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Banking in India:
Structure of the organised banking sector in India. Number of banks are in brackets. Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India.
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History:
Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues stock and requires shareholders to be held liable for the company's debt) It was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States, promoters opened banks to finance trading in Indian cotton. With large exposure to speculative ventures, most of the banks opened in India during that period failed. The depositors lost money and lost interest in keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century. Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Puducherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities. The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments." The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India. 3|Page
The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara ( South Kanara ) district. Four nationalised banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking". During the First World War (1914-1918) through the end of the Second World War (1939-1945), and two years thereafter until the independence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following table: Years 1913 1914 1915 1916 1917 1918 Number of banks that failed 12 42 11 13 9 7 Authorised capital (Rs. Lakhs) 274 710 56 231 76 209 Paid-up Capital (Rs. Lakhs) 35 109 5 4 25 1
Post-Independence:
The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included:
The Reserve Bank of India, India's central banking authority, was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948.
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In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.
Nationalisation:
Banks Nationalisation in India: July, 20, 1969 Despite the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank of India or SBI, continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The meeting received the paper with enthusiasm. Thereafter, her move was swift and sudden. The Government of India issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969.
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A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy. The nationalisation of banks in India took place in 1969 by Mrs. Indira Gandhi the then prime minister. It nationalised 14 banks then. These banks were mostly owned by businessmen and even managed by them.
Central Bank of India Bank of Maharashtra Dena Bank Punjab National Bank Syndicate Bank Canara Bank Indian Bank Indian Overseas Bank Bank of Baroda Union Bank Allahabad Bank United Bank of India UCO Bank Bank of India
1955 : Nationalisation of State Bank of India. 1959 : Nationalisation of SBI subsidiaries. 1969 : Nationalisation of 14 major banks. 1980 : Nationalisation of seven banks with deposits over 200 crores.
After Nationalisation:
This study critically examines the extent to which the banking system in India has been able to achieve the objectives set before it initially by the scheme of 'social control' introduced in early 1968 and subsequently by the nationalisation of 14 major Indian banks. These objectives are: (i) wider territorial and regional spread of the banks' branch network; (ii) larger mobilisation of financial savings through bank deposits; and (iii) reorientation of credit deployment in favour of small producers and the disadvantaged classes. Any reorientation of commercial bank lending in favour of 'priority' areas perforce implies a critical questioning of credit absorption by the medium and large-scale industries to which the banks were largely accustomed to lending and which had absorbed two-thirds of bank credit, even though contributing only about one-tenth to the net domestic product or less than 25 per cent to the gross value of output of commodity producing sectors. Significant structural changes in the deployment of commercial bank credit requires purposeful action on three planes: (i) rigorous control on the pre-emption of credit by medium and large-scale industries; (ii) prescription of policies and instruments for directing credit in favour of the designated 'priority' areas; and (iii) development of a framework of instruments and institutions. This paper makes an attempt at analysing the performance of commercial banks during the post-nationalisation period in regard to all of these specific aspects.
Liberalisation
In the early 1990s, the then Narasimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which 7|Page
later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been set up with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 74% with some restrictions. The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks.All this led to the retail boom in India. People not just demanded more from their banks but also received more. Currently (2007), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them. In recent years critics have charged that the non-government owned banks are too aggressive in their loan recovery efforts in connection with housing, vehicle and personal loans. There are press reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide. The last decade experienced a complete reform in the financial and banking sector. The capital and financial market, banking & non-banking organisation and financial instruments was redressed towards development. The last decade witnessed the maturity of India's financial markets. Since 1991, every governments of India took major steps in reforming the financial sector of the country. The important achievements are in the following fields:
Financial markets Regulators The banking system Non-banking finance companies 8|Page
The capital market Mutual funds Overall approach to reforms Deregulation of banking system Capital market developments Consolidation imperative
Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dial a pizza. Money have become the order of the day. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:
Early phase from 1786 to 1969 of Indian Banks Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector Reforms. New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991.
To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase III.
Phase I
The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders. In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National 10 | P a g e
Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority. During those days public has lesser confidence in the banks. As an aftermath deposit mobilisation was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders.
Phase II
Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalised Imperial Bank of India with extensive banking facilities on a large scale specially in rural and semi-urban areas. It formed State Bank of india to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country. Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19th July, 1969, major process of nationalisation was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country was nationalised. Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership. The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country:
1949 : Enactment of Banking Regulation Act. 1955 : Nationalisation of State Bank of India. 1959 : Nationalisation of SBI subsidiaries. 1961 : Insurance cover extended to deposits. 1969 : Nationalisation of 14 major banks. 1971 : Creation of credit guarantee corporation. 1975 : Creation of regional rural banks. 1980 : Nationalisation of seven banks with deposits over 200 crore.
After the nationalisation of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%.Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions. 11 | P a g e
Phase III
This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalisation of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money. The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure.
Function of a Bank:
a. Receipt of deposits: A bank receives deposits from individuals, firms, and other institutions. Deposits constitute the main resources of a bank. Such deposits may be of different types. Deposits which are withdrawal on demand are called demand or current deposits, others are called time deposits. Savings deposits are those form which withdrawals are not restricted as regards the amount and the period. Deposits withdraw able after the expiry of an agreed period are known as fixed deposits, interest paid by banks is different for each kind of deposit highest for fixed
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b. Lending of money: banks lend money mainly for industrial and commercial purposes. This lending may take the form of cash credits, overdrafts, loans and advances, or discounting of bills of exchange. Interest charged by banks on such lending varies according to the amount and period involved, social priority-nature of security offered the standing of the borrower, etc. c. Agency services : A bank renders various services to consumers, such as: i. Collection of bills , Promissory notes and cheques ii. Collection of dividends, interests, premiums etc. iii. Purchase and sale of shares and securities iv. Acting as trustee or executor when so nominated v. Making regular payments such as insurance premiums
d. General services: A modern bank performs many services of general nature to the public, e.g. I. issue of letters of credit, travelers cheques, bank drafts, circular notes; etc II. safe keeping of valuables in safe deposit vaults III. supplying trade information and statistics, conducting economic surveys IV. Preparation of feasibility studies, project reports, etc. Banks in some foreign countries also underwrite issue of shares and make loan for long-term purposes.
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After Globalisation
In the late 18th century there was a massive growth in the banking industry. Banks played a key role in moving from gold and silver based coinage to paper money, redeemable against the bank's holdings. Within the new system of ownership and investment, the state's role as an economic factor grew substantially.
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With the advancement of technology, banking sector has become more easy, fast, accurate and also time saving. ATMs, Mobile Banking, SMS Banking and Net Banking is only the tip of an ice-berg. This section is fully dedicated to the Tech Banking. A decade before, it was tough to belief that banking sector will be at a finger tip. Now its possible. A mobile hand set with a connection is the only instrument needed to make a gateway to your banking transaction, the latest innovation of technology. Apart from the Mobile Banking, including of SMS Banking, Net Banking and ATMs are the major steps taken by the banks in India towards modernization. With all these devises and systems, there is a complete freedom to experience.Check your account, transfer your fund, make payments and what more, do anything of everything what has been followed in physical banking since ages. But this time no standing for hours in front of cash counter and no time boundation in withdrawing your own money.
Bank of India, The first Indian bank to open a branch outside India in London in 1946 and founded in 1906 in the first to open a branch in continental Europe at Paris in 1974 Mumbai The oldest Public Sector Bank in India having branches all over India and serving the customers for the last 132 years The first Indian commercial bank which was wholly owned and managed by Indians Allahabad Bank Central Bank of India
Bank of India was founded in 1906 in Mumbai. It became the first Indian bank to open a branch 15 | P a g e
outside India in London in 1946 and the first to open a branch in continental Europe at Paris in 1974.
Chapter 2
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Company Analysis
Mission:
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To be a top ranking National Bank of International Standards committed to augmenting stake holders value through concern , care and competence.
Vision:
It has been a long and eventful journey of almost a century across 25 countries. Starting in 1908 from a small building in Baroda to its new hi-rise and hi-tech Baroda Corporate Centre in Mumbai, it is a saga of vision, enterprise, financial prudence and corporate governance. It is a story scripted in corporate wisdom and social pride. It is a story crafted in private capital, princely patronage and state ownership. It is a story of ordinary bankers and their extraordinary contribution in the ascent of Bank of Baroda to the formidable heights of corporate glory. It is a story that needs to be shared with all those millions of people - customers, stakeholders, employees & the public at large - who in ample measure, have contributed to the making of an institution.
History:
It all started with a visionary Maharaja's uncanny foresight into the future of trade and enterprising in his country. On 20th July 1908, under the Companies Act of 1897, and with a paid up capital of Rs 10 Lacs started the legend that has now translated into a strong, trustworthy financial body, THE BANK OF BARODA. Bank of Baroda started its operation in the year 1908 in Baroda though its Corporate Centre is in Mumbai now. Its mission is "to be a top ranking National Bank of International Standards committed to augment stake holders' value through concern, care and competence". It has been a wisely orchestrated growth, involving corporate wisdom, social pride and the vision of helping others grow, and growing itself in turn. The founder, Maharaja Sayajirao Gaekwad, with his insight into the future, saw "a bank of this nature will prove a beneficial agency for lending, transmission, and deposit of money and will be a powerful factor in the development of art, industries and commerce of the State and adjoining territories."
The Ethics :
Between 1913 and 1917, as many as 87 banks failed in India. Bank of Baroda survived the crisis, mainly due to its honest and prudent leadership. This financial integrity, business prudence, 18 | P a g e
caution and an abiding care and concern for the hard earned savings of hard working people, were to become the central philosophy around which business decisions would be effected. This cardinal philosophy was over years of its existence, to become its biggest asset. It ensured that the Bank survived the Great War years. It ensured survival during the Great Depression. Even while big names were dragged into the Stock Market scam and the Capital Market scam, the Bank of Baroda continued its triumphant march along the best ethical practices.
Housing Loan Home Improving Loan Education Loan Car Loan Two Wheeler Loan Consumer Durables Loan Personal Computers Loan 19 | P a g e
Personal Loan Marriage Loan Festival Loan Advance Against Securities Overdraft Against Property Loan to Pensioners Loan to Defence Pensioners Professional Loan Traders Loan Loan Against Rent Receivables
Services:
Apart from the different types of Loan Solutions, Deposits, Credit and Debit Cards, Bank of Baroda also offers other services to make financial dealings easy and convenient for customers. They are as follows:
Remittances (Baroda Money Express) Collection Services ECS (Electronic Clearing Services) Government Business (PPF, DSRGE, Tax Collections and Savings Bonds)
Maintenance of Bank accounts in India Investments in securities/shares of, and deposits with, Indian firms/companies. Invetsments in immovable properties in India.
Apart from all these common product and services Bank of Baroda also deal with third party products. Third party products are those product that bank is not directly related with but does business with it. It includes Gold coins, shares, mutual funds, etc.
Business Indicators:
Key Business Indicators (Rs. in Crore) Total Deposits Total Advances Total Investments Total Assets 31.03.2011 305439.48 228676.36 71260.63 358397.18 31.03.2010 2 41 261.93 1 75 035.29 61 182.38 2 78 316.70 20 | P a g e
Net Profit Capital Adequacy Ratio (percentage) Net Non Performing Loans to Net Advances (percentage) Net Interest Margin (percentage) Business Per Employee (Lacs)
4241.68 13.02 as per Basel I 14.52 as per Basel II 0.35 3.12 1229
3 058.33 12.84 as per Basel I 14.36 as per Basel II 0.34 2.74 981
joint venture in Zambia with 9 branches. The bank's international operations today contribute around 20% to its global business and well as over 30% to its net profits. Growing its presence across new geographies and strengthening its equity in existing markets, Bank of Baroda is on the path to establish itself round the clock around the globe. The bank is exploring out-of-the-box means to identify novel ways to tailor its growing repertoire of products and services to meet segment-specific requirements across geographies. Automation-led process and cost optimization, orchestration of the offices network and greater attention to compliance with global regulations are aggressively being focused on to help the bank achieve its ambitious goals. Bank of Baroda, gearing to leverage the opportunities that the flat world presents and nimbly skirting its threats, is charting a coherent strategy to not just cope but break path and emerge with the winning edge, in the changing global business scenario.
Competitors of BOB:
The competitors of the bank are ICICI Bank, Punjab National Bank and State Bank of India. Bank of Baroda has a big portfolio of banking products and services for individual and institutional clients. It offers its products and services with the help of a range of delivery channels and also its associates and subsidiary companies in areas like credit cards, investment banking and wealth management.
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Business per employee (Rs in crore) Gross Profit per employee (Rs. in lakhs) Net Profit per employee (Rs. in lakhs) Business per branch (Rs. in crore) Gross Profit per branch (Rs. in crore) Net Profit per branch (Rs. in crore) Earnings per share (Rupees) Book Value per share (Rupees)
Human Resources (Staff as of 01.04.2011) Officers Clerks Sub Staff On Contract Total
Ahmedabad
SMS and WAP based mobile banking services Inter bank electronic transfer funds (ETF)
Operations in BOB:
BOB basically two types of functions: Domestic Operations. Forex Operations.
Domestic Operations:
Bank of Baroda has set up dedicated desks at the SITB, headed by experienced professionals, for undertaking various types of treasury activities in different financial markets. Apart from activities pertaining to management of funds and liquidity, the domestic treasury also handles financial instruments like:
Commercial Papers (CP) Certificate of Deposits (CD) Government Securities Treasury Bills (TB) Bonds and Debentures Equities and various other derivatives.
The products and services offered by SITB cater to the inter-bank market as well as to the Corporate customers of the bank. The Bank is an active participant both in the inter-bank market and the corporates for all the products. The Bank offers its customers, including firms, companies, corporate bodies, institutions, provident funds trusts, Regional Rural Banks, Urban Cooperative Banks and Non-Banking Financial Companies opportunities to invest in Government Securities as allowed by Reserve Bank of India for non-competitive bidding.
Forex Operations:
Bank of Baroda, one of the major public sector banks in India having a strong global presence with a wide network of 86 overseas offices, including those of subsidiaries, spread over 25 countries, is considered as a market leader in foreign exchange operations in India. At present the
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Bank is having branches / offices in countries like USA, UK, Belgium, South Africa, Hong Kong, UAE, Oman, Fiji Islands, Mauritius, Seychelles, Bahamas, Guyana, Kenya, Uganda and Zambia The Bank has completed fifty years of operations in overseas territories and is poised to expand its reach to countries like Tanzania and China, apart from consolidating its overseas operations in those countries where the bank has already made its presence felt. The modern state-of-the-art dealing room at its Specialised Integrated Treasury Branch (SITB) at Mumbai provides the necessary wherewithal to its 130 designated branches across the length and breadth of the country authorized to handle foreign exchange business of its clientele. The bank has retained its primacy as a leading market maker both in spot and forward markets, along with foreign exchange swap markets. The forex dealing desk at the SITB is provided with all modern communication facilities and is in the process of linking all its authorized branches via Reuters Automated Dealing System, to provide on-line quotes for foreign exchange transactions. Through its large network of authorized branches, the bank caters to the foreign exchange needs of its clientele engaged in export and import trade and the SITB provides rates for conversion of all major world currencies like U S Dollar, Sterling Pounds, Euro, Swiss Francs, Japanese Yen and other exotic currencies. The services to the customers of the Bank include hedging of foreign currency risks by providing forward covers and various derivatives product. Since most of its overseas branches are strategically situated at places where sizeable Non-resident Indians are residing, the Bank is in a position to deliver its products promptly and efficiently to its NRI customers. The range of products include remittance facilities and acceptance of deposits in Indian Rupees (NRE / NRO) as well as in designated foreign currencies (FCNR). Resident as well as Returning Indians can avail of benefits like Resident Foreign Currency Accounts (RFC).
Finance of BOB:
Banks strong capital and liquidity position, robust deposit franchise and high ranking credit culture have enabled it to gain market share consistently during the past three years along with superior profitability and the best asset quality standards. Banks strong fundamentals as reflected in its ROAA (Return on Average Assets) at 1.33% and ROE (Return on Equity) at 21.48% during 2010-11 have helped it demonstrate its differentiation sustainably. Even as it has grown its balance sheet at faster pace than the industry average, it has sustained the best asset quality standards. Banks incremental slippage ratio at 1.2% averaged over the last six years has been the lowest in the Indian banking system. With its consistently high Provision Coverage Ratio around 85.0% [including the technical writeoffs], Bank is well covered against any downside economic growth risks in the future. 25 | P a g e
Moreover, the Bank comfortably achieved all the targets under the Statement of Intent that it had committed to the Government of India on business, profitability and asset quality fronts for the year 2010-11. The Global Business of the Bank reached the level of Rs 5,34,116 crore in 2010-11 with an annual growth of 28.3%. While Global Deposits registered a growth of 26.6% (y-o-y), Global (Net) Advances expanded by 30.7%. In domestic operations, the Banks Deposits grew by 25.8% (y-oy), whereas advances (net) expanded by 28.7%. A consistent growth tempo year after year, enabled Bank to increase its market share in Deposits from 3.70% in 2006-07 to 4.04% in 2010-11 and in Advances from 3.53% to 4.01% during the same period. Banks low-cost deposits (CASA) grew at the healthy pace of 22.6% (y-o-y) in global operations during 2010-11. In domestic operations also, the CASA growth was maintained at 21.4% despite a significant hardening of term deposit rates. This enabled the Bank to maintain a decent domestic CASA share at 34.4% during 2010-11.
2 3 4 5 6 7 8 9 10
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11 12 13 14 15
16 17
18
19
Return on Assets Return on Average Assets Yield on Advances Cost of Deposits Dividend payout Ratio (including Corporate Dividend Tax) Credit -- Deposit Ratio Credit + Non SLR Investment (excluding Investments in Subsidiaries) -Deposit Ratio Capital Adequacy Ratio (BASEL I) Tier - I Tier - II Capital Adequacy Ratio (BASEL II) Tier - I Tier - II
74.35% 80.21%
77.32% 82.78%
81.94% 87.44%
84.47% 88.74%
86.77% 90.29%
Performance Highlights:
Total Business (Deposit+Advances) increased to Rs 5,34,116 crore reflecting a growth of 28.30%. Gross Profit and Net Profit were Rs 6,981.61 crore and Rs 4,241.68 crore respectively. Net Profit registered a growth of 38.7% over previous year. Credit-Deposit Ratio stood at 86.77% as against 84.47% last year. Retail Credit posted a growth of 33.8% constituting 18.88% of the Banks Gross Domestic Credit in 2010-11. Net Interest Margin (NIM) as per cent of interest earning assets in global operations was at the level of 3.12% and in domestic operations at 3.72%. 27 | P a g e
Net NPAs to Net Advances stood at 0.35% this year against 0.34% last year. Capital Adequacy Ratio (CAR) as per Basel I stood at 13.02% and as per Basel II at 14.52%. Net Worth improved to Rs 19,750.63 crore registering a rise of 43.27%. Book Value improved from Rs 378.44 to Rs 504.43 on year. Business per Employee moved up from Rs 981 lakh to Rs 1,229 lakh on year.
Segment-Wise Performance:
The Segment Results for the year 2010-11 reveal that the contribution of Treasury Operations was Rs 882.51 crore, that of Corporate/Wholesale Banking was Rs 1,525.49 crore, that of Retail Banking was Rs 1,517.89 crore, and of Other Banking Operations was Rs 2750.61 crore. The Bank earned a Profit after Tax (PAT) of Rs 4,241.68 crore after deducting Rs 1,026.18 crore of unallocated expenditure and Rs 1,408.64 crore towards provision for tax.
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Items
2005-06
2006-07
200708 2845 37260 710.00 3.94 11044 152034 43870 106701 11813 2051 7902 3034 5.33 3.51 17.41 0.89 12.94 0.47
2008-09
2009-10
No. of offices No. of employees Business per employee (in Rs. lakh) Profit per employee (in Rs. lakh) Capital and Reserves & surplus Deposits Investments Advances Interest income Other income Interest expended Operating expenses Cost of Funds (CoF) Return on advances adjusted to CoF Wages as % to total expenses Return on Assets CRAR Net NPA ratio
2777 38774 396.00 2.13 7844 93662 35114 59912 7050 1127 3875 2385 4.03 3.28 24.34 0.79 13.65 0.87
2812 38604 555.00 2.73 8650 124916 34944 83621 9004 1382 5427 2544 4.58 3.69 20.63 0.80 11.80 0.60
2916 36440 914.00 6.05 12880 192397 52446 143251 15092 2758 9968 3576 5.25 3.71 17.34 1.09 14.05 0.31
3088 38960 981.00 8.00 15106 241044 61182 175035 16698 2806 10759 3811 4.38 3.50 16.14 1.21 14.36 0.34
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Banks Priority Sector Credit too recorded a decent growth of 18.2% during 2010-11 and formed 43.57% of its Adjusted Net Bank Credit, easily surpassing the mandatory requirement of 40.00%. During the year under review, the Total Business of the Banks Overseas branches registered a robust growth of 32.5% on the back of surging world trade volumes and a rebound in the activities of Indian corporates abroad. In Overseas operations, the Banks Customer Deposits increased by 23.4%, Total Deposits by 29.3% and Advances by 36.6%. Supported by steady and better than industry average spreads and a good pool of fee-based income, the Banks Gross Profit in Overseas operations posted a healthy growth of 23.9%. The Banks Overseas Business contributed 24.6% to the Banks Global Business, 17.1% to its Gross Profits and 32.1% to its Core Fee-based Income. Besides, the Total Assets of the Banks International Operations increased from Rs 68,375 crore to Rs 91,273 crore registering a growth of 33.5% during the year 2010-11. For the Bank as a whole, Gross Profits grew impressively by 43.8% to Rs 6,981.61 crore and Net Profit by 38.7% to Rs 4,241.68 crore - much ahead of the market expectations. Despite increased provisions, especially on account of the pension liabilities of the employees, a strong growth in Net Interest Income (at 48.2%), a good traction of Core Feebased income and a modest growth in Operating Expenses enabled the Bank to achieve such record levels of incomes and profits during the year 2010-11. Even as the Bank gained market share in loans, it has sustained the best asset quality standards within the Indian banking universe. In line with its past record, the Bank succeeded in restricting its Incremental Delinquency Ratio to 1.09%, Gross NPAs to 1.36% and Net NPAs to 0.35% during 2010-11. The Banks Loan Loss Coverage Ratio (including technical write-offs) too stood at the healthy level of 85.0% as on 31st March 2011. As regards the shareholders return ratios, within just a year, the Banks Return on Average Assets (ROAA) improved to 1.33% from 1.21%, Earnings per Share (EPS) to Rs 116.37 from Rs 83.96 and the Book Value per Share (BVPS) to Rs 504.43 from Rs 378.40 on the back of significantly improved core performance. Furthermore, the Banks Cost-Income ratio sharply declined from the previous years level of 43.57% to 39.87%, reflecting the Banks improved earnings profile and prudent control over operating expenses. During the year 2010-11, the Bank received Rs 2,461 crore from the Government of India in support of its healthy asset expansion. With this, the Governments shareholding in the Bank increased from 53.81% to 57.03%, improving the Banks Capital Adequacy Ratio (Basel II) to 14.52% and the Tier 1 capital ratio to 9.99%.
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Environment of BOB:
Economic and Banking Environment :
From a macroeconomic perspective, the year 2010-11 was a year of great contrasts. While the global economic recovery advanced, it remained uneven between advanced nations and emerging markets. However, India along with China continued to perform as a new growth pole in the world economy throughout 2010-11. During 2010-11, Indias economic growth further improved to 8.5% from 8.0% in 2009-10 on the back of a strong rebound in agriculture (6.6%) and sustained levels of activity in manufacturing (8.3%) and services like trade, hotels, transport & communications (10.3%) and financing, insurance, real estate & business services (9.9%). Aggregate demand indicators too remained healthy as reflected in the rate of real private final consumption expenditure at 58.3% and the rate of real gross fixed capital formation at 32.0%. Moreover, 37.5% growth in exports on year on year basis during 2010-11, helped in reducing the concerns surrounding widening of the current account deficit. At end-March, 2011, the size of the Indian economy was estimated at US$ 1.75 trillion (or Rs 80 trillion). Notwithstanding a good growth tempo, inflation remained the major policy concern during 201011. Throughout the year, it stubbornly stayed above the Reserve Bank of Indias (RBIs) indicative projections. Rising inflation prompted the RBI to raise its key policy rate eight times during 201011 by 350 bps to 6.75%, albeit in a step-wise fashion to balance the trade-off between growth and inflation. Headline inflation based on wholesale prices stood at 9.02% in March, 2011 and CPIbased inflation for industrial workers too was high at 8.82%. Consistent with the RBIs monetary policy stance, liquidity conditions stayed tight for most part of the year with some easing during the last quarter. Both deposit and lending rates of commercial banks firmed up quite sharply since August, 2010 onwards. Yet on the back of strong capex and working capital demand, the banking industrys non-food credit expanded healthily by 21.2% (y-o-y). However, its aggregate deposits grew rather modestly by 15.8% (y-o-y). According to the RBIs data, the sectoral deployment of banks non-food credit became increasingly broad-based during the year under review. The strong growth environment and the improved corporate credit profile eased the asset quality concerns especially for those banks that had maintained well diversified loan-books and modest exposures to sensitive sectors.
KG. Road Branch: It is the branch where I completed my internship. The branch is
opposite to the State Bank of Mysore. It is at the Prithvi Building Kempe Gowda Road,Bangalore,560009.
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1. 2. 3. 4. 5.
6609.46 0 153.30 0 18.85 10.77 1.36 0.67 0.16 9.23 2.87 0 1382.45 8207.12
1. 2. 3. 4. 5. 6. 7. 8.
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SWOT Analysis:
SWOT analysis is actually a study conducted about a particular company or even an industry to tell about the Strength, Weakness, Opportunity and Threats for the concerned place. It provides an insight into the companys ability to perform in this competitive world. SWOT analysis help an organization to know the loop holes present in an organization thus helps to improve and work efficiently and effectively.Strength, Weakness, Opportunity and Threat(SWOT) Analysis of the branch of Bank of Baroda where the study was conducted: Strength Weakness
Opportunities
Threats
Metro Branch with all the infrastructure including Forex Department. Strong base of Bulk Business from Government undertakings & Corporates making the Branch one of the Key contributor to the Regions Performance. Baroda Next branch with Focus on customer Service and improved work flow. Concentration on bulk Business. Share of CASA is decreasing and it constitutes 7.67% of the deposits reduced from 11.15% in 2010. Good scope to canvass corporate clients. Good scope to canvas other products like insurance/gold coin/Mutual Fund and other third party products. Presence of All Major Domestic and Foreign Bank Branches and also Banks with Local head quarters resulting in stiff competition. Big Depositors and Bulk Advances borrower are highly Price sensitive.
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Apart from this I also learnt about the various eligibility criteria required to be fulfilled by the customers to get their loans sanctioned. The eligibility criteria of different types of advances are different depending upon the amount of loans to be sanctioned and also its type. Commercial Banks accept the deposits from people in various form like Current account, Saving account, Fixed deposit account and Recurring deposits. These money is utilized by the banks to give loans and advances to the public. Out of these deposits, the bank cannot utilize the current account money for lending purpose, because the depositor can can demand can demand this at anytime without prior intimation. The various mode by which banks lend money to needy people and firms are given below as follows:
Overdraft:
It is an agreement with a bank, by which a customer, generally a current account holder is allowed to withdraw money in excess of his own credit balance, unto a certain limit sanctioned by the bank. This is a kind of temporary loan extended by a bank against any personal security or collateral security. 36 | P a g e
Loans: It is an arrangement by which a bank advance loans against any security like jewels, shares or debentures or insurance policy or personal security of the borrower. The interest is payable on the entire loan amount as decided by the bank.
Cash Credit:
In this, the bank opens a separate account for the borrower and credits the amount. This loan is given for a large amount and for a longer period. Interest is charged on the amount actually withdrawn by the borrower.
Discounting of Bills:
A customer having a bill of exchange can discount it in a bank. The bank pays the amount of the bill after deducting some amounts of money towards discount. When the bill mature, the bank collects the proceeds of the bill from its acceptor.
Whether you are planning school education (nursery to standard XII) of your child, pursuing a graduate or post-graduate degree, the Bank of Baroda Education Loans, can help finance your ambitions and goals.
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Baroda Vidya Baroda Gyan Baroda Scholar Central Scheme of Interest Subsidy for Education Loans
Baroda Vidya:
Bank of Baroda presents a one of its kind finance option for parents of students pursuing school education. These loans are available for studies from Nursery to Senior Secondary School.
Eligibility :
Should be an Indian national residing in India. Student should have secured admission to a recognized school / Highschool / Jr. College (including CBSE / ICSE / State Board) for any of the following courses 1. Stage I : Nursery to V th STD. 2. Stage II : VI th to VIII STD. 3. Stage III : IX th to XII th STD. 38 | P a g e
Fee payable to college / school. Examination / Library / Laboratory Fee. Fee and other charges payable to hostel. Purchase of books / equipments / instruments / uniforms. Personal Computers / Laptops wherever required. Caution deposit / building fund / refundable deposit supported by instituion bills / receipts.
Loan for each yearly sub limit is repayable in 12 equal monthly instalments. First instalment to be due 12 months after first disbursement of each year's loan component.
The parents must be residing in the place for a minimum period of -3- years, except in the case of transferable job.
Security :
In case the loan is given for purchase of computer the same is to be hypothecated to the bank.
Rate of Interest :
1% concession in rate of interest to loans for girl students. Interest to be serviced as and when applied during moratorium period. Penal Interest @ 2% on overdue amount if the loan amount exceeds Rs. 2/- lacs.
Baroda Gyan:
A loan product specially designed for students pursuing Graduation, Post - Graduation, Professional & Other courses in India. Bank of Baroda extends a helping hand to energize your studies and promote education of the youth.
No processing charges.
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Courses Eligible :
All Graduation courses. All Post Graduation courses & Doctorate courses. Professional Courses viz. Engineering, Medical, Agriculture, Veterinary, Law, Dental, Management, Computer, Ayurved, Homeopathy, Physiotherapy, Hotel Management, Hospital Management, Interior Designing, Architecture, Event Management, Mass Communication, Fashion Technology, etc. Computer certificate courses of reputed institutes accredited to Dept. of Electronics or institutes affiliated to Universities. Courses like C.A, ICWA, CFA, CS, etc. Courses conducted by IIM, IIT, IISc, XLRI. NIFT etc. Regular Degree/ Diploma courses like Aeronautical, pilot training, shipping etc., approved by Director General of Civil Aviation/shipping. Other courses leading to diploma / degree etc. conducted by colleges/universities approved by UGC/Govt./ AICTE/ AIBMS/ ICMR etc. Courses offered in India by reputed foreign Universities. Evening courses of institutes approved by State/Central/Govt./UGC/AICTE/AIBMS/ICMR/ICAR. Courses offered by National Institutes and other reputed private institutions. The College/Institute must have been approved by the State/Central Govt./UGC/AICTE,etc.
Student Eligiblity :
Coverage of expenses :
Examination / Library / Laboratory Fee. Fee and other charges payable to hostel. Purchase of books / equipments / instruments. Personal Computers / Laptops wherever required. Caution deposit / building fund / refundable deposit supported by institution bills / receipts. Any other expenses required to complete the course - like study tours, project works, thesis, etc.
Margin is to be contributed on pro rata basis on year to year basis as and when disbursements are availed.
Repayment Period :
Security :
Upto Rs.4 lacs : No security Above Rs. 4.00 Lacs and up to Rs. 7.5 lacs: Collateral in the form of a suitable third party guarantee alognwith assignment of future income. Above Rs.7.5 lacs: Tangible collateral security equal to 100% of the loan amount along with assignment of future income
Rate of Interest :
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Simple interest to be charged at monthly rests during the repayment holiday / moratorium period. 1% interest concession is provided if interest debited during repayment holiday is serviced. 1% Concession in rate of interest to loans for girl student. Penal interest @ 2% p.a. on overdue amount, if the loan amount exceeds Rs.4.00 lacs. For loans above 4 lacs, interest rate will be 2 % above base rate for ISB, Hyderabad Students which is 2 % less than that for students of other institute.
Baroda Scholar:
Bank of Baroda presents financial assistance to students going abroad for Professional / Technical studies. The loan offering is designed to empower you with the financial capability to realise your dreams... Achieve your goals... Reach out to the maximum limits...
Eligiblity of Courses :
Graduate/Post Graduate / Doctorate / Job Oriented Professional / Technical Courses offered by reputed Universities overseas. Regular Degree/ Diploma courses like Aeronautical, pilot training, shipping etc. The Institute should be recognized by the competent local aviation / shipping authority and Director General of Civil Aviation/shipping in India.
Student Eligiblity :
Admission/Tuition fees to College/University. Hostel/Mess charges. Examination/Library/Laboratory fee. Purchase of books/equipments/instruments. Caution deposit/building fund/refundable deposit supported by institution bills/reciepts. 42 | P a g e
One way travel expenses/Passage money. Purchase of computers if essential for completion of the course. Any other expense required to complete the course e.g. study tour, project work, thesis etc.
Maximum amount of loan : Rs. 20.00 Lacs. Margin : 15% Repayment Period :
Repayment Holiday/Moratorium Period :
Course period + 1 year or 6 months after getting job, whichever is earlier. The loan is repayable in 5-7 years after the above period.
Security :
Upto Rs.4.00/- lacs : No security Above Rs. 4.00 Lacs and up to Rs. 7.5 lacs: Collateral in the form of a suitable third party guarantee alognwith assignment of future income. Above Rs.7.5 lacs: Tangible collateral security equal to 100% of the loan amount along with assignment of future income
Rate of Interest :
Simple interest during repayment holiday/moratorium period. 1% interest concession, if interest debited during the repayment holiday is serviced. 1% Concession in rate of interest to loans for girl student. Penal interest @ 2% p.a. on overdue amount if loan exceeds Rs.4/- lac.
Margin is the amount that the customer need to manage from his / her side and show the bank that he / she is capable of doing so.
In case of Home loan eligibility three criterias are considered for calculation of Home loan eligibility. They are: 1. Income Criteria 2.repayment Capacity 3. Margin and least of three is taken as Loan eligible amount. Least of the three is taken for Loan eligibility. 1- INCOME CRITERIA: INCOME Up to ` 20,000/= Salaried More than ` 20,000/= and up to ` 1 lac More than ` 1 lac Other than Salaried Persons SOURCE CRITERIA 36 times of monthly gross income 48 times of monthly gross income 54 times of monthly gross income 5 times of average ( last 3 years ) annual income excluding depreciation
Wherever income of the family members is clubbed, they should be made co-borrowers. Income of the Agriculturists who are predominantly dependent on agriculture and not required to file the income tax may be assessed by obtaining income certificate from the local competent revenue authority only. The assessment of income so arrived must be properly recorded with justification in the appraisal note. 2-REPAYING CAPACITY: Total deductions including proposed EMI should be as below : (i) In case of Salaried Persons :
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Monthly Income (Bracket) Up to ` 20,000/ ` 20,000/- and up to Rs. 50,000/ ` 50,000/(ii) In case of Others : Annual Income Up to ` 2,40,000/ ` 2,40,000/- and up to ` 12 lacs ` 12 lacs 3-MARGIN:
Total Deductions not to exceed ( including proposed EMI ) 40% 50% 60%
Total Deductions not to exceed ( including proposed EMI ) 50% 60% 70%
Above ` 20,000/-
For Eg. If a persons is salaried and is earning Rs.70000/- per month as gross monthly income. Then the three criterias calculation is as follows.
Repayment Capacity:
Rs.70000*60% = Rs.42000
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(Less- Deductions) Less- Insurance paid- 1000 Less-Tax- 2000 Less-PPF/PF/VPF/PT& others- 1500 Less- other loan EMIs- 4000 Total Rs.8500 Balance for EMI Rs.33500/Hence if his age is 35 then his maximum eligibility will be Retirement age-Current age(60-35) =25 years, Hence EMI for 25 years for per lac for 30 lacs loan is 981 so his eligible amount will be= 33500/981= Rs.34.14lacs is the loan amount he is eligible for.
Income Criteria:
As his Gross monthly salary is not more than Rs.100000 we can take his loan eligibility to be 48 times of Gross Monthly Income i.e = Rs.70000*48= Rs.33.60 lacs is his loan eligibility.
Margin:
If the property cost is Rs.35 lacs he has to contribute 20% margin which comes to Rs. 7 lacs hence the remaining amount i.e 35-7 =Rs. 28 lacs loan eligibility. The least of the three criterias will be taken for Loan eligibility. Hence he will be given a loan for Rs.28 lacs as per Margin criteria. Thus , the details above shows two different things i.e. the details about the education loan shows the requirement and the details about the housing loan shows how a loan is being sanctioned. The housing loan eligibility also indicates how much loan is sanctioned to a particular person. It shows the exact details of how the calculation takes place in sanctioning of a loan.
NPA:
Under this section I studied what is NPA , the different types of NPA details and the different criteria to find how an account is considered as a NPA account.
Definition of NPA:
NPA stands for Non Performing Assets. NPA is defined as an advance for which interest or repayment of principal or both remain out standing for a period of more than two quarters. The 46 | P a g e
level of NPA act as an indicator showing the bankers credit risks and efficiency of allocation of resource. While it is an "Asset", it does not bring substantial income to its owner or is just dormant.
Table showing the various details of NPA accounts for the years 2007-2011:
2010
2009
2008 outstan ding % to total adva nces 0.65 0.33 0.02 1.00
2007 Outs tandi ng 275 4 279 %to total advan ces 1.82 1 1.83
% to Outstan % to Outstan %to total ding total ding total advanc advanc adva es es nces 0.00 0.09 0.01 0.10 8.47 46.84 4.13 59.44 0.01 0.10 0.01 0.14 5.74 207.66 2.77 216.17 0.02 0.86 0.01 0.89
43.14
0.09
58.40
2765.72
10.23
3916.00
16.10 3909
26
In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet, OR credits are not enough to cover the interest debited during the same period, i.e. Turnover in the account during the current quarter must be sufficient enough to cover the interest charged during the same quarter. An account may also be NPA because of technical reasons say Drawing Power in case of working capital account is determined on the basis of stock statement which is older than 3 months and irregular drawings are permitted in the account for a continuous period of 90 days. An account where the regular/ adhoc credit limit have not been reviewed/ renewed within 180 days from the due date/ date of adhoc sanction. in the case of bills purchased and discounted, the bill remains overdue for a period of more than 90 days. the installment of principal or interest thereon remains overdue for two crop seasons for short duration crops. the installment of principal or interest thereon remains overdue for one crop season for long duration crops (Crops with crop season longer than one year). Project Loan ( any term loan which has been extended for the purpose of setting up of an economic venture) will be classified as NPA: As per record of recovery (i.e. 90 days overdue) and/or On account of non achievement of commercial operations for Infrastructure sector within two years from the original Date of Commencement of Commercial Operations (DCCO), for Non Infrastructure sector Upto six months from the original Date of Commencement of Commercial Operations (DCCO). even if it is regular as per record of recovery. However above periods are subject to extension by restructuring complying guidelines as specified by RBI. the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitization transaction undertaken in terms of RBI 48 | P a g e
guidelines on securitization dated February 1, 2006. in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment. I even learnt about the different types of assets.
Assets Classification:
Broad Guidelines presently in force in respect of delinquency of Loan assets are summarized below:
Nonperforming Assets:
An asset, including a leased asset, becomes nonperforming when it ceases to generate income for the bank.
Overdue:
Any amount due to the bank under any credit facility is overdue if it is not paid on the due date fixed by the bank.
Standard Assets:
Standard assets are those, which are regular in payment of interest and installments due as per sanction. They are normally treated as accounts without any problems. These accounts are monitored to ensure the compliance of all terms and conditions specified in the sanction.
Sub-standard Assets:
With effect from 31 March 2005, a sub-standard asset is one, which has remained NPA for a period less than or equal to 12 months. All the recovery measures are relevant in substandard assets also. If the entire over dues are recovered by way of cash recovery, the account can be upgraded to standard category immediately. Similarly, if an account is classified as NPA due to technical reasons, the account shall be upgraded on clearance of technical reasons. Restructuring / Rehabilitation may be considered in sub-standard advances in case turnaround is possible based on objective assessment / appraisal observing extant guidelines and norms.
Doubtful Assets:
With effect from March 31, 2005, an asset is classified as doubtful if it remained in the substandard category for 12 months. 49 | P a g e
A loan classified as doubtful has all the weaknesses inherent in assets that were classified as sub standard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values highly questionable and improbable. All the recovery measures are relevant for Doubtful Assets also. Branches should however envisage whether it is advisable to restructure/rehabilitate the unit. Looking to promoters sincerity, wherewithal, capability to achieve a turnaround, and also based on the objective assessment, branches should decide whether it would be worthwhile to commit additional finance after ascertaining real factors that contributed to sickness of the borrower. If the restructuring/rehabilitation is not possible, recovery action such as Compromise/ OTS settlement / action under SARFAESI Act/ legal action etc. is to be considered. Substandard and Doubtful accounts which are subjected to restructuring/ rescheduling, can be upgraded to standard category only after a period of one year from the due date of first payment of interest or of principal, whichever is earlier, falls due, subject to satisfactory performance.
Loss Assets:
A loss asset is one where loss has been identified by the bank or internal or external auditors or in the RBI inspection but the amount has not been written off wholly. If the realisable value of the security, as assessed by the bank/ approved valuers/ RBI is less than 10 per cent of the outstanding in the borrowal accounts, the existence of security should be ignored and the asset should be straightaway classified as loss asset. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value. Since security back up may not be available, the restructuring/rehabilitation, if required, should be considered with utmost care.
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The task undertaken basically compared the various NPA details of the branch. It basically showed the list of the various NPA accounts , the outstanding balance in each case and the amount of loan 51 | P a g e
that was sanctioned. The data mentioned below shows the NPA details of K.G.Road Branch for three financial years.
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Upto Rs.25000 1 25000 TO 1 LAC 2 3 4 5 6 7 8 1 LAC TO 5 LACS 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 RS.5 LACS TO 10 LACS 24 25 26 1CRORE TO 5 CRORES 27 TOTAL NPA LOS SME 1 27 DB3 SUB DB2 H/L H/L H/L 3 DB1 DB2 DB2 LOS DB1 DB2 DB1 DB3 DB3 DB1 LOS DB2 DB2 DB2 DB3 H/L H/L H/L CA H/L H/L H/L H/L H/L H/L P/L H/L H/L H/L H/L 15 DB2 DB3 SUB LOS DB3 LOS DB3 CC H/L H/L E/L H/L CA H/L 7 DB3 H/L 1 7543 7543 85886 75462 31240 46130 37923 56830 70759 404230 100766 134911 115225 161277 133887 203405 263529 280296 217769 231439 148629 471839 460410 358409 403429 3685220 569477 534444 744021 1847942 0 0 5944935
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3 4 5 6 7 8 25000 TO 1 LAC 9 10 11 12 1 LAC TO 5 LACS 13 14 15 16 17 18 20 21 22 23 24 25 26 RS.5 LACS TO 10 LACS 27 28 29 30 31 32 10 LACS TO 25 LACS 34 1CRORE TO 5 CRORES 35 TOTAL NPA
LOSS LOSS LOSS LOSS LOSS DB1 DB3 LOS LOS DB2 DB2 SUB DB1 DB1 LOS SUB DB2 SUB DB2 DB2 DB1 DB1 DB2
SBTOD SBTOD SBTOD SBTOD SBTOD H/L 8 H/L P/L CA H/L 4 H/L H/L H/L H/L CA H/L H/L H/L H/L H/L H/L CC H/L 14
1905 2610 2787 3070 5028 4732 22452 37923 41613 56830 87259 223625 105462 112787 134911 144215 161277 197761 230405 263529 280296 354493 368409 395774 403429 3152748 526379 618750 663551 699099 699822 752021 3959622 1611363 1611363 12647628 12647628 21617438
SUBSTD
SME 1
Table showing the NPA details for 3 financial years on the basis of the amount of loan sanctioned:
Rs. UPTO 25000 2011
391192
2010
7543
2009
22452
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3769213
743092 4903497
0 5944935
Amount in lakhs
The Bar diagram represent the table mentioned above about the various details of NPA. From the diagram we can say that there has been a declining trend in the amount of NPA in all the range of loans except for the range between Rs.100000 Rs.500000 , which is more or less constant for the year 2010 and 2011. There has been a drastic change in the amount of the total NPA from the year 2009 to the year 2010 and a slight change from the year 2010 to the year 2011.
The table showing the total NPA of the various types of loans for 3 years:
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The table showing the comparison of different types of loans for three different years. There is a trend of decrease in the amount of NPA over the years except for P/L which shows an increase for 2009 2010 2011 H/L CA CC E/L P/L ODAP SBTOD SME TOTAL 8296596 218107 395774 41613 17720 12647628 21617438 5446183 218107 85886 46130 148629 5944935 7998374 218107 85774 148629 101929 8552813
the year 2010 and a constant there after. CA has shown a constant trend throughout the 3 years. H/L has been fluctuating over the years with a decrease in 2010 but an increase in the year 2011. ODAP is the exception of all as it has NPA amount due only in the year 2011. The table above depicts that the Bank has taken considerable steps to reduce its NPA balance outstanding. There is a drastic change in the total balance outstanding in the year 2010 but a slight increase in the amount for the year 2011 because of the ODAP a/c. The table can be presented with the help of a graph. The graph is shown below:
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NPA Management:
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The NPA accounts needs to be managed for the bank to work effectively and efficiently and thus there is a NPA management. The details of NPA management is given below.
OBJECTIVE:
NPA Management is one of the key barometers observed by the market participants while judging the health of the loan assets of the bank. In order to strengthen the system of NPA Management at all level the Recovery Policy is designed with a view to keep the level of stressed assets at minimum level leading to healthy credit portfolio. The basic objective of the Recovery Policy is to maximize recovery of dues under the credit portfolio of the Bank through effective credit monitoring for prevention of slippages and to maximize recovery in Non Performing Assets (NPAs) and prudentially written off accounts.
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In the NPA cases where the borrower unit / company may be facing long term problems with structural deficiencies and may not be able to operate on sustained profitable lines, including nonviable sick / closed units, Compromise/ One Time Settlement (OTS) option is explored as an exit route. In case of units in operation, but not found to be in a position to generate adequate surplus to service the debt on a long term basis even after examining the possibility of restructuring, Compromise/OTS option would be considered on merits. Bank may consider, assignment/ sale of financial assets to ARCs / Banks / FIs/ NBFCs as an alternate option of Resolution and reduction in NPA / PWO portfolio in cases where protracted litigation are going on and/ or otherwise chances of recovery are poor, proving difficult and time consuming. Enforcing provisions of declaring Wilful Defaulters in accordance with RBI guidelines for helping in maintaining credit discipline and creating a recovery climate. While adopting Recovery measures Bank shall follow CODE FOR COLLECTION OF DUES AND REPOSSESSION OF SECURITY and Code issued by BANKING CODES AND STANDARDS BOARD OF INDIA as approved by Board of Directors (published on website). Appointment of Recovery/Enforcement Agents shall be in accordance with guidelines issued by Reserve Bank of India from time to time. Bank desires to be proactive and be guided by RBI guidelines in complying with the Recovery measures for the asset quality. This Policy covers some of the broad guidelines being monitored by respective functional heads say Credit Monitoring, Rehabilitation of Sick units, CDR Mechanism etc. for reference purposes only. Therefore, the respective guidelines/ circulars issued from time to time should be referred and complied with.
Early Alert Sysem Reserve Bank of India has issued broad guidelines on preventing slippage to NPAs by recognizing the problems and corrective measures to restructure the accounts after an objective assessment of the viability of the unit and promoters intention (and his stake). Bank has put in place Early Alert System that captures early warning signals in respect of accounts showing first signs of weakness by way of analysis of Ascrom Data, Credit Rating and Credit Monitoring etc., follow up of which will lead to a healthy credit portfolio as well as ensuring initiation of timely recovery measures. Appropriate Credit Monitoring System has been placed at BCC and at Zonal level/ Regional level in order to take care of above.
CONTROL AND MONITORING OF NPA AND PWO ACCOUNTS Monitoring of NPA & PWO Borrowal Accounts: (A) NPA/PWO ACCOUNTS:
The Bank has evolved a system of continuous monitoring of large NPA/ PWO borrowal accounts on monthly basis. The purpose of regular monitoring is: (1) To examine whether the account can be upgraded by reschedulement / restructuring / rehabilitation. (2) To attempt to make appropriate provision because of deterioration in value of security consequent upon ageing process. (3) To prevent the assets from becoming loss assets (4) To explore the possibility for an acceptable compromise settlement. (5) To ascertain current status of DRT/BIFR proceedings. The reports shall focus on the current efforts made to recover the dues and the developments in the account. The report shall reflect the endeavors of Branch Manager, Regional Manager & Zonal Manager in monitoring the NPA/PWO accounts.
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Less than one crore -: Yearly in Jan. In case access is not allowed to the inspecting officer, discrete enquiries must be made as regards to present status of securities and possession thereof, borrowers present activities/ address etc. and suitable observation be given in the report Such observation be also quoted while noting status of PWO account. In case of any of adverse observations, branch should also get land records/ Registrar of Companies records searched to ensure that no outside interest has been crated thereon.
authority. All Regional Managers are authorized to allow operations in the account up to sanctioned limit or the outstanding with suitable cut back arrangement which would eventually lead to reduction in the outstanding in the account, provided project/ unit is in operation and such drawings are used to continue in operation. In such cases, sums received through cut back arrangement may be appropriated first towards overdues/ expenses, then towards interest/ unapplied interest and thereafter towards principle, unless specifically agreed by competent authority otherwise.
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The policy of the Bank is that all charges as stipulated shall be recovered from all borrowers unless specifically waived/ exempted. However, in respect of NPA accounts the following procedure shall be adopted.
INSURANCE CHARGES, ASSET VALUATION CHARGES, STOCK AUDIT CHARGES, SECURITY CHARGES ETC. In respect of NPA accounts, which are not operated, the above mentioned charges shall not be debited to the accounts. The expenses incurred shall be debited to the Banks Profit and Loss account and record of the same shall be maintained.
The Banking Companies (Acquisition and Transfer of Undertakings) Act 1970 enables the Bank to appoint Nominee directors in borrowing companies. A Nominee director will hold office as decided by the Bank and can be removed or substituted by the Bank. Such a Nominee director will not incur any liability for anything done or omitted to be done in good faith in discharge of his duties as Nominee director. Regional Managers through their Zonal Authorities, may make recommendations to Corporate Centre for appointment of Nominee directors in respect of borrowing companies which are sought to be rehabilitated by concessions/relief and/or additional exposure under BIFR sanctioned scheme or proposals sanctioned by the Bank outside SICA (where we are the lead bank or sole lender). Generally, executives/ ex executives of the rank of Assistant General Managers and above shall be appointed as Nominee directors of borrowing companies with the approval of Baroda Corporate Centre, Mumbai. Chairman and Managing Director/Executive Director shall appoint Nominee directors on the Boards of borrowing companies.
Compromise shall be negotiated for the balance amount (considering receivable claim). This is to obviate the borrower obtaining No Dues Certificate from the Bank after settling the compromise amount and subsequently claiming the insurance amount from the insurance company, which may be higher than the compromise amount.
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