NPAs SIP Projact ON SBI BANK

8/22/2019 NPAs SIP Projact ON SBI BANK

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A

Project on

A Non-Performing Assets

At

State Bank of India

(Conducted on behalf MARWADI share & finance limited, Bhid Bhanjan chock, Amreli)

Under the Guidance of (in Company)

Mr. Anand Bhatt (B.M)

Under the guidance of College

Prof. Dipak Gaywala

Institution

Parul Institute of Management and Research - Vadodara

Submitted to

Gujarat Technological University - Ahmedabad

Prepared By:

Chetan K. Ansodarya

M.B.A. Semester III

Enrolment No. 117110592101


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Company Certificate


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Certificate of College

This is to certify that the project entitled Non-Performing AssetsIs bonafide work

carried out by Mr. /Ms. Chetan K. Ansodarya student of Parul Institute of Management andResearch, Gujarat Technological University for Summer Internship Programme under my

supervision for the partial fulfillment of the requirement for the award of Master of Business

Administration. Certified further , that to the best of my knowledge, the work reported herein

does not form part of any other project report or dissertation on the basis of which an award was

conferred on the earlier occasion on this or any other candidate.

Name of the Faculty Guide Name of the DirectorProf. Dipak Gaywala G. Krishnamurthy

Signature SignatureDate: Date:Place: Place


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PREFACE

Loans have to be paid back one day. Had this been realized by all, how nice life would

have been on this Planet. It would not have prompted the poet to say Neither be a

Lender, nor a Borrower Be. Alas! Given the realities in life, this could remain at best a

wishful thinking.

So their business is to lend and lend more. Their proficiency; skill; competency are all

tested in how much they lend and how much they RECOVER and how quickly. Suffice it

would be to state that this can be likened to the vigor and strength with which one goes

about after fully recovering from any ailment. It is agreed by al beyond doubt Recovery

is essential and get recovery is very essential.

We know right from the appraisal stage up to the actual repayment stage the banks need

to be careful. We also know that once the money is in the hands of a borrower, attitudinal

changes take place. The borrower, with some few exceptions may be, feels a bit more

complacent as after all it is not this own money which is at stake. Therefore an attempt

is made here to put all that we know already proper perspective.


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ACKNOWLEDGEMENT

Success of any endeavor is always due to contribution from different people. I think

this is a good opportunity for me to thank those nice and wonderful people who have helped me

a lot in my project work. My hard work would never shine if I do not convey my heartfelt

gratitude to those people from whom I have got considerable support and encouragement

during this project.

At the outset, I would like to convey my bonifide gratitude to my inspirational and

intellectual guiders, for giving me an opportunity to do training in SBI. I really admire them

and extend my gratitude to Mr. Dipak Gaywala (lecturer, MBA Programme). Her

contribution in this project is a part, which I will always remember. She has provided me a new

direction to work & learn.

I would like to thankMr. G. Krishnamurthy (Principal, MBA Programme) and all

faculty members of I2IM for arranging the summer Training for MBA students.

I am also thankful to STATE BANK OF INDIA for giving me an opportunity to do

project for them.

Finally, on a personal note I would like to thank my parents for all their help and moral

support they provided during my project. I would even like to thank all my friends who have

directly or indirectly helped.And, at last I want to mention only that I have searched for better ways to do the things and

hope for the best.


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DECLARATION

I the undersigned student chetan k. ansodarya ofParul Institute of Management & Research

Vadodara M.B.A. II Semester, hereby declare that, the project on non performing assets is

my own work.

In the partial fulfillment of Master Degree of Business Administration, I had undergone project

work at State Bank of India under the guidance ofProf. Dipak Gaywala Sir Parul Institute of

Management & Research Vadodara and submitted to Gujarat Technological University,

Ahmedabad.

This project work is our original work and has not been submitted to anywhere earlier.

Place:- Vadodara

Date: - / / signature


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EXECUTIVE SUMMARY

As the requirements for the management programme, MBA students have to undergo

summer training at an industry level for two months. I have got that opportunity to this

project from a world-wide known and Indias Top most Bank, State Bank of India,

Ahmedabad Zonal Office.

SBI is an excellent brand name that is synonymous with trust and security. SBI is the

only bank in India to be ranked among the top 100 banks in the world and also among

the top 20 banks in Asia in the annual survey by The Banker.

The most important problem that the Indian banks are facing is the problem of their

NPAs. It is only since a couple of years that this particular aspect has been given so much

importance. The banks have to overcome these difficulties properly in order to effectively

counter the competition faced by the foreign banks. With the framing of laws as per

international standards and setting up of Debt recovery tribunal we can say that steps

have been taken in this direction.

Banks in India have traditionally been saddled with very high Non-Performing Assets.

The banking sector was heading for a crisis in 2001 with NPAs crossing a mammoth

64000 crores. Banks burdened with huge NPAs faced uphill tasks in recovering then due

to archaic laws and procedures. Realizing the gravity of the situation the government was

quick to implement the recommendations of the Narsimham Committee and Andhuarjuna

Committee leading to the enactment of the SRESI ACT 2002.( Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest Act).

The crucial factor that decides the performance of banks now days is the spotting of non-

performing assets (NPA). NPAs are those loans given by a bank or financial institution

where the borrower defaults or delays interest or principal payments banks are now

required to recognize such loans faster and then classify them as problem assts.

As far as the study is concerned the following may be summarized.


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Nearly 10% of the banks in Gujarat responded within a month for loan applications

received by them from their corporate clients. If was also found that 67 % of the banks

used to appraise loan proposals from their corporate clients with the viewpoint of

recovery. In Gujarat region it was found that about 62 % of the banker opined that there

was a need to evaluate the loan applications critically.

The respondents assigned highest weight to companys current performance and the

second highest was assigned to companys past performance. Around 10 % of the banks

in Gujarat recovered their dues on time from their corporate clients after maturity in

Gujarat. The most preferred measures were pervasion and legal action. The most

common suggestion received for improving the recovery system in Gujarat was regarding

improving the judicial system and delegating more power and autonomy to the banks.


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INDEX

Sr. Particular Page No.

Preface

Acknowledgment

Declaration

Executive Summery

1

2

3

4

1. Introduction

Early History of Bank

Banking in India

Type of Bank

Function of the bank

8-15

10

12

14

2. About SBI

History

Organization structure

About logo

Mission, vision and value

Major competitor

Product and services4. SWOT Analysis

5. Suggestion6. CONCLUSION

7. P&L A/C AND BALANCE SHEET

8. BIBLIOGRAPHY


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INTRODUCTION

The word bank i t der ived f rom the word bancus or banque that i s

French.

There was other of the opinion that the word bank is originally derived from the

German word back meaning joint for which was Italianized into banco. But whatever be theorigin of the word bank as Prof. Rramchandra Rao says. It would trace the history of banking in

Europe from middle ages.

What is bank?

The simple meaning of the bank is that an institution that borrows the money from the

public at specified interest rates and lends the money to the industrialists or businessmen etc. at

higher rates.A bank is a commercial or state institution that provides financial services, including

issuing money in form of coins, banknotes or debit cards, receiving deposits 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.

General ly, banks do the business of money they take deposits of moneys from

client and give loan to the person who has need of money. But in this age, for

the convenience of customer , banks provides some other services to the ir

cus tomer such as bankers cheque, overdraft , internet banking, ATM facil i ty ,

paying of bills, credit card, telegraphic transfer, insurance, demat etc.

For a people, i t i s di f f icul t to keep a very big amount of money in his

house safely. So, people save their money to bank. Bank gives loan to the person

who has need of money and gets higher interest on it than the interest of deposit.

The margin between the interest of loan and interest of deposit is the income of

bank.

Definition:- As persection 5(b) of the Banking Regulation Act, 1949, banking means,

the accepting, for the purpose of lending or investment, of deposits of money from the public,

repayable on demand or otherwise, and withdrawal by cheques, drafts, orders or otherwise.


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EARLY HISTORY OF BANKING

As early as 2000 B.C. the Babylonians had developed a banking system.

There is evidence to show the temples of Babylon were used as banks. After a

period of time, there was a spread of irreligion, which soon destroyed the public

sense of securi ty in deposit ing money and valuable in temples. The priests were

longer act ing as f inancial agents . The Romans did minute regulat ions , as to

conduct pr ivate banking and to create conf idence in i t . Loan banks were also

common in Rome. From these the poor ci t izens received loans without paying

interest, against security of land for 3 or 4 years.

During the ear ly periods , a lthough pr iva te indiv idual most ly d id thebanking business, many countries established public banks either for the purpose

of facilitating commerce or to serve the government.

However, upon the revival of civi l izat ion, growing necessi ty forced the

issued in the middle of the 12 t h century and banks were established at Venice

and Genoa. The Bank of Venice established in 1157 is supposed to be the most

ancient bank. Originally, i t was not a bank in the modern sense, during simply

an office for the transfer of the public debt.

In India , as early as the Vedic Period , banking, in mos t c rude f rom

exis ted. The books of Manu contain references regarding deposi ts , pledges,

policy of loans, and rate of interest. True, the banking in those days largely mint

money lending and they did not know the compl icated mechanism of modern

banking.


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Thi s i s t rue not onl y i n t he cas e o f I nd ia but a ls o o f o ther count ri es .

Although, the business of banking i s as o ld as au thent ic h is tory , banking

inst i tut ions have since then changed in character and content very much. They

are developed from a few simple operat ions involving the sat isfact ion of a few

individual wants to the complicated mechanism of modern banking, involving

the sat i s fact ion of capi tal s lowly seeking employment and thus providing the

very life blood of commerce.


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Banking in India

Banking in India originated in the last decades of the 18th century. The first banks

were The General Bank of India, which started in 1786, and Bank of Hindustan, which started

in 1770; both are now defunct. The oldest bank in existence in India is the State Bank of India,

which originated in the Bank of Calcutta in June 1806, which almost immediately became the

Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of

Bombay and the Bank of Madras, all three of which were established under charters from the

British East India Company. For many years the Presidency banks acted as quasi-central banks,

as did their successors. The three banks merged in 1921 to form the Imperial Bank of India,

which, upon India's independence, became the State Bank of India in 1955.

History of Banking in India

Merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a

consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and

still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company

that issues stock and requires shareholders to be held liable for the company's debt) It was not

the first though. That honor belongs to the Bank of Upper India, which was established in 1863,

and which survived until 1913, when it failed, with some of its assets and liabilities beingtransferred to the Alliance Bank of Shimla.

Around the turn of the 20th Century, the Indian economy was passing through a relative

period of stability. Around five decades had elapsed since the Indian Mutiny, and the social,

industrial and other infrastructure had improved. Indians had established small banks, most of

which served particular ethnic and religious communities.


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During the First World War (19141918) through the end of the Second World War

(19391945), and two years thereafter until the independence of India were challenging for

Indian banking. The years of the First World War were turbulent, and it took its toll with banks

simply collapsing despite the Indian economy gaining indirect boost due to war-related

economic activities.


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TYPES OF BANKS

Reserve bank of India

Nationalized Bank

State Bank Group

Co-operative Bank

Private Bank

Foreign Bank

RESERVE BANK OF INDIA

The Hil ton-young commission , appoin ted in 1926 has r ecommended the

necess ity of centrally empowered inst i tut ion to have ef fect ive control over

currency and f inancial t ransaction in the county. Accordingly, the Government

had then passed Reserve Bank of India Act, 1934 and established the Reserve

Bank of India with effect from 1 s t April 1935. The principal aim behind this was

to organize proper control over the currency management in the interes t of

country benefi ts and to maintain f inancial s tabil i ty. With this , the RBI mainly

looks after the following important functions:

To keep effective control over creation of credits and currency supply

To control the Banking transactions of Central and State Governments.

To act as Central administered Authority of all other Banks in the country.

To organize control over Foreign Currency Transaction.

To assist for improvement in financial aspect of the country.


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NATIONALISED BANKS

The Banking Company Act establishes i t in July 1969 by nationalizat ion of

1 4 m ajo r b an ks o f I nd ia . T he s en t p er ce nt o wn er sh ip o f t he b an k is o f

government of India.

STATE BANK GROUP

The State Bank of India was established

under the State Bank of India Act, 1955, the

subsidiary banks under the State Bank of India

(subsidiary Banks) Act 1959. The Reserve Bank

of India owns the State Bank of India, to a large

extent, and rest of the part is some private

ownership in the share capital of State Bank of

India. The State Bank of India owns the

subsidiary Banks.

OLD PRIVATE BANK

These banks are registered under Company Act, 1956. Basic

Difference between co-operative banks and private banks is its aim. Co-

operative banks work for its member and private banks work for earn

profit.

NEW PRIVATE BANKS

These banks lead the market of Indian banking business in very

short period. Because of its variety services and approach to handle


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customer and also because of long working hours and speed of services. This is also registered

under the Company Act. 1956. Between old and new private sector bank, there is wide

difference.

FOREIGN BANKS

Foreign Bank means multi-countries bank. In case of India Foreign Banks are such Banks.

Which open its branch office in India and their head office is outside of India.

List of Public Sector Banks(Nationalized) in India:

1. Allahabad Bank

2. Andhra Bank

3. Bank of Baroda

4. Bank of India

5. Bank of Maharashtra

6. Canara Bank

7. Central Bank of India

8. Corporation Bank

9. Dena Bank

10. Indian Bank

11. Indian Overseas Bank

12. Oriental Bank of Commerce

13. Punjab & Sind Bank

14. Punjab National Bank

15. Syndicate Bank

16. UCO Bank

17. Union Bank of India

18. United Bank of India

19. Vijaya Bank


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List of State Bank of India and its subsidiary:

1. State Bank of India

2. State Bank of Bikaner & Jaipur3. State Bank of Hyderabad

4. State Bank of Indore

5. State Bank of Mysore

6. State Bank of Patiala

7. State Bank of Travancore.

List of Private Sector Banks:

1. Bharat Overseas Bank Ltd.

2. City Union Bank Ltd.

3. Ing Vysya Bank Ltd.

4. Lord Krishna Bank Ltd.

5. SBI Commercial & International Bank Ltd.

6. Tamilnad Mercantile Bank Ltd.

7. The Bank of Rajasthan Ltd.8. The Catholic Syrian Bank Ltd.

9. The Dhanalakshmi Bank Ltd.

10. The Federal Bank Ltd.

11. The Jammu & Kashmir Bank Ltd.

12. The Karnataka Bank Ltd.

13. The Karur Vysya Bank Ltd.

14. The Lakshmi Vilas Bank Ltd.

15. Nainital Bank Ltd.

16. The Ratnakar Bank Ltd.

17. The Sangli Bank Ltd.

18. The South Indian Bank Ltd.

19. The United Western Bank Ltd.


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Functions of Bank

A. Primary Functions of Banks

The primary functions of a bank are also known as banking functions. They are the

main functions of a bank.

These primary functions of banks are explained below.

1. Accepting Deposits

The bank collects deposits from the public. These deposits can be of different types, such

as:-

a) Saving Deposits

b) Fixed Deposits

c) Current Deposits


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d) Recurring Deposits

a. Saving Deposits

This type of deposits encourages saving habit among the public. The rate of interest is low. At

present it is about 5% p.a. Withdrawals of deposits are allowed subject to certain restrictions.

This account is suitable to salary and wage earners. This account can be opened in single name

or in joint names.

b. Fixed Deposits

Lump sum amount is deposited at one time for a specific period. Higher rate of interest is paid,

which varies with the period of deposit. Withdrawals are not allowed before the expiry of the

period. Those who have surplus funds go for fixed deposit.

c. Current Deposits

This type of account is operated by businessmen. Withdrawals are freely allowed. No interest is

paid. In fact, there are service charges. The account holders can get the benefit of overdraftfacility.

d. Recurring Deposits

This type of account is operated by salaried persons and petty traders. A certain sum of money

is periodically deposited into the bank. Withdrawals are permitted only after the expiry of

certain period. A higher rate of interest is paid.

2. Granting of Loans and Advances

The bank advances loans to the business community and other members of the public.

The rate charged is higher than what it pays on deposits. The difference in the interest rates

(lending rate and the deposit rate) is its profit.

The types of bank loans and advances are:-

a) Overdraft

b) Cash Credits

c) Loans

d) Discounting of Bill of Exchange


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a. Overdraft

These types of advances are given to current account holders. No separate account is

maintained. All entries are made in the current account. A certain amount is sanctioned as

overdrafts which can be withdrawn within a certain period of time say three months or so.

Interest is charged on actual amount withdrawn. An overdraft facility is granted against a

collateral security. It is sanctioned to businessman and firms.

b. Cash Credits

The client is allowed cash credit up to a specific limit fixed in advance. It can be given

to current account holders as well as to others who do not have an account with bank. Separate

cash credit account is maintained. Interest is charged on the amount withdrawn in excess of

limit. The cash credit is given against the security of tangible assets and / or guarantees. The

advance is given for a longer period and a larger amount of loan is sanctioned than that ofoverdraft.

c. Loans

It is normally for short term say a period of one year or medium term say a period of

five years. Now-a-days, banks do lend money for long term. Repayment of money can be in the

form of installments spread over a period of time or in a lump sum amount. Interest is charged

on the actual amount sanctioned, whether withdrawn or not. The rate of interest may be slightly

lower than what is charged on overdrafts and cash credits. Loans are normally secured against

tangible assets of the company.

d. Discounting of bill of exchange

The bank can advance money by discounting or by purchasing bills of exchange both

domestic and foreign bills. The bank pays the bill amount to the drawer or the beneficiary of

the bill by deducting usual discount charges. On maturity, the bill is presented to the drawee or

acceptor of the bill and the amount is collected.


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B. Secondary Functions of Banks

The bank performs a number of secondary functions, also called as non-banking

functions.

These important secondary functions of banks are explained below.

1. Agency Functions

The bank acts as an agent of its customers. The bank performs a number of agency

functions which includes :-

a) Transfer of Funds

b) Collection of Cheques

c) Periodic Payments

d) Portfolio Management

e) Periodic Collections

f) Other Agency Functions

a. Transfer of Funds

The bank transfer funds from one branch to another or from one place to another.

b. Collection of Cheques

The bank collects the money of the cheques through clearing section of its customers.The bank also collects money of the bills of exchange.

c. Periodic Payments

On standing instructions of the client, the bank makes periodic payments in respect of

electricity bills, rent, etc.

d. Portfolio Management

The banks also undertake to purchase and sell the shares and debentures on behalf of

the clients and accordingly debits or credits the account. This facility is called portfolio

management.


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e. Periodic Collections

The bank collects salary, pension, dividend and such other periodic collections on

behalf of the client.

2. General Utility Functions

The bank also performs general utility functions, such as :-

Issue of Drafts, Letter of Credits, etc.

a) Locker Facility

b) Underwriting of Shares

c) Dealing in Foreign Exchange

d) Project Reports

e) Social Welfare Programmes

f) Other Utility Functions

a. Issue of Drafts and Letter of Credits

Banks issue drafts for transferring money from one place to another. It also issues letter

of credit, especially in case of, import trade. It also issues travellers' cheques.

b. Locker Facility

The bank provides a locker facility for the safe custody of valuable documents, gold

ornaments and other valuables.

c. Underwriting of Shares

The bank underwrites shares and debentures through its merchant banking division.

d. Dealing in Foreign Exchange

The commercial banks are allowed by RBI to deal in foreign exchange.


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e. Project Reports

The bank may also undertake to prepare project reports on behalf of its clients.

f. Social Welfare Programmes

It undertakes social welfare programmes, such as adult literacy programmes, public welfare

campaigns, etc.


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STATE BANK OF INDIA

ABOUT THE ORGANISATION

BACKGROUND

State Bank of India (SBI) is the largest banking and financial services company in

India by revenue, assets and market capitalization. It is a state-owned corporation with its

headquarters in Mumbai, Maharashtra. As of March 2012, it had assets of US$360 billion

with over 13,577 outlets including 157 overseas branches and agents globally. The bank

traces its ancestry to British India, through the Imperial Bank of India, to the founding in

1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian

Subcontinent. Bank of Madras merged into the other two presidency banksBank of

Calcutta and Bank of Bombayto form the Imperial Bank of India, which in turn became

the State Bank of India. The Government of India nationalised the Imperial Bank of India in

1955, with the Reserve Bank of India taking a 60% stake, and renamed it the State Bank of

India. In 2008, the government took over the stake held by the Reserve Bank of India. SBI

has been ranked 285th in the Fortune Global 500 rankings of the world's biggest corporationsfor the year 2012.

SBI provides a range of banking products through its vast network of branches in

India and overseas, including products aimed at non-resident Indians (NRIs). The State

Bank Group, with over 18,324 branches, has the largest banking branch network in India.

SBI has 14 local head offices situated at Chandigarh, Delhi, Lucknow, Patna, Kolkata,

Guwahati (North East Circle), Bhuwaneshwar, Hyderabad, Chennai, Trivandram, Banglore,

Mumbai, Bhopal & Ahmedabad and 57 Zonal Offices that are located at important cities

throughout the country. It also has 157 branches overseas.


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EVOLUTION OF SBI

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.

These three banks dominated the modern banking scenario in India, until when they were

amalgamated to form the Imperial Bank of India, on 27 January 1921.

Bank of Bengal H.O.

ESTABLISHMENT

The establishment of the Bank of Bengal marked the advent of limited liability,

joint-stock banking in India. So was the associated innovation in banking, viz. the

decision to allow the Bank of Bengal to issue notes, which would be accepted for

payment of public revenues within a restricted geographical area. This right of note issue

was very valuable not only for the Bank of Bengal but also its two siblings, the Banks of

Bombay and Madras. It meant an accretion to the capital of the banks, a capital on which

the proprietors did not have to pay any interest. The concept of deposit banking was also

an innovation because the practice of accepting money for safekeeping (and in some

cases, even investment on behalf of the clients) by the indigenous bankers had not spread

as a general habit in most parts of India.


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BUSINESS

The business of the banks was initially confined to discounting of bills of

exchange or other negotiable private securities, keeping cash accounts and receiving

deposits and issuing and circulating cash notes. Loans were restricted to Rs.one lakh and

the period of accommodation confined to three months only. The security for such loans

was public securities, commonly called Company's Paper, bullion, treasure, plate, jewels,

or goods 'not of a perishable nature' and no interest could be charged beyond a rate of

twelve per cent. Loans against goods like opium, indigo, salt woolens, cotton, cotton

piece goods, mule twist and silk goods were also granted but such finance by way of cash

credits gained momentum only from the third decade of the nineteenth century. All

commodities, including tea, sugar and jute, which began to be financed later, were either

pledged or hypothecated to the bank. Demand promissory notes were signed by the

borrower in favors of the guarantor, which was in turn endorsed to the bank.

Indians were the principal borrowers against deposit of Company's paper, while

the business of discounts on private as well as salary bills was almost the exclusive

monopoly of individuals Europeans and their partnership firms. But the main function of

the three banks, as far as the government was concerned, was to help the latter raise loans

from time to time and also provide a degree of stability to the prices of government

securities.

Old Bank of Bengal

The roots of the State Bank of India lie in the first decade of 19th century, when

the Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June


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1806. The Bank of Bengal was one of three Presidency banks, the other two being the

Bank of Bombay (incorporated on 15 April 1840) and the Bank of Madras

(incorporated on 1 July 1843). All three Presidency banks were incorporated as joint

stock companies and were the result of the royal charters. These three banks received

the exclusive right to issue paper currency in 1861 with the Paper Currency Act, a right

they retained until the formation of the Reserve Bank of India. The Presidency banks

amalgamated on 27 January 1921, and the re-organized banking entity took as its name

Imperial Bank of India. The Imperial Bank of India remained a joint stock company.

Seal of Imperial Bank of India.

Pursuant to the provisions of the State Bank of India Act of 1955, the ReserveBank of India, which is India's central bank, acquired a controlling interest in the

Imperial Bank of India. On 30 April 1955, the Imperial Bank of India became the State

Bank of India. The government of India recently acquired the Reserve Bank of India's

stake in SBI so as to remove any conflict of interest because the RBI is the country's

banking regulatory authority.

SBI has acquired local banks in rescues. For instance, in 1985, it acquired the

Bank of Cochin in Kerala, which had 120 branches. SBI was the acquirer as its affiliate,

the State Bank of Travancore, already had an extensive network in Kerala.

ASSOCIATE BANKS

SBI has five associate banks; all use the same logo of a blue circle and all the

associates use the "State Bank of" name, followed by the regional headquarters' name:


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State Bank of Bikaner & Jaipur

State Bank of Hyderabad

State Bank of Mysore

State Bank of Patiala

State Bank of TravancoreEarlier SBI had only seven associate banks that constituted the State Bank Group.

Originally, the then seven banks that became the associate banks belonged to princely states

until the government nationalised them between October 1959 and May 1960. In tune with the

first Five Year Plan, emphasising the development of rural India, the government integrated

these banks into the State Bank of India system to expand its rural outreach. There has been a

proposal to merge all the associate banks into SBI to create a "mega bank" and streamline

operations.

Mumbai Main Branch of SBI in Mumbai.

The first step towards unification occurred on 13 August 2008 when State Bank of

Saurashtra merged with SBI, reducing the number of state banks from seven to six. Then on 19

June 2009 the SBI board approved the merger of its subsidiary, State Bank of Indore, with

itself. SBI holds 98.3% in State Bank of Indore. (Individuals who held the shares prior to its

takeover by the government hold the balance of 1.77 %.)


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The acquisition of State Bank of Indore added 470 branches to SBI's existing network

of 12,448 and over 21,000 ATMs. Also, following the acquisition, SBI's total assets will inch

very close to the 10 trillion marks. The total assets of SBI and the State Bank of Indore stood

at 9,981,190 million as of March 2009. The process of merging of State Bank of Indore was

completed by April 2010, and the SBI Indore branches started functioning as SBI branches on

26 August 2010

PRESIDENCY BANKS ACT

The Presidency Banks Act launched in May 1876 was created to bring all three banks

under a common business structure. The proprietary connection with the government came to

end but the banks however continued holding charge of public offices and custody to a portionof the treasury balances. Also, the creation of reserve treasuries was put in place in Calcutta,

Bombay and Madras, where specified minimum balances, which were allocated to the

presidency banks were to be maintained in the main branch of each bank. These however could

not be used at will and was to be considered a favour and not a right.


35/98

BRANCHES OF SBI

State Bank of India has 172 foreign offices in 37 countries across the globe.

SBI has about 26,000+ ATMs (25,000th ATM was inaugurated by the then Chairman of

State Bank Shri O.P. Bhatt on 31 March 2011, the day of his retirement); and SBI

group(including associate banks) has about 45,000 ATMs.

SBI has 21,500 branches, including branches that belong to its associate banks.

SBI includes 99345 offices in India.


36/98

ORGANISATION STRUCTURE

CHAIRMAN

DMD: DEPUTY MANAGING CCO: CHIEF CORPORATE DIRECTOROFFICER

CFO: CHIEF FINANE CB: CORE BANKINGOFFICER

NB: NON BANKING IB: INTERNATIONAL BANKING

DMD & CCO

DMD & CFO

DMD & CDODMD CORPORATE

STRATEGY & NEW

BUSINESS

DMD (IT)CHIF ECONOMIC

ADVISOR

CVO

DMD RURAL & AGRIBUSINESS GROUP

MD & GE

(CB)

MD & GE

(NB)DMD & GE

(ASSOCIATES

& SUBSIDIARIES

DMD & GE

(TRESASURY

& MARKETS

DMD (I & MA)

(Located at Hyderabad)


37/98

BOARD OF DIRECTORS

Name Designation

Pratip Chaudhuri Chairman / Chair Person

Diwakar Gupta Managing Director

Hemant G Contractor Managing Director

A Krishna Kumar Managing Director

J B Mohapatra Director

Dileep C Choksi Director

D Sundaram Director

S Venkatachalam Director

Parthasarathy Iyengar Director

Deepak Ishwarbhai Amin DirectorSubir Vithal Gokarn Director

Rashpal Malhotra Director

D K Mittal Director

ASSOCIATE BANKS

State Bank of India has the following seven Associate Banks (ABs) with controlling interest

ranging from 75% to 100%.

1. State Bank of Bikaner and Jaipur (SBBJ)

2. State Bank of Hyderabad (SBH)

3. State Bank of Indore (SBIr)

4. State Bank of Mysore (SBM)

5. State Bank of Patiala (SBP)

6. State Bank of Saurashtra (SBS)

7. State Bank of Travancore (SBT)


38/98

ABOUT LOGO

T

HE

PLACE

TO

SHARE

THE

NEWS ...

SHARE THE VIEWS

Togetherness is the theme of this corporate loge of SBI where the world of banking services

meet the ever changing customers needs and establishes a link that is like a circle, it indicates

complete services towards customers. The logo also denotes a bank that it has prepared to do

anything to go to any lengths, for customers.

The blue pointer represent the philosophy of the bank that is always looking for the growth and

newer, more challenging, more promising direction. The key hole indicates safety and security.


39/98

Mission, Vision And Value

MISSION STATEMENT

To retain the Banks position as premiere Indian Financial Service Group, with world

class standards and significant global committed to excellence in customer, shareholder and

employee satisfaction and to play a leading role in expanding and diversifying financial service

sectors while containing emphasis on its development banking rule.

VISION STATEMENT

Premier Indian Financial Service Group with prospective world-class

Standards of efficiency and professionalism and institutional values.

Retain its position in the country as pioneers in Development banking.

Maximize the shareholders value through high-sustained earnings per

Share.

An institution with cultural mutual care and commitment, satisfying and

Good work environment and continues learning opportunities.


40/98

VALUES

Excellence in customer service

Profit orientation

Belonging commitment to Bank

Fairness in all dealings and relations

Risk taking and innovative

Team playing

Learning and renewal

Integrity

Transparency and Discipline in policies and systems.


41/98

MAJOR COMPETITOR

State bank of India has been facing great rivalry and major competition with other publicsector banks and some of private commercial banks. State bank of India has many banks as art

rival. Some of its art rival.

List of major competitors of SBI

I. ICICI Bank

II. Bank of Baroda

III. Canara Bank

IV. Punjab National Bank

V. Bank of India

VI. Union Bank of India

VII. Central Bank of India

VIII. HDFC Bank

IX. Oriental Bank of Commerce.

Here especially some of the public sector and private sector banks are givinghardcore competition to the state bank of India. So let us have some of the best bankswhich is also mentioned above and mentioned below in detail.

ICICI BANK

ICICI bank stands for Industrial Credit and Investment Corporation of India. ThisICICI bank is one of the heavyweight banks of private sector of India. It is providing thecore competition to the state bank of India. Especially in lending money, Investment.


42/98

But in profit making state bank of India is standing ahead. And when and wheresocial responsibility of concern state bank of India is heading high than any other banksin India.

HDFC BANK

HDFC stands for Housing Development and Finance Corporation ltd. This is alsoone of the leading banks of India in private sector. This bank is also providing hardcorecompetition to all the banks as well as state bank of India

But we mention earlier that state bank of India is ahead in banking India. So

HDFC bank has to work hard to reach at the milestone achieved by state bank of India.

BANK OF BARODA

Bank of Baroda is also one of the leading public sector banks in India. Bank ofBaroda is known as BOB. This PSU bank is also providing the tough competition to allother banks in India. The BOB bank is very renowned banks of India today. It is verychanged and very professionally working public sector banks

BOB has got professional in recent time so. It has to work very hard to achieveposition and reputation which are achieved by State Sank of India.


43/98

MAIN PRODUCT & SERVICES OF SBI

Products

State Bank of India renders varieties of services to customers through the followingproducts:

Personal loan

SBI Term Deposits

SBI Recurring Deposits

SBI Personal Loan SBI Loan For Pensioners

Loan Against Mortgage Of Property

Loan Against Shares & Debentures

Rent Plus Scheme

Medi-Plus Scheme

Rates Of Interest

Housing loan

Home is where the heart is! At SBI, we understand this better than most the toil andsweat that goes into building/ buying a house and the subsequent pride and joy of owning one.This is why our Housing loan schemes are designed to make it simple for you to make a choiceat least as far as financing goes!

Eligibility

Minimum age 21 years as on the date of sanction,

Steady source of income.
http://www.sbi.co.in/viewsection.jsp?id=0,1,19,114http://www.sbi.co.in/viewsection.jsp?id=0,1,19,114,190http://www.sbi.co.in/viewsection.jsp?id=0,1,20,119http://www.sbi.co.in/viewsection.jsp?id=0,1,20,121http://www.sbi.co.in/viewsection.jsp?id=0,1,20,120http://www.sbi.co.in/viewsection.jsp?id=0,1,20,122http://www.sbi.co.in/viewsection.jsp?id=0,1,20,429http://www.sbi.co.in/viewsection.jsp?id=0,1,20,125http://www.sbi.co.in/viewsection.jsp?id=0,16http://www.sbi.co.in/viewsection.jsp?id=0,1,19,114http://www.sbi.co.in/viewsection.jsp?id=0,1,19,114,190http://www.sbi.co.in/viewsection.jsp?id=0,1,20,119http://www.sbi.co.in/viewsection.jsp?id=0,1,20,121http://www.sbi.co.in/viewsection.jsp?id=0,1,20,120http://www.sbi.co.in/viewsection.jsp?id=0,1,20,122http://www.sbi.co.in/viewsection.jsp?id=0,1,20,429http://www.sbi.co.in/viewsection.jsp?id=0,1,20,125http://www.sbi.co.in/viewsection.jsp?id=0,16


44/98

Loan Amount

Applicant/ any one of the applicants are aged over 21 years and upto 45 years 60 times Ne

MonthlyIncome (NMI) or 5 times Net Annual Income (NAI), subject to aggregate repayment obligations not

Exceeding 57.50% of NMI/ NAI

Applicant(s) aged over 45 years of age 48 times NMI or 4 times NAI, subject to aggregate

repayment obligations not exceeding 50%of NMI/ NAI.

HOUSING LOAN INTEREST RATES:

Floating interest rates (linked to State Bank Advance Rate SBAR):

(SBAR: 12.75%)

Tenure Rate of Interest (p.a.)

Upto 5 years 2.00% below SBAR Minimum 10.75%

Above 5 and upto 10 years 1.50% below SBAR Minimum 11.25%



Tenure Rate of Interest (p.a.)*

Upto 5 years 11.50%

Above 5 and upto 10 years 11.75%

Car loan


45/98

Move ahead in life with SBI Car Loans! If you have been putting off purchasing that car, weinvite you to go through our Car Loans scheme. Low interest rates, easy repayment options, totaltransparency, Low processing charges, finance to include

vehicle registration charges, insurance and one time road tax.

You can apply for an SBI Car Loan to purchase:

A new car, jeep, Multi Utility Vehicle (MUV) or SUV (any make or model) An old car / jeep / MUV /SUV (not more than 5 years old). (any make or model)

Eligibility

To avail an SBI Car Loan, you should be

Individual between the age of 21-65 years of age.

A Permanent employee of State/Central Government, Public Sector Undertaking,

Private company or a reputed establishment

A Professionals or self-employed individual who is an income tax assesses or

A Person engaged in agriculture and allied activities.

Net Annual Income Rs. 75,000/- and above.

Education loan

A term loan granted to Indian Nationals for pursuing higher education in India or abroad whereadmission has been secured.

Eligible Courses

All courses having employment prospects are eligible.

Graduation courses/ Post graduation courses/ Professional courses

Other courses approved by UGC/Government/AICTE etc.

Amount of Loan

For studies in India, maximum Rs. 10 lacs

Studies abroad, maximum Rs. 20 lacs

Interest Rate

For loans upto Rs. 4 lakh 10.50% p.a.

For loans above Rs. 4 lakh 11.50% p.a.

Repayment Tenure


46/98

Repayment will commence one year after completion of course or 6 months after securing a jobwhichever is earlier.

Place of Study Loan AmountRepayment Period

in Years

In IndiaUp to Rs. 7.5 lacs 5-7

Above Rs. 7.5 lacs 5-10

AbroadUp to Rs. 15 lacs 5-7

Above Rs. 15 lacs 5-10

ServicesThe bank has provide various types service for his customer, the list of services as are

under:

Domestic Treasury

SBI Vishwa Yatra Foreign Travel Card

Broking Services

Revised Service Charges

ATM Services

Internet Banking

E-Pay

E-Rail

R-bieft

Safe Deposit Locker

Gift Cheques

Micro Codes Foreign Inward Remittances

ATM SERVICES


47/98

STATE BANK NETWORKED ATM SERVICES

State Bank offers you the convenience ATMs in whole India, the largest network in the country

and continuing to expand fast! This means that you can transact free of cost at the ATMs of State

Bank Group (This includes the ATMs of State Bank of India as well as the Associate Banks

namely, 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, and State Bank of Travancore)

and wholly owned subsidiary viz. SBI Commercial and International Bank Ltd., using the State

Bank ATM-cum-Debit (Cash Plus) card.

KINDS OF CARDS ACCEPTED AT STATE BANK ATMs

Besides State Bank ATM-Cum-Debit Card and State Bank International ATM-Cum-Debit Cards

following cards are also accepted at State Bank ATMs: -

1) State Bank Credit Card

2) ATM Cards issued by Banks under bilateral sharing viz. Andhra Bank,Axis Bank, Bank of

India, The Bank of Rajasthan Ltd., Canara Bank, Corporation Bank, Dena Bank, HDFC Bank,

Indian Bank, Indus Ind Bank, Punjab National Bank, UCO Bank and Union Bank of India.

3) Cards issued by banks (other than banks under bilateral sharing) displaying Maestro, Master

Card, Cirrus, VISA and VISA Electron logos

4) All Debit/ Credit Cards issued by any bank outside India displaying Maestro, Master Card,

Cirrus, VISA and VISA Electron logos


48/98

E-PAY

Bill Payment at Online SBI (e-Pay) will let you to pay your Telephone, Mobile, Electricity,

Insurance and Credit Card bills electronically over our Online SBI website

E-RAIL

Book your Railways Ticket Online.

The facility has been launched wef Ist September 2003 in association with IRCTC. The

scheme facilitates Booking of Railways Ticket Online.

SAFE DEPOSIT LOCKER

For the safety of your valuables we offer our customers safe deposit vault or locker facilities at a

large number of our branches. There is a nominal annual charge, which depends on the size of

the locker and the Centre in which the branch is located.

NRI HOME LOAN

Loans to NRIs & PIOs can be extended for the following purposes.

To purchase/construct a new house / flat

To repair, renovate or extend an existing house/flat

To purchase an existing house/flat

To purchase a plot for construction of a dwelling unit.

To purchase furnishings and consumer durables, as a part of the project cost


49/98

AGRICULTURE / RURAL

State Bank of India Caters to the needs of agriculturists and landless agricultural laborers

through a network of 6600 rural and semi-urban branches. here are 972 specialized branches

which have been set up in different parts of the country exclusively for the development of

agriculture through credit deployment. These branches include 427 Agricultural Development

Branches (ADBs) and 547 branches with Development Banking Department (DBDs) which cater

to agriculturists and 2 Agricultural Business Branches at Chennai and Hyderabad catering to the

needs of hi-tech commercial agricultural projects.


50/98


51/98

Introduction

The crucial factor that decides the performance of banks nowadays is the spotting of non-

performing assets (NPA). NPAs are those loans given by a bank of financial institution where the

borrower defaults of delays interest of principal payments.

Banks are now required to recognize such loans faster and then classify them as problem

assets. Close to 16 percent of loans made by Indian banks are NPAs-very high compared to 5

percent in advanced countries.

Banks are not allowed to book any income from NPAs. Also, they have to provide for

these NPAs, or keep money aside in case they cant collect from the borrower, which affects

their profitability adversely.

Classification of NPAs

In April 1992, it was decided to implement the Narsimham Committees

recommendations on financial sector reforms in a phased manner over a three-year period

commencing from the financial year 1992-93. Income Recognition, Assets Classification and

Provisioning (IRAC) norms were introduced with a view to reflect a true picture of financials of

Banks on the basis of their booking the income on actual basis than on accrual basis and also

classify assets according to the level of risks attached to them. The criteria for classification is :

Performing/Standards Assets: Loan assets in respect of which interest and principal are

received regularly are called standard or performing assets. Standard assets also include loans

where arrears of interest and / or of principal do not exceed 90 days as at the end of a financial

year. No provisioning is required for such loans.

According to RBI (NPAs) :- Any loan repayment or interest thereof that is delayed beyond 90

days has to be identified as an NPA. NPAs are further sub-classified into sub-standard, doubtful

and loss assets:


52/98

Sub-standard Assets: Sub-standard assets are those that are non-performing for a period not

exceeding two years. Also, in cases where the loan repayment is rescheduled, RBI has asked

banks to recognize the loans as sub-standard at least for one year.

Doubtful Assets: Loans which have remained non-performing for a period exceeding two years

and which are not considered as loss assets are known as doubtful assets. Major portions of

assets under this category relate to sick companies referred to the Board for Industrial and

Financial Reconstruction (BIFR) and waiting finalization of rehabilitation packages.

Loss Assets: A loss asset is one where loss has been identified but the amount has not been

written off wholly or partly. In other words, such an asset is considered uncollectible. There may

be some salvage value.

Provision for NPAs

The RBI has also laid down provisioning rules for the non-performing assets. This

means that banks have to set aside a portion of their funds to safeguard against any losses

incurred on impaired loans. Banks have to set aside 10 percent of sub-standard assets as

provisions. The provisioning for doubtful assets is 20 percent and for loss assets it is 100 percent.


53/98

Research Plan

(A) Defining the Problem:

Non-performing Assets in banking Industry has become a subject of intense

importance and discussion. It has assumed greater significance in the world of banking andbanks. It has become a barometer of the health of banks and discussions on any bank isincomplete without the mention of NPA, NPA has now become heart of the banking Industry,which in turn, is the heart of finance and economy of a nation.

Assets of a bank, generally, consist of cash investment, loans and advances, fixed assets

and miscellaneous assets. The resources of a bank are deployed in these assets. The resources

consist of capital and reserves, deposits, borrowings and other liabilities. These liabilities are

carried at a cost and hence its deployments into various assets should generate enough income to

service the cost of the liabilities. In other words, the assets in which the liabilities are deployed

should perform in such a way that it generate income to cover the cost of resources and also a

surplus, which is a profit of the bank, Thus the performance of assets reflects the health of the

banking industry.

Earlier, the buzzword in the banking industry was deposits as it is the basic raw material

for the banking industry. The status of the bank was, determined on the volume and size of its

deposits. The career of bankers used to depend on the level of deposits achieved by him. Bankswere not bothered about the performance of their assets. But from 1991, a sea change was made

in the way income of banks was recognized. With the first generation economic and finance

sector reforms coming into being, the method of income recognition in

the banking sector was changed from accrual basis to cash basis. An income will be

carried to profit and loss account only of it is realized in cash in 90 days. This was like a bolt

from blue for deposit happy bankers. All along, they were simply doing an accounting

exercise in debiting a loan account and credit the income account without bothering to see

whether it is actually paid by the borrower or not. Thus the performance of an asset was defined

for the first time in Indian Banking Industry.

This change of income recognition compelled the banks to unrecognized the income if

the interest is not received in cash from the borrowers. Not only is this, depending upon the


54/98

quality of the assets, various provisions now required to be made on such non performing assets.

This had compelled many large banks to declare loss for the first time in history of banking. This

had ominous portents for the entire banking industry. This also resulted in dwindling flow of

credit of trade and industry.

Thus NPA has the potential to directly affect the economy of the country. Many big

nations like Japan are suffering from this disease of high NPAs. Our country also now having a

large portion of bank credit locked in NPAs and hence NPA is receiving greater importance of

NPAs , that we thought to select it as a subject for Grand Project.


55/98

1 Research Problem

To study the state of recovery management.

2 Research Objectives

To identify reasons that lead to Standard assets of the bank becoming NPAs

To Suggesting Strategy to recovery Non Performing Assets and preventionof further NPAs

3 Research Methodologies

(1) Sample Design

The target population consists of State bank of India of Rajkot.

The sample size comprise of Twenty one Executives of State bank of India of

Rajkot.

(2) Collection of Data

A structured questionnaire was prepared to elicit information form the respondents.Secondary data collection was done through data available from Books, BankRegister and Bank system.

(3) Sampling Method

The research was done using Simple Random Sampling.

(4) Data Analysis

The analysis of primary data is done with the help of computerized statistical tools.


56/98

COLLECTION OF DATA

Information of Collecting the Data

Detail of Borrower

Reason of Due amount

Reason for become NPAs

Commitment of Borrowers

Utilisation of Fund

Detail of Loan

We personally contact to each and every defaulter and collect the whole data which mention herefor more information we attach Questionnaire here.

Collection of data is the essential part of the research. As possible as we collect the more data,view of customer, their opinion their problem and analysis those things and try give them bettersatisfaction bank as well as customer.

Data collect and bifurcate in different category as per their loan, which I mentioned earlier,

Home loan, Personal Loan, Education Loan, Vehicle Loan and SBF.


57/98

Edu Loan

29 19%

Home Loan

48 32%

Per.Loan

44 29%

Vehicles

Loan 17

11%

SBF 13 9%

Edu Loan Home Loan Per.Loan Vehicles Loan SBF

ANALYSIS & FINDINGS

For our Summer Project we got permission in State Bank of India jeshingpara brance, amreli. Inthis bank they provide us Data of NPAs account. I have use this data for research

Our Survey on 5- Segment of Loan

Education Loan

Personal Loan

Home Loan

Vehicle Loan

SBF

I have provided near about 250 Account but only 150 NPAs account person can cover and their

list are under.

No.Of

Borrowers

Edu.Loan Home Loan Personal

Loan

Vehicle

Loan

SBF

151 29 48 44 17 13

LOAN PROFILES

.

.

Here, As per above chart if we see that we find that Home loan having more Defaulter. No. ofBorrower in Home Loan is 48 and Percentage is 32 %.


58/98

Amount of Loan

No.Of Borrowers Total Amount Of

Loan

Total Amount of O/S Recovery

151 6,07,89,228 1,17,96,076 30,88,732

Total O/S,

11796076

Recovery,

3088732

0

2000000

4000000

6000000

8000000

10000000

12000000

Total O/S Recovery

Total O/S

Recovery

During my Summer Project I recovered Rs.30,88,732 and its a 26 % of the total Debt.

Account Become Regular

NO. of Defaulter Regular %

151 63 42%


59/98

RECOVERY FROM BORROWERS

Edu.Loan Per.Loan Home Loan Vehicle

Loan

SBF Total

13,80,900 113.800 7,72,550 3,90,512 4,30,970 30,88,732

Amount Recover

Edu.Loan

44%Home Loan

25%

Per.Loan 4%

Vehicles

Loan 13%

SBF 14%

Edu.Loan Home Loan Per.Loan Vehicles Loan SBF

Here, as per above chart more amount in Education loan amount is Rs.13,80,900 andpercentage is 44%.


60/98

EDUCATION LOAN

No. of

Borrowers

Loan Amt. O/s Amt. Recover Amt. %

29 2,67,41,533 27,69,046 13,80,900 49.86%

HOME LOAN

No. of

Borrowers

Loan Amt. O/S Amt. Recover Amt. %

48 1,94,43,624 65,63,936 7,72,550 11.76%

PERSONAL LOAN

No. of

Borrowers


44 31,96,000 11,28,844 113,800 10.08%

SBF

No. of

Borrowers

Loan Amt. O/s Amt. Recover Amt. %

13 69,37,250 11,03,276 4,30,970 39.06%

VEHICLE LOAN

No. of

Borrowers


17 35,69,821 7,63,758 3,90,512 51.11%

As per above show that more amount is recovery from Education LoanRs.13,80,900 but if wesee the recover by more share from vehicles loan that 51.11 %.


61/98

Debt Recovery Problems

(1) To identify assets and properties of borrowers and guarantors is a difficult exercise. Even

when banks get the decrees, execution may be difficult as the exact position of

borrowers/ guarantors properties may not be known .i.e. whether it is unencumbered, in

good physical and financial condition etc.

(2) Constraints of time and adequate staff to supervise and follow-up the large number of

accounts that are often scattered over wide areas, also hinders recovery effort. At times

inadequate transport and roads also hinders recovery effort. At times inadequate transport

and roads also make it difficult to reach borrowers.

(3) Despite the good intentions, it will depend on how fast the measures are implemented.

Since their introduction in 1994, DRTs have not been able to make a sound impact due to

the lethargy on the implementation front. Unless the Government takes concrete and

speedy measures to strengthen the Tribunals and streamline the legal systems, the DRTs

will amount to deferring the NPA problem.

(4) As against 50 to 60 Judges in High Courts, the Act provides for only one presiding

Officer for each Tribunal. The appellate Tribunal has suggested that when the number of

pending cases exceeds 2000, Government should appoint another Presiding Officer. This

suggestion needs to be acted upon quickly to prevent further delay in the settlement of

cases. Further, the Tribunals need to have their own permanent staff instead of depending

mainly on persons who are on deputation.


62/98

(5) Legal Methods-present scenario

Delay in disposing of the cases (10 to 20 years) are prohibitive and expensive appeals

further delay the process of awarding decree. Also the interest is only 6% p.a. simple on

principal.

Suggestions

(a) Need for a time frame for disposal of cases.

(b) For non payment of bank decretal dues parties to be put in civil imprisonment

without fail.

(c) Misuse of hypothecated securities to be treated as an offence punishable on the lines

of Sec 138 of N.I. Act with 2 years rigorous imprisonment.

(6) Statutory powers

Empowering banks to acquire assets for disposal without intervention of courts. (sec.

29 of State Financial Act.) This would work as deterrent against intentional defaulters.

(7) Lok Adalats

(a) Establishing Lok Adalats in all States.

(b) To be made compulsory for both borrowers and banks for settlement of smallerloans (present limit 5. Lac)

(8) BIFR (Board of Infrastructure and finance reconstruction )

(a) Relook into functioning of BIFR- whether objectives achieved since the ratio of

cases registered and cases dismissed/winding up was only 49% in 1996.

(b) Increase in number of benches-Housing separate benches for major cities like

Mumbai, Chennai.

(c) Time frame for rehabilitation (6 months).

(d) Reference to BIFR should be prerogative of banks.

(e) Prevent unscrupulous/dishonest promoters taking shelter under BIFR.


63/98

(9) In the case of immovable property, recovery continues to be a problem even where the

court decree of certificate has been passed. While the Act provides for attachment and

sale of property after the court decree has been issued there is no provision to prevent a

borrower from disposing off the property while the suit is still on. DRT Act empowers

Recovery Officers to recover the debt through attachment and sale of movable or

immovable property of the defendant but does not explicitly mention how to enforce

hypothecation, mortgage, etc.

(10) There are instances where the borrower has mortgaged the same property to

Several banks and availed facilities with predetermined criminal intention to

Cheat the banks with false and fabricated documents.

(11) Valuation reports of properties are inflated to suit the needs of the borrowers.

(12) Several problems have been faced by the banks while obtaining shares as

Collateral security. As the shares are not transferred in the name of the

Bank, Ultimately the matter has to be taken to the Company Law Board

(CLB) for Redressed, which, not to mention, consumes very much time.


64/98

Why assets become NPAs?

A several factors are responsible forever increasing size of NPAs in PSBs. The Indian

banking industry has one of the highest percent of NPAs compared to international levels. A few

prominent reasons for assets becoming NPAs are as under:

Poor credit appraisal system. Lack of vision/fore slightness while sanctioning/reviewing or

enhancing credit limits.

Lack of proper monitoring and follow up measures.

Reckless advances to achieve the budgetary targets.

Lack of sincere corporate culture. Inadequate legal provisions on foreclosure and bankruptcy.

Change in economic policies/environment.

Non transparent accounting policy and poor auditing practices.

Lack of coordination between Banks/FIs.

Directed lending to certain sectors.

Failure on part of the promoters to bring in their portion of equity from their own sources or

public issue due to market turning unfavorable.

Abolition of license raj and tough competition in the liberalized Indian economy.


65/98

NPAs and Its Effects

NPAs are drag on profitability of Banks because besides provisioning, Banks are also

required to meet the cost of funding these unproductive assets.

NPAs reduce earning power of assets. Return on assets (ROA) also gets affected. NPAs carry

risk weights of 100% (to the extent it is uncovered). Hence, they block capital for maintaining

capital adequacy.

As NPAs do not earn any income, they adversely affect capital adequacy ratio (CAR).

No recycling of funds.

NPAs also attract cost of capital for maintaining capital adequacy ratio. Capital cost involves

dividend for Tier I capital and Interest for Tier II capital.

Carrying NPAs require incurring of cost of capital adequacy and cost of funds blocked in NPAs.

PSBs are incurring around as high as 11% of their earnings as operating cost for monitoring and

recovering NPAs every year.

NPAs demoralizes the operating staff.

Regulatory and credit rating agencies abroad are also not comfortable with the high level of

NPAs of Indian Banks.

New Branch license are also not given to the Banks that have high level of NPAs.


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What steps have been taken so far to solve NPAs Problems?

Banks need to have better credit appraisal systems so as to prevent new NPAs from

occurring. However, once NPAs do come into existence, the problem can be solved only if there

is enabling legal structure, since recovery of NPAs often requires litigation and court orders to

recover stuck loans. With long-winded litigation in India, debt recovery takes very long time.

Banks are now working on utilizing the services of Debt Recovery Tribunals to solve this

problem. The government has also mooted the suggestion of an Asset Reconstruction Company,

which will be specialized agency set up for rehabilitating revivable NPAs (say, salvaging

projects which are inherently sound) and recovering funds out of unrevivable NPAs.

Other Strategies

Fixing up of budgets for profits and recovery rather than for advances. Budget

oriented approach, at times leads to release of credit facilities without ensuring

compliance of covenants of sanction. A suitable mechanism could be drawn at each

Bank level to provide monetary benefits/recognition to the operating staff

particularly for recovery in NPAs/write off cases.

Project with old technology should not be considered for finance.

Large exposure on big corporate/single project should avoid.

There is a need to shift in PSBs approach from collateral security to viability of the

project and intrinsic strength of promoters.

Up gradation of credit skills of the operating staff working in advances department.

Timely sanction/release to avoid time and cost overruns.


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TOOLS FOR MANAGING NPAs

1) HEALTH CODE SYSTEM

The RBI introduced HCS in banks in 1985-86, this system provide the following

information:-

Regarding the Health of individual advances.

The quality of credit portfolio and

The extent of doubtful or bad advances in relation to total advances.

The RBI, since 1985, requires all commercial banks in India to provide information

indicator the quality of individual advances in the following eight categories:

1)Satisfactory: Conduct is satisfactory the account of the borrowing firm is in order in

all respect and its safety is not in doubt.

2) Irregular: Occasional irregularity is observed but the safety of the loan is not in

question.

3) Sick Viable: Loan to sick units that are under nursing through the revival

programmed. The units, though currently sick, are viable.

4) Sick Non Viable: The irregularities continue to persist and there are no immediate

chances of accounts becoming regular.

5) Advances Recalled: Such loan accounts where repayment is highly doubtful and

nursing is not considered worthwhile, in case of such advances decision is taken to recall

them.

6)Suit Filed account: Loan account where the recovery proceedings have been initiated.


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7)Decreed Debts: Loan accounts where the recovery proceeding have been completed.

8) Bad and Doubtful: Loan accounts where the recovery of dues debts has become

doubtful on accounts of shortfall in value of security.

The RBI has classified problem loans with the banks in three categories.

(i) Advances classified as Bad and Doubtful by the bank [ Health Code No. 8]

(ii) Advances where suits were filed/ decrees obtained. [HC No.6 & 7].

(iii) Those advances with Major undesirable features [HC No.4 & 5 ].

EVALUATION OF HCS

Though the HCS provide for classification of assets it does not provide what action to

take regarding the improvement of quality of such assets.

Diversion of funds [as in 1 above] is the single most prominent reason. Moreover,reversionary trends developing during expansion/diversification phase and failure to raise

capital/debt from public issue is also an important factor.

Internals factors [No.4 above] of business failure, inefficient management etc., are next

important in the creation of NPA.

External factors [No.3 above] are the next in importance,

Time/cost overrun during the project implementation stage leading to liquidity strain.


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Other factors in their order of prominence are government policy changes, willful default,

fraud etc. and lastly deficiencies on the part of banks in the form of delay in release of

limits etc.

2) SETTLEMENT ADVISORY COMMITTEES:

To tackle chronic NPAs in priority sector RBI had come out with a one time measure

constitution of Settlement Advisory Committees (SACs) by banks. This was to promote

compromise settlement in small sector viz., SSI small business including trades,

agricultural and personal segments, Bankers need to appreciate the fact that compromise

settlement is an effective and accepted non legal remedy for recovery in chronic NPA.

According the scheme, applicable to NPA accounts which are at least 3 years old at 31-

03-1999, was effective up to 30 sept. 2000. There is a case for extending the deadline and

matching these guidelines applicable for compromise settlement in medium and large

sectors.

EVALUATION

ADVANTAGES TO BORROWER

1) Settling for a lower payout than the contracted one, scaling down of dues.

2) Releasing assets charged to the bank

3) Saving time, energy and expense on defending the inevitable legal case.

4) Keeping avenues of bank finance open for further development needs.

5) Restoring status/position in the market/society, avoiding stigma of being branded as a

borrower who is litigant type.


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ADVANTAGES TO THE BANK

1) Concept of time value of money i.e. a bird in hand is worth two in bush. The money

realized early could be invested /lent to earn.

2) Realization of securities is difficult stocks, machinery have high incidence of

depreciation and obsolescence on taking possession, storage, safety thereof poses a

problem and also involves cost for a longer period. Even in cases where court

receiver/commissioner is appointed, assets do not realized fast value of mortgaged

agricultural land properties located in rural, semi-urban areas is difficult to realize and no

bidder comes forward when the property is put to auction. This is precisely the reason

why many decrees obtained by the banks have merely remained on paper for want of

effective execution thereof.

3) To maintain the image of development banker, compromises, which involve

sacrifices, can be pursued only if both the parties to the settlement perceive latent gain in

the process of bargain.

3) CORPORATE DEBT RESTRUCTURING (CDR) :

A need was felt to create a special agency to facilitate debt restructuring because

there has been some hesitancy on the part of banks and financial institutions to implement

RBI guidelines on debt restructuring. Recently a three-tier body, viz., CDR has been set

up to coordinate corporate debt restructuring programme. It is yet to be operationalized

CDR consists of Forum, group and Cell. While the forum evolves broad policy-

guidelines the group takes decisions on the proposals recommended by the Cell. Initially

the borrower approaches his Lead Bank/ FI with a request to restructure debt, which in

then puts up the proposal to the cell. The CDR covers only multiple banking accounts

enjoying credit facilities exceeding Rs. 20 crore. Cases of DRT BIFR and willful


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defaults, doubtful and loss accounts and suit filed cases are outside the purview of the

CDR. Thus, standard and Sub-Standard accounts are only eligible to seek CDR Shelter. If

75% of the secured creditors agree to the habitation plan, it is lending on the other

banks/FIs.

The CDR is a voluntary system on debtor creditor agreement and inter-creditors

agreement. No banker/ borrower can take recourse to any legal action during the stand-

still period of 90-180 days. Lastly CDR will observe the RBI Guidelines on Debt

Restructuring issued in March 2001. While the arrangements under CDR seem to be

feasible from the debt restructuring perspective, its success depends upon the cooperation

extended by borrowers and bankers, on one hand, and understanding among banks and

FIs on the other. Doubts are raised about the implementation of these agreements taking

into the present working of the loan consortium arrangement.

CDR though is not directly linked with NPA recovery, is aiming at preserving

viable corporate affected by certain internal and external factors, and minimizing the

losses to the creditors and other stakeholders through a restructuring programme. Even

though the CDR system will be applicable only to standard and sub-standard accounts

potentially viable cases of NPA, are also to get priority.

EVALUATION:

The mechanism will be more effective if accepted by 75 % of term lending institution

and 75 % of bank, which provide working capital instead of 75 % of total lenders.

(4) LOKADALATS

These are voluntary agencies created by the state government to assist in matter

of loan compromise cases involving an amount upto Rs. 5 lakhs may be referred Lok

Adalat. The scheme includes all NPA a/cs. Both suit filed and mensuit filled MCS

Lokadalats meet at different places for the convenience if banks and borrowers on the

given date of the lokadalats meeting, both the banker and borrower should be present.


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After looking into the evidence and listening to both parties, the lokadalats works out an

acceptable compromise. Thereafter, lokadalat issues a recover certificate, which will

enable the bank in obtaining decree from the concerned court. This arrangement shortens

the period in obtaining a court decree, which is normally awarded after taking a much

longer period. Along with this, efforts should be made to give wide publicity to the

scheme, besides educating both banks and borrowers about Lokadalats.

EVALUATION

Merits-

There is no court fees involved when fresh disputes are referred to it.

It can take cognizance of any existing suit in the court as well as look into and

adjudicate upon fresh dispute

If no settlement is arrived at the parties can continue with the court proceedings

Its decree has legal status and is binding.

In view of this unique advantage the government is thinking of strengthening them

and raising the monetary limit set for referred cases

Demerits-

It is observed that banks have not taken adequate advantage of Lokadalats for

compromise settlement of their NPAs

No cutoff date is suggested since Lokadalat is an ongoing process. But this may

contribute to increasing delays in settlement of cases.

Most Lokadalats should be set up in different parts of country to set up the recovery

procedures.


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(5) DEBT RECOVERY TRIBUNALS

The MOF has taken a number of steps to strengthen the DRTs. Banks and FIs now can

nominate one nodal officer for each DRP. There is a suggestion for setting up co-ordination

committees for DRTs a Debt Recovery Appellate Tribunal with representations from major

banks and financial institutions.

In the context of recovery from NPAs, DRTs are assuming great importance since efforts are

to set up mere DRTs during this year and also to strengthen them. Though the recovery through

DRTs is at present less than two percent of the claim amount, banks FIs have to depend heavilyon them, efforts are as to amend the recovery Act to assign more power to DRT. More

importantly, the borrowers tendency to challenge the verdict of the Appellate tribunal in the High

court to seek natural justice needs to be checked. Otherwise, early recovery efforts through DRTs

would be futile. Secondly, training of residing officers of Tribunals about the intricacies of

banking practices is very essential. Further, the number of Recovery officer has to be enhanced

in every DRT for effective recovery. Finally, banker and FIs have to come forward to provide

liberal help to DRTs to equip them in terms of infrastructure, manpower, etc.

It has been announced in the Union Budget for 2001-02 that the Govt. has decided to set up 7

more DRTs during 2001-02 in addition to the existing 22 DRTs, 5 Appellate Tribunals to

facilitate bank to quickly recover their dues from borrowers. Besides, the Govt. has proposed to

bring in legislation for facilitating foreclosure and enforcement of securities in case o default so

as to enable banks and financial institutions to realize their dues.

EVALUATION

11 new DRTs are being opened over the last 2 years

7 more DRTs are in pipeline

DRTs are facing an uphill task with the number of cases


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The amount involved is increasing at alarming rate in the value of burgeoning NPA. The

cases involving Rs. 7705.32 crore are still pending. In Mumbai DRTs out of the total amount of

Rs. 1677.60 crore involved only Rs. 397.43 crore was recovered.

There is a huge demand supply mismatch among the DRTs. The requirement is far higher

than the number of DRTs available. The number of settlement cases is high in Mumbai and there

is shortage of man power in Mumbai DRTs.

The RBI guidelines, which stipulates that presiding officer in a DRT cannot settle more than

800 cases in a year, constraints the operations of DRTs.

There is inadequacy of trained staff and their lack of exposure to the judicial system acts as a

hindrance.

There needs speeding up of recovery procedures.

6) 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. It is our experience that thesemeasures had not contributed to any perceptible recoveries from the defaulting entities.

However, they serve as negative basket of steps shutting off fresh loans to these defaulters. I

strongly believe that a real breakthrough can come only if there is a change in the repayment

psyche of the Indian borrowers.

7) RECOVERY ACTION AGAINST LARGE NPAS

After a review of tendency in regard to NPAs by the Hon'ble Finance Minister, RBI had

advised the public sector banks to examine all cases of willful default of Rs 1 crore and above

and file suits in such cases, and file criminal cases in regard to willful defaults. Board of

Directors are required to review NPA accounts of Rs.1 crore and above with special reference to

fixing of staff accountability.


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On their part RBI and the Government are contemplating several supporting measures

including legal reforms, some of them I would like to highlight.

8) ASSET RECONSTRUCTION COMPANY:

An Asset Reconstruction Company with an authorised capital of Rs.2000 crore and initial

paid up capital Rs.1400 crore is to be set up as a trust for undertaking activities relating to asset

reconstruction. It would negotiate with banks and financial institutions for acquiring distressed

assets and develop markets for such assets.. Government of India proposes to go in for legal

reforms to facilitate the functioning of ARC mechanism.

EVALUATION

The ARCs will assist in cleansing the Balance Sheet of the weaker as well as potential weak

banks.

It will also try to identify possible conceptual glitches and legal infirmities in the arrangement.

It is to be noted that given the inadequacies of SICA, BIFR, DRTs foreclosures and other

recovery processes, an ARC may find it difficult to lead a viable existence. Therefore,

simultaneously it is required to make radical changes in bankruptcy and recovery laws and

procedures.

Under this scheme the banks liabilities will get transferred from one bank to another. The total

liability to the banking system would remain unchanged.

9) CREDIT INFORMATION BUREAU

Institutionalization of information sharing arrangements through the newly formed Credit

Information Bureau of India Ltd. (CIBIL) is under way. RBI is considering the recommendations

of the S.R.Iyer Group (Chairman of CIBIL) to operationalize the scheme of information

dissemination on defaults to the financial system. The main recommendations of the Group

include disse

Documents

NPAs SIP Projact ON SBI BANK