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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.
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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 Guide1) Mr.K.P.S.Arya
AGM, Of RASMECCC
State Bank Of India, Rajkot
2) Mr.M.D. Raval
Manager of RASMECCC,
State Bank of India, Rajkot.
Also my faculty member Mr. Abhay Raja guide and suggest 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.
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DECLARATION
I the undersigned Mr.Mayank S. Shah, a student of MBA (Finance) Semester-III,
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: 15 t h July,2008
Place: Rajkot
---------------------(Mayank S. Shah)
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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
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results we have achieved so far since 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 nonperforming 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.
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INDEX
Sr.
Particular
Page
No.
1.
Preface
Acknowledgment
Declaration
Executive Summery
Introduction
10
12
Type of Bank
Status wise bifurcation of Banks
2.
8-15
14
About SBI
Histor y
Awards & Recognition
Mission
Organization Str ucture
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3.
4.
5.
6.
7.
8.
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SWOT Analysis
FUTURE PLAN
CONCLUSION
BIBLIOGRAPHY
ANNEXURE
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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.
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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, telegraphic 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.
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10
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11
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 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.
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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
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13
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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.
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15
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 Liability over 100crores.
Satisfy the RBI guidelines related to CRR and SLR
As per the norms Priority Sector wise landing benefits of being a Scheduled cooperative are described below: RBI would provide Rediscounting facility at nominal rate
RBI gives remittance facility at par
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16
The demerits of becoming a scheduled co-operative bank is that the bank will not get 0.5% subsidy
from RBI
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.
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.
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17
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18
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.
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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.
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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.
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22
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.
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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 of large
modern manufacturing industries, the Bank of Madras went into the financing of small-scale
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24
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
banker's
bank
and
banker
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to
the
government.
25
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 confidence in its
depositors that no other bank in India could perhaps then equal. All these enabled the Imperial Bank
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26
to acquire a pre-eminent position in the Indian banking industry and also secure a vital place in the
country's economic life.
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.
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27
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:
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computerised.
This
ATM SERVICES:
strategy
has
contributed
to
improvement
in
customer
service.
There are 5290 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):
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.
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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
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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.
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31
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
7.
19(d)
8.
19(e)
9.
19(f)
ASSOCIATE BANKS
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32
State Bank of India has the following seven Associate Banks (ABs) with controlling interest
ranging from 75% to 100%.
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 31st march, 2008 the financial information of State bank of India is given as under
Financial Details
Capital
Borrowings
Deposits
Investments
Advances
Profit
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RS (in crore)
631.47
51,727.41
5,37,403.94
1,89,301.27
4,16,768.19
6,729.55
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Source : balance sheet and profit and loss accounts schedule of state bank of
India from annual reports of year ending 31st march, 2008
SHARE HOLDERS
PERCENTAGES
59.73 %
19.83 %
6.21 %
6.47 %
1.79 %
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34
Resident individuals
5.97 %
MISSION
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
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35
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.
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36
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.
Awards
2007
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in
August
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37
SBI
is
No
1
provider of AGRI
Finance and No.
1
in
Credit
Linking
of
Rs
9.35 lacs SHGS
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SBI
is
market
Leader in financing
SSIs with a market
share of 29%
MAYANK SHAH
Readers
digest
May 07 Golden
Award for being
among the two
most
trusted
banks in India
38
Up gradation of ratings
by citi group/ Morgan
Stanley Moodyss S&P
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39
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40
CHAIRMAN
DMD & CCO
DMD (IT)
CVO
MD & GE
(CB)
MD & GE
(NB)
DMD & GE
(TRESASURY
& MARKETS
DMD & GE
(ASSOCIATES
& SUBSIDIARIES
41
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.
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.
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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
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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.
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NAME
OF
BANK
30.32 %
3.01 %
3.05%
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3.45 %
4.23 %
5.10 %
5.28 %
6.45 %
6.51 %
10.33 %
22.27 %
TOTAL
100%
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HOUSING LOAN:
Home is where the heart is! At SBI, we understand this better than most the toil and sweat that goes into
building/ buying a house and the subsequent pride and joy of owning one. This is why our Housing loan
schemes are designed to make it simple for you to make a choice at least as far as financing goes!
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%
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Upto 5 years
Tenure
Rate of Interest (p.a.)*
Upto 5 years
11.50%
11.75%
CAR LOAN
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Move ahead in life with SBI Car Loans! If you have been putting off purchasing that car, we invite you to
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
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
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also be considered provided the spouse guarantees the loan The loan amount includes finance for one-time road
tax, registration and insurance!
Margin
New/used vehicles
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.
12.25% p.a.
12.75% p.a.
12.50% p.a.
13.00% p.a.
Rate
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.
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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.
Amount of Loan
Interest Rate
For loans upto Rs. 4 lakh 10.50% p.a.
For loans above Rs. 4 lakh 11.50% p.a.
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Repayment Tenure
Repayment will commence one year after completion of course or 6 months after securing a job, whichever is earlier.
Place of Study
Repayment
in Years
5-7
5-10
5-7
5-10
Loan Amount
Up to Rs. 7.5 lacs
Above Rs. 7.5 lacs
Up to Rs. 15 lacs
Above Rs. 15 lacs
In India
Abroad
Period
Security
Amount
Upto Rs. 4 lacs
Studies In India
No Security
Third
Party
Above Rs. 4 lacs to Rs. 7.50 lacs
Guarantee
Tangible Collateral
Above Rs. 7.50 lacs to Rs. 10 lacs(India)/
security for full
Rs. 15 lacs(Abroad)
value of loan
Rs 15 lacs to Rs. 20 lacs
___
Studies Abroad
No Security
Third Party Guarantee
Tangible Collateral security of suitable
value of loan or third party guarantee
Tangible Collateral security for full
value of loan
Margin
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Studies in India: 5%
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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
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
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.
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.
The process of consultation and discussion with both the staff and officers federations
continued during the year.
The industrial relations climate of the Bank remained cordial during the year.
(6) Staff Strength
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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.
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Research Plan
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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 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
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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.
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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 sample size comprise of Twenty one Executives of State bank of India of
Rajkot.
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Introduction
The crucial factor that decides the performance of banks nowadays is the spotting of nonperforming 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.
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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.
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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.
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(5)
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.
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(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)
(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
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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,
(CLB) for Redressed, which, not to mention, consumes very much time.
credit
appraisal
system.
Lack
of
vision/fore
slightness
while
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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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65
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.
Detail of Borrower
Commitment of Borrowers
Utilisation of Fund
Awareness of Loan
Detail of Loan
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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.
Data collect and bifurcate in different category as per their loan, which I mentioned earlier, Home
loan, Personal Loan, Education Loan, Vehicle Loan and SBF.
For our Summer Project we got permission in RASMECCC Department of State Bank of India,
Rajkot. Our department is a Process department. But our main work is to Survey and Recovery the
NPAs.
This is a Head Office and they provide us Data of NPAs account. State Bank of India have a 6
Branch in Rajkot. We got a Combine data of whole branch
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Six Branch
Jagnath Plot.
Bhaktinagar.
Marketing Yard
Commercial Branch
Main Branch
Lakhaji Raj
Education Loan
Personal Loan
Home Loan
Vehicle Loan
SBF
I have provided near about 250 Account but only 150 NPAs account person can cover and their list are under.
No.Of
Borrowers
151
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Edu.Loan
Home Loan
29
48
Personal
Loan
44
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Vehicle Loan
SBF
17
13
68
LOAN PROFILES
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 %.
Amount of Loan
No.Of Borrowers
Total Amount Of
Loan
Recovery
151
6,07,89,228
1,17,96,076
30,88,732
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6000000
4000000
2000000
0
Total O/S
Recovery
During my Summer Project I recovered Rs.30,88,732 and its a 26 % of the total Debt.
Regular
151
63
42%
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Edu.Loan
Per.Loan
Home Loan
Vehicle
Loan
SBF
Total
13,80,900
113.800
7,72,550
3,90,512
4,30,970
30,88,732
Here, as per above chart more amount in Education loan amount is Rs.13,80,900 and
percentage is 44%.
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EDUCATION LOAN
No. of
Borrowers
29
Loan Amt.
O/s Amt.
Recover Amt.
2,67,41,533
27,69,046
13,80,900
49.86
%
HOME LOAN
No. of
Borrowers
48
Loan Amt.
O/S Amt.
Recover Amt.
1,94,43,624
65,63,936
7,72,550
11.76%
PERSONAL LOAN
No. of
Borrowers
44
Loan Amt.
O/S Amt.
Recover Amt.
31,96,000
11,28,844
113,800
10.08
%
SBF
No. of
Borrowers
13
Loan Amt.
O/s Amt.
Recover Amt.
69,37,250
11,03,276
4,30,970
39.06
%
VEHICLE LOAN
No. of
Borrowers
17
Loan Amt.
O/S Amt.
Recover Amt.
35,69,821
7,63,758
3,90,512
51.11%
As per above show that more amount is recovery from Education Loan Rs.13,80,900 but if
we see the recover by more share from vehicles loan that 51.11 %.
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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.
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.
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This day should be utilized fully for field visits and contact with the borrowers
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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)
EVALUATION OF HCS
Though the HCS provide for classification of assets it does not provide what action to take
regarding the improvement of quality of such assets.
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.
Internals factors [No.4 above] of business failure, inefficient management etc., are next
important in the creation of NPA.
External factors [No.3 above] are the next in importance,
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Time/cost overrun during the project implementation stage leading to liquidity strain.
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.
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.
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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.
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 90180 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.
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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
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
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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
In view of this unique advantage the government is thinking of strengthening them and
raising the monetary limit set for referred cases
Demerits
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.
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Most Lokadalats should be set up in different parts of country to set up the recovery
procedures.
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
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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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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.
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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.
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10)
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.
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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.
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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:
Non Payment of the very first installment in case of term loans.
Non-submission of stock statements in time.
Cheque drawn on the account are bouncing.
Credits into the cash credit account are not sufficient to meet the debits in the account.
The overdue bill is lying unpaid;
Installments are irregular.
Amount paid is not fully covering the principal and interest debited.
No regular operations in the cash credit account.
Bank has information that party is not doing the business;
Post-sanction inspection report speaks of diversion and misutilization;
There has been a natural calamity in the borrowers village.
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2)
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customers. In addition, special letters cab be sent to customers on regular basis inviting their
help to improve the business growth.
(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.
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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 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.
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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
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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
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
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
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funds, investment banks/corporate (both as hedgers and speculators), optimize risk return and
capital allocation functions.
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.
REQUIREMENTS
Easy availability of skilled personnel in both finance and information
sectors.
technology
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.
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9) LEGAL RECOURSE:
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.
the property charged without court intimation, as in case of State Financial Institutions.
Creditors
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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 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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Strength
Weakness
Opportunity
Threat
Strength
Years of Experience..Century
Experienced Employee
Large Network
Government Support
Transparency in Charges
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Weakness
Excessive Documentation
Bureaucracy
Poor technology
Opportunity
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.
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Threats
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Banks :
What matter is what for you finance and not what against?
An NPA account need out necessarily mean that the borrowing company is Unviable or
sick.
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.
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FUTURE PLAN
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.
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.
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.
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Plan to credit-link 2.63 lac SHGs thus surpassing our mission of credit- linking 1 million
SHGs by March 2008.
Tie-up with around 20,000 internet kiosks during next 24 months.
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Business Correspondents
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.
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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 2004, it is a high time to go in for
recovery drive on a war-footing. While doing so, prevention of NPAs should not be
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:TNRCMS
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www.sbi.co.in
(Date-30/6/08)
www.rbi.org.in
(Date - 1/7/08)
www.google.com
(Date - 1/7/08)
(Date-10/7/08)
(Date- 5/7/08)
(Date- 6/7/08)
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Questionnaire
General Information
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1)
2)
:-____________________________________________________
3)
Address
:-____________________________________________________
____________________________________________________
____________________________________________________
Ph.No. (R)_____________________(O)______________________
4)
Education
: - Graduate
Under Graduate
Post Graduate
Others
5)
Occupation
:-
Business
Professional
Employee Govt / Non Govt.
Others
:-_____________________________________________________
8) Annual Income
:-_____________________________________________________
:-______________________________________________________
:-______________________________________________________
:-______________________________________________________
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:-___________________________________________________
:-__________________________________________________
:-___________________________________________________
:-___________________________________________________
:-Yes / No.___________________________________________
:-___________________________________________________
:-
Telephonic contact
Personal visit
22)
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23)
24)
Project cost
26)
27)
Whether Asset
Created from bank
Loan
: - Yes /No
Income generation
From the project
:-_______________________________________________________
28)
29)
30)
:-_______________________________________________________
:-
:-
Yes/No,
If yes then ,
Yes/no
32)
Govt. Policy
:- __________________________________________
33)
Personal Hazards
:-_________________________________________ __
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