Dissertation

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A STUDY OF NON PERFORMING ASSETS WITH
SPECIAL REFERANCE TO BANK OF INDIA

DISSERTATION
2010

Submitted in the partial fulfillment of the requirement for the award of

MASTER OF BUSINESS ADMINISTRATION

Submitted By:

VINAY .H .N
Register Number: 08NZCM6088

To

Bangalore University
Bangalore

Under the Guidance of

INTERNAL GUIDE
Mr.Tyagarajan
Senior Professor,
VVN IMTR,
Bangalore




VVN INSTITUTE OF MANAGEMENT TECHNOLOGY AND RESEARCH
#3, Vanivilas Road, Bangalore 560 004.
Month & Year of Submission
April 2010

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DECLARATION


I hereby declare that the Dissertation report titled A study of Non
Performing Assets with special reference to Bank of India has been my
original report - prepared and designed by me during the year 2010 under the
guidance of Mr. Tyagarajan, Senior Professor, at VVN IMTR, Bangalore.
I also hereby declare that this Dissertation report has not been submitted
at any time to any other university or institute for the award of any other degree
or prizes.

Place: Bangalore
Date: 22-04-2010



VINAY.H.N
Reg. No: 08NZCM6088




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ACKNOWLEDGEMENT

It is my pleasure to be indebted to various people, who directly or
indirectly contributed in the development of this work and who influenced my
thinking, behavior, and acts during the course of study.
First I would like to express my profound sense of gratitude to Mr. R.
Jaya Panday, Branch Manager of Bank of India, for providing me an
opportunity to undertake the project.
As a student specializing in finance, I came to know about the ground
realities in topics like NON PERFORMING ASSETS WITH SPECIAL
REFERENCE TO BANK OF INDIA. For this I am indebted to Mr.
Tyagarajan, Senior Professor, VVN IMTR who took personal interest in my
project and bore the associated headaches.
I would be unfair if I do not mention the name of Dr.Mahesh Kumar K.
R., Director, VVN IMTR for his inspiring presence and blessings and who gave
me valuable tips to complete this project.
Lastly, I would like to thank the almighty and my parents for their moral
support and my colleagues with whom I shared my day-to-day experience and
received lots off suggestions that improved my work quality.

VINAY .H.N
Reg. No: 08NZCM6088

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CONTENTS

Chapters

Title

Page No.


Chapter 1


INTRODUCTION TO THE STUDY

1.1 Introduction
1.2 Background
1.3 Need of the study






Chapter - 2


THEORETICAL BACKGROUND OF THE STUDY

2.1 Introduction to NPA:
2.1.a Meaning
2.1.b Definitions

2.2 What is a NPAs
2.3 Classification of Loans
2.4 Types of Non-Performing Assets
2.5 Asset Classification
2.6 Guidelines for classification of Assets

2.7 Factors for Risk in NPAs:
2.7.a External factors
2.7.b Internal factors

2.8 Problems due to NPA
2.9 Impact of NPA
2.10 Existing systems / Procedures for NPA
2.11 Appropriateness of the Existing System



Chapter - 3


ORGANIZATION PROFILE

3.1 Industry Profile:

3.1.a Introduction
3.1.b Meaning of Bank
3.1.c Defenestration
3.1.d Types of Banks


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3.1.e Indian Banking Industry
3.1.f Current Structure of Indian Banking
Industry
3.1.g Feature of Indian Banking Industry
3.1.h Nationalized Banks in India

3.2 Company Profile:

3.2.a Introduction to BOI
3.2.b History
3.2.c BOIs Established History
3.2.d Mission and Vision
3.2.e Board of Directors
3.2.f Investor Profile / Share holding pattern
3.2.g Shareholding pattern of Institutional
Investors
3.2.h Business Mix
3.2.i Strategic Investments / Alliances / Joint
ventures
3.2.j Services Provided by the Bank of India
3.2.k loans Provided by the Bank of India
3.2.l Bank of India Accolades, Awards &
Highlights
3.2.m Compotators Profile


Chapter - 4


RESEARCH METHODOLOGY

4.1 Title of the Project
4.2 Objectives of the Study

4.3 Research Methodology

4.3.a Formulating the Problem
4.3.b Research Design
4.3.c Determining the Data Source
4.3.d Analysis of the Data
4.3.e Interpretation of the Data
4.3.f Preparing Research Report

4.4 Scope of this Study
4.5 Limitation of the study




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Chapter - 5

ANALYSIS AND INTERPRETATION OF
DATA

5.1 Ratio Analysis

5.1.a Analysis of Liquidity and Solvency Position

1. Current Ratio
2. Quick Ratio
3. Absolute Liquidity Ratio
4. Debt-Equity Ratio
5. Cash to Current Assets Ratio

5.1.b Analysis of NPAs Ratio

1. Gross NPA Ratio
2. Net NPA Ratio
3. Provision Ratio
4. Problem Assets Ratio
5. Capital Adequacy Ratio

5.2 Conclusion (Analysis)


Chapter - 6


FINDINGS AND SUGGESTIONS


Chapter - 7


CONCLUSION


APPENDIX





BIBLIOGRAPHY


ABBREVIATION






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LIST OF TABLES AND CHARTS


CHARTS

SL.NO. TITLE Page No.

1

Figure 3.1 Growth in Indian Banking Assets


2

Figure 3.2 Total Deposits of Bank of India


3

Figure 3.3 Total Cash Deposits of Bank of India


4

Figure 3.4 Total Gross Advances of Bank of India


5

Figure 3.5 Growth in Advances of Bank of India


6

Figure 3.6 Deposits category wise


7

Figure 3.7 Credit category wise


8

Figure 5.1 Current Ratio


9

Figure 5.2 Quick Ratio


10

Figure 5.3 Absolute Liquidity Ratio


11

Figure 5.4 Debt-Equity Ratio


12

Figure 5.5 Cash to Current Assets Ratio


13

Figure 5.6 Gross NPA Ratio


14

Figure 5.7 Net NPA Ratio


15

Figure 5.8 Provision Ratio


16

Figure 5.9 Problem Assets Ratio


17

Figure 5.10 Capital Adequate Ratio


18

Figure 8.1 Overseas NPAs


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TABLES / FORMATS

SL.NO. TITLE Page No.

1

Table 3.1 Investor Profile / Shareholding pattern


2

Table 3.2 Shareholding Pattern of Institutional
Investors


3

Table 3.3 Total Deposits of Bank of India


4

Table 3.4 Total Cash Deposits of Bank of India


5

Table3.5 Total Gross Advances of Bank of India


6

Table 3.6 Growth in Average Business


7

Table 3.7 Deposits Category wise


8

Table 3.8 Credit Category wise


9

Table 5.1 Current Ratio


10

Table 5.2 Quick Ratio


11

Table 5.3 Absolute Liquidity Ratio


12

Table 5.4 Debt Equity Ratio


13

Table 5.5 Cash to Current Assets Ratio


14

Table 5.6 Gross NPA to Gross Advances


15

Table 5.7 Net NPA to Net Advances


16

Table 5.8 Provision Ratio


17

Table 5.9 Problem Assets Ratio


18

Table 5.10 Capital Adequacy Ratio


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19

Table 5.11 Fish eye view of the Ratio Analysis


20

Table 8.1 NPA of Different Banks


21

Table 8.2 Bank-wise Gross NPA, Gross Advances &
Gross NPA ratio of Nationalized Banks


22

Table 8.3 Balance Sheet of Bank of India


23

Table 8.4 Profit & Loss Account of Bank of India


24

Table 8.5 NPA Ratios of Bank of India


25

Table 8.6 Sector wise Breakup of NPA


26

Table 8.7 Overseas NPAs
















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ABSTRACT

A strong banking sector is important for flourishing economy. The failure
of the banking sector may have an adverse impact on other sector. Non-
performing assets are one of the major concerns for banks in India.
NPAs reflect the performance of banks. A high level of NPAs suggests
high probability of a large number of credit defaults that affect the profitability
and net-worth of banks and also erodes the value of the assets. The NPA growth
involves the necessity of provisions, which reduces the overall profits and
shareholders value.
The issue of non-performing assets has been discussed at length for
financial system all over the world. The problem of NPAs is not only affecting
the banks but also the whole economy. In fact high level of NPAs in Indian
banks is nothing but a reflection of the state of health of the industry and trade.
The report deals with understanding the concept of NPAs its magnitude
and major causes for an account becoming non-performing, projection with
special reference to Bank of India.


VINAY.H.N
(Reg. No: 08NZCM6088)



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CHAPTER 1

INTRODUCTION TO THE
STUDY


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1. INTRODUCTION TO THE STUDY

1.1 INTRODUCTION
The banking industry has undergone a sea change after the first phase of economic
liberalization in 1991 and hence credit management. While the primary function of banks is
to lend funds as loans to various sectors such as agriculture, industry, personal loans, housing
loans etc., in recent times the banks have become very cautious in extending loans, The
reason being mounting Non-Performing Assets (NPAs).
It's a known fact that the banks and financial institutions in India face the problem of
swelling Non-Performing Assets (NPAs) and the issue is becoming more and more
unmanageable. In order to bring the situation under control, some steps have been taken
recently. The Securitization and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 was passed by Parliament, which is an important step towards
elimination or reduction of NPAs.
In liberalizing economy banking and financial sector get high priority, Indian banking
sector of having a serious problem due to non-performing assets. The financial reforms have
helped largely to clean NPA was around Rs.90,170 crores in the year 2009. The earning
capacity and profitability of the bank are highly affected due to this.
Non-Performing Asset means an asset in the Banks book or loan 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 the Reserve Bank of India.
Presently if monthly installment is pending beyond 30 days that loan account is
treated as watch category account. In this period, the Bank will take all necessary steps to
recover the dues to turn the loan account as standard asset. If the monthly installment is due
beyond 90 days, the banker treats the loan account as Non Performing Assets or NPA. In the

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beginning it will be substandard assets, depriving the bank of interest on the loan and
additionally, capital charge i.e., making provision for the loan in their profit and loss account.
1.2 BACKGROUND
Accepting deposits from the general public and granting of credit for economic
activities is the prime business of banking. Without a sound and effective banking system in
India it cannot have a healthy economy. The banking system of India should not only be
hassle free but it should be able to meet new challenges posed by the technology and any
other external and internal factors.
For the past three decades Indias banks system has several outstanding achievements
to its credit. The most striking is its extensive reach. It is no longer confined to only
metropolitans or cosmopolitans in India. In fact, Indian banking system has reached ever to
the remote corners of the country. This is one of the main reasons of Indias growth process.
Banking sector reforms in India has progressed promptly on aspects like interest rate
deregulation, reduction in statutory reserve requirements, prudential norms for interest rates,
asset classification, income recognition and provisioning. But it could not match the pace
with which it was expected to do. The accomplishment of these norms at the execution stages
without restructuring the banking sector as such is creating havoc.
During pre-nationalization period and after independence, the banking sector
remained in private hands large industries who hand their control in the management of the
banks were utilizing major portion of financial resources of the banking system and as a
result low priority was accorded to priority sectors. Government of India nationalized the
banks to make was to expand their networks in rural areas and give loans to priority sectors
such as small scale industries, self-employed groups, agriculture and schemes involving
women.
At a lower level Non Performing Assets (NPAs) has emerged since over a decade as
an alarming threat to the banking industry in our country sending distressing signals on the

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sustainability and endurability of the affected banks. The positive results of the chain of
measures affected under banking reforms by the Government of India and RBI in terms of the
two Narasimham Committee Reports in this contemporary period have been neutralized by
the ill effects of this surging threat. Despite various correctional steps administered to solve
and end this problem, concrete results are eluding. It is a sweeping and all pervasive virus
confronted universally on banking and financial institutions.
1.3 NEED OF THE STUDY
This report explores a Descriptive research to the analysis of Non-Performing Assets
(NPAs) with Special reference of Bank of India. The NPAs are considered as an important
parameter to judge the performance and financial health of banks. The level of NPAs is one
of the drivers of financial stability and growth of the banking sector. This report aims to find
the fundamental factors which impact NPAs of banks. The tools used for analysis is Ratio
Analysis, The results show that movement in NPAs over the years can be explained well by
the factors considered in the model for the Bank of India. The other important results derived
from the analysis include the finding that banks exposure to priority sector lending reduces
NPAs.







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CHAPTER 2
THEORETICAL
BACKGROUND OF THE
STUDY


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2. THEORETICAL BACKGROUND OF THE STUDY

2.1 INTRODUCTION TO THE NPA
NPA The three letters Strike terror in banking sector and business circle today.
NPA is short form of Non Performing Asset. The dreaded NPA rule says simply this:
when interest or other due to a bank remains unpaid for more than 90 days, the entire bank
loan automatically turns a non performing asset. The recovery of loan has always been
problem for banks and financial institution. To come out of these first we need to think is it
possible to avoid NPA, no cannot be then left is to look after the factor responsible for it and
managing those factors.
2.1.a Meaning
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 The
Reserve Bank of India.
2.1.b Definitions
An asset, including a leased asset, becomes non-performing when it ceases to generate
income for the bank.
A non-performing asset (NPA) was defined as a credit facility in respect of which
the interest and/ or installment of principal has remained past due for a specified period of
time.
2.2 WHAT IS A NPAs (NON-PERFORMING ASSETS)
With a view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt the 90 days overdue norm for identification of

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NPAs, from 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;
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 remains overdue for two harvest seasons but
for a period not exceeding two half years in the case of an advance granted for
agricultural purposes.
As a facilitating measure for smooth transition to 90 days norm, banks have been advised
to move over to charging of interest at monthly rests, by April 1, 2002. However, the date of
classification of an advance as NPA should not be changed on account of charging of interest
at monthly rests. Banks should, therefore, continue to classify an account as NPA only if the
interest charged during any quarter is not serviced fully within 180 days from the end of the
quarter with effect from April 1, 2002 and 90 days from the end of the quarter with effect
from March 31, 2004.

2.3 CLASSIFICATION OF LOANS
In India the bank loans are classified on the following basis.
Performing Assets:
Loans where the interest and / or principal are not overdue beyond 180 days at the end
of the financial year.

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Non-Performing Assets:
Any loan repayment, which is overdue beyond 90 days or two quarters, is considered
as NPA.
2.4 TYPES OF NON-PERFORMING ASSETS
1) Gross NPA
2) Net NPA

1. 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 non-standard assets like as sub-standard, doubtful, and loss
assets.
It can be calculated with the help of following ratio:
Gross NPAs Ratio =

2. Net NPA:
Net NPAs are those type of NPAs in which the bank has deducted the provision regarding
NPAs. Net NPA shows the actual burden of 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.

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It can be calculated by following
Net NPAs Ratio =


2.5 ASSET CLASSIFICATION:
The RBI has issued guidelines to banks for classification of assets into four categories.
1. Standard assets:
These are loans which do not have any problem are less risk.
An asset, which does not disclose any problem and also does not carry more than
normal risk attached to the business.
2. Sub-Standard assets:
These are assets which come under the category of NPA for a period of less than 12
months.
In the case of term loan, if installments of principal are overdue for more than one
year but not exceeding two years, it is to be treated as sub-standard asset.
An asset where the terms of the loan agreement regarding interest and principal have
been re-negotiated or re-scheduled should be classified as sub-standard and should remain in
such category for at least two years of satisfactory performance under the re-negotiated or
rescheduled terms.
In other words, the classification of assets should not be upgraded merely as a result
of re-scheduling unless there is satisfactory compliance of the above condition.


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3. Doubtful assets:
These are NPA exceeding 12 months
Here too, rescheduling does not entitle a bank to upgrade the quality of an advance
automatically.
In the case of a term loan, if installments of principal are overdue for more than two
years, it is to be treated as doubtful.
4. Loss assets:
These NPA which are identified as unreliable by internal inspector of bank or
auditors or by RBI
An asset where loss has been identified by the bank or 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 unrealizable and of such little value that its continuance as a
bankable asset is not warranted although there may be some salvage or recovery value.

2.6 GUIDELINES FOR CLASSIFICATION OF ASSETS
Broadly speaking, classification of assets into above categories should be done taking
into account the degree of well-defined credit weaknesses and the extent of
dependence on collateral security for realization of dues.
Banks should establish appropriate internal systems to eliminate the tendency to delay
or postpone the identification of NPAs, especially in respect of high value accounts.
The banks may fix a minimum cut off point to decide what would constitute a high
value account depending upon their respective business levels. The cutoff point
should be valid for the entire accounting year.

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Responsibility and validation levels for ensuring proper asset classification may be
fixed by the banks. The system should ensure that doubts in asset classification due to
any reason are settled through specified internal channels within one month from the
date on which the account would have been classified as NPA as per extant
guidelines.
Availability of security / net worth of borrower/ guarantor: The availability of
security or net worth of borrower/ guarantor should not be taken into account for the
purpose of treating an advance as NPA
Accounts with temporary deficiencies: The classification of an asset as NPA should
be based on the record of recovery. Bank should not classify an advance account as
NPA merely due to the existence of some deficiencies which are temporary in nature
such as non-availability of adequate drawing power based on the latest available
stock statement, balance outstanding exceeding the limit temporarily, non-
submission of stock statements and non-renewal of the limits on the due date, etc.
Upgradation of loan accounts classified as NPAs: If arrears of interest and principal
are paid by the borrower in the case of loan accounts classified as NPAs, the account
should no longer be treated as non-performing and may be classified as standard
accounts.
Accounts regularised near about the balance sheet date: The asset classification of
borrowal accounts where a solitary or a few credits are recorded before the balance
sheet date should be handled with care and without scope for subjectivity. Where the
account indicates inherent weakness on the basis of the data available, the account
should be deemed as a NPA. In other genuine cases, the banks must furnish
satisfactory evidence to the Statutory Auditors/Inspecting Officers about the manner
of regularisation of the account to eliminate doubts on their performing status.



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2.7 FACTORS FOR RISE IN NPAs
The banking sector has been facing the serious problems of the rising NPAs. But the
problem of NPAs is more in public sector banks when compared to private sector banks and
foreign banks. The NPAs in PSB are growing due to external as well as internal factors.
2.7.a EXTERNAL FACTORS:
1) Ineffective recovery tribunal: The Govt. has set of numbers of recovery tribunals,
which works for recovery of loans and advances. Due to their negligence and
ineffectiveness in their work the bank suffers the consequence of non-recover, their
by reducing their profitability and liquidity.
2) Willful Defaults: There are borrowers who are able to payback loans but are
intentionally withdrawing it. These groups of people should be identified and proper
measures should be taken in order to get back the money extended to them as
advances and loans.
3) Natural calamities: This is the measure factor, which is creating alarming rise in
NPAs of the PSBs. every now and then India is hit by major natural calamities thus
making the borrowers unable to pay back there loans. Thus the bank has to make large
amount of provisions in order to compensate those loans, hence end up the fiscal with
a reduced profit. Mainly ours farmers depends on rain fall for cropping. Due to
irregularities of rain fall the farmers are not to achieve the production level thus they
are not repaying the loans.
4) Industrial sickness: Improper project handling , ineffective management , lack of
adequate resources , lack of advance technology , day to day changing govt. Policies
give birth to industrial sickness. Hence the banks that finance those industries
ultimately end up with a low recovery of their loans reducing their profit and
liquidity.

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5) Lack of demand: Entrepreneurs in India could not foresee their product demand and
starts production which ultimately piles up their product thus making them unable to
pay back the money they borrow to operate these activities. The banks recover the
amount by selling of their assets, which covers a minimum label. Thus the banks
record the non recovered part as NPAs and has to make provision for it.
6) Change on Govt. policies: With every new govt. banking sector gets new policies for
its operation. Thus it has to cope with the changing principles and policies for the
regulation of the rising of NPAs. The fallout of handloom sector is continuing as most
of the weavers Cooperative societies have become defunct largely due to withdrawal
of state patronage. The rehabilitation plan worked out by the Central government to
revive the handloom sector has not yet been implemented. So the over dues due to the
handloom sectors are becoming NPAs.
2.7.b INTERNAL FACTORS:
1) Defective Lending process: There are three cardinal principles of bank lending that
have been followed by the commercial banks since long.
i. Principles of safety
ii. Principle of liquidity
iii. Principles of profitability
A. Principles of safety: By safety it means that the borrower is in a position to repay the
loan both principal and interest. The repayment of loan depends upon the borrowers:
a) Capacity to pay
b) Willingness to pay
Capacity to pay depends upon:
a) Tangible assets

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b) Success in business
Willingness to pay depends on:
a) Character
b) Honest
c) Reputation of borrower
The banker should, therefore take utmost care in ensuring that the enterprise or business for
which a loan is sought is a sound one and the borrower is capable of carrying it out
successfully. He should be a person of integrity and good character.
2) Inappropriate technology: Due to inappropriate technology and management
information system, market driven decisions on real time basis cannot be taken.
Proper MIS and financial accounting system is not implemented in the banks, which
leads to poor credit collection, thus NPA. All the branches of the bank should be
computerized.
3) Improper SWOT analysis: The improper strength, weakness, opportunity and threat
analysis is another reason for rise in NPAs. While providing unsecured advances the
banks depend more on the honesty, integrity, and financial soundness and credit
worthiness of the borrower.
Banks should consider the borrowers own capital investment.
It should collect credit information of the borrowers from:
a) From bankers.
b) Enquiry from market/segment of trade, industry, business.
c) From external credit rating agencies.

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4) Analyze the balance sheet: True picture of business will be revealed on analysis of
profit/loss a/c and balance sheet.
5) Purpose of the loan: When bankers give loan, he should analyze the purpose of the
loan. To ensure safety and liquidity, banks should grant loan for productive purpose
only. Bank should analyze the profitability, viability, long term acceptability of the
projectwhile financing.
6) Poor credit appraisal system: Poor credit appraisal is another factor for the rise in
NPAs. Due to poor credit appraisal the bank gives advances to those who are not able
to repay it back. They should use good credit appraisal to decrease the NPAs.
7) Managerial deficiencies: The banker should always select the borrower very
carefully and should take tangible assets as security to safe guard its interests.
When accepting securities banks should consider the:
1. Marketability
2. Acceptability
3. Safety
4. Transferability
The banker should follow the principle of diversification of risk based on the famous
maxim do not keep all the eggs in one basket; it means that the banker should not grant
advances to a few big farms only or to concentrate them in few industries or in a few cities. If
a new big customer meets misfortune or certain traders or industries affected adversely, the
overall position of the bank will not be affected.
Like Orissa State Cooperative Bank (OSCB) suffered loss due to the Optical Translation
Measurement (OTM) Cuttack, and Orissa hand loom industries. The biggest defaulters of

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OSCB are the OTM (117.77lakhs), and the handloom sector Orissa hand loom Wildlife
Conservation Society (WCS) ltd (2439.60lakhs).
8) Absence of regular industrial visit: The irregularities in spot visit also increases the
NPAs. Absence of regularly visit of bank officials to the customer point decreases the
collection of interest and principals on the loan. The NPAs due to willful defaulters
can be collected by regular visits.
9) Re loaning process: Non remittance of recoveries to higher financing agencies and re
loaning of the same have already affected the smooth operation of the credit cycle.
Due to re loaning to the defaulters and CCBs and PACs, the NPAs of OSCB is
increasing day by day.

2.8 PROBLEMS DUE TO NPA
1) Owners do not receive a market return on their capital .in the worst case, if the banks
fails, owners lose their assets. In modern times this may affect a broad pool of
shareholders.
2) Depositors do not receive a market return on saving. In the worst case if the bank
fails, depositors lose their assets or uninsured balance.
3) Banks redistribute losses to other borrowers by charging higher interest rates, lower
deposit rates and higher lending rates repress saving and financial market, which
hamper economic growth.
4) Nonperforming loans epitomize bad investment. They misallocate credit from good
projects, which do not receive funding, to failed projects. Bad investment ends up in
misallocation of capital, and by extension, labor and natural resources.
Non-performing asset may spill over the banking system and contract the money stock,
which may lead to economic contraction. This spillover effect can channelize through
liquidity or bank insolvency:

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a) When many borrowers fail to pay interest, banks may experience liquidity shortage.
This can jam payment across the country.
b) Illiquidity constraints bank in paying depositors
c) Undercapitalized banks exceed the banks capital base.

'Out of Order' status:
An account should be treated as 'out of order' if the outstanding balance remains
continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding
balance in the principal operating account is less than the sanctioned limit/drawing power, but
there are no credits continuously for six months as on the date of Balance Sheet or credits are
not enough to cover the interest debited during the same period, these accounts should be
treated as 'out of order'.
Example of OUT OF ORDER:
Sanctioned limit Rs.60,00,000/-
Drawing power Rs.55,00,000/-
Amount outstanding continuously from 1.01.2010 to 31.03.2010 Rs. 47,00,000/-
Total interest debited Rs.3,42,000/-
Total credits Rs.1,25,000/-

Overdue:
Any amount due to the bank under any credit facility is overdue if it is not paid on
the due date fixed by the bank.
Banks should, classify an account as NPA only if the interest charged during any
quarter is not serviced fully within 90 days from the end of the quarter.

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2.9 IMPACT OF NPA
Profitability
NPA means booking of money in terms of bad asset, which occurred due to wrong
choice of client. Because of the money getting blocked the prodigality of bank decreases not
only by the amount of NPA but NPA lead to opportunity cost also as that much of profit
invested in some return earning project/asset. So NPA doesnt affect current profit but also
future stream of profit, which may lead to loss of some long-term beneficial opportunity.
Another impact of reduction in profitability is low ROI (return on investment), which
adversely affect current earning of bank.
Liquidity
Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead
to borrowing money for shot\rtes period of time which lead to additional cost to the company.
Difficulty in operating the functions of bank is another cause of NPA due to lack of money.
Routine payments and dues.
Involvement of management
Time and efforts of management is another indirect cost which bank has to bear due to
NPA. Time and efforts of management in handling and managing NPA would have diverted
to some fruitful activities, which would have given good returns. Now days banks have
special employees to deal and handle NPAs, which is additional cost to the bank.
Credit loss
Bank is facing problem of NPA then it adversely affect the value of bank in terms of
market credit. It will lose its goodwill and brand image and credit which have negative
impact to the people who are putting their money in the banks.


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2.10 EXISTING SYSTEMS / PROCEDURES FOR NPA
IDENTIFICATION AND RESOLUTION IN INDIA
1. Internal Checks and Control
Since high level of NPAs dampens the performance of the banks identification of
potential problem accounts and their close monitoring assumes importance.
Though most banks have Early Warning Systems (EWS) for identification of potential
NPAs, the actual processes followed, however, differ from bank to bank.
The EWS enable a bank to identify the borrower accounts which show signs of credit
deterioration and initiate remedial action. Many banks have evolved and adopted an elaborate
EWS, which allows them to identify potential distress signals and plan their options
beforehand, accordingly. The early warning signals, indicative of potential problems in the
accounts, viz. persistent irregularity in accounts, delays in servicing of interest, frequent
devolvement of L/Cs, units' financial problems, market related problems, etc. are captured by
the system.
The major components/processes of a EWS followed by banks in India as brought out by
a study conducted by Reserve Bank of India at the instance of the Board of Financial
Supervision are as follows:
a) Designating Relationship Manager/ Credit Officer for monitoring account/s
b) Preparation of `know your client' profile
c) Credit rating system
d) Identification of watch-list/special mention category accounts
e) Monitoring of early warning signals


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A. Relationship Manager/Credit Officer
The Relationship Manager/Credit Officer is an official who is expected to have complete
knowledge of borrower, his business, his future plans, etc. The Relationship Manager has to
keep in constant touch with the borrower and report all developments impacting the borrowal
account. As a part of this contact he is also expected to conduct scrutiny and activity
inspections. In the credit monitoring process, the responsibility of monitoring a corporate
account is vested with Relationship Manager/Credit Officer.
B. Know your client' profile (KYC)
All the banks in India have a system of preparing `know your client' (KYC) profile/credit
report. As a part of `KYC' system, visits are made on clients and their places of
business/units. The frequency of such visits depends on the nature and needs of relationship.

C. Credit Rating System
The credit rating system is essentially one point indicator of an individual credit exposure
and is used to identify measure and monitor the credit risk of individual proposal. At the
whole bank level, credit rating system enables tracking the health of banks entire credit
portfolio.
Most banks in India have put in place the system of internal credit rating. While most of
the banks have developed their own models, a few banks have adopted credit rating models
designed by rating agencies. Credit rating models take into account various types of risks viz.
financial, industry and management, etc. associated with a borrowal unit. The exercise is
generally done at the time of sanction of new borrowal account and at the time of review /
renewal of existing credit facilities.



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D. Watch-list/Special Mention Category
The grading of the bank's risk assets is an important internal control tool. It serves the
need of the Management to identify and monitor potential risks of a loan asset. The purpose
of identification of potential NPAs is to ensure that appropriate preventive / corrective steps
could be initiated by the bank to protect against the loan asset becoming non-performing.
Most of the banks have a system to put certain borrowal accounts under watch list or special
mention category if performing advances operating under adverse business or economic
conditions are exhibiting certain distress signals. These accounts generally exhibit
weaknesses which are correctable but warrant banks' closer attention. The categorization of
such accounts in watch list or special mention category provides early warning signals
enabling Relationship Manager or Credit Officer to anticipate credit deterioration and take
necessary preventive steps to avoid their slippage into non performing advances.
E. Early Warning Signals
It is important in any early warning system, to be sensitive to signals of credit
deterioration. A host of early warning signals are used by different banks for identification of
potential NPAs. Most banks in India have laid down a series of operational, financial,
transactional indicators that could serve to identify emerging problems in credit exposures at
an early stage. Further, it is revealed that the indicators which may trigger early warning
system depend not only on default in payment of installment and interest but also other
factors such as deterioration in operating and financial performance of the borrower,
weakening industry characteristics, regulatory changes, general economic conditions, etc.

2. Management/Resolution of NPAs
A reduction in the total gross and net NPAs in the Indian financial system indicates a
significant improvement in management of NPAs. This is also on account of various
resolution mechanisms introduced in the recent past which include the SRFAESI Act, ("The
Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest

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Act") one time settlement schemes, setting up of the CDR mechanism, strengthening of
DRTs (Debt Recovery Tribunals).
Compromise settlement schemes with borrowers are found to be more effective than legal
measures. Many banks have come out with their own restructuring schemes for settlement of
NPA accounts.
3. Credit Information Bureau
To serve as a mechanism for exchange of information between banks and FIs for curbing
the growth of NPAs incorporated Credit Information Bureau (India) Limited (CIBIL) in
January 2001. Pending the enactment of CIB Regulation Bill, the RBI constituted a working
group to examine the role of CIBs. As per the recommendations of the working group, Banks
and FIs are now required to submit the list of suit-filed cases of Rs. 10 million and above and
suitfiled cases of willful defaulters of Rs. 2.5 million and above to RBI as well as CIBIL.
CIBIL will share this information with commercial banks and FIs so as to help them
minimize adverse selection at appraisal stage.
Willful Defaulters
RBI has issued revised guidelines in respect of detection of willful default and diversion
and siphoning of funds. As per these guidelines a willful default occurs when a borrower
defaults in meeting its obligations to the lender when it has capacity to honor the obligations
or when funds have been utilized for purposes other than those for which finance was
granted. The list of willful defaulters is required to be submitted to SEBI and RBI to prevent
their access to capital markets. Sharing of information of this nature helps banks in their due
diligence exercise and helps in avoiding financing unscrupulous elements. RBI has advised
lenders to initiate legal measures including criminal actions, wherever required, and
undertake a proactive approach in change in management, where appropriate.



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2.11 APPROPRIATENESS OF THE EXISTING SYSTEMS
Most of the participant lenders have special NPA management cells at Head Offices
for dealing with NPAs. The participants were generally of the view that though time and
resources were adequate for dealing with NPAs, skills needed to be improved upon.
Within the constraints of the existing legal and regulatory environment banks in India
have done a commendable job in bringing down the levels of NPAs in recent years. However,
with the tightening of NPA recognition norms, which would mean early recognition and
faster provisioning of NPAs, banks now need to evolve systems that help them identify
potential NPAs and take quick action to:
Prevent the potential NPA from actually becoming non-performing, and
Avoid increasing their exposure to such potential NPAs.













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CHAPTER 3

ORGANIZATION PROFILE

3.1 INDUSTRY PROFILE
3.2 COMPANY PROFILE





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3.1 INDUSTRY PROFILE
(All about Banking Industries)













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3.1 INDUSTRY PROFILE
3.1a Introduction
The Banking Industry was once a simple and reliable business that took deposits
from investors at a lower interest rate and loaned it out to borrowers at a higher rate.
However deregulation and technology led to a revolution in the Banking Industry that
saw it transformed. Through technology development, banking services have become
available 24 hours a day, 365 days a week, through ATMs, at online banking, and in
electronically enabled exchanges where everything from stocks to currency futures contracts
can be traded.
The Banking Industry at its core provides access to credit. In the lenders case, this
includes access to their own savings and investments, and interest payments on those
amounts. In the case of borrowers, it includes access to loans for the creditworthy, at a
competitive interest rate.
Banking services include transactional services, such as verification of account
details, account balance details and the transfer of funds, as well as advisory services that
help individuals and institutions to properly plan and manage their finances. Online banking
channels have become a key in the last 10 years.
The collapse of the Banking Industry in the Financial Crisis, however, means that
some of the more extreme risk-taking and complex securitization activities that banks
increasingly engaged in since 2000 will be limited and carefully watched, to ensure that there
is not another banking system meltdown in the future.
3.1.b Meaning of Bank
A bank is a financial institution that accepts deposits and channels those deposits into
lending activities. Banks primarily provide financial services to customers while enriching
investors. Government restrictions on financial activities by banks vary over time and

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location. Banks are important players in financial markets and offer services such as
investment funds and loans.
3.1.c Definition
The definition of a bank varies from country to country.
Under English common law, a banker is defined as a person who carries on the business
of banking, which is specified as:
conducting current accounts for his customers
paying cheques drawn on him, and
collecting cheques for his customers
Banks act as payment agents by conducting checking or current accounts for customers,
paying cheques drawn by customers on the bank, and collecting cheques deposited to
customers' current accounts. Banks also enable customer payments via other payment
methods such as telegraphic transfer, EFTPOS, and ATM.
Banks borrow money by accepting funds deposited on current accounts, by accepting
term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money
by making advances to customers on current accounts, by making installment loans, and by
investing in marketable debt securities and other forms of money lending.
3.1.d Types of Banks
Central Bank
The Reserve Bank of India is the central Bank that is fully owned by the Government.
It is governed by a central board (headed by a Governor) appointed by the Central
Government. It issues guidelines for the functioning of all banks operating within the
country.


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Public Sector Banks
State Bank of India and its associate banks called the State Bank Group
20 nationalized banks
Regional rural banks mainly sponsored by public sector banks

Private Sector Banks
Old generation private banks
New generation private banks
Foreign banks operating in India
Scheduled co-operative banks
Non-scheduled banks
Co-operative Sector
The co-operative sector is very much useful for rural people. The co-operative banking
sector is divided into the following categories.
State co-operative Banks
Central co-operative banks
Primary Agriculture Credit Societies
Urban Co-operative Banks
Land Development Banks
Development Banks/Financial Institutions
Industrial Finance Corporation of India (IFCI)
Industrial Development Bank of India (IDBI)
Industrial Credit and Investment Corporation of India (ICICI)
Industrial Investment Bank of India (IIBI)

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Small Industries Development Bank of India (SIDBI)
SCICI Ltd.
National Bank for Agriculture and Rural Development (NABARD)
Export Import Bank of India
National Housing Bank
North Eastern Development Finance Corporation

3.1.e Indian Banking Industry
History
Banking in India originated in the last decades of the 18th century. The first banks
were The General Bank of India which started in 1786, and the Bank of Hindustan, both of
which are now defunct. The oldest bank in existence in India is the State Bank of India,
which originated in the Bank of Calcutta in June 1806, which almost immediately became the
Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of
Bombay and the Bank of Madras, all three of which were established under charters from the
British East India Company. For many years the Presidency banks acted as quasi-central
banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of
India, which, upon India's independence, became the State Bank of India.
The oldest bank in existence in India is the State Bank of India, a government-owned
bank that traces its origins back to June 1806 and that is the largest commercial bank in the
country. Central banking is the responsibility of the Reserve Bank of India, which in 1935
formally took over these responsibilities from the then Imperial Bank of India, relegating it to
commercial banking functions. After India's independence in 1947, the Reserve Bank was
nationalized and given broader powers. In 1969 the government nationalized the 14 largest
commercial banks; the government nationalized the six next largest in 1980.
Around the turn of the 20th Century, the Indian economy was passing through a
relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the

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social, industrial and other infrastructure had improved. Indians had established small banks,
most of which served particular ethnic and religious communities.
3.1.f Current structure of Indian Banking Industry
Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks
(that is with the Government of India holding a stake), 31 private banks (these do not have
government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign
banks. They have a combined network of over 53,000 branches and 17,000 ATMs.
According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75
percent of total assets of the banking industry, with the private and foreign banks holding
18.2% and 6.5% respectively.
The Indian banking system is financially stable and resilient to the shocks that may
arise due to higher non-performing assets (NPAs) and the global economic crisis, according
to a stress test done by the Reserve Bank of India (RBI).
Significantly, the RBI has the tenth largest gold reserves in the world after spending
US$ 6.7 billion towards the purchase of 200 metric tonnes of gold from the International
Monetary Fund (IMF) in November 2009. The purchase has increased the country's share of
gold holdings in its foreign exchange reserves from approximately 4 per cent to about 6 per
cent.
Following the financial crisis, new deposits have gravitated towards public sector
banks. According to RBI's 'Quarterly Statistics on Deposits and Credit of Scheduled
Commercial Banks: September 2009', nationalized banks, as a group, accounted for 50.5 per
cent of the aggregate deposits, while State Bank of India (SBI) and its associates accounted
for 23.8 per cent. The share of other scheduled commercial banks, foreign banks and regional
rural banks in aggregate deposits were 17.8 per cent, 5.6 per cent and 3.0 per cent,
respectively.

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With respect to gross bank credit also, nationalized banks hold the highest share of
50.5 per cent in the total bank credit, with SBI and its associates at 23.7 per cent and other
scheduled commercial banks at 17.8 per cent. Foreign banks and regional rural banks had a
share of 5.5 per cent and 2.5 per cent respectively in the total bank credit.
The report also found that scheduled commercial banks served 34,709 banked centres.
Of these centres, 28,095 were single office centres and 64 centres had 100 or more bank
offices.
3.1.g Feature of Indian Banking Industry
The growth in the Indian Banking Industry has been more qualitative than quantitative
and it is expected to remain the same in the coming years. Based on the projections made in
the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the
report forecasts that the pace of expansion in the balance-sheets of banks is likely to
decelerate. The total assets of all scheduled commercial banks by end-March 2010 is
estimated at Rs 40,90,000 crores. That will comprise about 65 per cent of GDP at current
market prices as compared to 67 per cent in 2002-03. Bank assets are expected to grow at an
annual composite rate of 13.4 per cent during the rest of the decade as against the growth rate
of 16.7 per cent that existed between 1994-95 and 2002-03. It is expected that there will be
large additions to the capital base and reserves on the liability side.
Figure 3.1: Growth in Indian Banking Assets:
256
285
342
374
448
535
616
850
1000
0
200
400
600
800
1000
1200
2000 2001 2002 2003 2004 2005 2006 2008 2010
Growth in Indian Banking Assets (US$ Billions)

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Indian banking industry assets are expected to reach US$1 trillion by 2010 and are
poised to receive a greater infusion of foreign capital, says Prathima Rajan, analyst in
Celent's banking group and author of the report. The banking industry should focus on
having a small number of large players that can compete globally rather than having a large
number of fragmented players."
The Indian Banking Industry can be categorized into non-scheduled banks and
scheduled banks. Scheduled banks constitute of commercial banks and co-operative banks.
There are about 67,000 branches of Scheduled banks spread across India. As far as the
present scenario is concerned the Banking Industry in India is going through a transitional
phase.
The Public Sector Banks (PSBs), which are the base of the Banking sector in India
account for more than 78 per cent of the total banking industry assets. Unfortunately they are
burdened with excessive Non Performing assets (NPAs), massive manpower and lack of
modern technology. On the other hand the Private Sector Banks are making tremendous
progress. They are leaders in Internet banking, mobile banking, phone banking, ATMs. As far
as foreign banks are concerned they are likely to succeed in the Indian Banking Industry.
3.1.h Nationalized Banks in India
Nationalized banks dominate the banking system in India. The history of nationalized
banks in India dates back to mid-20th century, when Imperial Bank of India was nationalized
(under the SBI Act of 1955) and re-christened as State Bank of India (SBI) in July 1955.
Then on 19th July 1960, its seven subsidiaries were also nationalized with deposits over 200
crores. These subsidiaries of SBI were State Bank of Bikaner and Jaipur (SBBJ), State Bank
of Hyderabad (SBH), State Bank of Indore (SBIR), State Bank of Mysore (SBM), State Bank
of Patiala (SBP), State Bank of Saurashtra (SBS), and State Bank of Travancore (SBT).
However, the major nationalization of banks happened in 1969 by the then-Prime
Minister Indira Gandhi. The major objective behind nationalization was to spread banking
infrastructure in rural areas and make affordable finance available to Indian farmers. The

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nationalized 19 major commercial banks are Allahabad Bank, Andhra Bank, Bank of Baroda,
Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Corporation
Bank, Dena Bank, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce (OBC),
Punjab and Sind Bank, Punjab National Bank (PNB), Syndicate Bank, UCO Bank, Union
Bank of India, United Bank of India (UBI), and Vijaya Bank.
In the year 1980, the second phase of nationalization of Indian banks took place, in
which 7 more banks were nationalized with deposits over 200 crores. With this, the
Government of India held a control over 91% of the banking industry in India. After the
nationalization of banks there was a huge jump in the deposits and advances with the banks.
At present, the State Bank of India is the largest commercial bank of India and is ranked one
of the top five banks worldwide. It serves 90 million customers through a network of 9,000
branches.










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3.2 COMPANY PROFILE














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3.2 COMPANY PROFILE
Company: Bank of India
3.2.a Introduction
Bank of India being a major bank in the public sector always endeavours to strike a
viable equilibrium between commercial objectives and social responsibilities.
3.2.b History
Bank of India was founded on 7th September, 1906 by a group of eminent
businessmen from Mumbai. The Bank was under private ownership and control till July 1969
when it was nationalized along with 13 other banks.
Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50
employees, the Bank has made a rapid growth over the years and blossomed into a mighty
institution with a strong national presence and sizable international operations. In business
volume, the Bank occupies a premier position among the nationalised banks.
The Bank has 3101 branches as on 31 march 2009, in India spread over all states/
union territories including 141 specialised branches. These branches are controlled through
48 Zonal Offices. There are 29 branches/ offices (including three representative offices)
abroad.
The Bank came out with its maiden public issue in 1997 and follow on Qualified
Institutions Placement in February 2008. . Total number of shareholders as on 30/09/2009 is
2,15,790.
While firmly adhering to a policy of prudence and caution, the Bank has been in the
forefront of introducing various innovative services and systems. Business has been
conducted with the successful blend of traditional values and ethics and the most modern
infrastructure. The Bank has been the first among the nationalized banks to establish a fully

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computerized branch and ATM facility at the Mahalaxmi Branch at Mumbai way back in
1989. The Bank is also a Founder Member of SWIFT in India. It pioneered the introduction
of the Health Code System in 1982, for evaluating/ rating its credit portfolio.
The Bank's association with the capital market goes back to 1921 when it entered into
an agreement with the Bombay Stock Exchange (BSE) to manage the BSE Clearing House. It
is an association that has blossomed into a joint venture with BSE, called the BOI
Shareholding Ltd. to extend depository services to the stock broking community. Bank of
India was the first Indian Bank to open a branch outside the country, at London, in 1946, and
also the first to open a branch in Europe, Paris in 1974. The Bank has sizable presence
abroad, with a network of 29 branches (including five representative office) at key banking
and financial centres viz. London, Newyork, Paris, Tokyo, Hong-Kong and Singapore. The
international business accounts for around 17.82% of Bank's total business.

3.2.c BOIs Established History
1906: Founded by a group of businessmen in Mumbai
1946: First Indian bank to open a branch outside India in London
1950: First Indian bank to open a branch in Japan
1969: Nationalized along with 13 other banks when BOI had 207 branches in India
and 12 branches abroad
1989: Established BOI Shareholding Ltd, a JV with Stock Exchange Mumbai (BSE)
to manage the clearinghouse activities of BSE
1997: Maiden public issue in February diluting GOI share to 76.53%
2003/ 04: Ranked as Indias most trusted service brand among all nationalized banks,
consecutively for three years by AC Nielsen ORG- MARG
2004: Ranked 25th among Indias Top 500 companies by Dun & Bradstreet

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2007 -09: Net Profit of INR 11.23 bn for 2006-07 ,INR 20.09 bn for 2007-08 and INR
30.07 bn surpassed land marks of INR 10 bn , INR 20 bn and INR 30 bn
respectively.

3.2.d Mission & Vision
Mission
"To provide superior, proactive banking services to niche markets globally,
while providing cost-effective, responsive services to others in our role as a
development bank, and in so doing, meet the requirements of our
stakeholders".
Vision
"To become the bank of choice for corporates, medium businesses and
upmarket retail customers and to provide cost effective developmental
banking for small business, mass market and rural markets"

3.2.e BOARD OF DIRECTORS

Shri. Alok Kumar Misra
Chairman & Executive Director
(From 05.08.2009)

Bank of India, Head Office,
Star House, C-5, G Block,
Bandra-Kurla Complex,
Bandra (East),
Mumbai - 400 051

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Shri Alok Kumar Misra has taken over as the Chairman and Managing Director of
Bank of India with effect from 5th August, 2009. Shri Misra was the Chairman & Managing
Director of Oriental Bank of Commerce prior to the present assignment.Shri Misra held the
post of the Executive Director of Canara Bank from 24th March 2006 to 3rd June 2007 and
the Chairman & Managing Director of Oriental Bank of Commerce from 4th June 2007.


Shri B. A. Prabhakar
Executive Director
(From 15.10.2008)

Bank of India, Head Office,
Star House,
C-5, G Block,
Bandra-Kurla Complex
Bandra (East),
Mumbai - 400 051
Shri B. A. Prabhakar, is the Executive Director of the Bank w.e.f. October 15,2008.
Prior to the present assignment, he was General Manager with Bank of Baroda looking after
Treasury Operations. He is a Chartered Accountant and a B. Com from the University of
Mysore. He joined Bank of Baroda as a direct recruit officer in 1977. He has worked
extensively in the areas of credit, operations and treasury in Bank of Baroda. He has served as
the Chief Executive of Bank of Barodas operations in United Kingdom.

Shri Prakash P. Mallya,
Shareholder Director
(From 25.10.2008)

Pratosh 46, 2nd Cross,
Panduranga Nagar,

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Bannerghatta Road,
Bangalore 560 076
Shri Prakash P. Mallya is an economist and a career banker. He is M.A. (Economics)
and UGC Research Fellow, worked on Ph.D. Thesis at Gokhale Institute of Politics &
Economics, Pune from 1971-73. He is Ex-Chairman and Managing Director of Vijaya Bank
and Ex-Executive Director of Syndicate Bank. He is Shareholder Director of the Bank, for a
period of 3 years from October 25, 2008.

3.2.f INVESTOR PROFILE / SHARE HOLDING PATTERN (%)
Table 3.1: Investor profile / Share holding pattern
Jan 09 Sep 09 Dec 09
Promoter (Govt. of India)
Foreign Institutional Investors
Financial Institutions / Banks
Insurance Companies
Mutual Funds
Bodies Corporate
NRIs / Foreign
Indian Public
64.47%
14.06%
2.38%
9.03%
1.91%
1.29%
0.50%
6.36%
64.47%
17.25%
0.37%
9.85%
0.68%
0.71%
0.52%
6.15%
64.47%
16.68%
0.16%
10.16%
0.86%
1.02%
0.52%
6.13%
Total 100.00% 100.00% 100.00%
Total Foreign Holding: 17.20%

3.2.g SHREHOLDING PATTERN OF INSTITUTIONAL INVESTORS
(Domestic) As on 31
st
December 2009
Table 3.2: Shareholding pattern of institutional investors
No. of Shares % of Shareholding
LIC
GIC & its subsidiaries
MUTUAL FUNDS
4,01,66,520
1,21,97,001
45,27,767
7.65
2.32
0.86

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ECGC
NATIONALISED BANKS
9,86,111
5,24,996
0.19
0.10

3.2.h BUSINESS MIX
Table 3.3: Total Deposits of Bank of India (INR in Bn)
Deposits December 08 March 09 December 09
India
Foreign
Global
1471.88
245.36
1717.24
1594.87
302.22
1897.09
1750.82
309.2
2060.2

Figure 3.2 : Total Deposits of Bank of India



Table 3.4: Total Cash Deposits of Bank of India (INR in Bn)
Cash Deposits Dec 08 Mar 09 Dec 09
Cash Dep.
AGGR. Dep.
462.9
1458.58
486.37
1581.21
567.14
1736.28




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Figure 3.3 : Total Cash Deposits of Bank of India


Table3.5: Total Gross Advances of Bank of India (INR in Bn)
Gross Advances Dec 08 Mar 09 Dec 09
India
Foreign
Global
1085.41
275.69
1361.1
1153.54
293.77
1447.32
1227.62
341.91
1569.53

Figure 3.4: Total Gross Advances of Bank of India


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Table 3.6: Growth in Average Business (INR in Bn)
Dec 08 Dec 09
AVG. Deposits
AVG. Advances
AVG. Investment
AVG. Working
AVG. Borrowings
AVG. Networth
1679.85
1313.07
439.46
2017.19
88.14
103.89
2023.58
1510.87
668.31
2440.44
123.53
122.54


Figure 3.5 : Growth in Average Business


Table 3.7: Deposits Category wise (Domestic) (INR in Bn)
Metro
Urban
Semiurban
Rural
991.25
337.88
214.58
207.11
57%
19%
12%
12%



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Figure 3.6 : Deposits Category wise (Domestic)



Table 3.8: Credit Category wise (Domestic) (INR in Bn)
Metro
Urban
Semiurban
Rural
837.26
186.51
92.76
111.09
68%
15%
8%
9%

Figure 3.7: Credit Category wise (Domestic)



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3.2.i STRATEGIC INVESTMENTS/ALLIANCES/JOINT VENTURES
Promoter & the largest share holder of a leading Indian Primary Dealer Securities
Trading Corporation of India Limited (STCI).
The Bank manages clearing & settlement operation of Bombay Stock Exchange
through its subsidiary BOI Share Holding Limited.
In India, the bank has strategic investments in:
Leading commodity exchange (MCX)
Financial intermediaries (CDSL/NCML)
Asset Reconstruction company (ASREC)
Credit Information Bureau (CIBIL)
Acquired P.T. Bank Swadeshi TBK in Indonesia (76% stake)
Established 100% subsidiary in Tanzania - BOI (Tanzania) Ltd.
Overseas Joint Venture - Indo Zambia Bank Limited
Joint Venture Insurance Company with Dai-Ichi Life Insurance Company and Union
Bank of India
5 RRBs with 35% stake

3.2.j SERVICES PROVIDED BY THE BANK OF INDIA
Online Services Ancillary Services
Mobile Banking and Payments
Internet Banking
Online Trading in Shares
Pay Bills
Book Ticket
Tax Payment
Remittance
Star Cash Management Service
Safe Deposit Vault
Depositary Services
Gold
Insurance
Mutual Fund



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3.2.k LOANS PROVIDED BY THE BANK OF INDIA
Star Mitra Personal Loan
Star Pensioner loan scheme
Star Home loan
Star Holiday loan
Star Mortgage loan
Star Personal loan
Star IPO
Star Educational loan
Star Auto fin
Star Mahila Gold loan scheme


3.2.l BANK OF INDIA ACCOLADES, AWARDS & HIGHLIGHTS
National Award for Excellence in Lending to Micro & Small Enterprises 2009-
conferred by Government of India, Ministry of Micro, Small and Medium Enterprises
Outlook Money NDTV Profit Awards 2009- Best Education Loan Provider Runner
up
NDTV Profit Business Leadership Awards 2009 Bank of India adjudged the Best
Bank in public sector bank category
Bank of India has been rated by Economic Times /The Nielsen company survey
The Most Trusted Brands (MTB) 2009 as follows:
Under PSU Banking Category 2nd Next TO SBI
Under Top Service Brands8
th

The Debutant first time in the Top 100 In the MTB , Bank of India ranked
92nd - 54 rankings ahead of last year rankings (146th Rank during 2008)
Bank of India has won the TOP PUBLIC SECTOR BANK under BEST BANK
category and OVERALL BEST BANK in the DUN and BRADSTREET
Bank of India has won the TOP PUBLIC SECTOR BANK under BEST BANK
category and OVERALL BEST BANK in the DUN and BRADSTREET BANKING
AWARDS 2009
Bank of India is the first major public sector bank to receive ISO27001:2005
certification for its Data Centre and Disaster Recovery center"

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Bank of India won International Award for Excellence in outsourcing sponsored by
Everest Group & Forbes at New York, USA.
Bank of India has won a special Award for green IT at CIO 100 event for solar Power
Bank of India won runners up award in FE Indias Best Bank Awards based on
various parameters like Growth, Profitability, Strength and Soundness, recognise the
exemplary performance of select banks that withstood the recent economic turmoil to
emerge stronger and maximise shareholder value.
Global Business Mix reaches INR3629 bn(US$77.99bn) as on 31.12.2009
Total assets of INR 2496bn (US$ 53.64bn) as on 31.12.2009
Operates 3140 branches which includes 29 branches/offices overseas
Market Cap of INR 196.94 bn (US $ 4.27 bn) as on 25.01.2010
The Bank has headroom of INR 87.81 Bn (without disinvestment) to raise capital to
leverage growth opportunities and strengthen its position as a diversified global bank.
The Bank has raised INR 10 Bn in July 2009 and August 2009 through issue of Upper
Tier II Bonds. Further the Bank has raised INR 3.25 Bn in December 2009 through
IPDI Bonds and INR 10 Bn through issue of Upper Tier II Bonds in January 2010.
International business constitutes ~ 17.94% of the total business
100% domestic business covered under the Core Banking System, spanning over
1920 cities and towns

3.2.m COMPOTATORS PROFILE
List of Public Sector Banks in India is as follows:
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab and Sind Bank
Punjab National Bank
State Bank of Bikaner & Jaipur
State Bank of Hyderabad
State Bank of India (SBI)
State Bank of Indore
State Bank of Mysore
State Bank of Patiala
State Bank of Saurashtra
State Bank of Travancore
Syndicate Bank
UCO Bank
Union Bank of India

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United Bank of India
Vijaya Bank
IDBI Bank

CHAPTER 4
RESEARCH METHODOLOGY













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4. RESEARCH METHODOLOGY

4.1 TITLE OF THE PROJECT
A Study on Non-Performing Asset with special reference to the Bank of India

4.2 OBJECTIVES OF THE STUDY
To analyze the NPA and its relation with operating profit of the bank.
To study the general reasons for assets become NPAs.
To point out the amount of NPAs in Bank of India.
What are the criteria to recover the advances from the bank
What are the methods adopted by the bank to look after NPA management.

4.3 RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the research problem. It may be
understood as a science of studying how research is done scientifically. In it we study the
various steps that are generally adopted by a researcher in studying his research problem
along with the logic behind them.
The purpose of research is to discover answers to the questions through the application of
scientific procedures. The main aim of research is to find out the truth which is hidden and
which has not been discovered as yet.
I have adopted the following procedure in completing my report study.
1. Formulating the problem
2. Research design

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3. Determining the data sources
4. Analysing the data
5. Interpretation
6. Preparing research report

4.3.a Formulating the problem
I am interested in the banking sector and I want to make my future in the banking
sector so decided to make my research study on the banking sector. I analysed first the factors
that are important for the banking sector and I came to know that providing credit facility to
the borrower is one of the important factors as far as the banking sector is concerned. On the
basis of the analysed factor, I felt that the important issue right now as far as the credit
facilities are provided by bank is non performing assets.
The bank will always face the problem of NPA because of poor recovery of advances
granted by the bank and several other reasons like adopting a poor recovery strategies so when
the loan is not recovered from the bank effectively and efficiently that balance amount will
become the NPA to the bank it may create some huge problem to the banks net profit.
The most important problem is disbursement of funds in quality assets (loans and
advances), the research should be identified, analyzed and possible solutions be suggested for
solving the important problem.
This particular topic has been selected to analyze the status of NPA at Bank of India and
their impact on the performance of the bank.



4.3.b Research Design
The research design tells about the mode with which the entire project is prepared. To
carry out my project I have used the descriptive research.

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Descriptive research includes surveys and fact-finding enquiries of different kinds. The
major purpose of descriptive research is description of the state of affairs, as it exists at present.
The main characteristic of this method is that the researcher has no control over the variables; he
can only report what has happened or what is happening. It is also called as ex post facto
research. Most ex post facto research projects are used for descriptive studies in which
researcher seeks to measure such items as, for example, frequency of shopping, preferences of
people, or similar data. Descriptive research also includes attempts by the researcher to discover
causes even when they cannot control the variables. The methods of research utilized in
descriptive research are survey methods of all kinds.
Why Descriptive Research?
In this case descriptive study was most suitable because it helped in giving focus to the
preferences, knowledge, beliefs & satisfaction of a group of people in a given population and
characteristics of the successful and unsuccessful companies. Moreover it helped in determining
the relationships between two or more variables.

4.3.c Determining the data source
The data source can be primary or secondary. The primary data are those data which are used
for the first time in the study. However such data take place much time and are also expensive.
Whereas the secondary data are those data which are already available in the market.
Primary data:
Discussion with the manager and officers of the bank to get general information about the
bank and its activities
By taking guidance from bank guide and departmental guide
Secondary data:
Collection of data through Bank annual report, Bank manuals, Text books, Websites,
Journals and Magazines



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4.3.d Analysing the data
The primary data would not be useful until and unless they are well edited and tabulated.
When the person receives the primary data many un-useful data would also be there. So, I
analysed the data and edited them and turned them in the useful tabulations. So, that can become
useful in my report study.

Tool used for analysis:
Ratio Analysis: The relationship between two related items of financial statements is
known as ratio. A ratio is just one number expressed in terms of another. The ratio is customarily
expressed in three different ways. It may be expressed as a proportion between the two figures.
Second it may be expressed in terms of percentage. Third, it may be expressed in terms of rates.

4.3.e Interpretation of the data
With use of analysed data I managed to prepare my project report. But the analyzing of
data would not help the study to reach towards its objectives. The interpretation of the data is
required so that the others can understand the crux of the study in more simple way without any
problem so I have added the chapter of analysis of the data that would explain others to
understand my study in simpler way.

4.3.f Preparing research report
This is the last step in preparing the project report. The objective of the report writing
was to report the findings of the study to the concerned authorities.








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4.4 SCOPE OF THIS STUDY:
The scope of the study is limited to Bank of India only. The study covers the performance
on NPAs for last 3 years.
The study covers:
To present a picture of movement of NPA in Bank of India
To know how NPA level will affect the profit of the bank.


4.5 LIMITATIONS OF THE STUDY:
1. This study is confined only to The Bank of India.
2. The study is restricted only to 6 weeks time. In depth study was not possible due to
lack of time.
3. The findings and recommendations may be applicable at the period of study only.
4. The study is conducted only on the basis of data provided by the bank websites.
Conclusions are drawn on the basis of limited data available.








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CHAPTER 5

ANALYSIS AND
INTERPRETATION OF
DATA



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5. ANALYSIS AND INTERPRETATION OF DATA

5.1 RATIO ANALYSIS
The relationship between two related items of financial statements is known as ratio.
A ratio is just one number expressed in terms of another. The Ratio is customarily expressed
in three different ways. It may be expressed as a proportion between the two figures. Second
it may be expressed in terms of percentage. Third, it may be expressed in terms of rates.
The use of ratio has become increasingly popular during the last few years only.
Originally, the bankers used the current ratio to judge the capacity of the borrowing business
enterprises to repay the loan and make regular interest payments. Today it has assumed to be
important tool that anybody connected with the business turns to ratio for measuring the
financial strength and the earning capacity of the business.
5.1.a ANALYSIS OF LIQUIDITY & SOLVENCY POSITION
Liquidity refers to the ability of a concern to meet its current obligation as and when
they become due. Short term obligations are met by realizing amounts from current assets. If
the current assets can pay off the current liabilities, then the liquidity position will be
satisfactory. Solvency refers to the long term financial position of the organization. To
measure liquidity, following ratios can be calculated:
1) CURRENT RATIO:
Current Ratio explains the relationship between current assets and current liabilities.
Generally 2:1 is considered ideal for a concern. This ratio is an indicator of the firms
commitment to meet its short term liabilities.


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Table 5.1: Current Ratio (Amount in Mn)
Year Current assets Current liabilities Ratio %
2004-05
2005-06
2006-07
2007-08
2008-09
38.63
46.29
55.91
62.92
80.06
15.66
17.85
21.44
32.29
35.26
2.46
2.59
2.60
1.95
2.27

Figure 5.1: Current Ratio

Interpretation:
It reveals the short term solvency of the firm.
Current ratio of BOI shows a satisfactory level of current ratio (more than 2) from 2005-06 to
2009-10. In 2008-09, it is only 1.95; this is due to decrease in the components of current
assets.





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2) QUICK RATIO
The quick ratio tells about the relationship between quick assets and current liabilities. 1:1
is considered ideal ratio for a concern because it is wise to keep the liquid assets at least equal
to the current liabilities.

Table 5.2: Quick Ratio (Amount in Mn)
Year Quick assets Current liabilities Ratio %
2004-05
2005-06
2006-07
2007-08
2008-09
20.94
21.50
20.41
37.12
48.45
15.66
17.85
21.44
32.29
35.26
1.34
1.20
0.95
1.15
1.37
Figure 5.2: Quick Ratio

Interpretation:
Quick assets = Current assets-inventories-prepaid expenses.
It gives the liquidity position of the firm. This ratio is also not satisfactory in the year
2007-08. In 2007-08 the components of current liabilities, sundry creditors decreases and the

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other components i.e., earnest money and security deposit, other liabilities and provisions
increases. The ratio shows that liquidity position of BOI is also in a better level other than the
one period, 2007-08.

3) ABSOLUTE LIQUIDITY RATIO
Absolute liquidity ratio shows the relationship between the sum of cash and marketable
securities to the total current liabilities. In absolute liquidity ratio only absolute liquid assets
such as cash in hand, cash at bank and readily realizable securities are taken into
consideration. The desirable norm is 0.5:1.

Absolute liquid assets = Current assets Inventories Sundry debtors loans& advances

Table 5.3: Absolute Liquidity Ratio (Amount in Mn)
Year Absolute
Liquid assets
Current liabilities Ratio %
2004-05
2005-06
2006-07
2007-08
2008-09
6.32
8.65
10.21
15.14
14.60
15.66
17.85
21.44
32.29
35.26
0.40
0.48
0.49
0.46
0.41







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Figure 5.3: Absolute Liquidity Ratio
0.40
0.48
0.49
0.46
0.41
0.00
0.10
0.20
0.30
0.40
0.50
0.60
2004-05 2005-06 2006-07 2007-08 2008-09
Absolute liquidity Ratio

Interpretation:
The recommended standard norm for the ratio is 0.5:1. The ratio in the company is below
the recommended value. Liquidity position of the company is not in satisfactory levels. The
ratio for the period 2006-07, 2007-08 is a greater value for BOI in comparison with the other
periods.

4) DEBT-EQUITY RATIO
The relationship between borrowed funds and owners capital is a popular measure of the
long term financial position or solvency of the firm. This relationship is shown by the debt-
equity ratio. This ratio indicates the relative proportion of the debt and equity in financing the
assets of a firm. This ratio is computed by dividing the total debt of the firm by its net worth.
Acceptable norm for this ratio is considered to be 2:1.
A high debt company, also known as highly leveraged or geared, is able to borrow funds
on very restrictive terms and conditions. A low debt equity ratio implies greater claim of
owner as than creditors. From the point of view of creditors, it represents a satisfactory

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capital structure of the business since a high proportion of equity provides a larger margin of
safety for them. This ratio shows the extent to which debt financing is used in the business.



Debt = Debentures + Current liabilities & Equity = Equity share capital + Preference share
capital + Reserves & surplus + share premium.

Table 5.4: Debt-Equity Ratio (Amount in Crores)
Year Debt Equity Ratio %
2004-05
2005-06
2006-07
2007-08
2008-09
15.66
17.85
21.44
32.29
35.26
48.74
48.74
52.51
52.51
52.51
0.32
0.37
0.41
0.61
0.67

Figure 5.4: Debt-Equity Ratio


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Interpretation:
The debt is equal to the current liabilities and equity is the sum of equity share capital
and reserves and surplus. In 2009-10, the ratio is higher i.e., debtors are very high as
compared to equity of the firm. In 2005-06, ratio is very low, means debtors are very low for
the company. As for as BOI is concerned debt-equity ratio is within the recommended limit.

5. CASH TO CURRENT ASSET RATIO
When cash is in the flow it is earning for the enterprise; when it is idle, not only that it
does not earn, it also contributes negatively to the profitability of the enterprise, because the
fund that is tied to idle cash to be carried at a cost. Of all the current assets that are found in
the balance sheet of an enterprise, cash is most important in terms of its usage, hence it is
holding in stock form must be the least.
With the development of the financial market and rising efficiency in financial
management of enterprises, cash as a percentage of total current assets has been going down
significantly in almost all the developed nations of the world.



Table 5.5: Cash to Current Asset Ratio (Amount in Crores)
Year Cash Assets Current Ratio %
2004-05
2005-06
2006-07
2007-08
2008-09
2.45
2.85
3.25
4.56
4.58
38.63
46.29
55.91
62.92
80.06
0.063
0.062
0.058
0.072
0.057



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Figure 5.5: Cash to Current Asset Ratio


Interpretation:
Cash to current assets ratio of BOI is not very good as compared with other nationalize bank.
The Bank of India shows only decimal values, in 2007-08 and 2009-10 its showing very low
cash to current assets ratio and in 2008-09 its showing very high ratio.

5.1.b ANALYSIS OF NPAs RATIO
1) GROSS NPA RATIO
Gross NPA Ratio is the ratio of gross NPA to gross advances of the Bank. Gross NPA is the
sum of all loan assets that are classified as NPA as per the RBI guidelines. The ratio is to be
counted in terms of percentage and the formula for GNPA is as follows:



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Table 5.6: Gross NPA to Gross Advances
2006-07 2007-08 2008-09
Gross NPAs
Gross Advances
2,100
84,935
1,931
1,13,476
2,471
1,42,909
Ratio % 2.47 1.70 1.73

Figure 5.6: Gross NPA Ratio
Interpretation:
The table above indicates the quality of credit portfolio of the banks. High gross NPA ratio
indicates the low credit portfolio of bank and vice-a-versa. We can see from the above table
that the year 2007-08, has the higher gross NPA ratio of 2.47 %.

2) NET NPA RATIO
The net NPA percentage is the ratio of net NPA to net advances, in which the provision is to
be deducted from the gross advance. The provision is to be made for NPA account. The
formula for that is:
2.47
1.7
1.73
0
0.5
1
1.5
2
2.5
3
2006-07 2007-08 2008-09
Gross NPA Ratio

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Table 5.7: Net NPA to Net Advance (Amount in Crores)
2006-07 2007-08 2008-09
Net NPAs
Net Advances
812
75,696
592
1,02,420
628
1,30,098
Ratio % 1.07 0.57 0.48

Figure 5.7: Net NPA Ratio

Interpretation:
This ratio indicates the degree of risk in the portfolio of the bank. High NPA ratio indicates
the high quantity of risky assets in the Banks for which no provision are made. From the table
it becomes clear that the NPA ratio of BOI have been improved quite well as compared to the
previous year.
1.07
0.57
0.48
0
0.2
0.4
0.6
0.8
1
1.2
2006-07 2007-08 2008-09
Net NPA Ratio

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3) PROVISION RATIO
Provisions are to be made for to keep safety against the NPA, & it directly affect on the gross
profit of the Banks. The provision Ratio is nothing but total provision held for NPA to gross
NPA of the Banks. The formula for that is,


Table 5.8: Provision Ratio (Amount in Crores)
2006-07 2007-08 2008-09
Total Provision
Gross NPA
1288
2100
1339
1931
1843
2471
Ratio % 61.33 69.34 74.59


Figure 5.8: Provision Ratio

61.33
69.34
74.59
0
10
20
30
40
50
60
70
80
2006-07 2007-08 2008-09
Provision Ratio

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Interpretation:
This Ratio indicates the degree of safety measures adopted by the Bank. It has direct bearing
on the profitability, Dividend and safety of shareholders fund. If the provision ratio is less, it
indicates that the Banks has made under provision.

4) PROBLEM ASSET RATIO
It is the ratio of gross NPA to total asset of the bank. It has been direct bearing on return
on assets as well as liquidity risk management of the bank. The formula for that is:


Table 5.9: Problem Assets Ratio (Amount in Crores)
2006-07 2007-08 2008-09
Gross NPA
Total Assets
2,100
1,41,636
1,931
1,78,829
2,471
2,55,017
Ratio % 1.48 1.08 0.97
Figure 5.9: Problem Assets Ratio
1.48
1.08
0.97
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2006-07 2007-08 2008-09
Problem Assets Ratio

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Interpretation:
It has been direct bearing on return on assets as well as liquidity risk management of the
bank. High problem asset ratio, which means high liquid, from the above table it becomes
clear that the BOI reducing the liquidity risk year by year.

5) CAPITAL ADEQUACY RATIO
Capital Adequacy Ratio can be defined as ratio of the capital of the Bank, to its assets,
which are weighted/adjusted according to risk attached to them i.e.

Table 5.10: Capital Adequacy Ratio (Rs in Crore)
2006-07 2007-08 2008-09
Capital 488.14 488.14 525.91
Risk weighted Assets 2100 1931 2471
Ratio 23.24 25.28 21.28
Figure 5.10: Capital Adequacy Ratio
23.24
25.28
21.28
19
20
21
22
23
24
25
26
2006-07 2007-08 2008-09
Capital Adquacy Ratio

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Interpretation:
The capital adequacy ratio is important for to maintain as per the banking regulations. As far
as this ratio is concerned the year 2006-07 has shown very less percentage when compare
with the previous years. But the CAR was increased in 2007-08 by 25.28%, it shows that BOI
is satisfied the CAR.

5.2 Conclusion
Analysis:
Table 5.11: Fish eye view of the ratio analysis
Ratio Satisfied Better Not Satisfied


I. ANALYSIS OF LIQUIDITY & SOLVENCY POSITION

1. Current Ratio *****
2. Quick Ratio *****
3. Absolute Liquidity Ratio *****
4. Debt Equity Ratio *****
5. Current asset ratio *****

II. ANALYSIS OF NPAs RATIO
1. Gross NPA Ratio *****
2. Net NPA Ratio *****
3. Provision Ratio *****
4. Problem Assets Ratio *****
5. Capital Adequacy Ratio *****
Total Ratio satisfied level is: Better
CONCLUSION:

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The above table (Table 5.11: Fish eye view of the ratio analysis) indicates that the
Bank of India is in better position by satisfying all the above ten out of eight ratios.

CHAPTER 6

FINDINGS
AND
SUGGESTIONS












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6. FINDINGS AND SUGGESTIONS
FINDINGS
1. The reduction in loan installment to 90 days may raise the NPA levels in the short
run. But in turn will improve the asset quality of the banks.
2. The net NPAs of BOI has increased from 592 crore to 628 crore in 2008 and 2009.
3. By the above ratio analysis (Table 5.11: Fish eye view of the ratio analysis) we can
find that the Bank of India is doing better job in maintaining the NPAs.
4. The banks total advances & profitability are increasing year on year, the advances for
the year 2007-08 were Rs. 1,13,476.32 crore it increased to Rs. 1,42,909.37 crore for
the last year 2008-09. The net profit for the year 2006-07 was Rs. 1,123.16 crore; for
2007-08 it was Rs. 2,009.40 crore and it was up to Rs. 3,007.35 crore for 2008-09,
which shows that in spite of increasing advances the NPA ratio is coming down due
to higher level of efficiency.
5. The ratio between NPA to total assets shows the overall effect of non-performing
assets on the organizations financial operations. The ratio of NPA to total assets for
last three years was 1.48% in 2006-07; 1.08% in 2007-08 and 0.97% in 2008-09. This
shows NPA has less effect on the financial strength of the bank.
6. The Provision Ratio was 61.33% in the year 2006-07 and it has been increased
74.59% in the year 2008-09. This ratio indicates the degree of safety measures
adopted by the Bank.
7. Gross NPA ratio was decreasing year by year; it indicates the quality of the credit
portfolio of the bank. The gross NPA in the year 2006-07 was 2.47%; in 2007-08 it
decreased to 1.70% and the year 2008-09 it was 1.74%.
8. Net NPA ratio drops 1.07 to 0.48 in the year 2006-07 to 2008-09. This ratio indicates
the degree of risk in the portfolio of the bank.


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SUGGESTIONS
Through RBI has introduced number of measures to reduce the problem of increasing
NPAs of the banks such as CDR mechanism. One time settlement schemes, enactment of
SRFAESI act, etc. A lot of measures are desired in terms of effectiveness of these measures.
What I would like to suggest for reducing the evolutions of the NPAs of Bank of India as
under.
1. The bank before providing the credit facilities to the borrower company should
analyze the major heads of the income and expenditure based on the financial
performance of the comparable companies in the industry to identify significant
variances and seek explanation for the same from the company management. They
should also analyze the current financial position of the major assets and liabilities.
2. Bank should evaluate the SWOT analysis of the borrowing companies i.e. how they
would face the environmental threats and opportunities with the use of their strength
and weakness, and what will be their possible future growth in concerned to financial
and operational performance.
3. Proper training is important to the staff of the bank at the appropriate level with on
going process. That how they should deal the problem of NPAs, and what continues
steps they should take to reduce the NPAs.
4. Bank should have its own independent credit rating agency which should evaluate the
financial capacity of the borrower before than credit facility.
5. The credit rating agency should regularly evaluate the financial condition of the
clients.
6. The Bank should have an external auditor / internal auditor and should check the
banks of accounts on regular basis or a monthly basis as they well be aware of the
companys financial position and take the necessary precautions at an early stage.


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CHAPTER 7

CONCLUSIONS







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7. CONCLUSION
The problem statement on which I focused my study is Non-Performing Assets.
The Indian banking sector is the important service sector that helps the people of the India to
achieve the socio economic objective. The Indian banking sector has helped the business and
service sector to develop by providing them credit facilities and other finance related
facilities. The Indian banking sector is developing with good appreciate as compared to the
global benchmark banks.

The only problem that the Banks are facing today is the problem of non-performing
assets. The non performing assets means those assets which are classified as bad assets which
are not possibly be returned back to the banks by the borrowers. If the proper management of
the NPAs is not undertaken it would hamper the business of the banks. The NPAs would
destroy the current profit, interest income due to large provisions of the NPAs, and would
affect the smooth functioning of the recycling of the funds.
If we analyze the past years data, we may come to know that the NPAs have increased
very drastically after 2001. The RBI has also been trying to take number of measures but the
ratio of NPAs is not decreasing of the banks. The banks must find out the measures to reduce
the evolving problem of the NPAs. If the concept of NPAs is taken very lightly it would be
dangerous for the Indian banking sector. The reduction of the NPAs would help the banks to
boost up their profits, smooth recycling of funds in the nation. This would help the nation to
develop more banking branches and developing the economy by providing the better
financial services to the nation.
There has been a continuous decrease in the time period considered to declare a loan
as non-performing. The continuous decrease in the time period is to bring the Indian banking
norms at par with international norms. This move will certainly reduce the NPAs and in turn
improve the asset quality of the banks.



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APPENDIX

















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APPENDIX

Table 8.1: Non Performing Assets of different banks

Public Sector Bank:
Total Assets, Gross and Net NPAs (Rs. Crore)
S.NO Banks Total Assets Gross NPA Net NPA
NATIONALISED BANKS 2007 2008 2009 2007 2008 2009 2007 2008 2009
1 Allahabad Bank 67664 82939 97648 1094 1011 1078 440 400 422
2 Andhra Bank 47541 56592 68469 397 372 368 47 54 79
3 Bank of Baroda 143146 179600 227407 2092 1981 1843 502 494 451
4 Bank of India 141817 178830 225502 2100 1931 2471 812 592 628
5 Bak of Maharashtra 39009 48151 59030 820 766 798 277 254 272
6 Canara Bank 165961 180529 219646 1493 1273 2168 927 899 1507
7 Central Bank of India 93008 123956 147655 2572 2350 2316 878 1060 1063
8 Corporation Bank 52721 66698 86906 625 584 559 142 127 138
9 Dena Bank 31451 38642 48461 744 573 621 365 215 313
10 Indian Bank 56149 70508 84122 546 487 459 102 98 94
11 Indian Overseas Bank 82257 101838 121073 1120 997 1923 258 363 999
12 Oriental Bank of Commerce 73936 90705 112583 1454 1280 1058 216 538 442
13 Punjab & Sind Bank 21963 30949 41364 291 136 161 77 67 78
14 Punjab National Bank 162422 199020 246919 3391 3319 2767 726 754 264
15 Syndicate Bank 89277 107132 130256 1560 1769 1595 391 623 632
16 UCO Bank 74864 89795 111664 1506 1652 1540 1006 1092 813
17 Union Bank of India 102678 123992 160976 1873 1657 1923 601 128 326
18 United Bank of India 42310 54311 62041 817 761 1020 333 306 525
19 Vijaya Bank 42357 56184 62383 564 512 699 144 182 292
TOTAL of 19 Nationalised
Banks (I)

1530531

1880271

2314103

25060

23410

25368

8244

8245

9339
II State Bank of India (SBI) 566565 721526 964432 9998 12837 15589 5258 7424 9552
III ASSOCIATES OF SBI
1 State Bank of Bikaner &
Jaipur
34507 41154 46370 463 437 490 223 209 253
2 State Bank of Hyderabad 49052 61620 76722 351 312 486 61 57 166
3 State Bank of Indore 24527 29276 33076 294 265 301 159 134 193
4 State Bank of Mysore 26843 33070 40486 384 359 368 75 89 129
5 State Bank of Patiala 47461 59060 69665 524 521 574 238 217 264
6 State Bank of Saurashtra 18847 21358 - 122 175 - 78 111 -
7 State Bank of Travancore 37993 43894 49461 540 571 544 268 268 188
TOTAL of 7 Associates
(III)
239230 289432 315780 2679 2640 2764 1102 1085 1193
TOTAL of state Bank
group (II +III)
805795 1010959 1280212 12677 15478 18352 6359 8509 10745
Other Public Sector Banks
1 IDBI Bank Ltd. 103839 130694 172402 1232 1565 1436 722 1083 949
TOTAL of Public Sector
Banks (I+II+III+IV)
2440166 3021924 3766717 38968 40452 45156 15325 17836 21033

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Table 8.2: Bank-wise Gross Non-Performing Assets, Gross Advances and Gross NPA ratio of
Nationalized Bank


Sl.NO
Banks As on March 31, 2009
Gross NPAs Gross
Advances
Gross NPA
Ratio (%)
(1) (2) (3)
NATIONALISED BANKS
1 Allahabad Bank 107825 5944340 1.81
2 Andhra Bank 36814 4442760 0.83
3 Bank of Baroda 184293 14484487 1.27
4 Bank of India 247088 14473156 1.71
5 Bak of Maharashtra 79841 3481728 2.29
6 Canara Bank 216797 13903691 1.56
7 Central Bank of India 231655 8674027 2.67
8 Corporation Bank 55922 4892712 1.14
9 Dena Bank 62077 2918536 2.13
10 Indian Bank 45918 5183064 0.89
11 Indian Overseas Bank 192341 7580954 2.54
12 Oriental Bank of Commerce 105812 6906472 1.53
13 Punjab & Sind Bank 16104 2469810 0.65
14 Punjab National Bank 276746 15609845 1.77
15 Syndicate Bank 159454 8249504 1.93
16 UCO Bank 153951 6966905 2.21
17 Union Bank of India 192335 9826485 1.96
18 United Bank of India 101956 3572745 2.85
19 Vijaya Bank 69882 3587463 1.95

Table 8.3: Balance Sheet of Bank of India
BANK OF INDIA
BALANCE SHEET AS AT 31ST MARCH, 2009
(000s Omitted)
Particular As at
31-03-2009
As at
31-03-2008
CAPITAL AND LIABILITIES
Capital
Reserves & Surplus
Deposits
Borrowings
Other Liabilities and Provisions

TOTAL


5,259,146
129,690,067
1,897,084,797
94,869,763
128,113,898


5,259,146
100,634,764
1,500,119,812
71,724,490
110,561,565

2,255,017,671 1,788,299,777


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ASSETS
Cash and balances with Reserve bank of India
Balance with Banks and money at call and short notice
Investments
Advances
Fixed Assets
Other Assets

TOTAL

Contingent Liabilities
Bills foe Collection

89,152,845
128,459,711
526,071,791
1,429,093,738
25,319,347
56,920,239


117,418,505
59,755,389
418,028,767
1,134,763,264
24,260,671
34,073,181

2,255,017,671 1,788,299,777

1,222,665,860
114,907,372

1,494,889,837
80,945,798


Table 8.4: Profit & Loss Account of Bank of India
BANK OF INDIA
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2009
(000s Omitted)

Particular
For the year
ended
31-03-2009
For the year
ended
31-03-2008
INCOME
Interest earned
Other income
TOTAL

EXPENDITURE
Interest expended
Operating expenses
Provisions and Contingencies
TOTAL

PROFIT
Net Profit for the year
Add: Profit brought forward
TOTAL

163,473,479
30,518,627

123,552,212
21,169,261
193,992,206 144,721,473

108,484,531
30,939,633
24,494,579

81,259,517
26,449,874
16,918,056
163,918,743 124,627,447


30,073,463
0


20,094,026
5,417,591
30,073,463 25,511,617

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APPROPRIATIONS
Transfer to Statutory Reserve
Transfer to Revenue Reserve
Transfer to Capital Reserve
Transfer (from) / to Special Reserve-Currency Swap
Interim Dividend (including dividend tax)
Final Dividend (including dividend tax)
Special Reserve u/s Sec 36(1) (vii) of Income Tax Act, 1961
Balance in Profit and loss Account
TOTAL

Earning Per Share (Rs)

8,000,000
9,974,714
5,692,579
(9,261)
1,843,287
3,072,144
1,500,000
0

7,000,000
15,096,101
428,209
29,594
0
2,457,713
500,000
0
30,073,463 25,511,617
57.26 40.83

Table 8.5: NPA Ratios of Bank of India
Particulars 2006-07 2007-08 2008-09
Gross NPA (in crores)
Net NPA (in crores)
Gross NPA Ratio (%)
Net NPA Ratio (%)
Provision Ratio (%)
Problem Assets Ratio (%)
Capital Adequacy Ratio (%)
2,100
812
2.47
1.07
43.95
1.48
12.23
1,930
592
1.70
0.57
57.22
1.08
10.68
2,471
628
1.73
0.48
51.84
0.97
12.65

Table 8.6: Sector wise Breakup of NPA (INR in Mn)
Dec - 08 Dec - 09 % of total NPA % of Total
Sectoral Advances
Agriculture
MSME
3,317
10,770
4,160
17,056
10.56
43.31
7.73
4.32

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Retail credit
Other (Industry,
Trade, Real
estate Misc)
Domestic (total)
Foreign
Global (total)
7,176

8,241
29,504
2,089
31,593
6,572

11,596
39,384
3,896
54,437
16.69

29.44


2.91

Table 8.7: Overseas NPAs (INR in Mn)
Dec 08 Dec 09
Trade
Manufacturing
Real Estate
Other
Total
803.2
238.5
597.2
450.2
1244.0
549.1
1289.1
771.7
2089.2 3853.9
Figure 8.1: Overseas NPAs

803.2
238.5
597.2
450.2
1244
549.1
1289.1
771.1
0
200
400
600
800
1000
1200
1400
Trade Manufacturing Real Estate Other
8-Dec 9-Dec

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Page 89

PRESS RELEASE OF BANK OF INDIA
HIGHLIGHTS FOR THE YEAR ENDED 31st MARCH 2009
Business Mix reaches Rs.334440 crores - robust rise of 26.30 % .
Net Profit shoots up by 49.68% from Rs.2009 crores to Rs.3007 crores.
Operating Profit up by 47.45% (Rs. 5457Crore) supported by growth in net interest
income as well as other income.
Core Operating Profit (net of Treasury) up by 41.26% (Rs. 4711 Crore) from Rs.
3335 Crore in Mar08.
Net Interest Income rises by 30.03% to Rs. 5499Cr from Rs. 4229 Cr, despite
challenging conditions.
Net Interest Margin improves from 2.95% to 2.97%.
Non Interest Income smartly rises by 44.17% from Rs 2117 crores to Rs 3052
crores.
Gross NPA ratio at 1.71% .
Net NPA ratio drops to 0.44% from 0.52% as on March 2008.
Provision coverage maintained at 74.58%.
Cost to Income Ratio has improved substantially from 41.68% to 36.18%.
Return on Assets jumped from 1.25% to 1.49 %.
Total Income for the Quarter rose to Rs.5278 Crore from Rs.4155 Crore , showing a
growth of 27.03%.
Bank has made adequate provisions for terminal benefits, in line with AS 15
requirements. Rs. 384.60 Cr estimated and provided .
CASA amounted to Rs. 48637 crores constituting 31% of Total Deposits
Earnings per share for 12 months goes up sharply from Rs. 40.83 to Rs.57.26.

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Book value per share rises from Rs. 164.05 to Rs.211.89.
Capital Adequacy Ratio rises to 13.01% from 12.04%as per Basel II .
Deposits grew by 26.46% on YoY basis to Rs.1,89,708 crores.
Advances rose by 26.08% to reach Rs.1,44,732 crores.
Total no of branches are 3021.
2593 branches are functioning on CBS platform covering above 97% of the business,
spanning over 700 cities & towns.
Agricultural Debt Waiver & Debt Relief Scheme, 2008 fully implemented.
Networth of the Bank surpasses Rs.11100 crores.

OTHER HIGHLIGHTS
Bank of India has been selected as the Top Indian Company under the Banks
sector for the Dun & Bradstreet Rolta Corporate Awards 2008.
Bank of India has won the TOP PUBLIC SECTOR BANK under BEST BANK
category and OVERALL BEST BANK in the DUN and BRADSTREET
BANKING AWARDS 2009.
Bank of India records outstanding performance under Collateral Free Lending with
CGTMSE Guarantee Scheme of SIDBI for the year 2008-2009.






Dissertation
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BIBLIOGRAPHY










Dissertation
Page 92
BIBLIOGRAPHY
Books Referred
Banking and Law Practices (S L Gupta)
Macro economics (D N Dwivedi)

Journal Referred
Journal of Reserve Bank of India
Banking Finance
Udyog Pragati (The Journal for Practising Managers)

Websites visited
www.bankofindia.com
www.rbi.org.in
www.businesstandard.com

Research Reports
Indian bank association report
Antique research
Indiabulls report

Dissertation
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ABBREVIATION















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ABBREVIATION
NPAs : Non Performing Assets
BOI : Bank of India
CDR : Credit Deposit Ratio
CAR : Capital Adequacy Ratio
GDP : Gross Domestic Product
EFTPOS : Electronic Funds Transfer at Point of Sales
OD/CC : Overdraft / Cash Credit
OTM : Optical Translation Measurement
ROI : Return On Investment
EWS : Early Warning Systems
DRTs : Debt Recovery Tribunals
CIBIL : Credit Information Bureau (India) Limited
SWIFT : Society for Worldwide Interbank Financial Telecommunication
BSE : Bombay Stock Exchange
STCI : Securities Trading Corporation of India Limited
CIBIL : Credit Information Bureau
SRFAESI act : The Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interests Act.