Professional Documents
Culture Documents
Index
Chapter 1 Chapter 2 Rationale for the study Objective of the study Chapter 3 Cha
pter 4 Chapter 5 Title of the project Objective of the study
Scope of the study Profile of the company Theoretical Perceptive Research Method
ology Research Design Data collection methods / sources Sampling plan which shou
ld include sampling unit, sampling size and sampling methods via questionnaire m
ethods, interview methods, observations etc
Chapter 6 Chapter 7 Chapter 8 Chapter 9
Data analysis and interpretations using various charts and graphs Findings Limit
ations if any Expected contribution from the study
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 2
About the Canara Bank: Founded in 1906, Canara Bank is one of the premier banks
in India, with a net work of 2578 branches across the country. The bank was the
first two launch networked ATMs in India and obtain and ISO certification. Canar
a bank has also achieved the distinction of being the countrys highest net profit
earner among nationalized banks for the year march 2007. The bank has already c
arved a niche in providing IT-based services such as networked ATMs, anywhere ba
nking, Telebanking, Remote access Terminals, Internet and Mobile banking, Debit
cards, etc. Canara bank a vision to help improve the economic condition of the c
ommon people of India by inculcating the habit of savings in rural areas As part
of its vision of using technology to provide affordable banking services to the
vast rural population of India, Canara bank has extend the performance and cost
benefits of enterprises Linux to its customers. With a modernized branch infras
tructure, Canara bank hopes to serve customers in a timely and efficient manner,
reinforcing its image of being a customer savvy bank
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 5
Title of the project Objective of the study Scope of the study
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 6
COMPANY PROFILE
Founded in 1906, Canara Bank is one of the premier banks in India, with a net wo
rk of 2578 branches across the country. The bank was the first two launch networ
ked ATMs in India and obtain and ISO certification. Canara bank has also achieve
d the distinction of being the countrys highest net profit earner among nationali
zed banks for the year march 2007. The bank has already carved a niche in provid
ing IT-based services such as networked ATMs, anywhere banking, Telebanking, Rem
ote access Terminals, Internet and Mobile banking, Debit cards, etc. Canara bank
a vision to help improve the economic condition of the common people of India b
y inculcating the habit of savings in rural areas. As part of its vision of usin
g technology to provide affordable banking services to the vast rural population
of India, Canara bank has extend the performance and cost benefits of enterpris
es Linux to its customers. With a modernized branch infrastructure, Canara bank
hopes to serve customers in a timely and efficient manner, reinforcing its image
of being a customer savvy bank
Genesis
Founded as Canara Bank Hindu Permanent Fund in 1906, by late, Mr. Ammembal Sub
ba Rao Pai, a philanthropist, this small seed blossomed into a limited company a
s Canara Bank Ltd. in 1910 and became Canara Bank in 1969 after nationalizatio
n. A good bank is not only the financial heart of the community, but also one
with an. obligation of helping in every possible manner to improve the economic
conditions of the common people"
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 9
Challenges
Canara Bank achieved 100% computerization very early in the course of its opera
tional history. It deployed a number of bank automation tools such as a customiz
ed Total Branch Automation (TBA) package called Integrated Branch Banking Softwa
re (18BS), which was developed by its subsidiary, Can Bank Computer Services Ltd
. (CCSL). IBBS was deployed on Novell NetWare at close to 1400 medium sized bran
ches across the country. Canara Bank follows a detailed tendering process for ne
w hardware purchases, in which contracts are awarded on the basis of bids. After
nearly a decade of deploying IBBS, the bank had purchased different types of ha
rdware from multiple vendors. As a result, standardization on Novell NetWare bec
ame difficult, and supporting the legacy IBBS application became a challenging t
ask. Moreover, IBBS was developed using Micro focus COBOL and designed to run in
a 16 bit DOS environment. With poor support for the TCP/IP protocol stack, the
NetWare servers running IBBS could not be integrated into the corporate network
easily. Essentially, the NetWare servers functioned as branch file servers, with
out any data connectivity. Regular maintenance of different versions of IBBS acr
oss 1400 branches was a painstaking effort in the absence of network support. Pa
tching, troubleshooting and version upgrades had to be conducted onsite. Branche
s in rural and remote areas were particularly difficult to access and required s
upport personnel to travel frequently. Also, the availability of certified hardw
are on NetWare was limited, which made adding new machines difficult. As Canara
Bank s customer base expanded, its banking services began to scale, creating an
immediate need for Internet Banking, Anywhere Banking (banking from any Can Bank
branch across the country) and an expanded ATM network. Novell NetWare s closed
legacy environment did not allow room to accommodate these new technologies. Ca
nara Bank had to purchase additional machines running Microsoft Windows to HETs I
NSTITUTE OF MANAGEMENT STUDIES HUBLI Page 11
interface with these new technologies, which was extremely inefficient from a ha
rdware utilization standpoint. New hardware and Microsoft Windows licenses strai
ned budgets and made new technology projects difficult to scale and sustain. Whe
n additional branches were added to the bank s network, procuring new servers th
at were certified to run on NetWare was difficult, as IHVs had ceased to provide
support for older versions of the as. Micro Focus had also ceased support for t
he COBOL version on which the IBBS package had been developed. A combination of
all these factors made migration attractive. Migrating the 1400 odd legacy NetWa
re servers posed another challenge: Canara Bank wanted to switch platforms but n
ot hardware. Deploying the latest as available, without going into a hardware re
fresh cycle that would cost millions of rupees was a challenging task. The bank
had amassed about a dozen different types of machines after a decade of deployin
g IBBS. This heterogeneous mix of hardware that spanned across more than1,000 se
rver 10,000destopsmadethe project very complex. Canara Bank began to look for a
platform that could deliver the latest innovation along with complete hardware
freedom.
Future plan
Moving from the legacy NetWare platform to Red Hat Enterprise Linux has opened u
p significant opportunities for Canara Bank. With networking support now availab
le, Canara Bank is planning to deploy Red Hat Network Satellite to send updates
for both IBBS as well as the operating system to all distributed machines across
the country. Enterprise Linux has also made Remote Management and health monito
ring of remote servers possible. With the tremendous benefits provided by Enterpr
ise Linux, Canara Bank plans to move its Anywhere Banking and Internet Banking I
i steners to the Enterprise Linux platform. Enterprise Linux has provided Canara
Bank with the freedom and choice to develop a scalable growth plan, which was n
ot possible under NetWare s closed legacy environment. HETs INSTITUTE OF MANAGEME
NT STUDIES HUBLI Page 12
General Facilities
-Safe Custody Services -Safe Deposits Locker -Nomination facility Other Services
/Facilities -N R I Branches -N R I Services -Remittance Facility -Facilities For
Returning Indians Rural Financing -Agriculture & Rural Credit -Kisan Credit -Lo
ans for setting up Agri Clinic -Minor Irrigation Loans -Farm Machinery Loans -Fa
rm Development Loans -Vehicle Loan for Agriculturists -Loans for Plantation Crop
s
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 17
day. Personal loans to the existing borrowers, loans for purchase of sites, insu
rance cover for loaners, etc., are some examples of innovation/value addition.
Bank s goodwill, the innate strength of the Company approach and an unflinching
business acumen have always kept the business on an envious platform making good
profits and paying rich dividends and their pragmatic ever since inspection.
The Company also took a major step in diversification by launching three Nonhous
ing Finance Products namely Premises Loan for practicing professionals (Venture)
, Mortgages Loans (Net worth) and Loan against rent receivables (Noncash) CANARA
BANK FACTORS LIMITED: Post Sale funds crunch is proving a handicap for many ind
ustries and business in the smooth cycling of capital. Canara Bank Factors Limit
ed (CFL) was established in 10.05.1991 to mitigate this problem of the industry
and business and ensure a smooth flow of capital in the entire cycle. This Compa
ny is promoted by our Bank along with Andhra Bank and SIDB!. The Registered offi
ce is at No. 17, Seshadri Road, Bangalore 56 0 009. The Company is now being hea
ded by Sri G R Seshadri as Managing Director a senior executive in the cadre of
Deputy General Manager deputed from the Bank. The Board of the Company consists
of Chairman & Managing Director, Executive Director and a General Manager of the
Bank, apart from the Managing Director. SIDBI and Andhra Bank have appointed th
eir nominees. There are 3 nonofficial Directors from the profession of audit/acc
ounts/ Banking/Finance. Has a network of 8 branches in southern and we stem part
of the courtly and proposes to add some more during the next financial year.
Activity: HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI Page 21
Factoring Services. To cater to the needs of the clientele, Company has always on
the look out for innovative and competitive products. Introduction {)f variants
of fact ling such as International Factoring/Export Factoring and Sub -variants
such as Invoice Discounting backed by LCs/Hundisffripartite Agreement s are exam
ples of their consistent Endeavour to design/redesign their products.
CRISIL has given the following RATING to the Company:
"PH" - indicating highest safety for short term debt program allover Commercial
Papers "FAA+" - indicating higher safety for Public Deposits "AA" - indicating h
igher safety for non-convertible debentures Has developed a well designed "Manag
ement Information System" (MIS) Prudential norms prescribed by RBI are strictly
complied with. Has developed in house "Internal Risk Evaluation System" (IRES) H
as attained Nil Net NPA position for 4 consecutive years 200 2-03, 2003-04, 2004
-05 and 2005-06 The Company is accredited with an ISO Certificate -"DIN EN ISO
9001:2000" by TUV CERT Certification body of Germany. Operations are fully compu
terized from Day one.
CANBANK VENTURE CAPITAL FUND LIMITED: HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 22
Apart from the Managing Director, the Board of Directors consists of our Chairma
n & Managing Director and Executive Director. There is one Director each from Ba
nk of Baroda, Lakshmi Vilas Bank, ING Vysya Bank Limited and Vijay Bank on the B
oard Activities: CCSL designs and develops software for banks, financial institu
tions and Government Departments, with its extensive in-house infra-structure an
d proven technical expertise. All its products and Projects are well documented
and user -friendly, with on-line help, data encryption and audit features.
CCSL offers services in the following areas:
1 Software development . 2. Business Process Outsourcing 3. Training 4. Data war
ehousing Solution 5. Web based solution 6. Information Systems Audit 7. Consulta
ncy Service
GILT SUCURITIES TRADING CORPORATION LIMITED
This is the latest of the Subsidiaries of Canara Bank so far. Established on06.0
6.1996 and co-promoted by Corporation Bank and Bank of Baroda, is a Primary Deal
er Subsidiary accredited by RBI. Company is a wholly Owned Subsidiary of Canara
Bank since September 2004.
The
M G
of
ank
The Board of the Company consists of our Chairman& Man aging Director, Executive
Director, 2 General Managers of the Bank and 2 Chartered Accountants and a form
er Banker.
Activity: Primary Dealer accredited by RBI for dealing III Government of India D
ated Securities and Treasury Bills. Strengthening Infrastructure in the Governme
nt Securities (G Sec) Market so as to make it vibrant, liquid and broad based. D
evelopment of Underwriting and Market Making capabilities. Improving Secondary M
arket Trading System.
With the mentioned objectives, GSTCL participates actively both III Security and
Money Market.
Reserve Bank of India, being the Regulator of Primary Dealers, sets certain goal
s in tons of Bidding Commitments and Success Ratio in the Primary auction of G S
ec and T Bills, to be accomplished by them which form the basis for renewal of P
D s license. GSTCL has the distinction of achieving these benchmarks consistentl
y since inception. Underwriting of G Sec in the auction is yet another obligatio
n cast on PDs.
Bond yields being the function of interest rate, the Company s asset portfolio i
s subject to market vagaries caused by factors like inflation, liquidity, govern
ment borrowing programmed, coupon, maturities of papers issued and also event ba
se risks. In order to manage and mitigate these risks the Company has well defin
ed and board approved investment policy so also Risk Management Policy.
The Company is also into retailing G Sec to individual investors PF staffs/ Char
itable Institutions through 24 designated branches of the parent, Canara
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 25
Bank. And also has put in place arrangements for retailing through Stock Exchang
es. CANBANK INVESTMENT MANAGEMENT SERVICES LIMITED
Bank had established its Mutual Fund arm "Canara bank Mutual Fund" on 19.12.1987
for foraying into the Capital Market. CMF is an independent Trust governed by a
Board of Trustees,
When the RBI issued directives to form Asset Management Companies to manage the
assets of Mutual Funds and such other Trusts, Canara bank Investment Management
Services Limited was established by the Bank on 02.03.1993 as a Wholly Owned Sub
sidiary of the Bank, Sri N R Rarnanujam, Deputy General Manager of the Bank is a
t the helm of the Company as Managing Director. Two General Managers of the Bank
is also on the Board. There are four non-official Directors on the Board drawn
from various fields connected to finance, CANBANK FINANCIAL SERVICES LIMITED: Th
is is the first Subsidiary emerging from the stable of Canara Bank. Established
on 01.06.1987 as a Wholly Owned Subsidiary of the Bank, cantina was very quick t
o carve a niche for itself in the Merchant Banking arena as a premier institutio
n providing a host of financial services under one roof. Registered Office of th
e Company is housed at No. 14, Naveen Complex, 6 th Floor, M G Road, Bangalore 5
60 001. Sri M. S. Prabhu, Divisional Manager of the Bank is heading the Company
Executive Director. Apart from the Executive Director, the Board of Director con
sist of two General Managers of the Bank and a Chartered Accountant who is ;; no
n -official Nominee as Chairman. Activities: HETs INSTITUTE OF MANAGEMENT STUDIES
HUBLI Page 26
Activities of Cantina were curtailed post security scam of 1992. Cantina is pres
ently attending to matters like collection of lease rentals and realizations of
investments. DETAILS OF SECTIONS/DIVISIONS/DEPARTMENTS COMINC UNDER EACH FUNCTIO
NAL WIN G OF HEAD OFFICE PERSON N EL WING: I. Personnel Management Section.. 2.
Industrial Relations Section. 3. Human Resources and Organisation Development Se
ction. 4. Head Office Staff Administration Section. 5. House Magazine and Librar
y Section. 6. Official Language Section. 7. Staff Training College 8. Recruitmen
t Cell. 9. SC/ST Cell.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 27
RETAIL BANKING AND SUBSIDIARIES WING a) Can card Division b) Retail Banking Div
ision 1. 2. 3. Retail Banking Division. Bank assurance Section. Cross Selling of
Mutual Fund Products Section.
c) Subsidiaries Division 1. Subsidiaries Section. Names of Subsidiaries and Asso
ciates a) Canbank Mutual Fund Limited. b) Canbank Factors Limited. c) Canfm Home
s Limited. d) Canbank Investment Management Services Limited. e) Canbank Compute
r Services Limited. f) Canbank Venture Capital Fund Limited. g) Gilt Securities
Trading Corporation Limited. h) Canbank Financial Services Limited.
INSPECTION WING. 1. 2. 3. 4. Planning Section. Follow Up Section. Review and Rep
orting Section. Information Systems Audit Section. Page 31
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
5. 6. 7.
Vigilance Department. Staff Administration Section. Organisation and Methods Sec
tion.
DEPARTMENT OF INFORMATION TECHNOLOGY- WING 1. 2. 3. 4. 5. 6. 7. 8. 9. Planning
Establishment & Training Group. Administrative Software Group. Service Units Sof
tware Group. Branch Software Group. Delivery Channel & Communication Group. Proc
urement Group. Payment System Group. New Projects Group. Core Banking Group.
INDUSTRIAL PROFILE Overview:
The enhanced role of the banking sector in the Indian economy, the increasing le
vels of deregulation along with the increasing level of the competition have fac
ilitated globalization of the Indian banking system and placed numerous demands
on banks. Operating in this demanding environment has exposed banks to various c
hallenges. The last decade has witnessed major changes in the financial sector-n
ew banks, new financial institutions, new instruments, new windows and new oppor
tunities- and, along with all this, new challenges. While deregulation has opene
d up new vistas for banks to augment revenues, it has entailed greater competiti
on and consequently greater risks. Demands for new products, particularly deriva
tives, has required banks to diversify their product HETs INSTITUTE OF MANAGEMENT
STUDIES HUBLI Page 32
mix and also effect rapid changes in their processes and operations in order to
remain competitive in the globalize environment. The benefits of globalization h
ave been well documented and are being increasingly recognized. Globalization of
domestic banks has also been facilitated by tremendous advancement in informati
on and communication technology. Globalization has thrown up lot of opportunitie
s but accompanied by concomitant risk. There is a growing realization that the a
bility of countries to conduct business across national borders and the ability
to cope with the possible downside risks would depend, inter alia, on the soundn
ess of the financial system and the strength of the individual participants. Ado
ptaion of appropriate prudential, regulatory, supervisory, and technological fra
mework on par with international best practices enables strengthening of the dom
estic banking system, which would help in fortifying it against the risks that m
ight arise out of globalization in India we had strengthened the banking sector
to face the pressures that may arise out of globalization by adopting the bankin
g sector reforms in a calibrated Mann followed the twin governing principles of
non-disruptive progress and consultative process. Legal prescriptions for owners
hip and governance of banks in banking regulation Act, 1949 have been supplement
ed regulatory prescriptions issued by RBI from time to time.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 33
Outsourcing risk:
Banks are increasingly using outsourcing for achieving strategic aims lading to
either ratio nationalization of operational costs are taping specialist expertis
e which is not available internally. Outsourcing may be defined as a banks use of
a third party, including an affiliated entity within a corporate group, to perfo
rm activities on a continuing base that would normally be undertaken by the bank
itself. Typically outsourced financial services include applications processing
(loan organization, credit card), document processing, investment management, m
arketing and research, supervision of loans data processing and bank office rela
ted activities etc.
Application of advanced technology:
Technology is a key driver in the banking industry, which creates new business m
odules and process, and also revolutionizes distribution channels. Banks which h
ave made in adequate investment in technology have consequently faced and erosio
n of there market shares. The beneficiaries are those banks which have invested
in technology. Adoption of technology also enhanced the quality of risk manageme
nt systems in banks. Recognizing the benefits of modernizing their technology in
frastructure banks is taking the right initiatives. While doing so, banks have f
our options to choose from: they can build a new system those selves, or buy bes
t of he modules, or buy a comprehensive solution, or outsource. In this context
banks need to clearly define their core competencies to be sure that they are in
vesting in the areas that will distinguish them from other market players, and g
ive them a competitive advantage. The global challenges which banks face or not
confined only to the global banks, these aspects are also highly relevant for ba
nks which are part of a globalized banking system. Further, over coming these ch
allenges by the other banks is excepted to not only stand them in good stead dur
ing difficult times but also augurs well for the banking system to which they be
long and will also equip them to launch themselves as a global bank.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 34
the bank< it may lead to its total collapse. To circumvent the c re d it risk, t
he system tries to design innovative products. Section-III discusses the credit
risk management in banks. The Basle committee defines the operational risk as "t
he risk of direct or indirect loss resulting from inadequate or failed internal
processes, people and systems or from external events". This definition excludes
operational: risk but includes legal risk. Such operational risks can be broadl
y classified into four categories as information technology risk, human resource
risk, loss to assets risk and relationship risk. Quantification of operational
risk is a major challenge to the .risk management group of the bank: Section IV
attempts to elucidate few issues involved in the operational risk management. O
ne of the core activities of the regulators is proper of the system. The Basle c
ommittee had set certain guidelines for the bank s. The Reserve Bank of India ha
d set up an advisory committee under the chain Ulship of M S Verma and the commi
ttee had submitted its report in May 2001. The committee recommended corporate g
overnance, internal controls, risk management, loan accounting transparency and
disclosures, financial conglomerates and cross border banking supervision. The s
upervisor should provide a safety net to the financial system. Section -V discus
ses the important issues of any risk management technique. Section-VI consists o
f two case studies. It briefly discusses the risk management Technique s to be a
dopted by banks. Derivatives are the hedging instruments which help minimize the
risks. But a 300 year old investment bank collapsed because of its exposure to
derivatives. The Barings collapse is a classic example of failure of supervisio
n and incidence of human sours risk. In the global scenario, the increased credi
t risk arises due to two reasons. Banks have been forced to lend to riskier clie
nts because well-rated corporates have moved away from banks as they have access
to low cost funds through disinter mediation. The other reason is the lurking f
ear of global recession. Recession in the economy could lead to low industrial o
utput which may lead to defaults by the industry under recession culminating int
o credit risk. Hence, the markets are in search of new credit risk HETs INSTITUTE
OF MANAGEMENT STUDIES HUBLI Page 38
management models. Credit derivatives which were a new innovation in the market
stood the real test in 1997 during the Asian financial crisis. Several European
and US banks which were exposed to high risk areas in Korea, Philippines and Tha
iland were able to save themselves from losses as they could hedge themselves wi
th credit derivatives. The papers "Credit Risk Management - Models and Judgments
" and "Use of Credit Derivati ves" discuss the critical operational issues in ma
naging credit risk through credit derivatives. In the recent times, we have witn
essed runs on the banks - mainly the Urban Cooperative Banks like Madhavpura Coo
p Bank in Gujarat/Mumbai, Charminar Bank, a scheduled bank in Hyderabad and many
others. When the banks give the signals of distress, the depositors panic and r
un for their money. As per the existing rules, Deposit Insurance and Credit Guar
antee Corporation of India (DICGC) guarantees the depositors money up to one la
kh rupees subject to certain conditions. Till now, the banks used to pay the ins
urance premium for the deposits they hold to get insurance coverage from DICGC.
Now the committee set up by the RBI under the Chairmanship of J Captor suggested
that the risk premium is to be paid which Is sensitive to the probability of th
e bank in question going bankrupt. The paper "What Makes Banks Fragile tries to
compute the volatility of banks assets and deposit insurance premium with an il
lustrate on and presents a view point of fixing higher deposit insurance premium
if reserve requirements are to be phased out.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 39
Credit Risk Management In this backdrop, it is imperative that Canara bank has c
redit risk management system, which is sensitive and responsive to these factors
. The effective management of credit risk is a critical component of comprehensi
ve risk management and ie essential for the long-term success of Canara banking
organisation. Credit risk managemnt encompasses identification, measurement, mon
itoring and control of the credit risk sources. The Bank has put in place a unif
ied risk management architecture to attain global best practices for effective i
mplementation of risk management initiatives in consistence with the Basle II fr
amework and RBI guidelines. The Board of Directors drives the Risk Management in
itiatives in the Bank. The Risk Management Committee of the Board is operational
. Top Executive Committees for Credit Risk, Operational Risk and Market Risk Man
agement oversee and monitor the respective risk management processes and procedu
res. Asset Liability Committee (ALCO) meets periodically for effective and proac
tive ALM in the Bank. An exclusive Risk Management Wing at the Head Office is fu
nctioning as a nodal centre for overall implementation of various risk managemen
t initiatives across the Bank. Integrated Mid Office of both domestic and Forex
Treasury are functioning under the Risk Management Wing for effective and indepe
ndent supervision and monitoring of Market Risk in investment and forex function
s. Risk Management Sections are functioning at all the 34 Circle Offices of the
Bank as an extended arm of the Risk Management Wing at the Corporate Office. The
Bank has put in place various risk management policies, which include policy fo
r management of Credit Risk, Market Risk, Operational Risk, Asset Liability, Liq
uidity Risk, Country Risk, Counterparty Bank Risk, Corporate Governance, Disclos
ures, Collateral Management, Stress Testing, Compliance Functions, Disaster Reco
very and Business Continuity Planning, Business Lines, Outsourcing, Group Risk,
Legal Risk etc. The Bank has also framed risk management policies for its overse
as branches. These policies are being reviewed and fine tuned annually.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 41
Credit Risk Strategy 1. Each branch of Canara bank should develop, with the appr
oval of its Board, its own credit risk strategy or plan that establishes the obj
ectives guiding the Canara bank s credit-granting activities and adopt necessary
policies/ procedures for conducting such activities. This strategy should spell
out clearly the organisation s credit appetite and the acceptable level of risk
-reward trade-off for its activities. 2. The strategy would, therefore, include
a statement of the Canara bank s willingness to grant loans bas ed on the type
of economic activity, geographical location, currency, market, maturity and anti
cipated profitability. This would necessarily translate into the identification
of target markets and business sectors, preferred levels of diversification and
concentration, the cost of capital in granting credit and the cost of bad debts.
Credit risk Management Committee (CRMC] Each Canara bank may, depending on the
size of the organization or loan! Investment book, constitute a high level Credi
t Risk Management Committee (CRMC). The Committee should be headed by the Chairm
an and should comprise of heads of Credit Department, Treasury, Credit Risk Mana
gement Department (CRMD) and the Chief Economist. The functions of the Credit Ri
sk Management Committee should be as under:
1. Responsible for the implementation of the credit risk policy/ strategy approv
ed by the Board. 2. Monitor credit risk on a Canara bank wide basis and ensure c
ompliance with limits approved by the Board. 3. Recommend to the Board, for its
approval, clear policies on standards for presentation of credit proposals, fina
ncial covenants, rating standards and benchmarks, 4. Decide delegation of credit
approving powers, prudential limits on large credit exposures, standards for lo
an collateral, portfolio management, loan review mechanism, risk
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 44
An Illustration
Credit Risk assessment at branch level (Traffic Island Branch) Major Segments Sc
ores Scores assessed Level of Risk allotted (1) Assessment areaCredit ~ CreditGrowth Trend Credit- Quality Non-Fund based exposure Adequacy of portfolio Total
10 20 05 05 40 05 08 03 02 18 I Low I Low I Medium Low Low
I I
Branch Authorities (Authority to sanction loans to Corporate)
Branch Office: Braches allowed transaction loan from I to 75 lacks for respectiv
e sectors. Regional Office: If loan amount is more than 75 lacks then that propo
sal goes to regional office, Regional office has authority to sanction from 75 l
acks to 3 crores for industries. Circle Office: Circle office has authority of s
anctioning loan from 3 crores and above.
Factors considered for sanction loans:
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI Page 48
Follow up clients/Customers. Recovery systems. Review of loan. Additional securi
ties Providing additional loans to make repayment of existing loans. Loan Review
Mechanism. Low and High credit risk ratings. Low interest rate for high credit
rating companies High interest rate for low credit rating companies Single/group
borrower limits Authorities to branches Authorities to Committees.
Following Up customers/Clients:
Bank remind borrowers to repay loan and interest according to term and condition
which he has agreed while taking loan from banks, and also ensure that ifhe fai
ls to pay the loanwhat is next step of banks.
Recovery Systems:
Bank directly collect dues from customers They have separate department, which l
ook \after all matters related to recovery of loan. Review of loan: If the amoun
t not recovered within specified term mentioned as per the policy of bank, bank
goes for review of loan if required.
Additional Securities:
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI Page 50
Guarantors Types
State Government Central Government Public Sector Entities Banks Primary Dealers
Corporate
Substitution approach
In this approach risk weight of the guarantor replace the lisk weight of the bor
rower provided it result in application of a lower risk weight, thus only guaran
tee issued by entities with a lower risk weight provides credit risk mitigation
effect in the form of lower capital charges. Proportional Cover This method is t
aken note of is that the risk mitigation effect will be available to the extent
of protection provided b Guarantor and the remaining unprotected portion carry t
he risk weight applicable to borrower. Thus in order to avail capital relief it
is necessary that the following details on guarantors are captured: Name of the
Guarantor Extent of Guarantee cover available Customer type of the guarantor
Techniques for Measuring Credit Risk
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI Page 52
In the measurement of credit risk, models may be classified along three differen
t dimensions: 1. 2. 3. The techniques employed, The domain of applications in th
e credit process and The products to which they are applied.
Techniques: The following are the more commonly used techniques:
1.
Econometric Techniques such as linear and multiple discriminate analysis,
Multiple regression, logic analysis and probability of default, etc
2.
Neural networks are computer-based systems that use the same data employed in th
e econometric techniques but arrive at the decision model using alternative impl
ementations of a trial and error method.
3 Itemization models are mathematical programming techniques that discover the o
ptimum weights for borrower and loan attributes that minimize lender error and m
aximize profits.
3.
Rule-based or expert are characterized by a set of decision rules, a knowledge b
ase consisting of data such as industry financial ratios, and a structured inqui
ry process to be used by the analyst in obtaining the data on a particular borro
wer.
4.
Hybrid Systems In these systems simulation are driven in part by a direct causal
relationship, the parameters of which are determined through estimation techniq
ues.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 53
Domain of application: These models are used in a variety of domains: Credit app
roval Models are used on a stand alone basis or in conjunction with a judgementa
l override system for approving credit in the consumer lending business. The use
of such models has expanded to include small business lending. They are general
ly not used in approving large corporate loans, but they may be one of the input
s to a decision. Credit rating determination: Quantitative models are used in de
riving shadow bond rating for unrated securities and commercial loans. These r
atings in turn influence portfolio limits and other lending limits used by the i
nstitution. In some instances, the credit rating predicted by the model is used
within an institution to challenge the rating assigned by the traditional credit
analysis process. Credit risk models may be used to suggest the risk premier th
at should be charged in view of the probability of loss and the size of the loss
given default. Using a mark -tomarket model, an institution may evaluate the co
sts and benefits of holding a financial asset. Unexpected losses implied by a cr
edit model may be used to set the capital charge in pricing. Instruments of Cred
it Risk Management Credit Risk Management encompasses a host of management techn
iques, which help the banks in mitigating the adverse impacts of credit risk. 1.
Credit Approving Authority Each bank should have a carefully formulated scheme
of delegation of powers. The banks should also evolve multi-tier credit approvin
g system where the loan proposals HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI Page
54
Banks should build historical database on the portfolio quality and provisioning
/ charge off to equip themselves to price the risk. But value of collateral, ma
rket forces, perceived value of accounts, future business potential, portfolio/i
ndustry exposure and strategic reasons may also play important role in pricing.
Flexibility should also be made for revising the price (risk premier) due to cha
nges in rating / value of collaterals over time. Large sized banks across the wo
rld have already put in place Risk Adjusted Return on Capital (RAROC) framework
for pricing of loans, which calls for data on portfolio behavior And allocation
of capital commensurate with credit risk inherent in loan proposals. Under RAROC
framework, lender begins by charging an interest mark -up to cover the expected
loss - expected default rate of the rating category of the borrower. The lender
then allocates enough capital to the prospective loan to cover some amount of u
nexpected loss- variability of default rates. Generally, international banks all
ocate enough capital so that the expected loan loss reserve or provision plus al
located capital cover 99% of the loan loss outcomes. Portfolio Management The ex
isting framework of tracking the Non Performing Loans around the balance sheet d
ate does not signal the quality of the entire Loan Book. Banks should evolve pro
per systems for identification of credit weaknesses well in advance. Most of int
ernational banks have adopted various portfolio management techniques for gaugin
g asset quality. The CRMD, set up at Head Office should be assigned the responsi
bility of periodic monitoring of the portfolio. The portfolio quality could be e
valuated by tracking the migration (upward or downward) of borrowers from one ra
ting scale to another. This process would be meaningful only if the borrower-wis
e ratings are updated at quarterly / half-yearly intervals. Data on movements wi
thin grading categories provide a useful insight into the nature and composition
of loan book. The banks could also consider the following measures to maintain
the portfolio HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI Page 57
To identify promptly loans which develop credit weaknesses and initiate timely c
orrective action; To evaluate portfolio quality an~ isolate potential problem ar
eas; To provide information for determining adequacy of loan loss provision; To
assess the adequacy of and adherence to, loan policies and procedures, and to mo
nitor Compliance with relevant laws and regulations. To provide top management w
ith information on credit administration, including credit Sanction process, ris
k evaluation and post-sanction follow-up.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 58
Accurate and timely credit grading is one of the basic components of an effectiv
e LRM. Credit grading involves assessment of credit quality, identification of p
roblem loans, and assignment of risk ratings. A proper Credit Grading System sho
uld support evaluating the p0l1folio quality and establishing loan loss provisio
ns. Given the importance and subjective nature of credit rating, the credit rati
ngs awarded by Credit Administration Department should be subjected to review by
Loan Re view Officers who are independent of loan administration. The Risk Mana
gement Group of the Basle Committee on Banking Supervision has released a consul
tative paper on Principles for the Management of Credit Risk. The Paper deals wi
th various aspects relating to credit risk management. The Paper is enclosed for
information of banks. 6. Qualification and Independence The Loan Review Officer
s should have sound knowledge in credit appraisal, lending practices and loan po
licies of the bank they should also be well versed in the relevant laws/regulati
ons that affect lending activities. The independence of Loan Review Officers sho
uld be ensured and the findings of the reviews should also be reported directly
to the Board or Committee of the Board. 7. Frequency and Scope of Reviews The Lo
an Reviews are designed to provide feedback on effectiveness of credit sanction
and to identify incipient deterioration in portfolio quality. Reviews of high va
lue loans should be undertaken usually within three months of sanction /renewal
or more frequently when factors indicate a potential for deterioration in the cr
edit quality. The scope of the review should cover all loans above a cut -off li
mit. In addition, banks should also target other accounts that present elevated
risk characteristics. At least 3040% of the portfolio should be subjected to LRM
in a year to provide reasonable assurance that all the major credit risks embed
ded in the balance sheet have been tracked. Depth of Reviews HETs INSTITUTE OF MA
NAGEMENT STUDIES HUBLI Page 59
The loan reviews should focus on: Approval process; Accuracy and timeliness of c
redit ratings assigned by loan officers; Adherence to internal policies and proc
edures, and applicable laws / regulations; Compliance with loan convents; Post-s
anction follow-up; Sufficiency of loan documentation; Portfolio quality; and Rec
ommendations for improving portfolio quality The findings of Reviews should be d
iscussed with line Managers and the corrective actions should be elicited for al
l deficiencies. Deficiencies that remain unresolved should be reported to top ma
nagement. The Risk Management Group of the Basle Committee on Banking Supervisio
n has released a consultative paper on Principles for the Management of Credit R
isk. The Paper deals with various aspects relating to credit risk management. Th
e Paper is enclosed for information of banks. Early warning: Credit models are u
sed to flag potential problems in the portfolio to facilitate early corrective a
ction. Common credit language: Credit models may be used to select assets from a
pool to construct a portfolio acceptable to investors at the time of asset secu
ritization or to achieve the minimum credit quality needed to obtain the desired
credit rating. Underwriters may use such models for due diligence on the portfo
lio (such as a collateralized pool of commercial loans).
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 60
Collection strategies: Credit models may be used in deciding on the best collect
ion or workout strategy to pursue. If, for example, a credit model indicates tha
t a borrower is experiencing short term liquidity problems rather than a decline
in credit fundamentals, then an appropriate workout may be devised. Credit Risk
Models: Approaches The literature on quantitative risk modeling has two differe
nt approaches to credit risk measurement. The first approach is the development
of statistical models through analysis of historical data. This approach was fre
quently used in the last two decades. The second type of modelling approach trie
s to capture distribution of the firm s asset -value over a period of time. The
statistical approach tries to rate the firms on a discrete or continuous scale.
The linear model introduced by Altman (1967), also known as the Z -score Model,
separates defaulting firms from non-defaulting ones on the basis of carat in fin
ancial ratios. Altman, Hartwell, and Peck (1995,1996) have modified the original
Z -score model to develop a model specific to emerging markets. This model is k
nown as the Emerging Market Scoring (EMS) model. The second type of modeling app
roach tries to capture distribution of the financial asset value over a period o
f time. This model is based on the expected default frequency (EDF) model. It ca
lculates the asset value of a film from the market value of its equity using an
option pricing based approach that recognizes equity as a call option on the und
erlying asset of the firm. It tries to estimate the asset value path of the firm
over a time horizon. The default risk is the probability of the estimated asset
value falling below a prespecified default point. This model is based conceptua
lly on Merton s (1974) contingent hassock and has been working very well for est
imating default risk in a liquid market.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 61
Closely related to credit risk models are portfolio risk models. In the last thr
ee years, important advances have been made in modeling credit risk in lending p
ortfolios. The new models are designed to quantify credit risk on a portfolio ba
sis, and thus are applied at the time of diversification as well as portfolio ba
sed pricing. These models estimate the loss distribution associated with the P0l
1folio and identify the risky components by assessing the risk contribution of e
ach member in the portfolio. Banks may adopt any model depending on their size,
complexity, risk bearing capacity and risk appetite, etc. However, the credit ri
sk models followed by banks should, at the least, achieve the following: 1. Resu
lt in differentiating the degree of credit risk in different credit exposures of
a bank. The system could provide for transaction -based or borrower-based ratin
g or both. It is recommended that all exposures are to be rated. Restricting ris
k measurement to only large sized exposures may fail to capture the p0l1folio ri
sk in entirety for variety of reasons. For instance, a large sized exposure for
a short time may be less risky than a small sized exposure for a long time. 2. I
dentify concentration in the portfolios 3. Identify problem credits before they
become NPAs 4. Identify adequacy/ inadequacy of loan provisions 5. Help in prici
ng of credit
6.
Recognize variations in macro-economic factors and a possible impact under alter
native scenarios
7. Determine the impact on profitability of transactions and relationship.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 62
OUTLOOK FOR 2010-11 The International Monetary Fund (IMF), in its World Economic
Outlook, April 2010 raised its forecast for world economic growth in 2010 to 4.
2% as against a 0.6% contraction in 2009. However, IMF forecasted that advanced
economies would not exit the global recession until the middle of 2010 and emerg
ing economies, which are increasingly driven by domestic growth factors, will co
ntinue to drive global recovery. Financial year 2010-11 started on a positive no
te for Indian economy with major macro economic parameters performing well. Indu
strial growth and exports have been showing steady increase and the continued st
rong growth in manufacturing indicates the resilience of domestic demand. A stro
ng saving and investment rate, favourable capital market conditions and improved
capital flows and positive business outlook will also help the economy towards
a faster revival. Going forward, the strong domestic demand and sustained increa
se in per capita income will ensure faster economic growth. Thrust on inclusive
growth and focus on the rural economy would propel the growth engine of the econ
omy further. Indian economy will remain one of the fastest growing economies in
the world in view of the expected recovery in agricultural production, industria
l output, demand for higher exports and the revival of global economy. The RBI i
n its Annual Monetary Policy Statement for 2010-11 placed real GDP growth for 20
10-11 at 8%, with an upward bias. The RBI envisages containing money supply (M3)
at around 17% in consonance with the outlook on growth and inflation. While agg
regate deposits of SCBs are projected to grow at 18%, adjusted non-food credit i
s likely to record a growth of 20% during 2010-11, as indicated by the RBI. The
annual policy also endeavors to contain inflation at a benign level of 5.5%, wit
h a medium term goal of 3%.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 66
FINANCE PERFORMANCE
Canara Bank crossed three major milestones during 2009-10. First, its total busi
ness crossed the Rs.400000 crore marks, signifying a growth of 24.3%. Second, Ne
t profit crossed Rs.3000 crore to reach Rs.3021 crore, up by Rs.45.8%. Third, th
e Banks branch network crossed the 3000 mark to reach 3046, with an addition of 3
14 branches during the year For Canara Bank, 2009-10 was a year of reckoning and
crossing of milestones. It was a year of robust performance on the business fro
nt coupled with unprecedented gains in profits and profitability. Continued buoy
ancy in core business operations and costs containment helped the Bank to sustai
n and enhance the top line earnings while maintaining a stronger bottom line.
Net profit reached an all time high of Rs. 3021 crore, signifying a strong 45.8%
growth y-o-y and substantially higher than Rs. 2072 crore recorded during the
Opera
preceding year. Operating profit recorded a 27.7% growth to reach a level of Rs.
5061 crore.
Return on average assets (RoAA) for the year stood at 1.30%, well above the inte
rnational benchmark of 1%. Cost to Income ratio declined by 288 basis points to
40.73%. Profit per employee, moved up to Rs.7.36 lakh compared to Rs.4.97 lakh i
n the previous financial year.
5100
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 67
4100
Capital and Reserves Net worth of the Bank, as at March 2010, stood at Rs.12949
crore compared to Rs.10040 crore as at March 2009. With the paid-up capital at R
s.410 crore, reserves and surplus increased to Rs.14262 crore. To augment the ca
pital resources, the Bank raised Rs. 600 crore through the Innovative Perpetual
Tier I Bonds during the year. (Amt. in Rs. Crore) Composition of Capital March 2
009 Basle II Risk Weighted Assets Tier I Capital CRAR (%)(Tier I) Tier II Capita
l CRAR (%)(Tier II) Total Capital CRAR (%) 125111 10023 8.01 7623 6.09 17646 14.
10 March 2010 Basle II 150623 12870 8.54 7362 4.89 20232 13.43
As at March 2010, Capital to Risk Weighted Assets Ratio (CRAR) of the Bank under
Basle II stood at 13.43%, well above the 9% regulatory benchmark. Significantly
, the Bank has attained a Tier I capital ratio of 8.54%. The medium term objecti
ve of the Bank HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI Page 70
is to maintain the CRAR ratio above 12%. With the still undiluted 73.17% Governm
ent of India shareholding, the Bank has large headroom available under both Tier
I and Tier II options to raise capital and support business growth momentum. BU
SINESS GROWTH Business Volumes Cross Rs.4 lack Crore
Deposits Total Deposits of the Bank registered a growth of 25.6% to reach Rs. 2,
34,651 crore as at March 2010. In accordance with the strategic focus, the Bank
s core deposits recorded a growth of 32.3%, supported by 19.3% growth in savings
deposits. Unrelenting focus on augmenting of low cost resources yielded good re
sults. The Banks mega savings bank deposit campaign (Savings Utsav) resulted in a
n addition of Rs.8064 crore in savings deposits during FY10 as against Rs.6544 c
rore in FY09. The share of CASA (current and savings bank deposits) deposits in
domestic deposits stood at 29.85%. With a CASA per branch at Rs. 22.4 crore, the
Bank continues to be one of the best among the peers. Pursuing a strategy of br
oad basing deposit clientele, all the branches together added nearly 2.35 millio
n deposit accounts, taking the total tally under deposit accounts to 32.85 milli
on.
260000 210000
CA
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 71
Advances (net) The Bank s advances (net) witnessed a robust 22.5% growth in 2009
-10 to reach Rs.
1,69,335 crore. In quantum terms, credit increased by over Rs.31000 crore. The B
ank stepped up credit to all productive segments of the economy like agriculture
and Micro, Small and Medium Enterprises (MSME), exposure to corporate and infra
structure segments. The number of borrowal accounts, as at March 2010, rose to 4
.49 million.
Total Business of the Bank grew by 24.3% to reach Rs. 4,03,986 crore as at March
2010 as against Rs. 3,25,112 crore during the year. as preceding Productivity,
measured by business per employee, increased to Rs.9.83 crore from Rs.7.80 crore
a year ago, continuing to be one of the best among the peers. With clientele du
ring the year.
CAGR for
several enterprise-wide initiatives and measures, the Bank added 2.54 million
450000 400000
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 72
The Bank took several measures during the year to expand retail credit, includin
g special packages for housing and auto loans. Under Canara Mobile loan, the Ban
k sanctioned 24,000 accounts, amounting to Rs. 803 crore. To facilitate speedy d
isposal of proposals and credit flow, a total of 25 Centralized Processing Units
(CPU)/ Retail Assets Hubs (RAH) for housing and personal loans were functioning
at major centres across the country.
Business performance of overseas branches as on 31.03.2010
Overseas Branch London (GBP Mn) Hong Kong (USD Mn) Shanghai
Deposits 992.69 61.85
Advances
Gross
Net Profit 0.3 2.48
Profit 771.08 8.88 363.25 5.50 In first year of operation
The Bank has already obtained approval from the RBI to open 10 branches/offices
in Johannesburg, Frankfurt, Muscat, Manama, QFC-Qatar, New York, Sao Paulo, DarerSalam, Tokyo and Sharjah, out of the 20 international financial centres identi
fied for global expansion in the medium term. The Bank s international operation
s are supported by a wide network of 395 correspondent banks, spread across 80 c
ountries. The Bank has rupee drawing arrangements with 22 exchange houses and 18
banks in the Middle East for channelising the remittances of expatriates. The B
ank has been managing two exchange houses viz., Al Razouki International Exchang
e Company, Dubai and Eastern Exchange Est., Qatar, under secondment and manageme
nt agreement respectively. The Bank, during the year, expanded its arrangement u
nder Remit Money , a web based product by extending to 17 Exchange Companies/Ba
nks and 4 branches abroad.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 74
FINANCIAL SOUNDNEES CAPITAL The Bank s paid-up capital stood at Rs410 crore with
1.08 lack shareholders. Capital to Risk Weighted Assets Ratio worked out to 1 3
.50% vis--vis the 9% benchmark. During FY07, the Bank raised lower/upper Tier II
capital worth Rs. 1975 crore from the domestic market and US$250 million oversea
s by way of a medium term note programmed. The Bank s Capital Roadmap duly facto
rs in the likely scenario in advances movement and expected regulatory changes.
The overarching objective has been to maintain CRAR above 12% so as to support t
he buoyancy in credit deployment. RESERVES AND OWNED FUNDS Reserves increased to
Rs.9944 crore, additional accrual during the year being Rs.3222 crore. Owned fu
nds stood at Rs.8111 crore as compared to Rs.7132 crore at the end of the previo
us year. PROFITS AND PROFITABILITY Gross profit for the year 2006-07 stood at Rs
.2912 crore, while net profit was of the order of Rs. 1421 crore. HETs INSTITUTE
OF MANAGEMENT STUDIES HUBLI Page 75
Return on Average Assets (RoAA), worked out to 0.98%, despite a 25% growth in to
tal assets. Net Interest Income was up 12.43%to Rs.4027 crore.
SHAREHOLDERS VALUE A dividend of 70%, amounting to Rs.287 crore, is proposed by
the Board of Directors of the Bank, as against 66% (Rs.270.60 crore) paid last y
ear, subject to the approval of shareholders. Bank s performance under earnings
is reflected in a consistent uptrend in Book Value and Earnings Per Share. While
book value increased to Rs.197. 83 as at March 2007 compared to Rs. 171 .19 rec
orded for last financial, Earnings per Share further rose from Rs.32.76 to Rs.34
.65 for the year ended March 2007
NATIONAL PRIORITIES
Priority Sector Advances As one of the leading players in the domestic banking i
ndustry, the Bank continues to accord importance to varied goals under national
priorities. The remarkable performance during 2009-10 has further reinforced the
Banks commitment to the large and growing productive segments of the economy, in
cluding agriculture, small enterprises, education, micro-credit, weaker sections
, SC/STs and minorities. The Bank has achieved stipulated mandatory targets unde
r Total Priority, Total Agriculture and Weaker Sections Advances with comfortabl
e margin. Priority Sector Advances of the Bank as at March 2010 increased by Rs.
10547 crore to reach Rs.59310 crore, recording a y-o-y growth of 21.6% covering
38 lakh borrowers. Priority Sector Advances formed 43.92% of the Banks Adjusted N
et Bank Credit (ANBC), well above the 40% stipulated norm. HETs INSTITUTE OF MANA
GEMENT STUDIES HUBLI Page 76
(Amt. in Rs. Crore) Priority Advances Agriculture Micro & Sector As on 31st Marc
h 2009 2010 20144 16316 48763 25051 24180 59310 Growth Amount Percentage 4907 78
64 10547 24.36 48.20 21.63
Small
Enterprises Total Priority Sector
With a focus on credit delivery to agriculture, the Banks advances under agricult
ure rose by Rs. 4907crore to reach Rs. 25051 crore, covering 29 lakh farmers. Ag
riculture credit as a proportion of ANBC rose to 18.55%, surpassing the mandator
y targeted level of 18%. Advances to agriculture (direct) reached a level of Rs.
19069 crore, with a 23% y-o-y growth and accounting for 14.12% of ANBC. Under K
isan Credit Card Scheme, the Bank issued 3.02 lakh cards during the year with cr
edit coverage of Rs.2432 crore. As at March 2010, the cumulative number of Kisan
Credit Cards reached 30 lakhs, involving credit coverage of Rs.14507 crore. Ove
r the years, the Bank has supported lakhs of to In promising students
pursue higher education in India and abroad. doing so, the Bank has built up a s
izable education loan portfolio and the has been among sustaining position premi
er
nationalized banks in India.
3500 3000
The Bank s advances under Education Loan Scheme
recorded a growth of 25.9% to reach Rs.2896 crore. The bank has financed more th
an priority sectors, such as, retail traders, housing and micro credit. HETs INST
ITUTE OF MANAGEMENT STUDIES HUBLI
1.71 lakh students as at March 2010. The Bank also extended financial assistance
to other
Educat No. of S
Page 77
During the year, the Bank actively participated in various Government Sponsored
Schemes, such as, PMRY, SGSY, SJSRY, SLRS and DRI. As at 31st March 2010, the ou
tstanding advances under these schemes aggregated to Rs.556 crore, involving 1.4
0 lakh beneficiaries.
Performance under Various Government Sponsored Schemes
Name of the Scheme PMRY SGSY SJSRY SLRS DRI Total
No. of Accounts 61980 16071 33734 1164 27188 140137
Amt. in Rs. Crore 295.81 50.11 158.48 2.50 49.50 556.40
In support of the underprivileged sections of the society, the Banks advances to
SC/ST beneficiaries reached Rs.3905 crore as at March 2010. Advances to SC/ST re
ached a level of 6.58% of total priority sector advances and total accounts unde
r SC/ST advances were 17% of total priority sector accounts.
Advances Medium
to
Micro
Small
and
Enterprises
(MSMEs)
reached Rs.31074 crore, with a y-o-y mandatory y-o-y growth of 20%. The Bank has
covered
growth of over 30%, far above the
Micro
37,608
accounts with an exposure of over Rs. 948 crore as at March 2010 under Credit Gu
arantee for Micro and Small Enterprises (CGMSE). Considering the importance of M
SME sector in the national economy, the Bank has developed specific loan product
s to meet the diverse requirements of entrepreneurs in this particular segment.
Cluster based lending is adopted to cater to the units in industrial clusters. A
rea/ cluster specific loan products have been introduced to meet specific requir
ements. To enable the MSME sector to face the challenges of economic slowdown, t
he Bank acted swiftly and rolled out a Special Package to provide relief to MSME
s during December 2008. The special package continued during the year 2009-10 al
so. The comprehensive package includes, among other facilities, additional/adhoc
working capital, extended tenability for receivables, concession in interest an
d debt restructuring. MSME Care Centers were established across the country to r
esolve the grievances of MSMEs.
35000 30000 25000
During the year, the Bank has launched "SME SULABH", a new business model for sp
eedy credit delivery to MSME Sector. The SME Sulabhs are independent centralized
loan processing centres aimed at fast processing/quick delivery of credit to MSM
Es. They are equipped with specialized marketing, credit appraisal and monitorin
g teams. 15 SME Sulabhs have been established at Agra, Ahmedabad, Bangalore, Cha
ndigarh, HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI Page 79
1860
The new campus for Canara Bank Institute for Artisans, Karaikudi was inaugurated
by Hon ble Union Home Minister, Shri P Chidambaram, during the year. Canara Ban
k s Rural Clinic Service Scheme provides basic health care services in remote ar
eas lacking basic medical infrastructure facilities. Under the Scheme, the Bank
encourages doctors to set up clinics in identified rural areas. As at March 2010
, the total number of such clinics rose to 518. The Bank under Jalayoga , a sch
eme to provide safe drinking water, has so far implemented 35 projects in its le
ad districts.
The Bank donated a hi-tech, custom built, solar powered Mobile Sales Van to as
sist women entrepreneurs, SHGs and artisans to market their products. Visits by
Parliamentary Committees The third Sub-Committee of Parliamentary Committee on O
fficial Languages had inspected our Khajuraho, Ghaziabad, Raipur Branches and CO
Mysore and lauded the efforts put in by the Bank in the field of Official Langu
age implementation.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 81
Branch Network
Expanded Pan India Presence
The year was significant for the Bank in expanding domestic operations across th
e country. Befitting its 104th year of existence, the Bank on its Founders Day i.
e., 19th November, 2009, opened 104 branches across the country, inaugurated by
Honble Finance Minister Shri Pranab Mukherjee. The Bank opened 314 branches durin
g the year, taking the total tally under the branch network to 3046 branches. Co
mposition of domestic branch network No. of Branches 31.03.200 31.03.2010 Catego
ry Metropolitan Urban Semi-urban Rural Total Branches 9 629 674 691 735 2729 727
744 793 779 3043
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 82
The Bank has 118 specialized branches catering to the specific financial needs o
f different clientele categories.
Categories of Specialized Branches 1. SMEs 2. Overseas 3. Agri-Finance 4. Micro
Finance Branches 5. Savings 6. NRIs 7. Asset Recovery Management 8. Prime Corpor
ate 9. Industrial Finance 10. Stock Exchange 11. Capital Market 12. Mahila Banki
ng 13. Consumer Finance 14. Housing Finance 15. Branch for Physically Challenged
TOTAL
31.03.2010 37 17 10 9 7 7 7 7 5 3 3 3 1 1 1 118
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 83
Bank targets a global business level of Rs.2, 90, 000 crore for 2007-08, with a
growth rate of over 20%, comprising Rs. I,70,000 crore under deposits and Rs.I,2
0,000 crore under advances. Advances growth will be significantly driven by agri
culture, SME, infrastructure and other productive segments, including services s
ector.
Towards faster implementation of Core Banking Solution (CBS), the Bank targets t
o cover all the branches under CBS by March 2008. The Bank has taken up a major
brand building exercise and comprehensive review of its business strategies cove
ring products, processes, people and its organization structure.
In pursuit of the Bank s global aspirations, 21 prominent centers have been iden
tified by the Bank for expanding its global reach. With the preliminary moves un
derway, the Bank s Representative Office at Shanghai is being converted into a f
ull fledged branch.
After creation of JVs in Insurance and Asset Management, the Bank is exploring s
imilar options in other financial services. The Bank is geared up to comply with
the revised guidelines issued under priority sector lending. Under HR, Assessme
nt Development Centre concept will be implemented to map training competence and
upgrade manpower skill. Plans are underway to introduce Internship programmed
to assist students pursuing professional course.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 84
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 85
Analysis of the financial statement Financial statements and reports are the too
ls which provide information of the firms financial affairs. This information is
required for financial analysis & decision making. It assesses the financial st
atus of organization which is prepared with help of accounting principle. Financ
ial statement has mainly as follow:
Balance sheet
Profit & loss account Financia
l statement is prepared on basis of generally accepted accounting principle. The
se are a. Business entity principle b. Going concern principle c. Monetary princ
iple d. Historical principle e. Realizations principle f. Accrual concept Basic
conventions under which financial statements prepared is:
consistency conservati
veness disclosure
Analyzing of financial statements helps to know the financial health of the borr
ower, which provides the detail of the liabilities and the assets of the applica
nt. It also helps to study the trends in the financial matters of the company. I
t helps to valuate the assets of the applicant company. It assists in decision m
aking process relating to the future activities.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 86
Profit and Loss account:Meaning:- profit and loss account is one of the essentia
l document which shows the summary of revenues, expenses and net income of the f
irm during the particular financial period. Functions of the Profit and Loss acc
ount: It gives a concise summary of the firms revenue and expenses during the part
icular period.
It measures the firms profitability.
It represents the activity of
the firm. Ratio Analysis:Ratios are classified into four parts like:1. Liquidit
y ratios 2. Activity ratios 3. leverage ratios 4. profitability ratios
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 87
Findings
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI Page 91
1. The proposed standardized Basel2 to approach does not fits the needs of small
er banking organization engaged primarily traditional banking. 2. The current no
r proposed capital frameworks yet address what is perhaps the most critical risk
factor for the smaller banks - geographic and sect oral concentrations of credi
t risk. 3. Internal ratting based approach provides positive incentives to banks
in improving their credit risk management techniques. 4. Banks may have discret
ion and flexibility in defining the exposure classes that which corporate, proje
ct finance, etc. 5. Unless suitably modified the adoption of the new accord in i
ts present format would result in significant increase in the capital charge for
bank. 6. Additional cost of capital will increase to the bank and bank may go f
or capital market to raise the found. 7. Bank as well documented schemes delegat
ion powers for credit sanction.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 92
LIMITATIONS
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI Page 93
1. The study restricted to only one branch. 2. The time constraint was a limitin
g factor, as more time required carrying 0 ut study on other aspects of the topi
c. 3. Due to secrecy it is difficult obtain actual facts and figures of advances
of branches.
suggestion
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI Page 94
1. The bank will now have to adopt the credit risk assessment system which is an
international standard specified for the banking system. 2. Due to increased se
nsitivity towards risk under the new norms, the risk will come down significantl
y. This will lead to an increase in the regulatory capitalization levels, which
will increase the cost of capital, which may be passed on to the customers. 3 Th
e banks will have to exercise due care in maintaining the portfolio of risk asse
ts
in order not to increase unduly the required regulatory capitalization level. Th
is may in turn in duce conservatism in the bank in taking of risky portfolio of
advances, a danger they have to guard against. It will indeed be a delicate bala
ncing task.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 95
Conclusion
The variability of return around the expected average is thus a quantitative des
cription of risk .Moreover, this measure of risk is simply a proxy for risk beca
use other measures cud be used. The total variance is the rate of return on a st
ock around the expected average that includes both systematic and unsystematic r
isk.
HETs INSTITUTE OF MANAGEMENT STUDIES HUBLI
Page 97