CONTENTS

CHAPTER – 1: INTRODUCTION OF THE TOPIC

 Introduction about banking industry 1

 Co-operative Banks 8

 Evolution of Co-operative Banks 10

 Definition and Features of Co-operative

12
Bank

 Structure of Co-operative Bank 14

 Non-Performing Assets 17

 RBI Prudential Norms on the

recommendations of the Narasimham
19
Committee in the year 1992-93

 Impact of Non0Performing Assets 22

 General causes of Non- Performing Assets 23

 Measures to tackle Non-Performing Assets 24

 Introduction to Securitization Act 2002 26

 Meaning of Securitization 27

 Objectives of Securitization 28

 Benefits of Securitization 29

33
 Transaction Structures
  Parties involved in the securitization
36
transaction

 Process of securitization 38

 Summary of Regulatory Framework 45

 Provisions of the Act 46

CHAPTER – 2: DESIGN OF THE STUDY

 Title of the Study 48

 Statement of the Problem 48

 Needs & Importance of the study 49

 Objectives of the study 49

 Scope of the Study 50

 Assumptions of the study 50

 Methodology of the study 51

 Tools for the collection of data 51

 Limitations of the study 52

 Reference Period 52

 Chapter Scheme 52
CHAPTER – 3: BANK PROFILE

 History of The BCCBL 54

 Trade mark of the Bank 55

 Goals & Objectives 55

 Vision Statement 57

 Organization chart of the Bank 58

 Branches 59

 Statement showing the Information about

60
the growth of Bank

 Awards and Competitors Information 61

CHAPTER – 4: ANALYSIS & INTERPRETATION

 Reasons for NPAs in the bank 63

 Measures for the recovery of NPAs adopted

64
by the bank

 Recovery mechanisms are adopted by the

66
bank for reducing NPAs

 Issues concern in the implementation of

66
SARFAESIA 2002

 Analysis and interpretation of the Study 68 - 85

 CHAPTER – 5: SUMMARY OF FINDINGS,
SUGGESTIONS & CONSLUSIONS

 Summary of findings 86

 Suggestions 89

 Conclusions 90

BIBLIOGRAPHY

ANNEXTURES

 Questionnaire
 LIST OF TABLES
4.1 Growth of deposits of the bank 68
4.2 Growth of loans & advances as a percentage of
deposits 70

4.3 Growth of loans & advances and recovery

performance 72

4.4 Gross NPAs as a percentage of Loans &

Advances 74

4.5 Net NPAs as a percentage of loans & advances 76

4.6 Status of NPAs & provisions made in the bank 78
4.7 Status of NPAs & recovery performance of the
bank 80

4.8 Profit position for both the period 82

4.9 Overall performance of the bank 84

LIST OF GRAPHS
4.10 Growth of deposits of the bank 68
4.11 Growth of loans & advances as a percentage of
deposits 70

4.12 Growth of loans & advances and recovery

performance 72

4.13 Gross NPAs as a percentage of Loans &

Advances 74

4.14 Net NPAs as a percentage of loans & advances 76

4.15 Status of NPAs & provisions made in the bank 78
4.16 Status of NPAs & recovery performance of the
bank 80

4.17 Profit position for both the period 82

4.18 Overall performance of the bank 84

CHAPTER – I:
INTRODUCTION

1.1 INTRODUCTION ABOUT BANKING INDUSTRY:

The word bank originated the French word
‘benque’ or Italian ‘banco’ which means an office for
monitory transaction over the counter. In those days
banks or desks were used as centers for monitory
transactions.
During the barter system also, there existed
traces of banking, i.e. people used to deposit cattle
and agricultural products in specified places get
loans of some other form in exchange for these.
There is solid evidence found in records excavated
from Mesopotamia, showing some bank existed
around 1700 B.C. During this time barley, silver, gold,
copper, etc., were used as a standard for valuation.

1.2 ORIGIN OF BANKING INDUSTRY:

Greece was the first country to introduce a
satisfactory system of coinage. After the invention of
 coins started, a meaningful system of banking came
into existence taking into account all the avenue of
banking a credit system.
Rome was the first country to start a bank at the
department of state level in the 4th century B.C. with
transactions such as depositing and investments in
other forms. In India ancient records show that
banking was popular and money lending was a
common practice among the common people.
In the olden days’ Goldsmith, merchants and
money lenders conducted the business. They had
transactions among themselves by which funds were
transferred from one business firm to another. They
had no general or uniform principles of banking,
lending, rate of interest, etc.

1.3 INTRODUCTION TO BANKING IN INDIA

The Indian Companies Act defines the term
banking as “accepting for the purpose of lending or
investment of deposits of money from the public,
repayable on demand or otherwise and withdrawable
by cheque, draft or otherwise”.

A Banker is a dealer in money and credit. The

business of Banking consists of borrowing and
lending banks acts as financial intermediaries
between savers (lenders) and investors (borrowers)
by accepting deposits of money from a large number
of customers and lending a major position of a
accumulated ‘pool’ of money to those who wish to
borrower. In this process banks secure reasonable
return for the savers, make funds available to the
investors at a cost and earn a profit for themselves
after covering the cost of funds and providing for
corporate taxes to the government. Thus, the
banking institutions in a country mobilizes savings by
accepting monetary deposits from the people,
participate in the mechanism for the exchange of
goods and services and extend credit while lending
money.
1.4 HISTORY OF MODERN BANKING IN INDIA
 Pre-nationalization period:
The history of modern banking in India dates
back to the last quarter of 18th century. During this
period the English agency houses of Bombay and
Calcutta started banking business to India. They
setup the Bank of Hindustan around 1770 followed by
setting up of quasi government banking institutions
like presidency bank of Bombay in 1840 and
presidency Bank of Madras in 1873.

In 1921 all these banks were amalgamated and

imperial bank was constituted. In the late 19th and
early 20th centuries, the Swadeshi Movement inspired
to start banks in India. The Indian Banks were
established during this period. In 1935 the Reserve
Bank of India was established as a central bank for
regulating and controlling the Banking business in
the country. Soon after independence, the Reserve
Bank was nationalized in September 1948. The
outlook of Reserve Bank further changed after the
inception of planning in 1950-51 and the country
adopting a socialistic pattern of society.

 Post-nationalization period:
On an account of the top-sided growth of the
banking system and to bridge the gap between a few
industrial houses and banks, the scheme of the social
control was imposed on banks with effect from Feb 1,
1969. It resulted in setting up of National Credit
Council for more equitable distribution of bank credit
and legislative changes in the Banking Regulation Act
for making the board of directors of the banks more
board based. As a result the government resorted to
a more radical measure by nationalizing 14 major
banks on July 1969. Later on in April 1980, six more
banks were nationalized to achieve the objective.

The objective of nationalization was to control

the commanding heights of economy and to meet
progressively and serve he needs of the developing
economy in conforming to the national policy and
objectives. Another welcome feature of post –
nationalization period is setting up of regional rural
banks setting up of regional rural banks as per the
provisions of the Regional Rural Bank Act 1976.
These banks confine in themselves the simplicity of
operations as required by local conditions and the
efficiency and businesslike approach of commercial
banks. At the end of June 1986 there were 194
regional rural banks covering 342 districts. Thus, the
banking system, during the post – nationalization
period has undergone a major structural
transformation. There has been a phenomenal
expansion of branch network particularly the hitherto
under banked areas.
  Present scenario of banking industry:
The Indian banking can be broadly categorized
into nationalized (government oriented), private
banks and specialized banking institution. The RBI
acts as a centralized body monitoring any
discrepancies and shortcoming in the system. Since
the nationalized banks have required a place of
prominence and has then seen tremendous progress.

The need to become highly customer focused

has forced the slow of moving public sector banks to
adapt a fast track approach.
The Indian Banking has come a long way from a
sleepy business institution to a highly proactive and
dynamic activity. This transformation has been
largely brought by the large close of liberalization
and economic reform that allowed banks to explore
new business opportunities rather than generating
revenue from conventional stream i.e. borrowing and
lending. The Co-operative banks too have invested
heavily in information technology to after
computerized banks services o its clients.

 New Generation Banking:

The liberalized policy of government of India
permitted entry of private sector in banking; the
industry has witnessed the entry of new generation
private banks. The major parameter that
 distinguishes these banks from all the other banks in
Indian Banking is the level of services that is offered
to the customer. Verifying the focus has always being
centered on the customer understanding his needs
and delighting him with various configurations of
benefits and a wide portfolio of product and services.
The popularities of these banks can be gauged by the
fact, that in as short span of time, these banks have
gained considerable customer confidence and
consequently have shown impressive growth sales.

1.5 CLASSIFICATION OF BANKS

Banks are classified into several types based on
the function they perform. Generally banks are
classified into
1. Investment banks
2. Exchange banks
3. Commercial banks
4. Co-operative banks
5. Land development banks
6. Savings banks
7. Central banks

1.6 FUNCTIONS OF BANKING

A. The main functions are as follows;
1. Borrowing of money in the form of
deposits.
 2. Lending or advancing of money in the form
of different types of loan.
3. The drawing, making, accepting,
discounting, buying and selling, collecting and
dealing in bills of exchange, promissory notes,
coupons, drafts, bills of lading, railway receipts,
warrants, debentures, certificates, securities
both negotiable and non-negotiable.
4. The granting and issuing of credit,
travelers cheques, etc.
5. The acquiring, holding, issuing on
commission, underwriting, dealing in stock,
funds, shares, debentures, bonds, securities of
all kinds.
6. Providing safe deposits vaults.
7. Collecting transmitting of money and
securities.
8. Buying and selling of foreign notes.
9. The purchasing and selling of bonds scripts
and other forms of securities on behalf of
constituents or others.

B. The subsidiary functions of banks are:

1. Acting as agents for governments or local
authorities or any other persons.
2. Carrying out agency business of any description.
3. Contracting for public and private loans and
negotiation and issuing the same.
 4. Carrying on guarantee and indemnity business.
5. Managing to sell and realize any property or any
interest in any such property.
6. Undertaking and executing of trusts.
7. Granting of pensions and allowances and
making payments towards pensions.

1.7 CO-OPERATIVE BANKS

The Co operative banks in India started
functioning almost 100 years ago. The Cooperative
bank is an important constituent of the Indian
Financial System, judging by the role assigned to co
operative, the expectations the co operative is
supposed to fulfill, their number, and the number of
offices the cooperative bank operate. Though the co
operative movement originated in the West, but the
importance of such banks have assumed in India is
rarely paralleled anywhere else in the world. The
cooperative banks in India play an important role
even today in rural financing. The businesses of
cooperative bank in the urban areas also have
increased phenomenally in recent years due to the
sharp increase in the number of primary co-operative
banks.
While the co-operative banks in rural areas
mainly finance agricultural based activities including
farming, cattle, milk, hatchery, personal finance etc.
along with some small scale industries and self-
employment driven activities, the co-operative banks
 in urban areas mainly finance various categories of
people for self-employment, industries, small scale
units, home finance, consumer finance, personal
finance, etc.

Co operative Banks in India are registered under

the Co-operative Societies Act. The cooperative bank
is also regulated by the RBI. They are governed by
the Banking Regulations Act 1949 and Banking Laws
(Co-operative Societies) Act, 1965.
Cooperative banks in India finance rural areas
under:
1. Farming
2. Cattle
3. Milk
4. Hatchery
5. Personal finance

Cooperative banks in India finance urban areas

under:
1. Self-employment
2. Industries
3. Small scale units
4. Home finance
5. Consumer finance
6. Personal finance

According to NAFCUB the total deposits &

lending of Cooperative Banks in India is much more
than Old Private Sector Banks & also the New Private
Sector Banks. This exponential growth of Co
operative Banks in India is attributed mainly to their
much better local reach, personal interaction with
customers and their ability to catch the nerve of the
local clientele.
1.8 EVOLUTION OF CO-OPERATAIVE BANK IN
INDIA

The Cooperatives were first started in Europe to

serve the credit-starved people in Europe as a self-
reliant, self-managed people’s movement with no
role for the Government. British India replicated the
Raiffeisen-type cooperative movement in India to
mitigate the miseries of the poor farmers, particularly
harassment by moneylenders.

The first credit cooperative society was formed

in Banking in the year 1903 with the support of
Government of Bengal. It was registered under the
Friendly Societies Act of the British Government.
Cooperative Credit Societies Act of India was enacted
on 25th March 1904. Cooperation became a State
subject in 1919. In 1951, 501 Central Cooperative
Unions were renamed as Central Cooperative Banks.
Land Mortgage Cooperative Banks were established
in 1938 to provide loans initially for debt relief and
land improvement.

Cooperatives have played an important role in

the liberation and development of our country. The
word Cooperative has become synonymous for
dedicated and efficient management of rural credit
system. Reserve Bank of India started refinancing
cooperatives for Seasonal Agricultural Operations
from 1939. From 1948, Reserve Bank started
refinancing State Cooperative Banks for meeting the
credit needs of Central Cooperative Banks and
through them the Primary Agricultural Cooperative
Societies. Only 3% of rural families availed farm
credit in 1951.

In 1954, the All India Rural Credit Survey

Committee recommended strengthening of DCC
Banks and PACS with State partnership and
patronage to solve the farmers’ woes. Registrar of
Cooperative Societies became the custodian of
Cooperatives from 1962 with the enactment of
respective State Acts. Reserve Bank introduced
Seasonality and Scale of Finance for crop loans and
provided for conversion, replacement and re-
schedulement to tide over crop loss due to
calamities.

The Primary Agricultural Cooperative Societies

became multi-purpose. Reorganization of PACS into
viable units, FSCS, LAMPS started under action
programme of RBI in 1964. The finding of All India
Rural Credit Review Committee that coverage of
cooperatives is limited to hardly 30% of farmers led
to nationalization of Banks. However, Cooperatives
have played a key role in meeting the credit needs of
weaker sections of farmers.
 The establishment of Regional Rural Banks from
1975 has not reduced the problems of rural credit as
they reached only 6% of the farmers. Cooperatives
have contributed their part in the implementation of
20-point programme and Integrated Rural
Development Programme. Though the Cooperatives
were lagging behind in rural credit till 1991, they
regained their prime place with 62% share in rural
crop loans between 1991 and 2001

1.9 DEFINITION OF CO-OPERATIVE BANKS:

In the words of Henry Wolff “Co-operative
banking is an agency which is in a position to deal
with the small means on his own terms”.

Devine defines “a mutual society formed

composed and governed by working people
themselves for encouraging regular saving and
generating miniature loans on easy terms of interest
and repayments”.

1.10 FEATURES OF CO-OPERATIVE BANKS:

1. They are organized and managed on the principles
of co-operation self-help and mutual help. They
function with the rule of “one member one vote”.

2. Co-operative banks perform all the main banking

function of deposit mobilization, supply of credit
and provision for remittance facilities.
3. Co-operative banks belong to the money market
as well as the capital markets.

4. Co-operative banks are perhaps the first

government supported agency in India.

5. Co-operative banks accept current, saving, fixed

and other types of time deposits from individuals
and institutions including banks.

6. Co-operative banks do banking business mainly in

the agricultural and rural sector.

7. Some co-operative banks are schedule co-

operative banks while others are non-schedule co-
operative banks.

8. Co-operative banks also required to comply with

requirement of statutory liquidity ratio [SLR] and
cash reserve ratio [CRR] liquidity requirements as
other scheduled and non-scheduled banks.
1.11 STRUCTURE OF COOPERATIVE
BANKS

Co-operative
Banks

STATE STATE LAND URBAN

CO-OPERATIVE DEVELOPMENT CO-OPERATIVE
BANKS BANKS BANKS

CENTRAL CENTRAL
CO-OPERATIVE LAND
BANKS DEVELOPMENT
BANKS

PRIMARY BRANCHES OF
PRIMARY
AGRICULTURA STATE LAND
LAND
L CREDIT DEVELOPMENT
DEVELOPMENT
SOCIETIES BANKS
BANKS

Following are the features of cooperative banks,

which make them hold in integral position in
banking sector:

1. The nature of cooperative banks is service

oriented. So, without intention of profit they
provide quality service within reach of common
people.

2. Co-operative banks account for 42% of

institutional lending in rural sector and its covers
about 65% of rural population.
3. The deposits and credit of these banks are
about 15% and 35% respectively of those of
commercial banks.

4. The government and RBI have taken a number

of steps to improve the health and strength of co-
operative banking in India. In keeping with other
financial sector reforms certain co-operative
banking sector reforms have also been carried out
after 1991.

5. The main factor for their increasing role is their

local operations. They mobilize deposits in a local
area, which are used for lending in same locality.
Hence with increase in its branches it contributes
to balanced regional development.

6. Co-operative banks operations are of mixed

type. Urban co-operative banks, primary co-
operative banks and state co-operative banks.

7. District cooperative banks have a number of

branches subject to this it can be said that each
cooperative institution in a separate entity with a
definite jurisdiction and has an independent board.

8. Cooperative banks belong to money market as

well capital market. Primary Agricultural credit
societies provide short term and long term loans.
Land development banks provide long-term loans.
Urban co-operative banks meet working capital
needs and fixed capital requirements. They also
issue debentures.
1.12 REFORMS IN CO-OPERATIVE BANKS
The field of rural credit is so vast in India the
problems so diverse and complex and the field of
experimentation so wise that only if the important
issues and challenges before the rural credit are
taken adequately cooperative banks as major
purveyors of rural credit would be able to make the
crucial difference in the lives of millions of our
countrymen in the countryside.

The financial sector reforms 1991 aimed at

promoting a diversified and efficient, competitive
financial sector with the ultimate objective of
improving the efficiency of available resources,
increasing the return on investments and promoting
an accelerated growth of the real sector of the
economy. In conformity with this and banking sector
reforms gave raise to reforms in cooperative sector,
which is an integral part in delivery of rural credit and
promote its growth.

Reserve Bank of India has over the years put its

faith in cooperative banks as they hold a major share
in agricultural credit. With its number if branches it
can percolate to all the corners of the country. The
Indian financial system has undergone several
changes and now comprises of widespread network
of financial institutions. Accordingly the co-operative
credit structure has also grown. Despite the progress
 reforms are required to bring out efficiently reduce
non-performing assets and increase capital base.

These reforms aim at improving the financial

health and capabilities by prescribing prudential
norms. Prudential norms are required for cooperative
banks to reduce non-performing assets. Due to the
non-performing assets co-operative credit system is
affected as a whole.

1.13 INTRODUCTION TO NON-PERFORMING

ASSETS

Indian laws permitted banks to conceal much

with the result that the Balance Sheet and Profit and
Loss A/c rarely revealed the true state of their affairs.

The Narasimhan Committee therefore strongly

emphasized the need for bringing transparency in
the financial statements of the banks and
recommended for a new set of formats for Balance
Sheet and Profit and Loss statements which were
made effective from 1991-1992.

Banks provide loan and advances subjects to

borrowers promise for the payment of principal and
interest in the future. In this process banks are
exposed to various types of risks including credit risk
arising from non-performing of loans and defaults of
borrowers.
 Moreover with Globalization and diversified
ownership where credit rating agencies constantly
review the strength of the banks managing the levels
of NPAs assumes greater importance.

The cost of financial intermediation by banks is

high partly because of the cross subsidization of NPA.
NPA is inevitable burden of the banking industry.
NPAs badly affect the financial health of the banks.
Hence control and management of NPAs have
assumed serious importance. It s well known fact
that NPAs are the threat on the profitability of the
banks because the banks have not only to make
provisions but they have to meet the cost of funding
these unremunerative assets.

1.14 DEFINITIONS OF NON-PERFORMING

ASSETS
An asset is classified as non-performing asset
(NPA’s) if the borrower does not pay dues in the form
of principal and interest for a period of 180 days.
However with effect from March 2004, default status
would be given to a borrower if dues are not paid for
90 days.

If any advance or credit facilities granted by

bank to a borrower become non-performing, then the
bank will have to treat all the advances/credit
facilities granted to that borrower as non-performing
 without having any regard to the fact that there may
still exist certain advances/ credit facilities having
performing status.

In simple words, an asset which ceases to yield

is a non-performing asset.

DEFINITIONS GIVEN BY THE NARASIMHAN

COMMITTEE
The committee has defined non-performing
assets as advances here, as on the date of balance
sheet,

1. In respect of term loans, interest remains past

due for a period of more than 90 days.

2. Overdrafts and cash credits accounts remain out

of order for more than 90 days.

3. Bills purchased and discounted remain over due

and unpaid for a period of more than 90 days.

An amount is considered past due when it

remains outstanding for 30 days beyond the due
date.

1.15 RBI INTRODUCED PRUDENTIAL NORMS

ON THE RECOMMENDATIONS OF THE
NARASIMHAM COMMITTEE IN THE YEAR 92-
93.
The above norms have three main criteria:

1. Asset classification
2. Income Recognition
3. Provisioning
1. ASSET CLASSIFICATION:

For the purpose of making provisions for bad

and doubtful loans and advances, banks need to
classify them into the following broad categories;

A. Performing assets: Also known as Standard

Assets are the assets which do not disclose any

problem and which do not carry more than the
normal risk attached to the business. Performing
asset is one which generates income for the bank.
It is an asset where the interest and or principal
are not overdue beyond 180 days (modified to 90
days, w.e.f., Mar 2004) at the end of the financial
year.

B. Non-performing asset: An amount is to be

treated as non performing asset when it ceases to
generate income for the Bank. An asset may be
treated as Non Performing Asset (NPA), if interest
and /or installment of Principal remain overdue for
a period exceeding 180 days (modified to 90 days
w.e.f. Mar 04)and Banks and FIs should not take
into their Income account, the interest accrued on
such NPAs, unless it is actually received/recovered.
 NPAs are further classified into:

 Substandard Assets: Loans which are non-

performing for a period not exceeding two years,
where the current net-worth of the borrower or the
current market value of the security, against which
the loan is taken, is not enough to ensure full
recovery of the debt.

 Doubtful Assets: Loans which have remained

non-performing for a period exceeding two years

and which are not classified as loss assets by the
management or the internal/external auditor
appointed by RBI.

 Loss Assets: Assets where loss has been

identified by the internal/external auditor of the
bank or the RBI, but the amount has not been
written-off wholly or partly. These assets are
considered unrecoverable and are of little value to
the lending institution.

2. INCOME RECOGNITION

The income recognition is linked to the concept

of performance of the assets. In other words the
income from performing assets only is to be
recognized. The income from non-performing assets
is recognized only to the extent of actual recovery
made during the accounting year.
 3. PROVISIONING

The amount of provision required to be created

for each asset depends on the classification of the
assets, availability/value of security, other guarantee
available and the age of the NPA etc.

1.16 IMPACT OF NON-PERFORMING ASSSETS

a) Non-Performing Assets are drag on profitability of
banks because besides provisioning banks are also
required to meet the cost of funding these
unproductive assets.
b) Non-Performing Assets reduce earning capacity of
assets. Return on assets also gets affected.
c) As Non-Performing Assets not earn any income,
they adversely affect capital adequacy ratio.
d) No recycling of funds.
e) Non-performing assets also attract cost of capital
for maintaining capital adequacy ratio.
f) Non-Performing assets demoralize the operating
staff and stakeholders.
g) It will badly affect the image of the bank
concerned.
h) Affect the moral of the employees and decisions
making for fresh loans suffer.
i) Enhances administrative, legal and recovery costs.
1.17 GENRAL CAUSES OF NON-PERFORMING
ASSETS

♣ Directed and pre-approved natures of loans

sanctioned under sponsored programmes.

♣ Misutilisation of loans and subsidies.

♣ Diversion of funds.

♣ Absence of security.

♣ Lack of effective follow-up (post-sanction

supervision& control).

♣ Absence of bankruptcy and foreclosure laws.

♣ Decrepit legal system.

♣ Cost in-effective legal recovery measures.

♣ Difficulty in execution of decrees obtained.

♣ Lack of marketing support.

♣ Improper and inadequate credit appraisal.

♣ Demand recession.

♣ Frequent changes in Government’s policies.

♣ Industrial sickness and labour problems.

♣ Technology obsolescence.
 ♣ Incompetence-Management failures.

1.18 MEASURES TO TACKLE THE NON

PERFORMING ASSETS

1. LOK ADALATS:

Lok Adalats have been set up for recovery of

dues in accounts falling in the Doubtful and loss
category with outstanding balance up to 5 lakhs,
by way of compromise settlement.

2. CIVIL COURTS

For claims below Rs.10 lakhs, the banks and

FIs can initiate proceedings under the Code of Civil
Procedure of 1908, as amended, in a civil court.

The courts are empowered to pass injunction

orders restraining the debtor through itself or
through its directors, representatives, etc from
disposing of, parting with or dealing in any manner
with the subject property.

Courts are also empowered to pass

attachment and sales orders for subject property
before judgment, in case necessary.

3. DEBT RECOVERY TRIBUNAL (DRT)

CDR is an non-statutory mechanism

institutionalized in the year 2001 to provide timely
and transparent system for restructuring corporate
 debts of Rs.20 crores and above, of viable entities
financed by Banks and FIs under consortium or
multiple banking arrangements.

It is a voluntary system based on Debtor -

Creditor Agreement (DCA) and Inters Creditor
Agreement (ICA). At present 10 FIs and 49 Public
and Private sector Banks are the members of the
CDR mechanism

4. REVENUE RECOVERY ACT:

In some states, revenue recovery act has

been made applicable to banks. Since this is also
expeditious process of adjudicating claims, banks
may be notified to cover the Act by state.

5. ONE TIME SETTLEMENT SCHEMES (OTSS)

One Time Settlement Schemes launched in

May’99&July’00 has enabled Banks to recover
outstanding amount in default up to 10 crores has
been introduced in the month of Feb’03 its results
will be seen in due course
 1.

1.19 INTRODUCTION OF SECURITISATION ACT

2002

Securitisation And Reconstruction of

Financial Assets and Enforcement of Security
Interest Act (SARFAESIA), 2002 extends to whole
of India including the State of Jammu & Kashmir. The
act is effective from 21.06.2002. It also covers the
earlier loans which are outstanding.

The need for the setting up an Asset

Reconstruction Company for acquiring distressed
assets from Banks and FIs with a view to develop
market for such assets was being felt, since long.
Narasimhan Committee 1 &2 and the Verma
Committee on restructuring of weak Banks has
strongly recommended the setting up of Asset
Reconstruction Companies (ARCs).

The business of Securitization and

Reconstruction is primarily meant for more than one
purpose:
 To regulate the business of securitization and
reconstruction of the financial interest.
 To regulate enforcement of the security interest
and for the matters connected therewith or the
matters incidental thereto.
 The debt securitization is a new concept in the
Indian financial markets and is primarily meant for
enhancing the liquidity of the Banks and FIs which
have extended financial assistance to the borrowers
for various purposes. The debt securitization makes
available with these institutions the security papers
against the financial assets which have been created
out of the financial assistance sanctioned and
disbursed by these institutions and in the case of a
default by the borrowers the secured creditors can
have a recourse to either the securitization of the
financial asset or the reconstruction of the same.

1.20 MEANING OF SECURITIZATION

Securitization is a process whereby the

‘originator’ of the various financial assets including
loans which are illiquid can transfer such assets to
special purpose vehicles(SPV) which issues the
tradable securities against these loans are issued to
the investors.

It is an acquisition of financial asset by any

securitization company from the ‘originator’ whether
by raising of funds by such securitization company
from ‘qualified institutional buyer’ or by issue of
security receipts representing undivided interests in
such financial assets or otherwise.

Thus, there will have to be some sort of

 understanding between the QIBs and the
securitization company which can be ‘originator’ in
the case of the banks and the FIs which has extended
the financial assistance to the ‘obligor’ who is
supposed to repay the financial assistance in
installments on some future dates as per the
agreement entered into by it with the bank. This can
be referred to as the ‘security agreement. It is an
instrument or any other document or arrangement
under which the ‘security interest’ is created in favour
of the secured creditors including the creation of the
mortgage by the deposit of the title deeds with the
secured creditors.

1.21 OBJECTIVES OF SECURITIZATION

There are two basic objectives of securitization:

• To reduce the assets of the originator

• To reduce the capital requirement.

• To achieve the reduction in demand and time

liability.

Once the assets go off the balance sheet the

originator can thus reduce his capital requirement,
similarly on the liquidation of the assets the need for
the time assets and the demand liability comes down
as these are subject to the statutory reserves.
1.22 SECURITIZATION AS FINANCIAL
PRODUCT

Securitization is considered as financial product

and the bonds/debentures can be issued based on
the future installments against the financial
assistance already sanctioned and disbursed by the
banks and financial institutions.

THE ACT DEALS WITH THREE ASPECTS.

1. Enforcement of Security Interest by secured

creditor (Banks/Financial Institutions)

2. Transfer of non- performing assets to Asset

Reconstruction Company, which will then
dispose of those assets and realize the
proceeds.

3. To provide a legal framework for securitization

of assets.

1.23 BENEFITS OF SECURITISATION

Securitization increases the lending capacity of

an FI without having to find additional capital or
deposits. Securitization facilitates specialization and
is gaining wide acceptance as the most innovative
form of asset financing. It provides capital relief,
improves market allocation efficiency, expands
opportunities for risk sharing and risk pooling,
increases liquidity, improves the financial ratios of
FIs and banks, creates multiple streams of cash flows
for the investors, is tailored to the risk profile of a
number of customers and facilitates asset-liability
management.

A. BENEFITS TO THE ORIGINATORS

For Banks, securitization is an opportunity

offered in the form of capital relief, capital allocation
efficiency, and improvements in financial ratios.

 Lower cost of borrowing: Securitization reduces

the total cost of financing as assets are transferred

to a separate bankruptcy-resistant entity. To that
extent Banks need not maintain capital to
maintain their capital adequacy norms. Also,
entities with a riskier credit profile can benefit
from lowered borrowing costs.

 A source of liquidity: Banks could face a liquidity

crunch either due to their risky credit profile or

delayed receivables. The liquidity provided by
securitization acts as a very powerful tool, that
Banks could use to adjust the asset mix quickly
and efficiently. Further, the risks in an asset
 portfolio can be identified and apportioned to
arrive at an effective asset mix.

 Improved financial indicators: Securitization

leads to capital relief that improves the company’s
leverage and in turn the Return on Equity. The
repercussions of securitization on the balance
sheet of a company can vary depending on the
strategy for its capital structure and its appetite
for increasing or decreasing leverage.

 Asset-Liability Management: Securitization

offers the flexibility in structuring and timing cash
flows to each security tranche. It provides a means
whereby customized securities can be created
which helps in matching the tenure of the liabilities
and assets.

 Diversified fund sources: By securitizing its

receivables, the instrument of which could be sold

to global investors, the originator has an
opportunity to diversify its funding source.

 Positive signals to the Capital Markets:

Lenders are at times trapped in a situation where
they cannot rollover their debt due to downgrading
of their ratings, possibly due to economic changes.
Under these circumstances, securitization enables
lenders like banks to increase the rating of debt
much higher than that of the issuer through the
 intrinsic credit value of the asset. This enables the
banks to obtain funding.

 An avenue for divestiture: Securitization offers

an optimal exit route for entities that wish to exit a

business comprising of financial assets without
going through the mergers and acquisition route.

B. BENEFITS TO THE INVESTORS

Investors purchase risk-adjusted securities

based on its level of maturity and seniority. For
instance, an auto loan or credit card receivables
backed paper carries regular monthly cash flows,
which can match the requirements of investors like
mutual funds.

 New Asset Class: Securitized products provide

new investment avenues for investors to enhance
their return or to diversify their portfolio. For
instance, an investor in the United States whose
investment is predominantly in US assets can
diversify by investing in securities offered by an
SPV in Asia.

 Risk Diversification: As the underlying pool of

receivables is spread across diverse customers the
investors need not have a thorough understanding
of the underlying assets. The investor is insulated
from customer specific event risk.
 Customization: Securitization of financial assets
allows tailoring of cash flows to the risk profile of
the investors. A certain stream of cash flow
coming from an underlying asset pool can be
broken into tranches and offered as per the
investor risk appetite.

 Decoupling with Originator: The investor is

insulated from the credit profile of the Originator.
This separation of the Originator and the investor
helps at the time of bankruptcy or default or credit
downgrades.
1.24 TRANSACTION STRUCTURES

STAGE 1:

Initially, an ARC acquires NPA by floating an SPV

which acts as a trust whereby the ARC is a trustee
and manager. NPA are acquired from banks/FIs at
fair value based on assessment of realizable amount
and time to resolution. The banks/FIs may receive
cash/bonds/debentures as consideration or may
invest in securities issued by the ARCs.

The trust acquires NPAs from banks/FIs and

raises resources by formulating schemes for the
financial assets taken over. Accordingly, it issues
securities to the investors which are usually QIBs.
Securities represent undivided right, title and
interest in the trust fund.

Subsequently, the ARC redeems the investment

to the bank/FIs out of the funds received from the
issued securities. After acquiring the NPA, the trust
becomes the legal owner and the security holders its
immediate beneficiaries. The NPAs acquired are held
in an asset specific or portfolio trust scheme. In the
portfolio approach, due to the small size of the
aggregate debt the ARC makes a portfolio of the loan
 assets from different banks and FIs. Whereas when
the size of the aggregate debt of a bank/FI is large,
the trust takes asset specific approach.

FIRST STAGE

BANK BANK Bank

1 2 2
Purchase Sale of
Considerat distressed
ion loans assets

ASSET BORROW
RECONSTRUCTION ER
COMPANY (ARC)
Reconstruc
tion

FUND / SCHEME
Payment
for Sale of
subscriptio Instrumen
n of ts
Instrument
s

INVESTORS
(BANKS, FIS)
 STAGE 2:

Thereafter, different fund schemes are pooled

together in a master trust scheme and sold to other
investors. The ARC periodically declares the NAV of
respective schemes.

POOLING AT SUBSEQUENT STAGE

FUND / FUND /
SCHEME SCHEME
Instrume Instrume
nts nts
INVESTOR INVESTOR
S S
Pooling of
Instruments

MASTER TRUST /
SCHEME
Payment
for Instrume
subscriptio nts
n to
Instrument
s
DISTRESSED
ASSET
INVESTORS
 1.25 PARTIES INVOLVED IN A
SECURITISATION TRANSACTION
Primarily there are three parties to a securitization
transaction:
 The Originator: This is the entity on whose
books the assets to be securitized exist and is
the prime mover of the deal. The entity designs
the necessary structures to execute the deal. In
a true sale of the assets, the Originator transfers
both the legal and the beneficial interest in the
assets to the SPV.

 The SPV: This entity is the issuer of the

bond/security paper and is typically a low-
capitalized entity with narrowly defined
purposes and activities. It usually has
independent trustees / directors. The SPV buys
the assets to be securitized from the Originator,
holds the assets in its books and makes upfront
payment to the Originator.

 The Investors: The investors could be either

individuals or institutions like financial
institutions (FIs), mutual funds, pension funds,
insurance companies, etc. The investors buy a
participating interest in the total pool of assets
 and receive their payments in the form of
interest and principal as per an agreed pattern.

Apart from these three primary players, others

involved in a securitization transaction include:

 The Obligor(s): The obligor is the Originator’s

debtor or the borrower of the original loan. The
credit standing of the Obligor is very important
in a securitization transaction, as the amount
outstanding from the Obligor is the asset that is
transferred to the SPV.

 The Rating Agency: The rating process

assesses the strength of the cash flows and the
mechanism designed to ensure full and timely
payment. In this regard the rating agency plays
an important role as it assesses the process of
selection of loans of appropriate credit quality,
the extent of credit and liquidity support
provided and the strength of the legal
framework.

 Administrator or Servicer: Also called as the

receiving and paying agent, it collects the
payment due from the Obligor(s) and passes it
to the SPV. It also follows up with delinquent
borrowers and pursues legal remedies available
against defaulting borrowers.
  Agent and Trustee: It oversees that all the
parties involved in the securitization transaction
perform in accordance with the securitization
trust agreement. Its principal role is to look after
the interests of the investors.

 External Credit Enhancements: Underwriters

sometime resort to external credit
enhancements to improve the credit profile of
the instruments. There are various types of
external credit enhancements such as surety
bonds, third-party guarantees, letters of credit
(LC) etc.

 Structurer: Normally, an investment banker is

responsible for bringing together the Originator,
credit enhancer, the investors and other
partners to a securitization deal. He also helps
in structuring the deals along with the
Originator.

The segmentation of roles of different parties to the

securitization deal helps in building specialization and
introducing efficiencies. The entire process is broken
into distinct parts with different parties concentrating
on origination of loans, raising funds from the capital
markets, servicing of loans, etc.

1.26 THE PROCESS OF SECURITIZATION

The bank sanctions and disburses the financial

assistance to the borrower for the purpose of setting
up a project or for the expansion or for the purpose of
diversification.

As per the agreement between the above two

parties the amount of financial assistance will be
repaid by the borrower to the bank in installments
along with the interest at the rate specified at the
time of sanction.

The borrower offers the various assets as

security with the bank for this purpose. The bank is
thus the secured creditor and has the necessary
charge on the property of the borrower which
invariably would be a company.

The bank intends to sell the installments which

will fall due on the loan as they might be in need of
the funds at some point of time before the actual due
dates. It is at this point of time that the process of
securitization comes into picture.

1) The bank intends to increase its liquidity on the

strength of the amount of the loan already
disbursed to the borrower.

2) The bank will enter into an agreement with the

Qualified Institutional Buyer (QIB) for the
purpose of disposing the asset securitized by it.

3) The bank has to analyze its portfolio of the debts

 due and try to classify the dues/borrowers that
will be in a position to pay the dues on time. The
essence is that the entire installments which are
proposed to be sold to the QIB should be repaid
with 100% surety level or else the deal may not
fructify.

4) The bank converts these installments into

suitable forms of bonds/debentures as may be
required by the QIB.

5) The nature of security, duration, the amount and

the rate of interest etc has to be discussed at
length and the deal will mature only if it fulfills
the need of the QIB and the ‘originator’.

6) The borrower is not affected financially or

technically by the decision, He may be required
to comply with certain formalities.

1.27 DIAGRAMMATIC REPRESENTATION OF

THE PROCESS OF SECURITIZATION
 In practice there would be a securitization
company to undertake the job of issue of
bonds/debentures by first acquiring the financial
assets of the banks i.e. “obligor”.
1.28 DIAGRAMMATIC REPRESENTATION OF
THE ROLE OF THE SECURITIZATION
COMPANY
Qualified
Institutional
Buyer
Securitizati
on
The
Company Originator

It may be observed from the diagram that the

securitization company is a sort of intermediary
company between the bank and the qualified
institutional buyer. The bank intends to sell its
financial assets to the securitization company which
in turn arranges the buyer of the asset.
There may be two specific occasions when the
need for the securitized asset and its transfer may be
necessitated so far as the ‘originator’ is concerned:

 To increase its liquidity

 To handle the non performing assets (NPAs)
effectively

The Securitization and Reconstruction of

Financial Assets and Enforcement of Security
Interest Act, 2002 popularly called the
Securitization Act has provided an enabling
 legal framework for the setting up of
securitization or Reconstruction Company and
the manner of acquisition of financial assets by
such companies.

1.29 ENFORCEMENT OF SECURITY INTEREST:-

Under the Act security interest created in favour
of any secured creditor may be enforced, without the
intervention of court or tribunal, by such creditor in
accordance with the provision of this Act.

Section 13(2),
Where any borrower, who is under a liability to a
secured creditor under a security agreement, makes
any default in repayment of secured debt or any
installment thereof , and his account in respect of
such debt is classified by the secured creditor as non-
performing asset, then the secured creditor may
require the borrower by notice in writing to discharge
in full his liabilities to the secured creditor with in
sixty days from the date of notice failing which the
secured creditor shall be entitled to exercise all or
any of the rights under sub-section (4).

In case the borrower fails to discharge his

liability in full within the period specified in sub-
section(2), the secured creditor may take recourse to
one or more of the following measures to recover his
secured debt, namely:-
 a) Take possession of the secured assets of the
borrower including the right to transfer by way
of lease, assignment or sale for releasing the
secured asset.

b) Take over the management of the assets of the

borrower including the right to transfer by way
of lease, assignment or sale for releasing the
secured asset.

c) Appoint any person to manage the secured

assets the possession of which has been taken
over by the secured creditor.

d) Require at any time by notice in writing, any

person who has acquired any of the secured
assets from the borrower and from whom any
money any money is due or may become due to
the borrower, to pay the secured creditor o
much of the money as is sufficient to pay the
secured debt.

1.30 COMMENCEMENT OF THE ACT

The Act has been made effective from 21st June

2002, the date on which the first securitization and
reconstruction of financial assets and enforcement of
security interest ordinance, 2002 was promulgated.
This Act has been enacted to help Banks and FIs
to tackle the NPA problem. This Act can be broadly
 divided into four heads:

 Securitization of assets
 Enforcement of security interest
 Setting up of Central Registry
 Establishment of an ARC

The two terms which have been used in the Act which are
of special significance are:

1. The security Interest

2. Financial Asset

1. ‘Security Interest’ means right, title and interest

of any kind whatsoever upon property, created in
favour of any secured creditor and includes any
mortgage charge , hypothecation, assignment
other than those specified in section 31.

2. ‘Financial Asset’ means debt or receivable and

includes;

 A claim to any debt or receivables or part

thereof, whether secured or unsecured.

 Any debt or receivables secured by, mortgage

of, or charge on, immovable property.

 A mortgage, charge, hypothecation or pledge

of movable property.
  Any right or interest in the security, whether
full or part underlying such debt or
receivables.

 Any beneficial interest in property, whether

movable or immovable, or in such debt,
receivables, whether such interest is existing,
future, accruing, conditional or contingent.

 Any financial assistance.

1.31 SUMMARY OF THE

REGULATORY/LEGAL FRAMEWORK:
 Indian regulation provides for multiple ARCs
encouraging competition thus leading to better
pricing and performance.

 The advent of Basel II is likely to increase the flow

of NPLs to ARCs.

 Government of India has permitted 49% FDI

participation in the ownership structure of the ARC
while the rest of the shareholding will be held by
Indian Qualified Institutional Investors (QIBs),
provided no single sponsor may hold more than
10%.

 In addition foreign investors will be allowed to

invest in the securities of the ARC up to 49%
through the FII route.
 The SARFAESI Act empowers the ARC to do the
following after getting majority (75% by value)
consent of the lenders.

 Debt Restructuring

 Final Settlement of Debt

 Enforcement of Security Interest

 Business and Management Restructuring of

the borrower (This power is on hold for the
present, vide RBI’s Directive)
1.32 PROVISIONS/HIGHLIGHTS OF THE ACT

The Securitization Act contains provisions to provide

for the following:
a) Registration and regulation of securitization
companies or reconstruction companies by the
Reserve Bank of India (RBI).
b) Facilitating securitization of financial assets of
banks or reconstruction with or without the benefit
of underlying securities.
c) Facilitating easy transferability of financial
assets by the Securitization Company or
Reconstruction Company to acquire financial
assets of banks and FIs by issue of
debentures/bonds or any other securities in the
nature of a debenture.
d) Empowering securitization
companies/reconstruction companies to raise funds
by issue of security receipts to qualified
institutional buyers.
e) Facilitating reconstruction of financial assets
acquired by exercising powers of enforcement of
securities or change of management or other
powers which are proposed to be conferred on the
banks and FIs.
f) Declaration of any securitization company or
reconstruction company registered with the RBI as
a public financial institution for the purpose of
section 4A of the Companies Act, 1956
g) Defining “security interest as any type of
security including mortgage and charge on
immovable properties given for due repayment of
any financial assistance given by any bank or FIs.
h) Empowering banks and financial institutions to
take possession of securities given for financial
assistance and sell or lease the same or take over
management in the event of default, i.e.
classification of the borrowers account as NPA in
accordance with the directions given or under
guidelines issued by the RBI from time to time.
i) The rights of a secured creditor to be exercised
by one or more of its officers authorized in this
behalf in accordance with the rules made by the
Central government.
j) An appeal against the action of any bank or FIs
to the concerned Debt Recovery Tribunal and a
second appeal to the Appellate Debt Recovery
Tribunal.
k) Setting up or causing to be set up a Central
Registry by the Central government for the
purpose of registration of transactions relating to
securitization, asset reconstruction and creation of
‘security interest’.
l) Application of the proposed legislation initially to
banks and FIs and empowerment of the Central
government to extend the application of the
 proposed legislation to non-banking financial
companies and other entities.
m) Non- application of the proposed legislation
to security interests in agricultural lands, loans not
exceeding Rs. 1,00,000 and cases where 80% of
the loans are repaid by the borrower.

CHAPTER – II:
DESIGN OF THE STUDY

2.1 TITLE OF THE STUDY

“Impact of Securitization & Reconstruction

of Financial Assets and Enforcement of Security
Interest Act, 2002 on NPAs – A study at
Bangalore City Co-operative Bank Ltd”.

2.2 STATEMENT OF THE PROBLEM:

The Banking Industry in India is progressively

complying with the international prudential norms
and accounting practices, there are certain areas like
recovery management in which it does not have a
 level playing field as compared to other participants
in the International financial markets.

Our existing legal framework relating to the

commercial transactions has not kept pace with the
changing times, this resulted in slow pace of recovery
of defaulting loan & mounting levels of NPA’s in
Banks.

The Securitization Act was seen as a panacea to

the entire problem of NPAs.

2.3 NEED AND IMPORTANCE OF THE STUDY

The Banks and Financial Institutions have been
burdened with ever increasing Non Performing
Assets.

Till 2002 neither there were any legal

provisions for facilitating Securitization of
financial assets of Banks nor there was any
legal framework to take possession of
securities and sell them without the
intervention of the court.

The Securitization and Reconstruction of

Financial Assets Act, 2002 was a step in this direction.
The Act was bound to create ripples and at the same
time provide a much needed balm to the banks and
financial institutions.
2.4 OBJECTIVES OF THE STUDY

1.To study into the various provisions of the Act

with special emphasis on reduction of NPAs in
Banks.

2.To analyze the reasons for NPAs and recovery

mechanisms adopted by the bank.

3.To assess the effectiveness of the Act in

realizing the proposed objectives.

4.To bring out the comparison of Pre-Securitization

and Post-Securitization Act Period.

5.To identify the loopholes in the Act, if any, and

to make suggestions to plug the same.

2.5 SCOPE OF THE STUDY

The study is focus on the impact of

Securitization Act on Non Performing Assets with
reference to “The BCCB Ltd.” and how this act is
effective to reduce the non performing assets

The research was also held the comparison of

pre-securitization and post-securitization.

2.6 ASSUMPTIONS OF THE STUDY

Securitization and Reconstruction of Financial

Assets and Enforcement of Security Interest Act 2002
(SARFAESIA -2002) was established by the Central
Government to reduce the Non-Performing Assets. It
is applicable to all the Co-operative Banks from
28.01.2003.

The Bangalore City Co-operative Bank Limited

has adopted the SARFAESIA-2002 from 20.03.2003.

Therefore the data is collected for 5 years which

includes both the period of Pre-Securitization and
Post-Securitization. The information obtained from
the bank during pre-securitization includes 2 years,
i.e. 2001-02 and 2002-03 and the Post-Securitization
consists of three years, i.e.2006-07, 2007-08 and
2008-09 for effective analysis, so considered recent
period in post securitization.
2.7 METHODOLOGY OF THE STUDY

Methodology of literature review encompasses

different facets of information sources concerning
Non-performing assets and the Securitization Act.

2.8 TOOLS FOR THE COLLECTION OF DATA

Sources of data:
The data consisted of both primary data and
secondary data

1. Primary data: “Primary data is first hand

information which is collected a fresh and thus
happens to be original in character”.

This data is collected through Personal

discussions with the General Manager, Deputy
General Manager, Assistant General Manager and
other officers in charge of recovery department
through structured questionnaire were held.

2. Secondary data: “Secondary data are those

which have already been passed through the

statistical process”.

These data is collected from RBI/IBA bulletins

and journals, financial magazines, financial
statements/Annual reports and Audited Reports of
the Banks, Text books and Websites.
2.9 LIMITATIONS OF THE STUDY:
1. The study is confined to only one Bank i.e. The
Bangalore City Co-operative Bank Ltd.

2. Due to time constraint depth analysis could not be

made.

3. The actual identity of the Banks is kept

confidential due to the sensitive nature of the
topic

2.10 REFERENCE PERIOD

Five years annual reports & audited data are
considered. That is Pre Securitization Act period
2001-02 & 2002-03 and Post Securitization Period
includes 2006-07, 2007-08 and 2008-09.

2.11 CHAPTER SCHEME

The project report of The Bangalore City Co-

operative Bank Ltd. has been designed into five
chapters.

CHAPTER – I: INTRODUCTION

It explains introduction about the banking

industry, origin of banking industry, functions of
banking, introduction and evolution of co-operative
banks, definition, features, structure and reforms of
co-operative banks, introduction of NPAs, definitions,
 RBI recommendations, impact, general causes,
measures to tackle the NPAs, introduction of
securitization act, meaning, objectives, process and
provisions of the act.

CHAPTER – II: DESIGN OF THE STUDY

It explains title of the study, statement of the

problem, needs and importance of the study,
objectives of the study, scope of the study, some
importance concept of securitization, methodology
and tools for the collection of data, limitations,
reference period and chapter scheme.

CHAPTER – III: BANK PROFILE

History of the Bank, Trademark, goals and

objectives of the bank, vision statement, organization
structure of the bank, branches, awards and
competitive information of The Bangalore City Co-
operative Bank Ltd.

CHAPTER – IV: ANALYSIS AND INTERPRETATION

OF DATA

This chapter explains the analysis and

interpretation of data collected.

CHAPTER–V: SUMMARY OF FINDINGS,

SUGGESTIONS AND CONCLUSIONS.
 This chapter includes summary of findings,
suggestions and conclusions of the data analyzed.

CHAPTER – III:
BANK PROFILE
3.1 History of The Bangalore City Co-Operative
Bank Limited

“THE BANGALORE CITY CO-OPERATIVE BANK

LIMITED” was the first urban co-operative bank in the
country started in April 06, 1907 by
Sri.K.Ramaswamy and others.
[Administrative Office: No.3, Pampamahakavi Road, Chamarajpet,
Bangalore – 560018.]

The Bangalore City Co-operative Bank Limited

was established under the Co-operative society act
bearing registration number 314/CS, dated
08.04.1907 from the Registrar of Co-operative
Societies in Karnataka and the License was granted
by RBI No.UBD/KA/642, dated 11.11.1986 for
conducting the “Banking Business”. The bank has 12
branches along with one administration office and all
branches have been computerized under the
jurisdiction of Bangalore City Co-operative
Corporation, Bangalore Development Authority and
Bangalore urban &peripheral areas. The operation of
the bank is throughout Bangalore Co-operative
Limited.
3.2 Trademark of “The Bangalore City Co-
operative Bank Ltd”.:

In consideration of the application submitted to the

Govt. of India, to get registered the above image of
godess Lakshmi as Trademark, as per the Trademark
Act of 1959, sec 23(2), rule 62(1) Trademark
No.943843 dated 31-7-2000 the Govt. approved and
registered the above image as a trademark and has
been given letter of approval on 15-03-2008.

3.3 GOALS AND OBJECTIVES OF

THE BANK:

The Bangalore City Co-

operative Bank Ltd., believes that
every individual from each status of society needs
affordable, relevant and quality services. The goals
and objectives of bank are as follows;

1. To take measures / steps to increase the

deposits to Rs.500 crores and loans and
advances to Rs.370 crores.

2. To earn more than Rs.9 crores of net profit.

3. To reduce the net non-performing assets to 0%.

4. To give more advantages to customers by

converting all the branches into core- banking
system.
5. To take steps to have own building for all the
branches.

6. To provide more and more training and

development programmes to increase efficiency
of employees.

7. To encourage savings, self help and co-

operative principles among the members and
depositors of the bank.

8. To undertake banking transaction and co-

operative system as per direction of RBI, Central
Government and State Government.

9. To reduce the cost of the management through

the honorary services of members and thereby
keep the cost of credit as low as possible.

10. To promote the effectiveness of credit and

to reduce the risk in granting a credit through
careful and continuous supervision of the
operations of the borrowing members.
3.4 VISION STATEMENT

OUR VISION IS OUR MISSION

Founded in 1907, this unique financial

institution rests on the pillars of thrift, fellowship,
character, accommodation and the selfless service of
all individuals and organizations who wish to help
themselves progress. We see ourselves as a family of
honest, loyal and committed professionals,
harmoniously employing technology, innovation and
the human touch to achieve customer satisfaction
and goodwill are the cornerstones of our success and
the focus of all our efforts.

The prosperity of our customer is the engine of

our success and they will find in us a fast, timely,
flexible, co-operative and competitive partner in their
progress. We are committed to approachability,
simplicity and transparency in our dealings with all
our stakeholders and shall be a temple of their trust.

`We shall use our employee involvement and

sense of togetherness to generate high levels of
teamwork, efficiency, excellence and profits. We shall
mobilize aggressively, invest wisely, disburse
prudently, recover assiduously, reduce costs and
create a learning organization that offers products
and services in tune with and ahead of the time.
3.5 ORGANIZATION CHART OF THE BANGALORE
CITY CO-OPERATIVE BANK LTD.
 3.6 BRANCHES:

At the end of the financial year 2008-09,

including administrative office “The Bangalore City
Co-operative Bank Ltd” is having 13 branches
throughout the Bangalore City. Its branch wise
deposit, loans & advances and net profit are as
follows.
Rs. 000’s
TOTAL
SL DATE
TOTAL LOANS NET
. OF
BRANCHES DEPOS & PRO
N STARTE
ITS ADVAN FIT
O. D
CES
Main Branch, 06-04- 3320
1. 906580 819506
Chamarajpet. 2007 2
24-02-
2. Vijaynagar 642129 419626 8777
1980
Vijayanagar 9th 25.01.19
3. 396813 173112 302
Block 81
19-12-
4. Indiranagar 571798 182287 1535
1983
Chamarajpet 07-02- 1461
5. 163382 248523
West 1988 7
03-
6. Shanthinagar 94564 143545 6492
09.1992
Mahalakshmip 07-07-
7. 264201 160861 1204
uram 1994
11-08-
8. Sanjaynagar 220257 95412 1045
1994
Padmanabhana 04-09-
9. 144098 113703 2157
gar 1995
10 30-10- 1084
Koramangala 165431 181855
. 1996 9
11 16-01- 1002
Avalahalli 154604 210876
. 2002 1
12 15-02-
R.T.Nagar 57433 159250 9038
. 2002
13 Jnana Jyothi 22-03-
3019 838 3
. Nagar 2009
3.8 AWARDS:
Since from the opening, the bank has been
functioning effectively. The Bangalore City Co-
operative Bank Ltd., was awarded by “Shri.
Kanteerava Narasimha Raja Odeyar Bahadur” Ex.
King of Mysore in 1926, 1927 and 1928 as the “Best
Urban Co-operative Bank”.

In 2001-2002 and 2003-2004 the State

Government of Karnataka awarded as the “Best
Urban Co-operative Bank”.

3.9 COMPETITORS INFORMATION:

As The Bangalore City Co-operative Bank Ltd., is
the urban Co-operative Bank, it is facing competition
from the commercial banks. Commercial banks
undertake a number of banking services. Since the
urban co-operative banks are localized and do not
have network of bankers they are not in a position to
meet all the banking services. Therefore the
institution like Government, public sector
undertakings and the urban co-operative banks are
facing competition from the commercial banks.
 CHAPTER – IV:

ANALYSIS AND INTERPRETATION OF

DATA

Banking system which constitutes the core of the

financial sector plays a vital role in transmitting monetary
policy impulses to the economic system. Therefore its
efficiency and development are vital for enhancing growth
and improving the changes for stability. During the recent
past, profits of the Bank came under pressure due to rise
in interest rates, decrease in non-interest income and
increase in provisions and contingencies.

The Banks and Financial Institutions have also been

burdened with ever increasing Non Performing Assets

The mounting menace of NPAs has raised the cost of

credit, made Indian businessmen uncompetitive as
compared to their counterparts in other countries. It has
made Banks more averse to risks and squeezed genuine
Small and Medium enterprises from accessing competitive
credit and has throttled their enterprising spirits as well to
a great extent.

Till 2002 neither there were any legal provisions for

facilitating Securitization of financial assets of Banks nor
was there any legal framework to take possession of
securities and sell them without the intervention of the
court.

The Securitization and Reconstruction of Financial

Assets Act, 2002 was a step in this direction. The Act has
provided an enabling legal framework for setting up of
Securitization or Reconstruction Company and the manner
of acquisition of financial Assets by such companies. This
Act has been enacted to help Banks and FIs to tackle the
NPAs problem.

The Securitization Act enables the Banks and FIs to

sell off/transfer the NPAs without the intervention of court
and the sale proceeds of the assets are to be used for
payment to the secured creditors for the assets taken over
from them. The Act was bound to create ripples in the
corporate sector and at the same time provide a much
needed balm to the banks and financial institutions.

4.1 REASONS FOR NPAs IN THE BANK:

The main reasons for NPAs in The Bangalore City

Co-operative Bank Ltd. are as follows;

1. Improper credit appraisal

2. Willful default

3. Diversion of funds

4. Lack of effective follow up

5. Cost ineffective legal measures

6. Difficulty in execution of decrees

4.2 MEASURES FOR THE RECOVERY OF NPAs
ADOPTED BY THE BANK

The Bangalore City Co-operative Bank follows

following measures to recover those NPAs;

1. Legal Measures

2. Persuasion method

3. Coercion method

4.3 LEGAL RECOVERY MEASURES TAKEN BY THE

BANK

1. If the branch people are not able to recover the

loan amount, the file is referred to Legal
Department for arbitration.

2. The legal department will initiate all the steps to

recover the amount, finally E.P (Execution
Petition) will be filled.

3. The E.P files are handed by Sale Officer / ARCs

who is appointed from co-operative department.
As soon as the file is received, the sale officer
will send the recovery force to identify the
defaulter and his property. After identification,
form no.6 will be issued attaching the property
for sale and to pay the amount within 10days.
4. If the party does not settle the amount with in
10days, then Form no.8 & 9 (sale date of the
mortgaged property) will be fixed gig one month
time.

5. Even tough after issuing of Form No.8 & 9, if the

party does not give fruitful than a paper
publication “fixing the sale of property” will be
advertised.

6. Before three days of option, the locality people

where the mortgage property exists and the
others are invited to participate.

7. Then auction of that property will be conducted

among the bidders and the auctions will be
confirmed to the highest bidder.
4.4 RECOVERY MECHANISMS ARE ADOPTED BY
THE BANK FOR REDUCING NPAs

 Pre-Securitization Act: The bank use to Filing

Arbitration according to Karnataka Co-operative

Societies Act of 1959.

 Post Securitization Act: There was heavy

pressure, burden or risk for the bank due to

increasing NPAs before Securitization Act was
introduced.

Now Securitization Act is one of the most

effective recovery mechanism adopted by the
bank. It helps to recovery the loans without much
delay and difficulty and also reduces the level of
NPAs in the bank.

As most of the respondents said

Securitization Act 2002 is one of the effective
mechanisms when compared to all the recovery
mechanisms.

4.5 ISSUES CONCERN IN THE IMPLEMENTATION

OF SARFEASIA 2002

There are some of the issues concerns for the

bank in the implementation of Securitization Act for
the recovery of NPAs. There are as under
1. Disposal of securitization is difficult without
court intervention

2. Lack of market for such securitization assets

3. Non-commencement of asset reconstruction

and securitization companies.

4. Difficulty in seizing the said property with

tenants and leaseholders occupying the
property.

5. Under the Act, the bank has to issue a notice &

wait for 60 days before proceeding to take
possession of the security and during this period
the borrowers are degrading the quality of the
assets and are rendering them less valuable.

6. Stays from civil courts by the parties against the

action initiated by the banks for seizure.

7. Cost of manufacture to the bank of the seized

assets

8. Parties delaying the process by contending in

courts / DRTs.

9. Inability to prevent alienation of the said

property by the borrowers during the notice
period.

10. Threats from the borrowers to the bankers.

 TABLE-4.1:
GROWTH OF DEPOSITS OF THE BANK

DEPOSITS
YEAR
AMOUNT
PERCENT (%)
(Rs. IN LAKHS)
2001-02 21095.74 100.00
2002-03 22348.54 105.94
2006-07 22443.62 106.39
2007-08 28910.54 137.04
2008-09 37863.10 179.48

FIGURE NO. 4.1

ANALYSIS:

From the above data, it can be observed that the

deposit of the bank is increasing year by year. During pre-
securitization period, it was RS.21095.74 lakhs in 2001-02,
and then it is increased to RS.37863.10 lakhs @ 179.48 in
2008-09 during post securitization compared to 2001-02.

INTERPRETATION:

It can be interpreted that, when there was no

SARFAESI Act the deposit was increasing only smaller ratio
but after the implementation of the act the rate of deposit
is increased to a greater extent form 2006-07 to 2008-09
up to 179.48%.

It shows bank offering very good rate of interest to

attract the customer in a recent years.
 TABLE-4.2:
GROWTH OF LOANS & ADVANCES AS A
PERCENTAGE OF DEPOSITS

LOANS & ADVANCES

DEPOSI
YEAR AMOUNT (Rs. PERCENTAG
TS
in LAKHS) E
2001- 21095.7
13727.84 65.07
02 4
2002- 22348.5
16554.52 74.07
03 4
2006- 22443.6
15017.48 66.91
07 2
2007- 28910.5
23367.95 80.83
08 4
2008- 37863.1
29484.43 77.87
09 0

FIGURE NO. 4.2

ANALYSIS:
Form the above statistics, it can be analyzed that the
loans and advances as a percentage of deposits is varied
from year to year.

In 2001-02, it was RS.13727.84 lakhs @65.07%, in

2002-03 it was RS.16554.52 lakhs @ 74.07%, in 2006-07
which was decreased to RS.15017.48 lakhs @ 66.91%,
then it is increased to RS.29484.43 @ 77.87% but in 2008-
09 the same has been decreased to 77.87%.

INTERPRETATION:

It can be interpreted that the loan given is reduced

during 2008-09 because the banker has some fear of crisis
so they did not come forward to lend loans.

The bank is lending more than 65% of the loans on

deposits and the bank also maintaining liquidity position
to meet the demand of the customers.
 TABLE-4.3:
GROWTH OF LOANS & ADVANCES AND
RECOVERY PERFORMANCE

LOANS & RECOVERY

YEAR ADVANCES AMOUNT
(AMOUNT Rs.IN PERCENT
(Rs.IN
LAKHS) (%)
LAKHS)
2001-
13727.84 13159.37 95.86
02
2002-
16554.52 15709.90 94.90
03
2006-
15017.48 14436.91 96.13
07
2007-
23367.95 22858.78 97.82
08
2008-
29484.43 28888.17 97.98
09

FIGURE NO. 4.3

ANALYSIS:

From the above table, it is cleared that the %age of

recovery performance of the bank was decreased from
2001-02 to 2002-03 but the amount recovered is more i.e.
from Rs.13159.37 @ 95.86% to Rs.15709.90 @94.90%.

In 2006-07 it was Rs.14436.91 lakhs @ 96.13%, in

2007-08 increased Rs.22858.78 @97.82% and in 2008-09
which increased to Rs.28888.17 @ 97.98%.

INTERPRETATION:

From the above analysis, it is interpreted that during

pre securitization period, the percentage of recovery
performance of the bank was decreased from 2001-02 to
2002-03 because as there was no strict recovery
mechanism adopted by the bank which has to go only
through court.

Recovery performance of the bank was good after

the implementation of SARFAESI Act. In 2008-09, the
recovery was increased to 97.98% even there was
economic crisis. Therefore it shows that the SARFAESIA is
helping the bank to recover the loans within a specified
period by giving more power, thereby reduces the level of
NPAs of the bank.
 TABLE-4.4:
THE GROSS NPAs AS A PERCENTAGE OF LOANS
& ADVANCES

TOTAL GROSS NPAs

YEAR LOANS &
AMOUNT (Rs.IN PERCENT
ADVANCES
LAKHS) (%)
2001-
13727.84 1742.10 12.69
02
2002-
16554.52 2965.95 17.92
03
2006-
15017.48 2339.84 15.58
07
2007-
23367.95 2268.83 9.71
08
2008-
29484.43 3499.30 11.87
09

FIGURE NO. 4.4

ANALYSIS:
From the above table, it is observed that the loans
and advances were increased from 12.69% to 17.92%
from 2001-02 to 2002-03.

During Post Securitization Act the Gross NPAs as a

percentage of Loans & Advances was gradually decreased
from 2006-07 to 2008-09. During 2006-07, it was 15.58%
then it decreased in 2007-08 at 9.71% and but it is
increased in 2008-09 @ 11.87%

INTERPRETATION:
From the above analysis, it is interpreted that the
Gross NPAs as a percentage of loans & advances were
increased from 2001-02 to 2002-03 it is because the
controlling measures taken by the bank was not effective
during Pre-Securitization Act.

The level of loans & advances is increasing and the

percentage of NPAs is decreased from 2006-07 to 2007-08
but in 2008-09, then it is slightly increased because of two
reasons;
1. There is increasing in the loans & advances. When
the loans & advances was Rs.15017.48 lakhs the
NPAs was @ 15.58% but when it is increased to
Rs.29484.43, the same NPAs was @ 11.87%. It is
cleared that the loans given during the year 2008-
09 is increased.
 2. It is also increased because of the economic crisis
in India during 2008-09.
Therefore it is concluded that the SARFAESIA 2002, is very
effective in the reduction of NPAs.
TABLE-4.5:
THE NET NPAs AS A PERCENTAGE OF LOANS &
ADVANCES

TOTAL NET NPAs

YEAR LOANS &
AMOUNT (Rs.
ADVANCES PERCENT (%)
IN LAKHS)
2001-
13727.84 1303.28 9.81
02
2002-
16554.52 2308.22 14.91
03
2006-
15017.48 359.23 2.76
07
2007-
23367.95 203.71 0.96
08
2008-
29484.43 1332.04 4.88
09

FIGURE NO. 4.5

ANALYSIS:

From the above table, it is analyzed that the Net

NPAs as a percentage of loans & advances was gradually
increased from RS.1303.28 lakhs @9.81% in 2001-02 to
RS.2380.22 lakhs @ 14.91% in 2002-03.

During post securitization period the Net NPAs as a

percentage of loans & advances was decreased from
RS.359.23lakhs @2.76% in 2006-07 to RS.203.71 lakhs @
0.96% in 2007-08 but it is increasing in 2008-09 for
RS.1332.04 lakhs @ 4.88%.

INTERPRETATION:

From the above analysis, it is interpreted that, during

pre securitization period the NPAs as a percentage of
loans & advances was increasing year by year as there
was no more power for the bank for the recovery of loans
& advances this leads to increasing of NPAs.

In 2007-08, the amount of NPAs was reduced from to

0.96% from 2.76%. It shows that the profitability position
of the bank was increased. It is because the Securitization
Act given more power to the bank for the recovery of
loans.

But in 2008-09, the level of NPAs is increased to

RS.1332.04 lakhs due to the economic crisis. The borrower
was not in a position to repay their loan amount as their
income level was low in that period.

TABLE-4.6
STATUS OF NPAs & PROVISIONS MADE IN THE
BANK
PROVISIONS
GROSS NPAs NET NPAs
MADE
YEAR AMOU AMOU PERCE AMOU
PERCE PERCE
NT (IN NT (IN NT (%) NT (IN
NT (%) NT (%)
LAKHS) LAKHS) LAKHS)
2001- 1742.1 438.8 1303.
12.69 3.20 9.81
02 0 2 28
2002- 2965.9 585.7 2380.
17.92 3.54 14.91
03 5 3 22
2006- 2339.8 1980. 359.2
15.58 13.19 2.76
07 4 61 3
2007- 2268.8 2065. 203.7
9.71 8.84 0.96
08 3 12 1
2008- 3499.3 2167. 1332.
11.87 7.35 4.88
09 0 26 04
 FIGURE NO. 4.6

ANALYSIS AND INTERPRETATION:

From the above analysis it is clear that during Pre-

securitization Act, both Gross NPAs and Net NPAs were
gradually increased and the bank made less provision on
NPAs.

During post securitization period the level of NPAs is

decreasing year by year from 2006-07 to 2007-08 i.e. from
15.58% to 11.87% that means the Securitization Act 2002
is very effective in the reduction of NPAs. The bank made
more provisions on NPAs which leads to much difference
between Gross & Net NPAs of the bank.
 In 2008-09, the non-performing assets is increased
compared to the year 2007-08 by 2.16% [11.87% - 9.71%]
this is due to the impact of economic crisis on financial
institutions in India because of this the income level of the
borrower was reduced. Therefore the NPAs were slightly
increased in the year 2008-09.
 TABLE-4.7
THE NPAs & RECOVERY PERFORMANCES OF THE
BANK

Year %age of recovery %age of NPAs

2001-
95.86 9.81
02
2002-
94.90 14.91
03
2006-
96.13 2.76
07
2007-
97.82 0.96
08
2008-
97.98 4.88
09

FIGURE NO. 4.7

ANALYSIS:

From the above table, it shows that the percentage

of recovery on loans & advances was decreased from
95.86% to 94.90% from 2001-02 to 2002-03 respectively
and the percentage of NPAs was increased from 9.81% in
2001-02 to 14.91% in 2002-03.

During post securitization period, the recovery of

loans & advances of the bank was tremendously increased
form the year 2006-07 to 2008-09. i.e. from 96.13% in
2006-07, 97.79% in 2007-08 and again increased 97.95%
in 2008-09 and the non-performing assets of the bank
were fluctuating year by year.

INTERPRETATION:

From the above table, it is cleared that the

percentage of recovery was decreased from 2001-02 to
2002-03 due to increase in the level of NPAs because the
steps taken by the bank for the recovery of loans was not
effective.

From the above analysis, it can be interpreted that

the recovery performance of the bank is very effective as
the recovery percentage of the bank is increasing year to
year by reducing the level of NPAs. This shows that the
Securitization Act is working effectively for reducing NPAs.
 TABLE-4.8
PROFIT POSITION OF THE BANK

NET PROFIT
YEAR
AMOUNT PERCENTAG
(RS.IN '000) E
2001-02 31094.62 100.00

2002-03 30374.22 97.71

2006-07 35549.26 114.36

2007-08 42723.79 137.44

2008-09 51700.06 166.32

FIGURE NO. 4.8

ANALYSIS:
 From the above table, it has observed that the profit
position was decreased from the year 2001-02 of
RS.31094.62 to RS.30374.22 in 2002-03.

But during Post Securitization Act it has gradually

increasing from the year 2006-07 to 2008-09, that is in
2006-07 it was RS.35549.26 in 2007-08 then it increased
to RS.42723.79 and again increased to RS.51700.06
during 2008-09.

INTERPRETATION:

From the above analysis, it can be interpreted that

the profit position of the bank was decreased during Pre
Securitization Act, later on it start to increasing year by
year after the implementation of Securitization Act.

Therefore the SARFAESIA is very powerful and

effective mechanism in reducing the level of NPAs and
gives power for the bank to the recovery thereby improves
the profitability position of the Bank.
 TABLE-4.9
OVERALL PERFORMANCE OF THE BANK

Loans &
Deposits Recovery Net NPAs
Advances
Year Amount Perce Amount Amount Amoun Perce
Percent Percent
(in nt (in (RS. in t (in nt
age age (%)
Lakhs) (%) Lakhs Lakhs Lakhs) (%)

2001- 21095 100. 13727 13159 1303.

65.07 95.86 9.81
02 .74 00 .84 .37 28
2002- 22348 105. 16554 15709 2308. 14.9
74.07 94.90
03 .54 94 .52 .90 22 1
2006- 22443 106. 15017 14436 359.2
66.91 96.13 2.76
07 .62 39 .48 .91 3
2007- 28910 137. 23367 22529 203.7
80.83 97.82 0.96
08 .54 04 .95 .85 1
2008- 37863 179. 29484 28498 1332.
77.87 97.98 4.88
09 .10 48 .43 .69 04

FIGURE NO.-4.9
ANALYSIS AND INTERPRETATION:

From the above table, it is cleared that the overall

performance of the bank is good and the SARFAESIA 2002
is very effective in reducing NPAs.

The deposit ratio of the bank is increasing every

year, loans & advances was also increased but in 2008-09
it is decreased because the banker has not come front to
give loans to the customers due to economic crisis. Even
though the loan was decreased in 2008-09, the recovery
performance was not at all decreased after the enactment
of SARFAESIA.

Finally, the NPAs of the bank was so much during pre

SARFAESIA but it is decreased to a greater extent in post
securitization period up to 2007-08, but in 2008-09 it is
increased due to economic crisis, the borrower was not
having money in their hand to repay their loan amount.
 CHAPTER – V:
FINDINGS, SUGGESTIONS AND
CONCLUSIONS

SUMMARY OF FINDINGS:

1. PRE SECURITISATION ACT PERIOD:

a. Deposit ratio of the bank was increased year by year

and loans advances given only by keeping some
liquid money with them to meet the demand of the
customers.

b. The NPAs of the bank was increased and Recovery

Performance was decreased from the year 2001-02
to 2002-03 as there was bank having less power to
recover the loans.

c. In 2002-03, the Profit position of the bank was

decreased due to the increasing in the level of Non-
performing Assets.

2. POST SECURITIZATION ACT PERIOD

a. Deposit ratio for the period was increased to

179.48% in 2008-09 and the loans & advances
during the same year was reduced because the
banker did not provide loans liberally to customers
as there was a economic crisis.

b. During this period, the NPAs of the bank were

 decreased to a greater extent and the recovery
performance of the bank was increased.

c. But in 2008-09, the position of NPAs was increased

because of the economic crisis; the borrower had no
money with them to repay their loans.

d. The Profit position of the bank also increasing since

2006, it shows the Act is very effective.

3. The main reasons for an account becoming a non-

performing asset are diversion of funds, improper credit
appraisal and willful default followed by cost ineffective
legal measures and difficulty in the execution of
decrees.

4. Before the enactment of the Securitization Act the banker

had limited options for recovery which consisted of
having an intensive follow-up and interaction with the
borrower and initiating legal actions through courts.

5. The Securitization Act empowers Banks to takeover the

possession of secured assets of the defaulting borrowers
& sells or lease out the assets without the intervention
of the court.

6. The measures to tackle the NPAs adopted by the bank

Post-Securitization Act include:

a. Issuing notices as per the SRFAESI Act and waiting

for 60 days

b. Issue possession notice after 60 days and initiate

steps to take physical possession of securities
 c. Sell the securities and adjust the amount to the
NPAs.

7. The act is not applicable to any security interest for

securing repayment of any financial asset not exceeding
Rs.1,00,000.

8. Although the Securitization Act empowers banks to seize

the secured assets of the defaulting borrowers without
the intervention of the courts, borrowers are still able to
get the proceedings under the act stayed by appealing
in civil courts

9. The major issues of concern with the implementation of

the Act are:

a. Inability to dispose-off the assets acquired under the

act by the banks due to lack of market for such
assets.

b. Problems in disposing of land due to the restrictions

imposed by the Land ceiling laws.

c. Difficulty in seizing the said property with tenants

and leaseholders occupying the property

d. Stays from civil courts by the parties against the

action initiated by the banks for seizure

10. Majority of the bankers opinioned that the act was

helpful in the reduction of NPAs.
 SUGGESTIONS

 The bank should be given more powers to seize and

dispose-off the security and to attach any other additional
security/asset available with the defaulting borrower and
court intervention in such proceeding should be
eliminated.

 The Act has to be made applicable for recovery of all dues

of banks irrespective of the Limitations Act.

 Bankers handling the recovery operations should be

educated on the management and disposal process of the
acquired assets and should also be provided with
management expertise while taking over the operations
of the companies.

 The powers currently available to the bankers under the

Act should be explained to both the borrowers and the
bankers for the effective implementation of the Act.

 The NPA assets must be rated by a rating agency which

would facilitate the market for such assets this would in
turn reduce the holding cost of the seized assets to the
bank.
 CONCLUSIONS

The Securitization Act is a fine comprehensive piece of

legislation; it is also a reassuring sign of Government’s
commitment to reforms. The Act empowers the banks to take
over the possession of secured assets of the borrowers and sell
or lease out the assets. This is the first time that the banks can
take over the immovable assets of the defaulting borrowers
without the intervention of the courts.

Since the enactment of the Securitization Act, it was seen

as a panacea to the entire problem of NPAs. The banks are
educated about the act and are taking actions strictly by
issuing notices to the defaulting borrowers. Defaulting
borrowers who were not responding previously started
responding favourably and cash recoveries became a reality.

In view of the above, it can be concluded that the Act has

empowered the banks with additional powers for recovery and
facilitated the reduction of NPAs. However, the Act should be
much more effective in realizing its proposed objectives by way
of recovery reforms and development of market for distressed
assets of banks.
 QUESTIONNAIRE

TOPIC:

“Impact of Securitization & Reconstruction of

Financial Assets and Enforcement of Security Interest
Act, 2002 on NPAs – A study at Bangalore City Co-
operative Bank Ltd”.

Dear Sir / Madam,

This is with respect to my M.Com project in “The

BCCB Ltd” on impact of Securitization Act 2002 on
NPAs. This questionnaire is to be answered for y
research purpose. I request you to give your co-
operation to do my survey as the same will be kept
confidential.

NAME :

DESIGNATION :

DEPARTMENT :

Ph. No. :

1. According to Bank what is Non-Performing Assets?

 ____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________

____________________________________________________
___

2. What are the criteria to treat different Loans &

Advances as NPAs?

____________________________________________________
____________________________________________________
____________________________________________________
_________

3. Does NPAs are classified into

□ Substandard Assets

□ Doubtful Assets

□ Loss Assets

□ All the Above

4. How much provisions are made on Performing
Assets & NPAs by the bank for the following years

2001- 2002- 2006- 2007- 2008-

Particulars
02 03 07 08 09
Standard Assets
Substandard
Assets
Loss Assets
Doubtful Assets

5. Details of different categories of Performing Assets

& NPAs of bank
2001- 2002- 2006- 2007- 2008-
Particulars
02 03 07 08 09
Standard Assets
Substandard
Assets
Loss Assets
Doubtful Assets
6. What are the effects of NPAs on growth of “The
BCCB Ltd”.

____________________________________________________
____________________________________________________
____________________________________________________
_________

7. What are the main reasons for NPAs in the Bank?

□ Improper credit appraisal

 □ Lack of effective follow up

□ Management failure

□ Difficulty in execution of decrees

□ Diversion of funds

□ Willful default

□ Others (if any), Specify____________________

8. What are the measures for the recovery of NPAs

adopted by the bank?

□ Legal

□ Non-Legal

□ Both Legal and Non-Legal

□ Others (if any), Specify __________________

9. What are the recovery mechanisms are adopted by

the bank for reducing NPAs in the Pre-Securitization
Act?

□ Lok Adalats

□ Civil Courts
 □ Debt Recovery Tribunals

□ One Time Settlement Scheme

□ Others,
Specify___________________________________

10. What are the recovery mechanisms are adopted

by the bank for reducing NPAs in the Post-
Securitization Act?

□ Lok Adalats

□ Civil Courts

□ Debt Recovery Tribunals

□ One Time Settlement Scheme

□ ARCs / Securitization Co/s / Direct

□ Others,
Specify______________________________________

11. Which of the above measure is practicable & more

effective? and Why?

____________________________________________________
____________________________________________________
______
12. Has the enactment of Securitization Act reduced
the level of NPAs in the bank?

□ Yes

□ No

□ Can’t Say

13. Are there any issues of concern for the bank in

the implementation of the Act for the recovery of
NPAs? If so, what are they?

____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
____________________________________________________
_______________

14. What is the Impact of Securitization Act in the

reduction of NPAs in the Banking Sector?
 ____________________________________________________
____________________________________________________
____________________________________________________
_________

15. Does bank have made any insurance coverage on

NPAs

□ Yes If yes, how much and with whom?

___________________________________
__

□ No

16. Do you like to suggest any changes that are to be

made to make the Act more meaningful and
effective?

____________________________________________________
____________________________________________________
____________________________________________________
_________