Department of Business Management

Introduction

LOAN:

A Loan is a financial transaction in which one party (the lender) agrees to give another

party (borrower) a certain amount of money with the expectation of total repayment. The

Specific terms of a loan are often spelled out in the form of a promissory note or other

Contract .The lender can ask for interest payments in addition to the original amount of the

Loan (principal).The borrower must agree to the repayment terms, including the amount

Owed, interest rate and due dates. Some lenders can also assign financial penalties for missed or

Late payments, because a loan can contain many hidden costs such as interest payments and

Finance charges. Many people tend to avoid applying for one until it becomes absolutely

Necessary. Purchasing a new vehicle or home always necessitates some form of financial loan,

Whether it is a bank mortgage or a private loan with the seller. Financing a higher education

May also require a federally-backed student loan . Interest rates on these types of large loans can

Be fixed at the time of the application or may vary according to the federal prime interest rate.

There is a very important legal difference between a gift and a loan. A very generous relative or

Friend may give you $ 5000 for car repairs, for example, if there is no expectation of

Repayment, the money can be considered as a gift. The giver could not sue for repayment, the

Money can be considered designates the money as a loan and the borrower pays back even one

Dollar, the money can be considered a legal loan and the lender can demand repayment anytime.

Small claims courts spend much of their time determining whether or not a transaction involving

1
 Department of Business Management

Money was a gift or loan. This is why paperwork is essential, when making private loans to

Friends or relatives . Most loan applications are handled by banks or other professional

Lending institutions .They may use any number of criteria to determine if a potential

borrower is eligible for a loan . Past credit history is always considered, along with current

income and assets . The purpose of the loan may be a factor-a proven investment

opportunity may have more appeal than an unproven idea for a new restaurant. One

important consideration is the income to debt ratio of the borrower . Can the borrower a

afford to pay the loan back with interest ? Professional lenders essentially ‘sell’ money, so

borrowers must realize how much a loan actually ‘costs’ in terms of real dollars and cents .

India has been liberalized and globalize during the last decade or so .It has exposed the

Indian financial sector to international competition in a fairly significant manner . To cope

Up with the growing competition in the present scenario the Indian banks have embarked

On a massive exercise to revamp the system. Despite the overall progress made by the

Financial system over the years, the operational efficiency of the banking system has been

Unsatisfactory, characterized by low profitability, high and growing Naps and relatively

Low capital base .

NPAs have turned out to be a major stumbling factor affecting the profitability of Indian

Banks .Before 1992, bank did not disclose the bad debts sustained by them and the

provision made by them fearing that it may have an adverse impact. The banks used to take

income even on NPAs on accrual basis. This helped them to disclose false profits. Owing

2
 Department of Business Management

To low levels of profitability, the banks owned funds had to be strengthened by repeated

intention of additional capital by the government. The introduction of prudential norms to

strengthen the banks financial sector reforms. These prudential norms, which relate to

income recognition ,asset classification , provisioning for bad and doubtful debts and

capital adequacy serve three great purpose.

1. Income recognition norms reflect a true picture of the income and expenditure of the

bank .

2. The asset classification and provisioning norms help in assessing the quality of asset

Portfolio of the bank .

3. They also act as tool of financial discipline and compel banks to look at the quality

Of loans assets and the risk attached to the lending.

In India, NPAs are considered to at higher levels than most other countries, have of late

Attracted the attention of public as also of international institutions . This has gained

Further prominence in the wake of transparency and disclosures measures initiated by

R.B.I during the recent years .

The present study was undertaken in this context to analyze and understand the impact

Of NPA is having on the performance of commercial banks in general there affecting the

Whole financial system . The scope of this study is limited especially to the organization

Selected i.e Gandhi cooperative urban bank limited .

3
 Department of Business Management

Objectives of the study

 The basic idea behind undertaking a project on NPA was to:

 To study the past trend of Non Performing Assets.

 To understand the RBI’s Rules and Regulations for the control of Non

Performing Assets.

 To analyse Preventive Measures taken by the bank.

 To analyse the financial performance of the bank at various levels of Non

Performing Assets

 To know the reasons for an asset becoming Non Performance Assets in the bank.

Scope of the study

The study covers all aspects of Non Performing Assets Management. It deals

With the legal procedure to be followed by the companies while merging and

Acquiring .

4
 Department of Business Management

Limitations

• The study is confined to cover related issues of NPAs in brief.

• This Study is restricted to only single bank i.e Gandhi cooperative

Urban bank limited.

• The study is confined to 5 years of data.

• For the purpose of collecting vital information, Finance Manager of

the bank is only contacted & interviews. since he is an individual, his

biases may have creped into the data given.

Research and Methodology

Research and methodology is a way to systematically solve problem i.e the steps

Adopted by the researcher to solve the problem . The research method of the study

Explains the systematic way of finding the predetermined objectives . More over this

Provides the clear path to accomplish and achieve clear solution for the problem stated.

Sampling Technique

Sampling refers to selecting a part of the population to represent the characteristics

of the population . However, in this study, Finance Manager of the bank is the source of

data and therefore he is the only one source of information . Both primary and

secondary data were collected & used for drawing conclusions for the study.

5
 Department of Business Management

Primary Data

First hand data is obtained through interaction with officers and resource person at

Gandhi cooperative urban bank limited .

Secondary Data

Secondary hand data information obtained through Annual Reports of union bank,

RBI website cooperative handbooks internet and journal (business vision april

2010)

Tools used for analysis of data

The data collected were analyzed with the help of statistical tools like correlation

and trend analysis. Tablets are used to represent the consolidated data. Graphical

representation is also used for better comprehension & presentation.

Correlation means the relationship between two variables where with the

changes in the values of one variable, the values of other variable also changes.

According to ‘Ya Lun chou’ correlation analysis attempts to determine the

‘degree of relationship’ between variables’. Correlation can be either positive or

negative.

6
 Department of Business Management

Malla Reddy Engineering College

Department of Business Management

BANKING ORGANISATION AND PROFILE

MEANING OF BANK

A Bank is an institution which deals with some sought of monitory transactions such as

depositing and withdrawal of money. It accepts deposits from public, makes the funds

available to those who need then and helps in remittance of money from one place to

another. In the previous days ‘it is a place where the deposited money will be safe

guarded’ . In the present scenario the term ‘bank’ extended its wings in various

functioning. The modern bank performs such a variety of functions that it is difficult to

put a single definition for it. It is because of this reason that different economists give

different definitions of the bank.’

Reserve Bank of India Act 1949 section 5 defines: “banking” means the accepting, for

the purpose of lending or investment, of deposits of money from the public, repayable on

7
 Department of Business Management

demand or otherwise , and withdrawal by cheque, draft, order or otherwise;

According to CROWTHER, a bank “collects money those who have it to spare or who

are saving it out their incomes , and it lends this money to those who require it”.

Malla Reddy Enginnering College

Department of Business Administration

TYPES OF BANKS

Banks can be classified into various types on the basis of their functions ownership,

domicile etc… The following are the various types of banks.

1. COMMERCIAL BANKS: The bank which perform all kinds of banking

business and generally finance trader and commerce are called commercial

banks.since their deposits are for a short period, these banks normally advance

short-term loans to the businesses and traders and avoid medium-term lending.

2. INDUSTRIAL BANKS: Industrial banks, also known as Investment banks

mainly meet the medium- term and long term financial need of the industrial.

In India , Industrial Banks like (IDBI)- Industrial Development of India,(IFCI)-

Industrial Finance Corporation of India. State finance Corporation are

8
 Department of Business Management

playing significant role in the industrial development of the country.

3. AGRICULTURAL BANKS: Agriculture Co-operatives provide short-term

Loans And Land Development Banks provide the long credit to the

agriculture. The agriculturist requires.

a) Short-term credit to buy seeds , fertilizers and other inputs, and

b) Long-term credit to purchase land, to make permanent improvements on

land, to Agriculture finance is generally provide by Co-operative

institutions.

4. EXCHANGE BANKS: Exchange Banks deal in foreign exchange and specialize

in an financial foreign trade. They facilitate international payments through sale

and purchase of bills of exchange and thus play an important role in promoting

foreign trade.

Malla Reddy Engineering College

Department of Business Administration

5. SAVINGS BANKS: The main purpose of savings is too promote saving habits

among the general public and mobilize their small savings . In India, postal

savings banks do this job. They open accounts and issue postal certificates.

6. CENTRAL BANK –(RESERVE BANK OF INDIA): Central Bank is the apex

institution which controls , regulates and supervises the monetary and credit

system of the country important functions of central bank are:

a) It is monopoly of the note issue.

b) It acts as the bankers, agent and financial adviser to the state.

9
 Department of Business Management

c) It is the custodian of member banks reserves

d) It is the custodian of nation’s reserves of International currency

e) It serves as the lender of central clearance

f) Settlement and transfer and

g) if functions as the banks of central clearance

h) Facts the controller of credit.

Besides these functions, India’s Central Bank .i.e., Reserve Bank of India

also performs may development functions to promote economic development

in the country.

7. WORLD BANK: World Bank refers to an institution which provides

financial assistance to the world.After the world wise depression and world

war 2,two institutions were founded in 1944.

a) International Monetary Fund(IMF)

b) International Bank of Reconstructions and Development(IBRD) popular

knows as the world bank.

Malla Reddy Engineering College

Department of Business Administration

8) CLASSIFICATION ON THE BASIS OF OWNERSHIP: On the basis of

ownership , banks and the regional banks come under this category.

a) PUBLIC SECTOR BANKS: Owned and controlled by the government in

India nationalized banks and the regional rural banks come under this

10
 Department of Business Management

category.

b) PRIVATE SECTOR BANKS: Owned and controlled by the private

individuals or corporations.

c) CO-OPERATIVE BANKS: Co-operative banks are operated on the

cooperative lines. In India,co-operative credit institution are organized

under the co-operative society’s law and play an important role in meeting

financial need in the rural areas.

9) CLASSIFICATION ON THE BASIS OF DOMICILE:

On the basis of domicile,the banks are divided into two categories.

a) DOMESTIC BANKS: These are registered and incorporated with in

the country.

b) FOREIGN BANKS: These are foreign in orgin and have their head

offices in the country of orgin.

10) SHEDULED AND NON-SHEDULED BANK: In India, banks have

been broadly classified into scheduled and non-scheduled banks. A

scheduled bank of it is that which has been included in the Second

Schedule of the Reserve Bank of India Act.1934 and fulfils the

Three conditions:

Malla Reddy Engineering College

Department of Business Administration

11
 Department of Business Management

a) It ensures the Reserve bank that its operations are not detrimental to

the interest of the depositors.

b) It is a corporation of cooperative society and not a partnership or a single owner

form. The banks which are not included in the second schedule of the Reserve

Banks of India Act non-scheduled banks.

CO-OPERATIVE BANKING IN INDIA

INTRODUCTION:

Co-operation means voluntary association on the basis of equity and for some

Common purpose. The basic principle of Co-operation is “EACH FOR ALL

AND ALL FOR EACH”

In the world of H.CALVERT. “CO-operation then is a form of organization

where in persons voluntarily associate together as human beings on the basis of

equality for promotion of their economic interest”.

The distinguishing features of a Co-operative society are:

a) Its membership is voluntary.

b) Its organization is democratic.

c) Its functioning is based on decentralized decision making principle.

d) Its aim is economic, social and moral development of its members.

e) It combines the benefits of private ownership and public good.

MEANING OF THE CO-OPERATIVE BANK:

Co-operative bank is an in institution established on the co-operative basis and dealing

12
 Department of Business Management

on ordinary banking funds through shares,accept deposits and grant loans.

Malla Reddy Engineering College

Department of Business Administration

HISTORY OF CO-OPERATIVE BANKING IN INDIA:

Co-operative movement in India was primarily for dealing with the problems of rural

credit./the history of Indian co-operative banking started with the passing of co-

operative society’s act 1904.The objective of Act was to establish co-operative credit

societies “to encourage thrift, self-help and co-operative among agriculturists, artisans

and persons of limited means”.

STRUCTURE OF CO-OPERATIVE BANKING:

There are different types of Co-operative credit institutions working in India.

13