NPA Analysis

A study on NPA management
CANARA BANK
1. INDUSTRY PROFILE
Banking Regulation Act of India, 1949 defines banking as accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawal by cheques, draft, and order or otherwise. The word bank has been derived from French word BANQNUE and Latin word BANQCUS which means a bench. The banking structure in India comprises RBI at the top, scheduled commercial banks (established under a schedule of Government of India Act of Parliament). These include Commercial banks and Cooperative banks. Cooperative banks are established in both rural and urban areas by groups of members for mutual benefit. At present there are 52 urban and 16 rural co-operative banks. Commercial banks include 27 PSU (of which SBI and its associates are 8), 29 private and 31 foreign banks apart from 196 Regional Rural Banks. The first bank in India was called General Bank of India which was established in 1786. From 1786 till today, the journey of Indian banking system can be segregated into three distinct stages. It is explained under the heads Stage I, Stage II, and Stage III in detail.
STAGE I
During this period, public had lesser confidence in the banks, as a result deposit mobilization was slow and also saving bank facility provided by the postal department was considered comparatively safer. In 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. In order 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 1956 (Act No. 23 of 1956). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the central banking authority. STAGE II In this phase, the process of nationalization was undertaken in big way by the government. In 1955, Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi urban areas was nationalized. State Bank of India was formed to act as the principal agent of RBI and to handle banking transactions of the union
Department of MBA, PESIT
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CANARA BANK
and state government all over the country. In 1960 seven banks forming subsidiary of State Bank of India were also nationalized. In 1969, fourteen major Commercial Banks in the country were nationalized. This initiative was the effort of the then prime minister of India Mrs. Indira Gandhi. Second phase of nationalization was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under government ownership. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India.The government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions. STAGE III This phase is characterized by the introduction of many products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M. Narashimham, a committee was set up by his name which worked for the liberalization of banking practices. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom in India. People not just demanded more from their banks but also received more.The country is flooded with foreign banks and their ATM stations.. Phone banking and net banking is introduced. The entire system became more convenient and swift. Currently, banking in India is generally fairly mature in terms of supply, product range and reach-even though reaching rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The Indian GDP is expected to grow at 6.9-7% for the year 2012.With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As and takeovers.
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2. COMPANY PROFILE
CANARA BANK
2.1 BACKGROUND AND INCEPTION OF THE COMPANY:

Founded as Canara Bank Hindu Permanent Fund', by late Sri. Ammembal Subba Rao
Pai, a great visionary and philanthropist, in July 1906, at Mangalore in Karnataka, it blossomed into a limited company as 'Canara Bank Ltd.' in 1910 and became Canara Bank in 1969 after nationalization Expansion of bank started in 1926. It strengthened the banking structure in the South India and emerged as one among the large nationalized banks in the country.In 1954 the administrative offices were shifted from Mangalore to Bangalore. In the sixties, the bank expanded the network of branches to northern states of the country and gained a national stature. By 1962, the bank emerged as the largest bank in South India. By 1968, it was the sixth largest bank in the country. In 1974, it stood fifth largest bank in the country. In 1985, the bank acquired a coveted position of THIRD AMONG 20 NATIONALIZED BANKS. Growth of Canara Bank was phenomenal, especially after nationalization in the year 1969, attaining the status of a national level player in terms of geographical reach and clientele segments. Eighties was characterized by business diversification for the Bank. Canara Bank has taken over many banks. In 1985, The Lakshmi Commercial Bank Ltd having its head office at New Delhi with 230 branches in northern states merged with Canara Bank and its 3500 employees became members of Canara Bank family. This is the biggest merger that ever took place in the banking industry in India. In June 2006, the Bank completed a century of operation in the Indian banking industry. FOUNDING PRINCIPLES: 1 2 3 4 5 6 7 To remove Superstition and ignorance. To spread education among all to sub-serve the first principle. To inculcate the habit of thrift and savings. To transform the financial institution not only as the financial heart of the community but the social heart as well. To assist the needy. To work with sense of service and dedication. To develop a concern for fellow human being and sensitivity to the surroundings with a view to make changes/remove hardships and sufferings.
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CANARA BANK
Sound founding principles, enlightened leadership, unique work culture and remarkable adaptability to changing banking environment have enabled Canara Bank to be a frontline banking institution of global standards. Today, Canara Bank occupies a premier position in the comity of Indian banks. With an unbroken record of profits since its inception, Canara Bank has several firsts to its credit. These include: 1 2 3 4 5 6 7 Launching of Inter-City ATM Network Obtaining ISO Certification for a Branch Articulation of Good Banking Banks Citizen Charter Commissioning of Exclusive Mahila Banking Branch Launching of Exclusive Subsidiary for IT Consultancy Issuing credit card for farmers Providing Agricultural Consultancy Services
2.2 NATURE OF THE BUSINESS CARRIED: In the word of late Sri Ammembal Subbarao Pai A good bank is not only the financial heart of the community, but also one with an obligation of helping in every possible manner to improve the economic conditions of the common people" Bank is into pooling together the savings of the community scattered all over and from the very same pool, granting loans to the needy in the society. Thus it acts as a link between the savers and the needy. Thus the two main products of the bank are deposits and loans. Over the years, the Bank has been scaling up its market position to emerge as a major 'Financial Conglomerate' with as many as nine subsidiaries/sponsored institutions/joint ventures in India and abroad. As at September 2011, the Bank has further expanded its domestic presence, with 3432 branches spread across all geographical segments. Keeping customer convenience at the forefront, the Bank provides a wide array of alternative delivery channels that include 2623 ATMs, covering 899 centres. With 100% CBS, the Bank offers technology banking, such as, Internet Banking and Funds Transfer through NEFT(National Electronic Funds Transfer) and RTGS ( Real Time Gross Settlement) across all branches. The bank also has international presence in several centres, including London, Hong Kong, Moscow, Shanghai, Doha, and Dubai. As at September 2011, the total business of the Bank stood at 530515 crore. Net profit of the Bank crossed 4000 crore.
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CANARA BANK
SUBSIDIARIES OF CANARA BANK 1 2 3 4 5 6 7 Canara Robeco Asset Manangement Company Ltd Canara Bank Financial Services Ltd Canfin Homes Ltd Canbank Factors Ltd Canbank Venture Capital Fund Ltd Canbank Computer Service Ltd Canara Bank Securities Ltd
2.3 VISION, MISSION AND QUALITY POLICY:

VISION: To emerge as a Best Practices Bank by pursuing global benchmarks in profitability, operational efficiency, asset quality, risk management and expanding the global reach. MISSION: To provide quality banking services with enhanced customer orientation, higher value creation for stakeholders and to continue as a responsive corporate social citizen by effectively blending commercial pursuits with social banking. QUALITY POLICY: As a premier commercial bank in India, Canara Bank has a distinct track record in the service of the nation for over 100 years. The bank is recognized as a leading financial conglomerate in India, with as many as nine subsidiaries/ sponsored institutions/ joint ventures in India and abroad. Bank step into the second century, they aspire to emerge as a Global bank with best practices. ` Today , Canara Bank has a strong pan India presence with 3432 branches and over 2623 ATMs, catering to all segments of an ever growing clientele base of about 4.04 crore.
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2.4 PRODUCT/ SERVICE PROFILE:
CANARA BANK
The bank has many financial products, services and schemes. Important among them is as follows: 1 2 3 4 5 6 7 8 9 DEPOSIT PRODUCTS:
Fixed Deposits: Secured way to earn high returns for individuals and institutions. Kamadhenu Deposits: Re-investment multiplier plan. Recurring Deposits: Inculcating savings, a rewarding and recurring habit. Ashraya Deposits: A deposit scheme for senior citizens. Canbank Auto Renewal Deposits (CARD): Higher return in a shorter plan. Savings Bank Account: For individuals and non-trading organizations/institutions. Current Account: For business operations- trades, businessmen, corporate bodies.
Canara Champ Deposit Scheme: Basically an SB deposit for children up to the age of 12 yrs.
10 Canara Tax Saver Scheme : A term deposit scheme under the Fixed Deposit & Kamadhenu Deposit streams for Salaried class, businessmen, professionals who come under ambit of tax payers 1 1 2 3 4 5 ADVANCE PRODUCTS:
CanCarry: Provides credit to worthy individuals, professional and salaried class for buying consumer durables and household articles. CanCash: Offer assistance for meeting unforeseen contingencies. Finance is granted against approved shares, bonds and debentures held by the clients. CanMobile: Facilities for purchase of new/used cards/jeeps of all make. The scheme also covers for finance of brand new two wheelers. CanMahila: Exclusive loan schemes for women clients. Can Budget Loan Scheme: Fulfils the financial needs of confirmed employees of reputed PSUs, Joint Stock Companies, Central/State/Semi-Government employees and lecturers/professors/assistant professors of colleges/universities and research institutes.
Can Rent Loan Scheme: Provides loans to property owners whenever the property is leased/rented out to PSUs Central/State/Semi-Government undertakings, reputed corporate banks, financial institutions, insurance companies and MNCs.
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1
CANARA BANK
Can Mortgage Loan Scheme: Designed to meet the financial requirements against the security of equitable mortgage of property (Land and Building) to professional, businessmen, salaried persons and individuals.
Vidya Sagar Educational Loan Scheme: Renders financial assistance for needy and meritous students for perusing all type of studies (professionals/general) in India and abroad.
Housing Loan scheme: Purchase of a ready built house/flat, construction of a house, purchase of a site and construction of a house thereon, for undertaking repairs, renovations, up gradation and creation of additional amenities
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Home Improvement Loan Scheme: Furnishing the house/flat along with banks home loans/independently. Loan Schemes for Traders and Business Enterprises: With hassle-free and minimum terms and conditions, the scheme caters to the needs of traders and other business enterprises for smooth flow of business activities.
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Agri Loan Scheme: Various loan schemes for agri-clinical, minor, irrigation, farm development/machinery, plantation, crop fishers and for agro-exports. SSI Loan Scheme: A host of schemes available for technology up gradation in textile and jute industries, credit linked capital subsidy, standby credit for capital expenditure and margin money scheme of KVIC.
Other Priority Scheme: These include loan for retail traders, small business, professional/self employed, medical practitioners and loan for solar water heating /home lighting system. 1 CREDIT CARD SERVICES: CANCARD is the first Indian card to get ISO 9002 certification. Today it has a
distinct recognition in the domestic as well as international market. The various can cards are: 1 2 3 4 Canara Card (proprietary) Canara Visa Classic / MasterCard Standard Global Card Canara Global Gold Card Cannara Corporate Card
These cards enjoy the privilege of worldwide acceptance and free insurance coverage. Canara Cards are backed by a wide network of CANARA BANK branches and 24
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CANARA BANK
Card Service centers located at many important cities spread across the country. CANARA BANK is the principal member of VISA-WORLDWIDE and MASTERCARD INC.
ADVISORY SERVICES: INDUSTRIAL ADVISORY SERVICES: Canara Bank has a professional outfit consisting of experienced and technically qualified personnel for appraisal of industrial project and consultancy. Range of services offers: 1 2 3 4 5 6 Project appraisal of companies intending to go public Techno economic feasibility studies Viabilities studies of sick industries unit Operating agency services for board for industrial and financial reconstruction Industry focus/ profit Risk rating of banks assisted unit
DEBENTURE TRUSTEE SERVICES: Canara Bank has registered with SEBI to act as a debenture trustee. It offers to undertake to act as trustees for public as well as private placement. Also provides its services in execution of trust deed, obtaining mortgage of property for investors, filing of charges etc. monitoring and follow up for redemption of principle and payments of interest. 1 MUTUAL FUNDS Cannara bank has tie ups with Canara Robeco and HDFC AMC for cross selling of their mutual fund products through their banks. 2 CONSULTANCY SERVICES: MERCHANT BANKING: Canara Banks uniqueness is extending services under single window concept comprising the following areas; merchant banking, commercial banking, investment and bankers to the issue, underwritings and loan syndication. Canara Bank offers specialized services to banks, PSUs state owned corporations, local statutory bodies and corporate sector. Canara Bank is the category I merchant banker authorized by securities and exchange board of India (SEBI) for underwriting of issues, Consultancy/ advisory services to issue including corporate advisory service etc.
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LIFE INSURANCE
CANARA BANK
Bank has started a Joint Venture Insurance Company Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited. The new JV insurance company was launched on 16th of June 2008. 1 ANCILLARY SERVICES
2 3
Safe Deposit Lockers : Lockers are available at select branches where Safe Deposit Vaults are installed Safe Custody Services: Bank undertakes the responsibility of safe custody of articles entrusted by the customer under a contract and returns the same according to terms agreed upon.
4 5 6 7
Nominations : This facility has been devised with an aim of minimising the hardships caused to the family members on the death of the depositor/s 7 Day banking: select branches are open on all days a week. Extended Banking : extention of working hours at select branches DD Shoppe: Branches with DD shoppe facility issues demand drafts upto one hour before close of office hours. 1 INTERNATIONAL BANKING SERVICES:
Canara Bank offers the following international banking services: IMPORT SERVICES: 1 2 3 Establishment of foreign letter of credit for import of goods to India. Handling import documentary collections. Effecting advance payments towards imports.
EXPORT FINANCE SCHEMES: 1 2 3 4 Pre-Shipment Finance: Packaging credit, clean packing credit. Pre-Shipment Credit in Foreign Currency. Foreign Bank Guarantee (FGL). Foreign Letter Of Credit.
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1 2 3 4 REMITTANCES: Handling of foreign outward remittances. Release of exchange for travel abroad. Executing foreign inward remittances.
CANARA BANK
NEW PRODUCT/ SERVICES:
The Bank has further enhanced its basket of new tech-products for customer convenience like Canara Gift Cards, Canara Campus Card, Canara Platinum Card, Bills Desk for utility bills payment, Cash withdrawal at Point of Sale (PoS) machines at Merchant Establishments, VISA money transfer and the ASBA (Application Supported by Blocked Amount) facility during FY11.
2.5 AREA OF OPERATION:

Canara Bank has a network of 3432 branches spread over 25 states and 4 union territories of the county and overseas branches which are administered trough 1 2 Head office at Bangalore 34 Circle Offices and 1 International Division
BRANCHES ABROAD: Canara Bank established its International Division in 1976, to supervise the functioning of its various foreign departments to give the required thrust to foreign exchange business particularly export and to meet the requirements of the NRIs. Though small in size the banks presence abroad has brought in considerable foreign business particularly NRI services The bank has its presence abroad, as under: 1 2 3 India) 4 1 1 Canara Bank Shangai Representative Office, Shanghai Eastern Exchange Establishment ,Doha, Qatar.(management contract and DD drawing facility on Canara Bank) AIRazouk International Exchange Company, Dubai, UAE, (agreement and DD drawing facility on Canara Bank)
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Canara Bank London, UK Indo Hong Kong International Finance Co Ltd Commercial Bank of India LLC, Moscow( a joint venture with State Bank of
CANARA BANK
Apart from above Canara Bank has an offshore banking unit at Niota. In addition many exchange companies situated at UAE, Kuwait, Bahrain and Oman have DD drawing agreement on Canara Bank. Canara Bank has also introduced new money transfer facilities such as Western Union Money Transfer and electronic fund transfer.
2.6 OWNERSHIP PATTERN:

The Canara Bank is a public sector bank. Canara Bank was nationalized with a theme of social control over banks in 1969 with 13 other commercial banks. Thus on July 19, the ownership passed on to Govt of India. This step gave new dimensions and sense of responsibility to the banks. In the FY 2010-11, governments shareholding has been reduced from 73.13% to 67.72% by issuing shares to the public. The total public shareholding stands at 32.28 % with 14.3 crore shares. The bank clocked a Net Profit of Rs 4000 core with significant improvement in Capital Adequacy Ratio (13.22%) and asset quality (Net NPA ratio 1.11%)
4.5 7.5 13.6
5.8
Share Holding Pattern in %

Govt of India
FIIs 67.7 Insurance companies Resident Individuals Banks
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2.7 COMPETITORS INFORMATION:
CANARA BANK
All nationalized public sector banks, private sector banks and foreign banks in India are the keen competitors to Canara Bank. At present there are 52 urban and 16 rural cooperative banks. Commercial banks includes 27 PSU (of which SBI and As sociates are 8), 29 private and 31foreign banks apart from 196 Regional Rural Banks. Among them major competitors to Canara Bank as well as major players in the banking industry are as follows 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 SBI and its seven associated banks. Corporation Bank Syndicate Bank Vijaya Bank Bank of India Bank of Baroda Bank of Maharashtra Karnataka Bank Oriental Bank of Commerce Punjab and Sind Bank UCO Bank HDFC Bank ICICI Bank UTI Bank ABN-AMRO Bank Standard Chartered Bank ING-Vysya Bank
Among them SBI and its seven associates, Punjab National Bank, Bank of Baroda, ICICI are the major competitors to Canara Bank.
State Bank of India (SBI) is the largest banking and financial services company in India by revenue, assets and market capitalization. It is a state-owned corporation with its headquarters in Mumbai, Maharashtra. As of March 2011, it had assets of US$370 billion with over 13,000 outlets including 150 overseas branches and agents globally.
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CANARA BANK
Punjab National Bank (PNB) ) is an Indian financial services company based in New Delhi, India. PNB is the third largest bank in India by assets. It was founded in 1894 and is currently the second largest state-owned commercial bank in India ahead of Bank of Baroda with about 5000 branches across 764 cities. It serves over 37 million customers.
Bank of Baroda (BoB) is the third largest PSU bank in India, after the State Bank of India and the Punjab National Bank and ahead of Bank of India. BoB has total assets in excess of Rs. 3.58 lakh crores, or Rs. 3,583 billion, a network of 3,991 branches and offices, and about 1,657 ATMs. It plans to open 400 new branches in the coming year.
ICICI Bank Ltd.) is an Indian diversified financial services company headquartered in Mumbai, Maharashtra. It is the second largest bank in India by assets and third largest by market capitalization. It offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels. The Bank has a network of 2,630 branches and 8,003 ATM's in India, and has a presence in 19 countries, including India
2.8 INFRASTRUCTURE FACILITIES

1 Canara Bank has achieved 100% computerization. Canara Bank has computerized its activities in the field of deposits, lending recovery, human resources, auxiliary services, promotional activities etc., 2 It has well developed internet banking channel, which helps is providing services like balance enquiry, account statement, intra bank funds transfer, transaction related SMS alerts, payment of taxes and utility bills with convenience of doing the same from wherever they like. 3 Availability of Mobile Banking Service, which helps offering wide range of facilities like account viewing and mini statement, funds transfer-intra and inter-branch/bank, utility payment services, mobile recharge, donation to trusts, e-ticketing. 4 5 The bank has implemented cheque truncation system in Delhi as directed by RBI. Canara Banks customers have access to over 78000+ ATMs connected under National Financial Switch (NFS). The bank had 2623 ATMs at the end of Sept 2011 covering 899 centers.
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1
CANARA BANK
Canara bank has introduced Bills Desk for utility bills payment, Cash withdrawal at Point of Sale (PoS) machines at Merchant Establishments, VISA money transfer and the ASBA (Application Supported by Blocked Amount) facility during FY11
2 3 4
Canara Bank's has installed solar power generators at 85 remote/rural branches to meet the challenges related to erratic power supply. 24 Card Service centers located at many important cities spread across the country and a wide network of CANARA BANK branches supports Canara card services. Automatic fire alarm system and fire proof cabinets in all CBS branches.
2.9 ACHIEVEMENT AND AWARDS:

RECEIVED DURING 2009 10 1 Best Bank in South Zone Award for the year 2008-09 in respect of lending under KVIC and PMEGP Schemes. The award was handed over by Dr.Manmohan Singh, Honble Prime Minister of India. 1 The Bank received the Credit Guarantee Approval Certificate issued by CGTMSE from Shri Pranab Mukherjee, Honble Finance Minister of India. RECEIVED DURING 2010-11 1 2 Canara bank bags Indira Gandhi Rajbhasha shield 2009-10 The Bank has been conferred with the Second Best Bank Award under National Awards for Excellence in lending to Micro Enterprises for the year 2009-10, by the Ministry of MSME and Outstanding Performer at National level for implementation of Interest Subsidy Eligibility Scheme (ISEC) of KVIC in the country for 2009-10. 3 The Bank was conferred 4 awards by the Public Relations Council of India (PRCI), in the following categories 1) Silver Award for Corporate Film ( TV Commercial ) English 2) Bronze Award for House Journal/Magazine Languages 3) Bronze Award for Table Calendar 4) Bronze Award for Corporate Advertisement Single - English
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RECEIVED DURING 2011-12
CANARA BANK
Canara Bank was awarded coveted skoch award for financial inclusion on 5.01.2012 at New Delhi. The award was handed over by Dr C Rangarajan, Chairman Prime Ministers. Economic Advisory Council
The Bank was conferred with National Award - 2011 for excellence in the field of Khadi and Village Industries - Best Bank, South Zone for PMEGP.
SPECIFIC ACHIEVEMENTS PERTAINING TO RECOVERY WING ARE AS FOLLOWS: 1 2 Cash recovery of Rs.750 crore achieved during June 2011 quarter which is all time high for any particular quarter. On line auction of secured assets introduced and implemented under SARFAESI.
A W A R D S: 1. FICCI award for outstanding contribution to rural development 2. Golden peacock award for best corporate social responsibility 3. Social and corporate governance award 4. Amity international business school CSR award 5. FICCI SEDF business world second best corporate citizen award 6. National master craftsman award 7. Kamaladevi chattopadhyaya award 8. Recognition by government of India as nodal self employment training centres
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2.10 WORK FLOW MODEL:
CANARA BANK
CUSTOMER
DEPOSITS
ADVANCES Standard Asset NPA
INTEREST BRANCH OFFICE
SubStanda rd Assets
Doubtful Assets
Loss Assets
CIRCLE OFFICE NPA HEAD OFFICE MANAGE MENT
MONITORIN G FOLLOW UP PREVENTIVE MEASURES TAKING REMEDIES
Cash, Interest and Information flow NPA management activities flow
2.11 FUTURE GROWTH AND PROSPECTS:

1 2 3 The Bank aims to reach an aggregate business figure of ` 6.25 lakh crore, comprising total deposits of ` 3.55 lakh crore and advances of ` 2.70 lakh crore. Added thrust on Retail Business, especially retail deposits and retail advances during FY12. Expanding the delivery channels, the Bank plans o 2 To open 250 branches. 15 To take ATM strength from 2623 to 4000 by March 2012. Expanding global footprints, the Bank plans to open branches in Manama, QFCQatar, South Africa, Germany, the USA, Brazil, Tanzania and Representative Office in Tokyo, Japan. 3 Surveys to open branches in Sri Lanka, Nigeria and Kenya completed.
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CANARA BANK
3. MCKENSYS 7S FRAMEWORK
The McKinsey 7S Framework is a management model developed by wellknown business consultants Robert H. Waterman, Jr. and Tom Peters. The model is most often used as a tool to assess and monitor changes in the internal situation of an organization.. The model is based on the theory that, for an organization to perform well, seven elements need to be aligned and mutually reinforcing. So, the model can be used to help identify what needs to be realigned to improve performance, or to maintain alignment (and performance) during other types of change. The 7S are structure, strategy, systems, skills, style, staff and shared values.
1. STRUCTURE
Organizational structure represents the expressed allocation of responsibilities for different functions and processes to different entities such as the branch, department, workgroup and individual. The organization structure of the Canara Bank depicts the principle of unity of command, principle of order, and principle of secular chain. From the below chart we can see that the top reporting authority is the Board of directors, followed by the Head office. The head office is situated in Town hall, Bangalore, in total there are 34 circle offices and 3432 branches. Under the control of each Circle office there are about 90 100 branches which has to report about its business/transactions to the circle office. Each branch manager has been given with certain sanctioning limits to sanction loan amount.
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CANARA BANK
In case, if he receives an application for a loan amount which is more than his sanctioning limit then he has to forward the same to next higher authority i.e., the circle office. The same process is applicable even in the case of circle office and head office. The Bank has eighteen wings in the Head Office, Bangalore.
HIERARCHY AT CANARA BANK
Board of Directors
Chairman & Managing Director
Executive Director
Chief General Manger
General Manager
Deputy General Manager
Assistant General Manager
Chief Manager
Senior manager
Manager Department of MBA, PESIT

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CANARA BANK
ORGANIZATION STRUCTURE
Board
Head office
Circle office
Branch Branch Branch
2. STRATEGY:
In simple terms strategy is to plan for the future with set goals and objectives. It is about planning and setting corporate goals and then defining the steps needed to achieve those goals. Canara Bank management strategies were renewed in March 2003 and are stated as below. CANARA BANKS CORPORATE OBJECTIVE: E-Efficiency P- Profitability O- Organization effectiveness C- Customer centric H- Hi tech banking
In continuity with their corporate VISION, stated as:

To emerge as a Best Practices Bank by pursuing global benchmarks in profitability, operational efficiency, asset quality, risk management and expanding the global reach
The banks strategies to achieve their long term vision and objectives are: Retail lending: A growing economy like India has a high growth potential in the banking industry, Canara Bank being one of the foremost banking company sees retail lending as a very lucrative proposition of the banking business. Thus Canara Bank has focused its attention on the Retail Lending. The strategy in this activity has been to improve the spreads and lending
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CANARA BANK
against better assets of better quality. Thus this shall help to reduce the NPA in case of default in repayment since the liquidation of the asset would be easier. Thrust on technology: The technological development has influenced many banking industries all over the world. Canara Bank has introduced technology to its routine business. 100% of the bank been computerized. The strategy behind this has been to implement the computerization in their banks in phases. This has helped the bank to introduce the change in the organization over a period of time without much resistance from its employees. The trust on technology has also helped the bank to reduce its operational costs especially the labour cost, provide better customer service and to match their competitors. NPA management: The biggest task in the banking industry is the NPA management. Higher NPA is detrimental to the bank since it erodes the wealth of the shareholders and the interests of the depositors. In this aspect Canara Bank has a clear strategy that is lending against assets and aggressive follow up. This ensures high recoveries and better profitability. Treasury management: With respect to the treasury management Canara Bank's strategy is effective fund management, This will help in improving the yield and ability to hedge the market risks by introduction of real time gross settlement derivatives and core banking.
3. SYSTEM
Canara Bank has been a pioneer in evolving several systems. Each of the system devised by the bank has its own characteristics and is the product of research and experience. The various systems introduced by the bank over the years were published in the form of a book entitled all about HRD system in the year 1992, the same is reviewed and the updated version is our HRD system their formal HRD systems consist of: 1 2 3 4 Training system Entry interview Study Circles Quality Circle
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The entry interview system:
CANARA BANK
Canara Bank has the system of entry interview which aims to introduce the new entrants to the history, culture, tradition of the bank and to show concern for proper settlement of the new entrants at work place and to ensure full devotion to work. Methodology 1 2 When the new entrants joins duty at the reporting branch, the branch in charge has to have personal one to one interaction with the new entrants. The branch in charge/ manager has to talk with the new entrants and casually ascertain about the background, family and profession, his/ her goals in life, expectations, capabilities and potentials. 3 The manager should volunteer information about the history of the bank, its rich culture and heritage, its mission and goals and also has to make the employee aware of his responsibilities. Training system It includes identification of trainees and their training needs, designing of programs, input/ course preparation, training pedagogy, selection of trainers and their training, external training in India and abroad, evaluation of training interaction of executives with employees and DELPHI method. Study Circle The concept of Study Circle aims at self development of employees by instilling a desire to acquire/update knowledge, information and experience. This is an innovative HRD practice of the Bank, envisaging enrichment of general knowledge, enabling multifaceted development of employees, giving an opportunity to employees to discover their talent, come out of their cocoon and exhibits the same. Quality Circle Quality Circle is a voluntary group of employees in the same work area, coming together, working as a team, solving work related problems resulting in self development and organizational benefit. The concept has been built on the basic foundation of "Participative work culture" with motivation and involvement of employees at grass roots level exploring their potentials, creativity and capabilities.
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4. SKILL:
CANARA BANK
A skill is the learned capacity to carry out pre-determined results often with the minimum outlay of time, energy, or both. Skills refer to dominating capabilities or dominating attributes that distinguish a firm from its competitors. Canara Bank is one of the leading banks in the country due to its strong fundamentals and quality customer orientation. It is mainly due to its very good training programmes, which impart various necessary skill sets to its employees. Steps taken by Canara Bank to impart necessary skills Identification of trainees and their training needs: It is done at grassroots level by branch/ section in charge. They consolidate the training needs and submit the same to Circle Office. The circle office then in consultation with Regional Staff Training College draws the training plans and forwards it to the Apex College at Bangalore. Designing of the programs: This is done on the basis of specific objectives of programs, the target group, macro issues and the current and emerging business scenario, some training programs designed are: 1 2 3 4 Induction courses. Supervisory development programs. Management development program. Executive development program.
Program input/ course content: The preparation of course manual/ material is centralized at STC. Subject committees have been formed at STC and this committee consists of experts in the functional areas. Selection of trainers and their training: In house trainers are selected by a process of interview or by selection based on experience, track record, oral and written communication skill aptitude and flair for reading. External training in India and abroad: Beside in house training system Canara Bank identify and post employees to many external training program both in India and in abroad, conducted by various institutes like IIMs, ISB, NIBM, ASCI, INID, IDBRD, MDI, APRACA, etc. Evaluation of training: A structured questionnaire is admitted at the end of the program to assess the quality change in knowledge, skill and attitude of the trainees.
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Interaction of executives with employees:
CANARA BANK
In specialized training program executives from Head Office and Circle Offices are invited for inauguration, thus providing a good forum for interaction. Computer Learning Center: Computer Learning Centres were established by the bank coinciding with the process of computerization in the bank in the late eighties to equip Canara Bank staff with basic computer operational skill.
5. STYLE:
Style refers to how managers collectively spend their time and attention and how they use symbolic behaviour. It refers to pattern of action among the employees of the organization. The Canara Bank management is very strict in following procedural aspects as laid down in memos and circulars issued from time to time and also various manuals. At the same time cordial relationship among the employees of the bank is maintained. In Canara Bank superiors have confidence in subordinates and subordinates feel free to discuss important matters about the job with their immediate superiors. Following are some examples of the Canara Banks schemes where we can find the implementation of the participative management style by Canara Bank. Employee suggestion scheme: Canara Bank has employee suggestion scheme, which aims at encouraging the innovative spirit of the employees and recognizing their valuable contribution by way of feasible suggestions. Features of the system are as follows: 1 2 3 4 All cadres of employees of the bank can participate in this scheme except those working in O and M Section, Inspection Wing HO executives. This provides a forum for collective contribution, facilitates value addition to others idea and helps in crystallizing employees ideas. Cash award Rs 2000 to individual employees and Rs 3000 for teams for the accepted suggestion. All accepted suggestions are also considered under annual award scheme. The best 3 suggestions of the calendar year selected will get each prizes of Rs 10000 for first, Rs7500 for second, and Rs5000 for third prizes respectively.
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CANARA BANK
Staff meeting: Staff meeting is one of the oldest forms of HRD systems of the bank. The concept was introduced way back in the year 1982. It is the most useful participative forum for the effective functioning of the branch or office. The forum may be used for discussion on position or performance of the branch, strategies for improvement, image building activities, etc., could be discussed. The forum can also be used for discussing new schemes or products introduced by the bank to ensure awareness of the salient features among all the employees.
6. STAFF:
Staff is concerned with the people or human resource management process used to develop managers, socialization process, and ways of shaping basic value of management cadre. It also includes the companys human resource and how companies develop employees, train them, motivate and shape their basic values. The present staff strength of the bank as in 2011 is 43397employees. Canara Banks committed and efficient work force include 1 2 3 4 5 6 7 8 9 10 Technological people Specialist Officers Chartered Accountants Financial Analyst Economist Marketing Managers Manager Clerical Staff Security Officers Support staff
Technological staff of Canara Bank includes engineers, network administrator, IT security administrator, computer program data base administrator system engineer, technical field officer, etc. Duties of technical people in the bank are numerous and some of them include computer installation, computer repairs, program writings, data base administration. Chartered accountant and financial analyst of Canara Bank are concerned with preparation of financial statement, analysis and interpretation, internal audit and statutory audit income tax calculation ratio, cash flow and fund flow analysis etc., Department of MBA, PESIT
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CANARA BANK
Marketing managers of Canara Bank include agri business marketing manager, SME marketing manager, etc. The duties and responsibilities of the personnel of Canara Bank are numerous and cannot be prcised. The duties and responsibilities to be performed by the employees of Canara Bank are separately given in the employee manual published by the bank. With the growing challenges of liberalized economy, the Canara Bank employees at different stages are trained to acquire motivation, leadership and knowledge to meet the increased requirements.
7. SHARED VALUES:
Shared values refers to the underlying attitude of the company; a combination of core values and core purpose. Core values are guiding principles and doctrines that do not require external justification and the company would keep even if business circumstances changes. Canara bank people hold the following common beliefs, mindset, and assumptions that shape how the organization behaves its corporate culture. 1 2 3 4 5 6 7 8 9 10 Family culture Focus on and belief in people Commitments Customer orientation Open culture Versatile Community perception Spirit of accepting challenge Concern for performance Consistency
The Canara Bank family has been growing with people continually joining it. People strengthen its tradition and endeavour to preserve the unique work culture built up over the years, by passing it on to the next generation. The organization climate of Canara Bank is marked by display of belonging, loyalty sacrifice, selflessness, and an attitude that the organization is part of each employee s life.
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4. SWOT ANALYSIS:
CANARA BANK
The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. These come from within the company's unique value chain. SWOT analysis groups key pieces of information into two main categories: 1 2 Internal factors The strengths and weaknesses internal to the organization. External factors The opportunities and threats presented by the external environment to the organization.
STRENGTHS: 1 2 3 4 5 Wide variety of products offered by bank to its customers, such as networked ATMs, anywhere banking, Tele banking, mobile banking etc., High quality service to its customers. Pan India presence. Canara Bank has a unique training system and an apex college viz., the Staff Training College (STC) at Bangalore with 13 regional staff training colleges Strong rural presence: This is key strength of Canara Bank as it has strong presence in the rural India. Rural India is having big growth potential as the urban areas are becoming saturated and is facing stiff competition. 6 7 8 9 Implemented IT across the branches, with 100% computerization of the branches Centralized banking system Has emerged as a major 'Financial Conglomerate' with as many as nine subsidiaries/sponsored institutions/joint ventures in India and abroad. Government owned bank: This guarantees in todays circumstances the safety of the deposit and excessive regulations of the government prevent it from taking speculative position. 10 The bank is having 840 branches and 13 administrative units with ISO certification. 11 Canara bank has the best HRD systems. The bank has won national HRD award for its HRD practices.
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WEAKNESS: 1 2 3 4 Delay in follow up on various accounts. Less number of branches and ATMs compared to SBI and other PSUs. Not present in big way in urban areas. Bureaucratic culture still prevailing in the bank.
OPPORTUNITIES: 1 2 To grow by diversifying the products and offering attractive schemes. It has the opportunity to expand its business to other parts of the country, wherein it can increase its customer base, as it is a predominantly present in south India. Use of better technology in operations and providing good and quality service to customer. The bank can diversify its risks by offering variety of products and services with attractive schemes and rates. Government owned Bank: This guarantees in todays circumstances the safety of the deposit and excessive regulations of the government prevent it from taking speculative position. THREATS: 1 2 3 4 5 Competition through Private Sector Banks. Private Banks have started venturing into rural and semi urban areas by giving a severe competition for the bank. Excessive government regulation is hindering the pace of expansion. Better performance by Private Sector Banks as well as some of its Public Sector Counterparts. Entry of MNC banks with new and latest technology; it might take several years for the bank to get itself updated with the same.
3 4 5
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5. ANALYSIS OF FINANCIAL STATEMENT

MEANING OF FINANCIAL ANALYSIS
Financial Statement Analysis is a process of evaluating relationship between component parts of financial statement is to obtain a better understanding of firm s position and performance. According to Myer, Financial Statement Analysis is largely a study of relationship among the various financial factors in a business as disclosed by the single statements and a study of the trend of these factors as shown in a series of statements OBJECTIVES OF FINANCIAL STATEMENTS ANALYSIS 1 2 3 4 To analyze the return to the shareholders. To analyze the how deposits are used by the bank to lend advances and investments. To analyze the relationship between interest earnings and interest expenses. To analyze the financial stability of the business concern.
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BALANCE SHEET FOR THE LAST FIVE YEARS

LIABILITIES As at 31.03.2007 (Rs. in Crores) Capital Reserves and Surplus Deposits Borrowings Other Liabilities and Provisions TOTAL ASSETS Cash and balance with RBI Balances with Banks and Money at Call and short notice. Investments Advances Fixed Assets Other Assets TOTAL 7279 4513 6623 3934 8693 9095 13365 10037 15719 22015 410 9945 142381 1574 As at 31.03.2008 (Rs. in Crores) 410 10091 154072 2517 As at 31.03.2009 (Rs. in Crores) 410 11797 186893 7057 As at 31.03.2010 (Rs. in Crores) 410 14262 234651 8440 As at 31.03.2011 (Rs. in Crores) 443 19597 293973 14262
11651 165961
13439 180529
13489 219646
6978 264741
7804 336079
45226 98506 2860 2995 165961
49812 107238 2917 2684 180529
57777 138219 2930 4060 219646
69677 169335 2859 3217 264741
83700 212467 2845 6359 336079
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CANARA BANK
PROFIT AND LOSS ACCOUNT FOR THE LAST FIVE YEARS

As at Particulars 31.03.2007 (Rs. in Crores) I. Income Interest earned Other income Total II. Expenditure Interest expended Operating expenses Provisions and contingencies and taxes Total NET PROFIT FOR THE YEAR 11395 1421 14849 1565 17357 2072 18588 3021 21741 4026 1492 1394 1891 2039 2081 7338 2565 10663 2791 12401 3065 13701 3478 15241 4419 11365 1451 12816 14201 2213 16414 17119 2311 19430 18752 2858 21610 23064 2703 25767 As at 31.03.2008 (Rs. in Crores) As at 31.03.2009 (Rs. in Crores) As at 31.03.2010 (Rs. in Crores) As at 31.03.2011 (Rs. in Crores)
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RETURN ON ASSETS (ROA)
Year ROA 2006-07 0.98 2007-08 0.92
CANARA BANK
2008-09 1.06
2009-10 1.30
2010-11 1.42
Analysis & Interpretation Return on assets measures a companys earnings in relation to all of the resources it had at its disposal (the shareholders capital plus short and long-term borrowed funds). Thus, it is the most stringent and excessive test of return to shareholders. ROA for short, tells an investor how much profit a company generated for each Rs.1 in assets. The ROA has been consistently increasing over the past 5 years, and it now stands at 1.42 % which means, the bank earns Rs 1.42 for every Rs 1 in asset, which indicates a very healthy position. EARNINGS PER SHARE (EPS)
Years EPS 2006-7 34.65 2007-08 38.17 2008-09 50.55 2009-10 73.69 2010-11 97.83
Analysis & Interpretation The ratio measures the profit available to the equity holders on a per share basis. It is found out by dividing the amount of profit after tax by the number of shares. The EPS of the bank has shown growth over the past 5 years. The earnings per share have increased considerably by 32.76% in the FY 2010-11 to Rs.97.83, which is a good sign for the shareholders of the company. The EPS has increased over the last 5 years. INTEREST EXPENDED / INTEREST EARNED RATIO.
Year 2006-07 2007-08 2008-09 2009-10 2010-11
Int Expended / Int Earned
64.57
75.09
72.44
69.71
66.08
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Analysis & Interpretation
CANARA BANK
It is the ratio of interest expended to interest earned by the bank. Lower ratio indicates lesser expenses and higher earnings and vice versa. Here FY 2006-07 has been the most efficient year in terms of generating less expenses to earnings with 64.57 %, and there after the ratio has increased till 2008-09, and has showed downward trend since then. In the year 2010-11 it has reduced to marginally to 66.08 % which means earnings have increased more than the expenses. CREDIT / DEPOSIT RATIO
Year 2006-07 2007-08 2008-09 2009-10 2010-11
Credit / deposit ratio
68.65
69.40
71.99
72.96
72.23
Analysis & Interpretation It refers to the proportion of loans generated by banks from the deposits received. The term
deposit includes deposit and borrowings in this ratio. The RBI recommends the banks to lend atleast 60% of their deposits as loans. Advances help the banks to earn greater interest then other avenues. Canara Banks credit/ deposit ratio was improving till 2009-10. It has slightly dipped to 72.23% in FY 2010-11, though its better then the figures till 2008-09.
INVESTMENT / DEPOSIT RATIO

Year 2006-07 2007-08 2008-09 2009-10 2010-11
Investment / deposit ratio
31.71
32.06
31.55
30.24
29.01
Analysis & Interpretation It refers to the proportion of investments made by banks from the deposits received. Investments generate lower income compared to deposits, as banks generally invest in government securities which gives lower interest compared to Advances. The ratio is showing a good trend, as it has consistently decreased over the last 5 years, and now stands at 29.01% in FY 2010-11. It means, the bank has used less deposit funds for investment purposes.
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6. LEARNING EXPERIENCE:
It was a great knowledge-based and an excellent training programme in Canara Bank. All the staff members of Bank, especially the staff of recovery wing were very co-operative and friendly in their approach . The main purpose of doing the project was to gain in depth knowledge about a Banking organization with reference to its background, the nature of industry , nature of business and operations, working and analysis of its services and financial and market position. The training received during the period of 10 weeks helped in understanding the various aspects involved in the banking business and how various factors like inflation , interest rates, and policy changes affects the banking industry. The strategic attributes of Canara bank was analyzed using the framework of Mckensys 7s and the SWOT analysis, which enabled the understanding of present status and the future prospects of the bank and the likely competitors of the bank. The analysis of services profile and the work flow model gave valuable insight into how the banking business works and what are the major sources of revenue to the bank. The financial statements analysis helped in knowing the overall profitability and financial health of the bank. In this project titled A study on Non-Performing Assets Management at Canara Bank, effort has been made to look into the reasons of the NPA, implication of high NPA s and suggests effective recovery measures for resolving the problems. Efforts was made to evaluate the efficiency of the strategies used to manage NPA s with reference to Canara Bank, analyzing its performance in the last 5 years and to give the possible solutions for reducing NPA level by using comparative, descriptive and ratio analysis of various important data related to loans and advances. To conclude, this 10 week internship gave a perspective on how one of the largest banks in India work and how the banking business in general is carried out. It was a very useful and memorable learning experience. It proved to be a good platform to get practical exposure in Corporate Environment, and also to understand how theoretical concepts are applied in actual work-place.
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7. GENERAL INTRODUCTION
NON-PERFORMING ASSETS
The real problem of any banking and financial institutions today, is the disbursement of funds in quality assets (loans and advances). There is constant threat of their investments becoming non-performing. A crucial issue which is engaging the constant attention of the banking industry is the alarmingly high level of Non-Performing Assets (NPA). Another major anxiety before the banking industry is the high transaction cost of carrying Nonperforming Assets in their books. In India the Non-Performing Assets are substantially reducing the profit margin of the banks. So the bankers have realized that unless the level of NPAs is reduced drastically, they will find it difficult to survive. In simple words Non Performing Assets problem is one where banks are not able to recollect the money lent to the clients or clients are in such a condition that they find it difficult to pay back the borrowed money to the banks. Though RBI has taken number of steps to reduce NPAs of the Indian banks, it has been found that NPAS have consistently increased from past many years. So the problem of managing NPAs has gained more importance and must be tackled out in such a way that it would not destroy the operational, financial conditions and would not affect the image of the banks.
7.1 MEANING OF NPAs:

An asset was classified as non-performing asset (NPAs) if the borrower did not pay dues in the form of principal and interest for a period of 180 days. However w.e.f March 2004, default status would be given to a borrower if dues were not paid for 90 days. If any advance or credit facilities granted by bank to a borrower become non-performing, then the bank will have to treat all the advances/credit facilities granted to that borrower as nonperforming without having any regard to the fact that there may still exist certain advances / credit facilities having performing status.
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7.2 WHAT ARE NPAs (NON PERFORMING ASSETS):

Non Performing Asset means an asset or account of borrower, which has been classified by a bank or financial institution as substandard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by RBI: 1 An amount due under any credit facility was treated as past due when it was not paid within 30 days from the due date. Due to the improvement in the payment and settlement systems, recovery climate, up gradation of technology in the banking system, etc., it was decided to dispense with past due concept, with effect from March 31, 2001. 2 With a view to moving towards international best practices and to ensure greater transparency, it was 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 non-performing asset (NPA) shall be a loan or an advance where: 1 2 3 4
Interest and or installment of principal remain overdue for a period of more than 90 days in respect of a Term Loan. The account remains out of order for a period of more than 90 days, in respect of an overdraft / cash Credit (OD/CC). The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted. Interest and / or installment of principal granted for short duration crops remains overdue for two harvest/crop and installment of principle or interest on loan granted for long duration crops remains overdue for one crop season. Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts. Action for enforcement of security interest can be initiated only if the secured asset is classified as Non Performing Asset.
5 6
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7.3 ASSET CLASSIFICATION:
Categor y of assets
CANARA BANK
l. N o.
Basis for Deciding the category
Standard assets are the ones in which the bank is receiving interest as well as the principal amount of the loan regularly from the customer. Here Standar d 1. Assets it is also very important that in this case the arrears of interest and the principal amount of loan do not exceed 90 days at the end of financial year. It is an asset, which does not disclose any problem and also does not carry more than normal risk attached to the business, it should not fall under the category of NPA.
(i)With effect from March 31, 2005 an asset would be classified as substandard if it remained NPA for a period less than or equal to 12 months. In such cases, the current net worth of the borrowers/ guarantors or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full. In other words, such assets will have well defined credit weaknesses SubStandar d .2. Assets that jeopardise the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected. (ii) An asset where the terms of the loan agreement regarding interest and principal have been re-negotiated or rescheduled after commencement of production, should be classified as sub-standard and should remain in such category for at least 2 years of satisfactory performance under the renegotiated or rescheduled terms. In other words, the classification of an asset should not be upgraded merely as a result of rescheduling, unless there is satisfactory compliance of this condition.
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An asset is required to be classified as doubtful, if it has remained NPA for more than 12 months. As in the case of sub-standard assets, Doubtfu l .3 Assets rescheduling does not entitle the bank to upgrade the quality of an advance automatically. A loan 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 currently known facts, conditions and values, highly questionable and improbable. An asset where loss has been identified by the bank or Loss .4 Assets internal/external auditors or by RBI inspection but the amount has not been written-off, wholly or partly. In other words, such an asset is considered un-collectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.
7.4 PROVISIONING REQUIREMENTS:
As and when an asset is classified as NPA, the bank has to further sub-classify it into sub-standard, loss and doubtful assets. Based on this classification, bank makes the necessary provision against these assets. Reserve Bank of India (RBI) has issued guidelines on provisioning requirements of bank advances where the recovery is doubtful. Banks are also required to comply with such guidelines in making adequate provision to the satisfaction of its auditors before declaring any dividends on its shares. In case of loss assets, guidelines specifically require that full provision for the amount outstanding should be made by the concerned bank. This is justified in the grounds that such an asset is considered uncollectable and cannot be classified as bankable asset.
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Type of Assets Standard Asset
CANARA BANK
Provision Requirement (%) 0.40% of the outstanding balance (for AGR & SME it is 0.25%) [Provision made at the H.O Level]
Sub-Standard: Secured: Unsecured: Doubtful Asset: DA1 (Up to 1 year): DA2 (1 to 3 years) : DA3 (> 3 years): Loss Asset 10% of the outstanding balance 20% of the outstanding balance For Unsecured portion 100% For Secured portion: 20% of the outstanding balance 50% of the outstanding balance 100% of the outstanding balance 100% of the outstanding balance
Exempted Assets: Advances provided against the following categories are totally exempted from asset classification and provisioning: 1 2 3 4 5 Advances against ones own bank term deposit including recurring deposits. National Savings Certificate. Surrender value of L.I.C policies. Indira Vikas Patra. Kisan Vikas Patra.
Interest debited to the advances against the above whether recovered or not can be taken to income account provided adequate margin is available.
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7.5 UNDERLYING REASONS FOR NPAs IN INDIA:

An internal study conducted by RBI shows that in the order of prominence, the following factors contribute to NPAs: INTERNAL FACTORS: 1 2 3 4 5 6 7 8 9 10 Business (product, marketing. etc.) failure Inefficiency in management Slackness in credit management and monitoring Inappropriate technology/technical problems Lack of co-ordination among lenders. Problem of bad credit appraisal. Funds borrowed for a particular purpose but not use for the said purpose. Project not completed in time. Poor recovery of receivables. Excess capacities created on non-economic costs.
11 In-ability of the corporate to raise capital through the issue of equity or other debt instrument from capital markets. 12 Diversion of funds for expansion\modernization\setting up new projects\ helping or promoting sister concerns. 13 Willful defaults, siphoning of funds, fraud, disputes, management disputes, Mis-appropriation etc., 14 Deficiencies on the part of the banks viz. in credit appraisal, monitoring and follow-ups, delay in settlement of payments\ subsidiaries by government bodies etc. EXTERNAL FACTORS: 1 2 3 4 5 6 7 Recession Input/power shortage Exchange rate fluctuation and price escalation. Accidents and natural calamities, etc. Changes in Government policies and laws in excise/ import duties, pollution control orders, etc. Liberalization of Economy/ removal of restrictions/reduction of tariffs. Sluggish legal system and long legal tangles.
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1 2
CANARA BANK
Scarcity of raw material, labour and other resources. Failures, nonpayment\ over dues in other countries, recession in other countries, adverse exchange rates etc.
7.6 CAUSES FOR AN ACCOUNT BECOMING NPA: Those Attributable to Borrower a) Failure to bring in Required capital b) Too ambitious project c) Longer gestation period d) Unwanted Expenses e) Over trading f) Imbalances of inventories g) Lack of proper planning h) Dependence on single customers i) Lack of expertise j) Improper working Capital Mgmt. k) Miss management l) Diversion of Funds m) Poor Quality Management n) Heavy borrowings o) Poor Credit Collection Causes Attributable to Banks a) Wrong selection of borrower b) Poor Credit appraisal c) Unhelpful in supervision d) Tough stand on issues e) Too inflexible attitude f) Systems overloaded g) Non inspection of Units h) Lack of motivation i) Delay in sanction j) Lack of trained staff k) Lack of delegation of work l) Sudden credit squeeze by banks m) Lack of commitment to recovery n) Lack of technical, personnel & zeal to recover loans. a) Lack of Infrastructure b) Fast changing technology c) Un helpful attitude of Government d) Changes in consumer preferences e) Increase in material cost f) Government policies g) Credit policies h) Taxation laws i) Civil commotion j) Political hostility k) Sluggish legal system l) Changes related to Banking amendment Act Other Causes
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7.7 IMPACT OF NPA ON BANKS:
CANARA BANK
1 2 3 4 5 6 7 8 9
They erode current profits through provisioning requirements. They result in reduced interest income. They require higher provisioning requirements affecting profits and accretion to capital. They limit recycling of funds, set in assets-liability mismatches, etc. Adverse impact on Capital Adequacy Ratio. ROE and ROA goes down because NPAs do not earn. Banks rating gets affected. Banks cost of raising funds goes up. RBIs approval required for declaration of dividend if Net NPA ratio is above 3%. Bad effect on Goodwill & equity value. Drain on Profitability Impact on capital adequacy
10 11 12
13 Adverse effect on credit growth as the bankers prime focus becomes zero percent risk and as a result turns lukewarm to fresh credit. 14 15 Excessive focus on Credit Risk Management High cost of funds due to NPAs.
7.8 TYPES OF NPA: 1 Gross NPA 2 Net NPA Gross NPA: Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI guidelines as on Balance Sheet date. Gross NPA reflects the quality of the loans made by banks. It consists of all the nonstandard assets like as sub-standard, doubtful, and loss assets.
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It can be calculated with the help of following formula:
Net NPA: Net NPAs are those type of NPAs in which the bank has deducted the provision regarding NPAs. Net NPA shows the actual burdenof banks. Since in India, bank balance sheets contain a huge amount of NPAs and the process of recovery and write off of loans is very time consuming, the provisions the banks have to make against the NPAs according to the central bank guidelines, are quite significant. That is why the difference between gross and net NPA is quite high. It can be calculated by following formula:
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7.9 NPA RECOVERY ROUTES AND REMIDIES AVAILABLE TO BANKS:

Seeing the gravity of the situation, RBI has taken several constructive steps for arresting the incidence of NPAs. It has also created a regulatory environment to facilitate the recovery of existing NPAs of banks. SARFAESI ACT: With the enactment of the securitization and reconstruction of financial assets and enforcement of security interest act 2002, banks can issue notices to the defaulters to pay up the dues and the borrowers will have to clear their dues within 60 days. Once the borrower receives a notice from the concerned bank & the financial institution, the secure assets mentioned in the notice cannot be sold or transferred without the consent of the lenders. The main purpose of this notice is to inform the borrower that either the sum due to the bank or financial institution be paid by the borrower or else the former will take action by way of taking over the possession of assets. Besides assets, bank can also take over the management of the company. Thus the bankers under the aforementioned act will have the much needed authority to either sell defaulting companies or change their management. LOK ADALATS: Lok Adalats have been set up for recovery of dues in accounts falling in the doubtful and loss category with outstanding balance up to Rs. 5 lakhs, by way of compromise settlements. This mechanism has, proved to be quite effective for speedy justice and recovery of small loans. DEBT RECOVERY TRIBUNALS (DRT): 1 The banks and FIs can enforce their securities interest by initiating recovery proceeding under the Recovery of Debts due to Banks and FI act, 1993 (DRT Act) by filing an application for recovery of dues before the Debt Recovery Tribunal constituted under the Act. 2 On adjudication, a recovery certificate is issued and the sale is carried out by an auctioneer or a receiver.
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1
CANARA BANK
DRT has powers to grant injunctions against the disposal, transfer or creation of third party interest by debtors in the properties charged to creditor and to pass attachment orders in respect of charged properties
2 3 4
In case of non-realization of the decreed amount by way of sale of the charged properties, the personal properties of the guarantors can also be attached and sold. However, realization is usually time-consuming Steps have been taken to create additional benches
CORPORATE DEBT RESTRUCTURING (CDR): Corporate Debt Restructuring (CDR) mechanism is an additional safeguard to protect the interest of the creditors and revive potentially viable units. It focuses on the restructuring of corporate debts of viable entities and to minimize the losses to the creditors and other stakeholders through an orderly and co-ordinated restructuring programme. With CDR, banks can arrest fresh slippage of performing assets into the magnitude of NPA.
ASSET RECONSTRUCTION COMPANIES (ARC): One of the most effective ways of removing NPAs from the books of the banks would be to move these out to a separate agency which would buy the assets and make its own efforts for recovery. On this front, the SARFESI Act has provided a framework for setting up to Asset Reconstruction companies (ARCs) in India. OTS and NS: Efforts are made through negotiations and discussions with the borrowers to bring them around to settle the dues. Such settlements in the form of one time settlement (OTS) and negotiated settlement (NS) are now being increasingly used to reduce NPAs. Under these schemes banks focus on maximum payment under the settlements being received upfront, and balance within the same financial year for quicker realization of locked up proceeds. However, despite such efforts made by the lenders, many defaulting borrowers exhibit reluctance to co-operate, leaving the banks no option but to seek the legal route. LEGAL REFORMS: As the problem of NPAs is closely linked with the issue of legal reforms, the government has taken up initiatives to align the legal set-up with the requirements of the
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banking system. As early as in 1999 the Andhyarujina committee set up by Govt of India to formulate specific proposals to give effect to the suggestions made by the Narasimhan committee (1998) recommended amending the Recovery of Debts due to the Banks and Financial Institutions Act 1993 and Sick Industrial Companies Act, 1995. It also recommended a new legislation for banks and financial institutions to take possession and sale of securities without the intervention of the court, in respect of both immovable property and movable assets which resulted in the enactment of SARFAESI Act 2002. The committee also considered securitization as an instrument to tackle the NPA problem. SECURITIZATION: Securitization enables risk sharing and trading of loans where the bad assets of banks can be securitized and sold at a discount. The lending institutions NPA s are hence removed from their balance sheets and are instead funded by investors through negotiable financial instruments. The security in a banks balance sheet can be cash up front, which could be put to productive use.
STEPS FOLLOWED BY CANARA BANK TO DEAL WITH NPA

1. SUB-STANDARD ASSETS: This segment is more effort elastic in terms of recovery & hence the banks recovery policy is to be tuned up for maximizing the recoveries from the sub-standard NPA. NPA recovery action plans: 9. 35. 61. Send simple reminder letters if instalments / interest debited are not serviced on due dates. If no results are forthcoming from the reminders, meet the borrower in person and persuade them to settle the accounts in persons. Officials from the assets recovery cell at the regional office to compulsorily meet the borrower with Rs 5 lakhs and evaluate the reasons for non performance of account and suggest / evolve methods to improve the quality. IV. 22. In cases of sick but viable industries units prospects for rehabilitation are to looked into and nursing programme to be evolved. If the accounts have become NPA due to cash flow problem the repayment programme must be rescheduled according to the revised cash flow projections. This will enable the
Department of MBA, PESIT Page 45
CANARA BANK
bank to maintain asset quality at the same level for 2 years, and the asset quality can be upgraded after 2 years, if the repayment is coming as per the redrawn schedule. VI. If the borrower is co-operative the settlement through compromise route to be considered. 2. DOUBTFUL ASSETS: Slippage of assets from sub-standard category to doubtful necessitates higher provisions requirements. Depending on the age of the asset, 20% to 50% provision has to be made on such assets on the secured portion and 100% provision is required on the unsecured provision. Recovery of the doubtful assets in the normal course is difficult; the following strategies can be adopted in handing doubtful assets: 9. Borrowers are to be met in person to get the accounts settled through persuasion. II. Ensure that the securities charged to the bank are intact and are not alienated. III. Securities are to be inspected at periodic intervals and correct value properly recorded. IV. 22. Legal remedy is the last resort. Most of the accounts coming under this category are either suit filed or RR initiated. In case of suit filed accounts, cases are to be closely followed up to ensure that the decree is obtained within a reasonable time. 3. LOSS ASSETS: 9. If recovery in the normal course is difficult, we may have to resort to legal remedies against the borrowers, guarantor, co-obligate, and efforts shall be made to bring them to a compromise table for the settlement of the accounts. 35. 61. In case of accounts coming under priority sector, recovery though the RR route is to be resorted to. As per loss assets are concerned, the bank makes 100% provision for loan losses. Hence there will not be any further impact on bottom line. If these assets are shed, notionally from the books of the bank, such notional write off will help in cleansing the balance sheet. IV. Even after write-off the branches can continue the recovery efforts thus made and can improve the bottom line of the bank. 22. Recovery through legal action is time consuming.
A study on NPA management 8. RESEARCH DESIGN

8.1 STATEMENT OF PROBLEM:
CANARA BANK
This particular topic is to analyze Non-Performing Asset level of Canara Bank and their impact on the performance of the bank. Non-Performing Asset is a major bone of the banks in India, so as in the case of Canara Bank, the study has been undertaken to know the status, practices and impact of NPAs in the performance of the branch. The problem lies in understanding and analyzing the NPAs.
8.2 OBJECTIVE OF STUDY:

The general objective of this research is to understand the reasons for increasing NPAs and identify the effective ways to manage it. The specific objectives of this research are: 1 2 3 4 5 To highlight loans and advances trend in Canara Bank. To study the management of total loans and advances of Canara Bank. To study the movement and trend of GNPA and NNPA of Canara Bank. To highlight the trend of NPA in Canara Bank. To analyze sector wise Non-Performing Assets of Canara Bank.
8.3 SCOPE OF THE STUDY: The study is conducted in the head office of Canara Bank. The scope of study stretches from the analysis of NPA and its effect on profitability. 1 2 3 The scope of the study here was confined to the organization only. The study covers to find out the strategy required to reduce the NPAs. The data is based on the secondary data collected from website and journals and primary data collected through direct interaction with the manager. 4 The scope is limited to conclusions drawn from analysis and interpretations of the primary and secondary data.
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8.4 METHODOLOGY:
CANARA BANK
Due to the vastness of the subject an attempt is made to understand the main spheres of the problem of Non-performing Assets and its effect on the financial stability of the bank. The study is descriptive in nature and is based on the Primary data and Secondary data. Primary Data: The primary data is collected through discussion with the manager and officers of the bank: 1 2 Secondary Data: The Secondary data is collected from: 1 2 3 4 5 Canara Bank Annual Reports RBIs Annual Reports Canara Bank quarterly bulletins. Canara Bank website. Journals and Textbooks. Having face to face discussions with the bank officials. By taking guidance from bank guide and internal guide.
PROCEDURE OF ANALYSIS: Type of Research Descriptive Analysis Method Secondary Data Research Method
The relevant data were collected, complied and tabulated for the purpose of the study. This data is analyzed and is represented in the form of tables and charts by making use of statistical tools like MS excel. Descriptive analysis and ratio analysis was carried out which was preferred for assessment purposes. Hence for all data, interpretations were made and diagrams and graphs and ratios have been used to support discussions related to findings. Based on the analysis and the findings there from, suggestions and recommendations are provided to the bank for arresting existing NPAs and prevent re-emergence of fresh NPAs.
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8.5 LIMITATIONS OF THE STUDY: 1 2 3 4 5
CANARA BANK
Access to the information is limited and complete dependency on the annual report. Time constraints limited the wide coverage of the study. The data extracted from the records covering a period of only 4-5 years. The study is based on the data given by the officials and reports of the bank. The confidentiality of some facts and figures is the limitation. The study is mainly based on the secondary data provided by the bank. As such it is subject to limitations of the secondary data.
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CANARA BANK
9. ANALYSIS AND INTERPRETATION OF RESULTS

NET ADVANCES AND PRIORITY SECTOR ADVANCES FOR LAST 5 YEARS IN CANARA BANK Table No: 1- The Net Advances for last five years at Canara Bank NET ADVANCES (in crores) YEAR 200607 200708 200809 200910 20010-11 GROWTH (%)
98506 107238 138219 169335 212467
24.02 8.86 28.89 22.51 25.47
Graph No: 1-The Net Advances for last five years at Canara Bank
NET ADVANCES (in crores)

2500 00 212467 2000 00 169335 1500 00 138219 1072 38 98506 1000 00 5000 0 0 2006-07 2007-082008-092009-10 20010-11 NET ADVANCES (in crores)

The net advances of the bank are steadily increasing over the years. Though in the year 2007-08 the growth rate dipped to just 8.86% from 24.02% of growth rate in the previous
year 2006-07, the growth trend has picked up since then and has maintained a consistent rate of growth as shown in the graph. Especially in the year 2008-09, the net advances increased sharply by Rs.30981 cr from previous year. Net advances have shown positive trend in the current year, with 25.47% increase i.e Rs.43132 crs. That indicates healthy increase in the advance portfolio; as a result the interest income of the bank will also increase resulting in higher net profit. This also indicates that non performing advances of the bank have also considerably decreased.
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CANARA BANK
Table No: 2- The Advances to Priority Sector for last five years at Canara Bank PRIORITY SECTOR ADVANCES (in crores) 2006-07 2007-08 2008-09 2009-10 2010-2011 37844 43203 48763 59310 70757 22.23 14.16 12.87 21.63 19.30
YEAR
GROWTH (%)
Graph No: 2- The Advances to Priority Sector for last five years at Canara Bank
PRIORITY SECTOR ADVANCES (in crores)

80000 7075 7
70000 59310 60000 50000 37844 40000 4320 3 48763
PRIORITY SECTOR ADVANCES (in crores)
30000 20000 10000 0 2006-07 200708 200809 200910 20102011

The advances of the bank to the priority sector have consistently increased in numbers over the past 5 years. However, fluctuations could be seen in the percentage of growth. It showed a down ward trend from 2007-09, thereafter improved in the FY 2009-10. Though the total advances to priority sector in FY 2010-11 has increased by Rs.11447 crores compared to a rise of only Rs.10,547 crores in the FY 2009-10 , the percentage of growth has dipped by 2.33%. The fluctuations in the growth rate indicates that due to the increased inflation rate, slowdown in economy and corresponding increase in the interest rates on advances, there is a reduction in the demand for additional credit. Moreover in the past year, the entire banking industry has witnessed a downward trend in the advances. Inspite of adverse features in the market, Canara bank has shown good performance. They are advised to follow a aggressive strategy to increase the advances.
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CANARA BANK
CLASSIFIACTION OF TOTAL ASSETS FOR LAST FIVE YEARS Table No: 3 - The Total Asset Classification for the year 2006-07
Asset Classification Amount ( crores) Percentage (%)
Performing Assets
Standard Assets
97400.57
98.489
Sub-standard Non Performing Assets Doubtful
1023.57
1.035
429.30
0.434
Loss Total
40.56 98894
0.041 100
Graph No: 3 - The Total Asset Classification for the year 2006-07
100%
98894(Cr)
429.3
40.5 6
100%
99%
1023.57
Asset Classification
Loss Asset
99% Doubt ful Asset Sub-standard Asset Standard Asset 98% 2006-07
98%
97400.57

Standard assets of the bank constitute 98.489% of total advances; whereas Sub-standard assets of the bank are second highest with 1.035% if total advances. The status of loss asset which stands at 40.56 crores indicates that the recovery machinery was weak or selection of the party was wrong or sufficient securities were not taken at the time of granting advances.
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CANARA BANK
Table No: 4- The Total Asset Classification for the year 2007-08
Asset Classification Amount ( crores) Percentage (%)
Standard Performin g Assets Assets 106201.45 98.68
Sub-standard
1219.10
1.133
Non Performing
Doubtful
149.26
0.139
Assets Loss Total 47.19 107617 0.044 100
Graph No: 4- The Total Asset Classification for the year 2007-08
1080 00 1075 00 1070 00 1219.1 1065 00
107617(C r)
149.26
47.1 9
Loss Asset
1060 00 Doubtful Asset Sub standard Asset Standard Asset 2007-08
1055 00 1050 00
106201.4 5

Again Standard Assets of the bank is showing good trend, it has increased to 98.68%. The Sub-standard Assets has increased to 1.35% with corresponding decrease in the doubtful assets. However, Bank is required to focus on the Loss Asset as it has increased considerably to Rs.47.19 crores. Canara bank should take some serious steps to reduce the Loss Assets as it directly impacts the net profits of the bank.
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CANARA BANK
Table No: 5 - The Total Asset Classification for the year 2008-09
Amount ( crores)
Percentage (%)
Performing Assets
Standard Assets 136192.03 98.43
Sub-standard Non Performing Assets Loss Tot al
1514.59
1.09
Doubtful
646.97
0.467
6.41 138360
0.0046 100
Graph No: 5: The Total Asset Classification for the year 2008-09
1390 00 1385 00
13836 0(Cr)
1380 00 1375 00 1370 00 1514.59 1365 00 646.97
6.41
ASSET CLASSIFICATION
Loss Asset
1360 00 1355 00 1350 00 2008-09 136192.03
Doubtful Asset
Substandard Asset

Standard Assets of the bank have reduced to 98.43% in the FY2008-09. It is the lowest in the last three years. The total NPA in terms of numbers has increased in all
categories except loss assets. Though the percentage of loss assets in total advances has increased to 0.0046 %, it has reduced to only Rs. 6.41 crores when compared to 47.19 crores in previous year. The bank is advised to take suitable steps to reduce the total NPA because it will affect the overall profits of the bank.
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CANARA BANK
Table No: 6- The Total Asset Classification for the year 2009-10
Amount ( crores)
Asset Classification Performin g Assets
Percentage (%)
Standard Assets 166872.69 98.47
Sub-standard Non Performing Assets Loss Tot al
1953.59
1.15
Doubtful
627.39
0.37
9.33 169463
0.005 100
Graph No: 6 - The Total Asset Classification for the year 200910
1700 00 1695 00 1690 00 1685 00 1680 00 1953.59 1675 00 1670
169463 (Cr)
9.3 3 627.39
Loss Asset
00 Doubtful Asset 1665 00 166872.69 1660 00 1655 00 2009-10 Standard Asset Sub-standard Asset

The Standard Assets of the bank are showing good trend as it has increased when compared to the previous year to 98.47%. where as the Sub-standard Asset has increased by about 0.06%, when compared to previous year. The percentage of Doubtful Assets has come down from previous years, however, the loss assets have increased to Rs 9.33 crores, for which necessary steps have to be taken.
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CANARA BANK
Table No: 7 - The Total Asset Classification for the year 201011
Amount ( crores)
Asset Classification Performin g Assets Standard Assets
Percentage (%)
209945. 5
98.55
Sub-standard
1586
0.75
Non Performing Assets
Doubtful
1477
0.69
Loss Tota
26 213034.
0.012 100
Graph No: 7- The Total Asset Classification for the year 201011
2135 00 2130 00 2125 00 1477 2120 00 2115 00 2110 00 1586 2105 00 2100 00 2095 00 2090 00 2085 00 2080 00 2010-11 Standard Asset
26
213034.5( Cr)
Loss Asset
Doubt ful Asset
209945.5
Sub-standard Asset

Overall, the asset quality has shown an improvement when compared to the previous years. The standard asset has increased marginally to 98.55%. Though doubt ful assets and loss assets have increased, the percentage of sub-standard asset has decreased considerably bringing the Gross NPA to 1.45% compared to 1.52% in the previous year. It indicates improvement in the recovery mechanism and in the procedure of selection of the loan party.
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CANARA BANK
MOVEMENT AND TREND OF GNPA AND NNPA FOR LAST 5 YEARS Table No: 8 - Movement of GNPA and NNPA for last five years at Canara Bank GNPA (Rs in crores) 1493.43 NNPA (Rs in crores) 926.97 NNPA as a % of GNPA 62.7
YEAR 2006-07
2007-08
1415.55
899.03
63.51
2008-09
2167.97
1507.25
69.52
2009-10
2590.31 3089.21
1799.70 2347.33
69.48
2010-11
75.98
Graph No: 8.1 - Movements of GNPA and NNPA for last five years at Canara Bank
006-07 2007-08 2008-09 2009-10 2010-11

3500
3000
2500
2000
1500
1493.
1000
500
CANARA BANK
Graph No: 8.2 - NNPA expressed as a percentage of GNPA
NNPA as a % of GNPA
80 75 70 65 60 55 50 2006-07 62.7 63.51 75.98
69.52
69.48 NNPA as a % of GNPA
200708
200809
200910
201011

GNPA and NNPA of the bank are showing an increasing trend from the past three years, as against the decreasing trend in 2006-07 and 2009-08.
GNPA is showing good trend from year 2006-07 to 2007-08, but it has increased from 2008-09, bank has to take suitable control and monitoring measures to reduce this. NNPA has increased in 2008-09 and 2009-10, it shows that bank has made less provision in those years.
There has been a sharp increase in the NNPA in 2010-11; it stands at 75.98% of GNPA, which indicates that fewer provisions were made in the year. It may be due to decrease in sub-standard assets for the FY 2010-11 which resulted in less provisions being made in the year.
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CANARA BANK
Table No: 9 - The percentage change in GNPA to Gross Advances for last five years at Canara Bank Percentage of GNPA to Net Advances 2006-07
YEAR
GROSS ADVANCES
GNPA
98902.65
1493.43
1.51
2007-08
108057.3
1415.55
1.31
2008-09
138972.4
2167.97
1.56
2009-10
170415.1
2590.31
1.52
2010-11
213049
3089.21
1.45
Graph No: 9 - The percentage change in GNPA to Gross Advances for last five years at Canara Bank
GNPA as % of Gross Advances

1.6 1.5 5 1.5 1.4 5 1.4 1.3 5 1.3 1.2 5 1.2 1.1 5 200607 200708 200809 200910 201011 1.31 1.51 1.56 1.52 1.45
GNPA as % of Gross Advances

The Gross Advances of the bank has shown a positive trend by increasing consistently from 98902.65 crores in 2006-07 to 213049 crores in 2010-11. Gross Advances has grown by 25.02% in 2010-11 compared to 22.62% in 2009-10.The ratio of GNPA to Gross Advances of bank has decreased to 1.45 %, inspite of tremendous growth in Gross Advances, it shows that bank has taken measures to reduce its NPA and has been successful at it.
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CANARA BANK
Table No: 10 - Percentage change in NNPA to Net Advances for last 5 years at Canara Bank Percentage of NNPA to Net Advances 0.940 0.838 1.090 1.060 1.105
YEAR 2006-07 2007-08 2008-09 2009-10 2010-11
NET ADVANCES (in crores) 98506 107238 138219 169335 212467
NNPA (in crores) 926.97 899.03 1507.25 1799.70 2347.33
Graph No: 10 - Percentage change in NNPA to Net Advances for last 5 years at Canara Bank
NNPA as % of Net Advances

1.4 1.2
1.09 1 0.8 0.94 0.838 1.06
1.105
NNPA as % of Net Advances
0.6 0.4 2006-07 200708 200809 200910 201011

The Net advances of the bank have increased from 98506 crores in 2006-07 to 212467 crores in 2010-11 hence indicating healthy growth. However, the percentage of NNPA to Net Advances has been increasing over the years and stands at 1.105 % in the FY 2010-11. This may be attributed increase in doubtful debts and loss assets. Bank should take sufficient securities at the time of granting advances.
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CANARA BANK
CLASSIFICATION OF TOTAL NPA FOR THE LAST FIVE YEARS Table No: 11 Classification of Total NPA for the last five years at Canara Bank
Classification of NPA 31.03.08 31.03.09 31.03.10 31.03.11
31.03.07
Amt (Cr)
Amt (cr)
Amt (cr)
Amt (cr)
Amt (cr)
Sub-standard
1023.57
68. 54
1219.10
86. 12
1514.59
69. 86
1953.59
75. 42
586
51. 34
Doubtful
429.30
28. 74
149.26
10. 55
646.97
29. 84
627.39
24. 22
477
47. 82
Loss
40.56
2.7 2
47.19
3.3 3
6.41
0.3 0
9.33
0.3 6
26
0.8 4
Total
1493.43
10 0
1415.55
10 0
2167.97
10 0
2590.31
10 0
3089
10 0
Graph No: 11 - Classification of Total NPA for the last five years at Canara Bank
100% 40.56 90% 627.39 646.97 429.3 80% 1477 70% 60% 47.19 149.26 6.41 9.33 26
CLASSIFICA TION OF NPA
50%
1219.1 40% 1023.57 1514.5 9 1953.59

Loss
30% 1586
Doubtful
20% 10% 0% Amt(cr) 31.03.07 Amt(cr) 31.03.0 8 Amt(c r) 31.03.0 9 Amt(cr ) 31.03.1 1
Substandard
Amt(cr) 31.03.10
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CANARA BANK

The Sub-standard Assets of the bank is showing a decreasing trend as it has reduced considerably to 1586 crores in 2010 from 1953.59 crores in the previous year. It stands at only 51.34% of total NPA. Doubtful Assets have increased by nearly 42.47 % from 627.39 crores in 2009-10 to 1477crores in 2010-11 and stands at 47.82% of total NPA in the yr 201011. The Loss Assets and doubtful assets of the bank are varying from year to year. There is considerable increase in Loss Assets as well. Bank is required to focus on Loss Assets and doubtful assets; it should take some serious credit control measures to reduce them because it is going to affect the overall profits of the bank.
CLASSIFICATION OF NPA IN DIFFERENT SECTORS Table No: 12 - The percentage of NPA in different sectors for the year 2006-07 Percentage in NPA P r i o r i t y Agriculture Small Scale Industries S ec to r 228.39 150.75 15.36 10.14
Sector
NPA
NPA in degree 55.28 36.49
Others Public Sector Non Priority Sector Total
544.59 18.96 544.50 1487.19
36.62 1.27 36.61 100
131.84 4.59 131.8 360
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CANARA BANK
Graph No: 12 - The percentage of NPA in different sectors for the year 2006-07
Small Scale Industries, 10.14 Agriculture, 15.36 Others, 36.62
Non Priority Sector, 36.61
Public Sector, 1.27
Different sectors contributing to total NPA in %
The major portion of the NPA for the year 2006-07 is from the Priority Sector which
stood at 62.12% to the Total NPA. Among them, Others stood at 36.62%, SSI stood at 10.14% and Agriculture stood at 15.36%. It indicates the quality of priority sector loans is not good. Next major portion is from advances to the Non-Priority Sector which stood 36.61% and Public Sector forms 1.27 % of the total NPA.
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CANARA BANK
Table No: 13 - The percentage of NPA in different sectors for the year 2007-08 Percentage in NPA 18.72 4.72 NPA in degree 67.39 16.39
Sector P r i o r i t y
NPA
Agriculture S e ct o r Small Scale Industries
260.51 65.66
Others Public Sector Non Priority Sector Total
351.63 8.24 705.43 1391.47
25.27 0.59 50.70 100
90.98 2.13 182.6 360
Graph No: 13 - The percentage of NPA in different sectors for the year 2007-08
Agriculture, 18.72 Small Scale Industries, 4.72 Non Priority Sector, 50.7 Others, 25.27

Public Sector, 0.59

The Non-Priority Sector constitutes the major portion for the year 2007-08 as it has increased to 50.70% of the Total NPA. It indicates poor party selection while granting loans. However, NPA in the Priority Sector stood at 48.71% in total, of which NPA in SSI and Others have decreased considerably for the year, but Agricultural NPA rose to 18.72%. Public sector NPA has reduced to 0.59%. Canara bank has to focus on its non priority lending and agricultural loans and ensure proper appraisal is made before granting loans.
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CANARA BANK
Table No: 14 -The percentage of NPA in different sectors for the year 2008-09 Percentage in NPA 13.40 8.40 21.80 NPA in degree 48.3 30.29 78.26
Sector Agriculture P r i o r i t y Small Scale Industries Others S ec to r Public Sector Non Priority Sector Total
NPA 287 180 465
1207 2139
0.00 56.40 100
203.15 360
Graph No: 14-The percentage of NPA in different sectors for the year 2008-09
Agriculture, 13.4
Small Scale Industries, 8.4 Non Priority Sector, 56.4 Others, 21.8
Public Sector, 0

The major portion of NPA for the year 2008-09 is from the Non-Priority Sector as it has increased by 5.70% over the last year. This indicates greater credit control measures have to be taken when lending to the non-priority sector. The priority sector NPA has reduced to 43.60%, of which Others and Agricultural NPA has significantly reduced but the SSI NPA has risen to 8.4%. It has to be noted that public sector NPA has become nil, which is a good sign, indicating recovery of past NPA, and quality credit in that segment.
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CANARA BANK
Table No: 15 - The percentage of NPA in different sectors for the year 2009-10 NPAs Percentage in NPA Agriculture P r i o r i t y Small Scale Industries Others Se ct or Public Sector Non Priority Sector Total 1081 2505 0.00 43.20 100 155.35 360 462 394 568 18.40 15.70 22.70 NPA in degree 66.39 56.63 81.63
Sector
Graph No: 15 -The percentage of NPA in different sectors for the year 2009-10
Agriculture, 18.4
Non Priority Sector, 43.2
Small Scale Industries, 15.7
Others, 22.7
Public Sector, 0

In the year, beating the trend of the previous two years, NPA from priority sector has emerged as a major contributor to total NPA with 56.8%. It may be because of increasing
importance given to this sector and failure of the parties to pay back which resulted in higher NPA across all segments. The Non-Priority Sector reduced to 43.2% which shows improvement, and the Public Sector NPA continues to be nil indicating good trend.
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CANARA BANK
Table No: 16- The percentage of NPA in different sectors for the year 2010-11 Percentage in NPA 21.46 17.97 15.35 NPA in degree 77.27 64.68 55.24
Sector
NPAs 663 555 474
Agriculture P r i o r i t y Small Scale Industries Others Se ct or Public Sector Non Priority Sector Total
435 962 3089
14.08 31.14
50.70 112.1 1 360
100
Table No: 16 -The percentage of NPA in different sectors for the year 2010-11
Agriculture, 21.46 Non Priority Sector, 31.14 Small Scale Industries, 17.97
Others, 15.35 Public Sector, 14.08
Analysis & Interpretation The major point to be noted is that the NPA in public sector shot up to 14.08 % in FY 2008-09, from being nil in the past two years. It shows greater rate of default and poor recovery in this category. The NPA in the priority sector reduced to 54.78 % in the FY 2010-11, though NPA in others reduced to 15.35 %, the NPA in the other two sectors increased compared to last year. The NPA in non priority sector has showed considerable improvement as it reduced by 12.06%
CANARA BANK
COMPARATIVE SEGMENT WISE NPA FOR LAST 5 YEARS Table No: 17 - Segement wise positions of NPA for the past five years Sector Agriculture P r i o r i t y Small Scale Industries Others Se ct or Public Sector Non Priority Sector Total 18.96 544.50 1487.19 8.24 705.43 1391.47 0.00 1207.00 213 9 0.00 1081.00 250 5 435 962 3089 150.75 544.59 65.66 351.63 180.00 465.00 394 568.00 555 474 31.03.07 228.39 31.03.08 260.51 31.03.09 287.00 31.03.10 462.00 31.03.11 663
Graph No: 17- Segement wise positions of NPA for the past five years
140 0
120 0
100 0
800
SECTOR
600 400
Agriculture Small Scale Industries Others
Public Sector 200 Non Priority Sector 0
31.03.7
31.03.08 31.03.09 31.03.10 31.03.11
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CANARA BANK

PRIORITY SECTOR Agriculture NPA in case of Agriculture has increased from 228.29 crores in 2006-07 to 663 crores in 2010. It has been increasing consistently over the last 5 years. It may be due to increased priority in advances given to agriculture sector. Small Scale Industries (SSI) NPA in case of SSI has increased from 150.75 crores in 2006-07 to 555 crores in 201011. There is a sharp increase in the level of NPA which may be due to faulty selection of parties, poor recovery machinery, and may also be due to economic slowdown in general which has affected many SSIs. Others NPA in case of others has reduced from 544.59 crores in 2006-07 to 474 crores in 201011. Its a healthy development, which indicates NPAs are being recovered, and the quality of advances have improved. PUBLIC SECTOR NPA in case of Public Sector has sharply increased from 18.96 crores in 2006-07 to 435 crores in 2010-11. It is a concerning factor, especially as NPA was completely nil for the last two years. This segment requires greater focus of the Canara bank, and coordinated effort is necessary to tackle this problem. NON-PRIORITY SECTOR NPA in case of Non-Priority Sector has increased from 544.50 in 2006-07 crores to 962 crores in 2010 -11. But though it has increased when compared to FY 2006-07, It has shown a declining trend, when compared to the last two years. This is a sign of improvement.
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A study on NPA management 10. FINDINGS
CANARA BANK
Non-performing Assets has a significant role in the profitability and financial stability of banks. The analysis of various parameters involved in NPA management led to the following findings:
1 2 3 4 5 6 7 8
The net advances have increased from 98506 crores in 2006-07 to 212467 cr in 201011 which is a growth of 215.68 % over the last 5 years. The Net advances have increased by 25.47% compared to last year. The Priority sector Advances have increased to 70757 crores in 2010-11 from 37844 crores in 2006-07, registering a growth of 186.97% over the last 5 years. The Priority sector Advances has increased only by 19.30 % compared to 21.63% in last year. Standard assets have risen to 98.55% indicating an improvement in the quality of advances. Sub-standard assets have decreased, but doubtful and loss assets have increased in total NPA. Gross advances have shown a growth of 215.41% over the last 5 years as it increased from 98902.65 crores in 2006-07 to 213049 crores in 2010-11 GNPA has increased from 1493.43crores in 2005-06 to 3089 crores in 2010-11 indicating 206.85% increase over the last 5 years. However, the Gross NPA ratio has reduced considerably to 1.45 % in the FY 2010-11
NNPA has increased from 926.97crores in 2006-07 to 2347.33 crores in 2010-11 indicating 253.22 % increase over the last 5 years.
10 The Net NPA ratio has also been consistently increasing from past 5 years and now stands at 1.105 % 11 The priority sector NPA has reduced to 54.78% and Non Priority sector has reduced to 31.14%, comparatively the performance has been better. 12 However, Public sector NPA has risen sharply to 14.08 % In FY 2010-11 from being nil in the last FY 2009-10 and being at 1.27% in the FY 2006-07
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CANARA BANK
11. RECOMMENDATIONS AND CONCLUSION

11.1 RECOMMENDATIONS
Though, Canara Bank has been working towards bringing down the level of NPA yearon-year, still huge amount is trapped as NPAs which is a burden to the bank. The origin of the problem of burgeoning NPAs lies in the quality of managing credit risk by the banks concerned, what is needed is having adequate preventive measures in place namely, fixing pre-sanctioning appraisal responsibility and having an effective post-disbursement supervision. The following recommendations are suggested to the Canara Bank to control the NPAs: 1 Bank should create a new model of banking business by giving loans to the credit worthy persons and persons having clean credit history and not just giving advances against collateral security. 2 3 4 5 6 7 8 9 Timely sanction and release of loans by the bank so as to avoid time and cost overruns. Operations staffs credit skills should be up-graded. Projects with old technologies should not be considered for finance. Large exposure on big corporate or single project should be avoided. Banks have to make a separate department, whose duty is only to inquire the personnel goodwill in the city apart from the financial asset. Canara Bank should concentrate more on credit appraisal, monitoring, credit risk management and recoveries. The bank officers shouldnt forget the ethics of doing job. There is an urgent need for banks to implement risk management systems of global repute. Canara Bank should timely implement effective risk management system.
PRE SANCTION SUGGESTIONS 1 Banks should have to consider the market conditions and economy, exchange rate risks before disbursement of loan in case of import, export, and business. Banks have to be assured that the collateral security should not be disputed asset and any other loan is not taken on that security. Proper identification of the guarantor should be checked by the bank and his/her wealth also, so that he/she cant mislead the bank
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2 3

1 2 3
CANARA BANK
All the necessary documents which establishes the credit worthiness and legality of the party/ firm should be procured and scrutinized. If the party is an existing customer of the bank, then the banks experience in dealing with such a party, his other accounts and transactions should be analyzed. If the party is a new customer, then the bank has to scrutinize his dealings with the other existing bankers of the party, and also try to obtain confidential opinion about the party.
4 5
If the loan is requested for the line of activity or industry, which is known to cause or lead to NPA accounts, then it is advised not to entertain such requests. Agriculture loan comes in priority sector, so banks are bound to achieve the targets set by government. In this situation bank has to be care full when lending loans: Bank should check the credibility of farmer like the proper identification and also his/her reputation in the village. Sarpanch of the village should also be inquired before the disbursement of the loan amount. 1 2 3 4 5 6 7 8 Banks should prevent diversions of funds by the promoters / party. Operations staff should scrutinize the level of inventories/receivables at the time of assessment of working capital. The credit section should carefully watch the warning signals viz., non payment of quarterly interest, dishonor of cheques etc. Effective inspection system should be imparted. The stocks and receivables are to be checked randomly by the bank, so that the bank is aware of position of the firms. Ensuring end use of the funds lent out Surprise inspection of the unit/ business establishment should be carried out. Party should be immediately contacted and discussions must be made with him regarding the problems faced by him, if there are no operations in the account, cheques are being returned for the want of funds, interest debited is not serviced, or installments are not remitted in time. 9 Canara Bank should offer rescheduling of loans to borrowers who are facing low cash inflows, or who are facing from genuine problems
1. 2.
POST-SANCTION SUGGESTIONS:
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11.2 CONCLUSION
CANARA BANK
The origin of the problem of burgeoning NPAs lies in the quality of managing credit risk by the concerned banks. The bank must adopt structured NPAs management policy for elimination or reducing the NPAs in the Bank. Banks concerned should continuously monitor loans to identify accounts that have potential to become Non-Performing. NPA affects banks profitability not only due to interest income not being recognized on NPA accounts, but also due to provisions being made for such NPAS from the profits earned. Hence it is a double edged weapon which affects the overall viability of not only the bank, but financial system as a whole. The history of financial institutions reveals the fact that the biggest banking failures were due to credit risk. Due to this, banks are restricting their lending operations to secured avenues only with adequate collateral on which to fall back upon if a situation of default arises. The year 2011 seems to be a watershed year for the Indian banking industry. Concerns about economic slowdown, rising inflationary pressure and high interest rates had their impact on discretionary spending of customers, leading to reduced estimates for credit growth in FY12. Then, concerns about asset quality, due to tightening of the economy, earlier restructured assets and pressure on capital levels added to the problems of Indian banks. Though various steps taken by RBI such as SARFAESI Act 2002, DRT, Lok adalats and other legal remedies are helping and empowering the banks to reduce their NPA accounts by giving them effective routes to recovery of the existing heavy stocks of the NPAs. There cannot be any fixed solutions to solve the NPA problem. More legal reforms are desired which can empower the banks to proceed against the personal assets of the directors of the defaulting units/companies/groups etc. to enable the NPA Act to be more effective and proactive. In order to reduce the NPAs of Nationalized banks, the government should remove the directed credit policy. The Nationalized Banks should be isolated from political interventions. Exchange of credit information among banks would be of immense help to avoid possible NPAs. A defaulters alert system should be introduced to track potential defaulters by diving deeper into their credit history and thus keeping such people aloof from the banking system. All the above steps if effectively implemented can obviously help in reducing NPA.
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A study on NPA management

Department of MBA, PESIT

A study on NPA management

Department of MBA, PESIT

A study on NPA management

2.1 BACKGROUND AND INCEPTION OF THE COMPANY:

Department of MBA, PESIT

A study on NPA management

Department of MBA, PESIT

A study on NPA management

2.3 VISION, MISSION AND QUALITY POLICY:

Department of MBA, PESIT

A study on NPA management

Department of MBA, PESIT

A study on NPA management

Department of MBA, PESIT

A study on NPA management

Department of MBA, PESIT

A study on NPA management

Department of MBA, PESIT

A study on NPA management

NEW PRODUCT/ SERVICES:

2.5 AREA OF OPERATION:

Department of MBA, PESIT

A study on NPA management

2.6 OWNERSHIP PATTERN:

4.5 7.5 13.6

Share Holding Pattern in %

FIIs 67.7 Insurance companies Resident Individuals Banks

Department of MBA, PESIT

A study on NPA management

Department of MBA, PESIT

A study on NPA management

2.8 INFRASTRUCTURE FACILITIES

Department of MBA, PESIT

A study on NPA management

2.9 ACHIEVEMENT AND AWARDS:

Department of MBA, PESIT

A study on NPA management

Department of MBA, PESIT

A study on NPA management

ADVANCES Standard Asset NPA

INTEREST BRANCH OFFICE

CIRCLE OFFICE NPA HEAD OFFICE MANAGE MENT

MONITORIN G FOLLOW UP PREVENTIVE MEASURES TAKING REMEDIES

Cash, Interest and Information flow NPA management activities flow

2.11 FUTURE GROWTH AND PROSPECTS:

Department of MBA, PESIT

A study on NPA management

Department of MBA, PESIT

A study on NPA management

HIERARCHY AT CANARA BANK

Chairman & Managing Director

Chief General Manger

Deputy General Manager

Assistant General Manager

Manager Department of MBA, PESIT

A study on NPA management

Branch Branch Branch

In continuity with their corporate VISION, stated as:

Department of MBA, PESIT

A study on NPA management

Department of MBA, PESIT