SIVA SIVANI

INSTITUTE OF MANAGEMENT
Reasons of burgeoning Agri NPAs and steps to improve recovery
mechanism.
Internship Report submitted to SBI in completion of the requirement of summer internship
at
State Bank of India.
NAME OF THE STUDENT PROJECT MENTOR
MAY 20
TH
2013 TO JULY 28
TH
2013


PREFACE
Loans have to be paid back one day. Had this been realized by all, how nice life would
have been on this Planet. It would not have prompted the poet to say Neither be a Lender,
nor a Borrower Be. Alas! Given the realities in life, this could remain at best a wishful
thinking.
So their business is to lend and lend more. Their proficiency; skill; competency are all
tested in how much they lend and how much they RECOVER and how quickly. Suffice it
would be to state that this can be likened to the vigour and strength with which one goes
about after fully recovering from any ailment. It is agreed by al beyond doubt Recovery
is essential and get recovery is very essential.
We know right form the appraisal stage up to the actual repayment stage the banks need to
be careful. We also know that once the money is in the hands of a borrower, attitudinal
changes take place. The borrower, with some few exceptions may be, feels a bit more
complacent as after all it is not this own money which is at stake. Therefore an attempt
is made here to put all that we know already proper perspective.
2


ACKNOWLEDGEMENT
At outset, we would like to thank the institutions for having provided us with an
opportunity to carry out a project of this magnitude that helped me satisfy my curiosity as
far as my area of interest was concerned.
The essence of this project, i.e. its contents have been compiled with help of varied
sources of secondary database, but we would specially like to acknowledge the support,
suggestions and feedback received from my Project Guide-
1) Mr.P.Uppal
Regional Manager,
State Bank Of India, RBO Warangal
2) Mr.N.Nanda Gopal
Chief Manager,
State Bank Of India, Warangal
3) Mr.S.Narendhar
Branch Manager
State Bank Of India, jangaon
4) Mr.P.Srinivasa Rao
Branch Manager
State Bank Of India, Dhoolimitta
Also my faculty member Mrs.P.S Swathi and suggested me about the project. A lot of other
people have also contributed directly and indirectly to completion of this project would not have
seen light of the day. Our hearts felt gratitude to all of them.
3


DECLARATION
I the undersigned Mr.Pabbathi Sandeep, a student of PGDM (Marketing)
Semester-IV, hereby declare that the project work presented in this report is my
original work.
This work has not been previously submitted to any other university for any other
examination.
Date:
Place: Warangal
----------------------
(PABBATHI SANDEEP)
4


EXECUTIVE SUMMARY
The most important problem that the Indian banks are facing is the problem of their NPAs.
It is only since a couple of years that this particular aspect has been given so much
importance. The banks have to overcome these difficulties properly in order to effectively
counter the competition faced by the foreign banks. With the framing of laws as per
international standards and setting up of Debt recovery tribunal we can say that steps have
been taken in this direction.
Banks in India have traditionally been saddled with very high Non-Performing Assets. The
banking sector was heading for a crisis in 2001 with NPAs crossing a mammoth 64000
crores. Banks burdened with huge NPAs faced uphill tasks in recovering then due to
archaic laws and procedures. Realizing the gravity of the situation the government was
quick to implement the recommendations of the Narsimham Committee and Andhuarjuna
Committee leading to the enactment of the SRESI ACT 2002.( Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act).
This Act gave the banks the much needed teeth to curb the menace of NPAs. The non
performing assets (NPAs) of banks have at last begun shrinking. As reported from
surveys, it is understood that there has been substantial improvements in non performing
assets and this has been because of several measures such as formation of asset
reconstruction companies, debt restructuring norms, securitization, provisioning norms
and prudential norms for income recognition. The gross NPAs of the banking system are
about 16 per cent of the total assets of the nationalized banks as of 2000-01. This is against
a global norm of about 5%. Hence there is a long way to go before we can say that the
NPAs of our banks are under control. The improvements in NPAs of individual
nationalized banks have been in the order of 10% to 20%, thanks to the various schemes
and measures introduced. This paper addresses the results we have achieved so far since
5


the measures have been implemented and the thrust on measures that need to be taken to
expedite recovery of NPAs. We also give our suggestions as to how NPA retrieval can be
made easy and in what way the NPA scenario is headed.
The problem is no doubt about recovery management where the objective is to find out
about the reasons behind NPAs and to create networks for recovery. Banks of Rajkot have
been considered where 21 executive have been approached with a structured question to
elicit information.
The crucial factor that decides the performance of banks now days is the spotting of non-
performing assets (NPA). NPAs are those loans given by a bank or financial institution
where the borrower defaults or delays interest or principal payments banks are now
required to recognize such loans faster and then classify them as problem assts.
As far as the study is concerned the following may be summarized.
Nearly 10% of the banks in Gujarat responded within a month for loan applications
received by them from their corporate clients. If was also found that 67 % of the banks
used to appraise loan proposals from their corporate clients with the viewpoint of
recovery. In Gujarat region it was found that about 62 % of the banker opined that there
was a need to evaluate the loan applications critically.
The respondents assigned highest weight to companys current performance and the
second highest was assigned to companys past performance. Around 10 % of the banks in
Gujarat recovered their dues on time from their corporate clients after maturity in Gujarat.
The most preferred measures were pervasion and legal action. The most common
suggestion received for improving the recovery system in Gujarat was regarding
improving the judicial system and delegating more power and autonomy to the banks.
6


INDEX
Sr. Particular Page
No.
O Preface
O Acknowledgment
O Declaration
O Executive Summery
1
2
3
4
1. Introduction
f Early History of Bank
f Type of Bank
f Status wise bifurcation of Banks
8-15
10
12
14
2. About SBI
f History
f Awards & Recognition
f Mission
f Organization Structure
3. Survey & Research on NPAs
f Research Plan
f Introduction
f Debt Recovery Problem
f NPAs and Their Effects
7


f Steps to solve NPAs
f Tools for Managing NPAs
f Strategy for Prevention of
NPAs
f Non Legal Measure
4. SWOT Analysis
5. FUTURE PLAN
6. CONCLUSION
7. BIBLIOGRAPHY
8. ANNEXURE
8


9


INTRODUCTION
The word bank it derived from the word bancus or banque that is French.
There was other of the opinion that the word bank is originally derived from the German word
back meaning joint for which was Italianized into banco. But whatever be the origin of the
word bank as Prof. Rramchandra Rao says. It would trace the history of banking in Europe from
middle ages.
Generally, banks do the business of money they take deposits of moneys from
client and give loan to the person who has need of money. But in this age, for the
convenience of customer, banks provides some other services to their customer
such as bankers cheque, overdraft, internet banking, ATM facility, paying of
bills, credit card, telegraphi c transfer, insurance, demat etc.
For a people, it is difficult to keep a very big amount of money in his house
safely. So, people save their money to bank. Bank gives loan to the person who
has need of money and gets higher interest on it than the interest of deposit. The
margin between the interest of loan and interest of deposit is the income of bank.
10


EARLY HISTORY OF BANKING
As early as 2000 B. C. the Babylonians had developed a banking system. There is
evidence to show the temples of Babylon were used as banks. After a period of
time, there was a spread of irreligion, which soon destroyed the public sense of
security in depositing money and valuable in temples. The priests were longer
acting as financial agents. The Romans did minute regulations, as to conduct
private banking and to create confidence in it. Loan banks were also common in
Rome. From these the poor citizens received loans without paying interest,
against security of land for 3 or 4 years.
During the early periods, although private individual mostly did the banking
business, many countries established public banks either for the purpose of
facilitating commerce or to serve the government.
However, upon the revival of civili zat ion, growing necessity forced the issued in
the middle of the 12
t h
century and banks were established at Venice and Genoa.
The Bank of Venice established in 1157 is supposed to be the most ancient bank.
Original ly, it was not a bank in the modern sense, during simply an office for the
transfer of the public debt.
In India, as early as the Vedic Period, banking, in most crude from existed. The
books of Manu contain references regarding deposits, pledges, policy of loans,
and rate of interest. True, the banking in those days largely mint money lending
and they did not know the complicated mechanism of modern banking.
This is true not only in the case of India but also of other countries. Although,
the business of banking is as old as authentic history, banking institutions have
11


since than changed in character and content very much. They are developed from
a few simple operations involving the satisfaction of a few individual wants to
the complicated mechanism of modern banking, involving the satisfaction of
capital slowly seeking employment and thus providing the very life blood of
commerce.
12


TYPE OF BANKS
+ Regional Rural Bank (RRB)
+ Nationalized Bank
+ State Bank Group
+ Co-operative Bank
+ Private Bank
+ Foreign Bank
RESERVE BANK OF INDIA
The Hilton-young commission, appointed in 1926 has recommended the necessity
of centrally empowered institution to have effective control over currency and
financial transaction in the county. Accordingly, the Government had then passed
Reserve Bank of India Act, 1934 and established the Reserve Bank of India with
effect from 1
s t
April 1935. The principal aim behind this was to organize proper
control over the currency management in the interest of country benefits and to
maintain financial stability. With this, the RBI mainly looks after the following
important functions:
+ To keep effective control over creation of credits and currency supply
+ To control the Banking transactions of Central and State Governments.
+ To act as Central administered Authority of all other Banks in the country.
+ To organize control over Foreign Currency Transaction.
+ To assist for improvement in financial aspect of the country.
NATIONALISED BANKS
13


The Banking Company Act establishes it in July 1969 by nationalization of 14
major banks of India. The sent percent ownership of the bank is of government of
India.
STATE BANK GROUP
The State Bank of India was established under
the State Bank of India Act, 1955, the subsidiary
banks under the State Bank of India (subsidiary
Banks) Act 1959. The Reserve Bank of India
owns the State Bank of India, to a large extent,
and rest of the part is some private ownership in
the share capital of State Bank of India. The State
Bank of India owns the subsidiary Banks.
OLD PRIVATE BANK
These banks are registered under Company Act, 1956. Basic Difference
between co-operative banks and private banks is its aim. Co-operative
banks work for its member and private banks work for earn profit.
NEW PRIVATE BANKS
These banks lead the market of Indian banking business in very
short period. Because of its variety services and approach to handle
customer and also because of long working hours and speed of
14


services. This is also registered under the Company Act. 1956. Between old and new private
sector bank, there is wide difference.
FOREIGN BANKS
Foreign Bank means multi-countries bank. In case of India Foreign Banks are such Banks. Which
open its branch office in India and their head office is outside of India.
15


STATUS WISE BIFURCATION
OF BANKS
They are divided into two groups:
+ Scheduled Banks
+ Non Scheduled Banks
SCHEDULED BANKS
In first schedule, government of India notifies the Primary Banks, which are licensed and whose
demand and time liability are not less than 50 crores in 1987.
Government of India notify the Primary banks, which are licensed and whose demand and time
liability are not less than 100crores can only qualify to be included in the second schedule since
1993.
A bank becomes scheduled when it fulfils the followings:
+ A grade rating from RBI
+ Demand and Time Liabili ty over 100crores.
+ Satisfy the RBI guidelines related to CRR and SLR
+ As per the norms Priority Sector wise landing benefits of being a Scheduled
co-operative are described below:-
+ RBI would provide Rediscounting facility at nominal rate
+ RBI gives remittance facili ty at par
The demerits of becoming a scheduled co-operative bank is that the bank will not get 0.5%
subsidy from RBI
16


The conferment of scheduled status on the banks has certain advantages like refinance facility,
directly industrial finance from Reserve Bank of India. Avail of Reserve Bank of India
Remittance facility scheme, accept deposits from local bodies, quasi-government organization,
religious, and charitable institutions, guarantees and cheques issued by Banks are accepted by
Government Departments. At the same time, it casts greater responsibility on the banks in the
maintenance of books of accounts and submissions of returns.
Scheduled banks in India
Scheduled Commercial Bank
Scheduled Co-operative Bank
NON-SCHEDULED BANKS
The banks, which are not applicable as per the criteria of Scheduled Banks, are
called as a Non-scheduled Banks. These are very small banks.
17


18


STATE BANK OF INDIA
The origin of the State Bank of India goes back to the first decade of the nineteenth century with
the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later the bank
received its charter and was re-designed as the Bank of Bengal (2 January 1809). A unique
institution, it was the first joint-stock bank of British India sponsored by the Government of
Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the
Bank of Bengal. These three banks remained at the apex of modern banking in India till their
amalgamation as the Imperial Bank of India on 27 January 1921.
Primarily Anglo-Indian creations, the three presidency banks came into existence either as a result
of the compulsions of imperial finance or by the felt needs of local European commerce and were
not imposed from outside in an arbitrary manner to modernise India's economy. Their evolution
was, however, shaped by ideas culled from similar developments in Europe and England, and was
influenced by changes occurring in the structure of both the local trading environment and those
in the relations of the Indian economy to the economy of Europe and the global economic
framework.
Bank of Bengal H.O.
19


Establishment
The establishment of the Bank of Bengal marked the advent of limited liability, joint-stock
banking in India. So was the associated innovation in banking, viz. the decision to allow the Bank
of Bengal to issue notes, which would be accepted for payment of public revenues within a
restricted geographical area. This right of note issue was very valuable not only for the Bank of
Bengal but also its two siblings, the Banks of Bombay and Madras. It meant an accretion to the
capital of the banks, a capital on which the proprietors did not have to pay any interest. The
concept of deposit banking was also an innovation because the practice of accepting money for
safekeeping (and in some cases, even investment on behalf of the clients) by the indigenous
bankers had not spread as a general habit in most parts of India. But, for a long time, and
especially up to the time that the three presidency banks had a right of note issue, bank notes and
government balances made up the bulk of the invertible resources of the banks.
The three banks were governed by royal charters, which were revised from time to time. Each
charter provided for a share capital, four-fifth of which were privately subscribed and the rest
owned by the provincial government. The members of the board of directors, which managed the
affairs of each bank, were mostly proprietary directors representing the large European managing
agency houses in India. The rest were government nominees, invariably civil servants, one of
whom was elected as the president of the board.

20


Group Photograph of Central Board (1921)
Business
The business of the banks was initially confined to discounting of bills of exchange or other
negotiable private securities, keeping cash accounts and receiving deposits and issuing and
circulating cash notes. Loans were restricted to Rs.one lakh and the period of accommodation
confined to three months only. The security for such loans was public securities, commonly called
Company's Paper, bullion, treasure, plate, jewels, or goods 'not of a perishable nature' and no
interest could be charged beyond a rate of twelve per cent. Loans against goods like opium,
indigo, salt woollens, cotton, cotton piece goods, mule twist and silk goods were also granted but
such finance by way of cash credits gained momentum only from the third decade of the
nineteenth century. All commodities, including tea, sugar and jute, which began to be financed
later, were either pledged or hypothecated to the bank. Demand promissory notes were signed by
the borrower in favour of the guarantor, which was in turn endorsed to the bank. Lending against
shares of the banks or on the mortgage of houses, land or other real property was, however,
forbidden.
Indians were the principal borrowers against deposit of Company's paper, while the business of
discounts on private as well as salary bills was almost the exclusive monopoly of individuals
Europeans and their partnership firms. But the main function of the three banks, as far as the
government was concerned, was to help the latter raise loans from time to time and also provide a
degree of stability to the prices of government securities.
21


Old Bank of Bengal
Major change in the conditions
A major change in the conditions of operation of the Banks of Bengal, Bombay and Madras
occurred after 1860. With the passing of the Paper Currency Act of 1861, the right of note issue of
the presidency banks was abolished and the Government of India assumed from 1 March 1862 the
sole power of issuing paper currency within British India. The task of management and circulation
of the new currency notes was conferred on the presidency banks and the Government undertook
to transfer the Treasury balances to the banks at places where the banks would open branches.
None of the three banks had till then any branches (except the sole attempt and that too a short-
lived one by the Bank of Bengal at Mirzapore in 1839) although the charters had given them such
authority. But as soon as the three presidency bands were assured of the free use of government
Treasury balances at places where they would open branches, they embarked on branch expansion
at a rapid pace. By 1876, the branches, agencies and sub agencies of the three presidency banks
covered most of the major parts and many of the inland trade centres in India. While the Bank of
Bengal had eighteen branches including its head office, seasonal branches and sub agencies, the
Banks of Bombay and Madras had fifteen each.
22



Bank of Madras Note Dated 1861 for Rs.10
Presidency Banks Act
The presidency Banks Act, which came into operation on 1 May 1876, brought the three
presidency banks under a common statute with similar restrictions on business. The proprietary
connection of the Government was, however, terminated, though the banks continued to hold
charge of the public debt offices in the three presidency towns, and the custody of a part of the
government balances. The Act also stipulated the creation of Reserve Treasuries at Calcutta,
Bombay and Madras into which sums above the specified minimum balances promised to the
presidency banks at only their head offices were to be lodged. The Government could lend to the
presidency banks from such Reserve Treasuries but the latter could look upon them more as a
favour than as a right.
23


Bank of Madras
The decision of the Government to keep the surplus balances in Reserve Treasuries outside the
normal control of the presidency banks and the connected decision not to guarantee minimum
government balances at new places where branches were to be opened effectively checked the
growth of new branches after 1876. The pace of expansion witnessed in the previous decade fell
sharply although, in the case of the Bank of Madras, it continued on a modest scale as the profits
of that bank were mainly derived from trade dispersed among a number of port towns and inland
centres of the presidency.
India witnessed rapid commercialisation in the last quarter of the nineteenth century as its railway
network expanded to cover all the major regions of the country. New irrigation networks in
Madras, Punjab and Sind accelerated the process of conversion of subsistence crops into cash
crops, a portion of which found its way into the foreign markets. Tea and coffee plantations
transformed large areas
of the eastern Terais, the hills of Assam and the Nilgiris into regions of estate agriculture par
excellence. All these resulted in the expansion of India's international trade more than six-fold.
The three presidency banks were both beneficiaries and promoters of this commercialisation
process as they became involved in the financing of practically every trading, manufacturing and
mining activity in the sub-continent. While the Banks of Bengal and Bombay were engaged in the
financing of large modern manufacturing industries, the Bank of Madras went into the financing
24


of large modern manufacturing industries, the Bank of Madras went into the financing of small-
scale industries in a way which had no parallel elsewhere. But the three banks were rigorously
excluded from any business involving foreign exchange. Not only was such business considered
risky for these banks, which held government deposits, it was also feared that these banks
enjoying government patronage would offer unfair competition to the exchange banks which had
by then arrived in India. This exclusion continued till the creation of the Reserve Bank of India in
1935.
Bank of Bombay
Presidency Banks of Bengal
The Presidency Banks of Bengal, Bombay and Madras with their 70 branches were merged in
1921 to form the Imperial Bank of India. The triad had been transformed into a monolith and a
giant among Indian commercial banks had emerged. The new bank took on the triple role of a
25


commercial bank, a banker's bank and a banker to the government.
But this creation was preceded by years of deliberations on the need for a 'State Bank of India'.
What eventually emerged was a 'half-way house' combining the functions of a commercial bank
and a quasi-central bank.
The establishment of the Reserve Bank of India as the central bank of the country in 1935 ended
the quasi-central banking role of the Imperial Bank. The latter ceased to be bankers to the
Government of India and instead became agent of the Reserve Bank for the transaction of
government business at centres at which the central bank was not established. But it continued to
maintain currency chests and small coin depots and operate the remittance facilities scheme for
other banks and the public on terms stipulated by the Reserve Bank. It also acted as a bankers'
bank by holding their surplus cash and granting them advances against authorised securities. The
management of the bank clearing houses also continued with it at many places where the Reserve
Bank did not have offices. The bank was also the biggest tendered at the Treasury bill auctions
conducted by the Reserve Bank on behalf of the Government.
The establishment of the Reserve Bank simultaneously saw important amendments being made to
the constitution of the Imperial Bank converting it into a purely commercial bank. The earlier
restrictions on its business were removed and the bank was permitted to undertake foreign
exchange business and executor and trustee business for the first time.
Imperial Bank
The Imperial Bank during the three and a half decades of its existence recorded an impressive
growth in terms of offices, reserves, deposits, investments and advances, the increases in some
cases amounting to more than six-fold. The advances, the increases in some cases amounting to
more than six-fold. The financial status and security inherited from its forerunners no doubt
provided a firm and durable platform. But the lofty traditions of banking which the Imperial Bank
consistently maintained and the high standard of integrity it observed in its operations inspired
26


confidence in its depositors that no other bank in India could perhaps then equal. All these
enabled the Imperial Bank to acquire a pre-eminent position in the Indian banking industry and
also secure a vital place in the country's economic life.
Stamp of Imperial Bank of India
When India attained freedom, the Imperial Bank had a capital base (including reserves) of
Rs.11.85 crores, deposits and advances of Rs.275.14 crores and Rs.72.94 crores respectively and a
network of 172 branches and more than 200 sub offices extending all over the country.
First Five Year Plan
In 1951, when the First Five Year Plan was launched, the development of rural India was given
the highest priority. The commercial banks of the country including the Imperial Bank of India
had till then confined their operations to the urban sector and were not equipped to respond to the
emergent needs of economic regeneration of the rural areas. In order, therefore, to serve the
economy in general and the rural sector in particular, the All India Rural Credit Survey
27


Committee recommended the creation of a state-partnered and state-sponsored bank by taking
over the Imperial Bank of India, and integrating with it, the former state-owned or state-associate
banks. An act was accordingly passed in Parliament in May 1955 and the State Bank of India was
constituted on 1 July 1955. More than a quarter of the resources of the Indian banking system thus
passed under the direct control of the State. Later, the State Bank of India (Subsidiary Banks) Act
was passed in 1959, enabling the State Bank of India to take over eight former State-associated
banks as its subsidiaries (later named Associates).
The State Bank of India was thus born with a new sense of social purpose aided by the 480 offices
comprising branches, sub offices and three Local Head Offices inherited from the Imperial Bank.
The concept of banking as mere repositories of the community's savings and lenders to
creditworthy parties was soon to give way to the concept of purposeful banking sub serving the
growing and diversified financial needs of planned economic development. The State Bank of
India was destined to act as the pacesetter in this respect and lead the Indian banking system into
the exciting field of national development
The Bank is actively involved since 1973 in non-profit activity called Community Services
Banking. All SBI branches and administrative offices throughout the country sponsor and
participate in large number of welfare activities and social causes. SBI business is more than
banking because we touch the lives of people anywhere in many ways. SBI commitment to
nation-building is complete & comprehensive.
TECHNOLOGY UPGRADATION
SBIs Information Technology Programme aims at achieving efficiency in operations, meeting
customer and market expectations and facing competition. SBI achievements are summarized
below:

28


FULL BRANCH COMPUTERISATION (FCBs): All the branches of the Bank are now fully
computerised. This strategy has contributed to improvement in customer service.

ATM SERVICES: There are 21000 ATMs on the ATM Network. These ATMs are located in 1721
centers spread across the length and breadth of the country, thereby creating a truly national
network of ATMs with an unparalleled reach. Value added services like ATM locator, payment of
fees for college students, multilingual screens, voice over and drawl of cash advance by SBI credit
card holders have been introduced.
INTERNET BANKING (INB): This on-line channel enables customers to access their account
information and initiate transactions on a 24x7, boundary less basis. 2225 branches, covering 555
centers are extending INB service to their customers. All functionalities other than Cash and
Clearing have been extended to individual retail customers. A separate Internet Banking Module
for Corporate customers has been launched and available at 1305 branches. Bulk upload of data
for Corporate, Inter-branch funds transfer for Retail customers, Online payment of Customs duty
and Govt. tax, Electronic Bill Payment, SMS Alerts, E-Poll, IIT GATE Fee Collection, Off-line
Customer Registration Process and Railway Ticket Booking are the new features deployed.
GOVT. BUSINESS : Software has been developed and rolled out at 7785 fully computerised
branches. Electronic generation of all reports for reporting, settlement and reconciliation of Govt.
funds is available.

STEPS: Under STEPS, the bank's electronic funds transfer system, the Products offered are
eTransfer (eT), eRealisation (eR), eDebit (CMP) and ATM reconciliation. STEPS handles
payment messages and reconciliation simultaneously.

29


SEFT: SBI has launched the Special Electronic Fund Transfer (SEFT) Scheme of RBI, to
facilitate efficient and expeditious Inter-bank transfer of funds. 241 branches of our Bank in
various LHO Centres are participating in the scheme. Security of message transmission has been
enhanced.

MICR Centre: MICR Cheque Processing systems are operational at 16 centre viz. Mumbai, New
Delhi, Chennai, Kolkata, Vadodara, Surat, Patna, Jabalpur, Gwalior, Jodhpur, Trichur, Calicut,
Nasik, Raipur, Bhubaneswar and Dehradun.

Core Banking: The Core Banking Solution provides the state-of-the-art anywhere anytime banking
for our customers. The facility is available at 1012 branches.

Trade Finance : The solution has been implemented, providing efficiency in handling Trade
Finance transactions with Internet access to customers and greatly enhances the bank's services to
Corporate and Commercial Network branches. This new Trade Finance solution, EXIMBILLS,
will be implemented at all domestic branches as well as at Foreign offices engaged in trade
finance business during the year.
WAN : The bank has set up a Wide Area Network, known as SBI connect, which provides
connectivity to 4819 branches/offices of SBI Group across 385 cities as at 31st March 2008. This
network provides across the board benefits by providing nationwide connectivity for its business
applications
Directors on the Bank's Central Board
as on 6
th
February 2013
30


BOARD OF DIRECTORS
Central Board Of State Bank Of India (As on 6
th
February 2013)
Sl.No. Name of Director Designation
Sec. of SBI Act, 1955
1.
Shri Pratip Chaudhuri
Chairman
19 (a)
2. Shri Hemant G. Contractor Managing Director
19 (b)
3. Shri Diwakar Gupta Managing Managing Director 19 (b)
4. Shri A. Krishna Kumar Managing Director 19 (b)
.5 Shri S.Vishvanathan Managing Director 19 (b)
6.
Shri S. Venkatachalam
Director
19 (c)
7.
Shri D. Sundaram
Director
19 (c)
8. Shri Parthasarathy Iyengar Director 19 (c)
9.
Shri Thomas Mathew
Director
19 (c)
10
Shri Jyoti Bhushan
Mohapatra
Workmen Employee
Director
19 (cb)
11 Shri S.K. Mukherjee
Officer Employee
Director
19 (cb)
12 Dr. Rajiv Kumar Director
19 (d)
13 Shri Deepak Amin Director
19 (d)
14
Shri Harichandra Bahadur
Singh
Director
19 (d)
15 Shri Rajiv Takru Director
19 (e)
16 Dr. Urjit R. Patel Director
19 (f)
ASSOCIATE BANKS
State Bank of India has the following seven Associate Banks (ABs) with controlling interest
ranging from 75% to 100%.
31


1. State Bank of Bikaner and Jaipur (SBBJ)
2. State Bank of Hyderabad (SBH)
3. State Bank of Indore (SBIr)
4. State Bank of Mysore (SBM)
5. State Bank of Patiala (SBP)
6. State Bank of Saurashtra (SBS)
7. State Bank of Travancore (SBT)
As on 31
st
march, 2012 the financial information of State bank of India is given as under
Financial Details RS (in crore)
Capital 83,951.20
Borrowings 127,005.57
Deposits 1,043,647.36
Investments 312,197.61
Advances 867,578.89
Profit 16,509.08
Source : balance sheet and profit and loss accounts schedule of state bank of
India from annual reports of year ending 31
st
march, 2012
General Shareholder Information
Number of shareholders as on 30.9.2004 was 5.61 lacs. The shareholding pattern was as under.
SHARE HOLDERS SHARE HOLDERS PERCENTAGES PERCENTAGES
Reserve Bank of India 59.73 %
Non-residents (FIIs, OCBs, NRIs) 19.83 %
Banks, FIs including insurance companies 6.21 %
32


Mutual funds/UTI 6.47 %
Domestic companies/private corporate bodies/trusts 1.79 %
Resident individuals 5.97 %
59.73%
19.83%
6.21%
6.47%
1.79%
5.97%
Reserve Bank of India
Non-residents (FIIs, OCBs, NRIs)
Banks, FIs including insurance companies
Mutual funds/UTI
Domestic companies/private corporate bodies/trusts
Resident individuals
MISSION MISSION
33


To retain the Banks Position as the Premier Indian Financial Services
Group, with world class standards and significant Global business,
committed to excellence in customer, shareholder and employee
satisfaction and to play a leading role in the expanding and diversifying
financial services sector while continuing emphasis, on its development
banking role.
+ DR. KALAM TALKS ABOUT SBI PLAN AND MISSON
EW DELHI : President A.P.J. Abdul Kalam on Tuesday chalked out a seven-point action plan for
the State Bank of India (SBI) while urging the country's premier bank to create a Rs. 5,000-crore
venture capital fund and hike lending to the farm sector.
In his address at the SBI's Bicentennial Celebrations here, Mr. Kalam noted that within the next
three years, the bank should raise the credit to the farm and agro-processing sector from 10 to 20
per cent of its total loan disbursal.
Agricultural growth, he said, was lagging behind while sectors such as manufacturing and
services were showing robust increases. A higher credit disbursal, he said, was essential to hike
farm growth to over four per cent as it was a vital requirement for increasing the overall Gross
Domestic Product growth to 10 per cent.
Unveiling his plan, Mr. Kalam asked the SBI to allocate Rs. 5,000 crores as venture capital from
2007-08 for the purposes of funding innovative scientists and technologists for speedier societal
transformation. This would include the development of ICT products, software development and
software services.
The President also advised the bank to create and nurture five rural development projects, on the
lines of the bio-fuel project and seaweed project, as it had the potential to provide employment to
50 lakh persons in the rural areas at the least.
Mr. Kalam also asked the SBI to adopt and innovatively fund at least one lakh sick units in the
small-scale sector to infuse the latest technology and turn them into profitable ventures.
Another sector with great potential, Mr. Kalam said, was medical tourism in which the bank could
extend funds at competitive interest rates for setting up corporate hospitals which would also
serve the rural areas. Likewise, yet another sector for the bank's participation, he said, was
infrastructure development, including provision of 50 million quality houses with basic
infrastructure in rural areas in association with state and Central entities.
34


Turning to the plight of villagers caught in the ``vicious cycle of borrowing,'' Mr. Kalam asked the
SBI to adopt a ``villager-friendly'' banking system to free them from the clutches of money-
lenders.
Mr. Kalam also lamented that hassle-free loans were being extended by the SBI to students of
only the best engineering colleges, medical colleges and business schools. ``I would request the
SBI to examine the possibility of providing loans to students who would like to pursue science
and commerce as a career," he said.
Besides, ways should be found to fund the education of those meritorious students who could not
get admission to top engineering, medical and B-schools owing to stringent competition, Mr.
Kalam said.
35



36
SBI has bagged
the awards for
Most Preferred
Bank and Most
preferred brand
for home Loan in
CNBC Awaaz
Consumer
Awards in
August 2007
SBI has bagged
the awards for
Most Preferred
Bank and Most
preferred brand
for home Loan in
CNBC Awaaz
Consumer
Awards in
August 2007
SBI is placed
at 70
th
in Top
1000 Banks
Survey by
Banker
Magazine, July
2007, (up
from 107 last
year)
SBI is placed
at 70
th
in Top
1000 Banks
Survey by
Banker
Magazine, July
2007, (up
from 107 last
year)
SBI ranked 6
th

in the
Economics
Times Market
Cap List, (up
from 50 last
year)
SBI ranked 6
th

in the
Economics
Times Market
Cap List, (up
from 50 last
year)
Today, SBI/SBI
CAP is the
No.1
syndicator of
domestic debt
in Asia
Pacific
REGION.
Today, SBI/SBI
CAP is the
No.1
syndicator of
domestic debt
in Asia
Pacific
REGION.
No.1 in
mergers &
Acquisition
Deals (31
Deals of US $
19.8bn)
.
No.1 in
mergers &
Acquisition
Deals (31
Deals of US $
19.8bn)
.
The only
Indian Bank
to find a
place in the
Fortune
Global 500
List
The only
Indian Bank
to find a
place in the
Fortune
Global 500
List


37
SBI is No 1
provider of
AGRI
Finance and
No. 1 in
Credit
Linking of
Rs 9.35 lacs
SHGS
SBI is No 1
provider of
AGRI
Finance and
No. 1 in
Credit
Linking of
Rs 9.35 lacs
SHGS
SBI is market
Leader in
financing
SSIs with a
market share
of 29%
SBI is market
Leader in
financing
SSIs with a
market share
of 29%
Readers
digest May
07 Golden
Award for
being
among the
two most
trusted
banks in
India
Readers
digest May
07 Golden
Award for
being
among the
two most
trusted
banks in
India
Up gradation of
ratings by citi
group/ Morgan
Stanley
Moodyss S&P
Up gradation of
ratings by citi
group/ Morgan
Stanley
Moodyss S&P
3
rd
in the
Economic
Times brand
Equity Ranking
Top 50 most
trusted service
brands in the
service sector
3
rd
in the
Economic
Times brand
Equity Ranking
Top 50 most
trusted service
brands in the
service sector
Business
Standard has
Awarded the
Best Banker of
the Year Award
to Shri
O.P.Bhatt for his
initiative to
reenergize the
Bank
Business
Standard has
Awarded the
Best Banker of
the Year Award
to Shri
O.P.Bhatt for his
initiative to
reenergize the
Bank


38
CNN IBN
network 18 has
selected shri.
O.P.Bhatt as
Indian of the
Year Business
2007 for showing
how a public
sector behemoth
can flex its
muscle in the
ferociously
competitive
Banking sector
CNN IBN
network 18 has
selected shri.
O.P.Bhatt as
Indian of the
Year Business
2007 for showing
how a public
sector behemoth
can flex its
muscle in the
ferociously
competitive
Banking sector
Asian centre for
corporate
Governance &
Sustainability and
Indian Merchants
Chamber has
awarded the
Transformational
Leader Award 2007
to Shri O.P.Bhatt
for leadership,
charisma,
inspiration and
intellectual
stimulation for the
entire SBI team
Asian centre for
corporate
Governance &
Sustainability and
Indian Merchants
Chamber has
awarded the
Transformational
Leader Award 2007
to Shri O.P.Bhatt
for leadership,
charisma,
inspiration and
intellectual
stimulation for the
entire SBI team


CHAIRMAN
DMD: DEPUTY MANAGING CCO: CHIEF CORPORATE
DIRECTOR OFFICER

DMD & CCO
DMD & CCO
DMD & CFO
DMD & CFO
DMD & CDO
DMD & CDO
DMD CORPORATE
STRATEGY & NEW
BUSINESS
DMD CORPORATE
STRATEGY & NEW
BUSINESS
DMD (IT)
DMD (IT)
CHIF ECONOMIC
ADVISOR
CHIF ECONOMIC
ADVISOR
CVO
CVO
DMD RURAL & AGRI
BUSINESS GROUP
DMD RURAL & AGRI
BUSINESS GROUP
39
MD & GE
(CB)
MD & GE
(NB)
DMD & GE
(TRESASURY
& MARKETS
DMD & GE
(ASSOCIATES
& SUBSIDIARIES
DMD (I & MA)
(Located at Hyderabad)


CFO: CHIEF FINANE CB: CORE BANKING
OFFICER
NB: NON BANKING IB: INTERNATIONAL BANKING
State bank of India has been facing great rivalry and major competition with other public sector
banks and some of private commercial banks. State bank of India has many banks as art rival.
Some of its art rival.
List of major competitors of SBI
I. ICICI Bank
II. Bank of Baroda
III. Canara Bank
IV. Punjab National Bank
V. Bank of India
VI. Union Bank of India
VII. Central Bank of India
VIII. HDFC Bank
IX. Oriental Bank of Commerce.
Here especially some of the public sector and private sector banks are giving hardcore
competition to the state bank of India. So let us have some of the best banks which is also
mentioned above and mentioned below in detail.
40


ICICI BANK
ICICI bank stands for Industrial Credit and Investment Corporation of India. This ICICI
bank is one of the heavyweight banks of private sector of India. It is providing the core
competition to the state bank of India. Especially in lending money, Investment.
But in profit making state bank of India is standing ahead. And when and where social
responsibility of concern state bank of India is heading high than any other banks in India
HDFC BANK
HDFC stands for Housing Development and Finance Corporation ltd. This is also one of
the leading banks of India in private sector. This bank is also providing hardcore
competition to all the banks as well as state bank of India
But we mention earlier that state bank of India is ahead in banking India. So HDFC bank
has to work hard to reach at the milestone achieved by state bank of India.
BANK OF BARODA
Bank of Baroda is also one of the leading public sector banks in India. Bank of Baroda is
known as BOB. This PSU bank is also providing the tough competition to all other banks
in India. The BOB bank is very renowned banks of India today. It is very changed and
very professionally working public sector banks
BOB has got professional in recent time so. It has to work very hard to achieve position
and reputation which are achieved by State Sank of India.
41
MARKET SHARE
31%
3%
3%
3%
4%
5% 5%
6%
7%
10%
23%
STATE BANK OF
INDIA
HDFC BANK
UCO BANK
CENTRA BANK OF
INDIA
UNION BANK OF
INDIA
BANK OF BARODA
BANK OF INDIA
PUNJAB NATIONAL
BANK


NAME
OF
BANK
MARKET SHARE IN DEOPSITS AND
ADVANCES (%)
STATE BANK OF INDIA 30.32 %
HDFC BANK 3.01 %
UCO BANK 3.05%
CENTRA BANK OF INDIA 3.45 %
UNION BANK OF INDIA 4.23 %
BANK OF BARODA 5.10 %
BANK OF INDIA 5.28 %
PUNJAB NATIONAL BANK 6.45 %
CANARA BANK 6.51 %
ICICI BANK 10.33 %
OTHER BANKS 22.27 %
TOTAL 100%
42



Tractor Loan:
Eligibility
Minimum age 21 years as on the date of sanction
Steady source of income
Loan Amount
Applicant/ any one of the applicants are aged over 21 years and upto 45 years 60 times Net Monthly
Income (NMI) or 5 times Net Annual Income (NAI), subject to aggregate repayment obligations not
Exceeding 57.50% of NMI/ NAI
Applicant(s) aged over 45 years of age 48 times NMI or 4 times NAI, subject to aggregate
repayment obligations not exceeding 50%of NMI/ NAI
Margin
Purchase/ Construction of a new House/ Flat/ Plot of land: 15%
Purchase of an existing House/ Flat: 15%
Repairs/ Renovation of an existing House/ Flat: 20%
43


HOUSING LOAN INTEREST RATES:
Interest rates
Floating interest rates (linked to State Bank Advance Rate SBAR):
(SBAR: 12.75%)
Tenure Rate of Interest (p.a.)
Upto 5 years 2.00% below SBAR Minimum 10.75%
Above 5 and upto 10 years 1.50% below SBAR Minimum 11.25%
Above 10 and upto 15 years 1.50% below SBAR Minimum 11.25%
Above 15 and upto 20 years 1.00% below SBAR Minimum 11.75%
Tenure Rate of Interest (p.a.)*
Upto 5 years 11.50%
Above 5 and upto 10 years 11.75%
Maximum Repayment Period
For applicants upto 45 years of age: 20 years
For applicants over 45 years of age: 15 years
CAR LOAN
Move ahead in life with SBI Car Loans! If you have been putting off purchasing that car, we invite you to
44


go through our Car Loans scheme.
Low interest rates, easy repayment options, total transparency, Low processing charges, finance to include
vehicle registration charges, insurance and one time road tax.
Well, what are you waiting for? Just step in to any of our branches (more than 6000) that offer Car Loans
or our Personal Banking Branches and give wheels to your desire!
You can apply for an SBI Car Loan to purchase:
A new car, jeep, Multi Utility Vehicle (MUV) or SUV (any make or model)
An old car / jeep / MUV /SUV (not more than 5 years old). (any make or model)
Eligibility
To avail an SBI Car Loan, you should be
Individual between the age of 21-65 years of age.
A Permanent employee of State/Central Government, Public Sector Undertaking,
Private company or a reputed establishment
A Professionals or self-employed individual who is an income tax assesses or
A Person engaged in agriculture and allied activities.
Net Annual Income Rs. 75,000/- and above.
Salient Features
Loan Amount
There is no upper limit for the amount of a car loan. It is limited only by your repaying capacity. A maximum
loan amount of 2.5 times the net annual income can be sanctioned. If married, your spouses income could
also be considered provided the spouse guarantees the loan The loan amount includes finance for one-time road
tax, registration and insurance!
Margin
45


New/used vehicles 10-15% when loan is upto Rs.6 lacs
20-30% when loan exceeds Rs.6 lacs
Repayment
You enjoy the longest repayment period in the industry with us. Repayment period for new vehicles:
Maximum of 84 months
Repayment period for old vehicles: Up to 84 months from the date of original purchase of the vehicle.
SCHEME FOR LOAN FOR TWO WHEELERS
Existing Interest Rate
Structure w.e.f. 31.03.2008
Revised Interest Rate
Structure w.e.f. 27.06.2008
Floating Rate of Interest 12.25% p.a. 12.75% p.a.
Fixed Rate of Interest 12.50% p.a. 13.00% p.a.
NOTE: All these interest rates are subject to change, without notice .
The revised interest rates are applicable only on fresh deposits and renewal of maturing deposits.
46


EDUCATION LOAN:
A term loan granted to Indian Nationals for pursuing higher education in India or abroad where admission
has been secured.
Eligible Courses
All courses having employment prospects are eligible.
Graduation courses/ Post graduation courses/ Professional courses
Other courses approved by UGC/Government/AICTE etc.
Amount of Loan
For studies in India, maximum Rs. 10 lacs
Studies abroad, maximum Rs. 20 lacs
Interest Rate
For loans upto Rs. 4 lakh 10.50% p.a.
For loans above Rs. 4 lakh 11.50% p.a.
Repayment Tenure
Repayment will commence one year after completion of course or 6 months after securing a job, whichever is
earlier.
Place of Study Loan Amount
Repayment Period
in Years
In India
Up to Rs. 7.5 lacs 5-7
Above Rs. 7.5 lacs 5-10
Abroad
Up to Rs. 15 lacs 5-7
Above Rs. 15 lacs 5-10
47


Security
Amount Studies In India Studies Abroad
Upto Rs. 4 lacs No Security No Security
Above Rs. 4 lacs to Rs. 7.50 lacs
Third Party
Guarantee
Third Party Guarantee
Above Rs. 7.50 lacs to Rs. 10 lacs(India)/
Rs. 15 lacs(Abroad)
Tangible Collateral
security for full
value of loan
Tangible Collateral security of suitable
value of loan or third party guarantee
Rs 15 lacs to Rs. 20 lacs ___
Tangible Collateral security for full
value of loan
Margin
For loans up to Rs.4.0 lacs : No Margin
For loans above Rs.4.0 lacs:
o Studies in India: 5%
o Studies Abroad: 15%
48


(1) Learning & Development
Bank has taken up several key initiatives to motivate and retain its manpower. In order to
channelize the energy created by the Parivartan campaign, the Bank has launched a Landmark
exercise for creation of the new Vision Mission & Values statement which will be in place
shortly. Young officers are being encouraged to take-up management education by way of
sponsorship tie-up with the S. P. Jain Institute of Management. 50 officers have been enrolled in
the programme on a trial basis. Bank is strong in the areas of training & development through 4
apex level training colleges and 45 learning centres across the country. e-learning project has
been launched to enable any where, anytime learning.
(2) HRMS
For leveraging technology in employee management area, the Bank has started automation of its
HR processes through SAP-ERP-HRMS software. Once fully implemented, it will not only create
a central repository of all employees data but also will make available a variety of services, like
online request submission and viewing of individual data etc. to all the employees across the State
Bank group on an online real time basis. HRMS will bring efficiency in HR operations and help
the Management in making employee related decisions faster. Pensioners of SBI, IBI and
Associate Banks will also form a part of this initiative and their pension will be processed through
HRMS.
(3) Personnel Management
The Bank has launched Performance Linked Incentive Scheme for the Branch
managers/AGMs(Region)/ DGMs(Module) and Team Incentive Scheme for the staff members of
the Branch. The incentive scheme was launched with the aim of enthusing and motivating the
staff members of the Branch so that the bank is placed in a position to face the competition
unleashed due to liberalization of economy and maintain its lead over others. The scheme has
been successful in enthusing the staff and garnering Business for the Bank.
(4) Employees Share Purchase Scheme (SBI ESPS-2008)
The Bank also launched Employees Share Purchase Scheme along with the Rights issue with the
Objective of providing incentive to Eligible Employees, to stimulate their efforts towards the
continued success of the Bank and to provide a Means to attract, reward and retain talent in the
Bank, to reward eligible employees as also to encourage equity ownership by them. The price was
49


fixed at Rs.1590/- (the face value of 1 share is Rs.10/-) per equity share. The Scheme Opened on
28.03.2008 and closed on 30.04.2008.
(5) Industrial Relations
f A number of HR initiatives such a payment of Performance linked incentives to staff,
rationalisation of promotion policies and improvement in various staff loan schemes were
taken up during the year. Such initiatives have helped in increasing the motivation level of
staff significantly.
f To meet requirement of staff for an ongoing branch expansion programme, separate
recruitment exercises were undertaken to recruit clerical staff for metro/urban centers,
rural/semi urban centers and also for marketing. This also helped in reducing the age
profile of staff and posting of younger staff at the front line.
f The process of consultation and discussion with both the staff and officers federations
continued during the year.
f The industrial relations climate of the Bank remained cordial during the year.
(6) Staff Strength
The Bank had a total strength of 1,79,205 on the 31
st
March, 2008. Of this, 32.23% are officers,
42.87% clerical staff and the remaining 24.90% were sub-staff.
(7) Implementation of Persons with disabilities (PWD) Act 1995
Our Bank provides reservation to persons with disabilities (PWDs) as per the guidelines of the
Government of India and section 33 of the PWD Act 1995. The total number of persons with
disabilities who were employed as on 31.03.2008 was as follows:
(8) Representation of Scheduled Castes and Scheduled Tribes
As on the 31st March, 2008, 34802 (19.42%) of the Banks total staff strength, belonged to
Scheduled Caste and 11460 (6.30%) belonged to Scheduled Tribes. In order to effectively redress
the grievances of the SC/ST employees, Liaison Officers have been designated at all
administrative offices of the Bank. Senior officials of the Bank hold regular meetings at periodic
intervals with the representatives of SC/ST Welfare Federation and SC/ST Welfare Association at
Corporate Centre, LHOs and Zonal Offices. The Bank conducts workshops on reservation policy
for SCs/STs/OBCs. So also, pre recruitment and pre-promotion training programmes are
conducted by the Bank to enable SC/STcandidates to achieve the prescribed standards to
effectively compete with other candidates.
50


51


Research Plan
(A) Defining the Problem:
Non performing Assets in banking Industry has become a
subject of intense importance and discussion. It has assumed
greater significance in the world of banking and banks. It has
become a barometer of the health of banks and discussions on
any bank is incomplete without the mention of NPA, NPA has
now become heart of the banking Industry, which in turn, is the
heart of finance and economy of a nation.
Assets of a bank, generally, consist of cash investment, loans and advances, fixed assets and
miscellaneous assets. The resources of a bank are deployed in these assets. The resources
consist of capital and reserves, deposits, borrowings and other liabilities. These liabilities are
carried at a cost and hence its deployments into various assets should generate enough income
to service the cost of the liabilities. In other words, the assets in which the liabilities are
deployed should perform in such a way that it generate income to cover the cost of resources
and also a surplus, which is a profit of the bank, Thus the performance of assets reflects the
health of the banking industry.
Earlier, the buzzword in the banking industry was deposits as it is the basic raw material for
the banking industry. The status of the bank was, determined on the volume and size of its
deposits. The career of bankers used to depend on the level of deposits achieved by him.
Banks were not bothered about the performance of their assets. But from 1991, a sea change
52


was made in the way income of banks was recognized. With the first generation economic and
finance sector reforms coming into being, the method of income recognition in
the banking sector was changed from accrual basis to cash basis. An income will be carried to
profit and loss account only of it is realized in cash in 90 days. This was like a bolt from blue
for deposit happy bankers. All along, they were simply doing an accounting exercise in
debiting a loan account and credit the income account without bothering to see whether it is
actually paid by the borrower or not. Thus the performance of an asset was defined for the first
time in Indian Banking Industry.
This change of income recognition compelled the banks to unrecognized the income if the
interest is not received in cash from the borrowers. Not only is this, depending upon the
quality of the assets, various provisions now required to be made on such non performing
assets. This had compelled many large banks to declare loss for the first time in history of
banking. This had ominous portents for the entire banking industry. This also resulted in
dwindling flow of credit of trade and industry.
Thus NPA has the potential to directly affect the economy of the country. Many big nations
like Japan are suffering from this disease of high NPAs. Our country also now having a large
portion of bank credit locked in NPAs and hence NPA is receiving greater importance of
NPAs , that we thought to select it as a subject for Grand Project.
53


1 Research Problem

To study the state of recovery management.
2 Research Objective
+ To identify reasons that lead to Standard assets of the bank becoming NPAs
+ To Suggesting Strategy to recovery Non Performing Assets and prevention of
further NPAs
3 Research Methodologies
(1) Sample Design
The target population consists of State bank of India of Warangal.
The sample size comprise of Thirty four Branches of State bank of India of
Warangal.
(2) Collection of Data
A structured questionnaire was prepared to elicit information form the respondents.
Secondary data collection was done through data available from Books, Bank
Register and Bank system.
(3) Sampling Method
The research was done using Simple Random Sampling.
(4) Data Analysis
The analysis of primary data is done with the help of computerized statistical tools.
54


Introduction

The crucial factor that decides the performance of banks now-a-days is the spotting of non-
performing assets (NPA). NPAs are those loans given by a bank of financial institution
where the borrower defaults of delays interest of principal payments.
Banks are now required to recognize such loans faster and then classify them as problem
assets. Close to 16 percent of loans made by Indian banks are NPAs-very high compared to
5 percent in advanced countries.
Banks are not allowed to book any income from NPAs. Also, they have to provide for these
NPAs, or keep money aside in case they cant collect from the borrower, which affects their
profitability adversely.
Classification of NPAs
In April 1992, it was decided to implement the Narsimham Committees recommendations
on financial sector reforms in a phased manner over a three-year period commencing from
the financial year 1992-93. Income Recognition, Assets Classification and Provisioning
(IRAC) norms were introduced with a view to reflect a true picture of financials of Banks
on the basis of their booking the income on actual basis than on accrual basis and also
classify assets according to the level of risks attached to them. The criteria for classification
is :
Performing/Standards Assets: Loan assets in respect of which interest and principal are
received regularly are called standard or performing assets. Standard assets also include
loans where arrears of interest and / or of principal do not exceed 90 days as at the end of a
financial year. No provisioning is required for such loans.
55


According to RBI (NPAs) :- Any loan repayment or interest thereof that is delayed
beyond 90 days has to be identified as an NPA. NPAs are further sub-classified into sub-
standard, doubtful and loss assets:
Sub-standard Assets: Sub-standard assets are those that are non-performing for a period
not exceeding two years. Also, in cases where the loan repayment is rescheduled, RBI has
asked banks to recognize the loans as sub-standard at least for one year.
Doubtful Assets: Loans which have remained non-performing for a period exceeding two
years and which are not considered as loss assets are known as doubtful assets. Major
portions of assets under this category relate to sick companies referred to the Board for
Industrial and Financial Reconstruction (BIFR) and waiting finalization of rehabilitation
packages.
Loss Assets: A loss asset is one where loss has been identified but the amount has not been
written off wholly or partly. In other words, such an asset is considered uncollectible. There
may be some salvage value.
Provision for NPAs
The RBI has also laid down provisioning rules for the non-performing assets. This means
that banks have to set aside a portion of their funds to safeguard against any losses incurred
on impaired loans. Banks have to set aside 10 percent of sub-standard assets as provisions.
The provisioning for doubtful assets is 20 percent and for loss assets it is 100 percent.
56


Debt Recovery Problems
(1) To identify assets and properties of borrowers and guarantors is a difficult exercise. Even
when banks get the decrees, execution may be difficult as the exact position of borrowers/
guarantors properties may not be known .i.e. whether it is unencumbered, in good
physical and financial condition etc.
(2) Constraints of time and adequate staff to supervise and follow-up the large number of
accounts that are often scattered over wide areas, also hinders recovery effort. At times
inadequate transport and roads also hinders recovery effort. At times inadequate transport
and roads also make it difficult to reach borrowers.
(3) Despite the good intentions, it will depend on how fast the measures are implemented.
Since their introduction in 1994, DRTs have not been able to make a sound impact due to
the lethargy on the implementation front. Unless the Government takes concrete and
speedy measures to strengthen the Tribunals and streamline the legal systems, the DRTs
will amount to deferring the NPA problem.
(4) As against 50 to 60 Judges in High Courts, the Act provides for only one presiding Officer
for each Tribunal. The appellate Tribunal has suggested that when the number of pending
cases exceeds 2000, Government should appoint another Presiding Officer. This
suggestion needs to be acted upon quickly to prevent further delay in the settlement of
cases. Further, the Tribunals need to have their own permanent staff instead of depending
mainly on persons who are on deputation.
57


(5) Legal Methods-present scenario
Delay in disposing of the cases (10 to 20 years) are prohibitive and expensive appeals
further delay the process of awarding decree. Also the interest is only 6% p.a. simple on
principal.
Suggestions
(a) Need for a time frame for disposal of cases.
(b) For non payment of bank decretal dues parties to be put in civil imprisonment
without fail.
(c) Misuse of hypothecated securities to be treated as an offence punishable on the lines
of Sec 138 of N.I. Act with 2 years rigorous imprisonment.
(6) Statutory powers
Empowering banks to acquire assets for disposal without intervention of courts. (sec. 29
of State Financial Act.) This would work as deterrent against intentional defaulters.
(7) Lok Adalats
(a) Establishing Lok Adalats in all States.
(b) To be made compulsory for both borrowers and banks for settlement of smaller
loans (present limit 5. Lac)
(8) BIFR (Board of Infrastructure and finance reconstruction )
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(a) Relook into functioning of BIFR- whether objectives achieved since the ratio of
cases registered and cases dismissed/winding up was only 49% in 1996.
(b) Increase in number of benches-Housing separate benches for major cities like
Mumbai, Chennai.
(c) Time frame for rehabilitation (6 months).
(d) Reference to BIFR should be prerogative of banks.
(e) Prevent unscrupulous/dishonest promoters taking shelter under BIFR.
(9) In the case of immovable property, recovery continues to be a problem even where the
court decree of certificate has been passed. While the Act provides for attachment and sale
of property after the court decree has been issued there is no provision to prevent a
borrower from disposing off the property while the suit is still on. DRT Act empowers
Recovery Officers to recover the debt through attachment and sale of movable or
immovable property of the defendant but does not explicitly mention how to enforce
hypothecation, mortgage, etc.
(10) There are instances where the borrower has mortgaged the same property to
Several banks and availed facilities with predetermined criminal intention to
Cheat the banks with false and fabricated documents.
(11) Valuation reports of properties are inflated to suit the needs of the borrowers.
(12) Several problems have been faced by the banks while obtaining shares as
Collateral security. As the shares are not transferred in the name of the
Bank, Ultimately the matter has to be taken to the Company Law Board
(CLB) for Redressed, which, not to mention, consumes very much time.
+ Why assets become NPAs?
A several factors are responsible forever increasing size of NPAs in PSBs. The Indian
banking industry has one of the highest percent of NPAs compared to international
levels. A few prominent reasons for assets becoming NPAs are as under:
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Poor credit appraisal system. Lack of vision/fore slightness while
sanctioning/reviewing or enhancing credit limits.
Lack of proper monitoring and follow up measures.
Reckless advances to achieve the budgetary targets.
Lack of sincere corporate culture. Inadequate legal provisions on foreclosure and
bankruptcy.
Change in economic policies/environment.
Non transparent accounting policy and poor auditing practices.
Lack of coordination between Banks/FIs.
Directed lending to certain sectors.
Failure on part of the promoters to bring in their portion of equity from their own
sources or public issue due to market turning unfavorable.
Abolition of license raj and tough competition in the liberalized Indian economy.
+ NPAs and Its Effects
NPAs are drag on profitability of Banks because besides provisioning, Banks are
also required to meet the cost of funding these unproductive assets.
NPAs reduce earning power of assets. Return on assets (ROA) also gets affected.
NPAs carry risk weights of 100% (to the extent it is uncovered). Hence, they
block capital for maintaining capital adequacy.
As NPAs do not earn any income, they adversely affect capital adequacy ratio
(CAR).
No recycling of funds.
NPAs also attract cost of capital for maintaining capital adequacy ratio. Capital
cost involves dividend for Tier I capital and Interest for Tier II capital.
Carrying NPAs require incurring of cost of capital adequacy and cost of funds
blocked in NPAs. PSBs are incurring around as high as 11% of their earnings as
operating cost for monitoring and recovering NPAs every year.
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NPAs demoralizes the operating staff.
Regulatory and credit rating agencies abroad are also not comfortable with the
high level of NPAs of Indian Banks.
New Branch license are also not given to the Banks that have high level of
NPAs.
Information of Collecting the Data
Detail of Borrower
Reason of Due amount
Reason for become NPAs
Commitment of Borrowers
Utilisation of Fund
Awareness of Loan
Detail of Loan
We personally contact to each and every defaulter and collect the whole data which mention here
for more information we attach Questionnaire here.
Collection of data is the essential part of the research. As possible as we collect the more data,
view of customer, their opinion their problem and analysis those things and try give them better
satisfaction bank as well as customer.
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Data collect and bifurcate in different category as per their loan, which I mentioned earlier, Kisan
Credit Card(KCC) loan under this we have 9 types of loans they are as follows.
1). Tractor loan
2). Minor Irrigation
3). Land Development
4). Poultry
5). Dairy Farms
6). Horticulture
7). Two Wheeler Loan
8). Rythu Mithra Group(Dairy,Biogas)
9). Self Help Groups
For our Summer Project we got permission in Agriculture Business Unit Department of State
Bank of India, Hyderabad. Our department is a Process department. But our main work is to
Survey on the NPAs.
This is a Head Office and they provide us Data of NPAs account. State Bank of India have a 34
Branch Under Warangal Regional branch office.
Six Branch
Hanumakonda.
Jangaon.
Bhupalpally

62
Edu Loan
29 19%
Home Loan
48 32%
Per.Loan
44 29%
Vehicles
Loan 17
11%
SBF 13 9%
Edu Loan Home Loan Per.Loan Vehicles Loan SBF


Our Survey on Agri NPAs of Loan
Tractor loan
Minor Irrigation
Land Development
Poultry
Dairy Farms
Horticulture
Two Wheeler Loan
Rythu Mithra Group(Dairy,Biogas)
I have provided near about 250 Account but only 150 NPAs account person can cover and their list are
under.
No.Of
Borrowers
Tractor
Loans
Minor
Irrigation
loans
Land
Development
Loan
Poultry
Loan
Horticulture
Loan
Dairy Loan
LOAN PROFILES

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Here, As per above chart if we see that we find that Home loan having more Defaulter. No. of Borrower in
Home Loan is 48 and Percentage is 32 %.
+ What steps have been taken so far to solve NPAs
Problems?

Banks need to have better credit appraisal systems so as to prevent new NPAs from
occurring. However, once NPAs do come into existence, the problem can be solved only if
there is enabling legal structure, since recovery of NPAs often requires litigation and court
orders to recover stuck loans. With long-winded litigation in India, debt recovery takes very
long time.
Banks are now working on utilizing the services of Debt Recovery Tribunals to solve this
problem. The government has also mooted the suggestion of an Asset Reconstruction
Company, which will be specialized agency set up for rehabilitating revivable NPAs (say,
salvaging projects which are inherently sound) and recovering funds out of unrevivable
NPAs.
Other Strategies
- Fixing up of budgets for profits and recovery rather than for advances. Budget
oriented approach, at times leads to release of credit facilities without ensuring
compliance of covenants of sanction. A suitable mechanism could be drawn at each
Bank level to provide monetary benefits/recognition to the operating staff
particularly for recovery in NPAs/write off cases.
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- Project with old technology should not be considered for finance.
- Large exposure on big corporate/single project should avoid.
- There is a need to shift in PSBs approach from collateral security to viability of the
project and intrinsic strength of promoters.
- Up gradation of credit skills of the operating staff working in advances department.
- Timely sanction/release to avoid time and cost overruns.
A fresh look at Recovery Problem
Basically each branch engaged in lending has to plan for recovery of loans disbursed
by it. The manager should be familiar with the prospects of recovery through internal
and external factors. Knowledge about willful defaulters is equally important. Thus
three pronged strategy is necessary.
(A) RECOVERY : INTERNAL SOURCES

(a) Computation of demand
Guidelines suggest that repayment of installments of loans should be fixed in such
manner, which will coincide with the harvesting of crops or sale of milk or any other
farm output proposed to be produced through the bank loan. The demand for crop
loans or for installment of term loans should therefore be computed in a manner
conducive to the income flow.
(b) Appraisal of loan application and pre-sanction surveys

65


During the initial processing of the proposal, it has to be ensured that the repayment
program for an item\equipment is fixed in accordance with the guidelines prescribed
by R.B.I. Awareness about R.B.I. guidelines should be increased at the branch level.
(c) Recovery camps

The central idea of recovery camp is to bring a maximum number of persons together
at one place and repay the loans. The recovery camps in addition to effecting recovery
create a proper climate for recovery.
(d) Non-banking business day
This day should be utilized fully for field visits and contact with the borrowers
(e) Compromise proposals

In genuine cases, the banks can consider compromise proposal and a lot depends upon
the initiative of the branch manager in utilizing this facility.
(f) Conversions/rescheduling of loans

There are guidelines for the operating staff of the banks for conversion./rescheduling
of loans in the areas affected by natural calamities. Crop loans can be made repayable
over period of one year in the event of crop loss.
(g) Integration of recovery in branch budgeting

Recovery targets should be fixed at the time of settlement of branch business budget.
66


(B) RECOVERY: EXTERNAL SOURCES
Wherever the states have enacted laws on the pattern of the Talwar Model Bill, support
of the government machinery can be enlisted accordingly.
If the branches prepare village-wise action plans in this regard, it will be still
appropriate for the agencies to have a concerted effort towards recovery.
The branches may also compile detailed position of defaulters and share the same with
the convener banks and government authorities periodically.
(C) TACKLING DEFAULTERS
To prevent willful default, comprehensive and discrete enquiries, therefore, should be
made before disbursing loans to farmers. Some of the banks have already devised
systems of maintaining village dossiers, which comprise names of farmers who do not
have good reputation. A non-willful defaulter is one who generally follows a good
cropping pattern and is co-operative to developmental functionaries. He generally
cares for his own farming business. On the other hand, a willful defaulter has an
attitude of non-co-operation to developmental functionaries.
In present times, when willful default has gained social acceptability, the branches can
initiate steps for devising schemes for giving recognition to good borrowers in various
meetings or functions organized by the branches. Further the problems of good
borrowers can be studied and their credit needs immediately met. By doing so, a
67


culture of prompt repayment may develop in the villages and doing so would
simultaneously discourage willful default.
1) HEALTH CODE SYSTEM
The RBI introduced HCS in banks in 1985-86, this system provide the following
information:-
- Regarding the Health of individual advances.
- The quality of credit portfolio and
- The extent of doubtful or bad advances in relation to total advances.
The RBI, since 1985, requires all commercial banks in India to provide information
indicator the quality of individual advances in the following eight categories:
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1) Satisfactory: Conduct is satisfactory the account of the borrowing firm is in order in all
respect and its safety is not in doubt.
2) Irregular: Occasional irregularity is observed but the safety of the loan is not in
question.
3) Sick Viable: Loan to sick units that are under nursing through the revival programmed.
The units, though currently sick, are viable.
4) Sick Non Viable: The irregularities continue to persist and there are no immediate
chances of accounts becoming regular.
5) Advances Recalled: Such loan accounts where repayment is highly doubtful and
nursing is not considered worthwhile, in case of such advances decision is taken to recall
them.
6) Suit Filed account: Loan account where the recovery proceedings have been initiated.
7) Decreed Debts: Loan accounts where the recovery proceeding have been completed.
8) Bad and Doubtful: Loan accounts where the recovery of dues debts has become
doubtful on accounts of shortfall in value of security.
The RBI has classified problem loans with the banks in three categories.
(i) Advances classified as Bad and Doubtful by the bank [ Health Code No. 8]
(ii) Advances where suits were filed/ decrees obtained. [HC No.6 & 7].
(iii) Those advances with Major undesirable features [HC No.4 & 5 ].
EVALUATION OF HCS
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Though the HCS provide for classification of assets it does not provide what action to take
regarding the improvement of quality of such assets.
f Diversion of funds [as in 1 above] is the single most prominent reason. Moreover,
reversionary trends developing during expansion/diversification phase and failure to raise
capital/debt from public issue is also an important factor.
f Internals factors [No.4 above] of business failure, inefficient management etc., are next
important in the creation of NPA.
f External factors [No.3 above] are the next in importance,
f Time/cost overrun during the project implementation stage leading to liquidity strain.
f Other factors in their order of prominence are government policy changes, willful default,
fraud etc. and lastly deficiencies on the part of banks in the form of delay in release of
limits etc.
2) SETTLEMENT ADVISORY COMMITTEES:
To tackle chronic NPAs in priority sector RBI had come out with a one time measure
constitution of Settlement Advisory Committees (SACs) by banks. This was to promote
compromise settlement in small sector viz., SSI small business including trades,
agricultural and personal segments, Bankers need to appreciate the fact that compromise
settlement is an effective and accepted non legal remedy for recovery in chronic NPA.
According the scheme, applicable to NPA accounts which are at least 3 years old at 31-03-
1999, was effective up to 30 sept. 2000. There is a case for extending the deadline and
70


matching these guidelines applicable for compromise settlement in medium and large
sectors.
EVALUATION
ADVANTAGES TO BORROWER
1) Settling for a lower payout than the contracted one, scaling down of dues.
2) Releasing assets charged to the bank
3) Saving time, energy and expense on defending the inevitable legal case.
4) Keeping avenues of bank finance open for further development needs.
5) Restoring status/position in the market/society, avoiding stigma of being branded as a
borrower who is litigant type.
ADVANTAGES TO THE BANK
1) Concept of time value of money i.e. a bird in hand is worth two in bush. The money
realized early could be invested/lent to earn.
2) Realisation of securities is difficult stocks, machinery have high incidence of
depreciation and obsolescence on taking possession, storage, safety thereof poses a
problem and also involves cost for a longer period. Even in cases where court
71


receiver/commissioner is appointed, assets do not realized fast value of mortgaged
agricultural land properties located in rural, semi-urban areas is difficult to realize and no
bidder comes forward when the property is put to auction. This is precisely the reason why
many decrees obtained by the banks have merely remained on paper for want of effective
execution thereof.
3) To maintain the image of development banker, compromises, which involve
sacrifices, can be pursued only if both the parties to the settlement perceive latent gain in
the process of bargain.
3) CORPORATE DEBT RESTRUCTURING (CDR) :
A need was felt to create a special agency to facilitate debt
restructuring because there has been some hesitancy on the part of
banks and financial institutions to implement RBI guidelines on debt
restructuring. Recently a three-tier body, viz., CDR has been set up to
coordinate corporate debt restructuring programme. It is yet to be
operationalised CDR consists of Forum, group and Cell. While the forum
evolves broad policy-guidelines the group takes decisions on the
proposals recommended by the Cell. Initially the borrower approaches
his Lead Bank/ FI with a request to restructure debt, which in then puts
up the proposal to the cell. The CDR covers only multiple banking
accounts enjoying credit facilities exceeding Rs. 20 crore. Cases of DRT
BIFR and willful defaults, doubtful and loss accounts and suit filed cases
are outside the purview of the CDR. Thus, standard and Sub-
standard accounts are only eligible to seek CDR Shelter. If 75% of the secured creditors
agree to the rehabitation plan, it is lending on the other banks/FIs.
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The CDR is a voluntary system on debtor creditor agreement and inter-creditors
agreement. No banker/ borrower can take recourse to any legal action during the stand-still
period of 90-180 days. Lastly CDR will observe the RBI Guidelines on Debt Restructuring
issued in March 2001. While the arrangements under CDR seem to be feasible from the
debt restructuring perspective, its success depends upon the cooperation extended by
borrowers and bankers, on one hand, and understanding among banks and FIs on the other.
Doubts are raised about the implementation of these agreements taking into the present
working of the loan consortium arrangement.
CDR though is not directly linked with NPA recovery, is aiming at preserving viable
corporate affected by certain internal and external factors, and minimizing the losses to the
creditors and other stakeholders through a restructuring programme. Even though the CDR
system will be applicable only to standard and sub-standard accounts potentially viable
cases of NPA, are also to get priority.
EVALUATION:
The mechanism will be more effective if accepted by 75 % of term lending institution and
75 % of bank, which provide working capital instead of 75 % of total lenders.
(4) LOKADALATS

These are voluntary agencies created by the state government to assist in matter of loan
compromise cases involving an amount upto Rs. 5 lakhs may be referred Lok Adalat. The
73


scheme includes all NPA a/cs. Both suit filed and mensuit filled MCS Lokadalats meet at
different places for the convenience if banks and borrowers on the given date of the
lokadalats meeting, both the banker and borrower should be present. After looking into the
evidence and listening to both parties, the lokadalats works out an acceptable compromise.
Thereafter, lokadalat issues a recover certificate, which will enable the bank in obtaining
decree from the concerned court. This arrangement shortens the period in obtaining a court
decree, which is normally awarded after taking a much longer period. Along with this,
efforts should be made to give wide publicity to the scheme, besides educating both banks
and borrowers about Lokadalats.
EVALUATION
Merits-
There are no court fees involved when fresh disputes are referred to it.
It can take cognizance of any existing suit in the court as well as look into and
adjudicate upon fresh dispute
If no settlement is arrived at the parties can continue with the court proceedings
Its decree has legal status and is binding.
In view of this unique advantage the government is thinking of strengthening them and
raising the monetary limit set for referred cases
Demerits-
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It is observed that banks have not taken adequate advantage of Lokadalats for
compromise settlement of their NPAs
No cut off date is suggested since Lokadalat is an on going process. But this may
contribute to increasing delays in settlement of cases.
Most Lokadalats should be set up in different parts of country to set up the recovery
procedures.
(5) DEBT RECOVERY TRIBUNALS
The MOF has taken a number of steps to strengthen the DRTs. Banks and FIs now can
nominate one nodal officer for each DRP. There is a suggestion for setting up co-
ordination committees for DRTs a Debt Recovery Appellate Tribunal with representations
from major banks and financial institutions.

In the context of recovery from NPAs, DRTs are assuming great importance since efforts
are to set up mere DRTs during this year and also to strengthen them. Though the recovery
through DRTs is at present less than two percent of the claim amount, banks FIs have to
depend heavily on them, efforts are as to amend the recovery Act to assign more power to
DRT. More importantly, the borrowers tendency to challenge the verdict of the Appellate
tribunal in the High court to seek natural justice needs to be checked. Otherwise, early
recovery efforts through DRTs would be futile. Secondly, training of residing officers of
Tribunals about the intricacies of banking practices is very essential. Further, the number
of Recovery officer has to be enhanced in every DRT for effective recovery. Finally,
banker and FIs have to come forward to provide liberal help to DRTs to equip them in
terms of infrastructure, manpower,etc.

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It has been announced in the Union Budget for 2001-02 that the Govt. has decided to set
up 7 more DRTs during 2001-02 in addition to the existing 22 DRTs, 5 Appellate
Tribunals to facilitate bank to quickly recover their dues from borrowers. Besides, the
Govt. has proposed to bring in legislation for facilitating foreclosure and enforcement of
securities in case o default so as to enable banks and financial institutions to realize their
dues.
EVALUATION
+ 11 new DRTs are being opened over the last 2 years
+ 7 more DRTs are in pipeline
+ DRTs are facing an uphill task with the number of cases
+ The amount involved is increasing at alarming rate in the value of burgeoning NPA.
The cases involving Rs. 7705.32 crore are still pending. In Mumbai DRTs out of the
total amount of Rs. 1677.60 crore involved only Rs. 397.43 crore was recovered.
+ There is a huge demand supply mismatch among the DRTs. The requirement is far
higher than the number of DRTs available. The number of settlement cases is high in
Mumbai and there is shortage of man power in Mumbai DRTs.
+ The RBI guidelines, which stipulates that apresiding officer in a DRT cannot settle
more than 800 cases in a year, constraints the operations of DRTs.
+ There is inadequacy of trained staff and their lack of exposure to the judicial system
acts as a hindrance.
+ There needs speeding up of recovery procedures.
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6) CIRCULATION OF INFORMATION ON DEFAULTERS
The RBI has put in place a system for periodical circulation of details of willful defaults of
borrowers of banks and financial institutions. This serves as a caution list while
considering requests for new or additional credit limits from defaulting borrowing units
and also from the directors /proprietors / partners of these entities. RBI also publishes a list
of borrowers (with outstanding aggregating Rs. 1 crore and above) against whom suits
have been filed by banks and FIs for recovery of their funds, as on 31st March every year.
It is our experience that these measures had not contributed to any perceptible recoveries
from the defaulting entities. However, they serve as negative basket of steps shutting off
fresh loans to these defaulters. I strongly believe that a real breakthrough can come only if
there is a change in the repayment psyche of the Indian borrowers.
7) RECOVERY ACTION AGAINST LARGE NPAS
After a review of tendency in regard to NPAs by the Hon'ble Finance Minister, RBI had
advised the public sector banks to examine all cases of willful default of Rs 1 crore and
above and file suits in such cases, and file criminal cases in regard to willful defaults.
Board of Directors are required to review NPA accounts of Rs.1 crore and above with
special reference to fixing of staff accountability.
On their part RBI and the Government are contemplating several supporting measures
including legal reforms, some of them I would like to highlight.
8) ASSET RECONSTRUCTION COMPANY:
An Asset Reconstruction Company with an authorised capital of Rs.2000 crore and initial
paid up capital Rs.1400 crore is to be set up as a trust for undertaking activities relating to
asset reconstruction. It would negotiate with banks and financial institutions for acquiring
distressed assets and develop markets for such assets.. Government of India proposes to go
in for legal reforms to facilitate the functioning of ARC mechanism.
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EVALUATION
+ The ARCs will assist in cleansing the Balance Sheet of the weaker as well as potential
weak banks.
+ It will also try to identify possible conceptual glitches and legal infirmities in the
arrangement.
+ It is to be noted that given the inadequacies of SICA, BIFR, DRTs foreclosures and
other recovery processes, an ARC may find it difficult to lead a viable existence.
Therefore, simultaneously it is required to make radical changes in bankruptcy and
recovery laws and procedures.
+ Under this scheme the banks liabilities will get transferred from one bank to another.
The total liability to the banking system would remain unchanged.
9) CREDIT INFORMATION BUREAU
Institutionalisation of information sharing arrangements through the newly formed Credit
Information Bureau of India Ltd. (CIBIL) is under way. RBI is considering the
recommendations of the S.R.Iyer Group (Chairman of CIBIL) to operationalise the
scheme of information dissemination on defaults to the financial system. The main
recommendations of the Group include dissemination of information relating to suit-filed
accounts regardless of the amount claimed in the suit or amount of credit granted by a
credit institution as also such irregular accounts where the borrower has given consent for
disclosure. This, I hope, would prevent those who take advantage of lack of system of
information sharing amongst lending institutions to borrow large amounts against same
assets and property, which had in no small measure contributed to the incremental NPAs
of banks.
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10) PROPOSED GUIDELINES ON WILLFUL DEFAULTS/DIVERSION
OF FUNDS
RBI is examining the recommendation of Kohli Group on willful defaulters. It is working
out a proper definition covering such classes of defaulters so that credit denials to this
group of borrowers can be made effective and criminal prosecution can be made
demonstrative against willful defaulters.
11) CORPORATE GOVERNANCE
A Consultative Group under the chairmanship of Dr. A.S.Ganguly was set up by the
Reserve Bank to review the supervisory role of Boards of banks and financial institutions
and to obtain feedback on the functioning of the Boards vis--vis compliance,
transparency, disclosures, audit committees etc. and make recommendations for making
the role of Board of Directors more effective with a view to minimizing risks and over-
exposure. The Group is finalizing its recommendations shortly and may come out with
guidelines for effective control and supervision by bank boards over credit management
and NPA prevention measures. The report of the group is now published and discussed in
another page.
12) SPECIAL MENTION ACCOUNTS - ADDITIONAL PRECAUTION
AT THE OPERATING LEVEL
In a recent circular, RBI has suggested to the banks to have a new asset category - `special
mention accounts' - for early identification of bad debts. This would be strictly for internal
monitoring. Loans and advances overdue for less than one quarter and two quarters would
come under this category. Data regarding such accounts will have to be submitted by
banks to RBI.
However, special mention assets would not require provisioning, as they are not classified
as NPAs. Nor are these proposed to be brought under regulatory oversight and prudential
79


reporting immediately. The step is mainly with a view to alerting management to the
prospects of such an account turning bad, and thus taking preventive action well in time.
An asset may be transferred to this category once the earliest signs of
sickness/irregularities are identified. This will help banks look at accounts with potential
problems in a focused manner right from the onset of the problem, so that monitoring and
remedial actions can be more effective. Once these accounts are categorised and reported
as such, proper top management attention would also be ensured.
Borrowers having genuine problems due to temporary mismatch in funds flow or sudden
requirements of additional funds may be entertained at the branch level, and for this
purpose a special limit to tide over such contingencies may be built into the sanction
process itself. This will prevent the need to route the additional funding request through
the controlling offices in deserving cases, and help avert many accounts slipping into NPA
category.
Introducing a `special mention' category as part of RBI's `Income Recognition and Asset
Classification norms' (IRAC norms) would be considered in due course.
13) ONE TIME SETTLEMENT POLICY (OTS) :
INTRODUCTION:
The Corporation has been providing financial assistance to small and medium scale units.
While sufficient precaution is being taken at the time of appraisal of projects,
disbursement of loans and follow-up, yet some projects fail to generate adequate resources
to repay dues and lead to defaults. Some of these units can be revived and rehabilitated
with need base relief and concessions by the Corporation. However, at times, units are not
in a position to revive due to, long term problems and structural deficiencies. It would be
appropriate for Corporation to find an exit route as early as possible. Compromise/ One
Time Settlement has been found to be an effective tool of recovery in such stressed cases.
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(1) O.T.S. POLICY- AN OVERVIEW
A comprehensive policy of One Time Settlement was approved by the Board of Directors
in March, 1999 and the same was implemented by Corporation with effect from 1st April,
1999 vide circular No.A-1 dated 31
st
March,1999, which contained detailed guidelines and
formats. The main purpose of the policy was to liquidate NPAs in time bound manner,
which had grown to Rs.597 Crores, and constituted 45.56% of the total loan outstanding of
Corporation. Subsequently, a need was felt to revise the policy based on the feed back
received from the field functionaries and in order to further accelerate the pace of
reduction in NPAs through compromise/ settlement. The policy did not have the
provisions for settlement especially in the cases where disbursement was made after 31st
March 1995. A revised OTS policy was considered and approved by the Board of
Directors in its meeting held on 15th September 2001. The duly approved OTS policy was
implemented by the Corporation vide Circular No.37/ 2001-02 dated 9th October, 2001.
(2) OBJECTIVE OF NEW OTS POLICY:
f The revised policy is designed to provide an effective frame work to tackle old and more
chronic cases of D-2 and Loss assets categories, which have been the growing cause of
concern for the Corporation.
f The total NPAs inD-1, D-2 and Loss assets categories are Rs.589.13 Crores, therefore, the
target of settling cases of Rs.150 Crores per year for next three years would be the main
objective of this OTS policy.
f The criteria/ basis of calculation of OTS amount in old and chronic cases of D-1, D-2
Assets categories have been revised to encourage the staff to settle more cases under OTS
than sale U/s 29 of the SFCs' Act.,. This will considerably reduce the fresh accretion of
loss assets, which have shown an increasing trend in last 2 years.
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f The revised policy will provide an effective tool to settle large number of cases under OTS
with special emphasis on settling cases which are in possession of the Corporation for
more than 5 years.
f The operational procedure have been streamlined to remove unnecessary hassles and
delays in settling cases. The policy provides more delegation of power to operating staff
and to bring transparency in decision making at all levels.

Is evaluating Indian Banks performance a rather straightforward issue? The answer is an
absolute No. The Banks performance can judge from the following parameters.
Behaviour of their stock prices.
NPAs.
C/D Ratios
ROIC
ROCE
P/E Ratio
ROE
Book Value
RONW.
These parameters can be applied after the bank has posted its financial performance & hence
are not preventive or proactive measures. As the traditional tools of NPA management have
not proved to be satisfactory on the parameters of credit monitoring, follow up procedures,
preventing an assets from becoming non performing as well as timely settlement & recovery
of non performing loans, an attempt is made to bring out some untraditional techniques as well
as to reengineer the existing practices and improving them so as to bring the performance of
Indian Banks in tune with the international practices.
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1) SLIPPAGE MANAGEMENT
A) Process of Slippage
Any performing assets does not turn into non-performing overnight. The Performing
Asset passes through a relatively lengthier period of 2 quarters, in some cases seven-
months, after becoming due but before slipping down to the dangerous red band of non
performing assets. During this journey, every asset is giving out certain signals for
warning the banker that something bad is about to happen.
B) Slippage signals.
Depending upon the type of credit facility and nature of business these distress signals
may look like:
C Non Payment of the very first installment in case of term loans.
C Non-submission of stock statements in time.
C Cheque drawn on the account are bouncing.
C Credits into the cash credit account are not sufficient to meet the debits in the account.
C The overdue bill is lying unpaid;
C Installments are irregular.
C Amount paid is not fully covering the principal and interest debited.
C No regular operations in the cash credit account.
C Bank has information that party is not doing the business;
C Post-sanction inspection report speaks of diversion and misutilization;
C There has been a natural calamity in the borrowers village.
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C) How to act on the Slippage Signals?
Once there signals start to come in, the banker is supposed to act immediately. There is no
point in waiting with the feeling that there are few more months for the 2 quarter cut-off
and things may turn all right before that, any symptom unattended would lead to major
complications. Steps taken at the initial stage itself would help to keep the accounts
performing and the costly slippage would never happen. The NPA reduction techniques
like replacement; nursing may be attempted while the accounts are still in the performing
basket by continuous monitoring of the individual assets. This type of constant &
continuous surveillance requires co-operation & attention from all concerned in a branch.
Any one-shot measure like recover camps can at best be of supplementary native and
may never be a permanent solution.
D) Journey from NPA to PA
While the journey, from the 6-month bottom but within the PA basket- to the top would be
easier it would certainly be costly, difficult and time consuming form of NPA to PA. This
uphill task usually is very difficult and such assets cannot be brought back to the PA
basket immediately; there needs to be an isolation period of one year after which only
the asset will become eligible for classification under PA category. During this critical
period it has to perform continuously. This is like a patient who has been admitted to the
intensive care unit (ICU) is not sent back home immediately after bringing him out of
ICU; he will be kept in the non- critical area for further observation, before his final
discharge. Hence, the action before Slippage assumes further significance in cases of
bringing back the NPA to PA.
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E) What if Slippage Management Fails?
Even after careful management of assets before Slippage, if some assets cross the band to
become NPA, then there is no other alternative except to arrange for fire-fighting. This
post-incidence measure, again, needs to be undertaken on war footing. It will not be
prudent to wait any further at this stage as any time lag is going to cost the bank very
dearly because some of these assets may become doubtful inviting a more provisioning.
2) INCREASED PROPORTION OF NON-FUND BASED BUSINESS
When deregulation is thinning the margins, it is necessary to go in for non-fund based
business, which will increase the non-interest income of the branch. Non-fund based
business involves no fund at all but a good service and a marketing strategy to capture the
customers is needed. It also helps the branch in promoting fund-based business. Non-fund
based business activities generally include following services.
- Safe custody of customers valuables
- Issuing letters of credit/guarantee
- Remittance of funds: Mail transfer
- Credit card related service
- Gift Cheque/ Travelers Cheque
- Locker service
There are other services also like underwriting, guarantee, merchant banking and other
agency services, etc. but for small branches and rural branches increase in volume of these
facilities can boost their profile. The problem is that the rural people are not aware of these
services but by creating awareness the branch can reap the benefit. At present the non-
interest income of the rural branches forms a very insignificant proportion of total income.
This can be increased with little efforts.
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3) TURNAROUND STRATEGIES FOR LOSS MAKING BRANCHES
This will need a well-designed profit plan. It must be ensured that each and every branch
of the bank is viable on its won and that is possible when each and every branch starts
evaluating each business transaction from profit angle.
(A) DEPOSITS
The main source of profit comes from remunerative deposits. The deposit portfolio
includes savings bank current and time deposits. The deposit mix decides the cost of
funds. It is found that in some of the branches the deposit growth is either stagnant or it
has a deposit of Rs. 50/60 lacs over a period of 5 to 6 years. To keep the cost of funds low,
the efforts should be to canvas low cost current and savings bank deposits. In rural
branches agriculture income is seasonal and most of the agriculture based customers keep
the money idle and spend only in specific exigencies. If this sector is approached just in
time then the savings bank deposits can be mobilized in large volumes. In this contest, one
home one account has been a successful strategy to woo the customer. What is more
important is the timing for deposit mobilization. But the best way to augment the deposits
is by improving customer service. A satisfied customer is the best ambassador of a branch.
The customer meets can be utilized to popularize the various deposits schemes so that
they could suggest suitable schemes to customers. In addition, special letters cab be sent to
customers on regular basis inviting their help to improve the business growth.
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(B) MANAGEMENT OF ADVANCES PORTFOLIO
Advances portfolio is another vital area for making the branch profitable. The branch has
to find out the industry-wise exposure to determine the extent of NPAs in different
category. This will help them in concentrating their efforts in the area s where the
percentage of NPAs is on the low side. Moreover, it is observed that the advances of Bank
are not picking up to the desired level. The branch should concentrate on retail lending i.e.
canvassing car loans, consumer durables and housing finance, etc. Earlier the banks were
giving small loans for middle/upper class people. Housing finance is one such area where
there is tremendous scope and the percentage of NPAs in this sector is negligible.
Moreover, the rate of interest is quite attractive which will increase the yields on advances
and hence would enhance the profitability. On the whole branch should analyses its credit
portfolio and gradually increase credit delivery to earn better profits. It is in the interest of
both and banks to stimulate credit delivery.
4) ABC ANALYSIS
The deposit mobilization and credit expansion takes place simultaneously. But at the same
time credit administration to keep NPAs under control has to be effective. ABC analysis of
the over dues by categorizing the overdue accounts should be done according to the
quantum of overdue whereby more attention can be paid on such chronic accounts.
Segregation of over dues where the quantum of expected recovery is high and the branch
is willing.
5) BANKS SHOULD ADOPT U.S. GAAP FOR NPAs
The RBI has permitted strong banks to adopt the U.S. GAAP mode of accounting to dial
with NPAs. The U.S. GAAP follows Discounted Cash flow approach towards valuation of
securities while Indian Banks follow Market Value approach in making valuation of
secured part of loans. Primary reasons for the differences between U.S. GAAP and Indian
method is in provisioning aspects for NPAs .RBI requires banks to determine and report
NPAs at book value net of all write-offs and provisions. Under U.S. GAAP norms, banks
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are require to determine NPAs based on the evaluation of the willingness and ability of the
borrower to repay and estimate the realizable part thereof, based on the underlying
collateral and /or the underlying cash flows of the borrower. In a move towards
internationally best accounting practices and to ensure greater transparency RBI has
adopted 90 days NPA norms. Therefore banks are suggested to make provisions for this
and chalk out an action plan for this.
6) CREDIT RISK MANAGEMENT
This is an approach to manage the credit portfolio and is a proactive approach to
requirement of lower CAR as risk weighted assets are reduced. This will reduce the need
recapitalization of Indian PSBs and pouring of doles of funds which would otherwise be
applied by the Govt. for developmental purpose.
NPAs are the legacy of the past and credit risk management is action in the present for the
future, it is concerned more with the quantity of the credit portfolio before default. It
involves
- Selection-Borrowers financial condition, profitability cash flows, industry,
collateral, etc.
- Limitation-It ensures that individual or group borrower concentrated is not very
large and the regulations or the banks themselves prescribe exposure limits.
- Diversification- It is related to limitation and is based on the age-old principle of
not putting all the eggs in one basket.
Following formula is evolved

EL = PD X LGDX EAD
EL = expected loss
PD = probability of default
LGD = loss given default
EAD = exposure at default
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Suppose there is a bank X which has only AAA obligators and a bank Y with BBB
obligators in its portfolio. The AAA obligator does not default within a year horizon, so the
PD=0 whereas the average PD for a bond issued by a BBB obligor is 0.25% for bank X, the
EL are zero for one year. For bank Y, assuming the loss given default to be 50% and the
EAD to be Rs. 100 crore, the EL would be 100 x 0.0025 x 0.5 = Rs. 125000. The level of
EL could vary from 0 to 250000 on an identical portfolio size depending on the quality of
obligators. Thus EL can be viewed as normal cost of doing business and it indicates the
average or mean loss on the credit portfolio.
MERITS:
- The above approach represents international best practices.
- It is a more disciplined way of analyzing credit risk.
- Helps in quantifying risk.
- It captures the risk of entire credit portfolio as contrasted with the Asset by asset or
standalone approach.
- It measures additional risk arising due to increased exposure to a borrower/s.
- This forces the bank to adopt internal ratings based approach to credit risk
8) CREDIT DERIVATIVES
A more risk sensitive standardized approach towards capital adequacy of Banks is credit
derivatives, credit derivatives allow the transfer of risk between the markets participate
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without the underlying transaction changing hands A credit derivative works much like an
insurance policy. If a bank thinks it its over exposed to a particular borrower or to a
particular industry it can transfer the credit risk by, purchasing a credit risk derivative. The
main credit derivatives products are swaps, options and forwards. In a credit default swap
one party (protection seller) receives a premium at pre-set intervals in consideration for
guaranteeing defaults in payments as envisaged in the credit contract.
A credit-spread option is and option on the spread between the yields earned on the assets.
The option provides a pay off whenever the spread exceeds some level (the strike
spread).A credit spread forward is obtained by combining a call option and a put option. It
is similar to a normal forward except that the underlying is the spread.
In addition to the above financial engineering is used to structure more complicated deals
on these basic building blocks. These allow the credit risk manager to achieve specific
return profiles and gain value by taking on unlikely risk scenarios.
EVALUATION
Merits-
It ensures safety and soundness of banks.
Banks can fort the first time earmark explicit capital to cover operational risk.
It is possible to unbundled the credit risk from loans, bonds and derivatives and sell
different form in market
Credit derivative instruments facilitate liquidity, transparency and price discovery of the
underlying assets
It can open up new business opportunities for the players like credit rating agencies and
insurance firms, provides new investments options for institutional investors like mutual
funds, investment banks/corporate (both as hedgers and speculators), optimize risk return
and capital allocation functions.
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Demerits-
Highly complex and sophisticated approach restricts its universal application in the
emerging and developing markets kike India where the banks continue to be the major
segment in financial intermediaries and would be facing considerable challenges in
adopting all the proposals.
Non availability of past default data.
Difficulties in measuring default probabilities and pricing the derivatives products.
Lack of liquid secondary market for audit derivatives.
Unresolved regulatory, netting and capital adequacy issues
REQUIREMENTS
- Easy availability of skilled personnel in both finance and information technology
sectors.
- Experiments with various credit risk modeling techniques for Indian banks.
- In a nutshell, it is difficult to conceive an integrated risk management framework
for Indian banks without derivative product to hedge against credit risk. The
introduction of credit derivatives could make hitherto dormant credit market liquid,
vibrant and broad based. Whether or not our banks are able to implement the
international norms within the prescribe timeframe (20040, its essential to know
the nature and magnitude of credit risks that Indian banks ate now exposed to and
the risk capital requirement thereof.
9) LEGAL RECOURSE:
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- Updating of certain statues: The legal framework within which banks have to operate
and particularly manage the recovery of their dues from the borrowers is far from
adequate. For understandable reasons many legal provisions have, infect a positive
bias favoring the debtor who has been seen as the weaker party and therefore in need
of protection. Unfortunately, these very well intentioned provisions cause an immense
load (and backlog of cases) on legal system, making lending a hazardous operation for
banks. These provisions need to be amended urgently and some new enactment is
called for in order to cater to the requirements of the changed and far more complex
current economic and business environment.
- Legalizations on bankruptcy or foreclosure: Legislation to empower banks to
realize the property charged without court intimation, as in case of State Financial
Institutions.
- Creditors right to change the management to companies in the event of
default/warring signals : Though this requires certain amendments to existing statues,
such a notification should be made to have a far-reaching impact on the health of the
industry, as it will enable re-orientation of the management towards the right
perspective for turning around the company.
- Opening more DRTs and DRATs
- Strengthening DRT set-up : Bench of presiding officers, more recovery officers with
adequate infrastructure.
- Mandatory honor of commitment by Government in respect of advances
guaranteed by them.
10) CIRCULATION AND PUBLISHING OF LIST OF DEFAULTERS:
Currently the RBI circulars among banks and financial institution the list of defaulters,
which is found useful in avoiding willful defaulters. The RBI has defined a willful
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defaulter for the first time. It has provided the broad parameters for identification of
willful defaulters whose list will be circulated among banks and financial institutions.
Auditors of companies have to report in their certificate about diversion of funds if any. In
addition, on Jan 30, 2001, credit information Bureau (CIB) was set up to provide critical
data required by any credit institution before arriving at credit decision. State Bank Of
India, HDFC, Dun and Bradstreet and Trans Union set up CIB jointly, It will collect
information from its members and make it available to any credit institution on demand.
CIB is yet to be operationalised. Its success depends upon cooperation extended by the
members in supplying the required information on timely basis.
Moreover it is also suggested that the banks should publish the list of defaulters in the
news paper or blacklist them and circulate the list to all other banks so that no other banks
would give any sort of advance to the blacklisted customer. Also this action will generate
prompt payment among the defaulters as the information is made public.

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=S Strength
=W Weakness
=O Opportunity
=T Threat
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fStrength
Years of Experience..Century
Experienced Employee
Large Network
Huge ATM Network
Government Support
Safety and Security of Money
Transparency in Charges
Large income from Loan interest
Less interest rate of loan with low charges
fWeakness
Lake of Young Employee
Rigid work culture
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Physical environment & Ambience
Excessive Documentation
Bureaucracy
Less knowledgeable employee
Less control on employee
Poor technology
Poor recovery system
fOpportunity
Constant fear in the minds of customers towards private bank.
Even expanding rural, urban & International Market.
Fraud and cheating with customer from private banking.
Dissatisfy from private banking.
So much hidden charges of private banks.
Nationalizes bank more reliable and trustworthy.
f Threats
Shifting customers preference towards private banks.
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Private bank providing more facilities at lower charges.
Quick Dynamic employees and greater technological product.
Young stare are attract towards private bank because of speedy and
upgrade technology.

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f Proper Co Ordination and Communication between Bank and Customer
f Time to time follow up to customer and their Guarantors
f Properly check all the documents
f Proper Valuation of their Assets
f Strict to recovery Steps
f When first installment will be due at that time Bank have to inform to
customer regarding his due installment
f Whole Terms and Condition explain to customer at the time of sanction the
loan
f Advance reminder for repayment to customer
f Give target to recover the debt amount.
f Provide Commission as a motivation to employee who put there effort for
reduce the NPAs.
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NPA Reduction Mantra
Banks :
Do not give money, lend it.
What matter is what for you finance and not what against?
Borrower accounts need real time monitoring, not post mortem.
An NPA account need out necessarily mean that the borrowing company is Unviable
or sick.
Try to identify and bridge viability gaps of industrial units.
Many sick units need nourishment in the form of fresh dose of loans to regain health.
One time Settlement with willful defaulters may be good mathematics but bad
Banking.
Always follow basic lending norms.
Put credit decisions on fast track.
RBI /Government:
Loans failures due to mollified credit decisions warrant fixation of
Accountability.adical legal reforms to expedite proceedings.
Say no loan waivers.
If a unit cant exist let it exits.
Facilitate mergers and acquisition involving sick units.
The banks also need to conduct a comprehensive review of their advances portfolio
and designate all branches which have more than 50 % of their total advances as NPAs
as exclusive recovery branches and freeze further lending until the NPAs are salvaged.
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FUTURE PLAN
INNOVATIONS & INITIATIVES:

Bank has successfully initiated various measures toward widening its SHG network. To list a few
examples:

A) Sensitisation of staff: Banks aim is to sensitise the entire staff from Manager to
Messenger working in rural and semi-urban branches towards the programme.
B) Special training programmes in SHGs are being conducted at 54 training centres of
the Bank in the country apart from State Bank Institute of Rural Development,
Hyderabad.
C) Close liaison with NGOs: Operating functionaries at branch level and region
level are in close contact with NGOs in their area to take the movement ahead. For
the purpose, regular meetings are arranged with the NGOs and their support is
solicited.
D) SHG cells: Special SHG cells have been opened at major branches.
E) Lending to NGOs / Federations of SHGs: Lending to credible NGOs/ Federations
of SHGs on selective basis for on lending to SHGs is being encouraged.
F) Sahayog Niwas: SBI has launched its Housing Loan product SAHAYOG NIWAS
meant for SHG members. Under the scheme formulated keeping the socio
economic conditions of villages insight, housing loans are given to the SHG
members without any mortgage of house / land. Response to this product is very
encouraging.
G) SBI Life- Shakti: SBI Life, our insurance subsidiary, is the first to introduce a life
insurance scheme, especially designed for SHG members. Special feature of the
scheme is that entire premium amount paid by the member is refunded after
maturity, i.e., 10 years.
H) Rural training institutes: To help the rural youth to stand on their feet, two
RUDSETI type training institutes have been established at Gulbarga and Gadag in
Karnataka State, to impart training in self employment to youth free of cost.
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I) SBI staff as SHPI: The main role of formation and nurturing of SHGs have been
played by NGOs who, apart from their fundamental role of social service, also aim
to make the poor economically self sufficient. But in SBI, our committed work
force is not lagging behind and a number of committed staff members have worked
hard to form and nurture SHGs on their own.
J) Appreciation by Government: A number of our branches / Circles have also received
commendation and appreciation from various State Governments for doing
excellent job in SHG-Bank Credit Linkage programme.
K) NABARD felicitated 15 SHGs at a function organized in New Delhi on 13
th
September
2005.The function was presided over by the Honble Union Finance Minister. Out
of total 15 SHGs felicitated, 4 were financed by our branches, one each from
Orissa, Jharkhand, Madhya Pradesh and Uttaranchal.
L) Samanwita: Bank has sponsored and financially supported NGO SAMANWITA in
collaboration with Government of Orissa for supplementing the process of socio
economic upliftment of the tribals and the downtrodden in the poorest and most
backward Kandhamal district of Orissa State where 52% of the population is that
of tribals. Core activities performed by Samanwita are empowerment of people
through promotion of SHGs, especially women SHGs and development of human
resources.
M)SHPI status: State Bank of India is the first Commercial Bank to which NABARD has
recently given SHPI status.
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FUTURE PLANS

SBI has set for itself an ambitious target of credit linking 1 million SHGs up to March 2008.

The Bank has started to leverage our vast SHG network for various services beyond credit
delivery.
FINANCIAL INCLUSION FUTURES PROSPECT
Scheme for Financial Inclusion by extension of banking services through Business
Facilitators/ Business Correspondents
Objective
1 To extend Micro Finance services for uplifting the poor.
1 To extend banking facilities in untapped / unbanked areas through the use of existing
branch network and new technology in combination with outsourcing.
2. Eligible entities
a) Business Facilitator Model:
1 NGOs
1 Farmers Clubs
1 Functional cooperatives
1 Community based organizations
1 I.T. enabled rural outlets of corporate entities
1 Well functioning Panchayats
1 Rural Multipurpose Kiosks / Village Knowledge Centers
1 Agri Clinics / Agri Business Centers
1 Krishi Vigyan Kendras
1 KVIC / KVIB units
1 Post Offices
1 Insurance agents
1 Social organizations
1 Any other entity, as may be specified by RBI from time to time.

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However, it would be desirable to identify such entities which have presence and activity
throughout the Circle/State.


b) Business Correspondent Model:

1 NGOs / MFIs set up under the Indian Societies / Trust Acts
1 Societies registered under Mutually Aided Cooperative Societies(MACS) Act or the
Cooperative Societies Acts of States
1 Section 25 companies
1 Post Offices

3. Scope of activities
a) Business Facilitator Model:
The scope of activities to be undertaken by the Business Facilitator will include:
1 Identification of potential customers and activities
1 Collection and preliminary processing of loan applications / account opening forms
including verification of primary information / data
1 Processing and submission of loan applications / account opening forms to the Bank
1 Cross-selling of our other financial products (Insurance, etc.)
1 Post-sanction monitoring and follow-up for recovery
1 Promoting and nurturing Self Help Groups (SHGs) / Joint Liability Groups (JLGs)
1 Creating awareness about savings and other products and education and advice on
managing money and debt counseling

b) Business Correspondent Model:

In addition to the activities listed under the Business Facilitators Model, the scope of activities to
be undertaken by the Business Correspondents will include:

1 Opening of deposit accounts.
1 Collection and payment of small value deposits and withdrawals (not exceeding
Rs.10,000/- in each case).
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1 Disbursal of small value loans (not exceeding Rs.10,000/-) and obtaining prescribed
documents.
1 Recovery of principal / collection of interest.
1 Furnishing of mini account statements and account information.
1 Selling insurance / mutual fund products / pension products / any other third party
product.
1 Receipt and delivery of small value remittances / other payment instruments (not
exceeding Rs.10,000/-).
1 Payment / Receipt in respect of e-governance activities
1 Railway ticketing and
1 Any other service on behalf of the Bank, duly authorized by the appropriate authority
FUTURE PLANS AND STRATEGIES :

1) New Businesses:

The Corporate strategy and New Business Group has been created to focus on emerging
opportunities. The Bank plans to enter into the areas of merchant acquisition, payment
solutions, Private Equity, Infrastructure Fund, Venture Capital, Pension Funds
Management, General Insurance and Financial Planning & Wealth Management.
2) Rural Business :

1 Plan to credit-link 2.63 lac SHGs thus surpassing our mission of credit- linking 1
million SHGs by March 2008.
1 Tie-up with around 20,000 internet kiosks during next 24 months.
1 Under Financial Inclusion initiatives, to cover 1 lac villages in 24 months.
1 We plan to issue 10 million SBI Tiny Cards by March 2009.
1 Developing alternate delivery channel through:
1 Business Facilitators
1 Business Correspondents

3) Corporate Accounts Group (CAG):

1 CAG will be focusing more on the fee-based income in future.
1 Institutional Accounts Group formed for focusing on Banks and Financial Institutions.
1 CAG to offer more technology-supported products to meet the market
expectations and offer total range of products and services to our corporate customers,
under one roof.

4) Treasury Group:
105



Bank in its pursuit to provide better returns to its customers and shareholders is in the process of
launching derivative embedded products to help customers utilise the new RBI dispensation to
manage their risks and earnings more effectively.

The need and demand for these products is expected to grow as more and more sectors become
exposed to the global economy. The Bank is in readiness to bring home to its customers the
benefit of the new products and opportunities.

Note: As required by RBI vide circular dated 20.4.2007, the Bank has deducted the Loss on
Revaluation of Investments from Other Income. This was earlier included in Provisions &
Contingencies. Accordingly, previous year figures have been regrouped wherever necessary.
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CONCLUSION
We are happy to getting opportunity to part of State Bank of India and also get
opportunity to tackle the NPAs Account.
During Our Summer Training we meet 150 clients of bank and get their opinion the their
problems. So, According to that duration we would like to conclude that, Account become
NPAs in many way sometimes, Sometimes technical problem, Some times personal
problem but these all problem will be solved by few precautions which earlier we
mentioned.
In any financial institution, NPAs are inevitable in the loan portfolio. But efforts should be
made to maintain a reasonable level of NPAs. Keeping in mind the RBI plan to introduce
the concept of One quarter for identification of NPAs by 2013, it is a high time to go in
for recovery drive on a war-footing. While doing so, prevention of NPAs should not be
107


forgotten. These are the major challenges before banks which have gone in for VRS. But
sincerity and hard work along with professional approach on the part of bank management
may help in the fulfillment of challenges. Towards this end, banks have to go long way.
If the nationalized commercial banks desire to stand in competition with the private sector
banks and the foreign banks, they should over a period of time, be in a position to bring
down NPAs to manageable proportion. Moreover, the government should take measures to
facilitate the efforts of the banks in the recovery of the loans which currently taken
inordinately long time. If willful defaulters to delay the repayment of the loan use the
BIFR proceedings the relevant legal provision should be appropriately amended. The fact
that the NPAs are gradually going down generates hope about the future of the banks,
though we should keep in mind another simple fact that in absolute amount, this has not
happened.

Web Sites:-
- www.sbi.co.in (Date-)
- www.rbi.org.in (Date - )
- www.google.com (Date - )
Books:-
- NGB Business bulletin (Date-)
- Indian Financial System (Date-)
108


Magazine & Journals :-
- The Financial Express (Date- )
(Indias Best Banks)
- Tata Mc Graw Hill (Date- )
(Accounting & Finance )


109


Questionnaire
General Information
1) Name of the Borrower:-____________________________________________________
2) Loan A/C No. :-____________________________________________________
3) Address :-____________________________________________________

____________________________________________________

____________________________________________________

Ph.No. (R)_____________________(O)______________________
4) Education : - Graduate
Under Graduate
Post Graduate
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Others
5) Occupation : - Business
Professional
Employee Govt / Non Govt.
Others
6) Guarantors Name & Add.:-
_____________________________________________________

_____________________________________________________

_____________________________________________________
7) Amount of Loan :-_____________________________________________________
8) Annual Income :-_____________________________________________________
9) Name of Salary Disbursing
Authority :-
______________________________________________________
10) Other Credit :-
______________________________________________________
11) Date of Loan :-
______________________________________________________
12) Purpose of Loan :-
______________________________________________________

Factors of becoming A/c NPA
(1) Borrowers Related Factors
13) Installment Amount
:-___________________________________________________
14) When Repayment Commence:-
Yes/No_____________________________________________
15) How many Installment :-__________________________________________________
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16) Due date of Installment
:-___________________________________________________
17) Reason for Due date of
Amount
:-___________________________________________________
18) Discuss when your First
Installment Default :-Yes / No.___________________________________________
Utilization of bank loan
19) Any Notice received for
Recovery :-___________________________________________________
20) Personal contribution :- Telephonic contact
Personal visit
Awareness of Implications of Non Payment of Installments
21) Do you Know the penal Interest will be
Charged for non-payment of installments on Due date :-
_______________________________________________________
22) Do you know that the bank can recover the loan by resorting to:
Banks right to enforce criminal proceedings. YES/NO
Do you know that bank can initiate recovery by sale of mortgaged
Property without filing a suit YES/NO
Attachment of salary: YES/NO
Publication of your name as defaulter: YES/NO
sharing of the information among other banks which will affect :
your credibility YES/NO
Plan of Action to Regularize the Loan
23) When Will you meet Asset verification official RASMECC
Week
Month
More then Month
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24) When will you Repay the due amount
Week
Month
More then Month
(2) Factors Related to Bank
25) Project cost :-
_______________________________________________________
26) Time taken in sanction
& Distribution of
Loan :-
______________________________________________________
27) Whether Asset
Created from bank
Loan : - Yes /No
28) Income generation
From the project :-
_______________________________________________________
29) Whether reminder Send by bank for the Non payment :- Yes/No, If yes then
,
Notice
Telephonic call
Personal visit
30) Whether guarantor is Inform about the Default :- Yes/no
(3) Other factors
31) Natural calamities :-___________________________________________
32) Govt. Policy :- __________________________________________
33) Personal Hazards :-_________________________________________ __
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