STUDY ON NON-PERFORMING ASSET IN RETAIL LENDING By M.B..Swarnalatha Reg. No.35103308 of S.R.M.

Engineering College

A PROJECT REPORT Submitted to the School of Management

In partial fulfillment of the requirements for the award of the degree Of MASTER OF BUSINESS ADMINISTRATION SRM INSTITIUE OF SCIENCE AND TECHNOLOGY Deemed University May, 2005.

BONAFIDE CERTIFICATE

Certified that this project report titled Study on NPA in Retail Lending is the bonafide work of Ms.M B Swarnalatha who carried out the research under my

supervision. Certified further, that to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

Signature of the Guide S. Chinnathambi Senior Lecturer, Dept. of Management Studies

Signature of the HOD

External Guide

ABSTRACT

The main objective of the project is to study the entire system of banking industry in a broader perspective and the impact of Non-performing Asset in various sectors of banking. Non performing Asset is the prevailing hindrance nowadays which affects the profitability of the banking sector enormously. There are various reforms and Acts that has been implemented to overcome this searing problem. This project analyses the movement of NPA over a period of time, for different sectors of banks and suggestions to overcome it. The project denotes the movement of advances over three years and a comparative analysis is made accordingly. The suggestion given here is as per the study of various findings.

ACKNOWLEDGEMENT

I thank our Dean Dr. (Mrs.) Jayshree Suresh for being a pillar of support in all that I do and for providing me with an opportunity to do this project. I would like to extend my heartfelt thanks and gratitude to Mr.Chinnathambi, Senior Lecturer of SRM Institute of Management studies for all his help and guidance without which this project would have been a far reality. I owe my gratitude to him who was very co-operative despite his tight schedule and workload.

I have no words to express my thanks to my organization guide, Mr.Palaniappan, Manager, Indian Bank, Maraimalai Nagar branch for his help and motivation I also extend my full thanks to all the Employees of Indian Bank for their full cooperation and support. M.B.SWARNALATHA

TABLE OF CONTENTS

CHAPTER Abstract List of tables List of figures 1. 2. 3. 4. 5. 6. 7. Introduction

TITLE

PAGE

8 18 21 54 64 66 68

Organization Profile Types of products Analysis and findings Suggestion Conclusion Bibliography

LIST OF TABLES S.NO 1. 2. 3. 4. 6. 7. 8. TABLE NO. 1.1 1.2 1.3 1.4 1.5 1.6 1.7 TITLE Various types of banks Progress of banks in India Financial Performance Cross Country Comparison of Financial Soundness Movement of NPAs Recovery of NPAs Indian Banks performance-Comparative study on the movement of NPA PAGE NO 10 11 35 54 56 57

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LISTOF FIGURES

S NO. FIGURE NO. 1. 2. 3. 4.

TITLE Business Per Employee Recovery of scheduled commercial banks Recovery of public sector banks Movement in NPA

PAGE NO. 12 58 58 59

INTRODUCTION Banking System in India The modern banking system in India started with establishment of the first joint stock bank The General Bank of India in the year 1786. After this first bank, Bank of Hindustan and Bengal Bank came to existence. In the mid of 19th century East India Company established three banks The Bank of Bengal in 1809, The Bank of Bombay in 1840, and bank of Madras in 1843. These banks were independent units and called Presidency banks. These three banks were amalgamated in 1920 and new bank Imperial Bank of India was established. After Independence the Imperial Bank of India was nationalized with a new name State Bank of India by passing State Bank of India act 1955. The Reserve Bank of India as a Central bank was nationalized in the year 1935 by an act the Reserve bank of India act passed in the parliament. Several new banks as Punjab National Bank, Bank of Baroda, Canara Bank, Indian Bank, Bank of India etc were established after independence. On July 19, 1969 14 major banks were nationalized. Later on more banks were nationalized. At present the number of nationalized banks is 20. Several Foreign banks were allowed to operate as per the guidelines of RBI. At present the banking system can be classified in following categories: All the types of banks have a centralized control of RBI. All the banks have to follow the guidelines of RBI. Government used banks to provide credit and loan to weaker section. This lead to a serious crisis of unrecoverable debt. At the end of 1990 banks were saddled with NPA (Non Performing Assets) as a bad and recoverable debt touched to Rs. 75,000 crore. Foreign Banks in India started to lure customers by good services. These banks were more automated, providing more faster information, kept flexible working hours and introduced 24 hrs ATM's. Today Private Indian Banks as well as Nationalized Banks offering better services Various Types Of Banks

Table No:1.1 PUBLIC SECTOR BANKS 1 Reserve Bank of India State Bank of India and its 7 associate Banks Nationalised Banks (20 in number) Regional Rural Banks sponsored by Public sector Banks PRIVATE SECTOR BANKS Old Generation Private Banks New Generation Private Banks Foreign Banks in India Scheduled Co-operative Banks Non Scheduled Banks CO-OPERATIVE SECTOR BANKS State Co-operative Banks Central Co-operative Banks Primary agriculture Credit Societies Land Development Banks Urban Co-operative Banks State Land Development Banks DEVELOPMENT BANKS Industrial Finance Corporation of India (IFCI) Industrial Development bank of India (IDBI) Industrial Credit & Investment corporation of India (ICICI) Industrial Investment Bank of India (IIBI) Small Industries Development Bank of India (SIDBI) National Bank for Agriculture & Rural Development (NABARD) Export-Import Bank of India SCICI Ltd

2.

3.

4.

PROGRESS OF BANKS IN INDIA Table No:1.2

Numbers

Business per employee

Profit per employee

Min Nationalised banks Private banks New Private banks Foreign banks 27 34 9 44 70.75 48.01 379.57 54.79

Max 185.02 1506.19 1506.19 1086.94

Avg 101.71 303.81 756.49 595.51

Min -0.2 -1.54 4.81 53.06

Max 1.89 9.96 9.96 35.18

BUSINESS PER EMPLOYEE

Business per employee

2000 1500 1000 500 0 NationalisedPrivate New PrivateForeign banks banks banks banks Business per employee Min Business per employee Max Business per employee Avg 9 Numbers

GUIDELINES OF RBI

The RBI issued guidelines regarding the formation and functioning of private sector banks in January 1993. The guidelines are as follows: The Banks shall be governed by the provisions of The Reserve Bank of India Act 1934, The Banking Regulations Act 1949, and other relevant statuaries. Private Sector Banks are required to be registered as Public limited Companies in India. The shares of banks are required to be listed on Stock Exchanges. Preference will be given to those banks whose headquarters are proposed to be located in a center which does not have headquarters of any other bank. Maximum voting rights of an individual shareholder will be limited to 1% of total voting rights. The new bank will not be allowed to have as its Director any person who is already a Director in a banking company. The bank will be subject to prudential norms in respect of banking operations, accounting policies, and other policies as laid down by RBI. The bank will be required to adhere` to the following: Minimum paid-up capital of Rs. 1 bln. Promoter's contribution as determined by the RBI capital adequacy of 8% of the risk

10

weighted assets. Single borrower and group borrower exposure limits in force priority sector lending Export Credit Loan policy within overall policy guidelines laid down by RBI.

The banks will be free to open Branches anywhere once they satisfy the capital adequacy and prudential accounting norms. The banks will not be allowed to have investments in subsidiaries, mutual funds and portfolio investments in other companies in excess of 20% of the bank's own paidup capital and reserve. The banks would be require to use the modern infrastructural facilities in office equipments, computer, tele-communic`ations etc. With the recommendations of Narasimha Committee, the Government has now allowed the entry of Private Banks. The RBI will grant approvals for entry of private sector banks provide such banks offer competitive, efficient and low cost financial intermediation services, result in up gradation of technology in the banking sector, are financially viable and do not resort to unfair means like preemption and concentration of credit, monopolisation of economic power, cross holding with industrial groups etc. Non Residential Indians are allowed to have primary equity in a new banking company to the extent of 40%. In the case of a foreign banking company or a

11

finance company acting as a technical collaboration or a co-promoter, equity participation is restricted to 20%. CREDIT GROWTH Credit growth for the banking sector is showing encouraging growth. During the period April-January 2001, banks aggregate credit to the commercial sector grew by 11.8% on a YoY basis compared to 10.0% in corresponding previous period. Higher credit off-take signals a positive sign for improvement in interest income of banks. The higher credit growth was mainly on account of increase in non-food credit by 11.9% from Schedule Commercial Bank (SCBs) (compared to 10.5%) during the same period. The non-food credit reflected a higher growth of 18.1% compared to 16.0% projected. Despite higher flow of non-food credit growth, industrial production figures showed a disappointing picture. During the first nine months of FY01, industrial growth decelerated to 5.7% compared 6.4% in corresponding previous period. To improve the industrial growth and boost Indias competitiveness abroad, the RBI recently announced an interest rate cut of 50 basis points both in bank rate (7.5%) and CRR (8%). Since banks still constitute the most important financial intermediary, reduction in interest rates would facilitate lower transaction cost. As a result, cost of production of the corporates (for capital intensive industries) is expected to come down significantly. The RBI has designed the major policy reforms in order to enhance the efficiency of the financial system. The key developments included the following: Reduction in government holdings: The government introduced the Banking Companies (Acquisition and Transfer of Undertakings) and Financial Institutions Laws Bill, 2000 to reduce the proportion of government holding in the equity of nationalised banks to 33%. This is to enable them to raise fresh equity from the capital markets to enhance the current capital adequacy ratios apart from improving the operating efficiencies. Although, the government has announced to bring down its stake in nationalised banks, it is not willing to

12

give away management control. This is likely to affect adversely the operating environment in these banks.

PSU Banks to be allowed to buy equity: As a part of the banking sector reforms, the government will allow PSU banks to buy its stake in other banks. Currently, only shares not held by the government is freely transferable. Now since the government proposes to reduce its holding in these banks to 33%, it would need prospective buyers for its stake. The move will also allow mergers and acquisitions of state owned banks. Investment in capital markets: The RBI has formulated transparent guidelines for banks investment in capital markets (including shares, debentures and units of mutual funds) and financing equities. Against the existing norms of 5% of incremental deposits, banks are now allowed to invest 5% of the outstanding advances. This is likely to improve banks investment income in the favourable capital markets scenario. During the period April-December 00, the investment of banks (in debt and equity instruments) registered a lower growth of 13.7% YoY (compared to 21.1%). This was due to unfavorable capital market conditions. For making efficient investment decisions banks are required to build up adequate expertise in equity research, formulate transparent policy and procedures. NPA recovery: The RBI aims at speedier recovery of non-performing assets (NPA) of banks through renewed efforts. Net NPAs of banks during the year are expected to be higher due to the proposed change in the provisioning requirement by the RBI. A non-performing asset is a credit facility in respect of which interest has remained unpaid for more than 2 quarters after it has become past due. The term Past Due denotes grace period of one month after it has become due for payment by the borrower. The credit policy of 2000-01 has proposed to discontinue this concept with effect from March 31, 01.

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Entry of new banks: The RBI has revised norms for entry of new banks in the private sector. However, large industrial houses are not permitted to set up new banks. Also, the number of licences to be issued in the next three

years may be restricted to two or three of the best acceptable proposals (including permission to NBFC for conversion into banks). Investment valuations: The valuation guidelines for investment portfolio of banks have been re-classified with effect from September 00. Accordingly banks, which earlier had to mark 100% of their portfolio to the market, now can mark 75% of their portfolio. This is expected to reduce the banks mark to market losses on investment portfolio in the future. Consolidation: The RBI has initiated move towards consolidated supervision by incorporating the balance sheets of subsidiaries into the parent companys accounts. The public sector banks have also been asked to annex the balance sheets of their subsidiaries to their own balance sheets with effect from the year ended March 00. This initiative is likely to present a correct picture of the banks financial performance to shareholders. Entry into insurance: Banks and non-banking financial companies (NBFCs) are allowed to enter insurance business with prior approval of the RBI. Entry into insurance business is restricted to financially sound banks with a minimum net worth of Rs 5 bn apart from other criteria with respect to capital adequacy and profitability. However, any bank or its subsidiary can take up distribution of insurance products on fee basis as an agent of an insurance company. Although, the payback period for insurance venture is wide, it is expected to contribute a significant proportion to banks revenues in the next 5 years.

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Organization Profile Indian Bank

A premier bank owned by the Government of India Established on 15th August 1907 as part of the Swadeshi movement Serving the nation with a team of over 22000 dedicated staff Global deposits rose to Rs. 30444 Crores as on 31.03.2004 Global credit increased to Rs. 14935 Crores as on 31.03.2004 1377 Branches spread all over India International Presence Overseas branches in Singapore and Colombo including a Foreign Currency Banking Unit at Colombo 229 Overseas Correspondent banks in 69 countries Diversified banking activities - 3 Subsidiary companies Indbank Merchant Banking Services Ltd IndBank Housing Ltd. IndFund Management Ltd A front runner in specialized banking 87 Forex Authorised branches inclusive of 3 Specialised Overseas Branches at Chennai , Bangalore and Mumbai exclusively for handling forex transactions arising out of Export, Import, Remittances and Non Resident Indian business 5 specialised NRI Branches exclusively for servicing Non-Resident Indians 1 Small Scale Industries Branch extending finance exclusively to SSI units

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Leadership in Rural Development Loan products like Artisan Card, Kisan Card, Kisan Bike Scheme, Yuva Kisan Vidya Nidhi Yojana to meet diverse credit needs of farmers. Provision of technical assistance and project reports in Agriculture to entrepreneurs through Agricultural Consultancy & Technical Services (ACTS) 2 Specialised Agricultural Finance branches to finance High Tech Agricultural Projects A pioneer in introducing the latest technology in Banking 1141 Computerised Branches covering 95.18% of our total business as on 30.09.2004. All the remaining branches have been provided with a standalone PC for back office operations. 111 Automated Teller Machines offering 24 hours service All ATMs in Ahmedabad, Athwalines (Surat), Bangalore, Chennai,

Chandigarh,Chidambaram, Coimbatore, Delhi, Dharmapuri, Ernakulam, Faridabad, Gurgaon, Hyderabad, Kancheepuram, Kolkata,Kozhikode, Kumbakonam, Ludhiana, Madurai, Maraimalainagar, Mumbai, Neyveli, Panaji, Pattom, Pondicherry, Pudukkottai, Pune, Salem, Thanjavur, Tirumala, Tirunelveli, Trichy, Vellore and Vijayawada are Networked. Reuter Screen, Telerate, Reuter Monitor Dealing System provided at all Overseas Branches

Strategic alliance with HDFC Standard Life Insurance Company Indian Bank has entered into a strategic tie-up with HDFC Standard Life Insurance Company Ltd. Click for details.

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Types of Product
HOME LOANS Target Group The scheme is applicable only for individuals salaried class, businessmen, professionals and self-employed people, who have put in a minimum period of service/experience of 3 years Purpose For Construction / purchase of House /flat and also for repair /renovation of existing House /flat. Age Normally 50 (max) at entry and 60 (max.) at the time of closure - relaxable by 5 years, if found viable by bank. Quantum of Loan 36 times of gross monthly income or 60 times the net monthly income whichever is higher. Margin on loan Minimum 15% on project cost (Cost of construction + cost of land). If land is already owned (either self-earned/inherited/acquired by way of gift) and loan is applied for construction purpose, cost of land (at market value certified by our approved Engineer) and construction cost together will be treated as project cost and land value can be considered for margin purpose and 15% margin on project cost will have to be ensured. Interest rate (w.e.f. 29 05 2004)

17

(a) Floating Rate of Interest: Irrespective of loan amount Period Upto 5 years Above 5 years upto 10 years Above 10 years upto 15 years Above 15 years upto 20 years Rate of interest 07.25% p.a. 07.75% p.a. 07.75% p.a. 08.00% p.a.

The interest rates are subject to resetting clause which provides the Bank, the right to vary the BPLR or Tenor Premium or spread or any one or all. (b) Fixed Rate of Interest:

Repayment Period Upto 10 years Above 10 years upto 20 years

Rate of Interest 0.5% extra over and above the applicable floating rate 1% extra over and above the applicable floating rate

For Repairs and renovation - maximum amount of loan - Rs.5 lakhs Period Upto 5 years Beyond 5 years upto 10 years Rate of Interest 07.25% p.a. 07.75% p.a.

Repayment Max. 20 years for purchase/construction and 10 years for repairs and renovation EMI (discounted rate of interest for monthly rests) - per lakh

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Period 5 years 10 years 15 years 20 years

Rate 07.25% 07.75% 07.75% 08.00%

EMI 1992.50 1199.70 940.50 835.40

Processing Fee/Administrative Fee Processing Fee - Waived up to 31/03/2005 Take over of accounts from other Nationalized/ Prime Private or Foreign Banks/Institutions approved by NHB** Permitted Legal and Engineer's Valuation Legal fees and Engineer's valuation charges can be part of Home Loan Pre-closure charges For fresh sanctions to be made, pre-closure charges of 2% on Balance outstanding /applicable DL, whichever is higher

Checklist for buying a House/Flat

19

Please scrutinize all original documents. The title of the property may be in single or joint ownership basis. In case of any difficulty in getting the papers, a certified copy can be obtained from the local sub-registrar's office on payment of a nominal fee Refer the documents to a lawyer who can certify the clear title Obtain 'Nil Encumbrance Certificate' for a minimum period of 13 years to ensure that no mortgage has been created on the property. This will enable you to ensure that the title belongs to the rightful owner, who is the seller. In case of sale of third party property viz., real estate promoter(s), please check whether the third party is the absolute owner (or) holds power of attorney to sell the property. It is advisable to buy from builders with past credentials. Obtain required clearance under land ceiling and regulation act, which would stand in good stead, should a problem arise in the future. Please check if the price quoted is in-line with the prevailing market rate. You could take up the help from a Consultant for the purpose. Look at the approved as approved by the competent authority and ensure that there are no deviations in your construction from the approved plan . Checklist of documents required for buying a House/Flat Proof of employment and salary certificate for self and spouse (if employed) Balance sheet for last 3 years in the case of professionals, businessmen and self employed persons Income Tax/Wealth Tax returns for the past 3 years Proof of other income like rent, interest on investment, if any

20

Agreement of Sale/Sale Deed NIL Encurmbrance Certificate for 13 years Approved building plan Parent documents for 30 years Patta Valuation report from Bank's empaneled Engineer Legal Opinion from Bank's empaneled.

Vehicle Loan
Vehicle Loan Scheme Highlights

Target Group Salaried class Professionals Businessmen and Self-employed persons Purpose For purchasing new/second hand two/four wheelers. Age of second-hand vehicle should not be more than 3 years and vehicle to be certified by Automobile Association of India/reputed Automobile Engineer/Valuer acceptable to the Bank as to the market value. Maximum Amount Two wheelers Four wheelers : Rs.50,000 : Rs.7,50,000 New vehicle : 10%

Second hand vehicles : 40%

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Minimum gross monthly income/salary for availing loan for purchase of car should be Rs.20,000/-

Salaried class 20 times the gross monthly income (income of spouse also can be included with personal guarantee of spouse) 10.50% fixed - irrespective of the tenor not exceeding 60 EMIs

Professionals/Businessmen Based on their income earned and capacity/ability to repay theloan. Pensioners and Bank Employees are not eligible for the loan. (EMI Rs 214.77 per Rs 10,000- for 60 M) For4Wheelersonly 9% (fixed) upto 36 months ( EMI Rs317.98 per Rs10,000- for 36M) 9.5% (fixed) beyond 36 months ( EMI Rs209.96 per Rs10,000 for 60M) Repayment in 60 equated monthly installments (on Equated Monthly Installment basis). For non-salaried class, post-dated cheques for twelve months to be given. Purpose: Front end fee of Rs.250/- per lakh or part thereof with a minimum of Rs.250/Hypothecation of vehicle purchased out of the loan amount Insurance of vehicle with Bank clause at borrower's cost, to be renewed annually

Sanction in 48 hours in all focus branches, if the application is complete in all respects.

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Consumer Loan
Consumer Loans Scheme Highlights Target Group: Salaried class Pensioners Professionals Self Employed business persons and other individuals who have regular income Purpose: For purchasing consumer durables and white goods like TV, VCR, VCP, Air-conditioners, Refrigerators, Personal Computers and accessories etc. Eligible Amount: Maximum eligible amount is Rs.50,000/Salaries class/Pensioners spouse : 5 times the gross monthly salary of self and

Professionals/Businessmen : Based on their repaying capacity assessed based on the proof of income earned by self and spouse, furnished by them

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Interest Rates : 13% fixed Margin : 20% Service Charges : Rs.250/-(one time)

Repayment: Repayment in 36 monthly equated installments (EMI). The EMI works out to Rs. 336.59 at the ruling rate for a loan of Rs. 10,000/For non-salaried class, post-dated cheques for six months to be given. Security : Hypothecation of goods purchased out of the loan amount

Response time: Sanction in 48 hours in all focus branches, if the application is complete in all respects. Loan for salaried class: Target Group: Those in permanent employment with minimum service/experience of three years with

Government/Semi-Government Boards Endowments Reputed companies Corporate Industrial Establishments etc.

with regular monthly income with minimum take-home pay of 40% of the gross salary. Purpose: For meeting Marriage/Educational and Medical expenses, to celebrate family functions and for other household expenses 24

Interest Rate

: 12.50% fixed.

Service charges : Rs 250- per lac or part thereof. Eligible Amount: Maximum Amount: Rs.1,00,000 for Employer Sponsored (with undertaking for recovery) and Rs.50,000 for salaried class account-holder with us Minimum Loan Amount: Rs.5,000. Eligible loan amount calculated at five times the gross monthly salary for non sponsored category and 7 times of gross salary for sponsored category. Repayment: Repayment in 36 Monthly equated Instalments EMI works out to Rs.334.25 for Rs.10,000/- with repayment period of 36 months Loan against NSC/Kisan Vikas Patras/Relief Bonds of RBI/Life Insurance Policies Target Group: All properly introduced customers after due appraisal of capacity to service loan and interest Purpose: Any permitted bankable purposes such as Trade, Housing, Professional, Personal consumption and Educational purposes. Processing charges: No processing fee for limits upto Rs.Ten lakhs. Only actual out of pocket expenses shall be recovered from the borrower. For loans above Rs.10.00 lakhs, the charges will be Rs.250/per lakh or part thereof Loan Limit: Minimum loan amount - Rs.10,000/- and Maximum Rs.10.00 Lakh Interest:

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TERM LOAN : 8.00% floating (EMI Rs 202.75 for Rs 10000- for 60 Months) 8.50% fixed (EMI Rs 205.15 for Rs 10000- for 60 Months) OVERDRAFT : Margin: 15% on the interest accrued value of NSC/KVP/RBI Relief Bonds (of 9% /8% etc.) and Surrender value of LIC policies. Repayment: For NSC/KVP/Relief Bonds: At the time of maturity or in convenient instalments as appraised and agreed to at the time of sanction Overdraft against NSC/Kisan Vikas Patras/Relief Bonds of RBI/Life Insurance Policies Loan Limit: Minimum Rs.2.00 lakhs. Maximum - Rs.10.00 lakhs Margin: 15% on the interest accrued value of NSC/KVP/RBI Relief Bonds (of 9% /8% etc.) and Surrender value of LIC policies Rate of Interest: 8.50% floating. IB Swarna Abharana Scheme Target Group: Salaried Class Women / Working Women employed in Organised Sector / Housewives, with minimum gross monthly income of Rs.10,000/-. Income of spouse can be added only in the case of housewives. The applicant should be properly introduced to the Bank.For working women, income of the spouse can be taken for arriving the quantum of loan Purpose: 8.50% floating

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Purpose For purchase of Gold Ornaments/ Jewellery (Age : 18-55 Years) Quantum of Loan: 10 time the gross monthly income (max.) Minimum Rs.10,000/- Maximum Rs 2 lakh Repayment period : 60 EMI Interest rate Services Charges : BPLR + TP minus 1% = 10.50% fixed : NIL up to Rs50,000/0.50% for loans above Rs.50000/Security/Margin: No Cash Margin / Collateral for loan amount up to Rs.50000/- (Salary Credit / Undertaking from employer is must. Where the employer has tie-up arrangement with other Banks for salary disbursal, post dated cheques will be obtained). Additional security, as under, is a must For Limits above Rs.50,000/Margin Nil 15% Nature of security Liquid assets like NSC / LIC policy of equal value is offered. Immovable property is offered as security.

For House-wives, post-dated cheques from self / spouse (12 nos.)

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Other Terms: 1. Jewellery/ gold ornaments must be purchased from established/ reputed shops only. 2. 3. 4. 5. Payment should be made by way of crossed DD/ BPO. Only one account should be outstanding at any point of time. Proper bills (indicating the description of the jewels purchased) should be obtained and kept along with the documents. No pre-payment charges are applicable. 6. The credentials of the borrower to be verified before granting the loan. 7. Declaration from the borrower to be obtained that she will not pledge the jewels purchased out of our loan or gift it to any body till the loan is adjusted.

Financial Performance of Indian Bank

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Table No:1.3 2003-04 Capital adequacy ratio Percentage of shareholding of Govt of India Percentage of net non-performing advances to net advances Break-up of the item provisions and contingencies including in P&L a/c -provision made towards NPA -Floating provision towards NPA Provision made towards Non-performing investments 12.82 100 2002-03 10.85 100

2.71

6.15

Rs.167.34 Rs.175 Rs.2.39

Rs.154.75 Nil Rs.31.97

Provision made towards standard advances

Rs.5

Rs.4.40

Provision made for smooth transition to 90 days norms Provision made towards restructured accounts Provision made towards VRS expenses Provision made towards country exposure

Nil

Rs.10

Rs.33.29

Rs.88.91

Nil Rs.1.02

Rs.93.55 Rs.0.07

NON-PERFORMING ASSETS: 29

Non Performing Asset means an asset or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by RBI. An amount due under any credit facility is treated as "past due" when it has not been 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. Accordingly, as from that date, a Non performing asset (NPA) shall be an advance where Interest and /or installment of principal remain overdue for a period of more than 180 days in respect of a Term Loan, The account remains 'out of order' for a period of more than 180 days, in respect of an overdraft/ cash Credit(OD/CC), The bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted, Interest and/ or installment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purpose, and Any amount to be received remains overdue for a period of more than 180 days in respect of other accounts. If any account of a party becomes NPA, all the other accounts related to that party will also be treated as NPA until the payment.

Currently LGF is having Rs.1666.99 lakhs of Non-performing assets from other than related parties and is expected to be lowered in the mere future. Effect of NPA: It doesnt reckon in the books if it is taken on accrual basis.

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Provide for principal on some percentage depending on the period.

Draft Guidelines on purchase/sale of Non Performing Assets Banks have a menu of options for resolving their non performing assets. With a view to offer an additional avenue for effectively addressing their non performing assets Reserve Bank had issued guidelines on sale of assets to Securitisation Companies/ Reconstruction Companies in April 2003. It has now been decided to further increase the options available to banks and accordingly draft guidelines on sale / purchase of non performing assets have been formulated and furnished in the Annexure. The guidelines have been formulated with a view to develop a healthy secondary market for non performing assets, where securitisation companies and reconstruction companies are not involved. Draft Guidelines on purchase/ sale of Non Performing Financial Assets Scope: 1. These guidelines would be applicable to banks, FIs and NBFCs purchasing/ selling non-performing financial assets from/ to other banks/ FIs/ NBFCs (excluding securitisation companies/ reconstruction companies). 2. A financial asset, including assets under multiple/ consortium banking arrangements, would be eligible for purchase/ sale in terms of these guidelines if it is a non performing asset / non performing investment in the books of the selling bank. 3. The reference to bank in the guidelines would include financial institutions and NBFCs. Structure: 4. The guidelines to be followed by banks purchasing/ selling non performing financial assets from / to other banks are given below. The guidelines have been grouped under the following headings:

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Procedure for purchase/ sale of non performing financial assets by banks, including valuation and pricing aspects. Prudential norms, in the following areas, for banks for purchase/ sale of non performing financial assets: a) Asset classification norms b) Provisioning norms c) Accounting of recoveries d) Capital adequacy norm e) Exposure norms Disclosure requirements 5. Procedure for purchase/ sale of non performing financial assets, including valuation and pricing aspects A bank which is purchasing/ selling non performing financial assets should ensure that the purchase/ sale is conducted in accordance with a policy approved by the Board. The Board shall lay down policies and guidelines covering, inter alia, a) Non performing financial assets that may be purchased/ sold; b) Norms and procedure for purchase/ sale of such financial assets; c) Valuation procedure to be followed to ensure that the economic value of financial assets is reasonably estimated based on the estimated cash flows arising out of repayments and recovery prospects; d) Delegation of powers of various functionaries for taking decision on the purchase/ sale of the financial assets; etc & Accounting policy i) While laying down the policy, the Board shall satisfy itself that the bank has adequate skills to purchase non performing financial assets and deal with them in an efficient manner which will result in value addition to the bank. The Board should also ensure that appropriate systems and procedures are in place to effectively address the risks that a purchasing bank would assume while engaging in this activity.

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ii)

A bank may purchase / sell non performing financial assets from/ to other banks only on without recourse basis, i.e., the entire credit risk associated with the non performing financial assets should be transferred to the purchasing bank. Selling bank shall ensure that the effect of the sale of the financial assets should be such that the asset is taken off the books of the bank and after the sale there should not be any known liability devolving on the selling bank.

iii)

Banks should ensure that subsequent to sale of the non performing financial assets to other banks, they do not have any involvement with reference to assets sold and do not assume operational, legal or any other type of risks relating to the financial assets sold. Consequently, the specific financial asset should not enjoy the support of credit enhancements / liquidity facilities in any form or manner.

iv)

Each bank will make its own assessment of the value offered by the purchasing bank for the financial asset and decide whether to accept or reject the offer.

v)

Under no circumstances can a sale to other banks be made at a contingent price whereby in the event of shortfall in the realization by the purchasing banks, the selling banks would have to bear a part of the shortfall.

vi)

A non performing asset in the books of a bank shall be eligible for sale to other banks only if it has remained a non performing asset for at least two years in the books of the selling bank.

vii)

Banks shall sell non performing financial assets to other banks only on cash basis.

viii)

A non performing financial asset should be held by the purchasing bank in its books at least for a period of 15 months before it is sold.

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ix)

An asset may be deemed to have demonstrated its performing status with reference to cash flows estimated while purchasing the asset.

x)

The selling bank shall pursue the staff accountability aspects as per the existing instructions in respect of the non performing assets sold to other banks.

6. Prudential norms for banks for the purchase/ sale transactions (A) Asset classification norms (i) The non performing financial asset may be classified as standard in the books of the purchasing bank for a period of 90 days from the date of purchase. The asset classification status of an existing exposure to the same obligor in the books of the purchasing bank will continue to be governed by the record of recovery of that exposure and hence may be different. (ii) Thereafter, the asset classification status of the account shall be determined by the record of recovery in the books of the purchasing bank with reference to cash flows estimated while purchasing the asset. (iii) Where the purchase/ sale does not satisfy any of the prudential requirements prescribed in these guidelines the asset classification status of the financial asset in the books of the purchasing bank at the time of purchase shall be the same as in the books of the selling bank. Thereafter, the asset classification status will continue to be determined with reference to the date of NPA in the selling bank. (iv) Any restructure/ reschedule/ rephase of the repayment schedule of the non performing financial asset shall render the account as a non performing asset.

(B) Provisioning norms Books of selling bank i) When a bank sells its non performing financial assets to other banks, the same will be removed from its books on transfer. ii) If the sale is at a price below the net book value (NBV) (i.e., book value less provisions held), the shortfall should be debited to the profit and loss account of that year.

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iii) If the sale is for a value higher than the NBV, the excess provision shall not be reversed but will be utilised to meet the shortfall/ loss on account of sale of other non performing financial assets. Books of purchasing bank The asset shall attract provisioning requirement appropriate to its asset classification status in the books of the purchasing bank. (C) Accounting of recoveries Any recovery in respect of a non performing asset purchased from other banks should first be adjusted against its acquisition cost. Recoveries in excess of the acquisition cost can be recognised as profit. (D) Capital Adequacy For the purpose of capital adequacy, banks should assign 100% risk weights to the non performing financial assets purchased from other banks. In case the non performing asset purchased is an investment, then it would attract capital charge for market risks also. For NBFCs the relevant instructions on capital adequacy would be applicable. (E) Exposure Norms The purchasing bank will reckon exposure on the obligor of the specific financial asset. Hence these banks should ensure compliance with the prudential credit exposure ceilings (both single and group) after reckoning the exposures to the obligors arising on account of the purchase. For NBFCs the relevant instructions on exposure norms would be applicable. 7. Disclosure Requirements Banks which purchase non performing financial assets from other banks shall be required to make the following disclosures in the Notes on Accounts to their Balance sheets: A. Determination of non performing financial assets purchased: 1. (a) No. of accounts purchased during the year (b) Aggregate outstanding 2. (a) Of these, number of accounts restructured during the year (b) Aggregate outstanding

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B. Determination of non performing financial assets sold: 1. No. of accounts sold 2. Aggregate outstanding 3. Aggregate consideration received

NPA levels in Asia are high and are likely to increase In 2002, Ernst & Young (NPL Loan Report: Asia 2004) estimates Asias NPLs at $2 Trillion up by 33%. Even after a concerted effort at NPL resolution in the recent years, Asian banks and AMCs have more than US$ 1 trillion of NPLs ontheir balance sheets and other NPL hot spots in Europe and in germany hold US$ 300 billion. As a % of GDP, the estimated NPLs range from about 12% to 45% of GDP. The success of NPL resolution in Asia has proved that the NPL problem is manageable if the necessary resources, imitative and support is provided by regulators/governments. Asia could emerge as the worlds growth engine if it succeeds in cleaning up its NPL problem. THE IMPORTANCE OF TIMELY AND ACCURATE CREDIT INFORMATION Improving credit information systems is one of the fundamentals in arresting the NPA phenomenon in Asia. The availability of credit information in the West is much more established and organized. This is necessarily so as the use of plastic money or credit cards has transformed the manner in which business is transacted. Other problems include Tax default, reluctance to reveal true financial status, weak credit culture, weak debt recovery laws . In order to curb the problem more information on potential borrowers and problem borrowers is required.

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THE IMPORTANCE OF THE SME AND THE RURAL SECTOR In developing countries or emerging markets SMEs have been identified as the engines of growth The importance of adequate credit information on this sector. The disciplining mechanism provided by a credit information bureau. The importance of a global initiative In building and sustaining strong economies and financial systems the

importance of

Leadership; Acknowledgement of the problem; Transparency in reporting; Adequate regulation.

FUTURE CHALLENGES Change of ownership structure Expand the users/share holders Collection, updating and dissemination of information electronically (ON-LINE) Collection of information from other sources (PUBLIC DATA) Introduction of the latest ICT Consolidation with world/regional leaders Developing a product line Amend the CRIB Act/introduction of new statute to facilitate information sharing based on international standards.

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RBI Guidelines
(A)Guidelines for recovery of NPAs upto Rs.5 crores. (i) Coverage a. The guidelines will cover all NPAs in all sectors irrespective of the nature of business which have become doubtful or loss as on 31.3.1997 with outstanding balance of Rs.5 crore and below. b. The guidelines will also cover NPAs classified as substandard as on 31.3.1997 which have subsequently become doubtful or loss category. c. These guidelines will also cover cases pending before Courts/DRTs/BIFR, subject to consent decree being obtained from the Courts/DRTs/BIFR. d. Cases of willful default, fraud and malfeasance will not be covered under these guidelines. e. The guidelines will remain operative only upto March 31, 2001. (ii) Settlement Formula a. NPAs classified as Doubtful or Loss as on 31.3.1997 b. The minimum amount that should be recovered under the revised guidelines in respect of compromise settlement of NPAs classified as doubtful or loss as on March 31, 1997 would be 100% of the outstanding balance in the account as on the date on which the account was categorized as doubtful NPA. This would also include amount prudentially written-off, if any, in the account earlier. c. NPAs classified as Sub-standard as on 31.3.1997 which became doubtful or loss subsequently

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The minimum amount that should be recovered in respect of NPAs classified as Substandard as on 31.3.1997 which became doubtful or loss subsequently would be 100% of the outstanding balance in the account as on the date on which the account was categorized as doubtful NPAs, whichever happened earlier, as the case may be, plus interest at existing Prime Lending rate from 1.4.1997 till the date of final payment. This would include also amount prudentially written off, if any, in the account earlier. (iii) Payment The amount of settlement arrived at in both the above cases, should be paid in one lumpsum. In cases where the borrowers are unable to pay the entire amount in one lumpsum, atleast 25% of the amount of settlement should be paid upfront and the balance amount of 75% should be paid in instalments within a period of one year together with interest at the existing Prime Lending Rate from the date of settlement upto the date of final payment. (B). Guidelines for recovery of NPAs over Rs.5 crores (i) In case of NPAs over Rs.5 crores, Bank will settle these accounts on case to case basis and based on merits, in accordance with the Recovery Policy of the Bank.

Asset Recovery Services NPA is a growing source of concern for lending institutions and banks. With non-performing assets mounting by the day and assets turning bad, it is important to dispose and recover to help improve the bottomline. Attempts are being made through policy changes, employing novel strategies for recovery, using judicial and non-judicial methods to salvage as much as possible.Equipped with vast techno-commercial expertise in fair market valuation,excellent contacts with the industry, trading community, and overseas investors, MVL Consulting assists banks and financial institutions in just doing that. It conducts valuation of assets and strategises the sale of assets at the best realisable prices. MVL Consultings mission is to help 39

clients to quickly convert assets to cash within the shortest possible time.MVL Consulting also provides in-house training programs to drive home the message of "Importance of Recovery" from the lowest level of an organization to the topmost level. Some of our services include: Asset acquisition Inventory and Valuation of assets Custodian Services Drafting of Documentation necessary for sale Strategy reports for sale of assets Act on behalf of Judiciary as Commissioner and Receiver Due diligence and delivery of assets

Acquisition Assisting banks and financial institutions in enforcement of their rights in respect of the secured assets available to the Bank under various statutes including the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

Inventory We carry out assignments on inventory of fixed assets and current assets(stock audit) too on behalf of financial institutions, banks, corporate and any secured creditor in India. We have multi-disciplinary expertise to carry out such assignments. Generally we verify, and inspect the assets with reference to information that is available within and outside the organisation. After careful assessment of the assets are done, we add value to the assignment by bringing our expertise in grouping the assets to saleable lots with great appeal to the buyers. Valuation

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Valuation of assets are carefully done giving due importance to crucial factors like age of the fixed asset, present condition, future life, replacement value, depreciation, technological obsolescence, damaged caused while not in use,and the market value. Valuation reports for fixed assets and current assets are prepared for the benefit of both the buyer and the seller of assets.Financial, legal and technical due diligence To carry out financial, legal and technical due diligence of loan and underlying security ROC search To conduct search of ROC records with a view to establishing total secured debt in the borrower and list of lenders in a borrower, with their security and loan amount details Storage and safe custody of documents and files :To maintain, microfilm, retrieve and deliver documents & files pertaining to the borrower Custody and protection of underlying security : To secure the physical assets of the borrower by placement of security guards etc.

Sale & Disposable of Assets MVL Consulting has closely worked with several financial institutions, banks, corporates in effecting sale and disposal of NPA's to their satisfaction. Our multidisciplinary expertise and pro-active approach has brought value and satisfaction to our customers. We help our clients with complete documentation by preparing information manuals, bid documents, locating prospective buyers and developing strategies for shortening the "asset to cash" cycle. Classification of loans and off-balance sheet items and

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There is no uniform system of classification of loans and off-balance sheet items. Many countries have adopted, mainly through regulatory and supervisory framework, a three- tier approach towards classification of Non-Performing Assets (NPAs), corresponding to 'substandard', 'doubtful' and 'loss' categories, using delinquency period as the main bench mark. Thus, 'substandard' assets are those where principal and/or interest are more than 90 days past due; 'doubtful' assets are those where principal and/or interest are at least 180 days past due; and 'loss' assets are those where principal and/or interest are at least 1 year past due. This classification categories is also applied to contingent accounts or OffBalance Sheet items, since they are treated the same way as loans. The delinquency period is applied for classification of various 'on-balance' sheet assets and 'off-balance' sheet items, so as to provide, among others, an objective criterion for appropriate classification, depending on the possibility of collectibility. However, if, in the bank's judgement, an asset is impaired to such an extent and its collectibility is in serious doubt that it should straightaway be classified as 'doubtful' or 'loss', the bank will do so, at any time, without waiting for the delinquency period. The delinquency period varies across countries and it differs in relation to the types of accounts. Also, in some countries, banks themselves classify the loans, on the basis of judgmental factors. In view of the varied practices followed, primarily depending on the structure of the banking system, credit delivery systems, and socio-economic conditions, it will not be advisable to prescribe a set of definition of Non-Performing Assets. One may rely on the approach adopted by the national authorities. It should, however, be made a requirement that the system followed in the matter of classification of assets, should be explained fully, in the form of footnotes to the accounts . Provisioning requirements The practices of provisioning differ among countries, following the asset classification system adopted. Most of the countries have adopted the standard requirements of provisioning - 20 percent of the outstanding balance in respect of 'substandard' category of assets; 50 percent in respect of 'doubtful' category; and 100 percent in respect of 'loss' category. While some countries have imp osed lower percentages, yet, some others have adopted the system of provisioning, in a phased manner. Recognition of collateral - fully or partially - in

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assessing the provisioning requirements, as applicable in some countries, has great impact on provisioning. Also, tax deductibility of specific provisions towards loan losses, as extended by tax authorities in some countries, constitutes a strong positive incentive for banks to make adequate provisions. It is, therefore, necessary that banks should be required to fully explain the policies and procedures adopted in making provisions towards NPAs. Recognition of income on Non-Performing Loans (NPLs) Stricter regulations have been laid down by supervisory authorities in many countries with regard to income recognition on Non-Performing Loans (NPLs). The suspension of interest payments is required on loans that are classified as 'non-performing' ['substandard', 'doubtful' and 'loss'].Any uncollected interest payments on NPLs is considered non-accrued interest. Previously accrued, but uncollected interest, is reversed out of income. Failure to do so would overstate income. Uncollected interest is normally put in a memorandum account. NPLs are restored on an accrual basis only after full settlement has been made on all delinquent principal and interest. It would, therefore, be useful, if the accounts carry a footnote, explaining the accounting policies followed with regard to recognition of income on NPLs.

Criteria for 'write-off' of bad loans The policy with regard to 'write-off' of bad loans by banks is set by the Board of Directors, depending, among others, on the repayment culture and legal system prevalent. It will be inadvisable for the regulatory authority to lay down specific guidelines as to when a loan could be considered as 'non-recoverable' and written- off. The banks may, however, be exhorted that balance sheets would need to be cleansed, as early as possible. Reporting requirements Interest Income

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Ideally, interest income should reflect only interest income realised and should exclude interest accrued on NPLs, so as to avoid overstating of income. The banks may be required to report the balance of uncollected interest on NPLs, as a memorandum item. It would be useful, if additions and deletions during the preceding specified period are also reflected. Loans It will be appropriate to record the "specific provisions" as a contra item, thus reducing the total loans outstanding, so as to reflect the recoverable value of the loans. Thus, while specific loan loss provisions are reported as contra asset, nonetheless, provisions, other than for loan losses, should, however, appear under "liabilities" Non-Performing Assets (NPAs) The banks may be required to report Non-Performing Loans (NPLs), preferably under various categories, as a memorandum item. It is important that the amount of outstanding NPLs should not include interest not realized. The additions and deletions during the preceding specifiedperiod may also be reflected. The total of on-balance sheet assets, other than loans, and off-balance heet items, classified as 'non-performing', may be reported separately, under various categories. Additions and deletions during the preceding specified period should also be reported. Provisions "General" provisions may be required to be reported as a separate item under 'capital and reserves'.The "specific" provisions may be required to be reported, so as to facilitate arriving at provision-adjusted NPLs i.e., Net NPLs. Additions and deletions during the preceding specified period may also be required to be reported. General Cross country comparison of financial soundness

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If the policies and practices followed in the matter of classification of assets, provisioning, income recognition etc., are fully explained, it will be possible for the analysts to make meaningful cross country comparison of financial soundness.

Analysis And Findings

Cross comparison of financial soundness

Table No:1.4

Gross (Rs in crores) NPA 2002 45,653

Net NPA 21,232

Capital Reserves Net Depletion (50%) worth #1 #2 16,071 24698 40,769 55.99 26.04

2003 51,710 2004 53,294

24,211 26,188

14,406 27,447

41,852

61.78 57.86

28.92 28.43

14,234 31,819 46,052

Group: Private Sector banks 2002 3,186 1,863 2,956 3,120 1,589 1,729 1,808 3,600 4,221 6,342 5,189 5,951 8,151 30.70 39.01 30.26 17.95 24.84 19.14

2003 4,643 2004 4,932

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1)Old Private Sector 2002 2,794 2003 3,773

1,572 2,332

441 506 559 1,148 1,224 1,250 1,780 2,072 2,405

2,747 3,058 3,753 853 1,163 2,589 5,706 5,125 5,673

3,188 3,564 4,312 2,001 2,387 3,839 7,486 7,197 8,078

43.82 52.94 46.22 9.80 18.25 12.32 13.20 15.29 16.19

24.66 32.72 28.80 7.27 13.05 8.28 4.45 4.22 5.22

2004 3,986 2,484 New Private Sector 2002 392 291 2003 871 623

2004 946 636 Group: Foreign banks 2002 1,976 666 2003 2,201 2004 2,615 607 844

Group: All Scheduled Commercial banks 2002 50,815 23,761 19,439 34,004 2003 58,554 27,774 2004 60,841 30,152 18,207 36,793 18,447 43,834

53,443 55,000 62,281

47.54 22.23 53.23 48.84 25.25 24.21

Table No:1.5

Movement in NPA

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In percent Bank group Public sector banks Nationalised banks Private banks Old private banks New private banks Foreign banks

Gross NPA/Total Assets 2001-02 2002-03 2002-04 7.83 8.3 4.19 5.23 1.34 2.12 7.03 6.67 7.24 3.93 5.06 1.52 6.71 6.83 4.48 5.78 2.26 3.1

Net NPA/Total Assets 2001-02 2002-03 2003-04 5.98 6.04 3.61 5.13 1.61 3.15 3.65 3.95 2.54 3.11 0.95 0.92 3.27 3.48 2.29 2.84 1.12 1.02

In percent Bank group Public sector banks Nationalised banks Private banks Old private banks New private banks Foreign banks

Gross NPA/Gross advances 2001-02 17.84 19.05 8.49 10.71 2.63 4.29 2002-03 16.02 16.88 8.67 10.92 3.51 6.38 2002-04 15.89 16.02 10.81 13.06 6.19 7.59

Net NPA/Net advances 2001-02 14.02 13.99 8.47 11.25 4.15 6.99 2002-03 9.18 10.07 5.37 6.65 1.97 1.92 2003-04 8.15 8.91 5.26 6.46 2.63 2.25

Recovery of NPAs Table No:1.6

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Table: Recovery of NPAs Public Sector banks Other Scheduled Commercial Banks 1,278 1,605 2,780 3,362 Total(Rupee crore)

2000-01 2001-02 2002-03 2003-04

8,438 10,367 13,628 14,226

9,716 11,972 16,408 17,588

Recovery of scheduled commercial banks.

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Recovery of scheduled commercial banks

Other Scheduled Commercial 2000-01 2001-02 2002-03 2003-04

Recovery of scheduled commercial banks.

Recovery of public sector banks

Public Sector Banks 2000-01 2001-02 2002-03 2003-04

Indian Banks performance -Comparative study on the movement of NPA Table No:1.7 Particulars 2000-01 2001-02 2002-03 2003-04

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Gross NPA Opening balance Add:Additions during the year sub-total Less:Deductions during the year Closing balance sundry deposits and interest suspense Net NPA 3354.57 399.81 3754.38 1395.31 2359.07 118.11 949.93 2359.07 377.63 2736.7 561.35 2175.35 89.61 903.58 2175.35 244.85 2420.2 790.38 1629.82 89.5 754.95 1629.82 221.71 1851.53 659.75 1191.78 85.79 383.21

Movement in NPA
1000 Net 800 NPA 600 400 200 0 2000- 200101 02 2002- 200303 04

year

FINDINGS

Table shows the movement of NPA over a period of four years from 2001 to

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2004 of various group of banks. It gives an inference that the foreign banks can able to make a nominal decrease in its NPA rate as compared to all other banking sectors Gross NPA reduced by Rs. 438 Crore The NPA recovery registered for the year 2003-04 is Rs.320 crore which is the highest during the past three years (as against Rs. 270 Crore for last year). Net NPA Ratio fell to 2.71% for March 2004 (from 6.15% last year). Lok Adalats: The Bank took up with Legal services Authorities in various centers / states and arranged to conduct of 62 Lok Adalats in respect of 35242 cases involving Rs 101.99 crore. Among these, 12172 cases were agreed to be settled which will result in recovery of around Rs.50 crore. In 3168 cases, recovery of Rs. 2.68 crore has been effected during the year. The Bank has been vigorously pursuing recovery of the NPAs using the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act. Total recovery in such cases amounts to Rs 55.17 crore. Effective implementation of revised guidelines of RBI on OTS has yielded a NPA recovery of Rs.197.25 crore since implementation of the scheme. Gross NPA was lower at 6.55% as at 31.12.2004 as against 7.98% as on 31.03.2004 and 11.32% as at 31.12.2003. Net NPA was lower at 1.48% as at 31.12.04 as against 2.71% for March 2004 and 4.55% as at 31.12.03. The Bank is well poised towards reaching its goal of bringing the net NPA to NIL by March 2007. Recovery in domestic NPA amounted to Rs.205.50 crore during the nine month period ended December 2004.

Indian Bank maintains growth

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Indian Bank reported an operating profit of Rs.370.16 crores for the nine-month period ended December 2002, up from Rs.115.76 crores in the same period last year. The total income of the bank recorded a rise of 13.9 per cent to Rs. 2,155.96 crores during the period under review, up from Rs. 1,892.93 crores in the same period last year. Noninterest income rose to Rs. 357crores, up from Rs. 252 crores. Out of this, earnings from treasury operations were Rs. 200 crores. The total expenses rose marginally to Rs. 1,800.12 crores (Rs. 1,799.80crores). The total business of the bank grew by 13.84 per cent to Rs. 37,752 crores during the nine-month period. The cost of deposit had come down to 6.71 per cent from 7.76 per cent during the same period last year. The net interest income (domestic) had improved to Rs. 537.59 crores, recording an increase of Rs. 174.03 crores over the corresponding period in the previous year. The gross non-performing asset (NPA) of the bank was at 16.35 per cent of the gross credit, down from 17.85 per cent as at the end of March 2002. The net NPA had been pared to 6.77 per cent of the net credit from 8.28 per cent as on March 2002. Provision had already been made for 59 per cent of the NPAs. The bank had been vigorous in recovering NPAs. In this context, nine properties had already been taken over by the bank in the wake of the Securitisation Ordinance. The actual cash recovery on the NPA front up to January this year was to the tune of Rs.184crores, and hoped to recover more by March.

The bank's credit had grown to Rs. 1,131crores during the nine-month period, up from Rs.700 crores in the same period last year. The structured product business had grown to Rs.1,000 crores. While declining to divulge the net profit figure for the nine-month period, the bank had posted a net profit of Rs.73crores for the half-year ended March 2003. On the much-touted Power Account for Young Achievers, so far the bank had opened 2000 accounts. This product, would be made available to more cities soon.

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The bank would get the remaining Rs.770 crore recap assistance before long. She also indicated that the bank would soon come out with a vision 2010 blueprint that could lay down the road map. To a question, she said 24 large accounts with a total debt exposure of Rs. 270 crores were being restructured so as to facilitate their return to health. Similarly, 110 SSI (small-scale industries) accounts were also being revamped.

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SUGGESTIONS

SUGGESTIONS: Need for quicker more timely credit/risk information access due to economic pressures Need for more efficient collection and dissemination of credit/risk Increasing need to make available Actionable data Need to make more informed and Rapid decisions Need to reduce potential credit/risk exposure - to view credit/risk data in new and important ways REDUCTION OF COST Eliminate redundant legacy applications (access databases and excel spread sheets)and their maintenance Reduce the time and cost of collecting data from multiple sources and eliminate un-needed reports Reduce NPA through more informed decision making and awareness of concentration and exposures Eliminate redundant Credit Committee meetings

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CONCLUSION

To have an efficient functioning of business and to survive in the cut throat competition, the bank can put its effort to select the right parties and a thorough verification of the asset involved while providing loan. In addition to its financial planning the bank can use quantitative techniques such as linear programming model in order to get a more effective and efficient funding profile. Targeting specific data indicators regardless of increased volume would lead to better positioning for growth.

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BIBLIOGRAPHY

Ram Mohan, T. T. (2002) Banking reform in India Ahn, Choong Tong (2001) Financial System Reform and NPLs Bama B (2002) NPL Securitisation Valuation of NPAs , ICICI Research RBI (2002b) Selected Ratios of Scheduled Commercial Banks: 2000 and 2001 www.rbi.org.in, 2002 RBI (2002c) Financial Institutions www.rbi.org.in, 2002 Viswanathan R. (2002) Myth and reality The Hindu, Feb 28, 2002 www.hinduonnet.com/thehindu/biz/2002/02/28/stories/2002022800280200.html

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