Agril.Coop.Banks

Non.Agril.Coop.Banks

Short Term Credit & MT Credit

L.T. Credit S.C.A & R.D Bank

Urban Coop. Banks Employees Coop. Banks

State Co-operative Banks P.C.A & R.D Bank District Central Coop.Banks Salary Earners Coop. Credit Societies

Primary Agril. Coop. Credit Society

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COMPANY PROFILE
BACKGROUND AND INCEPTION OF THE COMPANY The Karnataka State Co-operative Apex Bank Limited (hereinafter referred to as The Bank) is a Scheduled Co-operative Bank incorporated under the Karnataka State Co-operative Societies Act 1959. It was established in the year 1915 and is meant to act an Apex Body to finance agriculture sector through the District Central Co-operative Banks and Primary Agricultural Co-operative Societies. In the later years the Apex Bank diversified its activities into commercial banking. Today it has 31 branches in Bangalore city through which it carries out commercial banking activities. It does not have any branches outside Bangalore. HISTORY OF KSCABL The Bank was registered on 10th November 1915 under the name and style of The Mysore Provincial Co-operative Bank Limited, under the Mysore Co-operative Societies Act of 1905. Then, The Bank was not an Apex institution, as it was not exclusively meant for financing the Co-operatives in the then State of Mysore. Another Bank called the Bangalore Central Co-operative Bank Limited, Bangalore (which was later converted into an urban bank), which was registered in 1905, was also financing the Co-operatives. The bank owes its origin to Sri. M.A. Narayan Iyengar, B.A., B.L., who was the Registrar of Co-operative Societies at that time.

Sri. Vardaraja Iyengar Founder KSCABL The Bank was founded with the objective of financing, inspecting and supervising the Co-operative societies in the Mysore State. Subsequently, several district Co-operative central banks with the jurisdiction of a district were registered. Five such district central
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A STUDY ON NON-PERFORMING ASSETS banks were started. But their working was not satisfactory and they became defunct. As such, the provincial bank started financing the societies directly. Besides granting of loans, the Bank served as an outlet for investment of the surplus finds of the Co-operative societies in the State. The Bank thus acts as the balancing centre of the Co-operative movement in the State, safeguarding its interests.

KSCABL CORPORATE OFFICE ACSTI INTRODUCTION: The Agricultural Co-operative Staff Training Institute of the Karnataka State Cooperative Apex Bank Limited was established in the year 1985 to impart the requisite knowledge, professional skills and attitude of the personnel working in Apex Bank, District Central Co-operative Banks, Urban Co-operative Banks and Primary Agriculture Co-operative Societies in the State. We are in the midst of challenges which have not been faced by the Cooperatives hitherto in the wake of economic liberalization and globalization. The Cooperatives are required to be professional to remain competitive to effectively cater to the needs of the rural community. It is necessary that the Bank should utilize the available man power effectively to this end.
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A STUDY ON NON-PERFORMING ASSETS The Institute is dedicated to improve and utilize the available Man Power at Apex Bank, DCC Banks, Urban Co-operative Banks and Primary Agricultural Co-operative Societies effectively. The Institute is offering all the training programmes at subsidized cost with the assistance of NABARD. Only nominal delegation fee is being collected from the client institutions for all the training programmes conducted by the Institute. The motto of the institute is development through training and imparting training is a continuous process through out the year.

ACSTI NATURE OF BUSINESS The business carried by the bank is generally related with providing short term and long term agricultural loans. It also accepts deposits from the public. Apex bank also provides cash credit loans to processing, marketing and consumer Co-operatives as well as sugar factories in Karnataka and working capital loans to state level and national level institutions. VISION, MISSION, AND QUALITY POLICY: VISION: As a state Co-operative bank, Apex bank shall be a dominant financial institution in the state, lending the state to economic prosperity.
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A STUDY ON NON-PERFORMING ASSETS They shall be the model of an effective, protective, dynamic and financial sound organization, responsive to state goals and aspiration. They shall maintain highly trained and motivated professionals committed to the highest standards of ethics and excellence. They shall contribute to buildings progressive and good standard of Co-operative societies in the service of farmers and rural mass. MISSION: Ensuring the best quality of life and success of their farmers, agricultural Cooperative societies, district central Co-operative banks, clients and employees who are the reasons for their being. For their farmers: They shall continue to improve their socio-economic status through timely financial and technical support. For their clients: They shall deliver innovative and advanced products and services in productive and effective manner to meet their local demands. For their PACS & DCC banks: They shall ensure mutual co-operation and compliment action to achieve optimum gains in an environment of confidence and trust. For their employees: They shall ensure a work atmosphere of mutual respect and team work within a system of recognition and regards. They shall continue to provide appropriate training and value enhancement to ensure the highest degree of professionalism and integrity. They shall hold their organization composed of highly competent people driven by superior technology. For people of Karnataka: They commit their unwearyingly loyalty and dedicated service in the pursuit of state farmers interest.
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A STUDY ON NON-PERFORMING ASSETS QUALITY POLICY: To serve as a state Co-operative bank and as a balancing center in the state of Karnataka for registered Co-operative societies To raise funds by way of deposits, & lend loans, cash credit, overdrafts and advances. To develop assist and co-ordinate the member DCCBs and other Cooperative societies and secure financial assistance for them. To arranged / hold periodical Co-operative conference of the DCCBs and other members of the bank and to take action for the growth and development of the Co-operative credit movement

SERVICE PROFILE OF THE BANK: Financing of short term loans: Financing of short term loans for seasonal agricultural operations and for marketing of crops. These loans are repayable within one year. Financing of medium term loans: These loans are sanctioned for agricultural purpose and non-agricultural purpose. Financing of kisan credit card schemes/loan: Kisan credit card aims at providing timely and adequate credit support to farmers for their cultivation including investment credit needs in a flexible

and cost effective manner. All DCC banks in the state have implemented the kisan credit Scheme. Credit facilities to self help groups: All the DCCBs have taken keen interest in the formation of self help groups in co-ordination with PACS. Self help groups mobilize their savings and avail credit facilities from DCCBs and PACS.

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A STUDY ON NON-PERFORMING ASSETS Advancing medium term loans with economic development: There loans are advanced for the agricultural infrastructures such as lift irrigation, diary, poultry, plantation, goober gas etc that constitutes schematic lending. Providing cash credit loans: Providing cash credit loans to processing marketing and consumer Cooperatives as well as sugar factories in Karnataka and also term loans to sugar factories under consortium agreement. Advancing working capital loans: Advancing working capital loans to state level Co-operative like MARKFED, KCCF and to the national level Co-operatives like IFFCO & KRIBHCO. The bank provide similar facilities to public sector undertaking like Karnataka Silk Marketing Board, Karnataka handloom Development Industries development corporations,

Corporation, Karnataka small scale

and also through consortium arrangements with Commercial banks. collection of cheques and drafts: The bank extends finance to the non-farm sector and the development of cottage industries, small scale industries and rural artisan and weavers. It is a scheduled bank in all aspects including remittance of funds, demand drafts, mail transfers, collection of cheques and drafts. Loans through various schemes: Vehicle loans Housing loans Mortgage loans Installment loans Jewel loans Other loans

The bank has introduced 14 new loan products to increase the means for advancing more into increase the cliental base. The bank has also introduced insurance products with a tieup arrangement with oriental insurance company a) personnel accident policy.

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A STUDY ON NON-PERFORMING ASSETS b) SB account holders (apex bank gold SB). c) Fire and earth quake. d) Vehicle insurance/building. e) Insurance to cover permanent disability due to accident to the extent of one lakh. 14 New loan products are:1. Apex Personnel 2. Apex Nagadu 3. Apex Vidya 4. Apex Pravasa 5. Apex Badige 6. Apex for BDA sites 7. Loan scheme for paying initial deposits /EMD for allotment of BDA sites 8. Apex Overdraft 9. Apex Retail loan 10. Apex Mahile 11. Apex Swayam udyoga 12. Apex Bhangara 13. Apex Nivruthi 14. Apex professionals

PRODUCT PROFILE OF BANK The KSC Apex Bank was established in the year 1915.Over the past ninety years, since its inception, it has played a crucial role in the development of the Agricultural Credit structure in Karnataka. The main functions are given as follows:PRINCIPLE FUNCTIONS Advancing medium term loans for development of agricultural infrastructure such as irrigation, dairy, poultry, plantation, gobar gas etc which constitute schematic lending. Financing of short term loans for seasonal agricultural operations and for marketing of crops. These loans are repayable within one year.

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A STUDY ON NON-PERFORMING ASSETS Providing cash credit loans to processing, marketing, consumer operatives as well as sugar factories in Karnataka and also term loans to sugar factories under consortium arrangements.

LOAN SCHEMES JEWEL LOANS The Bank provides Jewel Loan against pledge of gold ornaments to the residents of Bangalore city. TERMS The loan applicant should be/become a nominal member of the Bank. Gold articles should be delivered in person with Address proof or ID proof. In case, the applicant is already not a member of the Bank, a person who is well known to bank should introduce him to the bank. The Bank will engage a Gold Appraiser to value the gold articles. Based on the valuation report, Rs.800/- per gram or 65% of the net weight, whichever is less, is considered for quantum of loan. The maximum loan given is Rs. 3.00 lakh and the current rate of interest is 12%. The repayment period for the loan is 24 months and interest should be paid once every three months. 2% penal interest will be collected on overdue amount. VEHICLE LOAN The Bank provides loans to salaried people within the Bangalore City, to purchase two wheelers/four wheelers for personal use only. TERMS Any individual working and residing in Bangalore city is eligible for the loan. Both the applicant and surety provider should b nominal members of the bank and any one of them should produce his salary certificate or IT returns with 3 years Balance sheet. For 2 wheel vehicles, the quantum of loan is Rs.50, 000/- or 75% of invoice value whichever is less. The repayment period of loan amount is 36 months. For 4 wheel vehicles, the maximum loan amount is Rs.5.00 lakhs or 75% of invoice value

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A STUDY ON NON-PERFORMING ASSETS whichever is less. The loan repayment period is 60 months. The current rate of interest is 11%. For availing the loan, the applicant should produce application form, invoice/quotation, Form No.29, Pro-note, agreement subject to hypothecation of vehicle in favour of bank and his photo. HOUSING LOANS The housing finance services offered by the Bank include construction of house/mortgage loan, site purchase/mortgage loan, purchase of flats etc., to the public through its network of 31 branches in Bangalore City. Residents of Bangalore city are eligible for housing under certain rules. Persons applying for loans for construction of house, additional/repairs to the existing house/flat, purchase of house/flats, site mortgage/purchase loan etc. within the limits of Bangalore City Corporation, BDA and Municipalities coming under the jurisdiction of BMRDA, are eligible for loan. TERMS Loan will be sanctioned even if the property is in the name of spouse, provided the spouse mortgages the property to the bank and also guarantees the repayment of loan along with interest. Loans will not be sanctioned for revenue property and purchase of sheet/tiled roof house. The applicant should have regular income by way of salary, business etc. and should produce Income Tax returns of three years. The applicant will have to give one surety acceptable to the bank. The applicant will have to become a nominal member of the bank along with surety provider. Loans will not be given to persons above the age of 58 years. In case of non-salaried persons, the Bank will require that the loan is repaid before the applicant reaches the age of 70 years. And in case of salaried persons, the Bank will require that the loan is repaid before the applicant is retired from the services. In case of retired persons having sufficient repaying capacity, the repayment period "may" be extended for the applicant up to 70 years of age. House/flats/site financed shall be mortgaged to the bank by depositing all original title

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A STUDY ON NON-PERFORMING ASSETS deeds of the property with the bank and registering the equitable mortgage deed at the concerned sub registrar office. Original equitable mortgage deed, latest EC in Form No.15 after registration, loan agreement, acceptance letter, pro-note and letter of guarantee shall be executed by surety. The applicant should provide property insurance policy up to 150% of the loan amount.

PERSONAL LOANS The Bank provides Personal Loans to salaried people living within Bangalore City, to meet expenses such as education of children, medical expenses of self and family, purchase of household articles etc. TERMS The loanee and the surety provider should be nominal members of the bank. The employer of loanee/drawing officer should issue an undertaking letter agreeing to deduct the loan amount every month towards loan installments or send the salary to the bank. The bank also gives personal loans by collecting post-dated cheques. The quantum of loan is 10 times of gross salary and within 60% gross salary The maximum repayment period is 60 months. The present rate of interest is 13% P.A. Latest salary certificate of loanee and surety provider, pro-note, delivery letter to DPN, letter of authority for pay/wages deduction, bond of agreement etc., will be obtained from the loanee and surety provider. 2% penal interest will be charged and collected on overdue installments. AREA OF OPERATION: Apex bank works at the state level only. It has 31 branches in Bangalore city only and head quarter is situated in Chamarajpet. The branch offices of bank are adequately delegated with power of sanction of disbursements. If the loans are to be provided up to 10-15 lakhs. Beyond that the head office will sanction the loan and will be disbursed at the branch level.

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A STUDY ON NON-PERFORMING ASSETS BRANCHES AT BANGALORE Head office Branch Chamarajpet Ashoka pillar Banashankari Basaveshwaranagar Girinagar Gokula Gandhinagar Agara-HSR layout Indiranagar Jayanagar market complex Jayanagar 9th Block J.P. Nagar Kalpathru super Bazaar Koramangala Lakkasandra Magadi road Ganganagar Padmanabha nagar Public Utility Building Rajajinagar R.P.C Layout Vijayanagar Vidhana Soudha Legislators Home M.S Building Mahalakshmipuram Vyalikaval Chandra layout Vivekananda college(Extn. Counter) R.T. Nagar

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A STUDY ON NON-PERFORMING ASSETS OWNERSHIP PATTERN Apex bank is state Co-operative bank established by the state government in the year 1915 under the organization of primary agricultural Co-operatives credits societies (PACS) in villages and urban Co-operative banks in towns and cities offer passing the Co-operative credit societies at 1904 to meet mainly short and medium term financial needs of framers. COMPETITORS: The major competitors are: 1. Land bank [Agricultural based finance] 2. Amanath scheduled Co-operative bank 3. Sham Rao Vital Co-operative bank [multistate scheduled co-oprative bank] 4. Commercial banks 5. Small industrial development bank of India 6. Small industrial service institution 7. Corporate banks 8. Some local Co-operative banks.

INFRASTRUCTURAL FACILITIES The new administrative building at a cost of around Rs. 800 lakhs completed in 2002 provides additional impetus to a new work culture and new mindset of all. The gigantic building with granite gladded faade having circular and rectangular columns suggesting strengths and stability reflects the character of the organization. This four storied block caters mainly to the administrative requirement of the bank along with the hi-tech banking hall on the ground floor. The architects M/s.Zechariah consultant effectively conceptualized the vision of the corporate head office floated by the directors of the board. The built up area of UTHUNGA has been 67,820 sq.ft. They believe that their members are always behind them not only to encourage but also to guide them in case they go wrong. They are grateful to them. Similarly they are grateful to government of Karnataka, RBI, NABARD, and all other sister Co-operative in the state for what they are today.

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A STUDY ON NON-PERFORMING ASSETS ACHIEVEMENTS AND AWARDS Bank is able to lend 75% of the farmers in the state and it covers all sugar factories in Karnataka Apex bank is habituated to get awards at national level year after. Similarly NABARD has been giving best performance award and even PACS have not lagged behind in getting national recognition. All DCC banks and merely 80% of PACS have provided themselves to be financially viable.

WORK FLOW MODEL


NABARD

APEX BANK

DCC BANKS

PRIMARY COOPERATIVE

FARMER

FUTURE GROWTH AND PROSPECTS RTGS facility. RTGS is an electronic environment where payment instructions are processed on a continuous or REAL TIME basis and settled on GROSS or individual basis without netting the debits against credit.

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A STUDY ON NON-PERFORMING ASSETS NEFT. National Electronic Fund transfer system made for amount inclusive of paisa component where there is no upper value limit for putting through an individual NEFT transaction. Banc assurance products: The KSCAB Ltd., made tie up with OIC and IFFCO for give the facility of insurance to customer. Technology: The KSCAB Ltd., Develop its technology of banking facility. For E.g. ATM facility Online banking Internet banking Mobile Banking Opening of new branches The KSCAB Ltd., has the idea to opening of new branches Shortly opening Branches in the Bangalore city Locations 1.Banashankari 3rd Stage 2.Bommasandra 3.BTM Layout 4.K R Puram 5.Mahadevapura 6.Rajarajeshwari Nagar 7.Sunkadakatte 8.T. Dasarahalli 9.Yelahanka Doubling of credit to the farmers by advancing loans for the existing crops, new lands/ farmers. Identifying new members under NABARD lands policy.

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MC KINESEYS 7 S MODEL
The 7 S Framework of Mc Kinsey is a model that describes 7 factors to organize a company in a holistic and effective way. Together these factors determine the way in which a corporation operates. Manager should take into account all seven factors, to be sure of successful implementation of strategy.

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Origin of Mckinseys 7-S Model:


Richard Pascal and Anthony Athos fist mentioned the 7-S Framework in The Art of Japanese Management in 1981. They had been investing how Japanese industry had been successful. At around the same time that Tom Peters and Robert Waterman were exploring what made a company excellent. The Seven S model was born at a meeting of these four authors in 1978. It appeared also In search of Excellence by peters and Waterman, and was taken up as a basic tool by the global management consultancy company McKinsey. Since then it is known as their 7-S Model. These seven elements are distinguished into hard Ss and soft Ss. The hard elements are feasible and easy to identify. They can be found in strategy statements, corporate plans, organizational charts and other documents. The outstanding feature of the 7 S models is that, it has been tested extensively by Mc Kinseys Consultants in their studies of many companies. At the same time, this frame work has been used by the business schools of Harvard and Stanford universities. Thus theory and practices seem to support each in a study of management. This model also supports the five managerial functions i.e. Planning, Organizing, Staffing,

Leading/Directing and Controlling. The four Ss however, are feasible. They are difficult to describe since capabilities, values are elements of corporate culture are continuously developing the changing. They are highly determined by the people at work in the organization. Therefore, it is much more difficult to plan or to influence the characteristics of the soft elements. Although the often factorss is below the surface, they can have a great impact of the hard structure, strategies and systems of the organization. By the words above implies that the company should apply McKinseys 7 S Model for its better performance.

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Mckinseys 7s frame work with reference to organization.


STRUCTURE Structure is the organizational structure or the hierarchy of the organization that comprises of the authority, responsibility and relationships in the firm. This function of framework is concerned with direction of the delegation of authority, organizational structure whether flat or tall and the degree of centralization or decentralization. ORGANITION STRUCTURE:-

BOARD OF DIRECTORS

MANAGING DIRECTOR

SECRETARY

CHIEF GENERAL MANAGER

C&MDS SECRETARAIT

GEN. MANAGER BANKING

BOARD SECRETARA IT

GEN.MANAGE R PRINCIPAL ACSTI

GEN. MANAGER BANKING

GEN.MANAGER I&A

DGM (I&A) DGM (AO) DGM (P&D) DGM (CFA) CHIEF STATISTICIAN DGM (BC) DGM (DAP) DGM (HOB)

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A STUDY ON NON-PERFORMING ASSETS SKILLS The banks required different skills for different types works at different levels. Highly qualified professionals in the bank have major skills like technical, finance, economical and public relation skill. The bank also looks for the development of their staff skills. The apex bank included following skills in the organization Financial management skills Managerial skills Interpersonal skills Communication skills

STYLE Bank follows a top down participative style of management. It believes in team work. For each task teams are constituted to attain specific goals. Apex bank believes that quality can be achieved by providing quality financing and related services on a continuous basis. In order to motivate the employees, it encourages them to activity participate in setting the organization growth targeting, objectives and to take their own decisions at various levels. Apex bank leadership style is basically democratic and participative in nature. STRATEGY Apex bank is one of the pioneers in this industry in providing short term loans and long term loans to farmers and medium scale industries. As a part of its marketing studies it makes its advertising through newspapers, leading television channels and focus over quality certificate. All the decision making are decentralized, only cooperation of the entire higher officer are authorized to make the polices and strategies. Only operation decisions are left to branch head. STAFF There are about 31 branches in which all together there are 200 employees out of them 50 are class A officers, 55 class B assistance and clerical staff and 95 are class C other subordinates staff.

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A STUDY ON NON-PERFORMING ASSETS Bank follows a typical selection procedure. As a first step, advertisement is given as and when it is required. The test is conducted and the candidates are made to go through interview which is being conducted by the top management board. It consists of subject expert from different department. SYSTEM The Apex bank has the good system. It follows the rules and regulation including procedures that support the organization structure. The APEX bank has a agricultural delivery system for improving overall development of rural farmers. The credit sector is extending helping hand to the farmers in its own way to boost the agricultural production in the state and in the country at large. It provides facility to the commercial and noncommercial purpose. SHARED VALUES Shared value is satisfying the farmers and small and medium scale industries first. Mission of the apex bank is committed to continuously nurture, develop and service the small sector through the need based products and services. The values that the bank upholds most are Farmers Satisfaction. This bank focuses over their farmers and industrial demands and wants. They also come up with various schemes like housing loans, vehicle loans, installment loans and mortgage loans. These are the purpose of attracting the farmers and industries and feel satisfactions by the banks.

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SWOT ANALYSIS
Strengths Completed 95years having well capital base. Good will and market reputation prevailing in the sector. Fully trained man power. Large range of products and services to the customer. One of the top co- operative banks in India Having well equipped modernized and growth oriented staff training institute (ACSTI) for the staff working in Co-operative sector

Weakness Lack of awareness of products and services through advertising and other media. The bank has a bit slow in implementing of core banking solutions in its branches. Government culture in the organization Bank has to develop infrastructural facility Too much politics bound

Opportunities Doubling of credit and reaching to the BPL (Below Poverty Line) farmers, help the bank to strength and expand its business towards rural and short term credit refinancing Economic prosperity and the consequent increase in purchasing power have given a fillip to a customer base. To capture more market in home loans, small scale sectors and medium enterprises. Mutual funds Insurance

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Threats Bank has to compete with nationalized, commercial, private, sector, and foreign banks Bank has to develop infrastructure facilities to attract new customer as well as to retain existing customer in track. Frequently change in rules and guidelines by the reserve bank of India and government. Delay in operating of newly proposed branches may lead to sacrificing the market opportunities to other banks that are well equipped with better products.

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FINANCIAL STATEMENT ANALYSIS


Balance sheet as on 31st March 2010 Particulars Capital and liabilities Capital Reserve fund and other reserves Deposits and other accounts Barrowings Interest payable Branch adjustments Other liabilities Net profit Total Assets Cash on hand & bank balance Money at call and short notice Investments Advances Fixed assets Other assets Total 306,44,03,090.46 994,40,00,000.00 2232,94,06,949.50 3146,28,40,441.61 26,39,93,125.35 21,27,63,121.38 6788,30,90,659.82 81,24,07,700.00 366,44,95,268.79 4479,03,77,262.60 1647,56,99,869.41 1,50,62,855.63 2,22,31,410.73 140,46,32,361.14 9,25,00,000.00 6788,30,90,659.82 Amount in rupees

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Profit and loss account for the year ended 31st March 2010 Particulars Income Interest and discount Commission, Exchange & Brokerage Dividend and miscellaneous receipts Total Expenditure Interest on dep., Barrowings and other accounts Salaries, Allowance and provident fund Directors & committee members Fee and allowance Rent, taxes, insurance and lighting Legal charges Postage and telephone charges Repairs to bank properties Auditors fees Printing, stationery and advertisement Other expenditure Income tax paid Depreciation Provisions Provision for tax 351,79,77,677.11 17,37,00,861.00 15,62,107.00 2,16,72,661.10 1,57,364.00 27,96,773.19 1,75,09,646.42 8,30,245.00 91,51,846.36 1,84,11,721.68 3,70,56,816.00 2,29,79,120.38 2,48,21,609.82 3,20,00,000.00 391,54,17,355.95 54,57,064.93 5,22,54,028.78 397,31,28,449.66 Amount in rupees

Total Net profit after tax

388,06,28,449.66 9,25,00,000.00

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RATIO ANALYSIS
Ratio analysis is a tool which enables the banker or lender to arrive at the following factors, Liquidity position, Solvency, Financial stability, Quality of the management, safety and security of loans & advances to be or already been provided. Ratio analysis is the analysis of the financial statement of the company. This is a primary source of information for evaluating the investment prospect of the companys stock; the statement gives the historical and current information about the companys information. Historical financial statement helps to predict the future. The current information aids to analyze the present status of the company.

Current ratio: It is the relationship between the current assets and current liabilities
of a concern. The standard current ratio is 2:1. Current Ration = Current Ratio: Current Liabilities

Current Ratio = 3277166219.84 1441926627.5

Current Ratio = 2.272 Interpretation: Banks current ratio is 2.272:1 is more than the standard one i.e. 2:1. Bank has an excellent capacity of repayment of funds.

Debt equity ratio: It is the relationship between borrowers fund (Debt) and owners
capital (equity). Debt Equity ratio = Long term debts Owners fund Debt Equity Ratio = 16475699869.41 4476902968.79 Debt Equity ratio = 3.68
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Interpretation: Apex bank debt equity ratio 3.68. It means bank is using 3.68 times more debt than its equity.

Return on asset: It is the relationship between asset and investment in business with
the net profit of the business. Return on asset = Net profit after tax Total asset Return on asset = 92500000.00 67883090659.82 Return on assets = 0.14% Interpretation: Return on asset of Apex bank is 0.14%

Earnings per share: It is the amount of income earned during a period per share of
common stock. Earnings per share = Net profit after tax Total number of shares

Earnings per share = 92500000.00 8124077 Earnings per share = Rs.11.38 Interpretation: the earnings per share of Apex bank are Rs.11.38.

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LEARNING EXPERIENCE
While conducting study in fast growing Apex bank, I had got a chance for knowing and analyzing the banking industry. While studying about organization, I was happy to implement theoretical knowledge gained during the course of MBA. I came to know about different types of products and services provided by bank. I came to know about charges or fees imposed on services and different rates of interest for different category of customers. In mean while I learnt about different types of transactions done by banks. I was also able to know about the business environment and business ethics of banking industry. I learnt how to handle the customer and how to communicate between different departments in organization at different levels. In mean while I was happy to see the coordination and support between different departments and dedication of each department to achieve the objectives of the bank.

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GENERAL INTRODUCTION:
Recovery of Non Performing Assets is very important factor in the credit portfolio of any Bank. The term NPA is having for reaching consequences of NPA to total credit. Reserve Bank of India reviews the performance of parameters discussed at all levels. Mandatory disclosures on quantum and movement of NPA and the provisions there against, is one of the major parameters in deciding the health and soundness of the Bank. According to Banking, NPA is defined as an advance for which interest or repayment of principal of both remains outstanding for a period of more than two quarters. The level of NPA act as an indicator, showing the Bankers credit risks and efficiency of allocation of resource. In simple words, Non Performing Asset means an asset or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by RBI. An amount due under any credit facility is treated as past due when it has not been paid within 30 days from the due date. Accordingly, a Non Performing Asset (NPA) shall be an advance i. Interest and / or installment of principal remain overdue for a period of more than 180 days in respect of a Term Loan. ii. The account remains out of order for a period of more than 180 days, in respect of an overdraft / cash Credit (OD/CC). iii. The bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted. iv. Interest and / or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose and

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A STUDY ON NON-PERFORMING ASSETS v. Any amount to be received remains overdue for a period of more than 180 days in respect of other accounts. With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the 90 days overdue norm for identification of NPA, form the year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a Non-Performing Asset (NPA) shall be a loan or an advance where; i. Interest and / or installment of principal remain overdue for a period of more than 180 days in respect of a Term Loan. ii. The account remains out of order for a period of more than 180 days, in respect of an overdraft / cash Credit (OD/CC). iii. The bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted. iv. Interest and / or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose and v. Any amount to be received remains overdue for a period of more than 180 days in respect of other accounts.

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EXECUTIVE SUMMARY
NPAs have turned to be a major stumbling block affecting the profitability of Indian banks before 1992; banks did not disclose the bad debts sustained by them and provision made by them fearing that it may have an adverse. Owing to the low levels of profitability, banks owned funds had to be strengthened by repeated infusion of additional capital by the government. The introduction of prudential norms strengthen the banks financial position and enhance transparency is considered as a milestone measure in the financial sector reform. These prudential norms relate to income recognition, asset classification, provisioning for bad and doubtful debts and capital adequacy. A Descriptive study was considered to be adequate to achieve the objectives of the study, and the study was conducted in Apex Bank. A STUDY ON NONPERFORMING ASSETS at Apex bank. The general objective of the study was to analyze the NPA level in commercial banks. However the study was conducted with the following specific objectives.. 1. To analyze the NPA level of Apex bank 2. To study the recovery procedures of Apex bank. 3. To examine how far the bank has been successful in reducing the NPA level. 4. To suggest measures for efficient management of NPAs.

The major limitation of the study was the scarcity of time. Even then, maximum care has been taken to arrive at appropriate conclusion. The method adopted for collection of data is secondary data. After collecting data from the respective source, analysis & interpretation of data has been made. On analyzing the data, the findings were arrived. Based on the findings, logical conclusions are drawn, and further, suitable suggestions & recommendations are brought out. The entire project report is presented in the form of a report using chapter scheme, developed logically and sequentially from introduction to bibliography & references.

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DESIGN OF THE STUDY


TITLE OF THE STUDY A STUDY ON NON-PERFORMING ASSETS at Karnataka State Co-operative Apex bank Ltd., Bangalore. STATEMENT OF THE PROBLEM Banking institutions by providing financial assistance to business units have contributed to economic growth of the country. In recent years the loans and advances given by them are not yielding expected returns giving rise to NPA. The NPA are growing in such a rate where banks profits are eaten away by NPA. Hence there is need to study the causes of NPA and steps taken by banking institutions and government to down size such NPA. . The problem lies in understanding and analyzing the NPA. OBJECTIVES OF THE STUDY To study the management of total assets and advances of Apex Bank. To understand the concept of Non-performing assets and to intimate timely steps to identify it. To know the policies, procedures followed by the Apex bank with respect to Nonperforming assets management. Understanding the need and nature of various strategies for reducing Nonperforming assets through recovery mechanisms. To suggest appropriate measures to control the growth of Non-performing assets in Apex Bank. SCOPE OF THE STUDY The area of the study is limited to the NPA in Karnataka State Co-operative Apex bank Ltd., Bangalore. This study attempt to analysis the NPA in Apex Bank, the scope is limited to draw conclusions from analysis and interpretations of primary and secondary data of the Apex Bank. RESEARCH DESIGN
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A STUDY ON NON-PERFORMING ASSETS This study is based on Descriptive research design. Because this report is purely based on secondary data. METHODOLOGY Secondary data: The data published or unpublished which have already been collected and processed by some agency or person and take over from there and used by any other agency for their statistical work. This report is prepared through secondary sources such as text books, journals, and annual reports of the Apex Bank. LIMITATIONS OF THE STUDY Though sincere effort has been made during the study, certain limitations cannot be avoided they are: The study is mainly based on the secondary data provided by bank. As such it is subject to the limitations of the secondary data The study is limited only for NPAs mechanism as time is the main constraint. This practices in some cases lead to window dressing to cover up bad financial position. NPA statement suffers from inherent weakness of accounting practices, such as their historical nature of matching principle etc.

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THEORETICAL OVERVIEW
Non-Performing Assets (NPA) Non performing assets refers to an asset or account of borrower, which has been classified by financial institution as sub-standard, doubtful or loss asset, in accordance with the direction or guidelines relating to assets classification issued by RBI. An amount due under any credit facility is treated as past due when it is not been paid within 30days from the due date. Due to the improvement in the payment and settlement system, recovery climate, up gradation of technology in the banking system etc, it was decided to dispense with past due concept, with effect from March 31st 2001, accordingly as from that date, a Non-performing asset shall be an advance where: i) Interest and/or installment of principal remain overdue for a period of more than 180 days in respect of a term loan. ii) The account remains out of order for a period of more than 180 days, in respect of an overdraft/cash credit (OD/CC) iii) The bill remains overdue for a period of more than 180 days in case of bill purchased or discounted. iv) Interest and/or principal remains overdue for two harvest season but for a period not exceeding two half years in case of an advance granted for agricultural purpose. v) Any amount to be received remains overdue for a period of more than 180 days in respect of other accounts.

With a view to moving towards International best practices and to ensure greater transparency, it has been decided to adopt, 90 days of overdue norms for identification of NPAs, from the year ending March 31st, 2004, a non-performing asset shall be a loan or an advance where: i) Interest and/or installment of principal remain overdue for a period of more than 90 days in respect of a term loan. ii) The account remains out of order for a period of more than 90 days, in respect of an overdraft/cash credit(OD/CC)
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A STUDY ON NON-PERFORMING ASSETS iii) The Bill remains overdue for a period of more than 90 days in case of bill purchased or discounted. iv) Interest and/or principal remains overdue for two harvest season but for a period not exceeding two half years in case of an advance granted for agricultural purpose. v) Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.

Out of Order: An account should be treated as out of order if the outstanding balance remains continuously in excess of sanctioned limit/drawing power. In case where the outstanding balance in the principal operating account is less than the sanctioned amount/drawing power, but there are no credits continuously for six months as on the date of balance sheet or credit are not enough to cover the interest debited during the same period, these account should be treated as out of order. Over due: Any amount due to the bank under any credit facility is overdue if it is not paid on due date fixed by the bank. ASSET CLASSIFICATION OF LOAN ACCOUNT By the method of classification, the concept of NPA came into an existence and now it has become one of the buzzword in the banking and financial system. As per the guidelines given by RBI, the NPAs are classified into three categories based in certain specified yardsticks.

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Asset Classification Performing Assets Sub-Standard Assets Non-Perfoming Assets Doubtful Assets

Standard

Loss Asset

i)

Performing assets/standard assets: Loans or advances in this category are fully protected by the current financial and paying capacity of the borrower and/or not subject to critics. In general, any loans or advances or portion thereof, this is fully secured, both as to principal and interest, by cash or cash substitutes, shall be classified under this category regardless of past due status or other adverse credit factors.

ii)

Sub-standard assets: A Non-performing asset may be classified as sub-standard on the basis of the following criteria: a) An asset which has remained overdue for a period not exceeding 3 years in respect of both agricultural and non-agricultural loans should be treated as substandard. b) In case of all types terms loans, where installments are overdue for period not exceeding 3 years, the entire outstanding in term loan should be treated as sub-standard. c) An asset, where the terms and conditions of the loans regarding payment of interest and repayment of principal have been renegotiated or rescheduled, after commencement of production, should be classified as sub-standard and

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A STUDY ON NON-PERFORMING ASSETS should remain so in such category for at least one year of satisfactory performance under the renegotiate or rescheduled terms. In other words, the classification of an asset should not be upgraded merely as a result of rescheduling unless there is satisfactory compliance of the above condition. iii) Doubtful Asset A Non-performing Asset may be classified as doubtful on the basis of following criteria: As asset which has remained overdue for a period exceeding 3 years in respect of both agricultural and non-agricultural loans should be treated as doubtful. In case of all types of term loans, where installments are overdue for more than 3 years, the entire outstanding in term loan should be treated as doubtful. As in the case of sub-standard assets, rescheduling does not entitle a bank to upgrade the quality of advance automatically. iv) Loss Asset: It is an asset identified by the bank, auditors or by the RBI inspection as a loss asset. It is an asset for which no security is available or there is considerable erosion in the realizable value of the security. (If the realizable value of the security as assessed by bank, approved values or RBI is less than 10% of the outstanding, it is known as considerable erosion in the value of asset). As a result even though there may be some salvage of recovery value, its continuance as bankable asset is not warranted. PROVISIONING NORMS FOR ASSET CLASSIFICATION Need for provisioning Provisioning is necessary considering the erosion in the value of security charged to the banks over a period of time. Therefore, after the assets of CCBs/SCBs are classified into various categories (Viz., Standard, sub-standard, doubtful and loss assets) necessary provision has to be made for the same. The details of provisioning requirements in respect of various categories of assets are mentioned below:

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A STUDY ON NON-PERFORMING ASSETS Standard Asset When the IRAC norms were introduced in the year 1996-97, no provisioning was required in respect of standard assets, From the year ended 31 March 2000, Banks are required to make provision on standard assets of a minimum of .25% of the total outstanding in this category. The provision made on standard assets may not be reckoned as erosion in the value of assets and will form part of owned funds of the bank. The advances granted against term deposits, National Savings Certificate (NSC) eligible for surrender, Kisan Vikas Patra(KVP), Indira Vikas Patra (IVP), Life policies, Staff loans would attract provision of 0.25% prescribed for standard assets. The provision towards assets need not to be netted from gross advances and should be shown separately as Contingent provision against standard Assets under other liabilities and provisionsothers. General provisioning requirement for Standard advances from the present level of 0.25 per cent was increased to 0.40 per cent with effect from the financial year beginning April, 1 2007. Banks direct advances to agricultural and SME sectors would be exempted from the additional provisioning requirement. Sub-Standard Asset A general provision of 10% of total outstanding in this category may be made. Doubtful Assets 100% is be made to the extent to which the advance is not recovered by realized value of securities to which the bank has a valid recourse and the realizable value is estimated on a realistic basis. Over and above item (a), provision is to be made depending upon the period for which an asset has remained overdue, 20% to 50% of the secured portion on the following basis. CRITERIA Overdue above 3 years, and up to 4 years Overdue over 4 years, but not exceeding 6 years. Overdue exceeding 6 years % OF PROVISIONING 20 30 50

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A STUDY ON NON-PERFORMING ASSETS With the enactment of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act. 2002 and the chances / extent of recovery of an asset reducing over a period of time, it is essential that banks expedite recovery of NPAs. Paragraph 122 of the Annual policy Statement for the year 2004-05 (copy enclosed) proposes to introduce graded higher provisioning according to the age of NPAs in doubtful for more than three years category with effect from March 31, 2005. However, in respect of State and District Central Co-operative Banks, all advances classified as doubtful for more than three years the provisioning requirement would be as under : a) Unsecured portion For portion of the advance, which is not covered by the realizable value of tangible security to which the bank has a valid recourse and the realizable value is estimated on a realistic basis, provision will be to the extent of 100 per cent as hitherto. b) Secured portion Period for which the advance has remained Provision requirement in doubtful category on secured portion

(i) outstanding stock of NPAs classified as 60 percent as on March 31, 2008 doubtful for more than three years as on 75 percent as on March 31, 2009 March 31, 2007 100 present as on March 31, 2010 (ii) advances classified as doubtful more 100 percent than three years on or after April 1, 2007

Loss Asset The entire loss asset should be written off. If the assets are permitted to be retained in the books for any reasons, 100% of the outstanding therefore should be fully provided for.

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Provisioning with the effect from 31 March 2004, SCBs and CCBs should move over to charging of interest on monthly rests by 1 April 2004 except for agricultural loan and loans for activities allied to agriculture. However, banks should continue to classify an account as NPA only if interest charged during any quarter with effect from 1 April 2004 and within 90 days from the end of the quarter with effect 31 March 2006.

PROVISIONING NORMS FOR NON-PERFORMING ASETS Sl. No. 1 2 3 Asset Category Standard assets Sub-Standard assets Doubtful assets UP to 1 year 1 year to 3 years Above 3 years 4 Loss assets 20% 30% 50% 100% Provision 0.25% 10%

CAUSES FOR NON-PERFORMING ASSETS External causes:


Natural calamities and climatic conditions Recession, changes in Government policies changes in economic conditions. Industrial recession. Impact of liberalization on industries. Technical problems. Global competition.

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Internal causes:

Internal defaulters Most of the project report is ground realities, proper linkages, product pricing etc. Some approach for the heck of starting a venture, with poor knowledge of product risks, over depended on poorly paid killed workers and technicians.

Building up pressure for sanctions. Deficiencies on the part of banks in credit appraisal. Non-observance of system, procedure and non-insistence of collaterals etc. Lack of post sanction monitoring, unchecked diversions.

RBI GUIDELINES Steps/initiatives taken by RBI to control NPAS Recognizing the fact that the origin of non-performance could be at the initial stage of loan decision making, RBI had impressed upon banks, from time to time, to strengthen credit appraisal and credit supervision. After sanction and disbursal o credit, banks are required to closely monitor the operations of the borrower units and accounts by way of abstention of periodic stock/operation statements, draw downs, end use, etc. In case of incipient sickness, detailed guidelines have been issued to bans to take steps for avoiding sickness, nursing back to sick units, etc. problem accounts above a certain outstanding balance which are required to be monitored individually by designated senior officials of banks. In respect of accounts where the classification of asset worsens, banks are required to take prompt steps to recover the dues and staff accountability is required to be examined. Banks have also been advised to take decisions regarding filling of suits expeditiously and to effective follow-up the cases of suit filed and decreed accounts. During periodic discussion with bank management, special emphasis is given on monitoring of large NPA accounts at the highest level in the banks and also on reduction of NPAs through up gradation, recovery and compromise settlements, RBI has advised and accordingly banks, Boards lay down policies in regard to credit dispersions, recovery of credit, etc. banks have constituted Recovery Cells, Recovery Branches, NPA Management Departments and fixed recovery targets.
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A STUDY ON NON-PERFORMING ASSETS Policies evolved and steps taken in this regard are critically examined during the annual on-site inspection of banks. The off-site return also provides RBI an insight into the quality of credit portfolio at quarterly intervals. Introduction of prudential norms on income recognition, asset classification and provisioning during 1992-93 and other steps initiated apart from bringing in transparency in the loan portfolio of banking industry have significantly contributed towards improvement of the presentation appraisal and post sanction supervision which is reflected in lowering of the levels of fresh accretion of Non-Performing Advances of banks after 1992. Narasimhan Committee Reports The RBI is going to implement in phases the entire stringent international standard for NPA classification in second generation of reforms as per the recommendations of the Narasimhan Committees second report. The second recommendations with regards to NPA are as follows : Narasimham Committees second report with regards to NPA 1. An asset is classified as NPA if it remains past due/out of order for 90 days (instead of 2 quarters) in phased manner by the year 2000. 2. An asset is classified as doubted and if it is in the sub-standard category for 18 months in the first instance and subsequently for 12 months and loss if it has been so identified but not written off. 3. For the purpose of evaluating the quality and asset portfolio, government guaranteed advances should be treated as NPA. 4. For standard asset, a general provision of 1% should be introduced I phased manner. 5. The bank should reduce the average level to net NPA to below 5% by the year 2000 and 3% by 2003. 6. There is need to institute an independent loan review mechanism especially for large borrowed accounts and systems to identify potation NPA.

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A STUDY ON NON-PERFORMING ASSETS 7. For banks with a high NPA portfolio, all loan assets in the doubtful and loss categories should be transferred to an asset reconstruction company. 8. A week bank should be one whose accumulated losses and net NPAs exceeds its net worth or one whose operating profits less its income on recapitalization bond is negative for 3 consecutive years. What is NPA ? To begin with, it seems appropriate to define non performing advance, popularly called NPA. Non Performing Advance is defined as an advance where payment of interest of repayment of installment of principal (in case of term loans) or both remains unpaid for a period of two quarters or more. An amount under any of the credit facilities is to be treated as past due when it remain unpaid for 30 days beyond due date. What is NPA Management ? A bank creates an asset by lending 50% to 90% of the project cost. The bank has major stroke in an asset then the borrower, so it should be the responsibility of the bank to see and maintain the health of the asset, while creating an asset the Bank wants that the asset should be performing one from the beginning and remains so till its liquidation. But, sooner or later, it becomes or tends to become NPA; unless managed properly; due to various reasons. Then it becomes a problematic asset and needs intensive care. The objectives of NPA Management 1. 2. 3. To make more assets performing To reduce quantum of NPAs and To minimize the amount of provision requirements.

Effective NPA management involves the following Aspects. 1. Understanding of NPA amount. a. b. c. Understanding of NPA concept Understanding of income recognition norms Understanding of asset classification norms

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A STUDY ON NON-PERFORMING ASSETS d. e. 2. Understanding of provisioning norms Understanding of asset cycle.

Identification of NPAs; a. b. Terms loans Agricultural advances c. d. e. 3. Cash credit and overdraft credit facilities. Bills purchased and discounted. Other credit facilities.

Prevention of NPAs a. b. c. d. Credit risk management Credit marketing Management of potential NPAs Replacement of loans

4.

Proper NPA accounting system a. b. Accounting system in NPA accounts] Maintenance of NPA records.

5.

Up-gradation of fresh NPAs a. b. Recovery of critical amount Replacement of NPA amount

6.

Liquidation of chronic NPAs a. Cash recovery through


The bank staff The government agencies


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The private recovery agents The legal bodies/methods

b. c. d.

Settlement of claims with DICGC/ECGC Compromise Written off

Recovery Management in the Karnataka State Co-operative Apex Bank Ltd. (KSCAB) Recovery of loans and advances is an integral part of credit management in KSCAB. In the normal circumstances it should be the endeavor of an institution, to increase its loan portfolio, taking into account the resources available, opportunities for lending and other relevant factors like desired risk-return profile. The emphases should be on building a healthy credit portfolio is tune with the corporate objectives and this should have enough cushions to absorb normal loan losses. A recovery of loans as end when due is part of credit management, with provision for dealing with troubled accounts. The strategy that may be adopted for improving recovery on a step-by-step basis is highlighted and these are not in substitution of the well laid down procedure of the corporation for recovery but as an aid in the direction. Spotting troubled accounts Leaving alone the norms for classification of an asset a NPA, anyone of the following could be a trigger point for marketing an account for special treatment. 1. 2. 3. 4. 5. 6. Non-payment of one or more installments (month/quarterly) on the due date. Non-payment of quarterly interest when due, say within a week/10days. Non-receipt of audited financial statements when due. Borrower/his representatives not meet for considerable time. Enquiries from banks. Request for sending II charge on assets/notice of II mortgage. When any of the above or similar things happens, be alert. Ask them when you met the borrower last. And here starts the first step
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A STUDY ON NON-PERFORMING ASSETS Steps: 1. Establish contact with the borrower/chief representative; understand the reason for the irregularity and his not coming to you earlier. 2. Do not start with repayment. Understand the problem. It could be with the unit, including the industry to which it belongs or it could be with the individual. It could be of temporary nature or more prolonged one. 3. Can you do something to mitigate the problem? With you contact with so many other customers, it may be possible for your help come out of the difficulties. 4. Make the borrower come out openly with his difficulties, the steps taken by him to overcome them and the help the needs. This will help you to devise suitable strategy to regularize the account. 5. Ask him to call on you for further discussion. Do not lose contact, ask him to give in writing the problem faced by him and the help the needs from the corporation (more time, rescheduling etc) and while accepting his liability. 6. Meanwhile, try to get fresh report on him about his business outside commitments, borrowing from other sources etc. 7. Look at your security documents and see that they are intact. Ensure the availability of the security and the value to cover the indebtedness. When the contacts with the borrower do not yield the desired result, the next best is influences strategy (subject to requirement of secret). May be through the person who introduced the account, the guarantor who in any case in responsible for repayment and other persons of the locality who commands respect and the help of Government officially in the case of Government sponsored schemes. If this also foils and further grant of time will be harmful to the institution, the advance can be recalled, giving specific time to regularize the account. Keep an eye on the documents and securities available before this step is taken. Once you none decided on this course, it should be followed to the logical end to have the effect on the borrower and others. A letter from the institution should mean what is a state, unless the borrower comes for a settlement to the satisfaction of the institution.

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A STUDY ON NON-PERFORMING ASSETS Legal methods available for recovery of impaired loans of the Karnataka State Cooperative Apex Bank Ltd. The various legal proceedings for recovery of debt are:

Legal notice Plaint Suit Summons to defendant Written statements from the defendant Discovery and inspection Notice to admit facts Summon witness Hearing and disposal of units Judgment debtor

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A STUDY ON NON-PERFORMING ASSETS Various steps for reducing NPAs in the Karnataka state Co-operative Apex Bank Ltd.

Various steps for reducing NPAs

Study the problem of NPAs branch wise amount, wise and age-wise

Prepare a loan recovery policy and strategies for reducing NPAs.

Create special recovery cells as head office/zonal office/regional office levels identify critical branches for recovery.

Fix targets of recovery and draw time bound action programmer

Select proper techniques for solving the problem of each NPA

Monitor implementation of the time bound action plan.

Take corrective steps whenever found necessary while monitoring the action plan and make charges in the original plan if necessary.

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DATA ANALISIS AND INTERPRETATION Table 4.1 The table showing percentage of total NPA to total advances in the KSCAB Ltd.,

Year 2005-06 2006-07 2007-08 2008-09 2009-10

NPA(Rs.in lakhs) 26161.20 24479.96 20896.06 19209.01 14598.76

Total advances 178574.78 223765.69 280484.05 349254.68 314628.40

NPA in percentage 14.65 10.94 7.45 5.50 4.64

Analysis: The above table shows the percentage of total NPA to total credit in the KSCAB Ltd. It is shows continuously decreasing trend from the financial year 2005-06 to 2009-10, i.e.it is 14.65% in 205-06 and reduced to 4.64% in 2009-10. It shows that an effort has been taken to control the NPA.

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Graph 4.1 The graph showing percentage of total NPA to total advances in the KSCAB Ltd.,

Percentage of total NPA to total advances


16 14 12 10 8 6 4 2 0 2005-06 2006-07 2007-08 YEARS 2008-09 2009-10 7.45 5.5 4.64 NPA in percentage 10.94 14.65

Interpretation: The decrease in the total NPA to total credit in the past five years shows the development in the banks performance. The bank is taking action in large number of cases for recovery of its NPAs under SARFAESI act 2002. This has helped the bank to recover its NPAs and lower the level of NPAs and it is striving hard to decrease it to fuller extent.

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Table 4.2 The table showing the percentage of total NPA in agriculture sector to total advances given in agriculture sector at the KSCAB Ltd.

Year

NPA(Rs.in lakhs)

Total advances

NPA in percentage 4.95 2.98 2.20 1.75 0.00

2005-06 2006-07 2007-08 2008-09 2009-10

5512.54 4599.06 4598.27 4770.75 0000.00

111364.62 154330.97 209012.22 272614.39 226798.09

Analysis: The percentage of total NPA in agriculture sector to total credit given in agriculture sector is showing decreasing trend from the financial year 2005-06 to 2008-09 and it is nil in the year 2009-10. It shows that effective steps have been taken by bank to control the NPA.

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Graph 4.2 The graph showing the percentage of total NPA in agriculture sector to total advances given in agriculture sector at the KSCAB Ltd.,

The percentage of total NPA in agriculture sector to total advances given in agriculture sector
6 5 4 3 2 1 0 2005-06 2006-07 2007-08 YEARS 2008-09 2009-10 4.95

2.98 2.2 1.75 NPA in percentage

Interpretation: The specific finding from the study is that as there is a gradual decrease in the percentage of NPA during the last five years, this is appreciable to the growth of the profitability of the bank. NPA in the last year is nil. This is achieved by adopting the various strict recovery measures by bank.

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Table 4.3 The table showing the percentage of total NPA in sugar sector to total advances given in sugar sector at the KSCAB Ltd.,

Year

NPA(Rs.in lakhs)

Total advances

NPA in percentage 55.66 68.40 64.77 61.52 56.42

2005-06 2006-07 2007-08 2008-09 2009-10

17523.54 16863.27 12712.48 11500.24 11616.74

31483.20 24653.90 19627.12 18693.50 20589.76

Analysis: The percentage of total NPA in sugar sector to total credit given in sugar sector is showing an increasing trend in the year 2006-07 when compared to 2005-06. But later on it reduced to 64.77%, 61.52% & 56.42% in the year 2007-08, 2008-09 & 2009-10 respectively.

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Graph 4.3 The graph showing the percentage of total NPA in sugar sector to total advances given in sugar sector at the KSCAB Ltd.

The percentage of total NPA in sugar sector to total advances given in sugar sector.
80 70 60 50 40 30 20 10 0 2005-06 2006-07 2007-08 YEARS 2008-09 2009-10 NPA in percentage 68.4 55.66 64.77 61.52 56.42

Interpretation: NPA shows that every year more than 50% of the total credit given has became NPA. It indicate dangerous signal. Bank has to take best measure to control NPA in sugar sector. Through this table we can understand that the inherent quality of the banks credit appraisal capability is very weak and it should focus to a large extent in reduction of its NPA.

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Table 4.4 The table showing the percentage of NPA in other sector to total advances given in other sector at the KSCAB Ltd.

Year

NPA(Rs.in lakhs)

Total advances

NPA in percentage 8.74 6.73 6.91 5.07 4.86

2005-06 2006-07 2007-08 2008-09 2009-10

3122.53 3013.74 3582.12 2937.90 2401.55

35726.96 44780.82 51839.68 57946.79 49414.53

Analysis: The percentage of total NPA in other sector to total credit given in other sector is showing continuously decreasing trend in 2006-07 when compared to 2005-06. But in 2007-08 again it is increased to 6.91%, later on it is decreased to 5.07% and 4.86% in 2008-09 and 2009-10 respectively.

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Graph 4.4 The graph showing the percentage of NPA in other sector to total advances given in other sector at the KSCAB Ltd.

The percentage of NPA in other sector to total advances given in other sector
9 8 7 6 5 4 3 2 1 0 8.74 6.73 5.91 5.07 4.86 NPA in percentage

2005-06

2006-07

2007-08 YEARS

2008-09

2009-10

Interpretation: When compared to sugar sector NPA in other sector is very less. Every best possible effort is taken by the bank to curb the growth of NPA. The bank has been focusing its attention on the recovery of NPAs and as a result it has been able to reduce the NPAs during the last years.

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Table 4.5 The table showing the percentage change in NPA to total advances at the KSCAB Ltd.

Year 2005-06 2006-07 2007-08 2008-09 2009-10

NPA(Rs.in lakhs) 26161.20 24479.96 20896.06 19209.01 14598.76

NPA in percentage -6.36 -14.68 -8.10 -23.97

Analysis: The above table shows the percentage change in NPA to total advances at the KSCAB Ltd. The change in NPA to total advances shows continuously deceasing trend it is decreased from 6.36% to 23.97% during the financial year 2005-06 to 2009-10.

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Graph 4.5 The graph showing the percentage change in NPA to total advances at the KSCAB Ltd.

The percentage change in NPA to total advances.

0 2006-07 -5 -6.36 -10 -15 -20 -23.97 -25 YEARS -14.68 -8.1 NPA in percentage 2007-08 2008-09 2009-10

Interpretation:

The total NPA in the KSCAB Ltd has been reduced in last years. This enhances the profitability of the bank and shows the improvement in the performance of the bank. The reduction in NPA can attributed to the positive strategies undertaken by the bank.

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Table 4.6 The table showing the percentage change in NPA in agricultural sector at the KSCAB Ltd.,

Year 2005-06 2006-07 2007-08 2008-09 2009-10

NPA(Rs in lakhs) 5512.54 4599.06 4598.27 4770.75 0000.00

NPA in percentage -16.51 -.017 3.75 -1.00

Analysis: The above table shows the percentage change in NPA in agriculture sector at the KSCAB Ltd. There is a decreasing trend in NP in the financial year 2006-07 by 16.51%. In 2007-08 it has been decreased to 0.17%%. But in 2008-09 it again increased to 3.75% and in 2009-10 NPA is nil.

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Graph 4.6 The graph showing the percentage change in NPA in agricultural sector at the KSCAB Ltd.,

The percentage change in NPA in agricultural sector


5 0 2006-07 -5 -10 -15 -20 2007-08 -0.017 2008-09 2009-10 -1 NPA in percentage 3.75

-16.51

YEARS

Interpretation: The NPA in agriculture sector has decreasing tendency in 2006-07, but. In 2008-09 there is a gradual increase in the percentage of the NPA to loans and advances, in 2009-10 NPA is nil. This is appreciable to the growth of the profitability of the bank. This is achieved by adopting the various recovery measures by the bank.

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Table 4.7 The table showing the percentage change in NPA in sugar sector at the KSCAB Ltd.

Year 2005-06 2006-07 2007-08 2008-09 2009-10

NPA (Rs. In lakhs) 17523.54 16863.27 12712.48 11500.24 11616.74

NPA in percentage -3.68 -24.68 -9.52 1.01

Analysis: The above table shows the percentage change in NPA sugar sector at the KSCAB Ltd. The percentage change in NPA sugar sector is drastically come down during the financial year 2006-07 to 2008-09. But in 2009-10 it is increased to 1.01%. It shows that NPA is increased in last year when compared to previous years.

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Graph 4.7 The graph showing the percentage change in NPA in sugar sector at the KSCAB Ltd.

The percentage change in NPA in sugar sector


5 0 2006-07 -5 -10 -15 -20 -25 -24.68 YEARS -3.68 -9.52 NPA in percentage 2007-08 2008-09 2009-10 1.01

Interpretation: The total NPA in sugar sector has been decreasing since 2006-07 but in 2009-10 again it increased to1.01%. The repayment schedule was very poor in case of sugar loan. During 2007-08 the bank had given more attention and importance for the recovery of sugar sector loans and had taken many effective steps in this regard.

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Table 4.8 The table showing the percentage change in NPA in other sector at the KSCAB Ltd.,

Year

NPA (Rs. In lakhs)

NPA in percentage

2005-06

3122.53

2006-07

3013.74

-3.48

2007-08

3582.12

18.85

2008-09

2937.90

-17.98

2009-10

2401.55

-18.25

Analysis: The above table shows the percentage change in NPA in other sector at the KSCAB Ltd., in 2006-07 the NPA has decreased by 3.48%. But in 2007-08 it is increased to 18.85%. But in 2008-09 to 2009-10 NPA in other sector has reduced to 18.25%.

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Graph 4.8 The graph showing the percentage change in NPA in other sector at the KSCAB Ltd.,

The percentage change in NPA in other sector


20 15 10 5 0 -5 -10 -15 -17.98 -20 YEARS -18.25 2006-07 -3.48 2007-08 2008-09 2009-10 NPA in percentage 18.85

Interpretation: When compared to sugar sector the NPA in other sector is very less except in 2007-08. This enhances the profitability of the bank. The reduction in NPA can be attributed to positive strategies undertaken by the bank. The bank has formulated a recovery policy with built in mechanism to settle NPAs by compromise as well.

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Table 4.9 The table showing the comparison of NPA to advances in agriculture sector and total advances.

Year

NPA(Rs.in lakhs) % of NPA to total advances

% of NPA to advances given in agricultural sector. 4.95 2.98 2.20 1.75 0.00

2005-06 2006-07 2007-08 2008-09 2009-10

5512.54 4599.06 4598.27 4770.75 0000.00

3.08 2.06 1.64 1.36 0.00

Analysis: The above table shows comparison of NPA to advances in agricultural sector and total advances. In the year 2005-06 percentage of NPA to total advances is 3.08% and percentage of NPA to advances in agricultural sector is 4.95%. Later on the NPA to total advances and NPA to advances given in agricultural sector are gradually decreasing and it is nil in years 2009-10.

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Graph 4.9 The graph showing the comparison of NPA to advances in agriculture sector and total advances.

The comparision of NPA to advances in agriculture sector and total advances.


9 8 7 6 5 4 3 2 1 0 2005-06 2006-07 2007-08 YEARS 2008-09 3.08 2.06 1.64 2.98 2.22 1.75 1.36 0 2009-10 % of NPA to advances given in agricultural sector. % of NPA to total advances 4.95

Interpretation: The above NPA as compared to total advances is very less. The bank has to fallow the same NPA recovery measures in order to retain the position of NPA at nil. The bank should closely monitor NPAs and must put in place NPA management plan for efficient recovery.

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Table 4.10 The table showing the comparison of NPA to advances in sugar sector and total advances.

Year

NPA(Rs.in lakhs)

% of NPA to total advances

% of NPA to advances given in sugar sector.

2005-06 2006-07 2007-08 2008-09 2009-10

17523.54 16863.27 12712.48 11500.24 11616.74

9.81 7.55 4.53 3.29 3.69

55.66 68.46 64.77 61.52 56.42

Analysis: The above table shows comparison of NPA to advances in sugar sector and total advances. In 2005-06 NPA to total advances is 9.81% and NPA to advances in sugar sector is 55.66% in 2006-07 NPA to total advances is 7.55% and NPA to advances in sugar is 68.46%. Later on the NPA when compared to total advances is gradually decreasing year after,

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Graph 4.10 The graph showing the comparison of NPA to advances in sugar sector and total advances.

The comparison of NPA to advances in sugar sector and total advances.


80 70 60 50 40 30 20 10 0 2005-06 2006-07 9.81 7.55 4.53 2007-08 3.29 2008-09 3.69 2009-10 % of NPA to advances given in sugar sector. % of NPA to total advances 55.66 68.46 64.77 61.52 56.42

YEARS

Interpretation: The NPA amount is compared to total advances is very less. When it compared to advances given in sugar sector is very high. Through this table we can understand that the inherent quality of the banks credit appraisal capability is very week and it should focus to a large extent in reduction of its NPA in sugar sector.

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Table 4.11 The table showing the comparison of NPA to advances in other sector and total advances.

Year

NPA(Rs.in lakhs)

% of NPA to total advances

% of NPA to advances given in other sector. 8.74 6.73 5.91 5.07 4.86

2005-06 2006-07 2007-08 2008-09 2009-10

3122.53 3013.74 3582.12 2937.90 2401.55

1.75 1.35 1.28 0.84 0.76

Analysis: The above shows the comparison of NPA to advances in other sector and total advances. The percentage of NPA to total advances is lower when compared to advances given in other sector. In both the cases the percentage shows a decreasing trend but in the year 2009-10 percentage of other sector NPA to total advances is increased when compared to 2008-09.

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Graph 4.11 The graph showing the comparison of NPA to advances in other sector and total advances.

The comparison of NPA to advances in other sector and total advances.


10 8 6 4 2 0 2005-06 2006-07 2007-08 YEARS 1.75 1.35 1.28 8.74 6.73 5.91 5.07 4.86 % of NPA to total advances % of NPA to advances given in other sector. 0.84 2008-09 0.76 2009-10

Interpretation: The bank is taking several steps to curb the level of NPA and is closely monitoring NPAs and put in place NPA management plan for efficient recovery. The bank has formulated a recovery policy with built in mechanism to settle NPAs by compromise as well.

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FINDINGS:
The Karnataka state co-operative APEX Bank Ltd is one of the leading banks in country acting as a catalyst for the growth of the Indian economy. The NPA of bank stood at Rs.14598.76 lakhs as on 31.03.2010 as against 19201.99 lakhs as on 31.03.2009. The net NPA ratio of bank has been declined from 5.5% as at March 31st 2009 to 4.64% as at March 31st 2010. The NPA of agricultural sector in 2009-10 is nil. It shows that effort has been taken to control the NPA. During 2009-10, the bank give more attention and importance for recovery of sugar sector loans and had take many effective steps in this regard. The operations of Apex Bank have been increasing steadily over the past years and have considerably increased their bank deposits which show the confidence level of the public towards that bank. The result about repayment by the customer was tricky. There is a good record in the repayment of the individual loans like personal loan, car loans and housing loans and even agriculture loans. The loan repayment is very poor in sugar sector. The specific findings from the study are that, there is still a need to have to have controlling devices to monitor NPA system in the KSCAB Ltd. The bank is facing difficulty in controlling NPA because of lack of adequate staff for the recovery. In spite of many steps taken by the bank still could not control the NPAs but when NPAs are compared with the total advances, their ratio each other is better. The Karnataka state co-operative Apex bank Ltd. Has created enough free reserves to meet the bad debts as per prudential norms and to meet unforeseen contingent liabilities in standard assets, investments and losses due to misappropriation and theft, if any. The net profits of the Karnataka state co-operative Apex bank Ltd. Have increased reasonably. The Karnataka state co-operative Apex bank Ltd. Has recorded growth in all the areas under its development action plan programmed implemented successfully as per NABARD guidelines.

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SUGGESTIONS:.
In the light of above study and findings, the following suggestions are made bringing down the NPAs: The bank has to take care of recovery management in sugar sector with proper execution and planning. The banks concerned should continuously monitor loans to identify accounts that have potential to become non performing. Bank should create a new model of banking business by giving loans to credit worthy and persons having clean and credit history. The KSCAB Ltd., should concentrate more on credit appraisal, monitoring credit risk management and recoveries. The KSCAB Ltd., should offer re scheduling of loans of those borrowers who were struggling with high interest rates in falling interest rate environment. Timely visit by the field staff and making personal contact with the borrowers. Proper follow-up with the support of all the staff members who were having good touch with the customers. Conducting in-house training programs for the managers concerned with the recovery about the latest rules and regulations and also on the responsibilities available for of the recovery of NPAs. Fresh addition to NPAs can be prevented by proper credit management of the loans and advances and proper documentation at the time of disbursement of loan. The securities need to be re-valued/assets for proper provisioning of doubtful and loss assets. There is a need to have periodic review of accounts inspection of units by audit department. Maintaining the capital adequacy with the set limits by RBI. This requires the bank to operate in the specified limit of risk position. The best model to reduce the level of NPA at Apex bank is to give emphasis for technological improvements for proper and regular monitoring and follow-up the accounts, setting targets and achieve set targets. The bank must also try to implement effective risk management system.

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CONCLUSION
The dissertation study on non performing assets at KSCAB Ltd., has been great source of knowledge. It has given me an opportunity to understand the co-operative financial sector. The bank is performing very well in every aspect, of its dealing. From the past 94 years the bank has grown in leaps and bonds. All the branches of the bank are being computerized. The working capital as well as profit of the bank has gone up tremendously. From the study we can conclude that the Apex Bank has been following wellestablished systems, policies, and procedures with respect to NPA and recovery. The bank has recovered the loans in a systematic manner, disbursement of loans/advances to all the priority sectors and has crossed the total business targets for 2006-07. However, as suggested, the bank should consider some additional strategies and policies to face challenges of the competitors in future, to improve the quality of its services of lending and recovery. The recovery strategies for impaired loans need to be revised with the following considerations by setting a time for recovery of a particular impaired loans and assigning the responsibility to a particular person for the recovery of particular loan alone with the infrastructure and power to take action concerning to that loan. Apart from the said conclusions, the level of reduction of Nonperforming assets and to increase the like special efforts should be made in respect of large advances and more attention needs to be paid for strategies planning by employees with self set goals educating borrowers. In sum, the present NPA assignment has been very useful in getting firsthand experience with respect to the management of NPA in the banks, with an insight into one of the important segments of recovery.

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BIBLIOGRAPHY
BOOKS REFFERD: Management of NPA by T.V Gopalakrishna. Banking and trade practices by Reddy and Appannaiah. Financial management by Khan and Jain.

JOURNALS: Annual reports of the bank Bank journals.

WEBSITES www.karnatakaapex.com mis@karapex.com www.rbi.com

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