Bank of Maharashtra
Bank of Maharashtra
Bank of Maharashtra
A PROJECT REPORT
On
A STUDY ON NON-PERFORMING ASSETS
MANAGEMENT
For
BANK OF MAHARASHTRA
Submitted To:
KARNATAK UNIVERSITY DHARWAD
ARCHANA D.CHAVAN.
(REG. NO: MBA07003008)
External Guide
Mr. P G. Joshi.
(Sr.Branch Manager)
BANK OF MAHARASHTRA
CERTIFICATE
This is to certify that Miss. Archana D. Chavan has satisfactorily completed
her major summer in-plant training on A Study on Non-Performing Assets
of Bank of Maharashtra at Belgaum, in the partial fulfilment of
requirement of Masters of Business Administration, during the academic
year 2008-2009.
Internal Guide
Director
(Dr. A B. Kalkundrikar)
BANK OF MAHARASHTRA
Acknowledgement
The successful completion of any task would be
incomplete without mentioning & thanking god & the people
who have helped me to complete it and been a constant
support of encouragement.
First and foremost I would like to express my sincere
thanks to my parents and sister (Snehal) who have been
always a moral support in my life and motivated me to
acquire my aim successfully.
I express my sincere gratitude to Dr. A B.
Kalkundrikar, Director KLSs IMER Belgaum, for his
constant support and encouragement in carrying out this
summer in-plant project.
At the very outset I would like to thank Mr.
Pradeep G. Joshi, (Senior. Branch Manager) of Bank of
Maharashtra, Belgaum, who constantly guided me and
inspired me in completion of this project. I express my
heartful thanks to all the staff members of the Bank for
supporting me in completing my project.
I would remain indebted to Prof. Shrirang.
Deshpande (Group Mentor) and Prof. R M. Inamdar for
their able guidance & constant support.
BANK OF MAHARASHTRA
DECLARATION
This is to state that the project report named A Study on Non-Performing
Assets Management, Bank of Maharashtra, RPD Branch, Belgaum is an independent
work carried out by me under the guidance and supervision of my project guide (mentor)
Prof. Shrirang. Deshpande towards the partial fulfilment of the award of MBA degree
from Karnataka University Dharwad.
This project was fully prepared by my own effort and has not been published
elsewhere until now.
I also declare that this project report has not been submitted to any other
university or for award of any degree or diploma.
BANK OF MAHARASHTRA
Place
: Belgaum
Date
: 25-08-2008
Archana Chavan.
TABLE OF CONTENTS
SL. NO
1
2
3
4
1
2
3
4
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6
PARTICULARS
PART A
Executive Summary.
Origin and History of
Bank of Maharashtra.
Objectives of the Study.
Evolution of IT in BOM.
PART B
Introduction to NPA.
RBI
guidelines
on
classification of Bank
Assets.
Types of loans provided by
BOM.
Procedures and Reasons
for identification of NPA,s
Preventive and Remedial
Measures.
Tackling
NPAs
and
Focused Strategies.
PAGE.NO
3
4
7
10
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BANK OF MAHARASHTRA
1
2
3
4
5
1
2
3
4
PART C
Asset Classification.
Credit Risk Management.
SARFESI ACT.
Non-Performing-Assets
Reduction Techniques.
Rural
Advances
and
Recovery Management.
PART D
Asset Quality of NPA in
Bank of Maharashtra.
Analysis of NPAs in Retail
Sector in Belgaum City.
Findings and Suggestions.
Bibliography
37
45
46
47
55
61
65
81
85
PART A
BANK OF MAHARASHTRA
EXECUTIVE SUMMARY
This project report has been undertaken in Bank of Maharashtra, RPD Branch
Belgaum which highlights the detailed study of Non-Performing Assets Management
and Banking Study of Bank of Maharashtra.
The objective of this project is to get the good knowledge of Banking and NPA
Management.
BANK OF MAHARASHTRA
Part D: ----- Analysis and conclusion.
Part A gives an Brief information regarding Banks History, Vision, Objectives which
help us to know about the bank in detail.
Part B gives knowledge about NPA, which help us to know and understand about NPA
and how it is ascertained.
Part C gives information regarding SARFESI Act, NPA Reduction Techniques, Recovery
Management and concluding observations.
Part D gives ideas about Analysis of NPAs in Retail Sector and final conclusion.
BANK OF MAHARASHTRA
of 1375 branches and 30 extension counters spread over 22 states and 2 union territories
(as of 31st March 2008). Bank of Maharashtra has the largest network of branches by any
Public sector bank in the state of Maharashtra.
Bank of Maharashtra attained autonomous status in 1998. It has helped the Bank
in providing more and more services with simplified procedures without intervention of
Government. Apart from providing loans, bank also offers personalised services to its
customers. The Bank also cares to its employees and provides many facilities & schemes
to them. Bank of Maharashtra has also come up with its shares in the market which is on
a slower growth towards progress. Bank of Maharashtra has altogether 1500 branches all
over India . The total turn over is 72000 crores, and is currently running in profits.
Bank of Maharashtra excels in Social Banking, and it has 46% of its branches in rural
areas. By March 2006 the Bank intends to achieve computerization of remaining 584
rural and semi urban branches by providing a cost effective small branch automation
solution for rendering effective customer service to rural India. The Bank follows the
philosophy of technology with personal touch. The bank wishes to cater to all types of
needs of the entire family, in the whole country. Its dream is;
"One Family, One Bank, Bank of Maharashtra
BANK OF MAHARASHTRA
VISION 2009
19.84% Growth in Savings Bank Deposits and average Saving Deposits growth
rate of 17.69%.
19.65% Growth in Current Deposits and average Current Deposits growth rate of
17.29.
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BANK OF MAHARASHTRA
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BANK OF MAHARASHTRA
Designation
Name
Chairman
Nominee Director
Shri. A A. Azizi
Nominee Director
Officer Director
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BANK OF MAHARASHTRA
Nominee Director
Nominee Director
Executive Director
Non-Executive Director
Non-Executive Director
Nominee Director
Nominee Director
Nominee Director
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BANK OF MAHARASHTRA
1) ATM Project:-
140 new ATMs were set up during the year. ATM usage registered an
impressive increase during the year. Several value added services like College/Hostel Fee
payment through ATMs issue of monthly, quarterly, season tickets for suburban train of
Central Railway at CST, Mumbai (facility has been made operational on pilot basis in
Mumbai) etc, have been introduced.
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BANK OF MAHARASHTRA
New Initiatives:
Devotees can now offer their donations through ATMs at Vaishnodevi, Katra
and Shirdi.
SMS ATM Locations-a facility by which mobile users can get the location
of 3 nearest ATMs on SMS.
2) Core Banking Solution (CBS):The Bank is moving towards a centralized database with Core Banking
Solution; with capability for on-line, real-time transaction processing.
4) Internet Banking:-
Almost all the branches have been enabled for offering internet banking in
Retail segment. Banks major corporate customers are already using Corporate
Internet Banking and the product is in good demand.
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BANK OF MAHARASHTRA
5) Bank of Maharashtra Connect:-
This is the wide area networking {WAN} project of the bank capable of
carrying data, voice and images on real time basis. A total 1500 branches/offices
Bank of Maharashtra group are now connected. IP phones have been deployed in
all these branches/offices.
This service is available for transfer of funds across about 8500 branches
of banks situated in 15 centres where RBI manages the clearing house. The cities
covered under this scheme are; Ahmedabad, Bangalore, New Delhi, Mumbai,
Hyderabad, etc. This scheme will help to reduce the pressure of DD issue work at
Branch level.
Under this scheme, the funds get transferred from RTGS-enabled one bank
or branch to RTGS-enabled another bank/branch for customers. Only the customer
will have to fill up a request cum application form and accept terms and
conditions, and also they have to mention correct details such as bank/branch,
name, account number & 16 digit codes number i.e. IFSC Code.
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BANK OF MAHARASHTRA
The Bank has framed a comprehensive IT policy and is security policy with
the assistance of professional of IT security consultants. The policy standards and
procedures have been disseminated to application owners for implementations.
Security awareness training is being conducted for end users on ongoing basis.
PART-B
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BANK OF MAHARASHTRA
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BANK OF MAHARASHTRA
recession, resulted in an increase in the recognized stock of NPAs in the Indian
Financial System over the last several years. The same time, the ratio of gross
NPAs in to gross advances has shown a declining trend.
The definition of NPAs is prescribed in the prudential norms on asset
classification and advances laid down by RBI. An advance is classified as NPAs
where in case of:
An amount due under any credit facility is treated as "past due" when it has
not been paid within 30 days from the due date. Due to the improvement in the
payment and settlement systems, recovery climate, upgradation of technology in
the banking system, etc., it was decided to dispense with 'past due' concept, with
effect from March 31, 2001. Accordingly, as from that date, a Non performing
asset (NPA) shall be an advance where:
1. Interest and /or installment of principal remain overdue for a period of more than
180 days in respect of a Term Loan.
2. The account remains 'out of order' for a period of more than 180 days, in respect
of an overdraft/ cash Credit(OD/CC).
3. The bill remains overdue for a period of more than 180 days in the case of bills
purchased and discounted.
4. Interest and/ or installment of principal remains overdue for two harvest seasons
but for a period not exceeding two half years in the case of an advance granted for
agricultural purpose, and
5. Any amount to be received remains overdue for a period of more than 180 days in
respect of other accounts.
With a view to moving towards international best practices and to ensure
greater transparency, it has been decided to adopt the '90 days overdue' norm for
identification of NPAs, form the year ending March 31, 2004. Accordingly, with
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BANK OF MAHARASHTRA
effect from March 31, 2004, a non-performing asset (NPA) shall be a loan or an
advance where:
1. Interest and /or installment of principal remain overdue for a period of more than
90 days in respect of a Term Loan.
2. The account remains 'out of order' for a period of more than 90 days, inrespect of
an overdraft/ cash Credit(OD/CC).
3. The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted.
4. Interest and/ or installment of principal remains overdue for two harvest seasons
but for a period not exceeding two half years in the case of an advance granted for
agricultural purpose, and
5. Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts.
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BANK OF MAHARASHTRA
on financial sector reforms (popularly known as Narsimhan Committee), adopted by
Indian Banks.
An asset, which ceases to yield income for the bank, should be treated as NPA,
and any income from loan assets should not be booked as income until it is actually
recovered. So, banks, which charge interests to loan Accounts Park it in Interest Not
Collected Account (INCA) until recovery, and on recovery, reverse it from INCA and
credit interest account.
In liberalizing economy banking and financial sector get high priority. Indian
banking sector is having a serious problem due to non-performing assets. The
financial reforms have helped largely to clean NPA around Rs. 52,000 Crores in the
year 2004. The earning capacity and profitability of the bank are highly affected due
to this; NPA is defined as an advance for which interest or repayment of principal or
both remain out standing for a period of more than two quarters.
The level of NPA act as an indicator showing the bankers credit risks and efficiency of
allocation of resources.
Reasons:
Various studies have been conducted to analyse the reasons for NPA. Whatever
may be the case, complete elimination of NPA is impossible. The reasons may be broadly
classified into two:-
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BANK OF MAHARASHTRA
2). Incremental component.
Incremental component may be due to internal bank management, credit
policy, terms of credit, etc.
NPA Ratio:The net Non-Performing Assets to loan (advances) ratios are used as a measure of
the overall quality of the banks.Net NPAs are calculated by reducing cumulative
balance of provisions outstanding at a period end from gross NPAs. Higher ratio
reflects rising bad quality of loans.
NPAs Ratio=
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BANK OF MAHARASHTRA
4). Loss Assets:Here loss is indentified by the bank concerned or by the internal auditors or by the
external auditors or by Reserve Bank of India (RBI) inspection. In terms of RBI
guidelines, as and when an asset become a NPA, such advance would be first
classified as a sub-standard one for a period that should not exceed 12 months and
subsequently as doubtful assets. It should be noted that the above classification is only
for the purpose of computing the amount of provision that should be made with
respect to banks advance and certainly not for the purpose of presentation of advance
in the Bank Balance Sheet.
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BANK OF MAHARASHTRA
If interest/instalments of principal remain unpaid for any One quarter of the year
ending 31st March the account will be NPA.
Past Due Grace period of 30 days is Not to be reckoned in your bank It means that
quarters interest / instalments up to 31st December should be recovered before 31st
March , as otherwise account will be treated as NPA.
3). Agricultural Term Loans/Cash Credits:
If interest/instalments of principal (after it has become due) has not been paid
during the last two seasons of harvest (covering 2 half years), the account will be
NPA.
Past Due- Grace period of 30 days is not applicable in our bank to agricultural
loans.
Date for reckoning interest/instalment due is the date as stipulated in the sanction.
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BANK OF MAHARASHTRA
Overdue interest should not be charged and taken to income account in respect of
overdue bills unless it is realized.
6). Other Accounts:
The account becomes NPA if the account remains unpaid for any One quarter or
more as on 31st March.
7). Consortium Advance:
Each member bank will classify the account in accordance with the conduct in its
books.
8). Government Guaranteed Advances:
Though, credit facilities backed by the government guarantee may become past
due with the income not being booked, they need not be treated as NPAs. In some
cases it is observed that banks have to file suit against the borrower after invoking the
government guarantees with a view to overcome the limitation period. In such
circumstances, the branches may treat the advances guaranteed by the government as
NPAs only when the government concerned when invoked.
1). Internal Checks and Control:Since high level of NPAs dampens the performance of the bank identification of
potential problem accounts and their close monitoring assumes importance.
The EWS enable a bank to identify the borrower accounts, which show the signs
of credit deterioration and initiate remedial action. Many banks have evolved and
adopted an elaborate EWS, which allows them to identify potential distress signals
and plan their options before hand, accordingly. The major components/process of
EWS followed by Banks of India as brought out by study conducted by Reserve Bank
of India at the instance of the Board of Financial Supervision as follows:
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BANK OF MAHARASHTRA
a). Designing Relationship Manager/Credit Officer for Monitoring Account.
b). Preparation of Know Your Client Profile.
c). Credit Rating System.
d). Identification of Watch-List/Special Mention Category Accounts.
e). Monitoring of early Warning Signals.
2). Management/Resolution of NPAs:Re-education in the total gross and net NPAs in the Indian Financial System
indicates a significant improvement in management of NPAs. This is also on account
of various resolution mechanisms introduced in the recent past, which include the
SARFESI Act, One-time settlement schemes, setting of the CDR mechanism,
strengthening of DRTs.
3). Credit Information Bureau:Bank of Maharashtra, State Bank of India, HDFC Limited, M/s Dun
incorporated Credit Information Bureau (India) Limited (CIBIL) in Jan 2001 and
Bradstreet Information Services (India) Pvt. Information between banks and FIs for
curbing the growth of NPAs. The CIBIL is in the process of getting operationalised.
4). Wilful Defaulters:RBI has revised guidelines in respect of detection of wilful default and diversion
and siphoning of funds. As per these guidelines a wilful default occurs when a
borrower defaults in meeting its obligations to the leader when it has the capacity to
honour the obligations or when funds have been utilized for the purposes other than
those for which finance was granted. RBI has advised the lenders to initiate legal
KLSs, Institute of Management Education & Research, Belgaum
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BANK OF MAHARASHTRA
measures including criminal actions, wherever required, and undertake a proactive
approach in change in management, wherever appropriate.
4).
Inefficiency in management.
5).
6).
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BANK OF MAHARASHTRA
7).
External Factors:1).
Recession.
2).
Input/Power shortage.
3).
Price Escalation.
4).
The above mentioned cause were reaffirmed, some other were also mentioned. A
brief discussion is provided below:
a).
b).
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BANK OF MAHARASHTRA
reasons, adverse trends in borrowers performance were not noted and the position
further deteriorated before action was taken.
c).
Direct Lending:
Governments policies rather than commercial imperatives dictated loans to some
segments.
d).
e).
f).
Funding Mismatch:
There are said to be many cases where loans granted for short term were used to
fund long term transactions.
g).
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BANK OF MAHARASHTRA
h).
Wilful Defaulters:
There are a number of borrowers who have strategically defaulted on their debt
service obligations realizing that the legal recourse available to creditors is slow in
achieving results.
PSBs performed creditably all through in respect of all parameters set for them.
But in the early Nineties the truth emerged that PSBs were suffering from acute
capital inadequacy and many of them were depicting negative profitability. This is
because the parameters set for they are functioning were deficient and they did not
KLSs, Institute of Management Education & Research, Belgaum
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BANK OF MAHARASHTRA
project the paramount needs for these corporate goals. Incorrect goals perception
and identification led them to wrong destination.
Pre-reform era witnessed PSBs functioning under the overall control and direction
of the Finance Ministry. Along with Reserve Bank of India (RBI) it
decided/directed all aspects of working of the Bank. Banks were not free to price
their products in competition with each other. They could not freely cater their
funds in the best interest as they considered. It was thus a directed and the role of
bank management was executory.
Since the 70s, the SCBs of India function totally as captive capsule units cut off
from international banking and unable to participate in the structural
transformations, the sweeping changes, and the new type of leading products
training and knowledge resources required to compete with international industry
had resulted in the accumulation of assets, which are termed as non-unprecedented
level 8.
Major policy decision was taken externally by the Finance Ministry/RBI. Though
directors were to be appointed based on their possession of specialized knowledge
in banking and related discipline, the environment of receiving decisions from a
political background as distinguished from a professional outfit, prevented the
best talents coming to occupy the position as Directors of PSBs and taking part in
an active role in the deliberation of the Boards of these Banks.
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The quantum of credit extended by the PSBs increased by about 360 times in three
decades after nationalization (from around 3000 crores in 1970 to 475113 crores
on 31-03-2000). The bank was not developed in terms of skills and expertise to
regulate such stupendous growth in the volume and manage to diverse the risk that
emerged in the process. The need for organizing an effective mechanism to gather
and disseminate credit information amongst the commercial banks was never felt
or implemented. The archaic laws of secrecy of customers-information that was
binding banking India, disable bank to public names of defaulters for common
knowledge of the other bank in the system.
corporate
bodies
(banks
and
financial
institutions)
was
never
Credit management on the part of the leader to the borrower to secure their
genuine and bonfire interests was not based on pragmatically calculated
KLSs, Institute of Management Education & Research, Belgaum
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BANK OF MAHARASHTRA
anticipated cash flows of the borrower concern, while recovery of instalments of
term loan was not out of profit and surplus generated but through recourses to the
corpus of working capital of the borrower concerns. This eventually led to the
failure of the project financed leaving idle assets. Functional inefficiency was also
caused due to over-staffing, manual processing of over-expanded operations and
failure to computerize banks in India, when elsewhere throughout the world the
system was to switch over to computerization of operations.
a).
b).
Do age-wise sub-grouping.
c).
ABC-analysis of advances.
d).
e).
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BANK OF MAHARASHTRA
PREVENTIVE MEASURES:-
1). Regular/Timely contact with the borrowers should be maintained on one-to-one basic
in order that the loans/advances are monitored effectively.
2).
The recovery work should be specifically entrusted to the identified loan officers/
clerks who will have regular contacts with the borrowers particularly at the time,
which is more suitable for recovery, like pre and post-harvest period in case of
agricultural advance.
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BANK OF MAHARASHTRA
3). The high value advance should be specifically monitored and in case of advance,
which displays signals of slipping to sub-standard category, intensive follow-up is
necessary.
4). The repayment programmes should be fixed up realistically keeping in view the
probability of cash accruals taking place as per the projections.
5). In case where units are facing genuine difficulty in adhering to the repayment
schedule fixed while sanctioning the loan, the loan can be rescheduled so that the
advance does not turn out of order or past due.
6). Borrower should be counselled to route the sales proceeds through the account,
which will ensure that the account does not turn out of order merely on account of
interest application.
7). A written communication be sent to all the borrowers advising them about the
need to ensure that their advance remain standard assets to enable the bank to
consider favourably their future request for financial assistance, if needs.
9). A system for settlement of goals for recovery of periodical loan instalments and
quarterly interest and monitoring performance there against should be set up.
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11). The unit displaying disquieting features may be studied by experts/consultants for
suggesting steps to prevent deterioration of their condition and to revitalize their
operations.
CONCLUSION:-
The situation calls for an urgent action by all concerned for improvement. Based
on our experience we consider that the branches will have to constantly work to prevent
the NPA virus from contaminating the new credit portfolio. Also concurrently they will
have to reinforce effective strategies to remove the virus from the existing NPA portfolio.
The task although difficult is achievable. Monitoring and follow-up are the key
watchwords in the task of managing and reducing NPAs.
REMEDIAL MEASURES:
1) Regular meetings with the borrowers and interaction with them on their
business prospects and their position of their accounts should take place.
2) Periodical meetings with group of borrowers particularly those finance under
government-sponsored schemes and in rural areas should be held in which the
need for prompt payments of dues should be explained. It needs to be made
clear to these borrowers that there will not be any further debt relief scheme
in future and that they will benefit in the long run by paying the banks dues.
KLSs, Institute of Management Education & Research, Belgaum
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BANK OF MAHARASHTRA
3) Recovery camps/recovery workshops can be organized in co-ordination with
the government authorities in rural areas or in respect of SBI advance under
government sponsored schemes.
4) In case of sick units, viability studies need to be conducted promptly and
quick dispensation of rehabilitation packages is essential so that the advance
to them can be upgraded.
5) Close monitoring of sick units, which are under nursing is important to ensure
that they abide by the stipulation made under the nursing program and thereby
there borrowal account are upgraded.
6) Target for recovery should be fixed for individual functionaries and their
performance should be closely monitored.
7) Periodical inspection of the units financed and follow-up for recovery of the
overdue amount should be closely monitored.
8) Village level workers be instructed to maintain register for details of various
borrowers under the government sponsored schemes to ensure regular followup.
9) For smaller advance, Lok Adalat is an effective avenue for on the spot
settlement of bank loan case and this mechanism should be used effectively.
10) As regards cases involving debt for over Rs.10 lakhs, the forum of Debt
Recovery Tribunal should be effectively used.
11) Periodical meetings should be held with the lawyers handling Banks cases to
discuss various issue connected with the ending loans case with a view to
reducing the delays in settlement of the cases.
12) Settling the cases out of court and entering into compromises, wherever
considered appropriate, may rove to be quicker and more effective than legal
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BANK OF MAHARASHTRA
action. However, any tendency to get undue advantage from the bank should
be guarded against.
13) Realization of securities in cases of advances under litigation needs greater
attention. It should be our endeavour to obtain permission of the court for
attachments and disposal of securities charged to the bank before judgement.
where such permission is granted or where suit is decreed in banks favours,
the securities covered by the suit should promptly realize.
14) The portfolio of the loss assets has to be critically examined to weed out all
such assets where there is no hope of any recovery. In such cases, the
ultimate step of writing off the advance needs to be taken and any delay in
matter is of no benefit.
15) The services of Non-Government Organization (NGOs) may also be utilized
in area where these are active, for counselling the small borrowers. These
borrowers may be organized in group and financed, if considered appropriate
and prudent, through the NGOs concerned.
TACKLING NPAs
The major tools for tackling assets, which have already turned into nonperforming assets, are the following:-
1).
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BANK OF MAHARASHTRA
2).
3).
4).
5).
6).
FOCUSED STRATEGIES
1) Constant follow-up and periodically dialogue with the borrower to know the
prospects of his business and difficulties, if any, faced. Case to case review of
NPAs and replacement of loan to suit the revised income generation pattern so that
he is able to repay dues of the bank as per his generation capacity.
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BANK OF MAHARASHTRA
2) Branch recovery team consisting of 2/3 resourceful staff members/officials,
should be formed (if not so) at each critical branch. The team member should be
exhorted to set up recovery endeavours and produce quick tangible results.
5) To ensure that Target of Recovery have been allotted to all the critical
branches for reducing NPAs/INC/AUC by their respective controlling
authorities and the controllers concerned monitor their performance. The
Dy.
6) One time settlement (OTS) has been found to be another method whereby the
bank would finally recover its due depending upon the repayment capacity of
the borrower from all sources.
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BANK OF MAHARASHTRA
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PART-C
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BANK OF MAHARASHTRA
2. Verify the financials submitted by the borower and compare it with that of
assumption made at the time of previous sanction.
4. Borowers are willing to furnish any detail on their assets and liabilities and
execute any document before disbursement of loan. Obtain all relevant details and
documents prior to disbursing the loan/advance.
5. Book fresh quality advances and market for such advances. At present we are
financing to those who have approached us. Approach good borrower and bring to
our books. Marketing is the need of hour.
6. Follow-up all the accounts with One quarter interest dues and ensure that
borrower meet interest commitments.
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BANK OF MAHARASHTRA
9. Seasonal activities monitor the recovery in the account and ensure recovery effort
coincides with the time of revenue inflow.
10. Be aware of the danger signals received from the borrowers about the problem
loans. Preventive and curative action should be taken immediately.
11. Do not be just satisfied and let loose the good borrowers. Complacency towards
existing good borrowers may lead to account turning NPAs later.
SUB-STANDARD ASSETS:-
II. Ensure that sub-standard account does not slip down to doubtful and loss category.
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BANK OF MAHARASHTRA
III. Efforts should be made to upgrade the account to standard categories NPAs affect
our balance sheet four ways:
IV. Once the amount become NPA verify whether documentation is in order. If not
rectify it first.
VI. Regular counsel and educate dafaulting borrower. Maintain regular contact with
the borrowers and monitor the asset. Keep the Branch Manager informed of the
developments at regular intervals.
VII. Do not permit excess drawing unless otherwise necessary for 3 units to run. If the
situations warrant, renew/review the account record excess drawings, if any,
permitted in the account and insists for letters and document it.
VIII. In case of sick units, if satisfied about the problems of sickness strengthen the
assets with collaterals. This will help in making small provision against such
advances. Chalk out the rehabilitation programme in consultation with the
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BANK OF MAHARASHTRA
controllers immediately failing which we may not have any assets to fall back
upon later. A quick action is needed. If given a chance, grab the earliest to palm
off the account from our books to any other financial agency.
DOUBTFUL ASSETS:-
1) Experience in the previous years indicate that there has been steady slippage in the
quality of assets in the NPA categories from sub-standard to doubtful assets and
then to loss assets. One reason could be that appropriate action as mentioned
above is not taken in case of sub-standard assets. Secondly suit field accounts in
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BANK OF MAHARASHTRA
various civil courts/debts recovery tribunal is not followed up in the manner
required ad or are getting very little attention. These accounts particularly suit
field/decreed account required constant review at the operating level so that
appropriate steps like enforcing decree, facilitating compromises or write off if
need be initiated instead of holding such un-remunerative accounts on long term
basis in your books as NPAs.
2) Issues raised by advocates should be tackled to get the suits diposed of and
executive the decreased so obtained to reduced the NPAs.
3) Where branches have got backlog in settlement to DICGC claims, such claims
should be followed up rigorously. For this purpose dealing official at the branch
should explore the possibilities of getting the claim settled at an earliest in
consideration with the DICGC Chennai/Mumbai.
LOSS ASSETS:-
i.
Write off Doubtful and Loss assets was initiated by branches from the first quarter
of the year itself.
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BANK OF MAHARASHTRA
ii.
High value doubtful and loss assets where DICGC has settled the claims and/or
rejected the such case should be first dealt with write-off proposals with
additional information should be submitted immediately where ever assets are not
available.
iii.
Identify all loss assets where full provision is available to write off. Where ever
suits are pending and prospect of recovery exists such account can be parked in
advance under collections accounts.
iv.
Recommendation to write up file value loss asset should be sent on priority basis.
v.
Write off out standings where provision is short up to Rs.25000 may be sent
immediately without further loss of time.
vi.
1. Few branch operating functionaries are still not aware of the IRAC norms. Even
though account is classified as NPA interest is being applied bindly with out
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BANK OF MAHARASHTRA
thinking of consequence of such application of interest. It inflates the INCA
figures.
2. Serious efforts in upgrading the assets from NPA category will results in reduction
of INCA. Pressurize induce the borrowers to bring down their outstanding levels
compared to the previous year. This will enable the bank to book income on
partial recovery basis.
1) The number of advance under collection account and out standings there in there
in are the rise.
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BANK OF MAHARASHTRA
2) Due to the policy decision taken to write-off loss assets irrespective of suit
position may add a few more account to advance under collection account.
4) Review all accounts parked in advance under collection account on priority basis
and efforts should be made to recover full dues and remove such accounts from
advance under collection account.
6) Regular view of the recovery prospects and removal of such accounts from
advance under collection account does not appear to be receiving level of
attention.
The most important business implication of the Naps is that it lead to the credit
risk management assuming priority would thus be pre-occupied with recovery
procedures rather than concentrating on expanding business. As already mentioned
KLSs, Institute of Management Education & Research, Belgaum
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BANK OF MAHARASHTRA
here in above, a bank with high level of NPAs would be forced to incurr carrying
costs on a non-income yielding assets. Other consequence would be reduction in
interest income, high level of provisioning, stress on profitability and capital
adequacy, gradual decline in ability to meet steady increase in cost, increased pressure
on Net Interest Margin (NIM) there by reducing competitiveness, steady erosion of
capita resources and increased difficulty in augmenting capital resources. The lesser
appreciated implications are reputation risks arising out of greater disclosures on
quantum and movement of NPAs provision, etc.
The non-quantifiable implication can be psychological like play safe attitude
and risk aversion, lower morale and disinclination to take decision at all levels of staff
in the bank. Two decades of regimented and directed banking to credit delivery has
derived Bank Manager of the instinct skill and knowledge. Nationalized banking did
not produce a spring of talent resources from within. Directive inputs and course
direction came externally from RBI and Finance Ministry which were/are external to
the day-to-day affairs and problems of Indian Banking Industry.The system did not
promote initiative and talent, but bred corruption and nepotism.
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BANK OF MAHARASHTRA
SARFESI- The Security Interest Legislation
SARFESI
provides
for
the
enforcement
of
security
interests
in
or non-banking
Slotting NPAs of various size and type can be made as follows at branches for
working out specific/appropriate strategies individual cases. Besides it will also help us in
taking stock of the situation at given point of time.
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BANK OF MAHARASHTRA
CATEGORY
TECHNIQUES
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BANK OF MAHARASHTRA
should be worked out through long draw
work out sessions with borrowers, because
the value of assets may get eroded fast or
the borrower may decamp or shift his
activity.
c) In Non-Agricultural NPAs, quick solution
should be worked out through long draw
work out sessions with borrowers, because
the value of assets may get eroded fast or
upto Rs. 5 lakhs)
Rs. 25 lakhs)
of the loans.
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BANK OF MAHARASHTRA
compromise.
g)
a) It is highly effort-inelastic.
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BANK OF MAHARASHTRA
of the unit, deciding the exit option.
1) The team is formed having all the branch managers and concerned staff looking
after recovery department. The said team will visit the borrower and advice him
for recovery of dues and also the rupurcussions for non-payment.
2) There are 10 ladies staff members in Belgaum City. These ladies staff members
have formed a group and door to door recovery campaign is done by this team.
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BANK OF MAHARASHTRA
3) The telephone numbers of Belgaum District is loaded on PCs of all branches, the
managers as and when get the free time contact NPA account holders by searching
telephone numbers which are loaded on their PCs.
This innovative method has rewarded a good dividend as on 2007-2008, all the
branches of Bank of Maharashtra in belgaum city have achieved the recovery targets,
write-off targets and reduced the NPA quantum to a large extent.
While preparing the recovery budget, branches should scan through the NPAs
portfolio,make the ABC analysis of NPA, segregate accounts into identical lots with
regard to the approach to be adopted for recovery.
SIZE OF NPAs
CONTROL
Small NPAs
Medium NPAs
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BANK OF MAHARASHTRA
Large NPAs
RECOVERY CHART
i.
File Suit
Effectiveness
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BANK OF MAHARASHTRA
ii.
iii.
iv.
II. Action
Not
Currently =
Possible Effectiveness
Employed
i.
ii.
Media Announcements
iii.
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BANK OF MAHARASHTRA
iv.
v.
Uncomfortable and
vi.
his back.
Notifying Stockholders
PROBLEMS OF RECOVERY
There are a number of factors which contribute to the recovery problem, some
of which crop up rights at the inception of the project and before the loan is disbursed.
These problems can be clubbed into two categories i.e; pre-disbursement and postdisbursement stages.
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BANK OF MAHARASHTRA
Wilful Default.
Failure of crops.
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BANK OF MAHARASHTRA
Basically each branch engaged in rural lending has to loan for recovery of
loans disbursed by it. The manager should be familiar with the prospects of recovery
through internal and external factor. Knowledge about willful defaulters is equally
important. Thus Three-Pronged Strategy is necessary;
(A).
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BANK OF MAHARASHTRA
i.
Appraisal of loan application and re-sanction surveys:During the initial processing of the proposal, it has to be ensured that the
repayment programmer for an item/equipment id is fixed in accordance with the
guidelines prescribed by NABARD. Awareness about NABARD guidelines should be
increased at the branch level.
ii.
iii.
Non-Banking business day:This day should be utilized fully for field visit and contact with the borrowers.
iv.
Recovery Camps:The central idea of recovery camp is to bring a maximum number of people
together at one place and repay the loans. The recovery camps in addition of effecting
recovery create a proper climate for recovery.
v.
Conversions/Rescheduling of loans:There are guidelines for the operating staff of the banks for
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BANK OF MAHARASHTRA
vi.
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.
vii.
Integration of recovery in branch budgeting:Our bank has already commenced fixing recovery targets and the best
performers are also going to be rewarded suitably through the award scheme.
(B).
Wherever the states have enacted laws on the pattern and support of the
government machinery can be enlisted accordingly. The support from BLCC, DCC
and SLBC can be utilized effectively. If the branches prepare village-wise action plans
in this regard, it will be still appropriate for the for the agencies to have a concerted
effort towards recovery. The branches may also compile a detailed position of
defaulters and share the same with the convener banks and government authorities
periodically.
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BANK OF MAHARASHTRA
(C).
Here 2 approaches are necessary. First to prevent wilful default in future and
secondly to initiate steps to discourage wilful default. To prevent wilful defaults,
comprehensive and discrete enquires, therefore, should be made before disbursing loans
to farmers. Some of the banks have already devised system of maintaining village
dossiers which compromise names of farmers who do not have good reputation. A nonwilful defaulter is one who generally follows a good cropping pattern and is co-operative
to developmental functionaries.
In present times, when wilful default has gained social acceptability, the branches
can initiate steps for devising schemes for giving recognition to good borrower in various
meeting or function organised by the branches in consultation with controllers. Further
the problems of good borrowers can be studied and their credit needs can be immediately
met. By doing so, a culture of prompt repayment may develop in the village and
simultaneously wilful default would get its courage.
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BANK OF MAHARASHTRA
PART D
(In Crores)
PARTICULARS
1. Net NPAs to Net Advances (%)
2007-2008
2006-2007
0.87
1.21
820.27
252.12
944.08
309.12
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BANK OF MAHARASHTRA
c) Reductions during the year
d) Closing Balance
306.12
766.27
432.93
820.27
277.38
167.80
187.60
254.05
334.06
170.65
227.33
277.38
520.14
84.31
118.52
485.93
594.93
138.48
213.27
520.14
Opening Balance
Additions during the year
Reductions during the year
Closing Balance
Opening Balance
Provisions made during the year
Write-back of excess provisions
Closing Balance
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BANK OF MAHARASHTRA
From the above chart we can observe that, there is an decreasing trend in
NPAs (i.e.Gross, Net and Provisions) as compared to that of last year.
NPA %
NPAs (Gross)
07-08
06-07
07-08
0.87
1.21
820.27
06-07
766.27
NPAs (Net)
07-08
254.05
06-07
277.38
06-07
520.14
INTERPRETATION:
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BANK OF MAHARASHTRA
When we compare the ratio of Net NPAs to Net Advances and Closing Balances
of NPAs (i.e. Gross, Net & Provisions), we find that the Quality of NPA in the
Bank is better in the year 2007-2008 as compared to that of 2006-2007.
When we consider movement in NPAs (Gross), we get the following;
Reductions in Gross NPAs made during the year 2007-2008 are Rs. 54 lakhs,
but during the year 2006-2007, the reductions made were Rs. 124 lakhs.
When we consider movement in NPAs (Net), we get;
Reductions made in the year 2007-2008 are Rs. 20 lakhs and for the year 20062007 are Rs. 57 lakhs.
When we consider provisions, we get the following;
Reductions in NPA during the year 2007-2008 are Rs. 34 lakhs and for the year
2006-2007 are Rs. 75 lakhs.
Therefore, from the above interpretation we can say that, in the
year 2006-2007, the asset quality of the Bank was better as compared to that of
the year 2007-2008.
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BANK OF MAHARASHTRA
FOR RPD BRANCH, BELGAUM
(Rs. IN LAKHS)
S.No
CATEGORY
SUB-STD
DOUBTFUL
LOSS
TOTAL NPA
TOTAL
ADVANCES
ACS
AMT
ACS
AMT
ACS
AMT
ACS
AMT
ACS
AMT
Housing Loans
0.00
0.00
0.00
0.00
41
115.49
Education
Loans
0.00
0.00
0.00
0.00
28
60.23
Two wheeler
loan
0.00
0.23
0.00
0.23
49
10.62
Four wheeler
loan
0.00
0.00
0.00
0.00
11
27.48
Consumer
Loans
0.58
0.00
0.63
1.21
12
3.24
Personal
Loans
0.00
0.00
0.47
0.47
30
12.65
0.00
0.18
0.00
0.18
22
2.52
0.00
0.00
0.00
0.00
0.93
5.61
12
28.01
17
13.04
34
46.66
423
520.75
6.19
14
28.42
21
14.13
42
48.74
618
753.92
7
8
9
Solar Loans
Adhar Loans
SSI
TOTAL
ANALYSIS
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BANK OF MAHARASHTRA
From the above chart we come to know that, Out of the major proportion
of advances/loans that are lent to various category of people only a small proportion
contributes to Total NPA and further this total NPA is categorised into 3 types. i.e, SubStandard Assets, Doubtful Assets and Loss Assets.
PARTICULARS
Total Advances
753.92
6.19
Doubtful Assets
28.42
Loss Assets
14.13
Sub-Standard Assets
Total NPA
-----------------------
Remaining Balance
-------------------------
48.74
705.18
From the above table, we come to the following conclusion:Out of the Total Advances, the share of total NPA is minimum. Bank is
undertaking and implementing many measures to bring down this NPA level. But, the
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BANK OF MAHARASHTRA
Bank cannot stop lending advances, taking into consideration the rise in the NPA level.
Bank has to raise loans as they contribute to the wealth and creditibility of the
bank, and when the banks have raised the loans they are also at a risk. So, there may be
atleast minimum level of NPA.
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BANK OF MAHARASHTRA
The total amount of advances raised is Rs. 753.92 lakhs, which is taken as 100%.
Out of this 100%, 6% of the total advances contribute to the total NPA amount
approximately, which is equal to Rs. 48.74 lakhs.
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BANK OF MAHARASHTRA
The total number of accounts with the Bank as on March 2008 is 618, which is taken as
100%.
Out of these 618 accounts, the total number of accounts which belong to the category of
NPA is 42 (i.e. 7% of the total 100% contributes to NPA).
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BANK OF MAHARASHTRA
Out of the total 100%, 58% contributes to Doubtful Assets, 29% belongs to Loss Assets
and 13% contributes to Sub-Standard Assets.
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BANK OF MAHARASHTRA
Out of 100%, 50%, contributes to Loss Assets, 33% belongs to Doubtful Assets and 17%
is for Sub-Standard Assets.
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BANK OF MAHARASHTRA
The Total NPA amount is Rs. 48.74 lakhs, which is taken as 100%.
Out of this 100%, 97% belongs to SSI Sector, 1% contribute to Personal loans category,
2% belong to Consumer loans Sector and 0% each contribute to all other category of
loans.
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BANK OF MAHARASHTRA
The Total amount in sub-standard asset is Rs.6.19 lakhs, out of the total NPA, which is
taken as 100%.
Out of 100%, 91% contributes to SSI Sector, 9% belongs to Consumer Loans Sector and
0% each belong to other category of loans.
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BANK OF MAHARASHTRA
The total amount in Doubtful Assets is Rs. 28.42 lakhs out of the total NPA amount,
which is taken as 100%.
Out of 100%, 98% belongs to SSI Sector, 1% comes under the category of Two wheeler
loans, 1% contributes to Solar loans and 0% each belong to other category of loans.
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BANK OF MAHARASHTRA
The total amount in Loss Assets is Rs. 14.13 lakhs which is taken as 100%.
Out of 100%, 93% belong to SSI Sector, 4% contribute to Consumer loans, 3% contribute
to Personal loans and 0% each contribute to other sector of loans.
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BANK OF MAHARASHTRA
From the above chart we get the following:The total number of Accounts with Bank of Maharashtra as of March 2008 are 618.
Out of these accounts, the major proportion is for SSI sector. i.e, 423 accounts (67%),
49 accounts (8%) are under the category of Two wheeler loans, 41 accounts (7%) are
under the category of Housing Loans, 30 accounts (5%) belong to the category of
Personal loans, 28 accounts (5%) come under the category of Education loans, 22
accounts (4%) come under the category of Solar loans, 12 accounts (2%) belong to the
category of Consumer loans, 11 accounts (2%) comes under the category of Four wheeler
loans and 2 accounts belong to the category of Adhar loans.
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BANK OF MAHARASHTRA
From the above chart we get the following:The Total Amount raised by Bank of Maharashtra as of March 2008 is Rs. 753.92 lakhs,
which is taken as 100%.
Out of this 100% amount, the major proportion is for SSI sector. i.e, 70% (Rs 520.75
lakhs), 15% (Rs 115.49 lakhs) of the amount is for the purpose of Housing loans, 8% (Rs
60.23lakhs) are for education loans, 4% (Rs 27.48 lakhs) are under the category of Four
wheeler loans, 2% (Rs 12.65 lakhs) come under the category of Personal Loans, 1% (Rs
10.62 lakhs) belong to the category of Two wheeler loans and each with 0% is for
Consumer loans (Rs 3.24 lakhs), Solar loans (2.52 lakhs) & Adhar loans (Rs 0.93 lakhs).
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BANK OF MAHARASHTRA
INTERPRETATION OF THE ABOVE DATA IN TERMS OF PERCENTAGES
( i.e. in terms of Net NPAs to Total Loans Disbursed)
TOTAL NPA
Total NPA %
48.74/753.92*100 = 6.46%
Sub-Standard Assets
6.19/753.92*100 = 0.82%
Doubtful Assets
28.42/753.92*100 = 3.77%
Loss Assets
14.13/753.92*100 = 1.87%
SSI SECTOR
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BANK OF MAHARASHTRA
Total %
46.66/753.92*100 = 9%
Sub-Standard Assets
5.61/753.92*100 = 1.08%
Doubtful Assets
28.01/753.92*100 = 5.38%
Loss Assets
13.04/753.92*100 = 2.54%
TWO-WHEELER LOANS
Total %
0.23/10.62*100 = 2.16%
Sub-Standard Assets
NIL
Doubtful Assets
0.23/10.62*100 = 2.16%
Loss Assets
NIL
CONSUMER LOANS
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BANK OF MAHARASHTRA
Total %
1.21/3.24*100 = 37.35%
Sub-Standard Assets
0.58/3.24*100 = 17.90%
Doubtful Assets
NIL
Loss Assets
0.63/3.24*100 = 19.45%
PERSONAL LOANS
Total %
0.47/12.65*100 = 3.72%
Sub-Standard Assets
NIL
Doubtful Assets
NIL
Loss Assets
0.47/12.65*100 = 3.72%
SOLAR LOANS
Total %
0.18/2.52*100 = 7.15%
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BANK OF MAHARASHTRA
Sub-Standard Assets
NIL
Doubtful Assets
NIL
Loss Assets
0.18/2.52*100 = 7.15%
FINDINGS
1) 6.46% of the total advances contribute to total NPA.
2)
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BANK OF MAHARASHTRA
(a). 58% of the total NPA amount belong to the category of Doubtful Assets,
whereas only 33% of the total NPA accounts belong to the category of Doubtful
Assets.
(b). 29% of the total NPA amount belong to the category of Loss Assets,but
account wise, 50% of the total NPA accounts are under the category of Loss
Assets.
(c). 13% of the total NPA amount come under the category of Sub-Standard
Assets, whereas 17% of the total NPA accounts belong to Sub-Standard Assets
Category.
From the above point we can observe that ,the Category of Assets differ
in percentages when we compare them in terms of Amounts and Accounts.
3) Major advances that are provided by the Bank belong to the SSI sector.
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BANK OF MAHARASHTRA
6) There is reduction in percentage of Net NPA (i.e. from 1.21% in the year 20062007 to 0.87% in the year 2007-2008). This reduction is due to recovery in NPA
accounts and the provisions made on these NPAs.
7) The percentage of Bank NPAs, Net as well as Gross will be reduced as the
quantum of advances increase.
8) NPA is not in existence under the category of Housing Loans, Education loans,
Four wheeler Loans, Solar Loans and Adhar Loans.
Reasons:
Adhar Loans are properly linked with pensions and salaries.
Solar Loans are disbursed by the bank by obtaining collateral security in
the form of Deposits/NSC/LIC Policy.
The Education Loans are disbursed in stages for qualified courses having
full job opportunities..
SUGGESTIONS
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BANK OF MAHARASHTRA
The Bank has to increase in the quality of assets which adds value to its
profitability.The quality of assets can be increased by scouting the best
Borrowers and by increasing the quality of advances. The percentage of
NPAs to Total Advances can be brought down by increasing the standard
assets.
The major default of the Bank is in SSI Sector. So, inorder to reduce NPAs
form this sector, the Bank should undertake various checks like; timely
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BANK OF MAHARASHTRA
checks on the Cash Flow Statement (Specifically Cash from Operating
Activities), Level of Sales (Growth Rate), Coverage ratios (Interest
Coverage Ratios, Debt Service Coverage Ratio), etc of SSI Units should be
analysed.
Proper follow-up should be maintained with the SSI Sector, which will help
them to reduce the NPAs in this sector to a greater extent.
CONCLUSION:
NPA is a weapon, which affects bank profitability due to interest income not being
recognized on NPA accounts and loan loss previously incurred to be absorbed from profit
earned. Also the provisions are to be made on the NPA accounts which will reduce the
profits of the Bank. The bank must adopt structured NPAs management policy for
elimination or reducing the NPAs in the Bank.
BIBLIOGRAPHY
KLSs, Institute of Management Education & Research, Belgaum
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BANK OF MAHARASHTRA
Bank Circulars
www.bankofmaharashtra.com
www.google.com
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