Npa

Non Performing Assets

CHAPTER: 1

EXECUTIVE

SUMMARY

B.M. Collage of Business Administration Page 1


Executive Summary

A project has been prepared under the title of ‘Non Performing Assets in
Surat’.
First of all the information regarding the banking industry is given. In that
various facts regarding the bank industry is being provided. Also the various
types of non performing assets.
The brief introduction of non performing assets is given. In this the definition,
various benefits, objective, limitation etc. are mentioned. Then a analysis of
data is made.
Then the objective of doing the project is mentioned.
After that analysis comes. At the last me find Conclusion & Suggestion. Then
comes “facts and finding” part. In this part first of all the details about the non
performing assets by me is given. Then a comparison is made among the three
companies selected by me on various parameters.



CHAPTER: 2

RESEARCH

METHODOLOGY



RESEARCH METHODOLOGY

Research is a one kind of process to get knowledge about some topic.
Research is done so that systematic analysis can be done and problem can also
be solved.

TITLE OF STUDY
Here it is “NON-PERFORMING ASSETS”

BENEFITS FROM THE STUDY

©. It helps me to know more about NPA and the situation of NPA in
bank.
©. It helps me to know the strategies adopted by banks to reduce the
NPA level and to understand the NPA provisions norms in bank.

RESEARCH PROBLEM
NPA always affect the profit of bank and also the prestige of bank. So
here the research problem is to identify the causes for the NPA and to identify
the action plan to reduce the NPA.

RESEARCH DESIGN
Here the research design is exploratory which helps me to explore the
NPA problem of bank.

RESEARCH INSTRUMENT
As a research instrument I have taken guidance from the CEO of City
bank and also my faculty of college.
DATA COLLECTION
 Primary Data
 Secondary Data


Hence it is an exploratory research their is not any dependence on primary
data.
Sources of secondary data
1. Annual report
2. Journals
3. Websites
4. Books

ANALYSIS AND REPORT WRITING
Here I have done ratio analysis and used various charts for analysis
purpose. And also I have written report on it.



CHAPTER: 3

OBJECTIVE
OF
PROJECT



Some objectives for the selection of this project are as follows

©. To study and understand the concept of NPA

©. To analyze the banks policy to recover the level of NPA

©. To understand the effect of NPA on banks profit and its prestige

©. To understand how corrective measures taken by bank for NPA

©. To understand RBI’S rules and regulations for the control of NPA

©. To understand the credit appraisal policy and NPA recovery policy of bank



CHAPTER: 4

LIMITATION



LIMITATION OF PROJECT

 Some times bank officer was hesitant to give all data on NPA.

 I have selected only one bank for NPA which is very small sample size.

 I face difficulty in doing proper analysis as I don’t have prior experience
for making project report.



CHAPTER: 5

INTRODUCTION
OF
BANKING INDUSTRY



DEFINITION OF BANK

“An organization, usually a corporation, chartered by a state or federal
government, which does most or all of the following: receives demand
deposits and time deposits, honors instruments drawn on them, and pays
interest on them; discounts notes, makes loans, and invests in securities;
collects checks, drafts, and notes; certifies depositor's checks; and issues
drafts and cashier's checks.”

DEFINITION OF BANKING

In general terms, “The business activity of accepting and safeguarding
money owned by other individuals and entities, and then lending out this
money in order to earn a profit”

So we can say that Banking is a company,
which transacts the business of banking. The Banking
Regulations Acts defines the business as banking by
stating the essential function of a banker.

The term banking is defined as “Accepting for
the purpose of leading or investment, deposits of money
from the public, repayable on demand or otherwise and
withdrawal by cheque, draft, order or otherwise.”



HISTORY OF BANKING IN INDIA

Without a sound and effective banking system in India it cannot have a
healthy economy. The banking system of India should not only be hassle free
but it should be able to meet new challenges posed by the technology and any
other external and internal factors.

For the past three decades India's banking system has several
outstanding achievements to its credit. The most striking is its extensive reach.
It is no longer confined to only metropolitans or cosmopolitans in India. In
fact, Indian banking system has reached even to the remote corners of the
country. This is one of the main reasons of India's growth process.

The government's regular policy for Indian bank since 1969 has paid
rich dividends with the nationalization of 14 major private banks of India.

Not long ago, an account holder had to wait for hours at the bank
counters for getting a draft or for withdrawing his own money. Today, he has
a choice. Gone are days when the most efficient bank transferred money from
one branch to other in two days. Now it is simple as instant messaging or dials
a pizza. Money has become the order of the day.

The first bank in India, though conservative, was established in 1786.
From 1786 till today, the journey of Indian Banking System can be segregated
into three distinct phases. They are as mentioned below:

©. Early phase from 1786 to 1969 of Indian Banks

©.Nationalization of Indian Banks and up to 1991 prior to Indian banking
sector Reforms

©. New phase of Indian Banking System with the advent of Indian
Financial & Banking Sector Reforms after 1991To make this write-up



more explanatory, we divide scenario in Phase I, Phase II and Phase III
PHASE I

The General Bank of India was set up in the year 1786. Next were
Bank of Hindustan and Bengal Bank. The East India Company established
Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843)
as independent units and called it Presidency Banks. These three banks were
amalgamated in 1920 and Imperial Bank of India was established which
started as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and first time exclusively by
Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at
Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank
of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up.
Reserve Bank of India came in 1935.

During the first phase the growth was very slow and banks also
experienced periodic failures between 1913 and 1948. There were
approximately 1100 banks, mostly small. To streamline the functioning and
activities of commercial banks, the Government of India came up with The
Banking Companies Act, 1949 which was later changed to Banking
Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965).
Reserve Bank of India was vested with extensive powers for the supervision
of banking in India as the Central Banking Authority.

PHASE II

Government took major steps in this Indian Banking Sector Reform
after independence. In 1955, it nationalized Imperial Bank of India with
extensive banking facilities on a large scale especially in rural and semi-urban
areas. It formed State Bank of India to act as the principal agent of RBI and to



handle banking transactions of the Union and State Governments all over the
country.

Seven banks forming subsidiary of State Bank of India was
nationalized in 1960 on 19th July, 1969, major process of nationalization was
carried out. It was the effort of the then City Minister of India, Mrs. Indira
Gandhi. 14 major commercial banks in the country were nationalized.

Second phase of nationalization Indian Banking Sector Reform was
carried out in 1980 with seven more banks. This step brought 80% of the
banking segment in India under Government ownership.

The following are the steps taken by the Government of India to
Regulate Banking Institutions in the Country:

©. 1949: Enactment of Banking Regulation Act.

©. 1955: Nationalization of State Bank of India.

©. 1959: Nationalization of SBI subsidiaries.

©. 1961: Insurance cover extended to deposits.

©. 1969: Nationalization of 14 major banks.

©. 1971: Creation of credit guarantee corporation.

©. 1975: Creation of regional rural banks.

©. 1980: Nationalization of seven banks with deposits over 200 crore.

Banking in the sunshine of Government ownership gave the public implicit
faith and immense confidence about the sustainability of these institutions.

PHASE III

This phase has introduced many more products and facilities in the
banking sector in its reforms measure. In 1991, under the chairmanship of M



Narasimham, a committee was set up by his name which worked for the
liberalization of banking practices.

The country is flooded with foreign banks and their ATM stations.
Efforts are being put to give a satisfactory service to customers. Phone
banking and net banking is introduced. The entire system became more
convenient and swift. Time is given more importance than money.

The financial system of India has shown a great deal of resilience. It is
sheltered from any crisis triggered by any external macroeconomics shock as
other East Asian Countries suffered. This is all due to a flexible exchange rate
regime, the foreign reserves are high, the capital account is not yet fully
convertible, and banks and their customers have limited foreign exchange
exposure.

RESERVE BANK OF INDIA (RBI)

The central bank of the country is the Reserve Bank of India (RBI). It
was established in April 1935 with a share capital of Rs. 5 crores on the basis
of the recommendations of the Hilton Young Commission. The share capital
was divided into shares of Rs. 100 each fully paid which was entirely owned
by private shareholders in the beginning. The Government held shares of
nominal value of Rs. 2, 20,000

Reserve Bank of India was nationalized in the year 1949. The general
superintendence and direction of the Bank is entrusted to Central Board of
Directors of 20 members, the Governor and four Deputy Governors, one
Government official from the Ministry of Finance, ten nominated Directors by
the Government to give representation to important elements in the economic
life of the country, and four nominated Directors by the Central Government
to represent the four local Boards with the headquarters at Mumbai, Kolkata,
Chennai and New Delhi. Local Boards consist of five members each Central



Government appointed for a term of four years to represent territorial and
economic interests and the interests of co-operative and indigenous banks.

The Reserve Bank of India Act, 1934 was commenced on April 1,
1935. The Act, 1934 (II of 1934) provides the statutory basis of the
functioning of the Bank.

The Bank was constituted for the need of following:

©. To regulate the issue of banknotes to maintain reserves with a view
to securing monetary stability and

©. To operate the credit and currency system of the country to its
advantage



ORGANISATION STRUCTURE OF RBI

THE BANKING SYSTEM

Almost 80% of the business is still controlled by Public Sector Banks
(PSBs). PSBs are still dominating the commercial banking system. Shares of
the leading PSBs are already listed on the stock exchanges.

The RBI has given licenses to new private sector banks as part of the
liberalization process. The RBI has also been granting licenses to industrial
houses. Many banks are successfully running in the retail and consumer
segments but are yet to deliver services to industrial finance, retail trade, small
business and agricultural finance.

The PSBs will play an important role in the industry due to its number
of branches and foreign banks facing the constraint of limited number of
branches. Hence, in order to achieve an efficient banking system, the onus is
on the Government to encourage the PSBs to be run on professional lines.

BANKING SECTORS IN INDIA

BANKS

Public Private Co-operative Regional Rural Foreign

Sector bank sector bank bank bank bank

CO-OPERATIVE BANKS



The Co-operative banks have a history of almost 100 years. The Co-
operative banks are an important constituent of the Indian Financial System,
judging by the role assigned to them, the expectations they are supposed to
fulfill, their number, and the number of offices they operate. The co-operative
movement originated in the West, but the importance that such banks have
assumed in India is rarely paralleled anywhere else in the world. Their role in
rural financing continues to be important even today, and their business in the
urban areas also has increased phenomenally in recent years mainly due to the
sharp increase in the number of primary co-operative banks.

Some of the co-operative banks are quite forward looking and have
developed sufficient core competencies to
challenge state and private sector banks.

According to NAFCUB the total
deposits & landings of Co-operative Banks is
much more than Old Private Sector Banks &
also the New Private Sector Banks. This
exponential growth of Co-operative Banks is
attributed mainly to their much better local
reach, personal interaction with customers, and
their ability to catch the nerve of the local
clientele.

Though registered under the Co-
operative Societies Act of the Respective States
(where formed originally) the banking related activities of the co-operative
banks are also regulated by the Reserve Bank of India. They are governed by
the Banking Regulations Act 1949 and Banking Laws (Co-operative
Societies) Act, 1965.



CO-OPERATIVE BANKS FINANCE RURAL AREA AS
UNDER

©. Farming

©. Cattle

©. Milk

©. Hatchery

©. Personal finance

CO-OPERATIVE BANKS FINANCE URBEN AREA AS
UNDER

©. Self-employment

©. Industries

©. Small scale units

©. Home finance

©. Consumer finance

©. Personal finance

FACTS ABOUT CO-OPERATIVE BANK

©. Some cooperative banks in India are more forward than many of
the state and private sector banks.

©. According to NAFCUB the total deposits & landings of
Cooperative Banks in India is much more than Old Private Sector
Banks & also the New Private Sector Banks.



©. This exponential growth of Co operative Banks in India is
attributed mainly to their much better local reach, personal interaction
with customers, and their ability to catch the nerve of the local client.



CHAPTER: 6

INTRODUCTION
OF
CITY CO-OP. BANK
LTD



CITY

BANK

INTRODUCTION OF BANK



City is a name of the bank where the bank is ready to serve its banking
services to all customers.

The bank is governed by the Gujarat co-operative societies act, a
legislation enacted by the state of Gujarat in India.

The bank have follows continues “A” Grade Audit systems and it is
the Grade “A” bank till now.

The city co-operative bank was started in 1996.City co-operative bank
ltd was promoted by an experienced and visionary entrepreneur named Mr.
MANOJ PATEL; he is the Founder Chair person of the bank and continues to
supervise its growth and development.

The Bank started off with exemplary combination of talented Board &
potential staff team, stuffed with extreme professionalism and well designed
contours of working method. The bank started as a paperless unit employing
Tele-banking, Remote banking, Off-time banking, Sunday banking, Holiday
banking and many more allied methodologies from the very beginning right
from the D-day.

The bank emerged as an exemplary unit offering a wide range of
specialized services in various sectors. Unlike majority of the banks where
working timings are linked with employee-convenience, CITY BANK
decided to hold timings as per convenience of the cluster of clients whom it
caters.

In the line with the same philosophy some of their branches in the
residential area work all the seven days of the week, without a break. They
work on Sundays w/o any alternative drop during the week. Likewise to focus
special attention on the senior citizens the bank offers to credit monthly
interest in their account with any bank before 5th day of every month.



SOCIAL OBLIGATIONS

City bank does not lag behind in offering contribution for the social
activities, particularly in the field of education and medicines. Out of activities
particularly in the field of education and medicines, Out of the substantial
profits earned by the City bank every year after the year, several goodwill
gestures are made such as,

©. City Bank conference Hall at KP college of Commerce Surat

©. City Bank computer Center at the Engineering College runs by the
Sarvajanik Education Society of Surat

©. Contribution for relief services under the auspices of the service
organization “Chhaydo” offered at the civil medical campus for patients and
their caretakers coming from the surrounding villages.

©. Charity Contribution towards Mahavir Cardiac Hospital of Rs. 11,25,000/-
in the year 2000-01

BANK’S SERVICES

LIFE INSURANCE

Bank has tied with Aviva Life Insurance Co ltd. It is joint venture between
Dabur – Indian FMCG Co & AVIVA – UK’s No 1 & world’s No 5 insurance
co. All the branches are offering all the insurance products of AVIVA viz for
child education, daughter’s marriage, retirement solution, term plan etc.

GENERAL INSURANCE



Bank has tied with IFFCO-TOKIYO General Insurance. It is joint venture
between IFFCO a big fertilizer company in co-operative sector & TOKIYO
General Insurance – Japan’s No 1 & world’s No 5 General Insurance Co. All
the branches are offering all the products viz Mediclaim, Accident insurance,
Vehicle Insurance, House Insurance, factory & Shop keeping Insurance.

MUTUAL FUND

Bank has tied with Principal PNB Mutual Fund, UTI, Benchmark, ICICI
Prudential, SBI Mutual Fund, Lotus India, Reliance Mutual Fund, Kotak
Mahindra, Birla Sunlight, Sundram BNP Pari Bar Mutual.

LOCKERS

Rent free locker facilities are available in Baroda at Kareli Baug, at Bharuch,
Navsari & at following branches of Surat

1. Ring Road Branch
2. Abhishek Branch
3. City Light Branch
4. Puna Kumbharia Road Branch
5. Udhna Magdalla Branch
6. Ved Road(Katargam)Branch
7. Patel Park Branch(Adajan)

BOARD OF DIRECTORS



NO. NAME DESIGNATION

1 Shri. Piyushbahi Patel Chairman

2 Shri. Balvanbhai Patel Vice Chairman

3 Shri. Manojbhai Patel Director

4 Shri. Dharmeshbhai Patel Director

5 Shri. Anandbhai Kalgude Director

Shri. Amaratbhai
6 Director
Brachmabhatt

Shri. Dineshbhai
7 Director
Tamakuwala
Shri. Gaurang Rushi
8 Director

9 Shri. Jayshreeben Talati Director

10 Shri. Umeshabhai Patel Director

ORGANISATION STRUCTURE



(CHAIRMAN)

(DIRECTORS)

(CEO)

(CHIEF MANAGER)

(DIVISIONAL MANAGER)

(AREA MANAGER)

(BRANCH MANAGER)

(OFFICER/CLERK)

BALANCE SHEET
(Rs. in lacs)
Liabilities 2006 2007 Assets 2006 2007



Share 293.23 340.79 Cash & 1919.33 1822.38
Capital Bank
Reserve 1987.08 2282.11 Investment 9326.22 11106.55

Profit & 305.76 236.37 Advances 7093.63 10340.26
Loss a/c
Deposits 15449.44 19946.37 Fixed 154.86 284.70
Assets
Borrowing 0.11 69.38 Other 181.01 648.88
Assets
Other Liab. 639.43 1327.75
& Prov.
18675.05 24202.77 18675.05 24202.77

PROFIT & LOSS ACCOUNT
(Rs. in lacs)
Income 2006 2007 Expenses 2006 2007

Interest & Comm. 1443.1 1769.5 Interest paid 816.59 956.84
0 6
Other Income 129.04 109.45 Operating Exp. 390.48 526.34

Depreciation 46.45 46.52

Provisions 12.86 112.94

Profit for the year 305.76 236.37

1572.1 1879.0 1572.1 1879.01
4 1 4

BRANCHES

1 Main Branch



20, Belgium Chamber, Delhi Gate Ring Road Suart-3.

2. Rander Branch
11, Patel Park, Tadwadi,Rander Road, Surat-9.

3. Adajan Branch
2, River Park Row House, Adajan Surat-9.

4 Ved Katargam Branch
24 Ground Floor Parth Building,Singapoor (ved) Katargam, Surat.

5. Abhishak Branch
1,Balaji Market , Ring Road, Surat – 2.

6. Udhana Magdalla Branch
11,Udhana Magdalla Road, Surat – 7.

7. City Light Branch
UG-14 Hira Panna Shopping Mall, City Light Road Surat- 7.

8. Puna Kumbharia Branch
6,Trapti Plaza, Nr.Sahara Darwaja,Puna KumbhariaRoad Surat .



CHAPTER: 7

INTRODUCTION
OF
NON-PERFORMING
ASSETS

NON-PERFORMING ASSETS

©. MEANING



An asset becomes non-performing when it ceases to generate income
for the bank. Earlier an asset was considered as non performing asset
based on the concept of “past due”.

©. DEFINITION
A NPA was defined as credit in respect of which interest and/or
installment of principal has remained “past due” for a specific period
of time. The specific period of time was reduced in a phased manner as
under:

Year ended March,31 Specific Period
1993 4 Quarters
1994 3 Quarters
1995 2 Quarters
2004 1 Quarters

An amount is considered as past due, when it remains outstanding for
30 days beyond the due date. However, with effect from March31,
2001 the “past due” concept has been dispensed with and the period is
reckoned from the due date of payment.

©. NORMS FOR IDENTIFICATION OF NPA



With an intense to use the international best practice and to
ensure greater transparency, “90 days” overdue norms are accepted
for the identification of NPA from the year ended March 31, 2004.

With effect from March 31, 2004, a NPA shall be counted on
loan and advances where:

A. Interest and / or installment of principal remain overdue for a period of
more than 90 days in respect of a term loan.
B. The account remains out of order for a period of 90 days, in respect of
an Overdraft/ Cash Credit (OD/CC).
C. The bill remains overdue for a period of more than 90 days in the case
of bills purchased and discounted.
D. Any amount to be received remains overdue for a period of more than
90 days in respect of any other accounts.

Tier 2 bank like all the Urban Co-Operative Banks (UCBs)
other than the Tier 1 bank i.e. Unit bank shall classify their
loan accounts as NPA as per 90 day norm as hitherto.

FACTORS RESPONSIBLE FOR NPA
©. Improper selection of borrower’s activities



©. Weak credit appraisal system

©. Industrial problem

©. Inefficiency in management of borrower

©. Slackness in credit management & monitoring

©. Lack of proper follow up by bank

©. Recession in the market

©. Due to natural calamities and other uncertainties

INDIAN ECONOMY AND NPA

Gross NPAs (non-performing assets) in Indian banking sector have
declined sharply to close to 3.0 per cent in 2006 (15.7 per cent at end-March
1997). Net NPAs of the banking sector are now at close to one per cent and
the gap between the gross and net NPAs has narrowed over the years.
Recovery of dues is also more than the fresh slippages.
The decline in NPAs is particularly significant as income recognition,
asset classification and provisioning norms were tightened over the years. For
instance, banks now follow 90-day delinquency norm as against 180-day
earlier. Banks are also required to make general provisioning (0.40 per cent)
for standard advances.
According to Reserve Bank of India, improved profitability,
underpinned by robust macroeconomic environment and upturn in interest rate
cycle, has enabled banks
to reduce the backlog of NPAs.

NARSIMHAN COMMITTEE



©. FIRST COMMITTEE

The committee on financial system, also known as Narsimhan Committee,
under the chairmanship of Shri M. Narsimhan, appointed by the RBI
recommended the introduction of these prudential accounting norms by Indian
Banks in its report submitted in December 1991. The committee was of view
of that…

A. If banks want to know the true and fair financial health of bank then
they should observed the prudential accounting norms while making
balance sheet and profit & loss account.
B. Classification of assets has to be done on the basis of objective criteria.
C. Provisioning should be made on the basis of classification into four
different categories.

The income recognition, Assets Classification and provisioning norms
also known as Prudential Accounting Norms, provided that a bank should not
show profit which is merely a book profit by resorting to practice like debiting
interest to a loan account irrespective of its chance of recovery and booking
the same as income or by not making provisions towards loan losses.

©. NARSIMHAN COMMITTEE’S RECOMMENATIONS

@. Committee has suggested that banks should operate on the basis of
financial autonomy and operational flexibility.

@. It has recommended “Capital Adequacy Norm” of 8%

@. These norms are applicable to all UCB’s from 1st April, 1992.
©. SECOND COMMITTEE



The first committee had made recommendations in 1991, which had
resulted in basic changes in the matter of treatment of income, assets
classification and provisioning norms, etc…it was considered necessary for
government to continue the improvement with striker rules in future also and
for that second committee was made to continue changes with certain
modifications.

The second committee includes the following points:

1. If bank is working in foreign countries at presently then for them the
“Capital Adequacy Norm” is 9% which was 8% earlier.

2. Banks can’t classify the account as NPA which are guaranteed by
the Central / State government, effective from the year 2000-2001.

3. As per the existing norms, no provisions for standard assets but
from March 31st 2000, there is a norm of 0.25 percent on standard
assets.

4. Banks have to make a provision of 2.5% on their investment in
Government securities with effect from the year ending 31st March,
2000. In future, this provision is likely to be raised to 5%.

5. The present norm is of 180 days for the account to be treated as
NPA but after 31st March, 2000, this period is reduced to 90 days only.

5. Banks have been asked to reduce the level of NPA to 5% of their total
advances till 31st March, 2000. The percentage has to be brought down
to less than 3% with effect from 31st March, 2002.
ASSETS CLASSIFICATION



©. CHART OF ASSETS CLASSIFICATION

ASSETS

PERFORMING ASSETS NON-PERFORMING
OR ASSETS
STANDERED ASSETS

SUB-STANDERED DOUBTFUL LOSS
ASSETS ASSETS ASSETS

LESS THAN 1 TO 3 ABOVE
1 YEAR YEARS 3 YEARS

©. DEFINITION AS PER THE CLASSIFICATION OF ASSETS



Reserve Bank of India (RBI) has issued guidelines on provisioning
requirement with respect to bank advances. In terms of these guidelines, bank
advances are mainly classified in to following categories:

1. STANDARD ASSETS:
Standard assets are one which does not carry any problems and which
does not carry more than normal risk attached to the business.Such assets
should not be an NPA.

2. SUB-STANDARD ASSETS:
These assets involved the two types of view as follows…
 In respect to the norms of March 31, 2005 an asset would be classified as
Sub standard if it remained NPA for a period less than or equal to 12 months.
An assets where the terms of the loan agreement regarding interest &
principal have been regenerated or rescheduled after commencement of
production, should be classified as sub-standard and should remain in such
category for at least 12 months of satisfactory performance under the re-
negotiated terms.

3. DOUBTFUL ASSETS:
In respect to the norms of March 31, 2005 an asset is required to be
classified as doubtful, if it has remained NPA for more than 12 months.
A loan which is classified as doubtful has all the weaknesses inherent as that
classified as Sub-standard with the added characteristic that the weaknesses
make collection or liquidation in full, on the basis of the currently known
facts, conditions and values, highly questionable and improbable.
Some types of these assets are…

A. Less than 1 year
B. 1 to 3 year



C. 3 year and above

4. LOSS ASSETS
A loss asset is one where loss has been identified by the bank or internal
or external auditors or by the Co-operation department or by the RBI
inspection but the amount has not been written of, wholly or partly.

READY RECKONER FOR ASSET CLASSIFICATION



WHEN DATE OF NPA ASSET CLASSIFICATION
NO.
FALLS? AS ON 31-03-2007
Between 1-10-2006 &
1. Sub-Standard assets
31-03-2007
Between 1-10-2005 &
2. Doubtful up to 1 year
30-09-2006
Between 1-10-2003 & Doubtful asset of 1 year to 3
3.
30-09-2002 year
Doubtful asset of more than 3
4. On or before 30-09-2003
year
5. No NPA date Loss asset
No security or salvage value of
6.
security is less than 5%
Chance of realization of dues
7. from all available sources is
practically negligible or zero.
Account has been identified by
the bank or internal/external
8. auditors or RBI inspectors as
loss assets, which has not been
written off.

GUIDELINES FOR CLASSIFICATION OF ASSETS

The guidelines are as follows…

1. BASIC CONSIDERATION:


 In simple terms the classification of assets should be done by considering
the well defined credit weaknesses & extent of dependence on collateral
security for realization of dues.

 In accounts where there is a potential threat to recovery on account and
existence of other factor such as fraud committed by borrowers it will not be
prudent for bank to classify that account first as sub-standard and then as
doubtful. Such account should be straight away classified as doubtful asset or
loss asset, as appropriate, irrespective of the period for which it has remained
as NPA.

2. ADVANCES GRANTED UNDER REHABILITATION
PACKAGES:

 Banks are not permitted to do classification of any advances in respect of
which the term have been re-negotiated unless the package of re-negotiated
terms has worked satisfactory for a period of one year.
 A similar relaxation is also made in respect of SSI units which are
identified as sick by banks themselves and where rehabilitation packages
programs have been drawn by the banks themselves or under consortium
arrangements.

3. INTERNAL SYSTEM FOR CLASSIFICATION OF ASSETS AS
NPA:

 Banks should establish appropriate internal systems to eliminate the
tendency to delay or postpone the identification of NPAs, especially in respect
of high value accounts. The banks may fix a minimum cut-off point to decide



what would constitute a high value account depending upon their respective
business levels. The cut-off point should be valid for the entire accounting
year.

 Responsibility and validation level for proper assets classification may be
fixed by bank.

 The system should ensure that doubts in asset classification due to any
reason are settled through specified internal channels with in one month from
the date on which the account would have been classified as NPA as per
extant guidelines.

INCOME RECOGNITION POLICY

According to the act of 1st April, 1992 the income recognition policy is
as follows…
 The policy of income recognition has to be objective and based on the
record of recovery. Income from non-performing assets is not recognized on
accrual basis but is booked as income only when it is actually received.
Therefore, banks should not take to income account interest on non-
performing assets on accrual basis.
 However, interest on advances against term deposits, NSCs, IVPs, KVPs,
and Life policies may be taken to income account on the due date, provided
adequate margin is available in the accounts.

 Fees and commissions earned by the banks as a result of re-negotiations or
rescheduling of outstanding debt should be recognized on an accrual basis
over the period of time covered by the re-negotiated or rescheduled extension
of credit.



 If Government guaranteed advances becomes ‘overdue’ and there by NPA,
the interest on such advances should not be taken to income account unless
the interest has been realized.

PROVISIONING NORMS

 According to the norms the provisions should be made on the
nonperforming assets on the basis of classification of assets as we have
already discussed.

 Taking in to account this provisioning norms the banks have to make
provision on different assets like Loss Assets, Doubtful Assets and Standard
Assets as below :->

( | ). LOSS ASSETS

 The entire assets should be written off after obtaining necessary approval
from the competent authority and as per the provisions act of C0-operative
society Act. If the assets are permitted to remain in the books for any reason,
100% of the outstanding should be provided for.

 If expected salvage value of the loss asset is negligible then 100%
provision should be made on it.

( || ). SUB-STANDARD ASSETS

 A general provision of 10% on the total outstanding should be made on the
advances given.



( ||| ). DOUBTFUL ASSETS

 On doubtful assets provision is made from 20% to 100% as
per the period of asset. The table below shows the provision on
doubtful assets.

Period for which the advance has
Provision Requirement
remained in ‘doubtful’ category
Up to one year 20%
One to Three year 30%
- 50% as on March 31, 2007
More than Three year - 60% as on March 31, 2008
( | ) Outstanding NPA as on March 31,2007 - 75% as on March 31, 2009
- 100% as on March 31, 2010
( || ) Advances classified as ‘doubtful for
more than three years’ on or after April1, -100%
2007

( |V ). STANDARD ASSETS

 From the year ended March 31, 2000, the banks should make a general
provision of a minimum of 0.25% on the standard assets.

 However, Tier 2 banks are required to do higher provisioning on standard
assets as under:-
A. General provisioning requirement is 0.40% from the present level of
0.25%. But incase of agriculture or in SME investors the provisioning rate
is required to be 0.25%.

( V| ). HIGHER PROVISIONS



 There is no objection if the banks create bad and doubtful debts reserve
beyond the specified limits on their own or if provided in the respective State
Co-operative Societies Acts.

MANAGEMENT OF NPA
t is very necessary for bank to keep the level of NPA as low as
possible. Because NPA is one kind of obstacle in the success of bank so, for
that the management of NPA in bank is necessary. And this management can
be done by following way:

©. Framing reasonably well documented loan policy and rules.

©. Sound credit appraisal on well-settled banking norms.

©. Emphasizing reduction in Gross NPAs rather then Net NPAs

©. Pasting of sale notice/ wall posters on the house pledged as security.
©. Recovery effort starts from the month of default itself. Prompt legal action
should be taken.

©. Position of overdue accounts is reviewed on a weekly basis to arrest
slippage of fresh account to NPA.
©. Half yearly balance confirmation certificates are obtained from the
borrowers regularly.

©. A committee is constituted at Head Office, to review irregular accounts.

©. Due to lower credit risk and consequent higher profitability, greater
encouragement is given to small borrowers.

©. Recovery competition system is extended among the staff members. The
recovering highest amount is felicitated.

©. Adopting the system of market intelligence for deciding the credibility of
the borrowers

©. Creation of a separate ‘Recovery Department’ with Special Recovery
Officer appointed by the RCS



RECOVERY OF NPA

©. IMPORTANCE OF RECOVERY:

1. Increase in the income of bank.

2. Increase in the trust of share holder in bank.

3. Level of NPA reduces as the recovery done.

4. Decrease in provisioning requirements.

©. STEPS TAKEN BY GOVERNMENT TO RECOVERING NPA:

1. SECURITIZATION ACT

@. Now this act is also applicable to all Urban Co-Operative Banks.
@. According to this act Bank can take direct possession of the movable and
immovable property mortgages against loans and sell out the same for such
recovery, without depending on legal process in the court.

2. Gujarat state has also by amending under co-op soc, act empower co-op
bank to appoint their staff as recovery officer on getting order from the board
of nominees.

Above both act are benefited to bank for the recovery of NPA.



CHAPTER: 8


CITY BANK &

NON-PERFORMING

ASSETS

CREDIT APPRAISAL POLICY AT CITY BANK

©. INTRODUCTION

At the time of registration of bank, Loan rules were framed and
approved by the DRCS, Surat. Thereafter with the approval of Board, loan
rules were changed considering guidelines issued by RBI from time to time.
Now in view to increasing branch network in numbers of geographically also,
one common document viz. Appraisal policy is framed.



©. POLICY ON PRE-SANCTION

1. Application for loan should be in standardized form as devised by the
bank.

2. Branch to collect all the papers/information/documents as suggested in the
respective application form.

3. Branch to visit the borrower’s office/factory/residence and to satisfy
themselves before recommending any loan to higher authority and to keep
record of such visit.

4. If applicant maintains loan/current/saving account with any other
bank/financial institutions, branch to verify such account statement and to
satisfy them.

5. Branch to ascertain the promptness of applicant in making payment of
Power bill/Property Tax/LIC Premium/Existing loan interest or
installment, before recommending the proposal to higher authority.

©. APPRAISAL

A. WORKING CAPITAL FACILITY
1. Working capital requirement to be assessed properly considering past
performance, holding period for debtors as also for inventory at various level,
sales, etc…

2. Working capital facilities beyond Rs. 5 lacs should not be considered in the
form of overdraft.



3. Margin for CC against stock be 30% and for receivables 50%.

B. TERM FINANCE
1. term loan limit to be arrived @ 25% margin in respect of
Machinery/Equipment and Vehicles while 50% against land & building,
electrification, furniture fixtures.

2. Sources for margin money to be ascertained.

3. Repayment capacity, considering existing earning to be ascertained.

4. Moratorium period to be fixed considering time required going in for
commercial production.

C. GENERAL
1. Credit facilities should not exceed segment wise, individual as also
group exposures.

2. in case of switch over from other bank, branch to obtain credit
information report from the concerned bank.
3. In case of existing borrower/group borrower, branch to satisfy
themselves about their dealing with the bank.

©. EXPOSURE

As per the RBI guidelines per party exposure is restricted to 15% of
share capital and Free Reserves and group exposures it is 40%. RBI has given
liberty to recalculate the exposure on the basis of profitability of September



half. However irrespective of these it is restricted at lower level i.e. Rs.1.55
crore for individual and Rs.3.50 crores for group.

©. SANCTIONING AUTHORITY

1. AGM
Rs.1.00 lac for all types of fresh loan except staff loan and Rs.2.00
lacs for renewal

2. CEO
Rs.2.00 lacs for all types of fresh loan except staff housing loan and
Rs.4.00 lacs for renewal

3. COE
Committee of executives comprising of all the executives shall have
authority to grant all type of fresh loan up to Rs.15.00 lacs except loan
against FDR/LIC/GOVT. security and staff housing loan as also
renewal of all working capital facilities irrespective of limit.

4. Chairman/Vice Chairman/Founder Chairman
Loan against FDR/LIC/GOVT. security and any adhoc request.

5. LOAN COMMITTEE
All types of loans to single borrower up to Rs.77.50 lacs and Rs.1.75
crores for group borrower.

6. BOARD
All types of loan within exposure ceiling for individual and group
borrower.



©. DISBURSAL FORMALITIES

A. WORKING CAPITAL FACILITY
1. Fresh/additional limit against stock to be released only after party obtains
adequate insurance for stock and submit stock/book debts statement.

2. In case of new unit, working capital facility to be released, only after the
unit starts commercial production.

B. TERM FINANCE
1. So far as possible, disbursement to be made by direct payment to seller.

2. At every time of disbursement, matching contribution to be made by the
borrower.

3. Immediately after disbursement, branch to follow up insurance policy,
receipt for payment made, invoice etc…

C. GENERAL
1. Disbursement to be made only after complying with all the terms and
conditions of sanction, complete documentation and obtaining disbursal
authority.
2. In case of Private Ltd. Company, charge with ROC to be registered
immediately on disbursal of credit facility.
3. Before disbursal branch to ensure that borrowers/guarantors become
member of the bank.

©. POST SANCTION

A. TERM FINANCE



1. On installation of machineries branch to inspect the unit and to ensure that
machineries as per sanction is received & place the inspection report on
record.

2. At least twice a year, branch to inspect the unit to ensure that machineries
financed by the bank are in running condition.

B. WORKING CAPITAL
1. No finance to be considered against inter-firm receivable and for the
receivables of more than 90 days.

2. Drawing power to be arrived at regularly every month on the basis of stock
statement/book debt statement submitted by the party.

3. Branch to ensure that receipt and payment through CC/OD accounts
represent genuine business transactions.

4. Branch to carry out inspection of the unit at least on quarterly basis.

@. Renewal of working capital facility

1. Personal balance sheet of proprietor/partner/directors is also to be obtained.

2. Branch to submit the renewal papers along with memorandum for renewal
to higher authority for renewal, with its comments on performance with the
bank, financial performance viz. sales, profit etc…



3. If financial performance does not justify the limit at current level, branch to
persuade the party to reduce the limit.

4. Where the accounts are statutorily required to be audited, branch to obtain
audited accounts at the time of renewal.

NPA NORMS OF CITY BANK

©. CLASSIFICATION:

1. SUB STANDARD ASSETS
Overdue of 90 days and for loan up to Rs.1.00 lacs overdue for 6 months
NPA up to 12 months remain in sub standard assets.

2. DOUBTFUL ASSETS
NPA for more than 12 months is doubtful assets.

©. PROVISION:

1. STANDARD ASSETS
 0.25% of standard assets in SME and direct agriculture advances.
 0.40% in case of all other standard loans
 1.00% for personal loan, Commercial Real Estate Loan, Loan against
shares
 And for housing loan up to Rs.20.00 lacs the provision is 2.00%.

2. SUB STANDARD ASSETS
 10% of sub standard assets

3. DOUBTFUL ASSETS
 20% for NPA from 13 months to 24 months



 30% for NPA from 25 months to 48 months
 50% for NPA from 49 months and above
 100% for loss assets

RECOVERY POLICY AT CITY BANK

©. BANK’S POLICY:

At present they are making recovery but procedure for the same is not
documented in the form of policy. Although the bank is committed to
collection/recovery of its dues but the dignity of and respect for the customer
is central to their recovery policy. The policy is framed on the principal of
courtesy, fair treatment and persuasion.

©. GUIDELINES FOR BRANCH/RECOVERY STAFF:

All the branches of City bank have to follow the following
guidelines…

1. Branch to continuously inform the borrower about the due date of
repayment schedule. Recovery efforts to starts from the first month
of default itself.

2. Position of overdue account to be reviewed on the monthly basis to
arrest slippage of fresh accounts to NPA category.

3. If the branch does not get response from the borrower for paying
the amount, they have to visit the unit and meet with the borrower.
During visit to customer’s place for collection of dues, decency
and decorum would be maintained and customer’s privacy would
be respected as far as practicable.



4. If the branch does not get any favorable response, during personal
visit, they should write a notice letter to borrower.

5. If borrower still behaves irresponsible, they should meet the
guarantor and ask guarantor to peruse the borrower. Guarantor
must be informed about legal complication to arise if borrower
fails to repay the dues.

6. On failure of all the recovery steps, branch to contact Area
office/Control centre.

7. Area office/Control centre to call the borrower along with
guarantor and try to find out the reason for overdue. If borrower is
in genuine difficulty, problem to be resolved in a mutually
acceptable and in an orderly manner.

8. If party behaves indifferent, legal actions must be initiated. In such
case prompt legal action and seizure action to be taken. Preference
to be given for steps under Securitization Act rather than go for
filling a case in the court of Board of Nominees.

9. Reasonable notice would be given before Repossession of Security
and its realization, unless the borrower is about to dispose
of/remove the whole or any part of the security from the locality
where it ordinarily remained or by whom it is used or caused to be
remained or used, as the case may be, at the time of creation of
security.

10. The aim of possession under Securitization or State co-op. Act will
be to recover the dues and will not be aimed at whimsical



deprivation of the property. The bank shall resort to repossession
of the security only when the collection/recovery of dues is not
forthcoming in spite of request made and the policy for
repossession shall be in accordance with the terms and conditions
of the loan documents and with in the legal framework. The policy
fairness and transparency in repossession, valuation and realization
of security.

CHAPTER: 9


ANALYSIS
OF
DATA

YEAR WISE NPA AT CITY BANK

©. YEAR 2003
(RS. IN LACS)
Details Amount %of Total

STANDARD ASSETS 5912.67 91.90084

SUB-STANDARD ASSETS 189.75 2.949291

DOUBTFUL ASSETS 316.69 4.922324



LOSS ASSETS 14.64 0.22755

TOTAL 6433.75 100

NPA OF 2003

LOSS ASSETS 0.22755

DOUBTFUL ASSETS 4.922324
ASSETS-->

%of Total
SUB-STANDARD ASSETS 2.949291

STANDARD ASSETS 91.90084

0 20 40 60 80 100
VALUES-->

©. YEAR 2004

(RS. IN LACS)








TOTAL 7369.18 100

NPA OF YEAR 2004

LOSS ASSETS 0.15

ASSETS-->

%of Total


0 20 40 60 80 100
VALUES-->

©. YEAR 2005

(RS. IN LACS)







TOTAL 7707.72 100

NPA OF YEAR 2005

LOSS ASSETS 0.01

ASSETS-->

%of Total


0 20 40 60 80 100
VALUES-->

©. YEAR 2006

(RS. IN LACS)





TOTAL 7093.63 100



NPA OF YEAR 2006

LOSS ASSETS 0

ASSETS-->

%of Total


0 20 40 60 80 100 120
VALUES-->

©. YEAR 2007

(RS. IN LACS)





TOTAL 10340.26 100



NPA OF YEAR 2007

LOSS ASSETS 1.54

DOUBTFUL ASSETS 2.5
ASSETS-->

%of Total


0 20 40 60 80 100
VALUES-->



SEGMENTWISE CLASSIFICATION OF NPA
(RS. IN LACS)

2005 2006 2007

SEGMENT
NO AMOUNT NO AMOUNT NO AMOUNT
OF OF OF
TOTAL TOTAL TOTAL
A/C NPA A/C NPA A/C NPA
ADVANCES ADVANCES ADVANCES

RETAIL TRADE 267 752.63 17.69 248 641.90 20.21 343 802.03 76.81

SMALL BUSINESS 31 46.48 4.38 25 44.17 20.15 122 88.02 50.93

SMALL SCALE IND 582 4021.55 210.74 642 3832.29 44.88 975 6323.86 180.86

CONSTRUCTION &
246 323.43 21.02 231 343.86 2.70 345 459.76 22.43
REPAIRS

AGRICULTURE 2 3.72 0.00 0 0.00 0.00 517 115.64 0.12

SMALL ROAD &
10 5.23 0.00 0 0.00 0.00 34 8.18 1.90
TRANSPORTATION

PROFESSIONAL 84 89.81 5.00 2 7.33 0.00 80 72.52 3.10

EDUCATION 2 10.71 0.00 8 3.41 0.00 3 7.26 0.00

OTHER PRIORITY
SECTOR 0 0.00 0.00 55 41.82 3.47 326 68.05 16.42

OTHE NON
375 2454.16 177.26 285 2178.85 134.41 310 2394.94 186.20
PRIORITY SECTOR

TOTAL 1599 7707.72 436.09 1496 7093.63 225.82 3055 10340.26 538.77



RATIO ANALYSIS

To analyzed the NPA situation in bank and from that to know about the
banks credit appraisal system and level of risk in bank I have done the ratio analysis.
Ratio analysis is the tool which will help us to do financial analysis of bank.
Some names of ratio are as follows:

1. GROSS NPA RATIO.

2. NET NPA RATIO.

3. PROBLEM ASSETS RATIO.

4. SHAREHOLDER’S RISK RATIO.

5. PROVISION RATIO.

6. SUB-STANDARD ASSETS RATIO.

7. DOUBTFUL ASSETS RATIO.

8. LOSS ASSETS RATIO.



1. GROSS NPA RATIO

Gross NPA is the sum of the total assets which are classified as the NPA by bank
at the end of every year. Gross NPA is the ratio of Gross NPA to Gross Advances. It is
expressed in percentage form.

Gross NPA Ratio = Gross NPA * 100
Gross Advances
(RS. IN LACS)
GROSS NPA
GROSS
YEAR GROSS NPA RATIO
ADVANCES
(%)
2003 521.08 6433.75 8.10%
2004 445.44 7369.18 6.04%
2005 436.09 7707.72 5.68%
2006 225.82 7093.63 3.18%
2007 538.77 10340.26 5.21%

GROSS NPA RATIO

9.00% 8.10%
8.00%
7.00% 6.04%
5.68%
PERCENTAGES-->

6.00% 5.21%
5.00%
RATIO
4.00% 3.18%
3.00%
2.00%
1.00%
0.00%
2003 2004 2005 2006 2007
YEAR-->



©. ANALYSIS

Gross NPA ratio shows the bank’s credit appraisal policy. High Gross NPA ratio
means bank have liberal appraisal policy and vice-versa.

In city bank this ratio was 8.10% in March-2003 and it has been decreased from
year 2003 to 2006 from 8.10% to 3.18%. But again in March-2007 this ratio reach at
5.21%. This variation was come because City bank has merged with Baroda dist. Co-op.
bank in the financial year 2006-2007.

However it is revels from the chart that bank’s Gross NPA ratio is continuously
decreasing which is positive trend for bank and we can say that bank have good appraisal
system.



2. NET NPA RATIO

The Net NPA Ratio is the ratio of net NPA to Net Advances. This ratio shows the
degree of risk in bank’s portfolio. Net NPA ratio can be obtain by Gross NPA minus the
NPA provisions divided by Net advances.

Net NPA Ratio = Net NPA *100
Net Advances
(RS. IN LACS)
NET NPA RATIO
YEAR NET NPA NET ADVANCES
(%)
2003 299.13 6211.80 4.82%
2004 0.00 6888.84 0.00%
2005 0.00 7236.74 0.00%
2006 0.00 6622.57 0.00%
2007 0.00 9733.62 0.00%

Net NPA = Gross NPA – Provision for NPA
Net Advances = Gross NPA – Provision for NPA

NET NPA RATIO

6.00%
4.82%
5.00%
PERECNTAGE-->

4.00%

3.00% NET NPA RATIO

2.00%

1.00%
0.00% 0.00% 0.00% 0.00%
0.00%
2003 2004 2005 2006 2007
YEAR-->

©. ANALYSIS



Net NPA ratio shows the degree of risk in portfolio of bank. High net NPA ratio
means banks don’t have enough fund to do provision against the Gross NPA.

In City Bank Net NPA ratio was 4.82% in year March-2003 which shows that in
that year bank had not enough fund for provisions. But after that from March-2004 to
March-2007 Net NPA ratio is 0.00% which shows that bank has now enough provision
capacity. So, here the degree of risk is less.

City bank has done more provision every year which is good at one side but at other
side it also reduces the profit of bank. And shareholder will get fewer dividends.

When all bank will do provision then Net NPA will become zero but if we want to
know the true and fair situation of bank we must consider the Gross NPA of bank.

3. PROBLEM ASSETS RATIO

This ratio is also known as the Gross NPA to Total Assets ratio. This ratio shows
the percentage of risk on the total assets of the bank. High ratio means high risk for bank.

Problem Assets Ratio = Gross NPA *100
Total Assets
(RS. IN LACS)
PROBLEM
YEAR GROSS NPA TOTAL ASSETS ASSETS RATIO
(%)
2003 521.08 13381.91 3.89%
2004 445.44 15935.97 2.80%



2005 436.09 16337.35 2.69%
2006 225.82 18675.05 1.21%
2007 538.77 24202.77 2.23%

PROBLEM ASSETS RATIO

4.50%
3.89%
4.00%
3.50%
PERCENTAGE-->

3.00% 2.80% 2.69%
2.50% 2.23% PROBLEM ASSETS
2.00% RATIO
1.50% 1.21%
1.00%
0.50%
0.00%
2003 2004 2005 2006 2007
YEAR-->

©. ANALYSIS

This ratio shows the percentage of risk on the assets of bank. It shows the level of
risk on bank’s assets. High ratio shows the high risk on liquidity.

In City Bank this ratio was 3.89% in March-2003 and after that it has been
decreased from 3.89% to 1.21% in March-2006. But again it increase to 2.23% in
March-2007 because in that year City Bank was merged with Baroda dist. Co-op. bank in
the financial year 2006-2007.

This ratio is continuously decreasing in bank except in March-2007. But overall this
ratio is good for bank which indicates the level of risk is low in bank.



4. SHAREHOLDER’S RISK RATIO

It is the ratio of Net NPA to Total capital and reserve of bank.

Shareholder’s risk Ratio = Net NPA *100
Total Capital & Reserve

(RS. IN LACS)
TOTAL SHAREHOLDER’S
YEAR NET NPA CAPITAL & RISK RATIO
RESERVE (%)
2003 299.13 1793.76 16.68%

2004 0.00 2075.06 0.00%



2005 0.00 2262.39 0.00%

2006 0.00 2551.64 0.00%

2007 0.00 3014.58 0.00%

SHAREHOLDER’S RISK RATIO

18.00% 16.68%
16.00%
14.00%
PERCENTAGE-->

12.00%
10.00% SHAREHOLDER’S RISK
8.00% RATIO
6.00%
4.00%
2.00% 0.00% 0.00% 0.00% 0.00%
0.00%
2003 2004 2005 2006 2007
YEAR-->

©. ANALYSIS

This ratio shows the degree of risk with share holder’s investment. High ratio
means high ratio with the investment.

In City Bank this ratio was 16.68% in year March-2003 which shows that in that
year risk on share holder’s investment was quite high but after that this ratio is 0.00% up
to year March-2007, which shows that Bank have enough capacity for provision and the
risk on investment is nil.

As we know that this ratio is 0.00% show the risk is nil but on the other side
because of more provision the profit will decrease and the shareholder will get less
dividends.



5. PROVISION RATIO

Provisions are to be made against the Gross NPA of bank. As bank make
provision for NPA it directly affects the profit of bank. This ratio shows the relation of
total provision to Gross NPA.

Provision Ratio = Total Provision *100
Gross NPA
(RS. IN LACS)
PROVISION
TOTAL
PROVISION
(%)



2003 221.95 521.08 42.59%
2004 480.34 445.44 107.83%
2005 470.98 436.09 108.00%
2006 471.06 225.82 208.59%
2007 606.64 538.77 112.60%

PROVISION RATIO

250.00%
208.59%
PERCENTAGE-->

200.00%

150.00%
107.83%108.00% 112.60% PROVISION RATIO
100.00%
42.59%
50.00%

0.00%
2003 2004 2005 2006 2007
YEAR-->

©. ANALYSIS

Provision ratio shows the degree of provision that is made against the Gross NPA
of bank. As bank made the provision it directly affect the profit of bank and also the
dividend payout ratio of bank too.

If Provision ratio is less then it means that bank has make under provision and if
provision is more then it means that it is over provision.

In City Bank they have made 42.59% provision in March-2003 which shows that
it was under provision but after that in March-2004 and March-2005 it is 107.83% and
108% respectively which indicate that provision was nearer to total amount of Gross



NPA but in March-2006 the provision ratio reach at 208.59% which indicate that it is the
very over provision. And again in March-2007 it is 112.60% which is fair ratio.

City bank should make the provision in the range of 100% to 115%. The
provision in March-2006 which is 208.59% is very high and it is not necessary to do that.

6. SUB-STANDARD ASSETS RATIO

Sub-standard Assets Ratio = Total Sub-standard Assets *100
Gross NPA

(RS. IN LACS)
SUB-STANDARD
SUB-STANDARD
YEAR GROSS NPA ASSETS RATIO
ASSETS
(%)
2003 189.75 521.08 36.41%

2004 143.60 445.44 32.24%

2005 156.65 436.06 35.92%



2006 12.24 225.82 5.42%

2007 120.12 538.77 22.30%

SUB-STANDARD ASSETS RATIO

40.00% 36.41% 35.92%
35.00% 32.24%
30.00%
PERCENTAGE-->

25.00% 22.30%
SUB-STANDARD
20.00%
ASSETS RATIO
15.00%
10.00% 5.42%
5.00%
0.00%
2003 2004 2005 2006 2007
YEAR-->

©. ANALYSIS

This ratio shows the percentage of Sub-Standard assets in the Gross NPA of bank. High
Sub-Standard ratio means more proportion of Sub-Standard asset in the Gross NPA.

High ratio shows that there is a chance of recovery of assets is high.

In City bank this ratio was 36.41% in March-2003 which is good for bank and it is 5.42%
in year March-2006 which is not good for bank.

As the level of Sub-Standard assets are more the chances of recovery of NPA are high.



7. DOUBTFUL ASSETS RATIO

It is the ratio of total doubtful assets to Gross NPA of the bank.

Doubtful Asset Ratio = Total Doubtful Assets *100
Gross NPA
(RS. IN LACS)
TOTAL DOUBTFUL
YEAR DOUBTFUL GROSS NPA ASSETS RATIO
ASSETS (%)
2003 316.69 521.08 60.78%

2004 291.00 445.44 65.33%

2005 278.40 436.09 63.84%



2006 213.58 225.82 94.58%

2007 258.80 538.77 48.03%

DOUBTFUL ASSETS RATIO

100.00% 94.58%
90.00%
80.00%
70.00% 60.78% 65.33% 63.84%
PERCENTAGE-->

60.00% 48.03% DOUBTFUL ASSETS
50.00%
RATIO
40.00%
30.00%
20.00%
10.00%
0.00%
2003 2004 2005 2006 2007
YEAR-->

©. ANALYSIS

This ratio shows the percentage of Doubtful assets in the Gross NPA of bank. High
Doubtful assets ratio means more proportion of Doubtful asset in the Gross NPA.

More Doubtful assets means Bank should take action through recovery policy to reduce
the level of Doubtful assets.

As the Doubtful assets ratio is high which shows that bank should take quick action to
reduce that level.

This ratio should be less for the bank.



In City Co. Bank this ratio is in between from 60.00% to 65.00% in year from
March-2003 to March-2005 but in March-2006 this ratio reach at 94.58% which indicate
that bank must take some necessary action to recover it. And again in March-2007 this
ratio decrease to 48.03% which is good for bank.
8. LOSS ASSETS RATIO

It is the ratio of Total loss assets to Gross NPA of bank.

Loss Assets Ratio = Total loss Assets *100
Gross NPA

(RS. IN LACS)
LOSS ASSETS
TOTAL LOSS
ASSETS
(%)
2003 14.64 521.08 2.81%

2004 10.84 445.44 2.43%

2005 1.04 436.09 0.24%

2006 0.00 225.82 0.00%

2007 159.85 538.77 29.67%



LOSS ASSETS RATIO

35.00%
29.67%
30.00%
25.00%
PERCENTAGE-->

20.00%
LOSS ASSETS RATIO
15.00%
10.00%
5.00% 2.81% 2.43%
0.24% 0.00%
0.00%
2003 2004 2005 2006 2007
YEAR-->

©. ANALYSIS

This ratio shows the percentage of loss assets in the Gross NPA of bank. High loss assets
ratio means more proportion of loss asset in the Gross NPA.

This should be less in bank. The high ratio indicates that bank has more fraudulent
account and it is bad for bank. The bank must take necessary action to reduce the level of
loss assets.

In City Co. Bank this ratio is 2.81% in March-2003 and from it reach at 0.00% in the year
March-2006. This ratio is decreasing in bank which is good for bank but again in
March-2007 this ratio reaches at 29.67% which is the very high increase and it is very
bad for bank. But the increase in the ratio of March-2007 is because bank was merged
with Baroda dist. Co-op. bank in that year.

Hence, bank should take some action to reduce the level of loss assets from the total
NPA.



FINDINGS FROM RATIO

As I have already analyze the ratio and from that I can say that bank’s financial
condition is good. Hence, there is correction in the ratio of year 2007. And this correction
is because of City bank was merged with Baroda Industrial co-op bank in year 2007. So,
this effect of merging can be showing from the ratio of year 2007.

From ratio I am able to find the following findings…

1. The Gross NPA ratio of bank is 8.10% in the year 2003 after then it reaches to
5.21% in the year 2007. Hence, the idle gross NPA ratio is 5.00% and bank have
5.21%. So, we can say that bank’s financial condition is good.

2. Bank’s Net NPA ratio is 4.82% in the year 2003 and from 2004 to 2007 it remains
0.00% which is positive for bank.

3. The Problem assets ratio was 3.89% in the year 2003 which was the highest ratio
and from that year it is decrease to 1.21% in the year 2006 which is good for
bank. And this ratio is 2.23% in the year 2007.



4. Provision ratio for the year 2003 is 42.59% which show that their was under
provision in that year but in year 2007 this ratio is 112.60% which shows that
bank have enough profit for the provision.

5. It will be considered good if the Sub-standard assets ratio is high. For City bank
this ratio is 36.41% in the year 2003 which is good but it reaches to 5.42% in the
year 2006 which is very bad for bank’s health.

6. Doubtful assets ratio should be low for the good health of bank and in City bank
this ratio is 94.58% in the year 2006 which is very bad but in year 2007 this ratio
decrease to 48.03% which is positive for bank.

7. Loss assets ratio should be zero and bank have 0.00% in the year 2006 which is
good but in year 2007 this ratio reaches to 29.67% which is very rapid change
with in a one year. And it is also bad for bank.



CLASSIFICATION OF TOTAL NPA
(RS. IN LACS)
2005 2006 2007
YEAR
SUB-
STANDARD 156.65 12.24 120.12
ASSETS
DOUBTFUL
278.40 213.58 258.80
ASSETS

LOSS
1.04 0.00 159.85
ASSETS
TOTAL
436.09 225.82 538.77
NPA



CLASSIFICATION OF NPA

600

500 PERCENTAGE-->

400 SUB-STANDARD ASSETS
DOUBTFUL ASSETS
300
LOSS ASSETS
200 TOTAL NPA

100

0
2003 2004 2005 2006 2007
YEAR-->

CLASSIFICATION OF TOTAL ADVANCES

(RS. IN LACS)
YEAR 2003 2004 2005 2006 2007
TOTAL
521.08 445.44 436.09 225.82 538.77
NPA
STANDARD
5912.67 6923.74 7266.63 6867.81 9801.49
ASSETS
TOTAL
6433.75 7369.18 7707.72 7093.63 10340.26
ADVANCES



CLASSIFICATION OF TOTAL ADVANCES

12000

10000

8000 TOTAL NPA
RS IN LACS-->

6000 STANDARD ASSETS

4000 TOTAL ADVANCES

2000

0
2003 2004 2005 2006 2007
YEAR-->

CHAPTER: 10


CONCLUSION
&
SUGGESTION

CONCLUSION

Now as we know that NON-PERFORMING ASSETS is like a black spot on
diamond. They affect the profit of bank and also the financial health of bank. This NPA
have number of effects on banks working.

During my training in bank I gathered as much as possible information about
NPA from bank and on the basis my experience I conclude the following points:

 City Co. bank’s NPA level is decreasing year by year which good for bank.



 In year 2007 City bank’s own NPA is very low but because of merger with Baroda
industrial co-op bank the level of NPA was increase.

 The Gross NPA ratio of bank is 8.10% in the year 2003 after then it reaches to 5.21%
in the year 2007. Hence, the idle gross NPA ratio is 5.00% and bank have 5.21%. So, we
can say that bank’s financial condition is good.

 Bank’s Net NPA ratio is 4.82% in the year 2003 and from 2004 to 2007 it remains
0.00% which is positive for bank.

 Loss assets ratio should be zero and bank have 0.00% in the year 2006 which is good
but in year 2007 this ratio reaches to 29.67% which is very rapid change with in a one
year. And it is also bad for bank.

 City Co. Bank has sound credit appraisal system and also sound recovery policy.

 City Co. Bank’s NPA level is decreasing year by year and because of that City Co.
Bank is being considered very good bank by citizens of Surat.

 Hence in present time the position of NPA in bank is much better then the past
position. In year 1997 in India the Gross NPA was 15.7% but now it is 3.00% in the year
2007. This is very favorable to Indian economy and also banking sector of India.

 Government’s act and also the Narsimhan committee on NPA are very useful to
reduce the level of NPA.

 So, I can conclude that level NPA in any bank is important parameter to analyze the
health of bank.

SUGGSTIONS



1. City Co. bank’s NPA level is decreasing year by year which good for bank but
bank should follow the recovery policy strictly.

2. In year 2007 City Co. bank’s own NPA is very low but because of merger with
Baroda industrial co-op bank the level of NPA increase so City Co. bank should
have consider the NPA situation of that bank before merger.

3. In City Co. bank there is no any special recovery department so bank should
develop the department for the fastest recovery of NPA.

4. Bank should motivate the staff to do fast recovery NPA.

5. Bank have more NPA in Small Scale Industry so, they should try to reduce that
level of NPA.

CHAPTER: 11



BIBILIOGRAPHY

JOURNALS

• Co-Operative Banker’s Diary 2008
 -by John D’salve

• Annual Report of City Co-Operative Bank
 -year, 2003, 2004,2005,2006,2007

• Periodical circular and statement of RBI regarding to NPA managing and UCB’s

WEBSITES

• http://finance.indiamart.com/investment_in_india/banking_in_india.html



• http://www.rbi.org.in/Home.aspx

• http://www.banknetindia.com/banking/cintro.htm

• http://www.investorwords.com/

• http://www.indiabankassociation.com/


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