Introduction to stock exchange

7/28/2019 Introduction to stock exchange

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INTRODUCTION

It's a known fact that the banks and financial institutions in India face the problem of swellingnon-performing assets (NPAs) and the issue is becoming more and more unmanageable. In

order to bring the situation under control, some steps have been taken recently. The

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest

Act, 2002 was passed by Parliament, which is an important step towards elimination or

reduction of NPAs.

Performance in terms of profitability is a benchmark for any business enterprise including the

banking industry. However, increasing NPAs have a direct impact on banks profitability as

legally banks are not allowed to book income on such accounts and at the same time are

forced to make provision on such assets as per the Reserve Bank of India (RBI) guidelines.

Also, with increasing deposits made by the public in the banking system, the banking

industry cannot afford defaults by borrower s since NPAs affects the repayment capacity of

banks.

Further, Reserve Bank of India (RBI) successfully creates excess liquidity in the system

through various rate cuts and banks fail to utilize this benefit to its advantage due to the tear

of burgeoning non-performing assets.

INDIAN ECONOMY AND NPAs

Undoubtedly the world economy has slowed down, recession is at its peak, globally stock

markets have tumbled and business itself is getting hard to do. The Indian economy has been

much affected due to high fiscal deficit, poor infrastructure facilities, sticky legal system,

cutting of exposures to emerging markets by FIIs, etc.

Further, international rating agencies like, standard & Poor have lowered Indias credit rating

to sub-investment grade. Such negative aspects have often outweighed positives such as

increasing forex reserves and a manageable inflation rate.

Under such a situation, it goes without saying that banks are no exception and are bound to

face the heat of a global downturn. One would be surprised to know that the banks and

financial institutions in India hold non- performing assets worth Rs. 1,10,000 crores. Bankers


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have realized that unless the level of NPAs is reduced drastically, they will find it difficult to

survive.

The actual level of Non Performing Assets in India is around $40 billion much higher than

governments estimation of $16 billion. This difference is largely due to the discrepancy in

accounting the NPAs followed by India and rest of the world. The accounting norms of the

India are less stringent than those of the developed economies. The Indian banks also have

the tendency to extend the past dues. Considering the GDP of India nearly $470 billion, the

NPAs are 8% of total GDP, which was better than the many Asian countries . The NPA of

china was 45% of the GDP, while Japan had NPAs of 25% of the GDP and Malaysia had

42%.

The aggregate level of the NPAs in Asia has increased from $1.5 billion in 2000 to $2 billion

in 2002. Looking to such overall picture of the market, we say that India is performing well

and the steps taken are looking favorable.

GLOBAL DEVELOPMENTS AND NPAs

The core banking business is of mobilizing the deposits and utilizing it for lending to

industry. Lending business is generally encouraged because it has the effect of funds being

transferred from the system to productive purposes, which results into economic growth.

However lending also carries credit risk, which arises from the failure of borrower to fulfill

its contractual obligations either during the course of a transaction or on a future obligation.

A question that arises is how much risk can a bank afford to take? Recent happenings in the

business world -Enron, WorldCom, Xerox, Global Crossing do not give much confidence to

banks. In case after case, these giant corporate became bankrupt and failed to provide

investors with clearer and more complete information thereby introducing a degree of risk

that many investors could neither anticipate nor welcome. The history of financial institutions

also reveals the fact that the biggest banking failures were due to credit risk. Due to this,

banks are restricting their lending operations to secured avenues only with adequate collateral

on which to fall back upon in a situation of default.


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NON PERFORMING ASSETS

The world is going faster in terms of services and physical products. However it has been

researched that physical products are available because of the service industries. In the nation

economy also service industry plays a vital role in the boosting up of the economy. The

nations like U.S, U.K, and Japan have service industries more than 55%. The banking sector

is one of appreciated service industries. The banking sector plays larger role in channelizing

money from one end to other end. It helps almost every person in utilizing the money at their

best. The banking sector accepts the deposits of the people and provides fruitful return to

people on the invested money. But for providing the better returns plus principal amounts tothe clients; it becomes important for the banks to earn the main source of income for banks

are the interest that they earn on the loans that have been disbursed to general person,

businessman, or any industry for its development. Thus, we may find the input-output system

in the banking sector. Banks first, accepts the deposits from the people and secondly they

lend this money to people who are in the need of it. By the way of channelizing money from

one end to another end, banks earn their profits.

However, Indian banking sector has recently faced the serious problem of Non Performing

Assets. This problem has been emerged largely in Indian banking sector since three decade.

Due to this problem many Public Sector Banks have been adversely affected to their

performance and operations. In simple words Non Performing Assets problem is one where

banks are not able to recollect their landed money from the clients or clients have been in

such a condition that they are not in the position to provide the borrowed money to the banks.

The problem of NPAs is danger to the banks because it destroys the healthy financial

conditions of them. The trust of the people would not be any more if the banks have higher

NPAs. So the problem of NPAs must be tackled out in such a way that would not destroy the

operational, financial conditions and would not affect the image of the banks. Recently, RBI

has taken number steps to reduce NPAs of the Indian banks. And it is also found that the

many banks have shown positive figures in reducing NPA as compared to the past years.


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MEANING OF NPAs

An asset which ceases to generate income for the bank is called. a Non-Performing Asset. An

asset is classified as non-performing asset (NPAs) if dues in the form of principal and interest

are not paid by the borrower for a period of 180 days. With a view to moving towards

international best practices and to ensure greater transparency, it has been decided to adopt

the '90 days overdue' norm for identification of NPAs, from the year ending March 31, 2005.

Accordingly, with effect from March 31, 2005, a non-performing asset (NPA) shell be a loan

or an advance where;

i. Interest and/or installment of principal remain overdue for a period of more than 90

days in respect of a Term Loan

ii. The account remains 'out of order' for a period of more than 90 days, in respect of an

Overdraft/Cash Credit (ODICC),

iii. The bill remains overdue for a period of more than 90 days in the case of bills

purchased and discounted,

iv. For a period not exceeding two half years in the case of an advance granted for

agricultural purpose, and

v. Any amount to be received remains overdue for a period of more than 90 days in

respect of other accounts.


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CLASSIFICATION OF NPAs

Banks are required to classify NPAs further into the following three categories based on the

period for which the asset has remained non-performing and the reliability of the dues:

i. Sub-standard Assets: A substandard asset is one which has remained NPA

for a period less than or equal to 18 months. In such cases, the net worth of the

borrower, or the current market value of the security charged is not enough to

ensure recovery of the dues to the banks in full. Such assets will have well

defined credit weakness that jeopardize the liquidation of the debt and are

characterized by the distinct possibility that the bank will sustain a loss.

ii. Doubtful Assets: A Doubtful Asset which has remained NPA for a periodexceeding 18 months. It has all the weaknesses inherent to a sub-standard

asset with the added characteristic that the collection or liquidation in full- on

the basis of currently known facts- is highly questionable and improbable.

iii. Loss Assets: A loss asset is one where a loss been identified by the bank or,

internal or external auditors but the amount has not been written off wholly. In

other words, such an asset is considered uncollectible and of such little value

that its continuance as a bankable asset is not warranted although there may be

some salvage or recovery value.

GUIDELINES FOR CLASSIFICATION OF NPAs

Classification should be done taking into account the degree of well defined credit

weaknesses and the extent of dependence on collateral security for realization of dues.

Banks should establish appropriate internal systems to eliminate the tendency to delay or

postpone the identification of NPAs, especially in respect of high value accounts.

Accounts with temporary deficiencies: These should be classified on the past

recovery records.

Accounts regularize near about the balance sheet date: These accounts should

be handled with care and without scope for subjectivity. Where the account


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indicates inherent weakness based on available data, it should be deemed as an

NPA.

Asset classification should be borrower- wise and not facility- wise: if a single

facility to a borrower is classified as NPA, others should also be classified the

same way, as it is difficult to envisage only a solitary facility becoming a

problem credit and not others.

Advances under consortium arrangements: classification here should be based

on the recovery record of the individual member banks.

Accounts where there is erosion in the value of the security: if there is a

significant (i.e. the realizable value of the security is less than 50% of that

assessed by the bank during acceptance) the account may be classified as

NPA.


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REASONS FOR HUGE LEVEL OF NPAs

External Factors:-

1. Willful Default:-

If the borrower doesn't pay though he has the capacity to pay, he is termed as willful

defaulter. The features of willful default are wrong use of funds and siphoning of

funds.

2. Improper functioning of Debt Recovery Tribunals:-

Although the setting up of Debt Recovery Tribunals had raised much hope about

speeding up of the recovery proceedings initiated by banks these hopes have largely

remained unfulfilled. At quite a few places, the DRTs are still to be set up and, even

where these have been set up, they are not yet fully equipped to handle very large

number of cases already before them or those that can be placed before them. In some

of the DRTs, the number of pending cases is quite large. While the government has

been reviewing the operations of DRTs, as yet a Stage has not come when it can be

said that these are helping recoveries of banks' dues substantially. In fact it has failed

to achieve the declared objective of disposal of' cases within six months in speedy

recovery of advances.

3. Project appraisal Deficiencies: -

It includes deficiencies regarding technical feasibility" economic viability and project

management deficiencies in regard to implementation, production, and labor "

marketing" financial and administrative.

4. Ineffective Credit Monitoring: -

Ineffective credit monitoring, al1 the follow-up mechanism of' the banks have also

contributed to slippage of' standard loans into bad loans.

5. Diversion of Funds: -


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Diversion of' funds mostly for expansion/diversification/modernization and taking up

new projects and for promoting associated concerns is a prominent reason for high

level of NPAs.

6. Natural calamities:-

This is the measure factor, which is creating alarming rise in NPAs of the PSBs.

Every now and then india is hit by major natural calamities thus making the borrowers

unable to pay back there loans. Thus the bank has to make large amount of provisions

in order to compensate those loans, hence end up the fiscal with a reduced profit.

Mainly ours farmers depends on rain fall for cropping. Due to irregularities of rain fall

the farmers are not to achieve the production level thus they are not repaying the

loans.

7. Industrial sickness:-

Improper project handling, ineffective management, lack of adequate resources, lack

of advance technology, day to day changing government. Policies give birth to

industrial sickness. Hence the banks that finance those industries ultimately end up

with a low recovery of their loans reducing their profit and liquidity.

Internal factors: -

The RBI study noted that non-availability of raw materials, power shortage, transport

bottlenecks, financial bottlenecks, change in Govt. policy, natural calamities, industrial

sickness, increase in import cost, increase in overhead cost, market saturation, product

obsolescence, fill in demand and others were responsible for weak performance in 48% of

units assisted by the banks resulting into advances given to them turning bad.

1. Ineffective legal system: -

It is one of the most important factors contributing to enormously high levelof NPAs

in Banks. Antiquated legal system, extremely slow judicial system and dismal record

of enforcement machineries have contributed significantly to high level of NPAs.

2. Inappropriate technology:-


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Due to inappropriate technology and management information system, market driven

decisions on real time basis cannot be taken. Proper MIS and financial accounting

system is not implemented in the banks, which leads to poor credit collection, thus

NPA. All the branches of the bank should be computerized.

3. Failure of suppliers: -

The failure of suppliers to adhere to promised/committed delivery schedules due to

various reasons is also one of the causes for an increase in the level of NPA.

4. International development: -

Sudden international development adversely affects viability of production units e.g.

OIL Crisis, fertilizer plants based on petro chemical feedstock became suddenly

enviable.

5. Promoter-banker nexus: -

In many instances, loans have been sanctioned because of vested interests. Promoter-

banker nexus have been exploited to siphon off funds from the banking system.

6. Operational factors: -

It is regarding the current and prospective risk to earnings arising from fraud, error

and the inability to deliver products or services and maintain a competitive position.

7. Strategic Factors: - It includes adverse business decisions, improper implementation

of decisions or lack of responsiveness to industry changes.

8. Poor credit appraisal system:-

Poor credit appraisal is another factor for the rise in NPAs. Due to poor credit

appraisal the bank gives advances to those who are not able to repay it back. They

should use good credit appraisal to decrease the NPAs.

9. Absence of regular industrial visit:-

The irregularities in spot visit also increases the NPAs. Absence of regularly visit of

bank officials to the customer point decreases the collection of interest and principals

on the loan. The NPAs due to willful defaulters can be collected by regular visits.


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OTHER CAUSES RESPONSIBLE FOR INCREASING NPAs

The banking sector has been facing the serious problems of the rising NPAs. In fact PSBs are

facing more problems than the private sector banks and foreign banks. The NPAs in PSBs are

growing due to external as well as internal factors. One of the main causes of NPAs in the

banking sector is the Directed loans system under which commercial banks are required to

supply 40% percentage of their credit to priority sectors. Most significant sources of NPAs

are directed loans supplied to the micro sector are problematic of recoveries especially

when some of its units become sick or weak. PSBs 7 percent of net advances were directed to

these units Poverty elevation programs like IRDP, RREP, SUME, SEPUP, JRY, PMRY etc.,

failed on various grounds in meeting their objectives. The huge amount of loan granted under

these schemes was totally unrecoverable by banks due to political manipulation, misuse of

funds and non-reliability of target audience of these sections. Loans given by banks are their

assets and as the repayments of several of the loans were poor, the quality of these assets was

steadily deteriorating.

In India the scope for branch expansion in rural and semi urban areas is vast and also

necessary. Increasingly, NBFCs operating at such places are coming under regulatory

pressure and are likely to abandon their intermediation role. These branches find priority

sector financing as the main business available especially in rural/semi-urban centers.

Operational restructuring of banks should ensure that NPAs in the priority sectors are

reduced, but not priority sector lending. This will remain a priority for the survival of banks.

Any decisions about insulating Indian banks from priority sector financing should not be

reached until full-scale research is undertaken, taking into account several sources including

records of credit guarantee.


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EARLY SYMPTOMS BY WHICH ONE CAN RECOGNIZE A

PERFORMING ASSET TURNING IN TO NON-PERFORMING ASSET

Four categories of early symptoms:

Financial:

Non-payment of the very first instalment in case of term loan.

Bouncing of cheque due to insufficient balance in the accounts.

Irregularity in instalment.

Irregularity of operations in the accounts.

Unpaid overdue bills.

Declining Current Ratio.

Payment which does not cover the interest and principal amount of that installment. While monitoring the accounts it is found that partial amount is derived to sister

concern or parent company.

Operational and Physical:

If information is received that the borrower has either initiated the process of winding

up or are not doing the business.

Overdue receivables.

Stock statement not submitted on time.

External non- controllable factor like natural calamities in the city where borrowerconduct his business.

Frequent changes in plan.

Non- payment of wages.

Attitudinal changes:

Use for personal comfort, stocks and shares by borrower.

Avoidance of contact with bank.

Problem between partners.

Others:

Changes in Government policies.

Death of borrower.

Competition in the market.


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ADVERSE EFFECTS OF NPAs

An NPA on the balance sheet of an institution deteriorates its health in several ways:

Profitabilty:

NPA means booking of money in terms of bad asset, which occurred due to wrong choice of

client. Because of the money getting blocked the prodigality of bank decreases not only by

the amount of NPA but NPA lead to opportunity cost also as that much of profit invested in

some return earning project/asset. So NPA doesnt affect current profit but also future stream

of profit, which may lead to loss of some long-term beneficial opportunity. Another effect of

reduction in profitability is low ROI ( return on investment), which adversely affect current

earning of bank.

Liquidity:

Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead to

borrowing money for shorter period of time which lead to additional cost to the company.

Difficulty in operating the functions of bank is another cause of NPA due to lack of money.

Involvement of management:

Time and efforts of management is another indirect cost which bank has to bear due to NPA.

Time and efforts of management in handling and managing NPA would have diverted to

some fruitful activities, which would have given good returns. Now days banks have special

employees to deal and handle NPAs, which is additional cost to the bank.

Credit Loss:

Bank is facing problem of NPA then it adversely affect the value of bank in terms of market

credit. It will lose its goodwill and brand image and credit which have negative impact to the

people who are putting their money in the banks.

Problem of moral hazard:

Interest income cannot be booked on the loan declared as an NPA, and so profits get

affected. In addition, provisioning against assets creates further losses. Thus, financial


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institutions have a tendency to rollover non- performing loans. The borrower is given more

loans to pay interest on past loans and repay whatever amount is possible.

Adverse Incentive:

A bank with say 25% NPA, will have to earn on 75% of its assets to meet its expenses and

make a profit. It will have a tendency to go for more risky ventures promising higher rates of

return, since 750/(; of the loan portfolio will have to pay for 100% of the liabilities and risky

venture always have a greater probability of becoming 'non- performing', thus completing the

self- fulfilling cycle.

Huge Opportunity Cost:

Assuming Rs. 1, 00,000 Crore locked up due to NPAs started earning interest, say at 10%, it

would immediately boost the interest yield of the nationalized banks by anything between 1.6

and 1.8%. This increased yield could then translate into reduced interest rates for the banks'

clients.

CREDIT RISK AND NPAs

Quite often credit risk management (CRM) is confused with managing non-performing assets

(NPAs). However there is an appreciable difference between the two. NPAs are a result of

past action whose effects are realized in the present i.e. they represent credit risk that has

already materialized and default has already taken place.

On the other hand managing credit risk is a much more forward-looking approach and is

mainly concerned with managing the quality of credit portfolio before default takes place. In

other words, an attempt is made to avoid possible default by properly managing credit risk.

Considering the current global recession and unreliable inforn1ation in finaI1cial statements,

there is high credit risk in the banking and lending business.

To create a defense against such uncertainty, bankers are expected to develop an effective

internal credit risk models for the purpose of credit risk management.

IMPORTANCE OF CREDIT RATING


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Fundamentally Credit Rating implies evaluating the creditworthiness of a borrower by an

independent rating agency. Here objective is to evaluate the probability of default. As such,

credit rating does not predict loss but it predicts the likelihood of payment problems. Credit

rating has been explained by Moody's a credit rating agency as forming an opinion of the

future ability, legal obligation and willingness of a bond -issue or obligor to make full and

timely payments on principal and interest due to the investors.

Banks do rely on credit rating agencies to measure credit risk ailed a.'\sign a probability of

default.

A credit rating agency generally slot companies into risk buckets that indicate company's

credit risk and is also reviewed periodically. Associated with each risk bucket is the

probability of default that is derived from historical observations of default behavior in each

risk bucket


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SECURITISATION: A TOOL FOR MANAGEMENT OF NPA

Securitization is the buzzword in today's world of finance. It's not a new subject to the

developed economies. It is certainly a new concept for the emerging markets like India.

The technique of securitization definitely holds a great promise for a developing country like

India.

One of the major issues in the Development of banking sector in India is the reducing of non-

performing assets in their balance sheets. One such financial innovation to reduce non-

performing assets is "Securitization". Securitization is the financial instrument of the new

millennium.

The process of securitization creates the strata of risk-return and different maturity securities

and is marketable into the capital markets as per the needs of the investors. It has become one

of the most important financing vehicles in the developed countries like USA. Its use is

rapidly expanding worldwide. Securitization enables many companies to raise funds at a

lower cost than through traditional financing.

Definition

"Securitisation is the process of pooling and re-packaging of homogeneous illiquid financial

assets into marketable securities that can be sold to investors".

"Every such process which converts a financial relation into a transaction'" In simple words: -

"Selling the cash flow generated from the assets (either existing or future) against the charge

of the assets, by converting them into homogeneous market negotiable instruments is known

as Securitisation".


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IMPORTANCE OF SECURITISATION

The generic need for securitisation is as old as that for organized financial markets from the

distinction between a financial relation and a financial transaction earlier, we understand that

a relation in variably needs the coming together and remaining together of two entities. These

entities might involve a number of financial intermediaries in the process, but a relation

involves fixity over a second time.

Financial market develops in response to the need to involve the large number of investors in

the market place. As the number of investor increases, the average size per investor come

downThis is a simple rule of the market place because growing size means involvement ofa wider base of investors. The small investors are not a professional investor: He is not as

such in the business of investment. Hence, he needs an instrument which is easier to

understand, and is liquid. These two needs said the stage for evolution of financial instrument

which would convert financial claims into liquid, easy to understand and homogenous

products, at times carrying certified quality labels, which would be available in small

denominations to suit everyones purse. Thus securitisation in a generic sense is basic to the

world of Finance, and it is truism to say that it envelops the entire range of financial

instruments, and hence, the entire range of financial assets.

Parties involved

Securitisation program usually involved several participant each carrying out a specialist

function, such as creating and analyzing the asset pool, administration, credit rating,

accounting, legal negotiation etc. These include;

The originator also interchangeably referred to as the seller is the entity whose

receivable portfolio forms the basis for asset backed security (ABS) issuance.

Special Purpose vehicle (SPV), which as the issuer of ABS ensures distancing of the

instrument from the originator.

The InvestorsThe Investors may be in the form of individuals or institutional investors

like FIs and Mutual Funds etc. They buy a participating interest in the total pool of

receivables and receive their payment in the form of interest and principals as per agreed


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pattern total pool of receivables and receive their payment in the form of interest and

principals as per agreed pattern.

Securitiation act

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 (SARFAESI) empowers Banks / Financial Institutions to recover their

non-performing assets without the intervention of the Court. The Act provides three

alternative methods for recovery of non-performing assets include:-

Securitization

Asset Reconstruction

Enforcement of security without the intervention of court.

STRATEGIES FOR OVERCOMING NPAs

Various steps have been taken by the government and RBI to recover and reduce NPAs.

These strategies are necessary to control NPAs.

1. Preventive management and

2. Curative management

A. Preventive Management:

Preventive measures are to prevent the asset from becoming a non performing asset. Banks

has to concentrate on the following to minimize the level of NPAs.

1. Early Warning Signals

The origin of the flourishing NPAs lies in the quality of managing credit assessment, risk

management by the banks concerned. Banks should have adequate preventive measures,

fixing pre sanctioning appraisal responsibility and having an effective post-disbursement

supervision. Banks should continuously monitor loans to identify accounts that have potential

to become non-performing.It is important in any early warning system, to be sensitive to

signals of credit deterioration. A host of early warning signals are used by different banks for


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identification of potential NPAs. Most banks in India have laid down a series of operational,

financial, transactional indicators that could serve to identify emerging problems in credit

exposures at an early stage. Further, it is revealed that the indicators which may trigger early

warning system depend not only on default in payment of installment and interest but also

other factors such as deterioration in operating and financial performance of the borrower,

weakening industry characteristics, regulatory changes, and general economic conditions.

Early warning signals can be classified into five broad categories viz.

(a) Financial

(b) Operational

(c) Banking

(d) Management and

(e) External factors.

Financial related warning signals generally emanate from the borrowers balance sheet,

income expenditure statement, statement of cash flows, statement of receivables etc.

Following common warning signals are captured by some of the banks having relativelydeveloped EWS.

2. Financial warning signals

Persistent irregularity in the account

Default in repayment obligation

Devolvement of LC/invocation of guarantees

Deterioration in liquidity/working capital position

Substantial increase in long term debts in relation to equity

Declining sales

Operating losses/net losses

Rising sales and falling profits


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Disproportionate increase in overheads relative to sales

Rising level of bad debt losses Operational warning signals

Low activity level in plant

Disorderly diversification/frequent changes in plan

Nonpayment of wages/power bills

Loss of critical customer/s

Frequent labor problems

Evidence of aged inventory/large level ofinventory

3. Management related warning signals

Lack of co-operation from key personnel

Change in management, ownership, or key personnel

Desire to take undue risks

Family disputes

Poor financial controls

Fudging of financial statements

Diversion of funds

4. Banking related signals

Declining bank balances/declining operations in the account

Opening of account with other bank

Return of outward bills/dishonored cheques

Sales transactions not routed through the account


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Frequent requests for loan

Frequent delays in submitting stock statements, financial data, etc. Signals relating to

external factors

Economic recession

Emergence of new competition

Emergence of new technology

Changes in government / regulatory policies

Natural calamities

B. Curative Management

The curative measures are designed to maximize recoveries so that banks funds locked up in

NPAs are released for recycling. The Central government and RBI have taken steps for

controlling incidence of fresh NPAs and creating legaland regulatory environment to

facilitate the recovery of existing NPAs of banks. They are:

1. One Time Settlement Schemes

This scheme covers all sectors substandard assets, doubtful or loss assets as on 31st

March 2000. All cases on which the banks have initiated action under the SRFAESI

Act and also cases pending before Courts/DRTs/BIFR, subject to consent decree

being obtained from the Courts/DRTs/BIFR are covered. However cases of willful

default, fraud and malfeasance are not covered. As per the OTS scheme, for NPAs up

to Rs. 10crores, the minimum amount that should be recovered should be 100% of the

outstanding balance in the account.

2. Recovery

At the organization level, all accounts where interest has not been collected should be

reviewed at periodical intervals to appropriate authorities. Lest the time and energy is

frittered away in following up and recovering small amounts, monitoring should be

focused at critical branches having concentration of high value NP As. In order to

recover the amount, one can adopt any way like persuasion, pressurization, frequent


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interaction as a appropriate level, showing syn1pathy, treating the borrower as a

friend etc. recovery is not a one-man job. The-branch head should secure total

involvement and commitment of the staff working with him to bring about the desired

results. Irregular accounts need to be more actively followed up with a view to

containing the damage before the irregularity blows out of proportion. If is the

irregular portion in any account is fully recovered, such account will be eligible for

immediate reclassification as a standard asset.

3. Compromise/Negotiable Settlement

Recovery of advances through compromise settlement is accepted as an effective non-

legal remedy in case where it is appropriated to adopt this option. Under this borrower

agrees to pay certain amount of the bank after getting certain concessions. In this

regard it is recognized that each of the compromise offers received from the borrower

is unique as the circumstances that necessitate consideration of these, as a recovery

option will vary from case to case. Every Bank has framed its own policy .on

compromise/negotiated settlement of loans and advances-

4. Stress Asset Recovery Cell:

Banks have a specific cell for NPA, which is called as Stress Asset Recovery Cell.

The cell continuously work on How Recoveries Can Be Done. Bank does its

recovery by sending notices, by bidding and by taking a legal action .DECREE is a

paper of court or the permission given by the court to sell the land or an asset.

5. Debt Recovery Tribunal

It is the special court established by the Central Government for the purpose of bank

or any financial institutions recovery. The judges of this court are retires judges of

high court. In this court only the recovery cases of 10 lakhs and above can be filed.

6. Recovery through Lok Adalats:

Lok Adalat is an arrangement wherein suit filed as well as non-suit filled accounts

are referred by the banks for speedy settlement of the dispute through conciliation. On

a mutual agreement, the settlements are arrived at the Iok Adalat and the concessions

are extended as under.


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7. Circulation of information on defaulters:

The RBI has put in place a system for periodical circulation of details of willful

defaults of borrowers of banks and financial institutions. This serves as a caution list

while considering requests for new or additional credit limits from defaulting

borrowing units and also from the directors/ proprietors/ partners of these entities.

RBI also publishes a list of borrowers (with outstanding aggregating Rs. 1 crore and

above) against whom suits have been filed by banks and FIs for recovery of their

funds, as on 31st march every year.

8. Corporate Governance:-

A consultative Group under the chairmanship od Dr.A. Ganguly was set by the

Reserve Bank to review the supervisory role of Boards of Banks and financial

institutions and to obtain feedback on the functioning of the Boards vis-a- vis

compliance, transparency, disclosure, audit committees etc. and make

recommendations for making the role of Board of directors more effective with a

view to minimizing risks and overexposure. The group is finalizing its

recommendations shortly and may come out with guidelines for effective control and

supervision by bank over credit management and NPA prevention measures.


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ARCIL

The first asset reconstruction company (ARC) in the country to commence the business of

resolution of non-performing loans (NPLs) acquired from Indian banks and financial

institutions. It commenced business consequent to the enactment of the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

(Securitisation Act, 2002). As the first ARC, Arcil played a pioneering role in setting

standards for the industry in India. It has been spearheading the drive to recreate value out of

NPLs and in doing so, it continues to play a proactive role in reenergizing the Indian industry

through critical times. In 2008, Arcil launched a retail NPL resolution initiative through Arcil

Arms(a division of Arcil).

The leader

As the leader in this genre of business, Arcil undertook significant efforts in market seeding,

creating awareness and acquainting banks and financial institutions with the concept and

business model, attracting capital to this new class of asset, et all. Arcil has facilitated

development of a business environment, which today has attracted many players to set up

business in this domain. It has meaningfully engaged the investors through dialogue and

dissemination of information. This is expected to lead to flow of new of new capital for the

asset class in the near future. Some of the significant initiatives of Arcil in this context are:

Participation in the process of framing of guidelines by RBI for the acquisition,

resolution and valuation of NPL and operating guidelines for conducting asset

reconstruction business in India

Rationalization of stamp duty payable on acquisition of NPL from sellers in several

States in the country thereby reducing the transaction costs, which is a sine-qua-non

for business viability (all major States have provided for remission in stamp duty to

notional levels)

Setting up a valuation framework in line with international best practices which

addresses sellers expectations as well as investors perspective in the Indian context

(sellers doubling as investors)
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Creation of a unique transaction model taking into account conflicting interests of

sellers doubling as investors(in the absence of new money) in the Special Purpose

Vehicles (SPV) with Arcil as trustee for the investors in the trusts, by sharing upside

from the resolution

Setting up a fund involving third party investors (not being sellers doubling as

investors)

Establishment of a framework for rating of security receipts(SRs) with underlying

NPLs and the security interesta first of its kind in India.

Corporate debt restructuring

The need for a corporate debt restructuring often arises when a company is going through

financial hardship and is having difficulty in meeting its obligations. If the troubles are

enough to pose a high risk of the company going bankrupt, it can negotiate with its creditors

to reduce these burdens and increase its chances of avoiding bankruptcy. In the U.S., Chapter

11 proceedings allow for a company to get protection from creditors with the hopes of

renegotiating the terms on the debt agreements and survive as a going concern. Even if the

creditors don't agree to the terms of a plan put forth, if the court determines that it is fair it

may impose the plan on creditors.


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INDUSTRY INTRODUCTION

The Indian Banking industry, which is governed by the Banking Regulation Act of India,

1949 can be broadly classified into two major Categories, non-scheduled banks and

scheduled banks. Scheduled banks Comprise commercial banks and the co-operative

banks. In terms of Ownership, commercial banks can be further grouped into nationalized

Banks, the State Bank of India and its group banks, regional rural banks and private sector

banks (the old/ new domestic and foreign). These Banks have over 67,000 branches spread

across the country in every city and villages of all nook and corners of the land. The first

phase of financial reforms resulted in the nationalization of 14 major Banks in 1969 and

resulted in a shift from Class banking to Mass Banking. This in turn resulted in a significant

growth in the geographical Coverage of banks. Every bank had to earmark a

minimum percentage of their loan portfolio to sectors identified as priority sectors. TheManufacturing sector also grew during the 1970s in protected environs the banking sector

was a critical source. The next wave of reforms saw the nationalization of 6 more commercial

banks in 1980. Since then the number of scheduled commercial banks increased four-fold and

the number of bank branches increased eight-fold. And that was not the limit of growth.

After the second phase of financial sector reforms and liberalization of the sector in the early

nineties, the Public Sector Banks (PSB) s found it extremely difficult to compete with the

new private sector banks and the foreign banks. The new private sector banks first made their

appearance after the guidelines permitting them were issued in January 1993. Eight New

private sector banks are presently in operation. These banks due to their late start has accessto state-of-the-art technology, which in turn helps them to save on manpower costs. During

the year 2000, the State Bank of India (SBI) and its 7 associates accounted for a 25 percent

share in deposits and28.1 percent share in Credit. The 20 nationalized banks accounted for

53.2 percent of the deposits and 47.5 percent of credit during the same period. The share of

foreign banks (numbering 42), regional rural banks and other scheduled Commercial banks

accounted for 5.7 percent, 3.9 percent and 12.2 percent respectively in deposits and 8.41

percent, 3.14 percent and12.85 percent respectively in credit during the year 2000.about the

detail of the current scenario we will go through the trends in modern economy of the

country.

Current Scenario:

The industry is currently in a transition phase. On the one hand, the PSBs, which are the

mainstay of the Indian Banking system, are in the process of shedding their flab in terms of

excessive manpower, excessive non Performing Assets (NPAs) and excessive governmental

equity, while on the other hand the private sector banks are consolidating themselves through

mergers and acquisitions. PSBs, which currently account for more than78 percent of total

banking industry assets are saddled with NPAs (a mind- boggling Rs 830 billion in 2000),

falling revenues from traditional sources, lack of modern technology and a massiveworkforce while the new private sector banks are forging ahead and rewriting the traditional


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banking business model by way of their sheer innovation and service. The PSBs are of course

currently working out challenging strategies even as 20 percent of their massive employee

strength has dwindled in the wake of the successful Voluntary Retirement Schemes (VRS)

schemes. The private players however cannot match the PSBs great reach, great size and

access to low cost deposits. Therefore one of the means for them to combat the PSBs hasbeen through the merger and acquisition(M& A) route. Over the last two years, the industry

has witnessed several such instances. For instance, HDFC Banks merger with Times Bank

Icici Banks acquisition of ITC Classic, Anagram Finance and Bank of Madurai. Centurion

Bank, Indusind Bank, Bank of Punjab, Vysya Bank are said to be on the lookout. The UTI

bank- Global Trust Bank merger however opened a Pandoras Box and brought about the

realization that all was not well in the functioning of many of the private sector banks. Private

sector Banks have pioneered internet banking, phone banking, anywhere banking, mobile

banking, debit cards, Automatic Teller Machines (ATMs) and combined various other

services and integrated them into the mainstream banking arena, while the PSBs are still

grappling with disgruntled employees in the aftermath of successful VRS schemes. Also,

following Indias commitment to the W To agreement in respect of the services sector,

foreign banks, including both new and the existing ones, have been permitted to open up to

12 branches a year with effect from 1998-99 as against the earlier stipulation of 8 branches.

Tasks of government diluting their equity from 51 percent to 33 percent in November 2000

have also opened up a new opportunity for the takeover of even the PSBs. The FDI rules

being more rationalized in Q1FY02 may also pave the way for foreign banks taking the M&

A route to acquire willing Indian partners. Meanwhile the economic and corporate sector

slowdown has led to an increasing number of banks focusing on the retail segment. Many

of them are also entering the new vistas of Insurance. Banks with their phenomenal reach anda regular interface with the retail investor are the best placed to enter into the insurance

sector. Banks in India have been allowed to provide fee-based insurance services without

risk participation, invest in an insurance company for providing infrastructure and services

support and set up of a separate joint venture insurance company with risk participation

Aggregate Performance of the Banking Industry

Aggregate deposits of scheduled commercial banks increased at a compounded annual

average growth rate (Cagr) of 17.8 percent during 1969-99, while bank credit expanded at a

Cagr of 16.3 percent per annum. Banks investments in government and otherapproved

securities recorded a Cagr of 18.8 percent per annum during the same period. In FY01

the economic slowdown resulted in a Gross Domestic Product (GDP) growth of only

6.0percent as against the previous years 6.4 percent. The WPI Index (a measure ofinflation)

increased by 7.1 percent against 3.3 percent in FY00. Similarly, money supply (M3) grew by

around 16.2 percent as against 14.6 percent a year ago. The growth in aggregate deposits of

the scheduled commercial banks at15.4 percent in FY01 percent was lower than that of 19.3

percent in the previous year, while the growth in credit by SCBs slowed down to 15.6 percent

in FY01 against 23 percent a year ago. The industrial slowdown also affected the earnings of

listed banks. The net profits of 20 listed banks dropped by 34.43 percent in the quarter ended


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March 2001. Net profits grew by 40.75 percent in the first quarter of 2000-2001, but dropped

to 4.56 percent in the fourth quarter of 2000-2001.

IDBI BANK LTD.On the Capital Adequacy Ratio (CAR) front while most banks managed to fulfil the norms, it

was a feat achieved with its own share of difficulties. The CAR, which at present is 9.0percent, is likely to be hiked to 12.0 percent by the year 2004 based on the Basle Committeerecommendations. Any bank that wishes to grow its assets needs to also shore up its capital atthe same time so that its capital as a percentage of the risk-weighted assets is maintained atthe stipulated rate. While the IPO route was a much-fancied one in the early90s, the currentscenario doesnt look too attractive for bank majors. Consequently, banks have been forced toexplore other avenues to shore up their capital base. While some are wooing foreign partnersto add to the capital others are employing the M& A route. Many are also going in for rightissues at prices considerably lower than the market prices to woo the investors.

Interest Rate Scene

The two years, post the East Asian crises in 1997-98 saw a climb in the global interest rates.It was only in the later half of FY01 that the US Fed cut interest rates. India has howeverremained more or less insulated. The past 2 years in our country was characterized by amounting intention of the Reserve Bank Of India (RBI)to steadily reduce interest ratesresulting in a narrowing differential between global and domestic rates. The RBI has beenaffecting bank rate and CRR cuts at regular intervals to improve liquidity and reduce rates.The only exception was in July2000 when the RBI increased the Cash Reserve Ratio (CRR)to stem the fall in the rupee against the dollar. The steady fall in the interest rates resulted insqueezed margins for the banks in general.

Governmental Policy

After the first phase and second phase of financial reforms, in the 1980scommercial banksbegan to function in a highly regulated environment, with administered interest rate structure,quantitative restrictions on credit flows, high reserve requirements and reservation of asignificant proportion of lendable resources for the priority and the government sectors. Therestrictive regulatory norms led to the credit rationing for the private sector and the interestrate controls led to the unproductive use of credit and low levels of investment and growth.The resultant financial repression led to decline in productivity and efficiency and erosion of

profitability of the banking sector in general. This was when the need to develop a sound

commercial banking system was felt. This was worked out mainly with the help of therecommendations of the Committee on the Financial System (Chairman: ShriM. Narasimham), 1991. The resultant financial sector reforms called for interest rateflexibility for banks, reduction in reserve requirements, and a number of structural measures.Interest rates have thus been steadily deregulated in the past few years with banks being freeto fix their Prime Lending Rates(PLRs) and deposit rates for most banking products. Creditmarket reforms included introduction of new instruments of credit, changes in the creditdelivery system and integration of functional roles of diverse players, such as, banks,financial institutions and non-banking financial companies (Nbfcs).Domestic Private SectorBanks were allowed to be set up, PSBs were allowed to access the markets to shore up theirCars.

Implications Of Some Recent Policy Measures:


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The allowing of PSBs to shed manpower and dilution of equity are moves that will lendgreater autonomy to the industry. In order to lend moredepth to the capital markets the RBIhad in November 2000 also changed the capital market exposure norms from 5 percent of

banks incremental deposits of the previous year to 5 percent of the banks total domesticcredit in the previous year. But this move did not have the desired effect, as in, while most

banks kept away almost completely from the capital markets, a few private sector banks wentoverboard and exceeded limits and indulged in dubious stock market deals. The chances ofseeing banks making a comeback to the stock markets are therefore quite unlikely in the nearfuture. The move to increase Foreign Direct Investment FDI limits to 49 percent from 20

percent during the first quarter of this fiscal came as a welcome announcement to foreignplayers wanting to get a foot hold in the Indian Markets by investing in willing Indianpartners who are starved of net worth to meet CAR norms. Ceiling for FII investment incompanies was also increased from 24.0 percent to 49.0 percent and have been includedwithin the ambit of FDI investment.

Norms of NPAs in banking Industry

A.BASEL I Norms:

The history of the Basel International codes and Standards (BIS) relating to minimum

capital adequacy for banks goes back to the developed countries' initiative in 1988 to

protect the Organization for Economic Cooperation and Development (OECD) banks

from the financial crises common during the 1980s. Basel I norms, were set out in 1988

and accepted over the years by around 100 Central Banks across the globe under whatcame to be known as the Basel Accord. The original accord, now known as Basel-I, was

quite simple and adopted a straight-forward `one size fits all approach' that does not

distinguish between the differing risk profiles and risk management standards across

banks. The Indian monetary authorities implemented the Basel II by 1999 .The banks

were to assess their assets and off-balance-sheet risks taken and incorporate them on their

balance-sheet. Basel I norms prescribed a minimum capital adequacy ratio (CRAR)of 8 %

for Banks which were signatories to the Basel Accord.

Basel I framework was confined to the prescription of only minimum capital

requirements for banks, the Basel II framework expands this approach not only to capturecertain additional risks in the minimum capital ratio but also includes two additional

areas, Supervisory Review Process and Market Discipline through increased disclosure.

Thus emerged RBI guidelines on investments and operations risk, paving the way for

adoption of what have come to be known as Basel II norms.

B. BASEL II Norms:

It is the second accord which focuses on operational risk along with market risk and

credit risk. Basel II tries to ensure that the anomalies existed in Basel I are corrected. The

process of implementing Basel II norms in India is being carried out in phases. Phase I

has been carried out for foreign banks operating in India and Indian banks having


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operational presence outside India with effect from March 31,2008. In phase II, all other

scheduled commercial banks (except Local Area Banks and RRBs) will have to adhere to

Basel II guidelines by March 31, 2009. With the deadline of March 31, 2009 for full

implementation of Basel II norms fast approaching, banks are looking to maintain a

cushion in their respective capital reserves. The minimum capital to risk-weighted assetratio (CRAR) in India is placed at 9%, one percentage point above the Basel II

requirement. All the banks have their Capital to Risk Weighted Assets Ratio (CRAR)

above the stipulated requirement of Basel guidelines (8%) and RBI guidelines (9%). As

per Basel II norms, Indian banks should maintain tier I capital of at least 6%. The

Government of India has emphasized that public sector banks should maintain CRAR of

12%. For this, it announced measures to re-capitalize most of the public sector banks, as

these banks cannot dilute stake further, as the Government is required to maintain a stake

of minimum 51% in these banks


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BANKS OVERVIEW

STATE BANK OF INDIA

ABOUT SBI

State Bank of India (SBI) is a Public Sector Banking Organization (PSB), in which theGovernment of India is the biggest shareholder. It is the largest bank in India and is ranked at380 in 2008 Fortune Global 500 lists, and ranked 219 in 2008 Forbes Global 2000. Measured

by the number of branch offices, SBI is the second largest bank in the world. SBI traces itsancestry back to the Bank of Calcutta, which was established in 1806; this makes SBI theoldest commercial bank in the Indian subcontinent. SBI provides various domestic,international and NRI products and services, through its vast network in India and overseas.With an asset base of $126 billion and its reach, it is a regional banking behemoth.

In recent years the bank has focused on four priorities, first, reducing its huge staff throughthe Golden handshake scheme known as the Voluntary Retirement Scheme, second,computerizing its operations, third, implementation of Business Process Re-Engineering(BPR), and fourth, trying to change the rude attitude of its staff through a

program aptly named 'Parivartan' or 'change'. On the whole, the Bank has been successful inthe first three initiatives but has failed in Parivartan.

The evolution of State Bank of India can be traced back to the first decade of the 19th

century. It began with the establishment of the Bank of Calcutta in Calcutta, on 2 June 1806.The bank was redesigned as the Bank of Bengal, three years later, on 2 January 1809. It was

the first ever joint-stock bank of the British India, established under the sponsorship of the

Government of Bengal. Subsequently, the Bank of Bombay (established on 15 April 1840)

and the Bank of Madras (established on 1 July 1843) followed the Bank of Bengal.

An important turning point in the history of State Bank of India is the launch of the first Five

Year Plan of independent India, in 1951. The Plan aimed at serving the Indian economy in

general and the rural sector of the country, in particular. Until the Plan, the commercial banks

of the country, including the Imperial Bank of India, confined their services to the urban

sector. Moreover, they were not equipped to respond to the growing needs of the economic

revival taking shape in the rural areas of the country. Therefore, in order to serve theeconomy as a whole and rural sector in particular, the All India Rural Credit Survey

Committee recommended the formation of a state-partnered and state-sponsored bank.

The All India Rural Credit Survey Committee proposed the take over of the Imperial Bank of

India, and integrating with it, the former state-owned or state-associate banks. Subsequently,

an Act was passed in the Parliament of India in May 1955. As a result, the State Bank of

India (SBI) was established on 1 July 1955. This resulted in making the State Bank of India

more powerful, because as much as a quarter of the resources of the Indian banking system

were controlled directly by the State. Later on, the State Bank of India (Subsidiary Banks)

Act was passed in 1959. The Act enabled the State Bank of India to make the eight formerState-associated banks as its subsidiaries.
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The State Bank of India emerged as a pacesetter, with its operations carried out by the 480

offices comprising branches, sub offices and three Local Head Offices, inherited from the

Imperial Bank. Instead of serving as mere repositories of the community's savings and

lending to creditworthy parties, the State Bank of India catered to the needs of the customers,

by banking purposefully. The bank served the heterogeneous financial needs of the plannedeconomic development.

Branches

The corporate center of SBI is located in Mumbai. In order to cater to different functions,

there are several other establishments in and outside Mumbai, apart from the corporate

center. The bank boasts of having as many as 14 local head offices and 57 Zonal Offices,

located at major cities throughout India. It is recorded that SBI has about 10000 branches,

well networked to cater to its customers throughout India.

ATM Services

SBI provides easy access to money to its customers through more than 8500 ATMs in India.

The Bank also facilitates the free transaction of money at the ATMs of State Bank Group,

which includes the ATMs of State Bank of India as well as the Associate Banks State Bank

of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Indore, etc. You may also

transact money through SBI Commercial and International Bank Ltd by using the State Bank

ATM-cum-Debit (cash plus) card.

Products And Services

Personal Banking

SBI Term Deposits SBI Loan For Pensioners

SBI Recurring Deposits Loan Against Mortgage Of Property

SBI Housing Loan Loan Against Shares & Debentures

SBI Car Loan Rent Plus Scheme

SBI Educational Loan Medi-Plus Scheme

Other Services

Agriculture/Rural Banking

NRI Services

ATM Services

Demat Services

Corporate Banking Internet Banking


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Mobile Banking

International Banking

Safe Deposit Locker

RBIEFT

E-Pay

E-Rail

SBI Vishwa Yatra Foreign Travel Card

Broking Services

Gift Cheques

ASSOCIATE BANKS

There are seven other associate banks that fall under SBI. They all use the "State Bank of"name followed by the regional headquarters' name. These were originally banks belonging to

princely states before the government nationalized them in 1959. In tune with the first FiveYear Plan, emphasizing the development of rural India, the government integrated these

banks with the State Bank of India to expand its rural outreach. The State Bank group refersto the seven associates and the parent bank. All the banks use the same logo of a bluekeyhole. Currently, the group is merging all the associate banks into SBI, which will create a"mega bank", and one hopes, streamline operations and unlock value. In Aug 2008 StateBank of Saurashtra (SBS) was merged with SBI notwithstanding protests from the Unions of

both Banks. It is reported that officers of SBS were appeased by promising them uncalled forsops. The manner in which the whole thing was done exposes the weakness of theManagement vis a vis its employees.

State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Saurashtra State Bank of Travancore


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ALLAHABAD BANK

Allahabad Bank (Hindi: ), which began operations in 1865, has its head-quarters in Kolkata is the oldest joint stock bank in India. The bank was founded in thehistorical city Allahabad in 1865 and now the bank has crossed 2500 branches on 31th march2012. The Chairman and Managing Director of the bank is Shri J. P. Dua. The bank has a

branch in Hong Kong and a representative office in Shenzen.

History

19th Century

On 24 April 1865: A group of Europeans at Allahabad founded Allahabad Bank. AllahabadBank is therefore now the oldest joint stock bank in India.

20th Century

In 1920, P & O Banking Corporation acquired Allahabad Bank with a bid price of Rs.436 pershare. Then in 1927 Chartered Bank of India, Australia and China acquired P&O Bank.

However, Chartered Bank continued to operate Allahabad Bank as a separate entity.

On 19 July 1969, the Government nationalized Allahabad Bank, together with 13 otherbanks.

In October 1989, Allahabad Bank acquired United Industrial Bank, a Calcutta-based bankthat had been established in 1940. Two years alter, Allahabad Bank established AllBankFinance Ltd, a wholly owned Merchant Banking subsidiary.

21st Century

The government's ownership of Allahabad Bank was reduced in October 2002 when the bankengaged in an Initial Public Offering (IPO) of 10 crores of shares, each with a face valueRs.10. The IPO reduced the Government's shareholding to 71.16%. Then in April 2005 the

bank conducted a second public offering of 10 crores of shares, each with a face value Rs.10and selling at a premium of Rs.72. This offering reduced the Government's ownership to55.23%.

In June 2006 the bank opened its first office outside India when it opened a representativeoffice in Shenzen, China. In February 2007, Allahabad Bank opened its first overseas branch,in Hong Kong. In March, the bank's business crossed Rs.1,00,000 crores mark.
http://en.wikipedia.org/wiki/Hindi_languagehttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Hong_Konghttp://en.wikipedia.org/wiki/Shenzenhttp://en.wikipedia.org/wiki/P%26O_Bankhttp://en.wikipedia.org/wiki/Chartered_Bank_of_India,_Australia_and_Chinahttp://en.wikipedia.org/wiki/Merchant_Bankhttp://en.wikipedia.org/wiki/Initial_Public_Offeringhttp://en.wikipedia.org/wiki/Shenzenhttp://en.wikipedia.org/wiki/Shenzenhttp://en.wikipedia.org/wiki/Initial_Public_Offeringhttp://en.wikipedia.org/wiki/Merchant_Bankhttp://en.wikipedia.org/wiki/Chartered_Bank_of_India,_Australia_and_Chinahttp://en.wikipedia.org/wiki/P%26O_Bankhttp://en.wikipedia.org/wiki/Shenzenhttp://en.wikipedia.org/wiki/Hong_Konghttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Hindi_language


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Products and Services

Products:

1.Deposits products

Flexi-Fix Deposit

Rs. 5 Banking

All Bank Tax Benefit term Deposit Scheme

All Bank Premium SB Account

All Bank Mahila Sanchey Account

All Bank Vikash SB Account

All Bank Premium Current Account

Current Plus Deposit Scheme

Sishu Mangal Deposit Scheme

All Bank Monthly Plus

2. Retail credit products

Housing Loan

Education Loan

Car Loan

Saral Loan

Personal Loan for Pensioners

Personal Loan for Doctors Loan against NSC/KVP

All Bank Rent Loan

All Bank Property Scheme

All Bank Furnishing Loan

Gold Loan Scheme

All Bank Mobile Scheme

Overdraft Facility in SB Accounts

All Bank Trade Scheme

3. Other credit products

Akshay krishi- Kisan Credit Card Scheme

All Bank- Expo


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Other Services

ASBA (Application Supported by Blocked Amount)

All Ayushman Bima Yojana

Cash Management Services

Depository Services

International Debit-cum-ATM card

Real Time Gross Settlement (RTGS)

National Electronic Funds Transfer (NEFT)

Gold Card Scheme for Exporters

Regional MSME Care Centres

Online Payments

Inward Money Transfer Services

Mobile Banking Services Account Portability


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PUNJAB NATIONAL BANK

Punjab National Bank(PNB) is an Indian financial services company based in New Delhi,India. PNB is the third largest bank in India by assets. It was founded in 1894 and is currentlythe second largest state-owned commercial bank in India ahead ofBank of Baroda with about5000 branches across 764 cities. It serves over 37 million customers. The bank has beenranked 248th biggest bank in the world by the Bankers Almanac, London. The bank's totalassets for financial year 2007 were about US$60 billion. PNB has a banking subsidiary in theUK, as well as branches in Hong Kong, Dubai and Kabul, and representative offices inAlmay, Dubai, Oslo, and Shanghai.

History

Punjab National Bank was registered on 19 May 1894 under the Indian Companies Act withits office in Anarkali BazaarLahore. The founding board was drawn from different parts ofIndia professing different faiths and a varied back-ground with, however, the commonobjective of providing country with a truly national bank which would further the economicinterest of the country.

PNB's founders included several leaders of the Swadeshi movement such as Dyal SinghMajithia and Lala Harkishan Lal, Lala Lalchand, Shri Kali Prosanna Roy, Shri E.C.Jessawala, Shri Prabhu Dayal, Bakshi Jaishi Ram, and Lala Dholan Dass. Lala Lajpat Raiwas actively associated with the management of the Bank in its early years. The board firstmet on 23 May 1894. Ironically, the PNB Website now claims Lala Lajpat Rai to be thefounding father, surpassing Rai Mul Raj and Dyal Singh Majithia.

With a common missionary zeal they set about establishing a national bank; the first one withIndian capital- owned, managed and operated by the Indians for the benefit of the Indians.The Lion of Punjab, Lala Lajpat Rai, was actively associated with the management of the

Bank in iis formative years.

The Bank made steady progress right from its inception. It has shown resilience to tide overmany a crisis. It withstood the crisis in banking industry of 1913 and the severe depression ofthe thirties.

PNB has the distinction of being the first Indian bank to have been started solely with Indiancapital that has survived to the present. (The first entirely Indian bank, the Oudh CommercialBank, was established in 1881 in Faizabad, but failed in 1958.)

PNB has had the privilege of maintaining accounts of national leaders such as Mahatma

Gandhi, Shri Jawahar Lal Nehru, Shri Lal Bahadur Shastri, Shrimati Indira Gandhi, as well asthe account of the famous Jalianwala Bagh Committee.
http://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/New_Delhi,_Indiahttp://en.wikipedia.org/wiki/New_Delhi,_Indiahttp://en.wikipedia.org/wiki/Bank_of_Barodahttp://en.wikipedia.org/w/index.php?title=Bankers_Almanac&action=edit&redlink=1http://en.wikipedia.org/wiki/Kabulhttp://en.wikipedia.org/wiki/Almatyhttp://en.wikipedia.org/wiki/Dubaihttp://en.wikipedia.org/wiki/Lahorehttp://en.wikipedia.org/wiki/Swadeshihttp://en.wikipedia.org/wiki/Dyal_Singh_Majithiahttp://en.wikipedia.org/wiki/Dyal_Singh_Majithiahttp://en.wikipedia.org/wiki/Lala_Lajpat_Raihttp://en.wikipedia.org/wiki/Faizabadhttp://en.wikipedia.org/wiki/Mahatma_Gandhihttp://en.wikipedia.org/wiki/Mahatma_Gandhihttp://en.wikipedia.org/wiki/Jawahar_Lal_Nehruhttp://en.wikipedia.org/wiki/Lal_Bahadur_Shastrihttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Jalianwala_Baghhttp://en.wikipedia.org/wiki/Jalianwala_Baghhttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Lal_Bahadur_Shastrihttp://en.wikipedia.org/wiki/Jawahar_Lal_Nehruhttp://en.wikipedia.org/wiki/Mahatma_Gandhihttp://en.wikipedia.org/wiki/Mahatma_Gandhihttp://en.wikipedia.org/wiki/Faizabadhttp://en.wikipedia.org/wiki/Lala_Lajpat_Raihttp://en.wikipedia.org/wiki/Dyal_Singh_Majithiahttp://en.wikipedia.org/wiki/Dyal_Singh_Majithiahttp://en.wikipedia.org/wiki/Swadeshihttp://en.wikipedia.org/wiki/Lahorehttp://en.wikipedia.org/wiki/Dubaihttp://en.wikipedia.org/wiki/Almatyhttp://en.wikipedia.org/wiki/Kabulhttp://en.wikipedia.org/w/index.php?title=Bankers_Almanac&action=edit&redlink=1http://en.wikipedia.org/wiki/Bank_of_Barodahttp://en.wikipedia.org/wiki/New_Delhi,_Indiahttp://en.wikipedia.org/wiki/New_Delhi,_Indiahttp://en.wikipedia.org/wiki/Financial_services


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Nationalisation of the fourteen major banks on 19th july, 1969 was a major step for thebanking industry. PNB was one amongst these. As a result, banking was given a newdirection and thrust.

The banks were expected to reach people in every nook and corner, meet their needs, and

work for their economic upliftment. Removal of poverty and regional imbalances wereaccorded a high priority.

PNB has always responded enthusiastically to the nations needs. It has been earnestlyengaged in the task of national development. In the process, the bank has emerged as a majornationalized bank.

Timeline

1895: PNB commenced its operations in Lahore.

1904: PNB established branches in Karachi and Peshawar. 1940: PNB absorbed Bhagwan Dass Bank, a scheduled bank located in Delhi Circle. 1947: At the Partition of India and the commencement of Pakistani independence,

PNB lost its premises in Lahore, but continued to operate in Pakistan. PNB hadalready shifted its registered office from Lahore to Calcutta in June 1947 even

before the announcement of the Partition. 1951: PNB acquired the 39 branches of Bharat Bank (est. 1942); Bharat Bank

became Bharat Nidhi Ltd.

1960: PNB again shifted its head office, this time from Calcutta to Delhi. 1961: PNB acquired Universal Bank of India. 1963: The Government ofBurma nationalized PNB's branch in Rangoon (Yangon). September 1965: After the Indo-Pak war the government of Pakistan seized all the

offices in Pakistan of Indian banks. PNB also had one or more branches in EastPakistan (Bangladesh).

1960s: PNB amalgamated Indo Commercial Bank (est. 1933) in a rescue. 1969: The Government of India (GOI) nationalized PNB and 13 other major

commercial banks, on 19 July 1969. 1976 or 1978: PNB opened a branch in London. 1986 The Reserve Bank of India required PNB to transfer its London branch to State

Bank of India after the branch was involved in a fraud scandal. 1986: PNB acquired Hindustan Commercial Bank (est. 1943) in a rescue. The

acquisition added Hindustan's 142 branches to PNB's network. 1993: PNB acquired New Bank of India, which the GOI had nationalized in 1980. 1998: PNB set up a representative office in Almaty, Kazakhstan. 2003: PNB took overNedungadi Bank, the oldest private sector bank in Kerala. At

the time of the merger with PNB, Nedungadi Bank's shares had zero value, with theresult that its shareholders received no payment for their shares.

PNB also opened a representative office in London.

2004: PNB established a branch in Kabul, Afghanistan.
http://en.wikipedia.org/wiki/Lahorehttp://en.wikipedia.org/wiki/Karachihttp://en.wikipedia.org/wiki/Peshawarhttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/Partition_of_Indiahttp://en.wikipedia.org/wiki/Burmahttp://en.wikipedia.org/wiki/Yangonhttp://en.wikipedia.org/wiki/History_of_the_Kashmir_conflicthttp://en.wikipedia.org/wiki/East_Pakistanhttp://en.wikipedia.org/wiki/East_Pakistanhttp://en.wikipedia.org/wiki/Bangladeshhttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Almatyhttp://en.wikipedia.org/wiki/Nedungadi_Bankhttp://en.wikipedia.org/wiki/Keralahttp://en.wikipedia.org/wiki/Kabulhttp://en.wikipedia.org/wiki/Kabulhttp://en.wikipedia.org/wiki/Keralahttp://en.wikipedia.org/wiki/Nedungadi_Bankhttp://en.wikipedia.org/wiki/Almatyhttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Bangladeshhttp://en.wikipedia.org/wiki/East_Pakistanhttp://en.wikipedia.org/wiki/East_Pakistanhttp://en.wikipedia.org/wiki/History_of_the_Kashmir_conflicthttp://en.wikipedia.org/wiki/Yangonhttp://en.wikipedia.org/wiki/Yangonhttp://en.wikipedia.org/wiki/Burmahttp://en.wikipedia.org/wiki/Partition_of_Indiahttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/Peshawarhttp://en.wikipedia.org/wiki/Karachihttp://en.wikipedia.org/wiki/Lahore


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PNB also opened a representative office in Shanghai.PNB established an alliance with Everest Bank in Nepal that permits migrants totransfer funds easily between India and Everest Bank's 12 branches in Nepal.

2005: PNB opened a representative office in Dubai.

2007: PNB established PNBILPunjab National Bank (International) in the UK,with two offices, one in London, and one in South Hall. Since then it has opened athird branch in Leicester, and is planning a fourth in Birmingham.

2008: PNB opened a branch in Hong Kong. 2009: PNB opened a representative office in Oslo, Norway, and a second branch in

Hong Kong, this in Kowloon. 2010: PNB received permission to upgrade its representative office in the Dubai

International Financial Centre to a branch.

Products and Services

1. Savings Fund AccountTotal Freedom Salary Account, PNB Prudent Sweep, PNB Vidyarthi SF Account,PNB Mitra SF .

2. Account Current AccountPNB Vaibahv, PNB Gaurav, PNB Smart Roamer.

3. Fixed Deposit Schemes -Spectrum Fixed Deposit Scheme, Anupam Account, Mahabachat Schemes, Multi

Benefit Deposit .

4. Scheme Credit SchemesFlexible Housing Loan, Car Finanace, Personal Loan, Credit Cards.

5. Social BankingMahila Udyam Nidhi Scheme, Krishi Card, PNB Farmers Welfare Trust

6. Corporate BankingGpld Card scheme for exporters, EXIM finance .

7. Business SectorPNB Karigar credit card, PNB Kushal Udhami, PNB Pragati Udhami, PNB VikasUdhamiApart from these, the PNB also offers locker facilities, senior citizens schemes, PPFschemes and various E-services.

Awards:

Ranked among top 50 companies by the leading financial daily, Economic Times.
http://en.wikipedia.org/w/index.php?title=Everest_Bank&action=edit&redlink=1http://en.wikipedia.org/wiki/Dubaihttp://en.wikipedia.org/wiki/Kowloonhttp://en.wikipedia.org/wiki/Dubai_International_Financial_Centrehttp://en.wikipedia.org/wiki/Dubai_International_Financial_Centrehttp://en.wikipedia.org/wiki/Dubai_International_Financial_Centrehttp://en.wikipedia.org/wiki/Dubai_International_Financial_Centrehttp://en.wikipedia.org/wiki/Kowloonhttp://en.wikipedia.org/wiki/Dubaihttp://en.wikipedia.org/w/index.php?title=Everest_Bank&action=edit&redlink=1


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Ranked as 323rd biggest bank in the world by Bankers Almanac (January 2006),

London.

Earned 9th place among India's Most Trusted top 50 service brands in Economic

Times- A.C Nielson Survey.

Included in the top 1000 banks in the world according to The Banker, London.

Golden Peacock Award for Excellence in Corporate Governance - 2005 by Institute

of Directors.

FICCI's Rural Development Award for Excellence in Rural Development 2005.

National Award for Excellence in SSI Lending- Ranked 2nd for four consecutiveyears from 2002 to 2005

The Banker's Almanac - Ranked 3rd amongst banking sector in India and 323rd rankin the world in 2006

The Banker, London- Ranked 386 amongst Top 1000 Global Banks in July 2005

AC Nielson Survey - 9th amongst Top 50 Most Trusted Services Brands in India

Golden Peacock Award- for excellence in corporate governance in 2005.

PNB Overseas Offices

PNB has a banking subsidiary in the United Kingdom, as well as branches in Hong Kong andKabul. It has representative offices in Almaty, Shanghai and Dubai.

Coming into Being

The bank was established in 1895 at Lahore. PNB's founders included several leaders of theSwadeshi movement like Dyal Singh Majithia, Lala HarKishen Lal, Lala Lalchand, KaliProsanna Roy, EC Jessawala, Prabhu Dayal, Bakshi Jaishi Ram, and Lala Dholan Dass. LalaLajpat Rai was actively associated with the bankss management in its early years.

It holds the distinction of being the first Indian bank to have been started solely with Indiancapital. In 1969, it was nationalized by the Government of India along with 13 other banks.

Subsidiaries of Punjab National Bank

PNB Gilts PNB Housing Finance PNB Investment Services PNB Insurance Broking PNB Life Insurance Co.


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Joint Ventures of Punjab National Bank

Principal PNB Asset Management Company Principal Trustee Company Assets Care Enterprises India Factoring & Finance Solutions

Fortune India 500 Ranking

Punjab National Bank was ranked #26 in the Fortune India 500 ranking of 2011.

Forbes Global 2000 Ranking

Punjab National Bank was ranked #1243 in the Forbes Global 2000.

PNB METLIFE

Punjab National Bank has entered into a strategic alliance with Metlife India Insurance,headquartered in Bangalore and Gurgaon, which has operated in India since 2001 and is anaffiliate of MetLife. The new entity, Pnb Metlife markets insurance products through PNB's

branches.
http://en.wikipedia.org/wiki/Fortune_India_500http://en.wikipedia.org/wiki/Forbes_Global_2000http://en.wikipedia.org/wiki/Forbes_Global_2000http://en.wikipedia.org/wiki/Fortune_India_500


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RATIO ANALYSIS

The relationship between two related items of financial statements is known as ratio. A ratio

is just one number expressed in terms of another. The ratio is customarily expressed in three

different ways. It may be expressed as a proportion between the two figures. Second it may

be expressed in terms of percentage. Third, it may be expressed in terms of rates.

The use of ratio has become increasingly popular during the last few years only. Originally,

the bankers used the current ratio to judge the capacity of the borrowing business enterprises

to repay the loan and make regular interest payments. Today it has assumed to be important

tool that anybody connected with the business turns to ratio for measuring the financial

strength and the earning capacity of the business.

GROSS NPA RATIO:

Gross NPA Ratio is the ratio of gross NPA to gross advances of the Bank. Gross NPA

is the sum of all loan assets that are classified as NPA as per the RBI guidelines. The

ratio is to be counted in terms of percentage.

NET NPA RATIO:

The net NPA percentage is the ratio of net NPA to net advances, in which the

provision is to be deducted from the gross advance. The provision is to be made for

NPA account.

PROVISION RATIO:

Provisions are to be made for to keep safety against the NPA, & it directly affect on

the gross profit of the Banks. The Provision Ratio is nothing but total provision held

for NPA of the Banks.

PROBLEM ASSET RATIO:

It is the ratio of gross NPA to total assets of the banks.

CAPITAL ADEQUACY RATIO:

Capital Adequacy Ratio can be defined as ratio of the capital of the Bank, to its assets,

which are weighted / adjusted according to risk attached to them.


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OBJECTIVES OF THE STUDY

Primary objective:

To know the performance of Indian Public Sector Banks with special reference

to Non Performing Assets.

Secondary objective:

To know the reasons for an asset becoming Non-Performing Asset.

To study the position of Non-performing Assets in various banks

To study the procedure and tools used for management of NPAs.


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RESEARCH METHODOLOGY

Research

Researchcan be defined as the search forknowledge, or as any systematic investigation, to

establish novel facts, solve new or existing problems, prove new ideas, or develop new

theories, usually using ascientific method.

Research Methodology

The system of collecting data for research projects is known as research methodology. The

data may be collected for either theoretical or practical research for example management

research may be strategically conceptualized along with operational planning methods and

change management.

Research Design

A research design is the arrangement of conditions for collection and analysis of data in a

manner that aims to combine relevance to the research purpose with economy in procedure.

Decision regarding what, where, when, how much, by what means concerning an inquiry or a

research study constitute a research design.

Types of Research Design:-

1. Exploratory: - Exploratory research design is also termed as formulative research design.

The main purpose of this study is that of formulating a problem for more precise

investigation or of developing the working hypothesis from an operational point of view. The

major emphasis in such studies is on the discovery of ideas and insights.

2. Descriptive:- Descriptive research design are those studies which are concerned with

describing the characteristics of a particular individual, or of a group.

Descriptive Research design is used in this report.


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Methods of Data Collection

Primary Data: - : Primarydata related to reasons of NPAs collected from 15 bank officials

Secondary Data:- Secondary Data are those, which have already been collected by someone

else and which have already been passed through the statistical process. Secondary data is

also used to gain initial insight into the research problem.

Secondary data is used.

This data is collected from the following sources.

Annual reports of the banks and financial manuals.

Reserve Bank of India annual reports.

Internet


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DATA ANALYSIS AND INTERPRETATION

Analysis of Primary Data

Component Matrixa

Documents

Introduction to stock exchange