Description
NPA analysis is a good managemet project
The Akola Urban C0-op. Bank Ltd
A PROJECT REPORT ON “NPA ANALYSIS” AT
THE AKOLA URBAN CO. OP. BANK Ltd. AKOLA MAIN BRANCH
-: Submitted By:NISHANT RAMRAO DHOOD MMS-II (Finance)
-: Submitted To
rof. GAURAV PANDER
SARASWATI EDUCATION SOCIETY?S YADAVRAO TASGAONKAR SCHOOL OF BUSINESS MANAGEMENT IN PARTIAL FULFILLMENT FOR THE COURSE OF MASTER OF MANAGEMENT STUDIES (MMS) MUMBAI UNIVERSITY Year 2011-2012
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The Akola Urban C0-op. Bank Ltd Declaration
I Mr.Nishant R.Dhood the student of SES?S Yadavrao Tasgaonkar School of Business Management,Chandhai Campus, Bhivpuri Road (E) Dist. Raigarh . The Course of MMS of Mumbai University consists of four Semesters. Every student has to undergo a project during his Third semester and the project report is a part of academic curriculum of university. The project is of 100 marks and is compulsory for every student. I have declared that the project is an independent analysis work carried out by me under Prof.Gaurav Pander. This report has not been previously submitted for an award of any degree of this of any other university.
Place: DHOOD NISHANT RAMRAO Date:
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The Akola Urban C0-op. Bank Ltd Acknowledgement
This project report is based on my two months training period with The Akola Urban CoOperative Bank. In completing this project many person helped me by giving their cooperation, valuable suggestion and time, therefore I would like to express my gratitude from the core of my heart to those of people. At first I am highly obliged to the staff of The Akola Urban Co-Operative bank (Akola branch) that provided me the opportunity to undertake the summer Internship under their guidance. In this respect I would like to thank Mr. R. B. Phakare & Dr. Avinash Abhyankar Board Secretary for their guidance and giving me his valuable time, support, suggestion & the opportunity to excel and work in the field of finance which motivated me to complete my training successfully. While developing the ideas we have learnt many things which will undoubtedly help us in the future. I express my sincere thanks to Prof.Gaurav Pander (Faculty, Internal Guidance) SES?S, YTSBM, chandhai campus, Bhivpuri Road (E) Dist. Raigarh. For technical guidance, suggestions on various chapters and help rendered at the appropriate time. Last but not least I am also grateful to all those people who directly or indirectly helped us in accomplishing this project.
Thank you, NISHANT DHOOD
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INDEX
1 Introduction 7
2
Scope & objective
20
3
Research Methodology 3.1 Need of the Project 3.2 Selection of the Topic 3.3 Description of research Design & Procedures Used 3.4 Sources of Data
22
4
Limitation of the Study
28
5
Company profile & Industry profile
29
6
Data analysis & Interpretation
37
7
Recommendation & suggestions
69
8
Conclusion
70
9
Reference & Bibliography
71
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Abbreviation
AFS ALCO ALM CGS CRAR CRR GOI IBL IDBI IPO NABARD NAV NBFC NII NIM NSE PSU RBI RRB RRR SEBI SGB SGS SLR NPA MPBF
Available for Sale Asset Liability Management Committee Asset Liability Management Central Government Securities Capital Risk Asset Ratio Cash Reserve Ratio Government of India Inter Bank Liabilities Industrial Development Bank Of India Initial Public Offer National Bank for Agriculture and Rural Development Net Asset Value Non Banking Financial Companies Net Interest Income Net Interest Margin National Stock Exchange Public Sector Unit Reserve Bank of India Regional Rural Banks Required Reserve Ratio Securities And Exchange Board of India State Government Bond State Government Securities Statutory Liquidity Ratio Non Performing Assets Maximum Permissible Banking Finance
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Executive Summary
The cooperative bank is an important constituent of the Indian financial system, judging by the role assigned to co-operative, the expectations the cooperative is supposed to fulfill, their number and the number of offices the cooperative bank operate. Though the cooperative movement originated in t he west, but the importance of such banks have assumed in India is rarely paralleled anywhere else in t he world. The cooperative banks in India play an important role even today in rural financing. The businesses of the cooperative bank in the urban areas also have increased phenomenally in recent years due to the sharp increase in the number of primary cooperative banks. As we know about the cooperative bank, is play important role. So, this is very important to know about the Non Performing Assets of cooperative bank with special reference to The Akola Urban Cooperative Bank Ltd. In this project I had done analytical delivering the proper service to the stake holders is very important. The analysis is based on the extract of 2009 to 2010?s financial statements, which helped to study NPA analysis.
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1. Introduction
INTRODUCTION OF BANKING MEANING AND DEFINITION:
Bank is an institution that deals in money and its substitutes and provides crucial financial services. The principal type of baking in the modern industrial world is commercial banking & central banking.
Banking Means "Accepting Deposits for the purpose of lending or Investment of deposits of money from the public, repayable on demand or otherwise and withdraw by cheque, draft or otherwise." -Banking Companies (Regulation) Act, 1949
The concise oxford dictionary has defined a bank as "Establishment for custody of money which it pays out on customers order." In fact this is the function which the bank performed when banking originated.
"Banking in the most general sense, is meant the business of receiving, conserving & utilizing the funds of community or of any special section of it."
-By H.Wills & J. Bogan
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1.1 Loans and Advances
Loan and advances is a major service provided by the banks. The major portion of the bank deposits is employed by the way of loans and advances, which is the most profitable employment of its funds. Loans may be provided for a short-term, long-term and medium term. The loans may be provided against some security, guarantee etc. the borrower may use these funds for starting a new venture, housing purpose, for expansion for personal purpose. Normally these loans are paid in installments. Therefore the loan can be classified as – 1. personal loans 2. Housing loans 3. Term loans a. Short term b. Medium term c. Long term 4. Loan against hypothecation 5. Loan against FDR etc. Before granting a loan to any borrower bank has to scrutinize the project or the various documents. If this is not taken due care of the asset may turn into a bad debts thus resulting into losses for the bank i.e. a default.
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Documents Required for Loan
Various document required to be submitted to the bank while submitting a loan application as per the size and type of the borrower.
1. Passport size photograph 2. Residence address proof / election card / ration card / electricity bill. 3. Salary slips of last 3 months. 4. Balance sheet and profit & loss a/c for last 3 years duly certified by a C.A. 5. Last 3 years income tax returns with computation of income tax and its challans. 6. Degree certificate of professionals. 7. Shop act license. 8. BSF, CST registration. 9. Stock list. 10. List of debtors and creditors. 11. Income certificates. 12. 10 cheques. 13. Registered Government Contracted letter. 14. SSI registration. 15. Lasted 7/12 extract.
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16. Undertaking from the employer for deductions of loans, installment from salary of borrowers. 17. Undertaking of the company of the Government Institutions for payment in favors of Akola Urban Co-op Bank Ltd.……………. 18. Agreement with company / appointment letter for distributors, stockiest etc. 19. Purchase order / sales order. 20. Quotation for machinery / vehicle. 21. Development agreement / GPA. 22. Project report. 23. Valuation report. 24. Concern letter. ? ? For partnership firm – Registered partnership deeds. For Pvt Ltd. And public Ltd – Memorandum of association, Article of association, resolution. ? ? For trust – trust deed resolutions, permission from charity commissioner. For co-operative societies – registration certificate resolution permission from DDR office.
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Procedure for Granting Loan
In loan account the entire amount sanctioned is debited to the borrower?s account Interest is also debited to the a/c. It is the credit repayment made on installment basis. Following procedure is adopted for sanctioning of loans.
1. pre sanction survey and inspectionLoan facility is available on the basis of security offered or on the basis of period of which it is required. Security offered by the customers may be fixed asset, plant and machinery, equipment, house etc. Depending upon the purpose of loan, the banker conducts a pre-sanction survey and inspection. During this survey bankers inspect the security offered by seeing the location of factory, business premises, inspect documents and letter of goods etc. such survey helps the bank to know about the customers. 2. Preparation of loan application – The loan application has to be prepared and handed over to the banker by the borrower. In a loan application the following details are to be furnished 1. Name of the borrower 2. Occupation 3. Purpose of loan 4. Period of loan 5. How borrower proposes to repay the loan 6. Projection of cash generations over the loan period 7. P&L A/c, B/S, for the period of loan in the form of projection 8. Details of security offered.
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The Akola Urban C0-op. Bank Ltd 3. Appraisal – Loan applications have to evaluated and appraised to decide whether they can be sanctioned of rejected. The loan department in the bank does this work. During appraisal the loan department concerned applies various methods of scrutiny to find out the details given in the application are true and the projections hold good. Thus market information, sales forecast, etc. would be independently assessed
4. Sanctioning –
The loan department scrutinizes the loan application and decides whether the loan is to be sanctioned or not. Norms for sanctioning the proposal are indicated by RBI
5. Preparation of sanction letterSanction letter contains the following points1. Name of the borrower 2. Limits sanctioned 3. Period of loan 4. Security offered by the borrower 5. Terms of repayment 6. Margin to be maintained 7. Rate of interest 8. Stock statements to be submitted at periodical intervals
The borrower is informed about these aspects and a copy of the letter is sent to be borrower.
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The Akola Urban C0-op. Bank Ltd 6. Acceptance of terms and conditions by the borrower Normally the borrower is in continuous touch with the bank though be has banded over the proposal to the bank. They accept terms lay down by the bank. They are not requested to inform the bank in writing of having accepted the terms.
7. Preparation of loan documents -
a. Demand promissory note – It is an important document and a common document for the bank. The borrower accepts his liability regarding the funds lend by the banker through this document. It contains data of execution, place of execution, name of the payee, the loan amount, rate of interest, address of the borrower etc. b. Loan agreement – These are standard printed documents running into a No. of pages. They contain all legal aspects regarding the rights of both the parties and liabilities of the borrower.
8. Disbursement of loan – When the loan is sanctioned at the time of disbursement of loan of loan a/c is opened in the name of the borrower. The loan a/c opened is debited and savings a/c is credited for equivalent sum.
9. Periodical inspection and supervision – After the loan is disbursed borrower utilizes the loan amount to generate the funds and profits so that he can repay the loan. Therefore bank inspects the keep supervision whether the loan amount is been utilized in a productive way or not.
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1.2 Non Performing Assets
1.2. A Concept of NPA –
The concept of non-performing assets refers to which ceases to generate income. In case of banks, all loans and advances are its assets, which can be classified into performing and nonperforming assets. RBI has advised the banks not to charge interest on those loans and advances classified as non-performing asset.
Definition“A non-performing asset has been defined to be a credit facility in respect of which the interest and/or installment of principle has remained overdue for a specified period of time.”
1.2. B what is NPA?
With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the '90 days overdue' norm for identification of NPAs, form the year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a nonperforming asset (NPA) shell be a loan or an advance where; 1. Interest and /or installment of principal remain overdue for a period of more than 90 days in respect of a Term Loan, 2. The account remains 'out of order' for a period of more than 90 days, in respect of an overdraft/ cash Credit(OD/CC).
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3. The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, 4. Interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose, and 5. Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.
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Non Performing Assets
1.2. C Introduction of NPA
Over a long period of time the performance of urban co-operative banks (UCBs) has been deteriorating due to non – recovery of interest and installment on loan portfolio. After the deregulation of Indian economy the government has announced a number of reform measures on the basis of recommendations of Narsimham committee to make banking sector economically viable and competitively strong. The RBI introduced the concept of NPA and certain norms with effect from 1st April 1992. These norms were introduced not only to know the true financial picture in the financial statements but also to take corrective action for improving the performance in the recent years. Mounting NPAs are adversely affecting the profitability, liquidity and solvency position of banking sector. Hence in the context of global competition it is a paramount task for the banks to manage their NPAs more efficiently so that they can change their character from non performing assets to performing assets.
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1.2. D Classification of Assets
Assets can be classified as – 1. Standard Assets –
A standard asset is an asset, which is not a non-performing asset. A standard asset is one, which does not carry more than normal risk attached to the business. Such an asset is not a nonperforming asset and is performing advance or a standard asset.
2. Sub Standard Asset – A sub standard asset is one which has remained a NPA for a period less than or equal to 18 months.
3. Doubtful assets – An asset is classified as doubtful asset if it has remained an NPA for a period exceeding 18 months.
4. Loss AssetsA loss asset is one where loss has been identified by the bank or the internal or the external auditors or the RBI inspectors but the amount has not been written off wholly.
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1.2. E Effects of NPA?s The NPA problem is on of the foremost formidable problems that have shaken the entire Banking Industry. “ The high level of NPA?s in banks and financial institutions has been a matter of grave concern to the public as bank credit is the catalyst to the economic growth of the country and any bottleneck in the smooth flow of credit, one cause for which is the mounting NPA?s is bound to create adverse repercussions in the economy. “The efficiency of a bank is not always reflected only by the size of its balance sheet but by the level of return on its assets. NPAs do not generate interest provisions for such NPAs from their current profits 1. Effect on Profitability: a) They erode current profits through provisioning requirements. b). They result in reduced interest income. c) They require higher provisioning requirements affecting profits and capacity to increase good quality risk assets in future. d) They limit recycling of funds. e) Bank has to spend for making efforts for recovery such as expenses on notice; follow-up and filing of civil suit & because of this expenses profit get reduced. f) This decline in profit has a bearings on variables like the capital to risk-weighted asset ratio (CRAR) with the dip in profit it becomes difficult for the Bank to raise Tier – I capital This is because Tier – I capital consist of statutory and capital reserve that are essentially built from profit. g) In the face of declining profit, in order to maintain the stipulated CRAR, the bank may have to raise Tier – 2 capitals through bond issue the interest cost then will be higher.
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2. Narrow banking:
a) Narrow banking means only operation with the existing assets base & not expanding the business. If NPAs are high RBI may ask a bank to do only narrow banking. b) RBI may impose adverse restrictions on business of bank if NPA percentage is very high. For Example – Restriction on opening new branches, Expansion of international operations may be curtain. 3. Effects on Efficiency:
a) When NPAs are very high all productivity ration of the bank such as ROI (Return on Investment.) Productivity per employee and profitability ratios are adversely affected. b) The most important business implication of the NPAs is that it leads to the credit risk management assuming priority over other aspects of bank?s functioning. The bank?s whole machinery would thus be pre-occupied with recovery procedures rather that concentrating on expanding business. c) Implications can be psychological like „play safe? attitude and risk aversion, lower moral and disinclination to take decisions at all levels of staff in the bank. 6. Effect on reputation of the bank:
The lesser appreciated implications are reputation risks arising out of grater disclosures on quantum and movement of NPAs, provisions etc. High NPA diversely affected the image of bank and bank?s capacity to generate further business is reduced.
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2. Scope of the study
The Scope of the project includes:1) Study of financial records in the Head Office of the Bank. 2) Analyze is base on the extract from 2009-2010. 3) The project is in terms of RBI Circular following additional disclosures are made of the Bank. 4) The Bank will also be benefited from this project as it I will make their Non Performing Assets analysis system more effective.
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2.1 Objectives of the study
Every bank faces a cutthroat and for its survival in the market, has to satisfy its customers by providing them quality services. But this involves a major risk. The main objectives of the study are: 1. To study the organizational structure of The Akola Urban Co. Op. Bank Ltd., Akola 2. To study the various kind of loans granted by The Akola Urban Co. Op. Bank Ltd., Akola 3. To study the various documents required for a NPA. 4. To study the concept default and various reasons for default. 5. To study the concept NPA and its effects. 6. To study the strategies to reduce the NPA.
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3 Research Methodologies
Definition:By Random Howl?s “Research is a systematic and diligent examination or scientific investigation into subject in order to discover or revise the facts, theories and application”. The word research is composed of two syllables, re and search. reis a prefix
meaning again, anew or over again search is a verb meaning to examine closely and carefully, to test and try, or to probe. Together they form a noun describing a careful, systematic, patient study and investigation in some field of knowledge, undertaken to establish facts or principles. Research is a structured enquiry that utilizes acceptable scientific methodology to solve problems and create new knowledge that is generally applicable Scientific methods consist of systematic observation, classification and interpretation of data.
Although we engage in such process in our daily life, the difference between our casual day- to-day generalization and the conclusions usually recognized as scientific Method lies in the degree of formality, rigorousness, verifiability and general validity of latter.
Steps in Research Process: 1. Formulating the Research Problem 2. Extensive Literature Review 3. Developing the objectives 4. Preparing the Research Design including Sample Design 5. Collecting the Data 6. Analysis of Data 7. Generalization and Interpretation 8. Preparation of the Report or Presentation of Results-Formal write ups of
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The Akola Urban C0-op. Bank Ltd 3.1 Need of the Project
The project forms a very vital aspect during the curriculum of MMS. At the end of the first year students are required to undergo a summer training program of 45 to 60 days. This training is an integral part of MMS course and its importance lies in the fact that it gives the students their first exposure to an organization. The training undertaken in The Akola Urban Co. Op. Bank Ltd., Akola is with a few objectives They are 1. to get the opportunity or real life business experience 2. To be able to apply theoretical knowledge obtained at the institute practically in actual business environment 3. To have a comprehensive understanding of the company 4. To get acquainted with real organizational problems, perceptions and challenges. To get an opportunity to interact with dynamic managers and all other dyamic levels of the organization and again knowledge through their real life experiences
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The Akola Urban C0-op. Bank Ltd 3.2 Selection of the Topic
The topic selected for the project is “NPA analysis” Why? Any bank whether co-operative or national in order to earn profits. Grant loans and advances with a risk of having them defaulted. Default means customers incapability for nonpayment of loan or any installment. For the bank it also proves to be a NPA. Thus, I thought the default analysis is a very essential point of banking sector and that had to be studied. So, I selected this crucial topic. The Akola Urban Co-op. Bank Ltd. Akola provided to me the opportunity to undertake the study
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Description of Research Design and Procedures Used
Quantitative Data Analysis: This method is most suitable for large well designed and well administered surveys using properly constructed and worded questionnaire. Data can be analyzed either manually or with the help of a computer.
Manual Data Analysis: This can be done if the number of respondents is reasonably small, and there are not many variables to analyze. However, this is useful only for calculating frequencies and for simple cross tabulations. Manual data analysis is extremely time consuming. The easiest way to do this is to code it directly onto large graph paper in columns. Detailed headings can be used or question numbers can be written on each column to code information about the question. To manually analyze data (frequency distribution), count various codes in a column and then decode them. In addition, if you want to carry out statistical tests, they have to be calculated manually. However, the use of statistics depends on your expertise and the desire/need to communicate the findings in a certain way.
Data Analysis Using a Computer: If you want to analyze data using computer, you should be familiar with the appropriate program. In this area, knowledge of computer and statistics plays an important role. The most common software is SPSS for windows. However, data input can be long and laborious process, and if data is entered incorrectly, it will influence the final results.
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The Akola Urban C0-op. Bank Ltd 3.4 Sources of Data
Source of data collection:Banking fund information requires two kinds of data, i.e. primary data and secondary data. Data plays vital role in the subject matter of analysis, In every field without data we can?t came across any conclusion. The objectives of the present study were accomplished by conducting systematic co-operative banks fund information. Bank fund information is the systematic, collection, analysis and reporting of data and findings that are relevant to different financial situations facing by the bank. Consisted of the following stages. ? Primary Data:There were personal interviews from bank officers. They have provided all necessary Information related to project. a. Observation Method:To observe means seeing and listening people in a particular environment. Since the main Objective of report is to assess the entire fund process, thus fresh and potential data was required to fulfill the purpose so primary data is used. b. Interview Method:Interview means meeting for discussion between researcher and guider. In this method, the interviewers ask specific questions pertaining to research objectives and the responded to answer for specific questions by guider. c. Questionnaire Method:I have taken Primary data through questionnaire method. It consist of set of questions Which are administrated to responder to collect data on specific topic, it is popular research instrument. Questionnaire is prepared in two methods:-
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The Akola Urban C0-op. Bank Ltd 1. Open ended 2. Close ended = = Subjective Objective
? Secondary Data:Secondary data is collected from bank statements, various books and web sites. Secondary Data means data that is already available in various reports, diaries, letters, books, periodicals etc. Secondary data is that, which has been used previously for any research and is now in use for second time. In short the data presented in Research reports when again for further research is called “Secondary Data” There are a number of sources which can be used for secondary data collections some of these sources are as follows. 1. Private Documents (Life history, Diaries, Letters, etc.) 2. Reports published by various Research Organizations Year Books, Multi State publishers etc. 3. Books, Magazines, journals, Newspapers, Booklets, Prospectus, Annual Reports etc.
Analyze the collected information: This involves converting raw data into useful information. It involves tabulation of data, using statistical measures on them for developing frequency distribution and calculating the averages and dispersions.
Report Research Findings: This phase will mark the culmination of the research effort. The report with the research findings is a formal written document.
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4. Limitations of the Study
1. The project was conducted in a short span of 2 months which itself acts as constraint. Moreover it also puts pressure for data collection and analysis of the data. 2. It is based on the study of only one Co-Operatives bank. 3. The study reveals the reasons only from the point of view of the bank and not the view of the customers. 4. As per the bank?s policy there are restrictions on disclosing some information data. 5. The MIS system is very confidential and hence all the bank records were not fully accessible. 6. Approximate values are used for the analyzing. Hence the results also reveal the approximate values.
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5 INDUSTRY PROFILE
5.1CO-OPERATIVE BANK IN INDIA Overview of co-operative Bank in India
The Co-operative banks in India started functioning almost 100 years ago. The Cooperative bank is an important constituent of the Financial System, Judging by the role assigned to co operative, the expectations the Co- operative is supposed to fulfill, their number and the number of offices the co-operative bank operate .Though the co operative movement originated in the West, but the importance of such banks has assumed in India play an important role even today in rural financing. The business of co-operative bank in the urban areas also has increased phenomenally in recent years due to the sharp increase in the number of primary co-operative banks. Co-operative institutions are engaged in all kinds of activities namely production, processing, marketing, distribution servicing and banking in India and have vast and powerful superstructure. Co-operative banks are important cogs in this structure. In the beginning of 20th century availability in India, more particularly in rural areas, was almost absent. Agriculture and related activities were starved of organized, institutional credit. The rural folk had to depend entirely on the moneylenders and pawnbrokers who lent often at usurious rates of interest. The co-operative banks arrived in India in the beginning of 20th century as an official effort to create a new type of institution based on the principles of co-operative organization and management suitable for problems peculiar to Indian conditions. These banks were conceived as substitutes for money lenders and pawnbrokers, to provide timely and adequate short term and long term institutional credit at reasonable rated of interest. Co-operative Banks in India are registered under the Co-operative Societies Act. The cooperative bank in also regulated by the RBI. They are governed by the banking Regulations Act/1949 and Banking Laws (Co-operative Societies) Act. 1965
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CATEGORIES: There are many categories of the co-operative banks: A)Short term lending oriented co-operative Banks-within this category there are three sub categories of banks viz. state co-operative banks, district co-operative banks, and primary agriculture co-operative societies. B) Long term lending oriented co-operative banks-within the second category there are land development banks at three levels state level and village level. The co-operative banking structure in India is divided into following main categories. 1. Primary urban co-operative 2. Primary agriculture credit societies 3. District central co-op banks 4. State co-operative bans 5. Land development banks
Cooperative banks in India finance rural areas under: ? ? ? ? ? Farming Cattle Milk Hatchery Personal Finance
Cooperative banks in India finance urban areas under: 1) Self-employment 2) Industries 3) Small scale units 4) Home finance
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The Akola Urban C0-op. Bank Ltd 5) Consumer finance 6) Personal finance Some facts about Cooperative banks in India 1) Some cooperative banks in India are more forward than many of the state and private sector banks. 2) According to NAFCUB the total deposits & lending of cooperative banks in India is much more than Old Private Sector Banks & also the New Private Sector Banks. As a matter of fact, the crisis had a contrary effect and in most provinces there was a movement to withdraw deposits from non co-operatives and placed them in co-operative institutions. The distinction between two classes of security being well appreciated and preference being given to the latter owing partly to the local character and publicity of co-operative institutions but mainly, we think to the connection of government with co-operative movement. RBI Policies: The reserve bank of India appointed High Power Committee in may 1999 under the chairmanship of Shri K. Madhav Rao, Ex- Secretary, and Government of Andhra Pradesh to review the performance of Urban Co-operative Banks (UCBs) and to suggest necessary measures to strengthen this sector. With reference to the terms given to the committee, the committee identified 5 broad objectives: 1) To reserve the co-operative character of UCBs. 2) To protect the depositors interest. 3) To reduce the risk of the financial system. 4) To put in place strong regulatory norms at the entry level so as to sustain the operational efficiency of UCBs in a competitive environment. 5) To align Urban Banking sector with the other segments of the Banking sector.
Reserve Bank of India has extended the off-site surveillance system (oss) to all nonscheduled urban co-operative banks having deposit size of Rs.100 crore and above
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5.2 COMPANY PROFILE PROFILE OF AKOLA URBAN CO-OPERATIVE BANK LTD., AKOLA
Akola is one of the important districts in Maharashtra. Akola is a major center of banking transitions. There are many commercial co-operatives nationalized banks in Akola. Apart from these there are 10 urban co-operative banks as well as credit society in Akola which meet financial need of small borrowers. The commercial banks mainly provides finance to the big medium industries while co-operative societies including co-operatives banks provides finance to Agriculture as well as small business man, professionals, traders & enterprises. The Akola Urban co-operative bank Ltd, Akola (Multi Schedule Bank) is pioneer Urban Co-operative Bank in Akola.
Development of Bank:The Akola Urban co-operative Bank Ltd. Akola (Multi Schedule Bank) was register under Maharashtra Stat Co-operative Act-1961. The Akola Urban Co-op Bank, Akola (Multi Stat Scheduled Bank) was established on 28th Sept 1963 on improvement in its performance within short period of four decades. It fulfills all conditions of RBI for being a multi state scheduled bank. The Akola Urban co-operative Bank Ltd, Akola (Multi Schedule Bank) There are 29 branches of Akola Urban co-operative Bank in Maharashtra. The branches of Akola Urban cooperative Bank are established in Vidarbha and Maharashtra regions. Mostly the Vidarbha region is covered by Akola Urban co-operative Banks. The Head office of the Bank is situating in Akola.
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THE BANK PROGRESS REPORT
Sr.No
Details
1986-87
2009-2010
1 2 3 4 5 6 7 8 9
Paid up capital Reserve fund Deposits Loan & advances Outside borrowing Investment Net profit Total No?s of Branches Total No?s of shareholders
16.90 13.70 321.99 321.92 123.73 113.78 1.58 8 6915
4177.42 11042.78 155231.56 100260.6 249.85 50758.30 154.61 29 62555
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The Akola Urban C0-op. Bank Ltd
Management and administration of bank:
There are 20 members in the panel of the „Board of Directors? according to bank?s regulation. The Board of Directors plans various schemes. Carryout various programmes for the overall development of the bank. All the decisions are taken untidy in the board of directors /meeting. They enjoy a 5 year duration and twice the members from the board of director?s panel were elected unopposed. They enjoy very cordial relationship among them and always work in unified way. They contribute a lot towards the all-round progress of the bank. For administrative purpose & to control all the branches of the bank the responsibility is given to Shree OmPrakash Rathi. Award: The bank received „Best Bank „award from Late Vasantdada Patil award twice in 199394 &1996-97 from Maharashtra state co-operative Bank Association Mumbai.
Schedule Bank Status: The Reserve Bank of India after reviewing the financial progress of the bank recommended by Government of India, with in turn declared scheduled bank in its gazette dated 15th May 1999. Special efforts were undertaken to get the status. This bank is declared as MultiStat Scheduled Bank.
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Place & Establishment Date of Branches of AUCB
Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Name of the Branches Main Branch Ramdas Peth Karanja Branch Mangrulpir Branch Sindhi Camp Branch Balapur Branch Tajanapeth Branch Murtijapur Branch Hiverkhed Branch Akot Branch Malegeon Branch Wadegaon Branch Telhara Branch Sitabardi Branch Jalgaon Branch Jaistamb Branch Yavatmal Branch Daryapur Branch Rajapeth Branch Kalbadevi Branch
Establishment Year 28-SEPT-1963 15-DEC-1965 06-JUL-1970 19-APR-1981 29-DEC-1981 31-DEC-1981 17-DEC-1982 01-AUG-1983 29-AUG-1982 26-DEC-1983 08-FEB-1994 19-MAR-1994 24-OCT-1994 15-MAR-1996 05-JUN-1996 05-SEPT-1996 24-OCT-1996 03-APR-1997 09-JUL-1997 31-JUL-1997
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The Akola Urban C0-op. Bank Ltd 21 22 23 24 25 26 27 28 29 Gandhi Bagh Branch A.P.M.C. Akola Branch Chandrapur Branch Wardha Branch Nanded Branch Dabaki Road Branch Civil Line Branch Aurangabad Branch Nashik Branch 20-NOV-1997 23-MAR-1998 27-JUN-1999 17-FEB-1999 04-MAR-1999 25-NOV-1999 25-NOV-1999 07-JAN-2000 08-JAN-2000
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The Akola Urban C0-op. Bank Ltd
6. Data collection THE AKOLA URBAN CO-OPERATVE BANK LTD., AKOLA NOTES FORMING PART OF THE ACCOUNTS
PART „A? 1. Fixed assets: - The assets register has been maintained at the branches and at the head office. Separate record of Gross block is not being maintained for assets depreciated on written down values basis. 2. The non performing Assets of the bank as on 31st March 2010 are Rs10846.21 lacks. The provision to be made for non- performing advances as per the prudential norms of the Reserve Bank of India as on 31st March 2010 is Rs. 4985.39 lacks. The balances of Reserve for Bad Doubtful Debt, Overdue Interest Reserve for Standard Assets and Provision for Unforeseen Losses as stated in the Balance Sheet are Rs. 5176.17 lacks, which is sufficient to cater to the required provision. 3. Contingent Liability:- Claims against the bank regarding suit filed by the borrowers, depositors, employees „etc.amount is unascertainable. Bank didn?t consider these as tenable in the court hence not considered as debt. 4. Figures of the previous year have been regrouped, reclassified wherever considered necessary. 5. The statement of Significant Accounting Policies and Notes on Accounts form an integral part of the Balance Sheet as at 31st March 2010 and the annexed Profit and Loss Account for the year ended on that date. 6. The bank in absence of guidelines of directions from Reserve Bank of India has not made disclosures in accordance with various Accounting standards (AS) issued by the institute of Chartered Accountants of India. These are as follow: Cash Flow Statement (AS.3), Employees Benefits (Revised AS.15), Segment reporting (AS.17) Related Party disclosure (AS.18), Income Tax an earnings per share- (AS.20), Accounting for Taxes (AS.22)
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PART „B?
(In term of RBI Circular following additional disclosures are made) 31.03.2010 10.03% 31.03.2009 9.70%
Sr.No. Particular 01 02 Capital to Risk Assets Ratio Investment i) ii) iii) 03 Book Value Face Value Market Value
47362.70 45943.72 46375.84
42139.17 40501.52 40192.93
Advance Against: i) ii) iii) Real Estate Construction Business Housing 4.84 9335.56 355.91 2.53 4.63 9790.68 2797.80 2.49
04 05
Advance Against Share And Debentures Advance to Directors, their relatives, companies/firms in which they are interested: i) ii) Fund Based Non- fund Based
Nil ---
Nil ----
06 07
Average cost of deposit NPAs i) Gross NPA
8.52%
8.39%
10846.21 10.82%
9372.25 9.68%
ii)
Net NPAs
6048.74
5066.30
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The Akola Urban C0-op. Bank Ltd 6.34% 08 Profitability: a) Interest income as a percentage of working funds b) Non-interest income as percentage of working funds c) Operating profit as a percentage of working funds d) Return of Assets e) Business (Deposit +Advances) per employee f) Profit per employee 0.09% 397.34 0.24 0.24% 369.65 0.58 044% 0.78% 1.45% 1.28% 8.88% 8.55% 5.48%
09
Provision made towards: i) ii) iii) NPAs Depreciation in investments Standard Assets 491.00 400.00 25.00 1000.00 389.14 6.00
10
Provision as on: i) ii) iii) Towards NPAs Towards Depreciation in investment Towards Standard Assets 4797.47 845.16 380.00 Up to 30.09.2010 N.A. 4305.95 445.16 355.00 Up to 30.09.2009 N.A.
11
Insurance premium paid to DICGC
12
Foreign Currency Assets & Liabilities
if applicable)
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The Akola Urban C0-op. Bank Ltd PART „B? (In term of RBI Circular following additional disclosures are made) 31.03.2009 9.70% 31.03.2008 9.52%
Sr.No. Particular 01 02 Capital to Risk Assets Ratio Investment iv) v) vi) 03 Book Value Face Value Market Value
42139.17 40501.52 40192.93
25610.67 25545.26 22632.25
Advance Against: iv) v) vi) Real Estate Construction Business Housing 4.63 9790.68 2797.80 3.17 7155.52 1583.85
04 05
Advance Against Share And Debentures Advance to Directors, their relatives, companies/firms in which they are interested: iii) iv) Fund Based Non- fund Based
2.49
2.02
Nil ---8.39%
37.68 ---8.18%
06 07
Average cost of deposit NPAs iii) Gross NPA
9372.25 9.68%
8669.09 10.01%
iv)
Net NPAs
5066.30 5.48%
5367.94 6.45%
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The Akola Urban C0-op. Bank Ltd 08 Profitability: g) Interest income as a percentage of working funds h) Non-interest income as percentage of working funds i) Operating profit as a percentage of working funds j) Return of Assets k) Business (Deposit +Advances) per employee l) Profit per employee 0.24% 369.65 0.58 0.22% 332.54 0.48 1.45% 1.28% 0.54% 1.05% 8.55% 8.63%
09
Provision made towards: iv) v) vi) NPAs Depreciation in investments Standard Assets 1000.00 389.14 6.00 700 -------
10
Provision as on: iv) v) vi) Towards NPAs Towards Depreciation in investment Towards Standard Assets 4305.95 445.16 355.00 Up to 30.09.2009 N.A. 3301.15 56.02 349.00 Up to 30.09.2008 N.A.
11
Insurance premium paid to DICGC
12
Foreign Currency Assets & Liabilities if applicable)
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The Akola Urban C0-op. Bank Ltd
6.1 Data Analysis Format for calculating NPA
Sr. No.
Particular
Amount Rs.
1 2 3 4
Gross advances Gross NPA Gross NPA as a % of gross advances Deductions I. BAL. In interest suspense A/c
0000.00 00.00 0.00%
00.00
II. DICGC/ECGC claims received and held pending 0.00 adjustments III. Part payment received and kept in suspense a/c 5 6 7 Net advances ( 1 – 4 ) Net NPA Net NPA as a % of net advances 00.00 0000.00 00.00 0.00
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The NPA of the Bank.
The overall NPA for the bank is as follows (for the past 3 years). The figures are the cumulative NPA figures for the last 3 years.
(Rs. In lakhs.) Year 2010 2009 2008 NPA (Gross) 10846.21 9372.25 8669.09 NPA (Net) 6048.74 5066.30 5367.94
NPA IN % OF NET ADVANCES
YEAR 2010 2009 2008
GROSS 10.82% 9.68% 10.01%
NET 6.34% 5.48% 6.45%
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The Akola Urban C0-op. Bank Ltd NPA?S Default Amount (Rs. In lacks.) YEAR 2010 2009 2008 GROSS 48.59 50.96 47.44
The NPA default amount for The Akola Urban Co-operative Bank Ltd. Akola for the past 3 years. The figures are shown in the above table.
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The Akola Urban C0-op. Bank Ltd Reasons for Default
Default means the incapability of the borrower to make the repayment. The default may arise due to various reasons. 1. The borrower may will default without reason. 2. Default due to death of the borrower. 3. Bills pending with the debtors or govt. of the borrower. 4. Absconding. 5. Default due to financial crisis in the business of the borrower. 6. Shut down of the business of the borrower, etc. These reasons or defaults are not in control of the bank. They are external and bank can?t predict them. It may sometimes so happen that the bank while issuing a loan may prove to be negligent while scrutiny of the documents or the borrower?s financial position or in deciding upon the limit of sanctioning of a loan. This may also lead to a default.
Loans are assets to the bank. The major profit is earned by way of interests on such loans. But in case of default no income is generated from such lending. Therefore they are also turned as non-performing assets. We can say that the loss that is shown in the balance sheets stating loss from NPA is nothing but the loss from non-performing assets, which if wouldn?t have been defaulted would, definitely would have added to the profits of the bank. Therefore it is very important from banks point of view to take proper care while issuing a loan or while lending funds.
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The Akola Urban C0-op. Bank Ltd NPA analysis
Loans and advances (Rs. In Lacks) Year 2008-2009 2009-2010 2010-2011 Deposit 1222.66 1412.36 1552.31 Loans 865.72 968.19 1002.60
1800
a m o u n t in l a k h s
1600 1400 1200 1000 800 600 400 200 0 2008 2009 2010 Deposits Advances
Year
(6.1)
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The Akola Urban C0-op. Bank Ltd NPA?S Default Amount (Rs. In lacks.) YEAR 2010 2009 2008 Default amount 48 50 47
a m o u n t i n l a k h s
NPA
50.5 50 49.5 49 48.5 48 47.5 47 46.5 46 45.5 2008 2009 2010
NPA
Year (6.2) The graph above gives about of Defaulter of the bank during past three year. The amount of default has marginally increase comprise with 2008 year. And default amount has been decrease in the year 2010.
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The Akola Urban C0-op. Bank Ltd Year 2008-2009 (Rs. In lacks.) Type of Loan Short term Medium Term Long Term A mount 31 11 5
Amount
a m o u n t in l a k h s
35 30 25 20 15 A mount 10 5 0 Short term Medium Term Long Term
(6.3) This chart shows that for the year 2008-2009 maximum loan was being granted as the short term loan. The minimum loan granted for long term loan and medium term.
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The Akola Urban C0-op. Bank Ltd
SECTORIAL ANALYSIS OF DEFAULT
(Rs. In Lacks) Type of loan Short term Medium Term Long Term Amount 65.96 23.40 10.64
10.64
23.40
Short Term Medium Term Long Term
65.96
(6.4) This diagram shows the amount of NPA various loan. It shows short term loan having a maximum defaulter.
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The Akola Urban C0-op. Bank Ltd Proportion of Default
Proportion of Default
47
Loan
Default 865.72
(6.5) The chart shows the total loan amount is 865.72 and default amount is 47(in lakhs) which makes 5.48% app. Of the total loan amount of default during the year 2008-09
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The Akola Urban C0-op. Bank Ltd SHORT TERM LOAN Case. 1
Type of loan Amount Rate of interest Reason for default –
- Personal loan - Rs 1, 00,000. - 14.25%
The party had taken a loan for his personal use that being for purchasing a computer. The asset being purchased and in some course of time the person lost his new job. Thus bank loan was not repaid in time. The bank extended the time period for repayment, but the payment still stands due. The bank thus took the pc in their charge. And this case stands under the list of the defaulter.
Analysis – The client should have taken note of his job assurance before taking a loan. Also expected from the banks scrutinized. As the job being new there is no assurance towards it.
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The Akola Urban C0-op. Bank Ltd Case 2
Type of loan Amount Rate of interest
- Hypothecation loan - Rs 3, 00,000. - 10.75%
Reason for default – The party ventured into a new project and needing funds for working capital applied for the loan. Being into construction field there was not much data on which the bank could analyze the project, as this field being unpredictable. Even with the availability of loan the project failed due to financial crisis and thus came to standstill. The proprietor of the firm later on joined one company in Mumbai and as on today is untraceable. Thus leading to default.
Analysis – The above case clearly indicates that the individual was inexperienced in his field and did not have much support from experienced businessman resulting into project failure. The proposal scrutinized did not note all these facts; moreover there was improper financial planning by individual.
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The Akola Urban C0-op. Bank Ltd Year 2009-2010 (Rs. In lacks.) Type of Loan Short term Medium Term Long Term A mount 28 15 7
Loan
a m o u n t in l a k h s
30 25 20 15 10 5 0 Short Term Medium Term Long Term Loan
(6.6) This chart shows that for the year 2009-2010 maximum loan was being granted as the short term loan. The medium term loan has been increase comparison to last year. And long term loan is stable in this year.
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The Akola Urban C0-op. Bank Ltd SECTORIAL ANALYSIS OF DEFAULT
(Rs. In Lacks) Type of loan Short term Medium Term Long Term Amount 56 30 14
amount
14
Short Term
30
Medium Term Long Term
56
(6.7) This diagram shows the amount of NPA in various sectors of loan . It shows the short term loan is maximum defaulter.
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The Akola Urban C0-op. Bank Ltd
Proportion of Default
proportion of Default
50
Default Loan
968.19
(6.8)
This chart shows the total loan amount is 968.19 and the default amount is 50 (in lakhs) which makes 5.26% app. Of the total loan amount of default during the year 2009-2010
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The Akola Urban C0-op. Bank Ltd
MEDIUM TERM LOAN
Case 1
Type of loan Amount Rate of interest
- Motor Cycle Loan - Rs 5, 00,000. - 15%
Reason for default – The party had taken a loan to purchase Motor Cycle. The party had not repayment EMI installment.Because the party has become defaulter against loan.
Analysis – This clearly shows improper scrutiny of the proposal, s the bank shouldn?t have granted loan against the security . The bank should have noticed that the client was negligent in his work and should have analyzed itself that one whose premiums being outstanding will he be capable of paying the interest.
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The Akola Urban C0-op. Bank Ltd
Case 2
Type of loan Amount Rate of interest
- Term loan - Rs 5,00,000. - 12.50%
Reason for default – The party is a construction company and also works as a govt. contractor. The company had taken a loan of Rs. 5,00,000 to complete the project undertaken. The govt. is to pay a total sum of Rs. 15.40 lakhs as a consideration for the project undertaken. But the govt. has shown its no capability to pay the dues on time. The company therefore wrote a letter of request to the govt. to pay the due in the name of Akola Urbanbank. But as on today?s date no such payments have been received from the govt. therefore causing a default.
Analysis – The bank had a proper scrutiny of the proposal. Bank considered as govt. being the debtors of its client the payments would be made in either case. But it did not work. The businessman had a proper financial planning, which can be said as the project undertaken was completed neither of the two could be blamed as govt. is expected to make payments.
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The Akola Urban C0-op. Bank Ltd
Year 2010-2011 (Rs. In lacks.) Type of Loan Short term Medium Term Long Term A mount 27 15 6
Loan
30
am o u n t in l a k h s
25 20 15 10 5 0 Short Term Medium Term Long Term Loan
(6.9) This chart shows that for the year 2009-2010 maximum loan was being granted as the short term loan. The medium term loan has been increase comparison to last year. And long term loan is stable in this year.
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The Akola Urban C0-op. Bank Ltd
SECTORIAL ANALYSIS OF DEFAULT
(Rs. In lacks.) Type of Loan Short term Medium Term Long Term A mount 56.25 31.25 12.5
12.50
Types of loan
56.25
31.25
Short Term Medium Term Long Term
(6.10) This diagram shows the amount of NPA in various sectors of loan . It shows the short term loan is maximum defaulter.
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The Akola Urban C0-op. Bank Ltd
Proportion of Default
Proportion of default
48
Defaulter Loan
1002.60
(6.11) This chart shows the total loan amount is 1002.60 and the default amount is 48 (in lakhs) which makes 4.85% app. Of the total loan amount of default during the year 2010-2011
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The Akola Urban C0-op. Bank Ltd
Non-Performing Asset
Year 2008-2009 2009-2010 2010-2011
Percentage 5.45 5.48 6.34
NPA
6.34 % 5.45%
2008-09 2009-10 2010-11
5.48%
(6.12) Interpretation The ratio of NPA management is increase continuously by almost 0.3%. In 2009-10 the NPA is 5.48% and in 2010-11 the NPA is increase by 1% we can say that the bank work ineffectively in the management of their NPA?s and also it harmful to the bank to manage the liability and recover the money of the bank.
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The Akola Urban C0-op. Bank Ltd The reason for default can be well explained and understood with the help of few cases
Case 1
Type of loan Amount Rate of interest
- Housing loan - Rs 3, 00,000. - 11.50%
Reason for default –
The party had taken a loan against his insurance policy. The businessman died in Dec.2006 It was a natural death. The insurance company refused to pay the amount as the premiums were not duly paid. Therefore the bank could not recover the amount.
Analysis –
This clearly shows improper scrutiny of the proposal, s the bank shouldn?t have granted loan against the security of insurance policy with the premiums outstanding. The bank should have noticed that the client was negligent in his work and should have analyzed itself that one whose premiums being outstanding will he be capable of paying the interest.
The reasons for default can be well explained and understood with the help of few cases.
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The Akola Urban C0-op. Bank Ltd Case 2
Type of loan Amount Rate of interest
- Term loan - Rs 10, 00, 000. - 12.25%
Reason for default – The party had already taken a loan from MSFC (Maharashtra State Finance Corporation). There was an increasing pressure to repay that loan. It was here where Akola Urban Bank lended a helping hand by granting loan of Rs. 10 lakhs. The bank had no sufficient security against the loan except for the request of getting the second charge over the assets mortgaged with MSFC. In due course of time the debtors showed there non-capability of payment, resulting the party into financial crisis. Analysis – From the above reason we can analyze that the Akola Urban bank granted loan to an inefficient businessman. The banks did not take notice that he had a loan from MSFC, which was a big amount and financed to the one who was already in trouble without sufficient security. This directly shows that no scrutiny was done on strict norms. Moreover it also shows improper financial planning of the businessman.
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The Akola Urban C0-op. Bank Ltd Case 3
Type of loan Amount Rate of interest
-
Personal loan - Rs 5, 00,000. - 13.00%
Reason for default –
The party had taken a personal loan for purchase of car for a period of time. The party had no contacts with the bank. The bank investigates the matter and found that he was untraceable. Somebody else with no transfer certificate, insurance and other relevant documents was usingthe car. The police was brought into the action but filed as the second party had illegal supports.
Analysis – The basis problem here was that the bank had insufficient information about the borrower i.e. his past record, contacts etc. the proposal scrutinizers did not gave due importance to the non availability of such information and granted the loan without some concrete base. Overall we say an improper scrutiny of the proposal.
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The Akola Urban C0-op. Bank Ltd New strategy
The bank, taking into consideration the defaults, has come up with a new concept viz. Maximum Permissible Banking Finance (MPBF) This system was applicable where the turnover is 1cr. And above earlier. But with the growing success of it the bank has applied for all type of loan. The major advantage of this being that the risk factor is reduced and analysis of the parties? activities can be properly done. There are various methods for calculating the MPBF. They are as follows –
Method I Projected sales Less: 25% of the projected sales 0000 00000 00000
Less: 5% margin of projected sales 0000
MPBF
00000
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Method II Projected sales Less: 20% of the projected sales 0000 00000 MPBF (80% of projected sales) 00000 00000
Method III Current asset 00000
Less: Current liabilities Working capital 0000 00000
Less: 25% margin of working capital 0000
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The Akola Urban C0-op. Bank Ltd MPBF 00000
This can be well explained with the help of an example
Projected sales Loan demanded
-
1, 00, 00,000/60, 00,000/-
Calculating of MPBF Projected sales Less: 25% of the projected sales Less: 5% margin of projected sales 5, 00,000/25, 00,000/1, 00, 00,000/-
MPBF
-
70, 00,000/-
Here the MPBF suggested that a loan up to the amount of Rs. 70, 00,000/- can be granted. But the loan demanded is Rs. 6000000/-. Therefore the bank can grant the said amount with the pertaining terms and conditions.
If the loan demanded were supposed Rs. 80, 00,000/- then the loan up to the maximum limit Rs. 70, 00,000/- would only be granted.
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The Akola Urban C0-op. Bank Ltd
HOW TO REDUCE NPA?S?
1. Arrest- slippage in existing standard assets. 2. Identify new / probable NPAs… 3. List out high value NPA accounts. 4. Examine security aspect. 5. Consider rescheduling in genuine cases. 6. Recovery planning: Distribute accounts among staff members/ Director/officers. 7. Meet the borrowers frequently
8. Review of NPA?s Account :- Branch wise monthly statement
Opening Balance (+) Fresh Addition Cash Recoveries Closing Balance
0000 + 0000 - 0000 0000
NPA = Cash Recoveries (3) – Closing Balance (4) 9. Review accounts if interest is not served in the last month 10. Regular limits review on due date 11. Ensure there is no erosion in the value of security & There is no threat to recovery for any reason.
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The Akola Urban C0-op. Bank Ltd
7. Recommendations and Suggestions
1. The bank must take great care while granting of term loan, personal loan & hypothecation loans. 2. The scrutiny of the proposals should be done considering all the points and related aspects. 3. The security and the financial position must be given due importance. 4. The system of MPBF is a good one. It must be followed to reduce the risk on losses. 5. After granting a loan the frequent follow-up must be taken by bank or frequent visit must be given to the clients? business unit. 6. The asset given as mortgage must be properly valued. Not overvalued or undervalued.
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The Akola Urban C0-op. Bank Ltd
Conclusion
The study and analysis done about helps us to know various aspects relating to default of loans. The findings above help us to analyze the study and draw proper conclusion. The conclusion is in the form of points given below. 1. The amount of deposits and loans has shown a drastic growth over the period of 5 years. 2. Bank has granted loans in various sectors i.e. a. Term loan b. Hypothecation loans.
c. Personal loans. d. Housing loan. e. Educational loan. 3. The major cased of NPA are of term loan and hypothecation loan. 4. The main reasons for the default being a. Non payment from the debtors to the party b. Financial crisis faced by the party c. Death 5. The bank has now come up with a new concept i.e. MPBF. 6. The major advantage being reduction of risk for losses or default.
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BIBLIOGRAPHY
Following thing I referred to done the project:-
1. The Akola Urban Co-operative Bank Annual Report. I. II. 2009-10 2010-11
2. Bare Banking Regulation Act 1949 3. Banking – Theory, Law & Practice :- E.Gordon & K.Natraj 4. Co-operatives Banking Act 5. www.google.com 6. www.rbi.org.in
7. www.investopedia.com 8. www.mastersinfinance.net
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Annexure - A
Name of Bank Administrative Office Add
:-
Akola Urban Co-operative Bank (Main Branch Akola.)
:-
“Jankalyan” 58/59 Toshniwal Layout near Milk Scheme, Murtizapur Road, Akola. Phone: 2453850-54 Fax: 0724-2453864
E-mail
:-
[email protected]
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doc_292973146.docx
NPA analysis is a good managemet project
The Akola Urban C0-op. Bank Ltd
A PROJECT REPORT ON “NPA ANALYSIS” AT
THE AKOLA URBAN CO. OP. BANK Ltd. AKOLA MAIN BRANCH
-: Submitted By:NISHANT RAMRAO DHOOD MMS-II (Finance)
-: Submitted To
rof. GAURAV PANDERSARASWATI EDUCATION SOCIETY?S YADAVRAO TASGAONKAR SCHOOL OF BUSINESS MANAGEMENT IN PARTIAL FULFILLMENT FOR THE COURSE OF MASTER OF MANAGEMENT STUDIES (MMS) MUMBAI UNIVERSITY Year 2011-2012
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The Akola Urban C0-op. Bank Ltd Declaration
I Mr.Nishant R.Dhood the student of SES?S Yadavrao Tasgaonkar School of Business Management,Chandhai Campus, Bhivpuri Road (E) Dist. Raigarh . The Course of MMS of Mumbai University consists of four Semesters. Every student has to undergo a project during his Third semester and the project report is a part of academic curriculum of university. The project is of 100 marks and is compulsory for every student. I have declared that the project is an independent analysis work carried out by me under Prof.Gaurav Pander. This report has not been previously submitted for an award of any degree of this of any other university.
Place: DHOOD NISHANT RAMRAO Date:
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The Akola Urban C0-op. Bank Ltd Acknowledgement
This project report is based on my two months training period with The Akola Urban CoOperative Bank. In completing this project many person helped me by giving their cooperation, valuable suggestion and time, therefore I would like to express my gratitude from the core of my heart to those of people. At first I am highly obliged to the staff of The Akola Urban Co-Operative bank (Akola branch) that provided me the opportunity to undertake the summer Internship under their guidance. In this respect I would like to thank Mr. R. B. Phakare & Dr. Avinash Abhyankar Board Secretary for their guidance and giving me his valuable time, support, suggestion & the opportunity to excel and work in the field of finance which motivated me to complete my training successfully. While developing the ideas we have learnt many things which will undoubtedly help us in the future. I express my sincere thanks to Prof.Gaurav Pander (Faculty, Internal Guidance) SES?S, YTSBM, chandhai campus, Bhivpuri Road (E) Dist. Raigarh. For technical guidance, suggestions on various chapters and help rendered at the appropriate time. Last but not least I am also grateful to all those people who directly or indirectly helped us in accomplishing this project.
Thank you, NISHANT DHOOD
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INDEX
1 Introduction 7
2
Scope & objective
20
3
Research Methodology 3.1 Need of the Project 3.2 Selection of the Topic 3.3 Description of research Design & Procedures Used 3.4 Sources of Data
22
4
Limitation of the Study
28
5
Company profile & Industry profile
29
6
Data analysis & Interpretation
37
7
Recommendation & suggestions
69
8
Conclusion
70
9
Reference & Bibliography
71
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Abbreviation
AFS ALCO ALM CGS CRAR CRR GOI IBL IDBI IPO NABARD NAV NBFC NII NIM NSE PSU RBI RRB RRR SEBI SGB SGS SLR NPA MPBF
Available for Sale Asset Liability Management Committee Asset Liability Management Central Government Securities Capital Risk Asset Ratio Cash Reserve Ratio Government of India Inter Bank Liabilities Industrial Development Bank Of India Initial Public Offer National Bank for Agriculture and Rural Development Net Asset Value Non Banking Financial Companies Net Interest Income Net Interest Margin National Stock Exchange Public Sector Unit Reserve Bank of India Regional Rural Banks Required Reserve Ratio Securities And Exchange Board of India State Government Bond State Government Securities Statutory Liquidity Ratio Non Performing Assets Maximum Permissible Banking Finance
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Executive Summary
The cooperative bank is an important constituent of the Indian financial system, judging by the role assigned to co-operative, the expectations the cooperative is supposed to fulfill, their number and the number of offices the cooperative bank operate. Though the cooperative movement originated in t he west, but the importance of such banks have assumed in India is rarely paralleled anywhere else in t he world. The cooperative banks in India play an important role even today in rural financing. The businesses of the cooperative bank in the urban areas also have increased phenomenally in recent years due to the sharp increase in the number of primary cooperative banks. As we know about the cooperative bank, is play important role. So, this is very important to know about the Non Performing Assets of cooperative bank with special reference to The Akola Urban Cooperative Bank Ltd. In this project I had done analytical delivering the proper service to the stake holders is very important. The analysis is based on the extract of 2009 to 2010?s financial statements, which helped to study NPA analysis.
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1. Introduction
INTRODUCTION OF BANKING MEANING AND DEFINITION:
Bank is an institution that deals in money and its substitutes and provides crucial financial services. The principal type of baking in the modern industrial world is commercial banking & central banking.
Banking Means "Accepting Deposits for the purpose of lending or Investment of deposits of money from the public, repayable on demand or otherwise and withdraw by cheque, draft or otherwise." -Banking Companies (Regulation) Act, 1949
The concise oxford dictionary has defined a bank as "Establishment for custody of money which it pays out on customers order." In fact this is the function which the bank performed when banking originated.
"Banking in the most general sense, is meant the business of receiving, conserving & utilizing the funds of community or of any special section of it."
-By H.Wills & J. Bogan
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1.1 Loans and Advances
Loan and advances is a major service provided by the banks. The major portion of the bank deposits is employed by the way of loans and advances, which is the most profitable employment of its funds. Loans may be provided for a short-term, long-term and medium term. The loans may be provided against some security, guarantee etc. the borrower may use these funds for starting a new venture, housing purpose, for expansion for personal purpose. Normally these loans are paid in installments. Therefore the loan can be classified as – 1. personal loans 2. Housing loans 3. Term loans a. Short term b. Medium term c. Long term 4. Loan against hypothecation 5. Loan against FDR etc. Before granting a loan to any borrower bank has to scrutinize the project or the various documents. If this is not taken due care of the asset may turn into a bad debts thus resulting into losses for the bank i.e. a default.
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Documents Required for Loan
Various document required to be submitted to the bank while submitting a loan application as per the size and type of the borrower.
1. Passport size photograph 2. Residence address proof / election card / ration card / electricity bill. 3. Salary slips of last 3 months. 4. Balance sheet and profit & loss a/c for last 3 years duly certified by a C.A. 5. Last 3 years income tax returns with computation of income tax and its challans. 6. Degree certificate of professionals. 7. Shop act license. 8. BSF, CST registration. 9. Stock list. 10. List of debtors and creditors. 11. Income certificates. 12. 10 cheques. 13. Registered Government Contracted letter. 14. SSI registration. 15. Lasted 7/12 extract.
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16. Undertaking from the employer for deductions of loans, installment from salary of borrowers. 17. Undertaking of the company of the Government Institutions for payment in favors of Akola Urban Co-op Bank Ltd.……………. 18. Agreement with company / appointment letter for distributors, stockiest etc. 19. Purchase order / sales order. 20. Quotation for machinery / vehicle. 21. Development agreement / GPA. 22. Project report. 23. Valuation report. 24. Concern letter. ? ? For partnership firm – Registered partnership deeds. For Pvt Ltd. And public Ltd – Memorandum of association, Article of association, resolution. ? ? For trust – trust deed resolutions, permission from charity commissioner. For co-operative societies – registration certificate resolution permission from DDR office.
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Procedure for Granting Loan
In loan account the entire amount sanctioned is debited to the borrower?s account Interest is also debited to the a/c. It is the credit repayment made on installment basis. Following procedure is adopted for sanctioning of loans.
1. pre sanction survey and inspectionLoan facility is available on the basis of security offered or on the basis of period of which it is required. Security offered by the customers may be fixed asset, plant and machinery, equipment, house etc. Depending upon the purpose of loan, the banker conducts a pre-sanction survey and inspection. During this survey bankers inspect the security offered by seeing the location of factory, business premises, inspect documents and letter of goods etc. such survey helps the bank to know about the customers. 2. Preparation of loan application – The loan application has to be prepared and handed over to the banker by the borrower. In a loan application the following details are to be furnished 1. Name of the borrower 2. Occupation 3. Purpose of loan 4. Period of loan 5. How borrower proposes to repay the loan 6. Projection of cash generations over the loan period 7. P&L A/c, B/S, for the period of loan in the form of projection 8. Details of security offered.
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The Akola Urban C0-op. Bank Ltd 3. Appraisal – Loan applications have to evaluated and appraised to decide whether they can be sanctioned of rejected. The loan department in the bank does this work. During appraisal the loan department concerned applies various methods of scrutiny to find out the details given in the application are true and the projections hold good. Thus market information, sales forecast, etc. would be independently assessed
4. Sanctioning –
The loan department scrutinizes the loan application and decides whether the loan is to be sanctioned or not. Norms for sanctioning the proposal are indicated by RBI
5. Preparation of sanction letterSanction letter contains the following points1. Name of the borrower 2. Limits sanctioned 3. Period of loan 4. Security offered by the borrower 5. Terms of repayment 6. Margin to be maintained 7. Rate of interest 8. Stock statements to be submitted at periodical intervals
The borrower is informed about these aspects and a copy of the letter is sent to be borrower.
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The Akola Urban C0-op. Bank Ltd 6. Acceptance of terms and conditions by the borrower Normally the borrower is in continuous touch with the bank though be has banded over the proposal to the bank. They accept terms lay down by the bank. They are not requested to inform the bank in writing of having accepted the terms.
7. Preparation of loan documents -
a. Demand promissory note – It is an important document and a common document for the bank. The borrower accepts his liability regarding the funds lend by the banker through this document. It contains data of execution, place of execution, name of the payee, the loan amount, rate of interest, address of the borrower etc. b. Loan agreement – These are standard printed documents running into a No. of pages. They contain all legal aspects regarding the rights of both the parties and liabilities of the borrower.
8. Disbursement of loan – When the loan is sanctioned at the time of disbursement of loan of loan a/c is opened in the name of the borrower. The loan a/c opened is debited and savings a/c is credited for equivalent sum.
9. Periodical inspection and supervision – After the loan is disbursed borrower utilizes the loan amount to generate the funds and profits so that he can repay the loan. Therefore bank inspects the keep supervision whether the loan amount is been utilized in a productive way or not.
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1.2 Non Performing Assets
1.2. A Concept of NPA –
The concept of non-performing assets refers to which ceases to generate income. In case of banks, all loans and advances are its assets, which can be classified into performing and nonperforming assets. RBI has advised the banks not to charge interest on those loans and advances classified as non-performing asset.
Definition“A non-performing asset has been defined to be a credit facility in respect of which the interest and/or installment of principle has remained overdue for a specified period of time.”
1.2. B what is NPA?
With a view to moving towards international best practices and to ensure greater transparency, it has been decided to adopt the '90 days overdue' norm for identification of NPAs, form the year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a nonperforming asset (NPA) shell be a loan or an advance where; 1. Interest and /or installment of principal remain overdue for a period of more than 90 days in respect of a Term Loan, 2. The account remains 'out of order' for a period of more than 90 days, in respect of an overdraft/ cash Credit(OD/CC).
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3. The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, 4. Interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose, and 5. Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.
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Non Performing Assets
1.2. C Introduction of NPA
Over a long period of time the performance of urban co-operative banks (UCBs) has been deteriorating due to non – recovery of interest and installment on loan portfolio. After the deregulation of Indian economy the government has announced a number of reform measures on the basis of recommendations of Narsimham committee to make banking sector economically viable and competitively strong. The RBI introduced the concept of NPA and certain norms with effect from 1st April 1992. These norms were introduced not only to know the true financial picture in the financial statements but also to take corrective action for improving the performance in the recent years. Mounting NPAs are adversely affecting the profitability, liquidity and solvency position of banking sector. Hence in the context of global competition it is a paramount task for the banks to manage their NPAs more efficiently so that they can change their character from non performing assets to performing assets.
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1.2. D Classification of Assets
Assets can be classified as – 1. Standard Assets –
A standard asset is an asset, which is not a non-performing asset. A standard asset is one, which does not carry more than normal risk attached to the business. Such an asset is not a nonperforming asset and is performing advance or a standard asset.
2. Sub Standard Asset – A sub standard asset is one which has remained a NPA for a period less than or equal to 18 months.
3. Doubtful assets – An asset is classified as doubtful asset if it has remained an NPA for a period exceeding 18 months.
4. Loss AssetsA loss asset is one where loss has been identified by the bank or the internal or the external auditors or the RBI inspectors but the amount has not been written off wholly.
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1.2. E Effects of NPA?s The NPA problem is on of the foremost formidable problems that have shaken the entire Banking Industry. “ The high level of NPA?s in banks and financial institutions has been a matter of grave concern to the public as bank credit is the catalyst to the economic growth of the country and any bottleneck in the smooth flow of credit, one cause for which is the mounting NPA?s is bound to create adverse repercussions in the economy. “The efficiency of a bank is not always reflected only by the size of its balance sheet but by the level of return on its assets. NPAs do not generate interest provisions for such NPAs from their current profits 1. Effect on Profitability: a) They erode current profits through provisioning requirements. b). They result in reduced interest income. c) They require higher provisioning requirements affecting profits and capacity to increase good quality risk assets in future. d) They limit recycling of funds. e) Bank has to spend for making efforts for recovery such as expenses on notice; follow-up and filing of civil suit & because of this expenses profit get reduced. f) This decline in profit has a bearings on variables like the capital to risk-weighted asset ratio (CRAR) with the dip in profit it becomes difficult for the Bank to raise Tier – I capital This is because Tier – I capital consist of statutory and capital reserve that are essentially built from profit. g) In the face of declining profit, in order to maintain the stipulated CRAR, the bank may have to raise Tier – 2 capitals through bond issue the interest cost then will be higher.
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2. Narrow banking:
a) Narrow banking means only operation with the existing assets base & not expanding the business. If NPAs are high RBI may ask a bank to do only narrow banking. b) RBI may impose adverse restrictions on business of bank if NPA percentage is very high. For Example – Restriction on opening new branches, Expansion of international operations may be curtain. 3. Effects on Efficiency:
a) When NPAs are very high all productivity ration of the bank such as ROI (Return on Investment.) Productivity per employee and profitability ratios are adversely affected. b) The most important business implication of the NPAs is that it leads to the credit risk management assuming priority over other aspects of bank?s functioning. The bank?s whole machinery would thus be pre-occupied with recovery procedures rather that concentrating on expanding business. c) Implications can be psychological like „play safe? attitude and risk aversion, lower moral and disinclination to take decisions at all levels of staff in the bank. 6. Effect on reputation of the bank:
The lesser appreciated implications are reputation risks arising out of grater disclosures on quantum and movement of NPAs, provisions etc. High NPA diversely affected the image of bank and bank?s capacity to generate further business is reduced.
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2. Scope of the study
The Scope of the project includes:1) Study of financial records in the Head Office of the Bank. 2) Analyze is base on the extract from 2009-2010. 3) The project is in terms of RBI Circular following additional disclosures are made of the Bank. 4) The Bank will also be benefited from this project as it I will make their Non Performing Assets analysis system more effective.
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2.1 Objectives of the study
Every bank faces a cutthroat and for its survival in the market, has to satisfy its customers by providing them quality services. But this involves a major risk. The main objectives of the study are: 1. To study the organizational structure of The Akola Urban Co. Op. Bank Ltd., Akola 2. To study the various kind of loans granted by The Akola Urban Co. Op. Bank Ltd., Akola 3. To study the various documents required for a NPA. 4. To study the concept default and various reasons for default. 5. To study the concept NPA and its effects. 6. To study the strategies to reduce the NPA.
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3 Research Methodologies
Definition:By Random Howl?s “Research is a systematic and diligent examination or scientific investigation into subject in order to discover or revise the facts, theories and application”. The word research is composed of two syllables, re and search. reis a prefix
meaning again, anew or over again search is a verb meaning to examine closely and carefully, to test and try, or to probe. Together they form a noun describing a careful, systematic, patient study and investigation in some field of knowledge, undertaken to establish facts or principles. Research is a structured enquiry that utilizes acceptable scientific methodology to solve problems and create new knowledge that is generally applicable Scientific methods consist of systematic observation, classification and interpretation of data.
Although we engage in such process in our daily life, the difference between our casual day- to-day generalization and the conclusions usually recognized as scientific Method lies in the degree of formality, rigorousness, verifiability and general validity of latter.
Steps in Research Process: 1. Formulating the Research Problem 2. Extensive Literature Review 3. Developing the objectives 4. Preparing the Research Design including Sample Design 5. Collecting the Data 6. Analysis of Data 7. Generalization and Interpretation 8. Preparation of the Report or Presentation of Results-Formal write ups of
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The Akola Urban C0-op. Bank Ltd 3.1 Need of the Project
The project forms a very vital aspect during the curriculum of MMS. At the end of the first year students are required to undergo a summer training program of 45 to 60 days. This training is an integral part of MMS course and its importance lies in the fact that it gives the students their first exposure to an organization. The training undertaken in The Akola Urban Co. Op. Bank Ltd., Akola is with a few objectives They are 1. to get the opportunity or real life business experience 2. To be able to apply theoretical knowledge obtained at the institute practically in actual business environment 3. To have a comprehensive understanding of the company 4. To get acquainted with real organizational problems, perceptions and challenges. To get an opportunity to interact with dynamic managers and all other dyamic levels of the organization and again knowledge through their real life experiences
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The Akola Urban C0-op. Bank Ltd 3.2 Selection of the Topic
The topic selected for the project is “NPA analysis” Why? Any bank whether co-operative or national in order to earn profits. Grant loans and advances with a risk of having them defaulted. Default means customers incapability for nonpayment of loan or any installment. For the bank it also proves to be a NPA. Thus, I thought the default analysis is a very essential point of banking sector and that had to be studied. So, I selected this crucial topic. The Akola Urban Co-op. Bank Ltd. Akola provided to me the opportunity to undertake the study
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Description of Research Design and Procedures Used
Quantitative Data Analysis: This method is most suitable for large well designed and well administered surveys using properly constructed and worded questionnaire. Data can be analyzed either manually or with the help of a computer.
Manual Data Analysis: This can be done if the number of respondents is reasonably small, and there are not many variables to analyze. However, this is useful only for calculating frequencies and for simple cross tabulations. Manual data analysis is extremely time consuming. The easiest way to do this is to code it directly onto large graph paper in columns. Detailed headings can be used or question numbers can be written on each column to code information about the question. To manually analyze data (frequency distribution), count various codes in a column and then decode them. In addition, if you want to carry out statistical tests, they have to be calculated manually. However, the use of statistics depends on your expertise and the desire/need to communicate the findings in a certain way.
Data Analysis Using a Computer: If you want to analyze data using computer, you should be familiar with the appropriate program. In this area, knowledge of computer and statistics plays an important role. The most common software is SPSS for windows. However, data input can be long and laborious process, and if data is entered incorrectly, it will influence the final results.
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The Akola Urban C0-op. Bank Ltd 3.4 Sources of Data
Source of data collection:Banking fund information requires two kinds of data, i.e. primary data and secondary data. Data plays vital role in the subject matter of analysis, In every field without data we can?t came across any conclusion. The objectives of the present study were accomplished by conducting systematic co-operative banks fund information. Bank fund information is the systematic, collection, analysis and reporting of data and findings that are relevant to different financial situations facing by the bank. Consisted of the following stages. ? Primary Data:There were personal interviews from bank officers. They have provided all necessary Information related to project. a. Observation Method:To observe means seeing and listening people in a particular environment. Since the main Objective of report is to assess the entire fund process, thus fresh and potential data was required to fulfill the purpose so primary data is used. b. Interview Method:Interview means meeting for discussion between researcher and guider. In this method, the interviewers ask specific questions pertaining to research objectives and the responded to answer for specific questions by guider. c. Questionnaire Method:I have taken Primary data through questionnaire method. It consist of set of questions Which are administrated to responder to collect data on specific topic, it is popular research instrument. Questionnaire is prepared in two methods:-
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The Akola Urban C0-op. Bank Ltd 1. Open ended 2. Close ended = = Subjective Objective
? Secondary Data:Secondary data is collected from bank statements, various books and web sites. Secondary Data means data that is already available in various reports, diaries, letters, books, periodicals etc. Secondary data is that, which has been used previously for any research and is now in use for second time. In short the data presented in Research reports when again for further research is called “Secondary Data” There are a number of sources which can be used for secondary data collections some of these sources are as follows. 1. Private Documents (Life history, Diaries, Letters, etc.) 2. Reports published by various Research Organizations Year Books, Multi State publishers etc. 3. Books, Magazines, journals, Newspapers, Booklets, Prospectus, Annual Reports etc.
Analyze the collected information: This involves converting raw data into useful information. It involves tabulation of data, using statistical measures on them for developing frequency distribution and calculating the averages and dispersions.
Report Research Findings: This phase will mark the culmination of the research effort. The report with the research findings is a formal written document.
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4. Limitations of the Study
1. The project was conducted in a short span of 2 months which itself acts as constraint. Moreover it also puts pressure for data collection and analysis of the data. 2. It is based on the study of only one Co-Operatives bank. 3. The study reveals the reasons only from the point of view of the bank and not the view of the customers. 4. As per the bank?s policy there are restrictions on disclosing some information data. 5. The MIS system is very confidential and hence all the bank records were not fully accessible. 6. Approximate values are used for the analyzing. Hence the results also reveal the approximate values.
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5 INDUSTRY PROFILE
5.1CO-OPERATIVE BANK IN INDIA Overview of co-operative Bank in India
The Co-operative banks in India started functioning almost 100 years ago. The Cooperative bank is an important constituent of the Financial System, Judging by the role assigned to co operative, the expectations the Co- operative is supposed to fulfill, their number and the number of offices the co-operative bank operate .Though the co operative movement originated in the West, but the importance of such banks has assumed in India play an important role even today in rural financing. The business of co-operative bank in the urban areas also has increased phenomenally in recent years due to the sharp increase in the number of primary co-operative banks. Co-operative institutions are engaged in all kinds of activities namely production, processing, marketing, distribution servicing and banking in India and have vast and powerful superstructure. Co-operative banks are important cogs in this structure. In the beginning of 20th century availability in India, more particularly in rural areas, was almost absent. Agriculture and related activities were starved of organized, institutional credit. The rural folk had to depend entirely on the moneylenders and pawnbrokers who lent often at usurious rates of interest. The co-operative banks arrived in India in the beginning of 20th century as an official effort to create a new type of institution based on the principles of co-operative organization and management suitable for problems peculiar to Indian conditions. These banks were conceived as substitutes for money lenders and pawnbrokers, to provide timely and adequate short term and long term institutional credit at reasonable rated of interest. Co-operative Banks in India are registered under the Co-operative Societies Act. The cooperative bank in also regulated by the RBI. They are governed by the banking Regulations Act/1949 and Banking Laws (Co-operative Societies) Act. 1965
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CATEGORIES: There are many categories of the co-operative banks: A)Short term lending oriented co-operative Banks-within this category there are three sub categories of banks viz. state co-operative banks, district co-operative banks, and primary agriculture co-operative societies. B) Long term lending oriented co-operative banks-within the second category there are land development banks at three levels state level and village level. The co-operative banking structure in India is divided into following main categories. 1. Primary urban co-operative 2. Primary agriculture credit societies 3. District central co-op banks 4. State co-operative bans 5. Land development banks
Cooperative banks in India finance rural areas under: ? ? ? ? ? Farming Cattle Milk Hatchery Personal Finance
Cooperative banks in India finance urban areas under: 1) Self-employment 2) Industries 3) Small scale units 4) Home finance
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The Akola Urban C0-op. Bank Ltd 5) Consumer finance 6) Personal finance Some facts about Cooperative banks in India 1) Some cooperative banks in India are more forward than many of the state and private sector banks. 2) According to NAFCUB the total deposits & lending of cooperative banks in India is much more than Old Private Sector Banks & also the New Private Sector Banks. As a matter of fact, the crisis had a contrary effect and in most provinces there was a movement to withdraw deposits from non co-operatives and placed them in co-operative institutions. The distinction between two classes of security being well appreciated and preference being given to the latter owing partly to the local character and publicity of co-operative institutions but mainly, we think to the connection of government with co-operative movement. RBI Policies: The reserve bank of India appointed High Power Committee in may 1999 under the chairmanship of Shri K. Madhav Rao, Ex- Secretary, and Government of Andhra Pradesh to review the performance of Urban Co-operative Banks (UCBs) and to suggest necessary measures to strengthen this sector. With reference to the terms given to the committee, the committee identified 5 broad objectives: 1) To reserve the co-operative character of UCBs. 2) To protect the depositors interest. 3) To reduce the risk of the financial system. 4) To put in place strong regulatory norms at the entry level so as to sustain the operational efficiency of UCBs in a competitive environment. 5) To align Urban Banking sector with the other segments of the Banking sector.
Reserve Bank of India has extended the off-site surveillance system (oss) to all nonscheduled urban co-operative banks having deposit size of Rs.100 crore and above
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5.2 COMPANY PROFILE PROFILE OF AKOLA URBAN CO-OPERATIVE BANK LTD., AKOLA
Akola is one of the important districts in Maharashtra. Akola is a major center of banking transitions. There are many commercial co-operatives nationalized banks in Akola. Apart from these there are 10 urban co-operative banks as well as credit society in Akola which meet financial need of small borrowers. The commercial banks mainly provides finance to the big medium industries while co-operative societies including co-operatives banks provides finance to Agriculture as well as small business man, professionals, traders & enterprises. The Akola Urban co-operative bank Ltd, Akola (Multi Schedule Bank) is pioneer Urban Co-operative Bank in Akola.
Development of Bank:The Akola Urban co-operative Bank Ltd. Akola (Multi Schedule Bank) was register under Maharashtra Stat Co-operative Act-1961. The Akola Urban Co-op Bank, Akola (Multi Stat Scheduled Bank) was established on 28th Sept 1963 on improvement in its performance within short period of four decades. It fulfills all conditions of RBI for being a multi state scheduled bank. The Akola Urban co-operative Bank Ltd, Akola (Multi Schedule Bank) There are 29 branches of Akola Urban co-operative Bank in Maharashtra. The branches of Akola Urban cooperative Bank are established in Vidarbha and Maharashtra regions. Mostly the Vidarbha region is covered by Akola Urban co-operative Banks. The Head office of the Bank is situating in Akola.
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THE BANK PROGRESS REPORT
Sr.No
Details
1986-87
2009-2010
1 2 3 4 5 6 7 8 9
Paid up capital Reserve fund Deposits Loan & advances Outside borrowing Investment Net profit Total No?s of Branches Total No?s of shareholders
16.90 13.70 321.99 321.92 123.73 113.78 1.58 8 6915
4177.42 11042.78 155231.56 100260.6 249.85 50758.30 154.61 29 62555
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Management and administration of bank:
There are 20 members in the panel of the „Board of Directors? according to bank?s regulation. The Board of Directors plans various schemes. Carryout various programmes for the overall development of the bank. All the decisions are taken untidy in the board of directors /meeting. They enjoy a 5 year duration and twice the members from the board of director?s panel were elected unopposed. They enjoy very cordial relationship among them and always work in unified way. They contribute a lot towards the all-round progress of the bank. For administrative purpose & to control all the branches of the bank the responsibility is given to Shree OmPrakash Rathi. Award: The bank received „Best Bank „award from Late Vasantdada Patil award twice in 199394 &1996-97 from Maharashtra state co-operative Bank Association Mumbai.
Schedule Bank Status: The Reserve Bank of India after reviewing the financial progress of the bank recommended by Government of India, with in turn declared scheduled bank in its gazette dated 15th May 1999. Special efforts were undertaken to get the status. This bank is declared as MultiStat Scheduled Bank.
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Place & Establishment Date of Branches of AUCB
Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Name of the Branches Main Branch Ramdas Peth Karanja Branch Mangrulpir Branch Sindhi Camp Branch Balapur Branch Tajanapeth Branch Murtijapur Branch Hiverkhed Branch Akot Branch Malegeon Branch Wadegaon Branch Telhara Branch Sitabardi Branch Jalgaon Branch Jaistamb Branch Yavatmal Branch Daryapur Branch Rajapeth Branch Kalbadevi Branch
Establishment Year 28-SEPT-1963 15-DEC-1965 06-JUL-1970 19-APR-1981 29-DEC-1981 31-DEC-1981 17-DEC-1982 01-AUG-1983 29-AUG-1982 26-DEC-1983 08-FEB-1994 19-MAR-1994 24-OCT-1994 15-MAR-1996 05-JUN-1996 05-SEPT-1996 24-OCT-1996 03-APR-1997 09-JUL-1997 31-JUL-1997
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The Akola Urban C0-op. Bank Ltd 21 22 23 24 25 26 27 28 29 Gandhi Bagh Branch A.P.M.C. Akola Branch Chandrapur Branch Wardha Branch Nanded Branch Dabaki Road Branch Civil Line Branch Aurangabad Branch Nashik Branch 20-NOV-1997 23-MAR-1998 27-JUN-1999 17-FEB-1999 04-MAR-1999 25-NOV-1999 25-NOV-1999 07-JAN-2000 08-JAN-2000
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The Akola Urban C0-op. Bank Ltd
6. Data collection THE AKOLA URBAN CO-OPERATVE BANK LTD., AKOLA NOTES FORMING PART OF THE ACCOUNTS
PART „A? 1. Fixed assets: - The assets register has been maintained at the branches and at the head office. Separate record of Gross block is not being maintained for assets depreciated on written down values basis. 2. The non performing Assets of the bank as on 31st March 2010 are Rs10846.21 lacks. The provision to be made for non- performing advances as per the prudential norms of the Reserve Bank of India as on 31st March 2010 is Rs. 4985.39 lacks. The balances of Reserve for Bad Doubtful Debt, Overdue Interest Reserve for Standard Assets and Provision for Unforeseen Losses as stated in the Balance Sheet are Rs. 5176.17 lacks, which is sufficient to cater to the required provision. 3. Contingent Liability:- Claims against the bank regarding suit filed by the borrowers, depositors, employees „etc.amount is unascertainable. Bank didn?t consider these as tenable in the court hence not considered as debt. 4. Figures of the previous year have been regrouped, reclassified wherever considered necessary. 5. The statement of Significant Accounting Policies and Notes on Accounts form an integral part of the Balance Sheet as at 31st March 2010 and the annexed Profit and Loss Account for the year ended on that date. 6. The bank in absence of guidelines of directions from Reserve Bank of India has not made disclosures in accordance with various Accounting standards (AS) issued by the institute of Chartered Accountants of India. These are as follow: Cash Flow Statement (AS.3), Employees Benefits (Revised AS.15), Segment reporting (AS.17) Related Party disclosure (AS.18), Income Tax an earnings per share- (AS.20), Accounting for Taxes (AS.22)
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The Akola Urban C0-op. Bank Ltd
PART „B?
(In term of RBI Circular following additional disclosures are made) 31.03.2010 10.03% 31.03.2009 9.70%
Sr.No. Particular 01 02 Capital to Risk Assets Ratio Investment i) ii) iii) 03 Book Value Face Value Market Value
47362.70 45943.72 46375.84
42139.17 40501.52 40192.93
Advance Against: i) ii) iii) Real Estate Construction Business Housing 4.84 9335.56 355.91 2.53 4.63 9790.68 2797.80 2.49
04 05
Advance Against Share And Debentures Advance to Directors, their relatives, companies/firms in which they are interested: i) ii) Fund Based Non- fund Based
Nil ---
Nil ----
06 07
Average cost of deposit NPAs i) Gross NPA
8.52%
8.39%
10846.21 10.82%
9372.25 9.68%
ii)
Net NPAs
6048.74
5066.30
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The Akola Urban C0-op. Bank Ltd 6.34% 08 Profitability: a) Interest income as a percentage of working funds b) Non-interest income as percentage of working funds c) Operating profit as a percentage of working funds d) Return of Assets e) Business (Deposit +Advances) per employee f) Profit per employee 0.09% 397.34 0.24 0.24% 369.65 0.58 044% 0.78% 1.45% 1.28% 8.88% 8.55% 5.48%
09
Provision made towards: i) ii) iii) NPAs Depreciation in investments Standard Assets 491.00 400.00 25.00 1000.00 389.14 6.00
10
Provision as on: i) ii) iii) Towards NPAs Towards Depreciation in investment Towards Standard Assets 4797.47 845.16 380.00 Up to 30.09.2010 N.A. 4305.95 445.16 355.00 Up to 30.09.2009 N.A.
11
Insurance premium paid to DICGC
12
Foreign Currency Assets & Liabilities
if applicable)SES
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The Akola Urban C0-op. Bank Ltd PART „B? (In term of RBI Circular following additional disclosures are made) 31.03.2009 9.70% 31.03.2008 9.52%
Sr.No. Particular 01 02 Capital to Risk Assets Ratio Investment iv) v) vi) 03 Book Value Face Value Market Value
42139.17 40501.52 40192.93
25610.67 25545.26 22632.25
Advance Against: iv) v) vi) Real Estate Construction Business Housing 4.63 9790.68 2797.80 3.17 7155.52 1583.85
04 05
Advance Against Share And Debentures Advance to Directors, their relatives, companies/firms in which they are interested: iii) iv) Fund Based Non- fund Based
2.49
2.02
Nil ---8.39%
37.68 ---8.18%
06 07
Average cost of deposit NPAs iii) Gross NPA
9372.25 9.68%
8669.09 10.01%
iv)
Net NPAs
5066.30 5.48%
5367.94 6.45%
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The Akola Urban C0-op. Bank Ltd 08 Profitability: g) Interest income as a percentage of working funds h) Non-interest income as percentage of working funds i) Operating profit as a percentage of working funds j) Return of Assets k) Business (Deposit +Advances) per employee l) Profit per employee 0.24% 369.65 0.58 0.22% 332.54 0.48 1.45% 1.28% 0.54% 1.05% 8.55% 8.63%
09
Provision made towards: iv) v) vi) NPAs Depreciation in investments Standard Assets 1000.00 389.14 6.00 700 -------
10
Provision as on: iv) v) vi) Towards NPAs Towards Depreciation in investment Towards Standard Assets 4305.95 445.16 355.00 Up to 30.09.2009 N.A. 3301.15 56.02 349.00 Up to 30.09.2008 N.A.
11
Insurance premium paid to DICGC
12
Foreign Currency Assets & Liabilities
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The Akola Urban C0-op. Bank Ltd
6.1 Data Analysis Format for calculating NPA
Sr. No.
Particular
Amount Rs.
1 2 3 4
Gross advances Gross NPA Gross NPA as a % of gross advances Deductions I. BAL. In interest suspense A/c
0000.00 00.00 0.00%
00.00
II. DICGC/ECGC claims received and held pending 0.00 adjustments III. Part payment received and kept in suspense a/c 5 6 7 Net advances ( 1 – 4 ) Net NPA Net NPA as a % of net advances 00.00 0000.00 00.00 0.00
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The Akola Urban C0-op. Bank Ltd
The NPA of the Bank.
The overall NPA for the bank is as follows (for the past 3 years). The figures are the cumulative NPA figures for the last 3 years.
(Rs. In lakhs.) Year 2010 2009 2008 NPA (Gross) 10846.21 9372.25 8669.09 NPA (Net) 6048.74 5066.30 5367.94
NPA IN % OF NET ADVANCES
YEAR 2010 2009 2008
GROSS 10.82% 9.68% 10.01%
NET 6.34% 5.48% 6.45%
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The Akola Urban C0-op. Bank Ltd NPA?S Default Amount (Rs. In lacks.) YEAR 2010 2009 2008 GROSS 48.59 50.96 47.44
The NPA default amount for The Akola Urban Co-operative Bank Ltd. Akola for the past 3 years. The figures are shown in the above table.
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The Akola Urban C0-op. Bank Ltd Reasons for Default
Default means the incapability of the borrower to make the repayment. The default may arise due to various reasons. 1. The borrower may will default without reason. 2. Default due to death of the borrower. 3. Bills pending with the debtors or govt. of the borrower. 4. Absconding. 5. Default due to financial crisis in the business of the borrower. 6. Shut down of the business of the borrower, etc. These reasons or defaults are not in control of the bank. They are external and bank can?t predict them. It may sometimes so happen that the bank while issuing a loan may prove to be negligent while scrutiny of the documents or the borrower?s financial position or in deciding upon the limit of sanctioning of a loan. This may also lead to a default.
Loans are assets to the bank. The major profit is earned by way of interests on such loans. But in case of default no income is generated from such lending. Therefore they are also turned as non-performing assets. We can say that the loss that is shown in the balance sheets stating loss from NPA is nothing but the loss from non-performing assets, which if wouldn?t have been defaulted would, definitely would have added to the profits of the bank. Therefore it is very important from banks point of view to take proper care while issuing a loan or while lending funds.
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The Akola Urban C0-op. Bank Ltd NPA analysis
Loans and advances (Rs. In Lacks) Year 2008-2009 2009-2010 2010-2011 Deposit 1222.66 1412.36 1552.31 Loans 865.72 968.19 1002.60
1800
a m o u n t in l a k h s
1600 1400 1200 1000 800 600 400 200 0 2008 2009 2010 Deposits Advances
Year
(6.1)
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The Akola Urban C0-op. Bank Ltd NPA?S Default Amount (Rs. In lacks.) YEAR 2010 2009 2008 Default amount 48 50 47
a m o u n t i n l a k h s
NPA
50.5 50 49.5 49 48.5 48 47.5 47 46.5 46 45.5 2008 2009 2010
NPA
Year (6.2) The graph above gives about of Defaulter of the bank during past three year. The amount of default has marginally increase comprise with 2008 year. And default amount has been decrease in the year 2010.
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The Akola Urban C0-op. Bank Ltd Year 2008-2009 (Rs. In lacks.) Type of Loan Short term Medium Term Long Term A mount 31 11 5
Amount
a m o u n t in l a k h s
35 30 25 20 15 A mount 10 5 0 Short term Medium Term Long Term
(6.3) This chart shows that for the year 2008-2009 maximum loan was being granted as the short term loan. The minimum loan granted for long term loan and medium term.
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The Akola Urban C0-op. Bank Ltd
SECTORIAL ANALYSIS OF DEFAULT
(Rs. In Lacks) Type of loan Short term Medium Term Long Term Amount 65.96 23.40 10.64
10.64
23.40
Short Term Medium Term Long Term
65.96
(6.4) This diagram shows the amount of NPA various loan. It shows short term loan having a maximum defaulter.
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The Akola Urban C0-op. Bank Ltd Proportion of Default
Proportion of Default
47
Loan
Default 865.72
(6.5) The chart shows the total loan amount is 865.72 and default amount is 47(in lakhs) which makes 5.48% app. Of the total loan amount of default during the year 2008-09
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The Akola Urban C0-op. Bank Ltd SHORT TERM LOAN Case. 1
Type of loan Amount Rate of interest Reason for default –
- Personal loan - Rs 1, 00,000. - 14.25%
The party had taken a loan for his personal use that being for purchasing a computer. The asset being purchased and in some course of time the person lost his new job. Thus bank loan was not repaid in time. The bank extended the time period for repayment, but the payment still stands due. The bank thus took the pc in their charge. And this case stands under the list of the defaulter.
Analysis – The client should have taken note of his job assurance before taking a loan. Also expected from the banks scrutinized. As the job being new there is no assurance towards it.
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The Akola Urban C0-op. Bank Ltd Case 2
Type of loan Amount Rate of interest
- Hypothecation loan - Rs 3, 00,000. - 10.75%
Reason for default – The party ventured into a new project and needing funds for working capital applied for the loan. Being into construction field there was not much data on which the bank could analyze the project, as this field being unpredictable. Even with the availability of loan the project failed due to financial crisis and thus came to standstill. The proprietor of the firm later on joined one company in Mumbai and as on today is untraceable. Thus leading to default.
Analysis – The above case clearly indicates that the individual was inexperienced in his field and did not have much support from experienced businessman resulting into project failure. The proposal scrutinized did not note all these facts; moreover there was improper financial planning by individual.
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The Akola Urban C0-op. Bank Ltd Year 2009-2010 (Rs. In lacks.) Type of Loan Short term Medium Term Long Term A mount 28 15 7
Loan
a m o u n t in l a k h s
30 25 20 15 10 5 0 Short Term Medium Term Long Term Loan
(6.6) This chart shows that for the year 2009-2010 maximum loan was being granted as the short term loan. The medium term loan has been increase comparison to last year. And long term loan is stable in this year.
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The Akola Urban C0-op. Bank Ltd SECTORIAL ANALYSIS OF DEFAULT
(Rs. In Lacks) Type of loan Short term Medium Term Long Term Amount 56 30 14
amount
14
Short Term
30
Medium Term Long Term
56
(6.7) This diagram shows the amount of NPA in various sectors of loan . It shows the short term loan is maximum defaulter.
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The Akola Urban C0-op. Bank Ltd
Proportion of Default
proportion of Default
50
Default Loan
968.19
(6.8)
This chart shows the total loan amount is 968.19 and the default amount is 50 (in lakhs) which makes 5.26% app. Of the total loan amount of default during the year 2009-2010
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The Akola Urban C0-op. Bank Ltd
MEDIUM TERM LOAN
Case 1
Type of loan Amount Rate of interest
- Motor Cycle Loan - Rs 5, 00,000. - 15%
Reason for default – The party had taken a loan to purchase Motor Cycle. The party had not repayment EMI installment.Because the party has become defaulter against loan.
Analysis – This clearly shows improper scrutiny of the proposal, s the bank shouldn?t have granted loan against the security . The bank should have noticed that the client was negligent in his work and should have analyzed itself that one whose premiums being outstanding will he be capable of paying the interest.
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The Akola Urban C0-op. Bank Ltd
Case 2
Type of loan Amount Rate of interest
- Term loan - Rs 5,00,000. - 12.50%
Reason for default – The party is a construction company and also works as a govt. contractor. The company had taken a loan of Rs. 5,00,000 to complete the project undertaken. The govt. is to pay a total sum of Rs. 15.40 lakhs as a consideration for the project undertaken. But the govt. has shown its no capability to pay the dues on time. The company therefore wrote a letter of request to the govt. to pay the due in the name of Akola Urbanbank. But as on today?s date no such payments have been received from the govt. therefore causing a default.
Analysis – The bank had a proper scrutiny of the proposal. Bank considered as govt. being the debtors of its client the payments would be made in either case. But it did not work. The businessman had a proper financial planning, which can be said as the project undertaken was completed neither of the two could be blamed as govt. is expected to make payments.
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Year 2010-2011 (Rs. In lacks.) Type of Loan Short term Medium Term Long Term A mount 27 15 6
Loan
30
am o u n t in l a k h s
25 20 15 10 5 0 Short Term Medium Term Long Term Loan
(6.9) This chart shows that for the year 2009-2010 maximum loan was being granted as the short term loan. The medium term loan has been increase comparison to last year. And long term loan is stable in this year.
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The Akola Urban C0-op. Bank Ltd
SECTORIAL ANALYSIS OF DEFAULT
(Rs. In lacks.) Type of Loan Short term Medium Term Long Term A mount 56.25 31.25 12.5
12.50
Types of loan
56.25
31.25
Short Term Medium Term Long Term
(6.10) This diagram shows the amount of NPA in various sectors of loan . It shows the short term loan is maximum defaulter.
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Proportion of Default
Proportion of default
48
Defaulter Loan
1002.60
(6.11) This chart shows the total loan amount is 1002.60 and the default amount is 48 (in lakhs) which makes 4.85% app. Of the total loan amount of default during the year 2010-2011
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The Akola Urban C0-op. Bank Ltd
Non-Performing Asset
Year 2008-2009 2009-2010 2010-2011
Percentage 5.45 5.48 6.34
NPA
6.34 % 5.45%
2008-09 2009-10 2010-11
5.48%
(6.12) Interpretation The ratio of NPA management is increase continuously by almost 0.3%. In 2009-10 the NPA is 5.48% and in 2010-11 the NPA is increase by 1% we can say that the bank work ineffectively in the management of their NPA?s and also it harmful to the bank to manage the liability and recover the money of the bank.
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The Akola Urban C0-op. Bank Ltd The reason for default can be well explained and understood with the help of few cases
Case 1
Type of loan Amount Rate of interest
- Housing loan - Rs 3, 00,000. - 11.50%
Reason for default –
The party had taken a loan against his insurance policy. The businessman died in Dec.2006 It was a natural death. The insurance company refused to pay the amount as the premiums were not duly paid. Therefore the bank could not recover the amount.
Analysis –
This clearly shows improper scrutiny of the proposal, s the bank shouldn?t have granted loan against the security of insurance policy with the premiums outstanding. The bank should have noticed that the client was negligent in his work and should have analyzed itself that one whose premiums being outstanding will he be capable of paying the interest.
The reasons for default can be well explained and understood with the help of few cases.
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The Akola Urban C0-op. Bank Ltd Case 2
Type of loan Amount Rate of interest
- Term loan - Rs 10, 00, 000. - 12.25%
Reason for default – The party had already taken a loan from MSFC (Maharashtra State Finance Corporation). There was an increasing pressure to repay that loan. It was here where Akola Urban Bank lended a helping hand by granting loan of Rs. 10 lakhs. The bank had no sufficient security against the loan except for the request of getting the second charge over the assets mortgaged with MSFC. In due course of time the debtors showed there non-capability of payment, resulting the party into financial crisis. Analysis – From the above reason we can analyze that the Akola Urban bank granted loan to an inefficient businessman. The banks did not take notice that he had a loan from MSFC, which was a big amount and financed to the one who was already in trouble without sufficient security. This directly shows that no scrutiny was done on strict norms. Moreover it also shows improper financial planning of the businessman.
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The Akola Urban C0-op. Bank Ltd Case 3
Type of loan Amount Rate of interest
-
Personal loan - Rs 5, 00,000. - 13.00%
Reason for default –
The party had taken a personal loan for purchase of car for a period of time. The party had no contacts with the bank. The bank investigates the matter and found that he was untraceable. Somebody else with no transfer certificate, insurance and other relevant documents was usingthe car. The police was brought into the action but filed as the second party had illegal supports.
Analysis – The basis problem here was that the bank had insufficient information about the borrower i.e. his past record, contacts etc. the proposal scrutinizers did not gave due importance to the non availability of such information and granted the loan without some concrete base. Overall we say an improper scrutiny of the proposal.
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The Akola Urban C0-op. Bank Ltd New strategy
The bank, taking into consideration the defaults, has come up with a new concept viz. Maximum Permissible Banking Finance (MPBF) This system was applicable where the turnover is 1cr. And above earlier. But with the growing success of it the bank has applied for all type of loan. The major advantage of this being that the risk factor is reduced and analysis of the parties? activities can be properly done. There are various methods for calculating the MPBF. They are as follows –
Method I Projected sales Less: 25% of the projected sales 0000 00000 00000
Less: 5% margin of projected sales 0000
MPBF
00000
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Method II Projected sales Less: 20% of the projected sales 0000 00000 MPBF (80% of projected sales) 00000 00000
Method III Current asset 00000
Less: Current liabilities Working capital 0000 00000
Less: 25% margin of working capital 0000
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The Akola Urban C0-op. Bank Ltd MPBF 00000
This can be well explained with the help of an example
Projected sales Loan demanded
-
1, 00, 00,000/60, 00,000/-
Calculating of MPBF Projected sales Less: 25% of the projected sales Less: 5% margin of projected sales 5, 00,000/25, 00,000/1, 00, 00,000/-
MPBF
-
70, 00,000/-
Here the MPBF suggested that a loan up to the amount of Rs. 70, 00,000/- can be granted. But the loan demanded is Rs. 6000000/-. Therefore the bank can grant the said amount with the pertaining terms and conditions.
If the loan demanded were supposed Rs. 80, 00,000/- then the loan up to the maximum limit Rs. 70, 00,000/- would only be granted.
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HOW TO REDUCE NPA?S?
1. Arrest- slippage in existing standard assets. 2. Identify new / probable NPAs… 3. List out high value NPA accounts. 4. Examine security aspect. 5. Consider rescheduling in genuine cases. 6. Recovery planning: Distribute accounts among staff members/ Director/officers. 7. Meet the borrowers frequently
8. Review of NPA?s Account :- Branch wise monthly statement
Opening Balance (+) Fresh Addition Cash Recoveries Closing Balance
0000 + 0000 - 0000 0000
NPA = Cash Recoveries (3) – Closing Balance (4) 9. Review accounts if interest is not served in the last month 10. Regular limits review on due date 11. Ensure there is no erosion in the value of security & There is no threat to recovery for any reason.
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7. Recommendations and Suggestions
1. The bank must take great care while granting of term loan, personal loan & hypothecation loans. 2. The scrutiny of the proposals should be done considering all the points and related aspects. 3. The security and the financial position must be given due importance. 4. The system of MPBF is a good one. It must be followed to reduce the risk on losses. 5. After granting a loan the frequent follow-up must be taken by bank or frequent visit must be given to the clients? business unit. 6. The asset given as mortgage must be properly valued. Not overvalued or undervalued.
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The Akola Urban C0-op. Bank Ltd
Conclusion
The study and analysis done about helps us to know various aspects relating to default of loans. The findings above help us to analyze the study and draw proper conclusion. The conclusion is in the form of points given below. 1. The amount of deposits and loans has shown a drastic growth over the period of 5 years. 2. Bank has granted loans in various sectors i.e. a. Term loan b. Hypothecation loans.
c. Personal loans. d. Housing loan. e. Educational loan. 3. The major cased of NPA are of term loan and hypothecation loan. 4. The main reasons for the default being a. Non payment from the debtors to the party b. Financial crisis faced by the party c. Death 5. The bank has now come up with a new concept i.e. MPBF. 6. The major advantage being reduction of risk for losses or default.
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BIBLIOGRAPHY
Following thing I referred to done the project:-
1. The Akola Urban Co-operative Bank Annual Report. I. II. 2009-10 2010-11
2. Bare Banking Regulation Act 1949 3. Banking – Theory, Law & Practice :- E.Gordon & K.Natraj 4. Co-operatives Banking Act 5. www.google.com 6. www.rbi.org.in
7. www.investopedia.com 8. www.mastersinfinance.net
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Annexure - A
Name of Bank Administrative Office Add
:-
Akola Urban Co-operative Bank (Main Branch Akola.)
:-
“Jankalyan” 58/59 Toshniwal Layout near Milk Scheme, Murtizapur Road, Akola. Phone: 2453850-54 Fax: 0724-2453864
:-
[email protected]
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doc_292973146.docx