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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 vigour 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 form 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
At outset, we would like to thank the institutions for having provided us with an
opportunity to carry out a project of this magnitude that helped me satisfy my curiosity as
far as my area of interest was concerned.
The essence of this project, i.e. its contents have been compiled with help of varied
sources of secondary database, but we would specially like to acknowledge the support,
suggestions and feedback received from my Project Guide-
1) Mr.K.P.S.Arya
AGM, Of RASMECCC
State Bank Of India, Rajkot
2) Mr.M.D. Raval
Manager of RASMECCC,
State Bank of India, Rajkot.
3) Mrs.Jyoti & Mr.Avinash Singh
Officer, RASMECCC,
State Bank Of India, Rajkot.
Also my faculty member Mr. Abhay Raja guide and suggest me about the project. A
lot of other people have also contributed directly and indirectly to completion of this
project would not have seen light of the day. Our hearts felt gratitude to all of them.
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DECLARATION
I the undersigned Mr.Mayank S. Shah, a student of MBA (Finance) Semester-III,
hereby declare that the project work presented in this report is my original work.
This work has not been previously submitted to any other university for any other
examination.
Date: 15 t h July,2008
Place: Rajkot
----------------------
(Mayank S. Shah)
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EXECUTIVE SUMMARY
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).
This Act gave the banks the much needed teeth to curb the menace of NPAs. The non
performing assets (NPAs) of banks have at last begun shrinking. As reported from
surveys, it is understood that there has been substantial improvements in non performing
assets and this has been because of several measures such as formation of asset
reconstruction companies, debt restructuring norms, securitization, provisioning norms
and prudential norms for income recognition. The gross NPAs of the banking system areabout 16 per cent of the total assets of the nationalized banks as of 2000-01. This is against
a global norm of about 5%. Hence there is a long way to go before we can say that the
NPAs of our banks are under control. The improvements in NPAs of individual
nationalized banks have been in the order of 10% to 20%, thanks to the various schemes
and measures introduced. This paper addresses the results we have achieved so far since
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the measures have been implemented and the thrust on measures that need to be taken to
expedite recovery of NPAs. We also give our suggestions as to how NPA retrieval can be
made easy and in what way the NPA scenario is headed.
The problem is no doubt about recovery management where the objective is to find out
about the reasons behind NPAs and to create networks for recovery. Banks of Rajkot have
been considered where 21 executive have been approached with a structured question to
elicit information.
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 nowrequired to recognize such loans faster and then classify them as problem assts.
As far as the study is concerned the following may be summarized.
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 PageNo.
Preface
Acknowledgment
Declaration
Executive Summery
1
2
3
4
1. Introduction
Early History of Bank
Type of Bank
Status wise bifurcation of Banks
8-15
10
12
14
2. About SBI
History
Awards & Recognition
Mission
Organization Structure
3. Survey & Research on NPAs
Research Plan
Introduction
Debt Recovery Problem
NPAs and Their Effects
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Steps to solve NPAs
Tools for Managing NPAs
Strategy for Prevention ofNPAs
Non Legal Measure
4. SWOT Analysis5. FUTURE PLAN6. CONCLUSION7. BIBLIOGRAPHY 8. ANNEXURE
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INTRODUCTION
The word bank it derived from the word bancus or banque that is 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 the origin of the
word bank as Prof. Rramchandra Rao says. It would trace the history of banking in Europe from
middle ages.
General ly, banks do the bus iness of money they take deposi ts of moneys f rom
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 their customer
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 i t than the interest of deposit . The
margin between the interest of loan and interest of deposit is the income of bank.
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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
t ime, there was a spread of irrel igion, 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
private banking and to create confidence in it. Loan banks were also common in
Rome. From these the poor c it izens r eceived loans without paying interes t,
against security of land for 3 or 4 years.
During the ear ly per iods, al though pr ivate individual most ly did the banking
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 necessity 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, it 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 most crude from existed. The
books of Manu contain references regarding deposits, pledges, policy of loans,
and rate of interest . True, the banking in those days largely mint money lending
and they did not know the complicated mechanism of modern banking.
This is t rue not only in the case of India but also of other countries. Although,
the business of banking is as old as authentic history, banking inst i tut ions have
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s ince than changed in character and content very much. They are developed from
a few simple operations involving the sat isfaction of a few individual wants to
the compl icated mechanism of modern banking, involving the sati s faction of
capital s lowly seeking employment and thus providing the very l i fe blood of
commerce.
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TYPE OF BANKS
Regional Rural Bank (RRB)
Nationalized Bank
State Bank Group
Co-operative Bank
Private Bank
Foreign Bank
RESERVE BANK OF INDIA
The Hilton-young commission, appointed in 1926 has recommended the necessity
of central ly empowered inst i tut ion to have effective control over currency and
financial transaction 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 interest 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.
NATIONALISED BANKS
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The Banking Company Act es tablishes i t in July 1969 by nat ionalization of 14
major banks of India. The sent percent ownership of the bank is of 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
customer and also because of long working hours and speed of
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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.
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STATUS WISE BIFURCATIONOF BANKS
They are divided into two groups:
Scheduled Banks
Non Scheduled Banks
SCHEDULED BANKS
In first schedule, government of India notifies the Primary Banks, which are licensed and whose
demand and time liability are not less than 50 crores in 1987.
Government of India notify the Primary banks, which are licensed and whose demand and time
liability are not less than 100crores can only qualify to be included in the second schedule since
1993.
A bank becomes scheduled when it fulfils the followings:
A grade rating from RBI
Demand and Time Liability over 100crores.
Satisfy the RBI guidelines related to CRR and SLR
As per the norms Priori ty Sector wise landing benefi ts of being a Scheduled
co-operative are described below:-
RBI would provide Rediscounting facility at nominal rate
RBI gives remittance facility at par
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The demerits of becoming a scheduled co-operative bank is that the bank will not get 0.5%
subsidy from RBI
The conferment of scheduled status on the banks has certain advantages like refinance facility,
directly industrial finance from Reserve Bank of India. Avail of Reserve Bank of India
Remittance facility scheme, accept deposits from local bodies, quasi-government organization,
religious, and charitable institutions, guarantees and cheques issued by Banks are accepted by
Government Departments. At the same time, it casts greater responsibility on the banks in the
maintenance of books of accounts and submissions of returns.
Scheduled banks in India
Scheduled Commercial Bank
Scheduled Co-operative Bank
NON-SCHEDULED BANKS
The banks, which are not applicable as per the cri ter ia of Scheduled Banks, are
called as a Non-scheduled Banks. These are very small banks.
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STATE BANK OF INDIA
The origin of the State Bank of India goes back to the first decade of the nineteenth century with
the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later the bank
received its charter and was re-designed as the Bank of Bengal (2 January 1809). A unique
institution, it was the first joint-stock bank of British India sponsored by the Government of
Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the
Bank of Bengal. These three banks remained at the apex of modern banking in India till their
amalgamation as the Imperial Bank of India on 27 January 1921.
Primarily Anglo-Indian creations, the three presidency banks came into existence either as a result
of the compulsions of imperial finance or by the felt needs of local European commerce and were
not imposed from outside in an arbitrary manner to modernise India's economy. Their evolution
was, however, shaped by ideas culled from similar developments in Europe and England, and was
influenced by changes occurring in the structure of both the local trading environment and those
in the relations of the Indian economy to the economy of Europe and the global economic
framework.
Bank of Bengal H.O.
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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. But, for a long time, and
especially up to the time that the three presidency banks had a right of note issue, bank notes and
government balances made up the bulk of the invertible resources of the banks.
The three banks were governed by royal charters, which were revised from time to time. Each
charter provided for a share capital, four-fifth of which were privately subscribed and the rest
owned by the provincial government. The members of the board of directors, which managed the
affairs of each bank, were mostly proprietary directors representing the large European managing
agency houses in India. The rest were government nominees, invariably civil servants, one of
whom was elected as the president of the board.
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Group Photograph of Central Board (1921)
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 woollens, 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 favour of the guarantor, which was in turn endorsed to the bank. Lending against
shares of the banks or on the mortgage of houses, land or other real property was, however,
forbidden.
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 thegovernment 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.
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Old Bank of Bengal
Major change in the conditions
A major change in the conditions of operation of the Banks of Bengal, Bombay and Madras
occurred after 1860. With the passing of the Paper Currency Act of 1861, the right of note issue of
the presidency banks was abolished and the Government of India assumed from 1 March 1862 the
sole power of issuing paper currency within British India. The task of management and circulation
of the new currency notes was conferred on the presidency banks and the Government undertook
to transfer the Treasury balances to the banks at places where the banks would open branches.
None of the three banks had till then any branches (except the sole attempt and that too a short-
lived one by the Bank of Bengal at Mirzapore in 1839) although the charters had given them such
authority. But as soon as the three presidency bands were assured of the free use of government
Treasury balances at places where they would open branches, they embarked on branch expansion
at a rapid pace. By 1876, the branches, agencies and sub agencies of the three presidency banks
covered most of the major parts and many of the inland trade centres in India. While the Bank of
Bengal had eighteen branches including its head office, seasonal branches and sub agencies, the
Banks of Bombay and Madras had fifteen each.
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Bank of Madras Note Dated 1861 for Rs.10
Presidency Banks Act
The presidency Banks Act, which came into operation on 1 May 1876, brought the three
presidency banks under a common statute with similar restrictions on business. The proprietary
connection of the Government was, however, terminated, though the banks continued to hold
charge of the public debt offices in the three presidency towns, and the custody of a part of the
government balances. The Act also stipulated the creation of Reserve Treasuries at Calcutta,
Bombay and Madras into which sums above the specified minimum balances promised to the
presidency banks at only their head offices were to be lodged. The Government could lend to the
presidency banks from such Reserve Treasuries but the latter could look upon them more as a
favour than as a right.
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Bank of Madras
The decision of the Government to keep the surplus balances in Reserve Treasuries outside the
normal control of the presidency banks and the connected decision not to guarantee minimum
government balances at new places where branches were to be opened effectively checked the
growth of new branches after 1876. The pace of expansion witnessed in the previous decade fell
sharply although, in the case of the Bank of Madras, it continued on a modest scale as the profits
of that bank were mainly derived from trade dispersed among a number of port towns and inland
centres of the presidency.
India witnessed rapid commercialisation in the last quarter of the nineteenth century as its railway
network expanded to cover all the major regions of the country. New irrigation networks in
Madras, Punjab and Sind accelerated the process of conversion of subsistence crops into cash
crops, a portion of which found its way into the foreign markets. Tea and coffee plantations
transformed large areas
of the eastern Terais, the hills of Assam and the Nilgiris into regions of estate agriculture par
excellence. All these resulted in the expansion of India's international trade more than six-fold.
The three presidency banks were both beneficiaries and promoters of this commercialisation
process as they became involved in the financing of practically every trading, manufacturing and
mining activity in the sub-continent. While the Banks of Bengal and Bombay were engaged in the
financing of large modern manufacturing industries, the Bank of Madras went into the financing
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of large modern manufacturing industries, the Bank of Madras went into the financing of small-
scale industries in a way which had no parallel elsewhere. But the three banks were rigorously
excluded from any business involving foreign exchange. Not only was such business considered
risky for these banks, which held government deposits, it was also feared that these banks
enjoying government patronage would offer unfair competition to the exchange banks which had
by then arrived in India. This exclusion continued till the creation of the Reserve Bank of India in
1935.
Bank of Bombay
Presidency Banks of Bengal
The Presidency Banks of Bengal, Bombay and Madras with their 70 branches were merged in
1921 to form the Imperial Bank of India. The triad had been transformed into a monolith and a
giant among Indian commercial banks had emerged. The new bank took on the triple role of a
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commercial bank, a banker's bank and a banker to the government.
But this creation was preceded by years of deliberations on the need for a 'State Bank of India'.
What eventually emerged was a 'half-way house' combining the functions of a commercial bank
and a quasi-central bank.
The establishment of the Reserve Bank of India as the central bank of the country in 1935 ended
the quasi-central banking role of the Imperial Bank. The latter ceased to be bankers to the
Government of India and instead became agent of the Reserve Bank for the transaction of
government business at centres at which the central bank was not established. But it continued to
maintain currency chests and small coin depots and operate the remittance facilities scheme forother banks and the public on terms stipulated by the Reserve Bank. It also acted as a bankers'
bank by holding their surplus cash and granting them advances against authorised securities. The
management of the bank clearing houses also continued with it at many places where the Reserve
Bank did not have offices. The bank was also the biggest tendered at the Treasury bill auctions
conducted by the Reserve Bank on behalf of the Government.
The establishment of the Reserve Bank simultaneously saw important amendments being made to
the constitution of the Imperial Bank converting it into a purely commercial bank. The earlier
restrictions on its business were removed and the bank was permitted to undertake foreign
exchange business and executor and trustee business for the first time.
Imperial Bank
The Imperial Bank during the three and a half decades of its existence recorded an impressive
growth in terms of offices, reserves, deposits, investments and advances, the increases in some
cases amounting to more than six-fold. The advances, the increases in some cases amounting to
more than six-fold. The financial status and security inherited from its forerunners no doubt
provided a firm and durable platform. But the lofty traditions of banking which the Imperial Bank
consistently maintained and the high standard of integrity it observed in its operations inspired
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confidence in its depositors that no other bank in India could perhaps then equal. All these
enabled the Imperial Bank to acquire a pre-eminent position in the Indian banking industry and
also secure a vital place in the country's economic life.
Stamp of Imperial Bank of India
When India attained freedom, the Imperial Bank had a capital base (including reserves) of
Rs.11.85 crores, deposits and advances of Rs.275.14 crores and Rs.72.94 crores respectively and a
network of 172 branches and more than 200 sub offices extending all over the country.
First Five Year Plan
In 1951, when the First Five Year Plan was launched, the development of rural India was given
the highest priority. The commercial banks of the country including the Imperial Bank of India
had till then confined their operations to the urban sector and were not equipped to respond to the
emergent needs of economic regeneration of the rural areas. In order, therefore, to serve the
economy in general and the rural sector in particular, the All India Rural Credit Survey
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Committee recommended the creation of a state-partnered and state-sponsored bank by taking
over the Imperial Bank of India, and integrating with it, the former state-owned or state-associate
banks. An act was accordingly passed in Parliament in May 1955 and the State Bank of India was
constituted on 1 July 1955. More than a quarter of the resources of the Indian banking system thus
passed under the direct control of the State. Later, the State Bank of India (Subsidiary Banks) Act
was passed in 1959, enabling the State Bank of India to take over eight former State-associated
banks as its subsidiaries (later named Associates).
The State Bank of India was thus born with a new sense of social purpose aided by the 480 offices
comprising branches, sub offices and three Local Head Offices inherited from the Imperial Bank.
The concept of banking as mere repositories of the community's savings and lenders tocreditworthy parties was soon to give way to the concept of purposeful banking sub serving the
growing and diversified financial needs of planned economic development. The State Bank of
India was destined to act as the pacesetter in this respect and lead the Indian banking system into
the exciting field of national development
The Bank is actively involved since 1973 in non-profit activity called Community Services
Banking. All SBI branches and administrative offices throughout the country sponsor and
participate in large number of welfare activities and social causes. SBI business is more than
banking because we touch the lives of people anywhere in many ways. SBI commitment to
nation-building is complete & comprehensive.
TECHNOLOGY UPGRADATION
SBIs Information Technology Programme aims at achieving efficiency in operations, meeting
customer and market expectations and facing competition. SBI achievements are summarized
below:
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FULL BRANCH COMPUTERISATION (FCBs): All the branches of the Bank are now fully
computerised. This strategy has contributed to improvement in customer service.
ATM SERVICES: There are 5290 ATMs on the ATM Network. These ATMs are located in 1721
centers spread across the length and breadth of the country, thereby creating a truly national
network of ATMs with an unparalleled reach. Value added services like ATM locator, payment of
fees for college students, multilingual screens, voice over and drawl of cash advance by SBI credit
card holders have been introduced.
INTERNET BANKING (INB): This on-line channel enables customers to access their account
information and initiate transactions on a 24x7, boundary less basis. 2225 branches, covering 555
centers are extending INB service to their customers. All functionalities other than Cash and
Clearing have been extended to individual retail customers. A separate Internet Banking Module
for Corporate customers has been launched and available at 1305 branches. Bulk upload of data
for Corporate, Inter-branch funds transfer for Retail customers, Online payment of Customs duty
and Govt. tax, Electronic Bill Payment, SMS Alerts, E-Poll, IIT GATE Fee Collection, Off-line
Customer Registration Process and Railway Ticket Booking are the new features deployed.
GOVT. BUSINESS : Software has been developed and rolled out at 7785 fully computerised
branches. Electronic generation of all reports for reporting, settlement and reconciliation of Govt.
funds is available.
STEPS: Under STEPS, the bank's electronic funds transfer system, the Products offered are
eTransfer (eT), eRealisation (eR), eDebit (CMP) and ATM reconciliation. STEPS handles
payment messages and reconciliation simultaneously.
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SEFT: SBI has launched the Special Electronic Fund Transfer (SEFT) Scheme of RBI, to
facilitate efficient and expeditious Inter-bank transfer of funds. 241 branches of our Bank in
various LHO Centres are participating in the scheme. Security of message transmission has been
enhanced.
MICR Centre: MICR Cheque Processing systems are operational at 16 centre viz. Mumbai, New
Delhi, Chennai, Kolkata, Vadodara, Surat, Patna, Jabalpur, Gwalior, Jodhpur, Trichur, Calicut,
Nasik, Raipur, Bhubaneswar and Dehradun.
Core Banking: The Core Banking Solution provides the state-of-the-art anywhere anytime banking
for our customers. The facility is available at 1012 branches.
Trade Finance : The solution has been implemented, providing efficiency in handling Trade
Finance transactions with Internet access to customers and greatly enhances the bank's services to
Corporate and Commercial Network branches. This new Trade Finance solution, EXIMBILLS,
will be implemented at all domestic branches as well as at Foreign offices engaged in trade
finance business during the year.
WAN : The bank has set up a Wide Area Network, known as SBI connect, which provides
connectivity to 4819 branches/offices of SBI Group across 385 cities as at 31st March 2008. This
network provides across the board benefits by providing nationwide connectivity for its business
applications
Directors on the Bank's Central Board
as on 31st December 2008
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BOARD OF DIRECTORS
Central Board Of State Bank Of India (As on 1st April 2008)
Sl.No. Name of Director Sec. of SBI Act, 1955
1.Shri O.P. BhattChairman
19(a)
2.Shri S.K.Bhattacharyya
MD & CC&RO19(b)
3. Shri Suman Kumar Bery 19(c)
4. Dr. Ashok Jhunjhunwala 19(c)
.5 Dr. Deva Nand Balodhi 19(d)
6. Prof. Mohd. Salahuddin Ansari 19(d)
7. Dr.(Mrs.) Vasantha Bharucha 19(d)
8. Shri Arun Ramanathan 19(e)
9. Smt. Shyamala Gopinath 19(f)
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)
As on 31st march, 2008 the financial information of State bank of India is given as under
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Financial Details RS (in crore)
Capital 631.47
Borrowings 51,727.41
Deposits 5,37,403.94
Investments 1,89,301.27
Advances 4,16,768.19
Profit 6,729.55
Source : balance sheet and profit and loss accounts schedule of state bank of
India from annual reports of year ending 31st march, 2008
General Shareholder Information
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Number of shareholders as on 30.9.2004 was 5.61 lacs. The shareholding pattern was as under.
SHARE HOLDERSSHARE HOLDERS PERCENTAGESPERCENTAGESReserve Bank of India 59.73 %
Non-residents (FIIs, OCBs, NRIs) 19.83 %
Banks, FIs including insurance companies 6.21 %
Mutual funds/UTI 6.47 %
Domestic companies/private corporate bodies/trusts 1.79 %
Resident individuals 5.97 %
59.73%19.83%
6.21%
6.47%1.79%5.97%
Reserve Bank of IndiaNon-residents (FIIs, OCBs, NRIs)Banks, FIs including insurance companiesMutual funds/UTIDomestic companies/private corporate bodies/trustsResident individuals
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Mr. Kalam also asked the SBI to adopt and innovatively fund at least one lakh sick units in thesmall-scale sector to infuse the latest technology and turn them into profitable ventures.
Another sector with great potential, Mr. Kalam said, was medical tourism in which the bank could
extend funds at competitive interest rates for setting up corporate hospitals which would alsoserve the rural areas. Likewise, yet another sector for the bank's participation, he said, wasinfrastructure development, including provision of 50 million quality houses with basic
infrastructure in rural areas in association with state and Central entities.
Turning to the plight of villagers caught in the ``vicious cycle of borrowing,'' Mr. Kalam asked the
SBI to adopt a ``villager-friendly'' banking system to free them from the clutches of money-lenders.
Mr. Kalam also lamented that hassle-free loans were being extended by the SBI to students of
only the best engineering colleges, medical colleges and business schools. ``I would request the
SBI to examine the possibility of providing loans to students who would like to pursue scienceand commerce as a career," he said.
Besides, ways should be found to fund the education of those meritorious students who could not
get admission to top engineering, medical and B-schools owing to stringent competition, Mr.Kalam said.
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SBI has bagged
the awards for
Most Preferred
Bank and Most
preferred brand
for home Loan in
CNBC Awaaz
ConsumerAwards in
August 2007
SBI is placedat 70th in Top1000 BanksSurvey byBankerMagazine, July
2007, (upfrom 107 lastyear)
SBI is placedat 70th in Top1000 BanksSurvey byBankerMagazine, July2007, (up
from 107 lastyear)
SBI ranked 6thin theEconomics
Times MarketCap List, (upfrom 50 last
year)
SBI ranked 6thin theEconomics
Times MarketCap List, (upfrom 50 lastyear)
Today, SBI/SBICAP is theNo.1syndicator ofdomestic debtin AsiaPacific
REGION.
Today, SBI/SBICAP is theNo.1syndicator ofdomestic debtin AsiaPacificREGION.
No.1 inmergers &AcquisitionDeals (31Deals of US $19.8bn)
.
No.1 inmergers &AcquisitionDeals (31Deals of US $19.8bn)
.
The onlyIndian Bankto find aplace in theFortuneGlobal 500
List
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TNRCMS MAYANK SHAH 36
SBI is No 1provider ofAGRIFinance andNo. 1 inCreditLinking ofRs 9.35 lacs
SHGS
SBI is No 1provider ofAGRIFinance andNo. 1 inCreditLinking ofRs 9.35 lacs
SHGS
SBI is marketLeader infinancingSSIs with amarket shareof 29%
SBI is marketLeader infinancingSSIs with amarket shareof 29%
Readersdigest May07 GoldenAward forbeingamong thetwo most
trustedbanks inIndia
Readersdigest May07 GoldenAward forbeingamong thetwo most
trustedbanks inIndia
Up gradation of
ratings by citi
group/ Morgan
Stanley
Moodyss S&P
Up gradation of
ratings by citi
group/ Morgan
Stanley
Moodyss S&P
3rd in the
Economic
Times brand
Equity Ranking
Top 50 most
trusted service
brands in the
service sector
3rd in the
Economic
Times brand
Equity Ranking
Top 50 most
trusted service
brands in the
service sector
Business
Standard has
Awarded the
Best Banker of
the Year Award
to Shri
O.P.Bhatt for his
initiative toreenergize the
Bank
Business
Standard has
Awarded the
Best Banker of
the Year Award
to Shri
O.P.Bhatt for his
initiative to
reenergize theBank
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Margin
New/used vehicles 10-15% when loan is upto Rs.6 lacs
20-30% when loan exceeds Rs.6 lacs
Repayment
You enjoy the longest repayment period in the industry with us. Repayment period for new vehicles:
Maximum of 84 months
Repayment period for old vehicles: Up to 84 months from the date of original purchase of the vehicle.
SCHEME FOR LOAN FOR TWO WHEELERS
Existing Interest Rate
Structure w.e.f. 31.03.2008
Revised Interest Rate
Structure w.e.f. 27.06.2008
Floating Rate of Interest 12.25% p.a. 12.75% p.a.
Fixed Rate of Interest 12.50% p.a. 13.00% p.a.
NOTE: All these interest rates are subject to change, without notice .
The revised interest rates are applicable only on fresh deposits and renewal of maturing deposits.
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EDUCATION LOAN:
A term loan granted to Indian Nationals for pursuing higher education in India or abroad where admission
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
Repayment will commence one year after completion of course or 6 months after securing a job, whichever i
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
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Research Plan
(A) Defining the Problem:
Non performing Assets in banking Industry has become asubject of intense importance and discussion. It has assumedgreater significance in the world of banking and banks. It hasbecome a barometer of the health of banks and discussions onany bank is incomplete without the mention of NPA, NPA hasnow become heart of the banking Industry, which in turn, is theheart 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
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deposits. The career of bankers used to depend on the level of deposits achieved by him.
Banks were 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
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.
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1 Research Problem
To study the state of recovery management.
2 Research Objective
To identify reasons that lead to Standard assets of the bank becoming NPAs
To Suggesting Strategy to recovery Non Performing Assets and prevention offurther 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, Bank
Register 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.
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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:
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 forIndustrial 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.
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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.
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(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
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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.
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.
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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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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.
For our Summer Project we got permission in RASMECCC Department of State Bank of India,
Rajkot. Our department is a Process department. But our main work is to Survey and Recovery
the NPAs.
This is a Head Office and they provide us Data of NPAs account. State Bank of India have a 6
Branch in Rajkot. We got a Combine data of whole branch
Six Branch
Jagnath Plot.
Bhaktinagar.
Marketing Yard
Commercial Branch
Main Branch
Lakhaji Raj
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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
Our Survey on P- 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.OfBorrowers
Edu.Loan Home Loan PersonalLoan
Vehicle Loan SBF
151 29 48 44 17 13
LOAN PROFILES
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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.30,88,732and its a 26 % of the total Debt.
Account Become Regular
NO. of Defaulter Regular %
151 63 42%
RECOVERY FROM BORROWERS
Edu.Loan Per.Loan Home Loan Vehicle
Loan
SBF Total
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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.13,80,900and
percentage is 44%.
EDUCATION LOAN
No. of Loan Amt. O/s Amt. Recover Amt. %
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Borrowers
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
Loan Amt. O/S Amt. Recover Amt. %
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
Loan Amt. O/S Amt. Recover Amt. %
17 35,69,821 7,63,758 3,90,512 51.11%
As per above show that more amount is recovery from Education LoanRs.13,80,900but if
we see the recover by more share from vehicles loanthat 51.11 %.
What steps have been taken so far to solve NPAsProblems?
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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.
A fresh look at Recovery Problem
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Basically each branch engaged in lending has to plan for recovery of loans disbursed
by it. The manager should be familiar with the prospects of recovery through internal
and external factors. Knowledge about willful defaulters is equally important. Thus
three pronged strategy is necessary.
(A) RECOVERY : INTERNAL SOURCES(a) Computation of demand
Guidelines suggest that repayment of installments of loans should be fixed in such
manner, which will coincide with the harvesting of crops or sale of milk or any other
farm output proposed to be produced through the bank loan. The demand for croploans or for installment of term loans should therefore be computed in a manner
conducive to the income flow.
(b) Appraisal of loan application and pre-sanction surveys
During the initial processing of the proposal, it has to be ensured that the repayment
program for an item\equipment is fixed in accordance with the guidelines prescribed
by R.B.I. Awareness about R.B.I. guidelines should be increased at the branch level.
(c) Recovery camps
The central idea of recovery camp is to bring a maximum number of persons together
at one place and repay the loans. The recovery camps in addition to effecting recovery
create a proper climate for recovery.
(d) Non-banking business day
This day should be utilized fully for field visits and contact with the borrowers
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(e) Compromise proposals
In genuine cases, the banks can consider compromise proposal and a lot depends upon
the initiative of the branch manager in utilizing this facility.
(f) Conversions/rescheduling of loans
There are guidelines for the operating staff of the banks for conversion./rescheduling
of loans in the areas affected by natural calamities. Crop loans can be made repayable
over period of one year in the event of crop loss.
(g) Integration of recovery in branch budgeting
Recovery targets should be fixed at the time of settlement of branch business budget.
(B) RECOVERY: EXTERNAL SOURCES
Wherever the states have enacted laws on the pattern of the Talwar Model Bill, supportof the government machinery can be enlisted accordingly.
If the branches prepare village-wise action plans in this regard, it will be still
appropriate for the agencies to have a concerted effort towards recovery.
The branches may also compile detailed position of defaulters and share the same with
the convener banks and government authorities periodically.
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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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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 cut off date is suggested since Lokadalat is an on going 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.
(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 heavily on 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
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Board of Directors are required to review NPA accounts of Rs.1 crore and above with
special reference to fixing of staff accountability.
On their part RBI and the Government are contemplating several supporting measuresincluding 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
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Institutionalisation 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 operationalise the
scheme of information dissemination on defaults to the financial system. The main
recommendations of the Group include dissemination of information relating to suit-filed
accounts regardless of the amount claimed in the suit or amount of credit granted by a
credit institution as also such irregular accounts where the borrower has given consent for
disclosure. This, I hope, would prevent those who take advantage of lack of system of
information sharing amongst lending institutions to borrow large amounts against same
assets and property, which had in no small measure contributed to the incremental NPAs
of banks.
10) PROPOSED GUIDELINES ON WILLFUL DEFAULTS/DIVERSION
OF FUNDS
RBI is examining the recommendation of Kohli Group on willful defaulters. It is working
out a proper definition covering such classes of defaulters so that credit denials to this
group of borrowers can be made effective and criminal prosecution can be made
demonstrative against willful defaulters.
11) CORPORATE GOVERNANCE
A Consultative Group under the chairmanship of Dr. A.S.Ganguly was set up by the
Reserve Bank to review the supervisory role of Boards of banks and financial institutions
and to obtain feedback on the functioning of the Boards vis--vis compliance,
transparency, disclosures, audit committees etc. and make recommendations for making
the role of Board of Directors more effective with a view to minimizing risks and over-
exposure. The Group is finalizing its recommendations shortly and may come out with
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ROE
Book Value
RONW.
These parameters can be applied after the bank has posted its financial performance & hence
are not preventive or proactive measures. As the traditional tools of NPA management have
not proved to be satisfactory on the parameters of credit monitoring, follow up procedures,
preventing an assets from becoming non performing as well as timely settlement & recovery
of non performing loans, an attempt is made to bring out some untraditional techniques as well
as to reengineer the existing practices and improving them so as to bring the performance of
Indian Banks in tune with the international practices.
1) SLIPPAGE MANAGEMENT
A) Process of Slippage
Any performing assets does not turn into non-performing overnight. The Performing
Asset passes through a relatively lengthier period of 2 quarters, in some cases seven-
months, after becoming due but before slipping down to the dangerous red band of non
performing assets. During this journey, every asset is giving out certain signals forwarning the banker that something bad is about to happen.
B) Slippage signals.
Depending upon the type of credit facility and nature of business these distress signals
may look like:
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Non Payment of the very first installment in case of term loans.
Non-submission of stock statements in time.
Cheque drawn on the account are bouncing.
Credits into the cash credit account are not sufficient to meet the debits in the account.
The overdue bill is lying unpaid;
Installments are irregular.
Amount paid is not fully covering the principal and interest debited.
No regular operations in the cash credit account.
Bank has information that party is not doing the business;
Post-sanction inspection report speaks of diversion and misutilization;
There has been a natural calamity in the borrowers village.
C) How to act on the Slippage Signals?
Once there signals start to come in, the banker is supposed to act immediately. There is no
point in waiting with the feeling that there are few more months for the 2 quarter cut-off
and things may turn all right before that, any symptom unattended would lead to major
complications. Steps taken at the initial stage itself would help to keep the accounts
performing and the costly slippage would never happen. The NPA reduction techniques
like replacement; nursing may be attempted while the accounts are still in the performing
basket by continuous monitoring of the individual assets. This type of constant &
continuous surveillance requires co-operation & attention from all concerned in a branch.
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Any one-shot measure like recover camps can at best be of supplementary native and
may never be a permanent solution.
D) Journey from NPA to PA
While the journey, from the 6-month bottom but within the PA basket- to the top would be
easier it would certainly be costly, difficult and time consuming form of NPA to PA . This
uphill task usually is very difficult and such assets cannot be brought back to the PA
basket immediately; there needs to be an isolation period of one year after which only
the asset will become eligible for classification under PA category. During this critical
period it has to perform continuously. This is like a patient who has been admitted to the
intensive care unit (ICU) is not sent back home immediately after bringing him out ofICU; he will be kept in the non- critical area for further observation, before his final
discharge. Hence, the action before Slippage assumes further significance in cases of
bringing back the NPA to PA.
E) What if Slippage Management Fails?
Even after careful management of assets before Slippage, if some assets cross the band to
become NPA, then there is no other alternative except to arrange for fire-fighting. Thispost-incidence measure, again, needs to be undertaken on war footing. It will not be
prudent to wait any further at this stage as any time lag is going to cost the bank very
dearly because some of these assets may become doubtful inviting a more provisioning.
2) INCREASED PROPORTION OF NON-FUND BASED BUSINESS
When deregulation is thinning the margins, it is necessary to go in for non-fund based
business, which will increase the non-interest income of the branch. Non-fund basedbusiness involves no fund at all but a good service and a marketing strategy to capture the
customers is needed. It also helps the branch in promoting fund-based business. Non-fund
based business activities generally include following services.
Safe custody of customers valuables
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Issuing letters of credit/guarantee
Remittance of funds: Mail transfer
Credit card related service
Gift Cheque/ Travelers Cheque
Locker service
There are other services also like underwriting, guarantee, merchant banking and other
agency services, etc. but for small branches and rural branches increase in volume of these
facilities can boost their profile. The problem is that the rural people are not aware of these
services but by creating awareness the branch can reap the benefit. At present the non-
interest income of the rural branches forms a very insignificant proportion of total income.This can be increased with little efforts.
3) TURNAROUND STRATEGIES FOR LOSS MAKING BRANCHES
This will need a well-designed profit plan. It must be ensured that each and every branch
of the bank is viable on its won and that is possible when each and every branch starts
evaluating each business transaction from profit angle.
(A) DEPOSITS
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The main source of profit comes from remunerative deposits. The deposit portfolio
includes savings bank current and time deposits. The deposit mix decides the cost of
funds. It is found that in some of the branches the deposit growth is either stagnant or ithas a deposit of Rs. 50/60 lacs over a period of 5 to 6 years. To keep the cost of funds low,
the efforts should be to canvas low cost current and savings bank deposits. In rural
branches agriculture income is seasonal and most of the agriculture based customers keep
the money idle and spend only in specific exigencies. If this sector is approached just in
time then the savings bank deposits can be mobilized in large volumes. In this contest, one
home one account has been a successful strategy to woo the customer. What is more
important is the timing for deposit mobilization. But the best way to augment the deposits
is by improving customer service. A satisfied customer is the best ambassador of a branch.
The customer meets can be utilized to popularize the various deposits schemes so that
they could suggest suitable schemes to customers. In addition, special letters cab be sent to
customers on regular basis inviting their help to improve the business growth.
(B) MANAGEMENT OF ADVANCES PORTFOLIO
Advances portfolio is another vital area for making the branch profitable. The branch has
to find out the industry-wise exposure to determine the extent of NPAs in different
category. This will help them in concentrating their efforts in the area s where the
percentage of NPAs is on the low side. Moreover, it is observed that the advances of Bank
are not picking up to the desired level. The branch should concentrate on retail lending i.e.
canvassing car loans, consumer durables and housing finance, etc. Earlier the banks were
giving small loans for middle/upper class people. Housing finance is one such area where
there is tremendous scope and the percentage of NPAs in this sector is negligible.
Moreover, the rate of interest is quite attractive which will increase the yields on advancesand hence would enhance the profitability. On the whole branch should analyses its credit
portfolio and gradually increase credit delivery to earn better profits. It is in the interest of
both and banks to stimulate credit delivery.
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REQUIREMENTS
Easy availability of skilled personnel in both finance and information technology
sectors.
Experiments with various credit risk modeling techniques for Indian banks.
In a nutshell, it is difficult to conceive an integrated risk management framework
for Indian banks without derivative product to hedge against credit risk. The
introduction of credit derivatives could make hitherto dormant credit market liquid,
vibrant and broad based. Whether or not our banks are able to implement the
international norms within the prescribe timeframe (20040, its essential to know
the nature and magnitude of credit risks that Indian banks ate now exposed to and
the risk capital requirement thereof.
9) LEGAL RECOURSE:
Updating of certain statues: The legal framework within which banks have to operate
and particularly manage the recovery of their dues from the borrowers is far from
adequate. For understandable reasons many legal provisions have, infect a positive
bias favoring the debtor who has been seen as the weaker party and therefore in need
of protection. Unfortunately, these very well intentioned provisions cause an immense
load (and backlog of cases) on legal system, making lending a hazardous operation for
banks. These provisions need to be amended urgently and some new enactment is
called for in order to cater to the requirements of the changed and far more complex
current economic and business environment.
Legalizations on bankruptcy or foreclosure: Legislation to empower banks to
realize the property charged without court intimation, as in case of State Financial
Institutions.
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Creditors right to change the management to companies in the event of
default/warring signals : Though this requires certain amendments to existing statues,
such a notification should be made to have a far-reaching impact on the health of the
industry, as it will enable re-orientation of the management towards the right
perspective for turning around the company.
Opening more DRTs and DRATs
Strengthening DRT set-up : Bench of presiding officers, more recovery officers withadequate infrastructure.
Mandatory honor of commitment by Government in respect of advancesguaranteed by them.
10) CIRCULATION AND PUBLISHING OF LIST OF DEFAULTERS:
Currently the RBI circulars among banks and financial institution the list of defaulters,
which is found useful in avoiding willful defaulters. The RBI has defined a willful
defaulter for the first time. It has provided the broad parameters for identification of
willful defaulters whose list will be circulated among banks and financial institutions.
Auditors of companies have to report in their certificate about diversion of funds if any. In
addition, on Jan 30, 2001, credit information Bureau (CIB) was set up to provide critical
data required by any credit institution before arriving at credit decision. State Bank Of
India, HDFC, Dun and Bradstreet and Trans Union set up CIB jointly, It will collect
information from its members and make it available to any credit institution on demand.
CIB is yet to be operationalised. Its success depends upon cooperation extended by the
members in supplying the required information on timely basis.
Moreover it is also suggested that the banks should publish the list of defaulters in the
news paper or blacklist them and circulate the list to all other banks so that no other banks
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Proper Co Ordination and Communication between Bank and Customer
Time to time follow up to customer and their Guarantors
Properly check all the documents
Proper Valuation of their Assets
Strict to recovery Steps
When first installment will be due at that time Bank have to inform to
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FUTURE PLAN
INNOVATIONS & INITIATIVES:
Bank has successfully initiated various measures toward widening its SHG network. To list a few
examples:
A) Sensitisation of staff: Banks aim is to sensitise the entire staff from Manager toMessenger working in rural and semi-urban branches towards the programme.
B) Special training programmes in SHGs are being conducted at 54 training centres ofthe Bank in the country apart from State Bank Institute of Rural Development,
Hyderabad.
C) Close liaison with NGOs: Operating functionaries at branch level and regionlevel are in close contact with NGOs in their area to take the movement ahead. For
the purpose, regular meetings are arranged with the NGOs and their support is
solicited.
D)SHG cells: Special SHG cells have been opened at major branches.
E) Lending to NGOs / Federations of SHGs: Lending to credible NGOs/ Federationsof SHGs on selective basis for on lending to SHGs is being encouraged.
F) Sahayog Niwas: SBI has launched its Housing Loan product SAHAYOG NIWASmeant for SHG members. Under the scheme formulated keeping the socio
economic conditions of villages insight, housing loans are given to the SHG
members without any mortgage of house / land. Response to this product is veryencouraging.
G)SBI Life- Shakti: SBI Life, our insurance subsidiary, is the first to introduce a life
insurance scheme, especially designed for SHG members. Special feature of thescheme is that entire premium amount paid by the member is refunded after
maturity, i.e., 10 years.
H) Rural training institutes: To help the rural youth to stand on their feet, twoRUDSETI type training institutes have been established at Gulbarga and Gadag inKarnataka State, to impart training in self employment to youth free of cost.
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I) SBI staff as SHPI: The main role of formation and nurturing of SHGs have beenplayed by NGOs who, apart from their fundamental role of social service, also aim
to make the poor economically self sufficient. But in SBI, our committed work
force is not lagging behind and a number of committed staff members have workedhard to form and nurture SHGs on their own.
J) Appreciation by Government: A number of our branches / Circles have also receivedcommendation and appreciation from various State Governments for doing
excellent job in SHG-Bank Credit Linkage programme.
K)NABARD felicitated 15 SHGs at a function organized in New Delhi on 13th Se
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