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1
1.1> Introduction to co-operative Banks.
1.2> Structure of co-operative banking in India.
2
INDUSTRY DETAILS:
A bank is a business that provides banking services for profit. Traditional
bankingservices include receiving deposit of money, lending money and processing
transactions. Some banks (called Banks of issue) issue banknotes as legal tender. Many banks
offer ancillary financial services to make additional profit; for example: selling insurance
products, investment products or stock broking.
Currently in most jurisdictions the business of banking is regulated and banks require
permission to trade. Authorizations to trade is granted by bank regulatory authorities and
provide rights to conduct the most fundamental banking services such as accepting deposits
and making loans.
What is Bank?
“Banking is an establishment which makes to individual, such advances of money as
may be required & safely made to which individuals entrust money when not needed by them
for use”.
- Walter leat
in general sense, banking is writing of supplement, day-books ledger posting, balancing
preparation of pass-books, carrying outstanding instruction, interest calculation, cash
transfers, outward and inward cleaning, etc.
Banks are such places where people can deposit their savings with the assurance that they
will be able to withdraw money from the deposits whenever required. People who wish to
borrow money for business and other purposes can also get loans from the banks at
reasonable rate of interest.
Bank is a lawful organization, which accepts deposits that can be withdrawn on demand.
It also lends money to individuals and business houses that need it.
Banks also render many other useful services – like collection of bills, payment of foreign
bills, safe-keeping of jewelers and other valuable items, certifying the credit-worthiness of
business, and so on. Banks accept deposits from the general public as well as from the
business community. Anyone who saves money for future can deposit his savings in a bank.
Businessmen have income from sales out of which they have to make payment for expenses.
3
They can keep their earnings from sales safely deposited in banks to meet their expenses
from time to time. Banks give two assurances to the depositors:
a. Safety of deposit, and
b. Withdrawal of deposit, whenever needed
On deposits, banks give interest, which adds to the original amount of deposit. It is a great
incentive to the depositor. It promotes saving habits among the public. On the basis of
deposits banks also grant loans and advances to farmers, traders and businessmen for
productive purposes.
Thereby banks contribute to the economic development of the country and well-being
of the people in general. Banks also charge interest on loans. The rate of interest is generally
higher than the rate of interest allowed on deposits. Banks also charge fees for the various
other services, which they render to the business community and public in general. Interest
received on loans and fees charged for services which exceed the interest allowed on deposits
are the main sources of income for banks from which they meet their administrative
expenses.
The activities carried on by banks are called banking activity. ‘Banking’ as an activity
involves acceptance of deposits and lending or investment of money. It facilitates business
activities by providing money and certain services that help in exchange of goods and
services. Therefore, banking is an important auxiliary to trade. It not only provides money for
the production of goods and services but also facilitates their exchange between the buyer and
seller. You may be aware that there are laws which regulate the banking activities in our
country. Depositing money in banks and borrowing from banks are legal transactions. Banks
are also under the control of government. Hence they enjoy the trust and confidence of people
.Also banks depend a great deal on public confidence. Without public confidence banks
cannot survive
4
History of Banking In India:Without a sound and effective banking system in India it cannot have a healthy
economy. The banking system of India should not only be hassle free but it should be able to
meet new challenges posed by the technology and any other external and internal factors.
For the past three decades India's banking system has several outstanding
achievements to its credit. The most striking is its extensive reach. It is no longer confined to
only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached
even to the remote corners of the country. This is one of the main reasons of India's growth
process.
The government's regular policy for Indian bank since 1969 has paid rich dividends
with the nationalization of 14 major private banks of India.
Not long ago, an account holder had to wait for hours at the bank counters for getting
a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the
most efficient bank transferred money from one branch to other in two days. Now it is simple
as instant messaging or dials a pizza. Money has become the order of the day.
The first bank in India, though conservative, was established in 1786. From 1786 till
today, the journey of Indian Banking System can be segregated into three distinct phases.
They are as mentioned below:
Early phase from 1786 to 1969 of Indian Banks
Nationalization of Indian Banks and up to 1991 prior to Indian banking sector
Reforms.
New phase of Indian Banking System with the advent of Indian Financial & Banking
Sector Reforms after 1991.
To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase
III.
5
Phase I:
The General Bank of India was set up in the year 1786. Next came Bank of Hindustan
and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of
Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency
Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was
established which started as private shareholders banks, mostly Europeans shareholders. In
1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National
Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of
India, Central Bank of India, Bank of Baroda, Canada Bank, Indian Bank, and Bank of
Mysore were set up. Reserve Bank of India came in 1935.
During the first phase the growth was very slow and banks also experienced periodic
failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To
streamline the functioning and activities of commercial banks, the Government of India came
up with The Banking Companies Act, 1949 which was later changed to Banking Regulation
Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was
vested with extensive powers for the supervision of banking in India as the Central Banking
Authority.
During those day’s public has lesser confidence in the banks. As an aftermath deposit
mobilization was slow. Abreast of it the savings bank facility provided by the Postal
department was comparatively safer. Moreover, funds were largely given to traders.
Phase II:
Government took major steps in this Indian Banking Sector Reform after
independence. In 1955, it nationalized Imperial Bank of India with extensive banking
facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of
India to act as the principal agent of RBI and to handle banking transactions of the Union and
State Governments all over India.Seven banks forming subsidiary of State Bank of India was
nationalized in 1960 on 19th July, 1969, major process of nationalization was carried out. It
was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial
banks in the country was nationalized
Second phase of nationalization Indian Banking Sector Reform was carried out in
1980 with seven more banks. This step brought 80% of the banking segment in India under
Government ownership.
6
The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:
1949: Enactment of Banking Regulation Act.
1955: Nationalization of State Bank of India.
1959: Nationalization of SBI subsidiaries.
1961: Insurance cover extended to deposits.
1969: Nationalization of 14 major banks.
1971: Creation of credit guarantee corporation.
1975: Creation of regional rural banks.
1980: Nationalization of seven banks with deposits over 200 Corer.
Banking Overview:
The major participants of the Indian financial system are the commercial banks, the
financial institutions (FIs), encompassing term-lending institutions, investment institutions,
specialized financial institutions and the state-level development banks, Non-Bank Financial
Companies (NBFCs) and other market intermediaries such as the stock brokers and money-
lenders. The commercial banks and certain variants of NBFCs are among the oldest of the
market participants. The FIs, on the other hand, are relatively new entities in the financial
market place.
Historical perspective:
Bank of Hindustan, set up in 1870, was the earliest Indian Bank. Banking in India on
modern lines started with the establishment of three presidency banks under Presidency
Bank's act 1876 i.e. Bank of Calcutta, Bank of Bombay and Bank of Madras. In 1921, all
presidency banks were amalgamated to form the Imperial Bank of India. Imperial bank
carried out limited central banking functions also prior to establishment of RBI. It engaged in
all types of commercial banking business except dealing in foreign exchange.
Reserve Bank of India Act was passed in 1934 & Reserve Bank of India (RBI) was
constituted as an apex bank without major government ownership. Banking Regulations Act
was passed in 1949. This regulation brought Reserve Bank of India under government
7
control. Under the act, RBI got wide ranging powers for supervision & control of banks. The
Act also vested licensing powers & the authority to conduct inspections in RBI.
In 1955, RBI acquired control of the Imperial Bank of India, which was renamed as
State Bank of India. In 1959, SBI took over control of eight private banks floated in the
erstwhile princely states, making them as its 100% subsidiaries.
RBI was empowered in 1960, to force compulsory merger of weak banks with the
strong ones. The total number of banks was thus reduced from 566 in 1951 to 85 in 1969. In
July 1969, government nationalized 14 banks having deposits of Rs.50 corer & above. In
1980, government acquired 6 more banks with deposits of more than Rs.200 corer.
Nationalization of banks was to make them play the role of catalytic agents for economic
growth. The Narshimhan Committee report suggested wide ranging reforms for the banking
sector in 1992 to introduce internationally accepted banking practices.
The amendment of Banking Regulation Act in 1993 saw the entry of new private sector
banks.
Banking Segment in India functions under the umbrella of Reserve Bank of India - the
regulatory, central bank. This segment broadly consists of:
8
1. COMMERCIAL BANK
2. CO-OPERATIVE BANKS
Commercial Banks:
The commercial banking structure in India consists of:
Scheduled Commercial Banks
Unscheduled Banks
Scheduled commercial Banks constitute those banks which have been included in the
Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those
banks in this schedule which satisfy the criteria laid down vide section 42 (60 of the Act.
Some co-operative banks are scheduled commercial banks albeit not all co-operative banks
are. Being a part of the second schedule confers some benefits to the bank in terms of access
to accommodation by RBI during the times of liquidity constraints. At the same time,
however, this status also subjects the bank certain conditions and obligation towards the
reserve regulations of RBI. This sub sector can broadly be classified into:
1. Public sector
2. Private sector
(1) Public sector banks
In the history of Indian banking, nationalization of imperial bank of India was
considered as a landmark. Another land mark in the history of Indian banking was the
nationalization of 14 large sized commercial banks on 19th July 1969. The nationalized
commercial bank was considered as a separate corporate body’s establishment under the
banking company act of1970. The new 14 banks came to be called public sector banks being
owned managed by government of India.
According to socialist thinkers “financial institution are among the most important
levers that any society has at its command for the achievement of its social and economic
objectives. Public ownership, it was believed, would curb down the tendency open the part of
the banks to provide for speculative and other unproductive purposes.
9
(2) Private sector banks
Government of India nationalized private sector banks two times. First time in 1969
and second time in 1980. In 1980 the government nationalized only those banks whose
hundred corer. Those private sectors banks which had deposited less than 2 hundred crore
were left for private management. Those banks which were not nationalized had to function
in conformity with banking regulation acts and the directives issued to the RBI from time to
time. These banks function in the same way as that of private sector banks. The private’s
sector banks enjoy certain amount of freedom in opening branches and providing loans and
advances.
Though they are also required to provide loans and advances to priority sector, they take great
precaution in selecting the beneficiaries. They are better managed than same of the public
sectors banks.
Co-operative banks:
The Cooperative banks in India started functioning almost 100 years ago. The
Cooperative bank is an important constituent of the Indian Financial System, judging by the
role assigned to cooperative, the expectations the cooperative is supposed to fulfill, their
number, and the number of offices the cooperative bank operate. Though the cooperative
movement originated in the West, but the importance of such banks have assumed in India is
rarely paralleled anywhere else in the world. The cooperative banks in India play an
important role even today in rural financing. The businesses of cooperative bank in the urban
areas also have increased phenomenally in recent years due to the sharp increase in the
number of primary co-operative banks.
Cooperative Banks in India are registered under the Co-operative Societies Act. The
cooperative bank is also regulated by the RBI. They are governed by the Banking
Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.
Cooperative banks in India finance rural areas under:
Farming
Cattle
Milk
Hatchery
10
Personal finance
Cooperative banks in India finance urban areas under:
Self-employment
Industries
Small scale units
Home finance
Consumer finance
Personal finance
1. Primary co-operative credit societies.
2. Central / district co-operative banks.
3. State co-operative banks (also called as apex banks) at the top.
Types of co-operative bank:
1. Primary co-operative credit societies:
Primary credit society is at the bottom of the three-tier structure of co-operative
banks.
The society normally contacts farmers. So, only a few people living within the area of
society are admitted as members. Here individuals of a particular area meet together inspired
by sentiment of co-operation. Every member has to pay his share In a share capital. The price
of a share is nominal so that even a common man can be a member. The functioning of such
society is limited. The society is managed by elected people. Hon-secretary and members of
working committee. Such a society collects its funds by admission fees, share capital and
deposit of people. In case of need such society also get finance from central co-operative
banks or state co-operative bank. Normally society grants loans to members on individual
responsibility.
2. District co-operative Bank:
This bank is a link joining state co-operative bank with the primary credit society.
After the report of all India rural advances inquiry committee in 1945, the central co-
operative banks earned much importance the flow of rural advances reach to every farmer's
11
home through this bank via credit society. In reality central co-operative banks were establish
to supply financial help to primary credit society.
3. State Co-operative Banks:
This is the apex bank in the three tier structure set up of the country. Maclegan
Committee appointed in 1974 recommended to establish at least one state co-operative bank
per state. Today every state has the state co-operative bank. This bank especially co-operative
ordinates them and give required guidance. There were approximately 26 state co-operative
banks at the end of 77/78 in India.
Since state co-operative bank is an apex bank, its main function is co-ordination of
co-operative lending, its balance and controlling. The financial help for co-operative lending
activity given by Reserve Bank is also given through state co-operative bank.
12
Present Set Up Of Banking Industry In India
RBI
Commercial banks Co-operative banks other institutes
Public Private State Co-operative State land Devilment banks
Foreign banks Other Indian In India banks Central land development
Bank (PLBBI)
Primary Agriculture Credit Urban co-operative bank
Formers Service societies
Governments Public PrivateCorporate bank
13
Chapter 2-Company Profile
14
INTRODUCTION OF THE SURAT DIST CO-OPERATIVE
BANK LTD:
First decade of 20th century was a very important era in the history of cooperation for entire country and Surat District as well. Many cooperative institutions were initiated during this period. First Coop. Society in Surat District was registered at Degam, Taluka Chikhli on 23-5-1906 (Now in Bulsar District).
In the year 1909, with the efforts of Late Shri B.A.Modi and Late Shri K.G.Desai. The Surat Dist Co.op.(Urban) union Ltd., was registered on 17-6-1909. It was the institution which is later on known as THE SURAT DISTRICT CO.OP. BANK LTD.
In the year 1921, this society had undertaken banking activities in absolute terms. In 1923 The Surat District Co.op. (Urban) union was converted into The Surat District Co.op. Bank Ltd., The work extended to the entire Surat District, which had 21 talukas and a vast working area with geographical variation. The coastal area which included city of Surat and towns like Navasari - Bulsar – Bilimora, the fertile flat land and sizeable tribal area with hills and dense forests.
The Vast Surat District was bifurcated in1965 and district of Bulsar was separated. At present there are 15 talukas in the Surat district, of which 9 are in the tribal area.
Bank is having separate department for agriculture advances since 1944, and become an effective central agency for coordination and smooth flow of finance to cooperative sector in the district. Co-Operative Organizations like :-
The Surat District Milk Producers Co-op. Union Ltd.(SUMUL), The Purushottam Farmers Co-op. Ginning & Pressing Society Ltd., The Surat Distrcit Co-op. Spinning Mills Ltd., The Surat Jilla Sahakari Sale & Purchase Union., The Surat Central Co-op. Stores Ltd., Cotton Co-op Socities of Olpad Taluka,
have since been developed and Bank has provided timely assistance to them. During this period, Forest Labourers Co-op. Societies were also very active in tribal area and were engaged in coop cutting activity for which substantial finance was provided to them.
After 1956 when Shree Khedut Sahakari Khand Udyog Mandali Ltd., Bardoli came into existence, the entire Surat District gradually became a sugar belt. All existing eight sugar factories had toothing financial troubles in the beginning, However, Bank had provided them enough finance as also assisted even for meeting share capital also. By lapse of time Sugar cane has now become principal crop in the district and out of total cultivable area of 490000 hectares 83191 hectares is under sugar cane cultivation. This revolution in agriculture was amply supported by The Surat District Co.op. Bank Ltd., These factories have become main strength of the economic structure of the district, particularly for farmers. All together these factories have a crushing capacity of 35500 tons per day. Annual sugar production exceeds
15
Rs.880/- crores. Bank has sanctioned enough financial limits to this sector. Now a days, bank has started financing projects for Drip irrigation, Medicinal crops, Fishery, Green house etc. and would like to escalate the same on substantial extent. As per the instructions/ guidelines of NABARD, of-late, Bank has also started financing to the Non-farm sector including textile industry. Bank has been enjoying privilege of having prominent citizens in fields like Social, Co-operation and Agriculture, on its Board. The present and former members of the Board included outstanding Lawyers, Members of Parliament, District Panchayat Presidents, Mayor of Surat City and Leaders from various walks of life including Ministers.
In the year 1965 The Surat Dist. Co-op. Bank was separated after formation of Bulsar District from old Surat District. After separation bank’s Financial Position is as under.
Deposit scheme (with effective from 16/02/2012):
INVESTMENT PERIOD RATE
From 7 Days to 14 Days (Above Rs. 15 Lacs) 4.50%
From 15 Days to 30 Days 5.50%
From 31 Days to 45 Days 5.50%
From 46 Days To 60 Days 6.25%
From 61 Days to 90 Days 6.50%
From 91 Days to 120 Days 6.50%
From 121 Days to 179 Days 7.00%
From 180 Days to 270 Days 7.50%
From 271 Days to 364 Days 7.50%
1 Year & above but less then 2 Years 8.75%
2 Years & above but upto 3 Years 8.50%
2 Years & above but upto 5 Years 8.50%
5 Years & Above 8.50%
16
Recurring Deposit:
SR. MONTHS AMOUNT RATE MATURITY AMOUNT
1 12 100 9.00% 1260
2 24 100 9.50% 2651
3 36 100 10.00% 4208
4 48 100 10.00% 5911
5 60 100 10.00% 7791
BOARD OF DIRECTORS 2012-2013
SR NO.
NAME ADDRESS TELEPHONE NO
1(Chairman)Shree Dilipbhai Bhikhabhai Bhakta
At & Post - BajipuraTal - Valod , Dist - Tapi
(O) (0261) 2475772(R) (02625) 233226
2(Vice Chairman)Shree Amarsinh Zinabhai Chaudhary
At - Jesingpur,Tal - Vyara, Dist - Tapi
(O) (0261) 2470254(R) (02626) 220036
3 Shree Bhagabhai Parbhubhai PatelAt - JokhaTal - KamrejDist - Surat
(0) 0261- 2655524(R)02621-247327
4 Shree Maganbhai Ranchhodbhai PatelAt - VaradTal - BardoliDist - Surat
(02622) 255351
5 Shree Narayanbhai Harjibhai DonwalaAt - Songadh Tal - SongadhDist - Tapi
(02624) 222075(02624) 221110
6 Shree Ramanbhai Ambelal PatelAt - Saniyahemad, Tal - ChoryashiDist- Surat
(02621) 2640331
7 Shree Sharadbhai Shankarbhai PatelAt - PiploadTal - NizarDist - Tapi
(02628) 251039
8 Shree Narendrabhai Dahiyabhai At - (02629) 231287
17
SolankiTarsadi(Kosamba)Tal - MangroalDist - Surat
9 Shree Maganbhai Barkiyabhai VasavaAT & Post - ChitpurTal - Uchchhal, Dist -Tapi
(02628) 222125(02628) 222112
10Shree Jaysinhbhai Dungariyabhai Vasava
At - DhanawadTal - Umarpada Dist - Surat
(02629) 253542
11 Shree Kiritbhai Ranchhodji DesaiAt - PalsanaTal - PalsanaDist - Surat
(02622) 265237(0261) 2256092
12 Shree Prabhubhai Nagarbhai VasavaAt & Post- Sathvav, Tal - Mandvi, Dis.- Surat
(O) (02623) 221169(R) (02623) 271188
13 Smt. Dr. Vikashben Kishorbhai Desai1, Sangam Society, Dumas Road,Surat - 395001
(0261) 2227655(0261) 2227259
14 Shree Dhansukhbhai Nathubhai PatelAt - BarbodhanTal - OlpadDist - Surat
(M) 9879522010
15 Shree Balubhai Khushalbhai PatelAt & Post - KoshTal - MahuvaDist - Surat
(M) 9427463739
16 Shree Nayan Naveenchandra BharatiyaPandolni Pol, NanavatDist - Surat
0261 2256928
17Shree Lillachandbhai V. Patel(Bank Nominees)
The. Saraswati Gram Vidhya Peeth,Samod (Gunwada),Tal - ShidhhapurDist - Mehsana
--
18Shree Ajaybhai Janakbhai ShahAdvocate (Professional Director)
Raykavad Street,At - VyaraTal - VyaraDist - Tapi
02626 222157
19District Registrar (Co-Op. Societies Surat)(Registrar's Nominee)
Jila Seva Sadan, A-Block, 1st Floor, In Front of Circut House, Athwa Lines, Surat.
(0261) 2665051(0261) 2666071
20Shree Pradeepsinh Gemalsinh AtodriyaCA (Professional Director)
414, Lalbhai Contractor Complex,Nanpura, Surat
(O) (0261) 2475788(R) (0261) 2233287
21 (Managing Director) At - Athwalines (O) (0261) 2474776
18
Shree Indrasinh Chandrasinh MahidaB.Sc, L.L.B(special), PGDLP, C.A.I.I.B, GDC & A
Dist - Surat (R) (0261) 2667064
22(Consultant)Shree Thakorlal Mohanlal ParekhB.Com, L.L.B.(Onars), C.A.I.I.B
Rander RoadDist – Surat
(O )(0261) 2473902(R) (0261) 2784497
23(Auditors)V.J.Amin and Co.(Charter Accountant)
Vadodra
24(Bankers)The Gujarat State Co-Op Bank Ltd.State Bank of India
AhmedabadSurat and Bardoli
(079) 25351970
25Registration No :– S.E/526 OF 1965License No :– RPCD – (AH) 23/2011-12
ORGANIZATION STRUCTURE OF THE BANK:
19
(Banking)ASSISTANT GENERAL MANAGER
(Banking)
(Account)GENERAL ASSISTANT MANAGER
(Accountant)
(Accountant)
(Loan)ASSISTANT GENERAL MANAGER
(Loan)
(Develop.)ASSISTAT GENERAL MANAGER
(Devpt.)
MANAGER
ASSISTANT
CLERK
MANAGER
ASSISTANT
CLERK
MANAGER
ASSISTANT
CLERK
MANAGER
ASSISTANT
CLERK
Objectives of the bank:
To encourage thrift and mutual co-operation among its members.
1) To create funds to be lending at moderate of interest to the members of the bank in
accordance with the procedure specified in these byelaws.
2) To give possible help and necessary guidance to traders, artisans etc. who are members of
this bank, in the conduct of their business.
3) To do hundi business -
To lends money on security to its members.
GENERAL MANAGER
MANAGING DIRECTOR
20
With the previous permission of the registrar, to purchase any property for the
business of or for the use of the bank, to construct it and / or to make suitable
alternatives as may be necessary and to maintain the same.
To provide safe deposit vault to facilitate safekeeping of ornaments and valuable,
etc.
To perform any function as may deemed lawful for the bank and that as the
Central Government or the States Government may direct.
4) To do every kind of trust and agency business and particularly do work investment of
funds, sale of properties and of recovery or acceptance of money.
- To undertake the management of trust and for that to accept any office of the trustee,
executors or office to perform duties of such of confidence nature either
independently or jointly with some other person as the deems fit.
5) To accept money, documents, securities, valuables articles and goods every description
for keeping them in Safe-Custody or for sending them for one place to the other.
Branches:
Bank’s registered office is at the LalDarvaja,Main road. Near Surat station. Bank’s main
branch is in the Surat city. Bank has other 14 (total Branches) which is located in Surat
district.
Computerization:
All branches of The Surat Mercantile co-operative bank are fully computerized.
Growth Table of The Surat Dist. Co-Op. Bank Ltd:
(Rs. In Lacks)
SHARE
CAPITAL
21
YEAR & FUNDS DEPOSITS ADVANCES PROFITS DIVIDENDS
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
Auditors:
The audit of the bank shall be conducted only by the Chartered Accountants from the Panel
approved by NABARD.
The auditors are Bankers:
22
The Gujarat State Co-operative ltd. (Ahmadabad)
State Bank of India. (Surat)
Bank Of Baroda(Surat)
I.C.I.C.I. Bank Ltd. (Surat)
H.D.F.C Bank Ltd. (Surat)
IDBI Bank Ltd. (Surat)
AXIS Bank.
Yes Bank.
Union bank of India
Indusence bank limited
Kotak bank limited
Chapter 3-Product Profile
23
Product Details:Customer Service Available in The Surat Dist. Co-operative Bank:
Current Account:
24
The current accounts with The Surat Mercantile . Co-op. bank Ltd., promises you a
unique banking experience through innovative features and best services for businessmen,
firms, companies, public enterprises etc. that have numerous daily banking transact.
Savings Accounts:
A safe and easy way to save your money is with a bank savings account. Interest will
be earned on the money you have on deposit at the bank.
Fixed Deposit:
Bank fixed deposits are one of the most common savings scheme open to an average
investor. Fixed deposits also give a higher rate of interest than a savings bank account.
Monthly interest facility also available in this scheme.
Recurring Deposit:
Recurring Deposit Scheme is meant for investor who wants to deposit a fixed amount
every month. The scheme, a systematic way for long term savings is one of the best
investment options for the low income group.
Bank Enter In Insurance Sector:
Bank is affiliated with AVIVA LIFE INSURANCE COMPANY INDIA PVT. LTD.
for their customers’ life insurance. Bank is also affiliated with UNITED GENERAL
INSURANCE COMPANY for their customer's general insurance
Loans:
The Surat Mercantile Co-operative Bank provides different types of loan at less interest rate.
The different type of loans as specified below:
a. Loans Against Government Securities:
Facility to get loan or overdraft against government securities like National Saving
Certificates (N.S.C.), KishanVikasPatra (K.V.P.) Interest rate 8% and 9% subsequently.
b. Home consumable Loan:
Loan on purchase of home consumable product like Refrigerator, Washing Machine,
Television etc. 75% to 90% of purchase bill or maximum limit to 1 lakh rupees. 36 to 60
monthly installments. Interest Rate 9.50%.
c. Individual Vehicle Loan:
Up to 75% to 90% of purchase bill. Maximum limit of Rs.1 lakh for two wheeler vehicle
purchase Maximum limit of Rs.10 lakh for heavy vehicle like Car, Jeep, Tempo, Truck,
and Trailer. For 3 to 5 years on interest rate 9.50%.
25
d. Loan for higher education studies:
Provides education loan for business education like Medical, Engineering etc. Maximum
limit up to 5 lakh for study in country and up to 15 lakh for abroad study. Interest Rate
9% to 10%.
e. Individual Housing Loan:
Loan available for employee, merchants and farmers for construction of new building
and flats, Construction on their plots. Maximum installment credit is up to 10 years.
Interest rate is 9% to 10%
f. Loan against Fixed Deposit:
Facility to get quick loan/ overdraft for accidental requirement on Fixed Deposit slip for
bank fixed depositor.
g. Business Loan:
Merchants can get cash based on their current product stock.
Interest rate is 9.50% to 11.25%.
h. Loan for small Scale Industrial (S.S.I.) unit:
Loan for individual/partnership firm, company, textile, engineering, printing press unit
etc. Installment limits up to 5 years.
Interest rate is 10% to 11%.
i. Technology Up gradation Fund Scheme:
Scheme by Central Government, valid up to 31 March 2007. Businessmen can get
benefits by taking the scheme as follow:
1) 5% interest subsidiary or 15% Credit licked Capital subsidiary OR
2) 20% Credit licked Capital subsidiary (Maximum investment amount Rs.100 Lakh and
Maximum subsidiary amount Rs.60 lakh).
This loan is applicable to Textile S.S.I. and non S.S.I. Unit.
Procedure of taking loan from banks: The procedure associated with a term loan involves the following principle steps.
Process of loan
26
1. Submission of application
2. Primary assessment
3. Branch head recommendation
4. Final assessment of various level of bank
5. Lending committee
6. Documentation of loan application
7. Disbursement of loan
8. Creation of security
(1) Submission of application
The main & the first step is the submission of the duty filled form or the
loan application it is the choice customer that which types of application he wants to
give depending upon the needs.
(2) Primary assessment
When the application is received, an officer of the recipient institution
reviews it to ascertain whether it is complete for processing. If it is incomplete
the borrower is asked to provide the required additional information. When the
application is considered complete, the recipient institution prepares of flash
report, which is essentially a summarization of the loan application, to be
evaluated at the Senior Executive Meeting (SEM). Once the SEM, on the basis of
its evaluation of the flash report, decides that the project justifies a detail
appraisal, it nominates lead financial institutions. The factors taken in to account
for designating lead institution are: location of the project, prior experience of
institution in handling similar projects, representation of institutions in the state
and promoter group, and existing work load of the institutions.
(3) Branch head recommendation
The appraisal is moving one step ahead that is to analysis the applicants
eligibility as per the norms provided by the considering his gross income after
detecting his liabilities, his actual repayment capacity is checked as per norms.
(4) Final assessment of various level of bank
After referring the application form and appraisal branch head put his
recommended action whether to accept the application or not & send it the corporate
office.
(5) Lending committee
27
At the corporate office the final assessment is to be done & decision is taken to
reject the application is forwarded to the particular branch from where the application
has been received. Before it also lending committee decide whether to give loan or
not.
Example
Loan for more than 10 lack Rs all BOD need to agree for that particular Loan.
Also some of the lending committee is formed by bank in which Directors are
included and they decide whether to give Loan or not.
The branches have the power to take the major decision on the sanctioning of the loan
if it is less than Rs 1 lack.
(6) Documentation of loan application
Once the Loan is Sanction Banks need to check all the document of borrower as
well as guarantor once again and only then and then they can proceed ahead.
(7) Disbursement of loan
If loan is sanction than Bank open the account of borrower in their bank
and issue the check. Before the entire term loan is disbursed the borrowers must fully
comply with all terms and condition of the loan agreement.
(8) Creation of security
The term loans (both rupee and foreign currency) and the differed guarantee
assistance provided by the All-India financial institutions are secured through the first
mortgage, by way of deposit of title deeds of immovable properties and hypothecation
of movable properties. As the creation of mortgage, particularly in the case of land,
tends to be a time consuming process, the institutions permit interim disbursement
against alternate security (institution the form of guarantees provided by the
promoters.
Chapter 4-Theoratical Background
28
NON PERFORMING ASSETS:
Introduction:
“A Man without money is like a bird without wings”, the Rumanian proverb insists the
importance of the money. A bank is an establishment, which deals with money. The basic
functions of Commercial banks are the accepting of all kinds of deposits and lending of
money. In general there are several challenges confronting the commercial banks in its day to
day operations. The main challenge facing the commercial banks is the disbursement of funds
in quality assets (Loans and Advances) or otherwise it leads to Non-performing assets.
NPA’s –means:
An asset which ceases to generate income of the bank is called non-performing asset. The
past due amount remaining uncovered for the two quarter consequently the amount would be
classified as NPA for the whole year. It includes borrowers’ defaults or delays in interest or
principal repayment.
Definition Of Non-Performing:
The term Non-performing is, “loans or advances whose credit quality has deteriorated such
that full collection of principal and /or interest in accordance with the contractual repayment
terms of the loan or advances is in question”.
For purposes of this Directive, loans or advances with pre-established repayment programs
are non-performing when principal and or interest is due and uncollectible for 90 days or
more beyond the scheduled payment date or maturity.
For purposes of this Directive, overdraft and loans or advances that do not have a pre-
established repayment program shall be considered as non-performing when;
The debt remains outstanding for 90 consecutive days or more beyond the scheduled
payment date or maturity.
The debt exceeds the borrower’s approved limit for 90 consecutive days or more.
Interest is due and uncollected for 90 days or more or
For overdrafts, the account has been inactive for 90 consecutive days and / or deposits
are insufficient to cover the interest capitalized during the period.
Classification Of Loans Or Advances:
Banks shall classify all loans and advances into the following five categories.
A. Pass :
29
Loans or advances in this category are fully protected by the current financial and paying
capacity of the borrower and or not subject to critics. In general, any loans or advance or
portion thereof, this is fully secured, both as to principal and interest, by cash or cash
substitutes, shall be classified under this category regardless of past due status or other
adverse credit factors.
B. Special mention :
Any loan or advance part due 30 (thirty) days or more, but less than 90 (ninety) days shall be
classified Special Mention.
C. Substandard:
Non-performing loans or advances past due 90(ninety) days or more but less than 180(one-
hundred- eighty days) days shall, at a minimum, is classified substandard.
Without prejudice to the classification criteria used for the substandard category set out
above, the following non-performing loans and advances shall be categorized as substandard;
ii) Renegotiated non-performing overdraft facilities unless equivalent of all past due interest
is paid by the borrower in cash at the time of renegotiation and the account shows at a
minimum.
Ø A nil balance at least once; or
Ø A turnover rate of once the approved limit.
iii) Renegotiated non-performing merchandise loans unless physical inventory of the
merchandise taken by the bank at the time of renegotiation shows that the outstanding
principal loan and interest thereof are fully covered and the safety margin determined,
following the inventory is at least not lower than the margin stated in the loan contract
entered into by the bank and the borrower at the time of initial extension of the loan.
D. Doubtful:
Non-performing loans or advances past due 180 days or more, but less than 360 days shall be
classified, at a minimum, as doubtful.
E. Loss:
30
Non-performing loans or advances past due 360 days or more shall be classified as Loss.
GENERAL REASONS FOR ASSETS BECOMING NPAs:
A multiplicity of factor is responsible forever increasing size of NPAs in banks. A few
prominent reasons for assets becoming NPAs are as under.
Poor credit appraisal system
Lack of proper monitoring
Reckless advances to achieve the budgetary targets.
There is no or lack of corporate culture in the Bank. In adequate legal provisions on
foreclosure and bankruptcy.
Change in economic policies/ environment.
No transparent accounting policy and poor auditing practices.
Lack of coordination between banks.
Directed lending to certain sectors.
CAUSES OF NPA:
NPA arises due to a number of factors or causes like:
Speculation: Investing in high risk assets to earn high income.
Default: Willful default by the borrowers.
Fraudulent Practices:Fraudulent Practices like advancing loans to ineligible persons,
advances without security or references, etc.
Diversion of Funds: Most of the funds are diverted for unnecessary expansion and
diversion of business.
Internal Reasons: Many internal reasons like inefficient management, inappropriate
technology, labor problems, marketing failure, etc. resulting in poor performance of
the companies.
External Reasons:External reasons like a recession in the economy, infrastructural
problems, price rise, delay in release of sanctioned limits by banks, delays in
settlements of payments by government, natural calamities, etc.
Technical Aspects Of Non-Performing Assets:
31
A major element of the financial sector reform in India has been the introduction of
prudential norms and regulation. These prudential norms and regulation are basically aimed
at ensure the safety and soundness of the financial system; impart greater transparency and
accountability in operation and restoring credibility and confidence in the India financial
system. Prudential norms serve two primary purposes, which are 1. Bringing out the true
position of a bank’s loan profitability, and 2. Help arrest its deterioration.
A proper system for 1. Recognition of income, 2. Classification of assets, and 3. Provisioning
for bad debts on prudential basis is necessary if balance sheet of a bank is to reflect it’s an
actual financial health. The committee on financial system under the chairmanship of Shri M.
Narshimhan had examined this issue, recommended that a policy of income recognition
should be objective, and based on recovery rather than on any subjective consideration.
Similarly, the classification of assets, which would ensure a uniform and consistent
application of norms.
The recommendation of Shri M. Narsimham committee regarding income recognition, asset
classification and provisioning were sought to be implemented by RBI in a phased manner
over a three year period commencing from the year 1992-93. in these regard RBI has issued a
separate guidelines for different category of commercial scheduled banks (in April 1992), all
financial institutions (in April 1992 with some modification considering their functioning)
NBFCs ( in June 1994), RRBs (in March 1996) at a proper time with the adequate
modification, In 1993 all the primary cooperative Banks have been told that they should
comply with prudential norms on income recognition, assets classification, and provisioning
with some modification.
Later on a high power committee on Urban Co-operative Banks constituted in May 1999
under the chairmanship of K. MadhavaRao, was set up to review the performance of Urban
Co-operative Banks and to make necessary changes to strengthen this sector. There was a
need for structural reforms in the complete set up of the co-operative banks.
Income Recognition:
1. Effective form 1 st April 1992:
32
Interest on those loan accounts which have been identified as Non Performance
Assets (NPA) cannot be taken to the income account of the bank unless it is actually
realized. Such unrealized interest on NPA taken to the income account in the earlier
year has to be provided for. In other words, income has to be recognized on the basis
of Actual recovery and not on accrual basis.
2. Accrued interest on NPA:
Interest accrued on NPA should not be debited to borrower accounts, but to “interest
Receivable Account” and credited to “Overdue interest Reserve Account” and shown
on the asset and liability side of the balance sheet respectively. (the amount held in the
Overdue Interest Reserve Account, however, cannot be regarded as a “Reserve” or as
part of the Owned funds of the Bank)
3. Accrued interest on performing assets:
In respect of borrower accounts, which are treated as performing assets, accrued
interest can be debited to the borrower account and taken to the income account. In
cases, where such interest is not actually received before the end of the accounting
year, an amount year, an amount equivalent to the unrealized interest should be
reversed by debiting the profit and loss account and credited to the Overdue Interest
Reversed Account.
4. Partial recovery of interest:
Banks can take partial recovery of interest on NPA to their income account, but it
should be ensured that such recovery is not of fresh/additional credit facilities
sanctioned to the borrowers concerned.
5. Others:
Wherever the state co-operative Societies Act prescribes a more stringent accounting
procedure, it should be followed. Further, where the bank has a more stringent
accounting procedure, it can continent follow such a procedure.
Non-Performing Assets And Exemptions:
33
An asset/account is considered to be nonperforming when it ceases to generate income for
the bank. The criteria a borrower account as NPA depend on the nature of facility / limit
granted and is as under:
1. Term Loans:
Here interest and installment of principal remain overdue for the period of more than 90
days. If the account is regularized before the balance sheet date by repayment of overdue
amounts through genuine sources, the account did not treated as NPA. Banks should,
however, ensure that the account remains in order subsequently and solitary credit entry
made in the account on or before the balance sheet date to adjust the overdue interest or
installment of principal is not reckoned as the sole criterion for treating the account as a
standard asset.
2. Cash Credit and Overdraft Accounts:
An account is treated as ‘out of order’ if the balance outstanding in the account is
continuously in excess of the sanctioned limit or drawing power or where the outstanding
balance in the principal operating account is within the sanctioned limit or drawing
power, but there are no credits continuously for three months as on the date of balance
sheet, or credits are not enough to cover the interest debited the same period.
3. Bill purchased and Discount:
A bill is treated NPA, if it remains overdue and unpaid for period of more than 90 days.
Overdue interest should not be charged and taken to income account in respect of overdue
bills, unless it is realized.
4. Agricultural Loan:
If interest or installment of principal remains overdue for two harvesting season or two
half year whichever is earlier, the loan is treated as NPA.
5. Project finance :
In the case project finance, where moratorium is given for payment of interest, the
respective amounts will become due only after moratorium/ gestation period is over.
Exemptions:
34
1) Advance against Term Deposits, NSCs. And Surrender Value of Life Policies etc:
Advances against fixed and other term deposits, Nation Savings Certificates eligible for
surrender, LIC policies, Indira VikasPatras and KhedutViKasPatras have been exempted
from provisioning requirements. Accordingly, banks need not treat such account as NPAs
and make provision in respect of such advances although interest there on has not been
paid for three quarters as on 31st March 1994. Interest on such advances may also be
taken to income account on the due dates, provided adequate margin is available in the
account.
2) Reversal of Income on Accounts Becoming NPAs:
If any advance including bills purchased and discounted becomes NPAs as the close of
any year, interest accrual and credited to income account in the corresponding previous
year, should be reversed or provided for if the same is not realized. This will apply to
Government guaranteed accounts also.
If interest income from assets in respect of a borrower becomes subject to nonaccrual,
fees, commission and similar income with respect to same borrower that have been
accrued should cease to accrue in the current period and should be reversed or provided
for with to past periods , if uncollected.
3) Interest Application:
In case of NPAs where interest has not been receive for 90 days or more, as a prudential
norm, there is no use in debiting the said account by interest accrued in subsequent
quarters and taking this accrued interest amount as income of the bank as the said interest
is not being received. It is simultaneously desirable to show such accrued interest
separately or park in a separate account so that interest receivable on such NPA account is
computed and show as such, though not accounted as income of the bank for the period.
The interest accrued in respect of performing assets may be taken to income account as
the interest is reasonable expected to received however, if interest is not actually received
for any reason in these cases and the account is to be treated as an NPA as per the
guidelines, then the amount of interest so taken to income should be reversed or should be
provided for in full.
35
Norms Or Criteria For Asset Classification:
Classification of agricultural and non-agricultural loans is required to be done into four
categories, on the basis of age overdue, as under.
Good/standard Assets:
Good asset is one which can not disclose any problem and which does not carry more
than normal risk attached to business. Thus, in general, all the current loans, ST agricultural
and non-agricultural loan which have not become NPA may be treated as standard asset.
Sub-standard Assets:
A non-performing may be classified as sub-standard on the following basis of criteria.
1) An Asset which has remained overdue for a period not exceeding
3 years in respect of both agricultural and non-agricultural loan should be treated
as substandard.
2) In case of all types of loans, where installments are overdue for a
Period not exceeding 3 years, the entire outstanding in term loan should be
treated as substandard.
3) An asset, where the terms and condition of the loans regarding
payment of interest and repayment of principal have been renegotiated
rescheduled after commencement of production, should be classified as
substandard and should remain so in such category for at least two years of
satisfactory performance under the renegotiated terms In other words, the
classification of asset should be upgraded merely as a result of rescheduling
unless there is satisfactory compliance of the above condition.
Doubtful Asset:
A non-performing asset may be classified as doubtful on the basis of following
criteria.
1) An Asset which has remained overdue for a period exceeding 3 years in respect of
both agricultural and nonagricultural loans should be treated as doubtful asset.
2) In case of all type of loans, where installments are overdue for more than 3 years,
the entire outstanding in terms of loans should be treated as doubtful.
Loss Asset:
36
Loss asset are those where loss is identified by the bank inspectors but amount has not
been written off wholly or party. In other words an asset which is considered un
realizable or such little value of its continuance as a doubtful asset is not worthwhile,
should be treated as a loss asset such loss asset will include overdue loans in which
cases-
1) Decreases of executions petitions have been time barred or documents are loss or
no other legal proof is available to claim the debt.
2) Where the members and their sureties are declared insolvent or have died leaving
no tangible assets.
3) Where the members are left the area of operation of the society leaving no
properly and their securities have also no means to pay the dues.
4) Where the loans is fictitious or when gross utilization is notified
5) An amount which cannot be recovered in case of liquidated societies.
37
Chapter 5-Research Methodology
38
Literature Review
Bloem and Gorter (2001) suggested that a more or less predictable level of non-performing
loans, though it may vary slightly from year to year, is caused by an inevitable number of
‘wrong economic decisions by individuals and plain bad luck (inclement weather, unexpected
price changes for certain products, etc.). Under such circumstances, the holders of loans can
make an allowance for a normal share of non-performance in the form of bad loan provisions,
or they may spread the risk by taking out insurance. Enterprises may well be able to pass a
large portion of these costs to customers in the form of higher prices. For instance, the
interest margin applied by financial institutions will include a premium for the risk of non-
performance on granted loans.
At this time, banks’ non-performing loans increase, profits decline and substantial losses to
capital may become apparent. Eventually, the economy reaches a trough and turns towards a
new expansionary phase, as a result the risk of future losses reaches a low point, even though
banks may still appear relatively unhealthy at this stage in the cycle.
“Non-Performing Assets in co-operative banks” ByK. Ravichandran and R. Mayilsamy (2008)
Non-Performing Assets (NPAs), as a syndrome, though not new to the Cooperative Banking
Structure has been causing trouble and confusion during the recent past. Because NPAs as the
percentage to total recoverable funds acts as a constraint on the efficiency of the lending
institution and their capacity to borrow funds and lend to agriculture. Inordinate delay in
recovery of loan builds up NPAs, which affect the health of Cooperative Banks. The
Committee on Banking Sector Reforms reported that funds blocked in NPAs increase the cost
of financial inter-mediation as banks resort to raising deposits and borrowings at a higher
Costas a measure to minimize the balance between the cash outflow and cash inflow arising
out of the NPAs and the money locked up NPAs are not available for productive uses and to
the extent that banks seek to make provisions for NPAs. This has an adverse impact on the
profitability of the banks both in short and long run.
39
“Non-Performing Assets in commercial banks” By Vibha Jain (2007)
The book provides a comprehensive coverage of the challenges facing the banking industry
in India in tackling the bargaining problem of Non-Performing Assets (NPAs). It traces the
history of growth of NPAs in the banking industry caused initially by directed lending due to
strong government hold on banks. The government control also kept the issue under wraps
for a long time, understanding the enormity of the problem only at the advent of economic
reforms in early nineties. The book elucidates the various measures taken by Reserve Bank of
India to Control NPAs over the last decade and a half and critically analyses the success
obtained in containing the same.
“Management of Non-Performing Assets in Banks and Financial Institutions” By B. Ramachandra Reddy (2008)
Non-performing assets (NPAs) not only eat into profitability and hamper their ability to
recycle funds, but also shake the public confidence which is crucial for existence of any
financial institution. The present trend of NPAs is alarming and calls for rigorous and
concerted efforts by banks and financial institutions as well as government. This book is
based on the selected papers presented by academicians‟ and bankers in a national
seminar which discussed various aspects of the issue in detail
40
RESEARCH DESIGN & METHODOLOGY
Collecting Secondary Data:
Annual report of the Surat Dist Co-operative Bank ltd.
Case Study
Other necessary theoretical requirement
The information has been collected from the other sources to make a project report
effective and informative. That data are collected from various website and financial
management for making concept very clear.
Studying Secondary Data:
After collecting secondary data from various sources, the next steps is to study various data
and finding out relevant information and filtering it to further process.
OBJECTIVES:
The main objective of behind this project is to analysis the actual position of NPA
deeply
To know about the NPA classification and provisioning requirement for non-
performing asset:
To calculate the total non-performing asset and compare with other banks and on the
basis to decide the growth rate of different bank.
The main object is known about the proper system of bank for reducing non-
performing asset or for conversion of non-performing asset.
To know the various and strategies for non-performing asset for the bank.
To learn about how to solve the problem of non-performing asset.
PROBLEM STATEMENT:
41
This project desires to understand the “Non-Performing Asset” at The Surat Mercantile Co- Operative Bank Ltd.
SCOPE:The scope of analysis was last 3 years data (2010, 2011, and 2012).
LIMITATION OF STUDY: Time factor is other limitation in this study, because the bank officials didn’t have
proper time to meet and solve mine queries of NPA.
Some of my recommendations are not for all banks because they are basis on high
cost.
The amount of loans and advances are also limited so it is obvious that the non-
performing of this bank will less than the other comparatives banks.
Non-performing asset cannot be totally converted into performing asset but only these
are some solutions for reducing it.
RESEARCH METHODOLOGY USED:
This project is prepared on Non-Performing Assets. The methodology used in this
project is as follows.
First of all I have the basis studied the basic concept of NPA.
After the introduction, the asset classification is described and the provisioning norms
for it by NAABARD are shown.
Then according to NPA statement the NPA analysis is done on the basis of previous
year’s financial data.
Comparative statement on the basis of various ratios is done.
At, last the recovery part is shown & various reasons, strategies, warning signals,
recovery procedure and steps for reducing NPA are included.
42
Chapter 6-Data Presentation & Analysis
43
Comparative Financial Statement:As the name indicates we simply compare the changes, which have taken place in the
various items of financial statements, in percentage terms. The increase and the decrease in
various items of assets and liability and similarly the changes in the figures of profit and loss
account indicate the effects of a business being conducted during certain period.
THE SURAT DIST CO OP BANK LIMITED:
(Rs.in lakh)
PARTICULARS 2009-2010 2010-2011 2011-2012
Standard Asset
Sub-standard Asset
Doubtful Asset
Loss Asset
Total Provision
Capital & Surplus
Interest Earned
Interest Paid
Total Assets
44
THE SARVODAYA SAHAKARI BANK LIMITED:
(Rs.in lakh)
PARTICULARS 2009-2010 2010-2011 2011-2012
Standard Asset
Sub-standard Asset
Doubtful Asset
Loss Asset
Total Provision
Capital & Surplus
Interest Earned
Interest Paid
Total Assets
Ratio Analysis:A ratio can be worked out to between two variables having either cause and effect
relationship or connected with other in some other manner. These two variables can be
selected either from balance sheet and another from profit and loss account.
Ratios are expressed in mathematical terms, like percentage or the number of time of or in
numbers. Some ratios are better expressed when worked out in percentage like the gross or
operating profit to sales. But certain ratios appear to be more effective when expressed in
number of times like the stocks turnover.
The following ratios are found out for ratio analysis as well as comparative statement
analysis.
Gross NPA Ratio
45
Net NPA Ratio
Problem Asset Ratio
Shareholder’s Risk Ratio
Provisions Ratio
Interest Spread Ratio
Sub-standard Asset Ratio
Doubtful Asset Ratio
Loss Asset Ratio
1. GROSS NPA RATIO:
Gross NPA is sum of all the loan assets that are classified as NPA as per the RBI
guidelines as on the balance sheet data. Gross NPA ratio is the ratio of gross NPA to
gross advantages of the bank. When it is to be expressed in percentage, it is known as
gross NPA percentage.
Gross NPA Ratio = Gross NPAs x 100Gross advances
BANK2009-2010
2010-
20112011-2012
SURAT D DIST
SARVODAYA SAHKARI
46
2009-2010 2010-2011 2011-2012
8.01%
10.24%9.63%
3.43% 3.10%2.22%
GROSS NPA RATIOSURAT MERCANTILE SARVODAYA SAHKARI
Interpretation:
Above table and chart indicates the quality of credit portfolio of the banks. High gross NPA
ration indicates low quality credit portfolio of the bank and vice-versa. We can see from the
above two banks gross NPA ratio that is Mercantile co-operative bank has stable at 8 to 12%
and the sarvodayaSahakari bank ratio has decreasing from the last 3 year. It indicates that the
quality of credit portfolio of The Mercantile co-operativebank is lower.
2. NET NPA RATIO:The net NPA percentage is the ratio of NPA to net advances, whereas the net NPA can be
simply worked out as the gross NPA minus provisions held for NPA account, and net
advances can be simply worked out as the gross advances minus provisions held for the NPA
account.
Net NPA Ratio = Net NPA x 100Net Advances
Net NPA Ratio = Net NPA - provisions x 100Gross advances - provisions
BANK2009-2010
2010-
20112011-2012
SURAT D DIST
SARVODAYA SAHKARI
47
2009-2010 2010-2011 2011-2012
0.07% 0.09% 0.09%
0.56%
0.97%
0.48%
NET NPA RATIOSURAT MERCANTILE SARVODAYA SAHKARI
Interpretation:
Above table and charts indicates the degree of risk in the portfolio of the bank. High
NPA ratio indicates high quantity of the risky assets in the bank for which no provision was
made. Above table of two banks are indicates that the net NPA ration of the
sarvodayaSahakaribank was higher than Mercantile co-operative. It saws that the
sarvodayaSahakari bank consist of risky assets on which no provision has been made.
3. PROBLEM ASSET RATIO:
It is the ratio of gross NPA to total assets of the bank.
Problem asset Ratio = Gross NPAs x 100
Total asset
BANK2009-2010
2010-
20112011-2012
SURAT D DIST
SARVODAYA SAHKARI
48
2009-2010 2010-2011 2011-2012
8.01%
10.24%9.63%
1.43% 1.37% 1.04%
PROBLEM ASSET RATIOSURAT MERCANTILE SARVODAYA SAHKARI
Interpretation:
It has been direct bearing on return of assets as well as liquidity risk management of
the bank. High problem assets ratio means high liquid. Above table shows that the
sarvodayaSahakari bank becomes successful in achieving lower problem asset ratio whereas
mercantile co-operative bank have comparatively higher ratio indicates.
4. SHAREHOLDERS RISK RATIO:
It is the ratio of Net NPA to total of capital and reserve of the bank.
Shareholder’s Risk Ratio = Net NPAs x 100
Total Capital & Surplus
BANK2009-2010
2010-
20112011-2012
SURAT D DIST
SARVODAYA SAHKARI
49
2009-2010 2010-2011 2011-2012
17.22%
22.76%21.47%
11.89% 12.72%
9.21%
SHAREHOLDERS RISK RATIO
SURAT MERCANTILE SARVODAYA SAHKARI
Interpretation:
It indicates the degree of risk associated with the shareholders’ investment. High ratio
means high risk to the shareholder. Above table of two bank are able to reduce the
shareholder’s risk in the last three years while in case of Bank should keep constant eye on
this ratio to maintain and attract the funds of shareholders.
5. PROVISION RATIO:It is the ratio of total provision held in respect to gross NPA of the bank.
Provision ratio = Total Provision x 100
Gross NPAs
BANK 2009-20102010-
20112011-2012
SURAT D DIST
SARVODAYA SAHKARI
50
2009-2010 2010-2011 2011-2012
4.78% 3.56% 3.72%
84.15%
69.49%78.90%
PROVISION RATIO
SURAT MERCANTILE SARVODAYA SAHKARI
Interpretation:
It indicates the degree of safety measures adapted by the banks. It has direct bearing
on profitability, dividend and safety of the shareholders fund. If the provision ratio is less, it
indicates that the bank has made under provision. The above table indicates the provision
ratio of two bank’s which saws the SarvodayaSahakari bank has more than 30% of its gross
NPA from last three year which saws over provision of NPA which indicates that bank
believe in top keep higher safety for profitability, dividend and safety of shareholder’s funds.
Mercantile co-operative bank has not more provision ratio so the bank has to improve this
ratio.
6. INTEREST SPREAD RATIO:
This is the excess of total interest earn over the total interest expanded.
(Interest earned during the year-Interest Spread ratio = Interest paid during the year) x 100
Standard Assets
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BANK 2009-2010 2010-2011 2011-2012
SURAT D DIST
SARVODAYA SAHKARI
2009-2010 2010-2011 2011-2012
11.49% 11.13%
12.84%
8.99%
6.38%
8.75%
INTEREST SPREAD RATIO
SURAT MERCANTILE SARVODAYA SAHKARI
Interpretation:
This ratio indicates the efficiency of the bank in managing and marching the interest
expenditure and interest income effectively. Interest spread is critical to a bank’s success as it
exerts a strong influence on its bottom line. The above table shows that Mercantile co-
operative bank is leading in interest spread ratio compare to the sarvodayaSahakaribank and
we can also see that from last one year its interest spread ratio increasing which indicates that
banks earning asset is increasing and non-performing account is rapidly converting in the
performing account.
7. SUBSTANDARD ASSETS:
It is the ratio of total substandard assets to gross NPA of the bank.
Substandard assets = Total substandard Assets x 100
Gross NPAs
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BANK 2009-2010 2010-2011 2011-2012
SURAT D DIST
SARVODAYA SAHKARI
2009-2010 2010-2011 2011-2012
11.89%
3.82%8.35%
28.24%
38.38%
19.14%
SUBSTANDARD ASSETS RATIO
SURAT MERCANTILE SARVODAYA SAHKARI
Interpretation:
It indicates the scope of up gradation / improvement in NPA. Above table of different
ratio of substandard shows that the mercantile co-operative bank has not much scope of loan
gradation or improvement as their ratio is very low but sarvodayaSahakari Bank has highest
ratio which means in all NPA’ substandard ratio has major proportion which indicates that
there is the highest scope for advance up gradation on improvement because it will be very
easy to recover the loan as minimum duration of defaults.
8. DOUBTFUL ASSET RATIO:
It is the ratio of total doubtful assets to gross NPA of the bank.
Doubtful Asset = Total doubtful Assets x 100
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Gross NPAs
BANK 2009-2010 2010-2011 2011-2012
SURAT D DIST
SARVODAYA SAHKARI
2009-2010 2010-2011 2011-2012
86.35%
60.56%
90.54%
45.42%
14.13%
31.77%
DOUBTFUL ASSET RATIO
SURAT MERCANTILE SARVODAYA SAHKARI
Interpretation:
It indicates scope of compromise of up NPA’s reduction. Above table shows the
Mercantile co-operative bank it remains very stable in last two years while in
theSarvodayaSahakari Bank ratio is considerably decreasing for the last three years, which
implies that it has to go for compromise as its substandard assets consist highest portion in
the total NPA’s.
9. LOSS ASSET RATIO:
It is the ratio of the Total Loss Asset to gross NPA of the bank.
LOSS ASSET RATIO= Total loss Assets x 100
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Gross NPAs
BANK 2009-2010 2010-2011 2011-2012
SURAT D DIST
SARVODAYA SAHKARI
2009-2010 2010-2011 2011-2012
1.76% 1.19% 1.11%
26.34%
47.48% 49.09%
LOSS ASSET RATIO
SURAT MERCANTILE SARVODAYA SAHKARI
Interpretation:
It indicates the least chance of recovery by the bank. Loss asset ratio of theMercantile
co-operative bank reduced in2010-2011 and2011-2012 which shows bank’s effort toward
reducing NPA,while inSarvodayaSahakari bank has increased in 2010-2011 and 2011-2012,
which shows that there are least chances of recovery.
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Working Notes:(Surat Dist Co Operative Bank Ltd: (2012-2013)
1. Gross NPA Ratio = 977.18x10010144.08
= 9.63%
2. Net NPA Ratio = 977.18 – 36.43x 10010144.08 – 36.43
= 0.09%
3. Problem Asset Ratio = 977.18 x 10010144.07
= 9.63 %
4. Shareholder’s Risk Ratio = 977.18 x 1004551.33
= 21.47 %
5. Provision Ratio = 36.43 x100977.18
= 3.72 %
6. Interest Spread Ratio = 2083.94 – 1087.93 x 1008676.89
= 11.49 %
7. Sub-standard Asset Ratio = 81.60x100
977.18
= 8.35 %
8. Doubt-full Asset Ratio = 884.77 x100 977.18
= 90.54 %
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9.Loss Asset Ratio = 10.80 x100 977.18
= 1.11 %
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Chapter 7-Findings & Suggestion
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FINDIGS
1) From the gross NPA Ratio of the bank in 2010is 8.01%. Which suddenly increases in
2011 i.e. 10.24% by 2.23%. It is goodfor the bank But in increases in 2012 i.e. 9.63%
by 0.61%, which is bad for the bank.
2) Gross NPA Ratio i.e. Surat mercantilebank has stable 8 to 10 % and Sarvodaya bank
ratio has decreased from the last three years. So quality of credit portfolio of Surat
mercantilebank is lower.
3) Net NPA Ratio of The Sarvodaya Bank was higher than Surat mercantile Bank. It
shows thatSarvodaya Bank consist of risky assets. It will become dangerous in the
long term solvency.
4) The Sarvodaya bank reduce the shareholder’s risk in last three years while in case of
Surat mercantile Bank increased the shareholder’s risk in two years but reduced in last
one year socomparatively Surat mercantile bank performance in these area is
good.
5) Provision ratio find that total provision divided gross NPAs of the bank in 2010 is
84.15% and it decreasing in 2011 i.e. 69.49% by 14.66% and it also increases in 2012
i.e. 78.90% by 9.41% increases. So we can say that Sarvodayacooperative bank
keeps higher safety to compare the Surat mercantile bank.
6) The above table shows that Surat mercantile bank is leading in interest spread in year
2010 is 11.49% it decrease 11.13% by 0.36% increases and also increases 12.84% by
1.71% increases which is comparatively good, then Sarvodayabank. Interest spread
ratio increasing which indicates that banks earning asset is increasing and non-
performing account is rapidly converting in the performing.
7) Substandard Asset Ratio find that total substandard asset upon gross NPAs of the
Surat mercantile bank in 2010 is 11.89% it decreases in 2011 i.e. 3.82% by8.07%
decrease and also increase in 2012 i.e. 8.35% by increase 4.53% in other side
Sarvodaya bank ratio is very highly increases its ratio in each year.
8) Substandard ratio of Sarvodaya bank has much more rather than Surat mercantile
bank, so Sarvodaya bank has scope of loan gradation or improvement.
9) Loss asset ratio indicates the least chance of recovery by the bank. Loss asset ratio of
Sarvodaya bank has increased in 2010-2011 and 2011-2012, which shows that there
are least chances of recovery but Surat mercantile bank reduced in2010-2011
and2011-2012, which shows Surat mercantile bank’s effort toward reducing NPA.
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CONCLUSION
The Indian banking sector is facing a serious problem of NPA. The extent of NPA is
comparatively higher in public sectors banks. To improve the efficiency and profitability, the
NPA has to be scheduled. Various steps have been taken by government to reduce the NPA.
It is highly impossible to have zero percentage NPA. But at last Indian banks can try
competing with foreign banks to maintain international standard.
NPA is a double-edged weapon, which effects bank profitability due to interest income not
being recognized on NPA accounts and loan previously to be created from profit earned. The
bank must adopt structured. NPAs management policy for elimination or reducing the NPAs
in the bank. In general the trend of NPAs CBE are increasing trend, on the same time the
CBC has been adopted very good techniques to control over the NPAS.
SUGGESTIONS
Proper identification of the guarantor should be check by the bank and his/her wealth
also, so that he/she can’t mislead the bank.
In the bank there should be a proper manpower planning for recovering NPA.
The bank must focus on recovery from those borrows who have the capacity to repay
but are not repaying initiation of coercive action a few such borrows may help.
Banks have to be assuring that the collateral security should not be disputed asset and
neither any other loan is taken on that security.
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BIBLIOGRAPHY
Last three years (2010, 2011, 2012) Annual Reports of The Surat mercantile
cooperative bank ltd and Surat Sarvodaya cooperative Bank Ltd.
NABARD guidelines 2010(Norms For NPAs)
Indian bankers, association bulletin, August 2008, August 2010.
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