1

LOVELY PROFESSIONAL UNIVERSITY

DEPARTMENT OF MANAGEMENT

Report on Summer Training

NON PERFORMING ASSESTS WITH SPECIAL

REFERENCE TO THE JAMMU AND KASHMIR BANK
LTD

Submitted to Lovely Professional University

In partial fulfillment of the

Requirements for the award of Degree of
Master of Business Administration

Submitted by:
Name of the student: TAUSEEF AHMAD SHAGOO
University Roll No: RS1904B32.

DEPARTMENT OF MANAGEMENT
LOVELY PROFESSIONAL UNIVERSITY
PHAGWARA
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ACKNOWLEDGMENT

It gives me immense pleasure to present the report of my project titled

“NPA AT THE J&K BANK LTD.
This work would not have been possible without the assistance and
guidance of a no. of people. I would like to take this opportunity to thank each
and every one of them.
At first I would like to thank the management of the Jammu &
Kashmir Bank Ltd. for providing me an opportunity to work as summer
trainee at Zonal Office North Kashmir Baramulla.
I express my sincere gratitude to my Project in charge at J&K Bank
Mr. Ghulam Rasool Hajam, Cluster Head-I, North Kashmir Baramulla and
Mr. Ghulam Jeelani for taking keen interest in my project work and giving me
valuable guidance at every stage.
I also express my sincere gratitude to my project guide Mr. Harendra
for guiding me aptly and at every stage of my project.
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CONTENTS

CHAPTER I- EXECUTIVE SUMMARY………………………………. 04

CHAPTER II- INTRODUCTION (NPA)……………………………….. 09

CHAPTER III- LITERATURE REVIEW……………………………….. 20

CHAPTER IV- J&K BANK INTERODUCTION……………………… 27

CHAPTER V- BANK AT GLANCE…………………………………... 33

CHAPTER VI- ORGANIZATIONAL STRUCTURE………………… 37

CHAPTER VII- FINANCIAL PRODUCTS…………………………… 41

CHAPTER VIII- NPA WITH SPECIAL REFERENCE

TO J&KBANK……………………………………… 50

CHAPTER IX- DATA COLLECTION AND INTERPRETATION….. 64

 CONCLUSION………………………………….. 75

 RECOMMENDATIONS……………………….. 76

 QUESTIONNAIRE…………………………….. 78

 REFERENCES………………………………… 82
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CAHPTER-I

EXECUTIVE SUMMARY
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EXECUTIVE SUMMARY:

The future of Indian Banking represents a unique mixture of unlimited opportunities

amidst insurmountable challenges. On the one hand we see the scenario represented by the
rapid process of globalization presently taking shape bringing the community of nations in
the world together, transcending geographical boundaries, in the sphere of trade and
commerce, and even employment opportunities of individuals. All these indicate newly
emerging opportunities for Indian Banking. But on the darker side we see the accumulated
morass, brought out by three decades of controlled and regimented management of the banks
in the past. It has siphoned profitability of the Government owned banks, accumulated
bloated NPA and threatens Capital Adequacy of the Banks and their continued stability.
Nationalized banks are heavily over-staffed. The recruitment, training, placement and
promotion policies of the banks leave much to be desired. In the nutshell the problem is how
to shed the legacies of the past and adapt to the demands of the new age.

PSB’s in India can solve their problems only if they assert a spirit of self-initiative
and self-reliance through developing their in-house expertise. They have to imbibe the
banking philosophy inherent in de-regulation NPA is a problem created by the Banks and
they have to find the cause and the solution - how it was created and how the Banks are to
overcome it.

I have tried to make an attempt under this study regarding NPA with special reference
to THE JAMMU AND KASHMIR BANK LTD and its management regarding their previous
record of NPA and the necessary steps taken by them to overcome this problem.

This project has been prepared under the title of ‘NON PERFORMING ASSETS’ with
special reference to ‘THE JAMMU AND KASHMIR BANK LTD’. First of all the
information regarding the J&K bank has been given. Information regarding the structure of
the organization then the kind of services it provides to its customers.
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PRIMARY OBJECTIVES OF THE RESEARCH:

1. To get knowledge about the NPAs.

2. Study the current status of NPAs with special reference to J&K bank.
3. Study the defaulters of the bank and people in general.
4. Study the perception of people regarding J&K bank.

RESEARCH METHODOLOGY:
The study pertains to behavior aspects such as perception, attitude and expectations
towards the Loan products and provided by Jammu & Kashmir bank Ltd.
1.2 HYPOTHESIS

NPA always affect the profit of bank and also the prestige of bank. So here the research
problem is to identify the causes for the NPA and to identify the action plan to reduce the
NPA.

1.3 RESEARCH DESIGN

The Research Design of my project is based on descriptive research.

SOURCE OF INFORMATION:

PRIMARY SOURCE:

 Through questionnaire: I initially was asked to prepare a questionnaire with special

reference to NPA and surveyed respondents in general i.e., not only the customers of
J&K bank were questioned but customers of other banks in locality.

 Face to face interaction: I was also provided the list of some defaulters i.e., NPA’s
of J&K bank residing in near locality, I personally interviewed them in order to
provide the information to bank and it also helped me in my project report.
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 Discussions: I also with help of discussions with my industry guide was able to
understand how they deal with NPAs.

SECONDARY SOURCE:

 Records maintained by the bank: My project in charge provided me the necessary

records maintained by bank over the past periods regarding NPA in general and also
NPA’s with special reference to J&K bank so that I can get ample information
regarding this topic
 Internet: I also collected a lot of information regarding NPA in general and related to
J&K bank through internet.
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1.4 SCOPE OF THE STUDY

There have been major structural changes in the financial sector since banking sector reforms
were introduced in India in 1992. Since then Banks have been lending aggressively providing
funds towards every sector. This study includes NPA with special reference to J&K Bank and
this study was also meant to be supportive for J&K Bank with the help of survey conducted
especially of bank defaulters.
1.5 LIMITATION OF PROJECT

 Bank data was restricted.

 I have selected only one bank for NPA which is not enough to provide me the general
information regarding NPA in other banks also it was due to short period of time.

 I faced difficulty in doing proper analysis as I did not have prior experience for
making project report.

 The unfavorable conditions in Kashmir disturbed the project work.

 Questionnaire was given by bank as it was meant to be within the bank limitations.

 Response from respondents while filling the questionnaires was not up to the
expectations.
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CHAPTER-II

INTRODUCTION
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NON- PERFORMING ASSET:

INTRODUCTION:
It’s a known fact that the banks and financial institutions in India face the problem of
swelling non-performing assets (NPA’s) and the issue is becoming more and more
unmanageable. In order to bring the situation under control, some steps have been taken
recently. The Securitization and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 was passed by parliament, which is an important step towards
elimination or reduction of NPA’s.

MEANING OF NPA’s:
An asset is classified as non-performing asset (NPA’s) if the borrower does not pay dues in
the form of principal and interest for a period of 90 days. However with effect from March
2004, default status would be given to a borrower if dues are not paid for 90 days, if any
advance or credit facilities granted by bank to a borrower become non-performing, then the
bank will have to treat all the advances/credit facilities granted to that borrower as non-
performing without having any regard to the fact that there may still exist certain advances/
credit facilities having performing status. In simple words, an asset which ceases to yield is a
non-performing asset.

Thirty days past due

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, up gradation 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),
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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.

Many institutions now try to sell their non-performing assets through companies like KIM-
LAR, INC. which helps facilitate the sale of these bundled portfolios. The non-performing
assets often include mortgage loans, car loans, credit card debt and installment loans.

Ninety days overdue

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 effect from March 31, 2004,
a non-performing asset (NPA) shell 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, in respect 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
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EMERGENCE OF THE WORD NON-PERFORMING ASSET:

The issues relating to definition, management or the mismanagement and recommendations
calling for spectacular solutions to the problem of non-performing advances of banks are
being deliberated at frequent intervals during last decade or so.
In late 80s the concept of classification of bank advances in several health code categories
took place though the terminology non-performing advances did not exist at that time. This is
followed by early 90s Anglo-American model of categorization of bank lending portfolio in
several blocks of nomenclature in that included the non-performing advances. The rapid
popularity of the phenomenon can be ascribed to the opening up of the Indian economy and
consequent pressure from western powers to influence our banking system in the name of
international standards of accounting, congruence of banking supervision by Basle
committee, and so on.

The sudden shock of guidelines relating to non-performing advances and simultaneous of

income recognition made the Indian banking system totter and a number of public sector
banks started incurring losses from the mid-nineties. Then came the recommendations of the
Narasimham committee with the proposition of creating asset-reconstruction fund for
cleaning the balance sheets of the banks of non-performing advances as a one-time measure.

DEFINITION GIVEN BY THE NARASIMHAN COMMITTEE:

The committee has defined non-performing assets as advances here, as on the date of balance
sheet,
1. In respect of term loans, interest remains past due for a period of more than 90 days.
2. Overdrafts and cash credits accounts remain out of order for more than 90 days.
3. Bills purchased and discounted remain over due and unpaid for a period of more than
90 days.

An amount is considered past due when it remains outstanding for 30 days beyond the
due date.
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 As per latest guidelines issued by Reserve Bank of India the Non Performing
Asset is an advance where;
 Interest and or installment of principal remain overdue for a period of more
than 90 days in respect of term Loans.
 The account remains out of order for more than 90 days in respect of an
Overdraft and Cash credit accounts.
 The bill remains overdue for the period of more than 90 days in case of Bills
Purchased and Discounted.
 The loan asset has not been renewed within 90 days from its due date of
renewal.
 The stock statements have not been obtained within a period of 90 days from
the due date.
 The interest and or installment of principal remain un-paid for one crop season
beyond the due date in case of long-term agriculture crop loans.
 (Long-term crop loan would be the crops with crop season longer than one
year and crops, which are not longer duration crops, would be treated as short
duration crops.
 Any amount to be received remains overdue for a period of more than 90 days
in respect of other account.

RBI REGULATION REGARDING INCOME RECOGNITION, ASSETS

CLASSIFICATION AND PROVISIONING:

INCOME RECOGNITION:
RBI has notified regulations concerning the income recognition of banks while accepting the
recommendations of the Narsimham committee report. The following is the regulations
regarding income recognition of banks:

 Interest income should not be recognized until it is realized. A non-performing

asset is one when it is overdue for two quarters or more.
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 In respect of non-performing assets, interest is not to be recognized on accrual

basis but it is to be treated as income only when it is actually received. NPA’s
banks should not charge or take into account the interest.

 In overdue bill, interest should not be charged or taken as income unless

realized. Interest accrued and credited to prior accounting period in respect of
non-performing assets should be reversed or provided for in the current
account if such interest still remains uncollected.

CLASSIFICATION OF ASSETS FOR MAKING PROVISION:

For the purpose of making provisions for bad and doubtful loans and advances, banks
need to classify them into the following broad categories:

 Performing assets
 Non-performing asset

I) PERFORMING ASSETS:

Performing assets is also known as standard assets/loans, where the interest or principal
are not overdue beyond 180 days at the end of the financial year. Such loans don’t carry
more than the normal business risk.

II) NON-PERFORMING ASSETS:

Any loan the repayment of which is overdue beyond 90 days or two quarters is
considered as NPA. It is further classified into:
a. Standard.

b. Sub-standard assets

c. Doubtful assets
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d. Loss assets

Standard Assets: are those assets, which do not disclose any problem and generate income
for the Bank, requires to be provided @0.25% on aggregate balance as on the balance sheet
date.
Sub-Standard Assets: If the interest and or installment of principal remains over due for a
period of more than 90 days, the assets are to be classified as Sub-Standard assets and are to
be provided @10% of aggregate balance as on balance sheet date. With effect from March,
2005 percentage of provision has been increased from 10% to 20%.
Doubtful Assets: The assets which have remained in Sub-standard category for a period of
18 months, are to be classified as Doubtful assets. With effect from March 2005,the
periodicity of 18 months has been reduced to 12 months for classifying as Doubtful assets.
The assets are to be provided @20%. 30%, 50% for secured portion depending upon the age
in Doubtful category as mentioned below and 100% in respect of un-secured portion i.e short
fall in value of security:
a) Up to one year 20%
b) One year to three years 30%
c) Three years and above 50%
With effect from March, 2005 the provision rates in respect of doubtful assets with three
years ago in doubtful category has been increased for the secured portion to the extent of
100%. However, the provision in respect of assets which have already completed three years
in doubtful category as on 31.03.2004 are to be provided @ 60%,.75% and 100% as on
31.03.2005, 31.03.2006 and 31.03.2007 respectively.
Loss Assets: are those assets, which have no security in terms of mortgage or hypothecation
and a provision @100% is required as per prudential norms.
Loan assets classified as non-performing can be upgraded as performing assets as soon as the
borrower pays in full the arrears of interest and installment of principal. However, in case of
re-scheduled/ re-structured loan assets, an asset can be up graded only if the interest and or
installment of principal have been serviced regularly as per terms and conditions of re-
negotiated re-scheduled terms for the period of one year.
Gross NPA:
Sum of Gross balances of Sub-standard, Doubtful and Loss assets
Gross NPA percentage:
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Gross NPA divided by Gross advances multiply by 100.An increasing trend implies gradual
increase in bad credit portfolio.
Net NPA:
Sum of Net balances of Sub-standard, doubtful and loss assets
(Gross balance- Provision=Net balance)
Net NPA percentage:
Net NPA divided by Net advances multiply by 100. Net advances means Gross advance
minus Provisions for NPA’s.

After classifying assets into above categories, banks are required to make provision against
these assets for the interest not collected by them. In terms of exact prudential regulations, the
provisioning norms are as under:

Asset Classification Provision requirements

Standard assets 0.25%
Substandard assets 10%
Doubtful assets 20% - 50% of the secured portion depending on the
age of NPA, and 100% of the unsecured portion.
Loss assets It may be either written off or fully provided by the bank.

The increasing levels of bad quality loans marred the prospects of nationalized banks in the
past few years. As a result banks shifted their focus from the industrial segment to the
corporate lending. This has curtailed the incremental NPAs to a certain extent. In FY01, gross
NPAs of public sector banks (PSBs) increased by 3% compared to 9% jump in NPA levels of
new private sector banks. The RBI has tightened the prudential norms regarding classifying
assets as non-performing in line with the international standards. Accordingly, with effect
from FY04, an asset will be classified as NPA if the interest is overdue for 90 days (instead
of 180 days). These norms are likely to strengthen the balance sheet of banks,
notwithstanding the fact that in the near term the higher provisions could trim the profit
growth.

The norms are tightened even for financial institutions (FIs). They are worst affected by the
NPA wave thanks to lending to the commodity and economy sensitive sectors, not to mention
that loans to steel, chemicals and textile sector played a key role in dragging down
performance of FIs. So far they have been enjoying the privilege of recognizing a loan as
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NPA only if principal is overdue for more than 365 days and interest is outstanding for over
180 days. With a view to bring greater transparency, the RBI has proposed to reduce the time
limit to 180 days (for principal). On the one hand imposition of stricter norms could lead to a
difficult time for FIs; permitting them an option of restructuring their loans could give them
some leeway.

To facilitate the speedy recovery of NPAs, the

PSB’s betting on restructuring RBI came up with the idea of a one-time

settlement scheme for outstanding loans in
Gross NPAs (Rs bn) FY08 FY09 Change
Public sector banks 517 533 3.1% FY01. PSB’s have recovered about Rs 8bn
Old private banks 38 40 5.3% from 2lakh accounts in the last fiscal.
New private banks 9 9 8.6% Although, the scheme was extended till June
Foreign banks 24 26 10.9% 30, 2009, the response was not very
Financial institutions 143 157 9.7% encouraging, partly due to the legal
Total 731 766 4.8%
impediments. However, the scheme actually
gave the bankers an opportunity to make
contact with borrowers, which were earlier in touch with only legal advisors or accountants.
Empowering banks to enforce their charge without intervention of court could result in
expeditious recovery of bad debts in future.

Apart from this scheme, the government has designed major policy reforms in order to
enhance the efficiency of the banking system. It has decided to set up 7 more debt recovery
tribunals (DRTs) in addition to the existing 22 and 5 appellate tribunals. It has also proposed
to bring in legislation for facilitating foreclosure and enforcement of securities in case of
default. Replacement of SICA (Sick Industrial Companies Act) was another major step. The
RBI has already asked banks to file criminal cases against borrowers who are willful
defaulters. These initiatives are expected to aid banks to quickly recover their dues from the
borrowers.

NPA analysis
(Rs m) Gross NPAs Gross NPAs as a % Net NPAs as a % of Provision coverage*
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of total loans total loans

Private sector banks
ICICI Bank 4,210 6.0% 2.2% 63.4%
HDFC Bank 1,468 3.2% 0.4% 85.9%
UTI Bank 2,258 4.7% 3.8% 19.7%
IDBI Bank 1,500 4.8% 3.1% 36.0%
Public sector banks

SBI 158,750 14.0% 6.0% 56.9%

Union Bank 4,847 5.6% 2.0% 64.7%
BOB 41,860 15.3% 6.8% 55.8%
FIs
ICICI 59,880 9.9% 4.9% 50.2%
HDFC 3,001 2.3% 0.9% 62.4%
* % of cumulative provisions made on Gross NPAs

Although ratio of net NPAs to net advances have been declining in the past two years, it
hardly offers any comfort. This is due to the fact that in absolute terms NPAs are still very
high (Rs 766 bn). Therefore, it will be a challenge for banks to overcome this problem. For
this, the internal control system and risk management system are required to be strengthened
by banks. There should be a system for timely detection of NPAs. An important means for
positioning appropriate risk management techniques is the MIS development, which requires
building up of strong database and other information sets.

The growing NPAs are a source of worry for the Finance Minister too. Looking at the
changing scenario in the world markets, the problem becomes more ironical because Indian
banking at this juncture cannot afford to remain unresponsive to the global requirements.

However, the outlook for the current fiscal looks bleak. Industrial production has slowed
down and the recent economic data point to a recession. Credit off take is also lackluster. It
does seem, at this point, that NPA levels of banks would not come down significantly during
the current year.
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CHAPTER III-

LITERATURE REVIEW

Prashant K Reddy (Research paper)

The paper deals with the experiences of other Asian countries in handling of NPAs. It further
looks into the effect of the reforms on the level of NPAs and suggests mechanisms to handle
the problem by drawing on experiences from other countries. Financial sector reform in India
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has progressed rapidly on aspects like interest rate deregulation, reduction in reserve
requirements, barriers to entry, prudential norms and risk-based supervision. But progress on
the structural-institutional aspects has been much slower and is a cause for concern the
sheltering of weak institutions while liberalizing operational rules of the game is making
implementation of operational changes difficult and in effective. Changes required to tackle
the NPA problem would have to span the entire gamut of judiciary, polity and the
bureaucracy to be truly effective.

Subhashis Kundu (Research paper)

Banking sector reforms in India has progressed promptly on aspects like interest rate
deregulation, reduction in statutory reserve requirements, prudential norms for interest rates,
asset classification, income recognition and provisioning. But it could not match the pace
with which it was expected to do. The accomplishment of these norms at the execution stages
without restructuring the banking sector as such is creating havoc. This research paper deals
with the problem of having non-performing assets. The reasons for mounting of non-
performing assets and the practices present in other countries for dealing with non-
performing assets.

Non Performing Assets (ARTICLE)

Genesis of Asset Reconstruction Company

Most countries in the grip of systemic financial and economic crisis have attempted system-
wide clean up of NPAs as a part of restructuring of their banking system. Often, solutions to a
system-wide clean up of NPAs result in creation of Asset Reconstruction Companies (ARCs),
which are typically public/ government owned. ARCs act as debt aggregators and engage in
acquisition of NPAs. Thus ARCs take away the distraction by isolating NPAs from the
banking system and act as "bad bank". This leaves rest of the banking system free to act as
"good bank" and return to equity markets and normal banking business. Governments
encourage transfer of assets to ARCs through creation of supportive environment.
Governments may also provide special powers to ARCs that are not otherwise available to
banking system.

Indian scenario;
 22

The problem of recovery from NPAs, in the Indian banking system, was recognized by the
Government of India (GOI) as far back as in 1997, when the "Narasimham Committee" was
appointed. The Narasimham Committee Report mentioned that an important aspect of the
continuing reform process was to reduce the high level of NPAs as a means of banking sector
reform. It was expected that with a combination of policy and institutional development, new
NPAs in future could be lower; however, the problem of the huge backlog of existing NPAs
still remained. This problem of NPAs, impinged severely on banks performance and their
profitability. The Report envisaged creation of an "Asset Recovery Fund" to take the NPAs
off the lender's books at a discount. Unlike in some countries where ARCs have been set up
post financial crises and for the purpose of bailout, in India, the GOI proactively initiated
certain measures to control NPAs.  

Resolving Non-performing Assets of the Indian Banking System

He, Dong (2002): Resolving Non-performing Assets of the Indian Banking System. Published
in: India: Selected Issues and Statistical Appendix IMF Country Report No. 02/193 (2002)

Abstract

This paper reviews the nature of non-performing assets in the Indian banking system and
discusses the key design features that would be important for the Asset Reconstruction
Companies to play an effective role in resolving such non-performing assets.

PROBLEMS AND RECOVERY OF NPA AT BRANCH BANKS

Posted: Sep 30, 2009
 23

Problems of swelling non-performing assets (NPAs) and the issue are becoming more and
more unmanageable.  The NPAs have direct impact on banks profitability, liquidity and
equity.  The NPAs of Indian Banks are relatively huge by international standard.  Therefore
the biggest ever challenge that the banking industry now faces is management of NPAs.  It is
true that banks have to restrict their lending operations to secured advances only with
adequate collateral securities.

  In this connection banks must aware of the problems and recovery legislations of NPAs
Nonperforming assets means an advance where payment of interest or repayment of
installments of principal or both remains for a period of more than 180 days. 

 The magnitude of NPAs have a direct impact on banks profitability as legally they are not
allowed to book income on such accounts and at the same time banks are forced to make
provision on such assets as per the RBI guidelines.  The Indian Banking sector is facing a
serious situation in view of the mounting NPAs which are the tune of Rs.56,000 crores in
March 2002.NPAs is an important parameter in the analysis of financial performance of
banks.  The reduction of NPAs is necessary to improve profitability of the banks and comply
with capital adequacy norms. 

 Therefore, to solve the problems of existing NPAs, quality of appraisal supervision and
follow up should be improved.  The NPAs can be avoided at the initial stage of credit
consideration by putting rigorous and appropriate credit appraisal mechanism.  This is in
order to recover the NPA debt, the judicial systems should revamped and is essential to
enforce the SARFAESI Act with more stringent provisions to realize the securities and
personal assets of the defaulters.

"http://www.articlesbase.com/banking-articles/problems-and-recovery-of-npa-at-branch-
banks-1284736.html"

Are Non Performing Assets Gloomy from Indian Perspective

By: Arpita on 14 February 2010
 24

Continued growth in NPA threatens the repayment capacity of the banks and erodes the
confidence reposed by them in the banks. In fact high level of NPAs has an adverse impact
on the financial strength of the banks who in the present era of globalisation, are required to
conform to stringent International Standards. “Non Performing Asset” means an asset or
account of a borrower, which has been classified by bank or financial institution as
substandard, doubtful or loan asset. After nationalisation and globalisation the initial directive
that banks were given was to expand their branch network, increase the saving rate and extent
credits to rural, urban and the most important SSI sectors. No doubt this mandate has been
achieved admirably under the regulation of economic reforms initiated in 1991 by the then
Finance Minister and present Prime minister Dr. Manmohan Singh. No doubt it would have
been incomplete without the overhaul of Indian Banking System. Then all of a sudden focus
shifted towards improving quality of assets and better risk management.

Performance measurement of Banks -NPA analysis & credentials of Parameters

Posted: Sep 28, 2009

Over the last few years Indian Banking, in its attempt to integrate itself with the global
banking has been facing lots of hurdles in its way due to its inherent weaknesses, despite its
high sounding claims and lofty achievements. In a developing country like ours, banking is
seen as an important instrument of development, while with the strenuous NPAs, banks have
become helpless burden on the economy. Looking to the changing scenario at the world level,
the problem becomes more ironical because Indian banking, cannot afford to remain
unresponsive to the global requirements. The banks are, however, aware of the grim situation
and are trying their level best to reduce the NPAs ever since the regulatory authorities i.e.,
Reserve Bank of India and the Government of India are seriously chasing up the issue. Banks
are exposed to credit risk, liquidity risk, interest risk, market risk operational risk and
management/ownership risk. It is the credit risk which stands out as the most dreaded one.
Though often associated with lending, credit risk arises whenever a party enters into an
obligation to make payment or deliver value to the bank. The nature and extent of credit risk,
therefore, depend on the quality of loan assets and soundness of investments. Based on the
income, expenditure, net interest income, NPAs and capital adequacy one can comment on
 25

the profitability and the long run sustenance of the bank. Further, a comparative study on the
performance of various banks can be done using a ratio analysis of these parameters.

Journal of Asset Management (2010) 11, 62–70. doi:10.1057/jam.2010.1

Dynamics of emerging India's banking sector assets: A simple model

Soumitra K Mallick1, Amitava Sarkar2, Kalyan K Roy3, Tamal Duttachaudhuri4 and

Anjan Chakrabarti5

Abstract

Banking sector loans are the principal source of capital for small and medium business
ventures in India, comprising firms that are not large enough to be registered with stock
exchanges. Non-performing assets (NPAs) are an important measure of the success of these
businesses, as well as of their levels of discretion in carrying out their commercial activities
conditional on their role in developing India's entrepreneurship outside the stock markets. In
this article we analyze certain properties of NPAs in Indian Banks over the 1990s, when
liberalization was introduced by opening up a significant portion of the public sector,
allowing private banks to do business. We arrive at three conclusions for emerging India's
banking sector. First, NPAs (as a ratio of loans and advances) are significantly sticky over
time. Second, larger NPAs are associated with larger advances and vice-versa. Third, NPAs
do not seem to have spiralled out of control over the 1990s. A simple co integration test is
carried out and a set of dynamic graphs, using notions of ‘fibration’, is presented to support
the results.

ANALYSIS BASED ON ARTICLES

Indian banks (particularly nationalized banks) are struggling to come out of the ‘net’ of non-
performing assets. The rising level of non-performing assets (NPAs) amounting to about Rs
 26

600 bn has plagued the Indian banking system. Thus urgent cleaning up of bank balance sheet
has become a crucial issue.

Banks are in the risk business. In the process of providing financial services, they assume
various kinds of risks viz. credit risk, market risk, operational risk, interest risk and country
risk. Among these different types of risks, credit constitutes the most dominant asset in the
balance sheet, accounting for about 60% of total assets. The credit risk is generally made up
of transaction risk (default risk) and portfolio risk. The risk management is a complex
function and requires specialized skills and expertise. As a result managing credit risk
efficiently assumes greater significance.
 27

CHAPTER-IV

THE JAMMU AND KASHMIR BANK LTD

INTRODUCTION

COMPANY PROFLE
Founded 1938
Headquarters Jammu & Kashmir, India
 28

No. of > 500 branches/offices

Locations
Industry Financial, Commercial
banks
Employees 6833

Moneylenders have been part of Indian society since ancient times. Modern banking
in India began some 200 years ago. First Bank in India was established under the name and
style of bank of Calcutta in 1806(a presidency Bank).In 1840 Bombay presidency Bank and
in 1843 Madras presidency Bank came into existence. In 1921, these three presidency Banks
were merged as imperial Bank of India. In 1955, imperial Bank was renamed as State Bank
of India.

Aimed this scenario, entire banking in the State of Jammu and Kashmir was
performed by traditional moneylenders and that too at exorbitant interest rates. At the same
time some banks like Punjab National Bank, Grind lay’s Bank and imperial Bank of India
functioned in the State to a limited extent. The role of these banks was reduced to the people
of the State owing to the statutory limitations.
Under this Scenario banks could not ameliorate the financial social position of the
people of the State.
To overcome this crisis, the then Maharaja of the State, His Highness Maharaja Hari
Singh, conceived the idea to establish a bank to help people of the State to come out of the
economic backwardness. The scheme of forming the bank was formulated by an eminent
banker sir Sorabji N.Pochkanwala, the then Managing Director of Central Bank of India. The
outcome of the efforts of Sir Sorabji resulted in the establishment of the Jammu &
Kashmir Bank Limited on October 1, 1938.And the Bank formally commenced its
business on July 4, and 1939.The bank opened its first branch at Residency Road, Srinagar.
Encouraged by the support of public, it opened it’s another branch at Jammu. By 1946, the
number of branches of the bank went up to 12.

Precisely, banking in the State of Jammu & Kashmir actually began in 1939, when
Jammu & Kashmir Bank started its operation. Since then, with the continuous changes taking
place in the financial services scenario, the banking in Jammu & Kashmir went under
tremendous. Besides exhibiting its Commercial character, the bank has been meeting the
social obligation of the people of the State too.
 29

The Jammu & Kashmir Bank is the first of its nature and composition as a State
owned bank in the country. The State government besides contributing half of the issued
capital also appointed the bank as bankers for general banking and treasury business of
the State government. In its formative years, the bank had to coup up several serious
problems, particularly around the time of independence, when two of its branches at
Muzaffarabad and Mirpur fell to the other side in 1947.However, the State government
came with assistance of Rs 6.00 lac to meet the claims. Following the extension of Central
laws to the State of Jammu & Kashmir, the Bank was defined as a government companies
Act 1956.

The real growth of its operations and business started after 1969, the area of
nationalization of major banks, when the union government announced control on banking. It
began to emerge from its regional shell, opening branches beyond the State boundaries and
emerged as a leading bank. In 1971, the bank was included in the second schedule of the RBI
Act 1934.It had its first full time chairman following social control measures in banks in the
country. Five years later (in 1976) it was declared an ‘A’ Class bank. By the end of 1980, its
branches numbered 212 with aggregate deposits of Rs. 191.67 corer and advance of Rs.
61.67crores.
The bank became pioneer in the finance of road transport, horticulture and hostels
to promote tourism and extended finance to the artisans to promote traditional handicrafts.
In fact the bank was the first commercial Indian bank to introduce schemes for financing
fruit crops on standing trees in the State of Jammu & Kashmir, a policy that was
subsequently emulated by other banks elsewhere in the country.

The bank expanded its area of operation and widened its credit base by financing
schemes like integrated Rural Development Programmers (IRDP), SEEDY, PMRY, NRY
and other self-employed programmers sponsored by the State and Central Governments. In
1976, Bank became the first and the only bank, which was permitted by the Reserve Bank of
India to sponsor two regional banks, namely, Kamraz Rural Bank and Jammu Rural bank.
The bank has also been entrusted with lead bank responsibility in eight of the fourteen
districts and governorship of the State Level Bankers committee in J&K State.
 30

The bank has played a key role in the economic development of the State in particular
and the country in general. In the last ten turbulent years, it was the only commercial bank to
sustain economic and business activity as most of the nationalized banks in the State owned
their shutters. During this difficult period, it was the J&K Bank alone that supported various
aimed at alleviating poverty and generating self-employment opportunities.
With a substantial increase in its capital base, the bank participating more extensively in
financing of infrastructure projects, a number of leading corporate and blue chip companies
as well as prominent public sector undertakings of the Indian Governments have become part
of its clientele. The financial of the bank are very strong. The banks debt instruments have
been highly rated by CRISIL (Credit Rating Information Service of India Limited), which has
reaffirmed its P1+rating of the banks certificate of deposits, including strong degree of safety
with regards to timely payments. The bank is governed by the companies act and banking
regulation act of India .It is regulated by the Reserve Bank of India and Security and
Exchange Board of India (SEBI).At the end of May 2006, the bank had 517 branches spread
from Kashmir to Kanyakumari with 98%of its business computerized. The bank has been
playing a vital role in the development of the economy of the state and bolstering industry,
trade, commerce and agriculture in the state. The bank has put a commendable performance
in all aspects of banking .The performance of J&K Bank, its growth, profitability,
diversification of product portfolio, modernization of its operations and its achievements in
other areas have made it one of top most banks of the country.

Sri Sohan Lal Kothari was the first manager of the bank and the then chief Minister
major general Roy Bahadur Dewan Bishan Das was appointed as the foundation stone of the
Residency road Srinagar branch building. Since 1977 the bank has been responsible for
payment of civil pension and receipt of various states taxes. Findings overall performances of
the bank good, the RBI issued a license to the J&K Bank to deal in all types of foreign
exchange presence in 1980.

The bank installs first ATM in valley connected globally to all master card networks
ATMs. All the branches of the bank are connected through V-SAT on 10-08-2001 the bank
took over the Srinagar branch of standard chattered Grind lays bank. The bank inaugurated its
new corporate headquarter building at M.A road Srinagar-on 2 September 2001.
 31

J&K Bank is today one of the feasted grooving bank of India with a network of 517
branches offices spread across the country offering world class banking products and service
to its customers. Today the bank has the status of value driven organization and is always
working towards building trust with shareholders, employees, customers, borrower’s etc., for
which it has adopted strategy directed to developing a sound foundation of relationship and
trust aimed at achieving excellence which of course comes from the womb of good corporate
governance.
While announcing the JK Bank’s financial results for the year 2009-10, the chairman
of the bank said that bank is looking ahead to increase the total business turnover to a record
Rs one lakh crore in 2012 from 60,294 crore the bank has marked by March 2010 end, and
net profit of Rs 1000 crore. The JK Bank that has emerged as face of the economy of the state
and is a participant in the active development of the state has also created a good network in
many foreign countries.
The bank has received a net profit of Rs 512.38 crore up by 25% from Rs 409.84
crore recorded during the previous financial year driven by a 70% rise in fee income up to the
end the last financial year 2009-10. The total business turnover moved to Rs 60,294 crore,
increasing by 12% year on year over Rs 53,935 crore. The loan book as on March 31, 2010
stood at Rs 23,057 crore up to 10% from last year’s Rs 20,930 crore, while the bank’s deposit
base stood at Rs 37,237 crore up to 13 from 33,004 crore as on March ending 2009.

The fixed assets of the bank amount for Rs.19.2 cr. and other assets are worth Rs 48.6
cr. The J&K Bank has the total cash and balance with RBI Rs.321.996677 cr. and balance
with banks and money at C&S notice is Rs. 121.727.cr as on 31-08-2008.
In the state of Jammu and Kashmir, the J&K Bank has been the major contributor in
providing credit to poor artisans, retailers, small business, agriculture and other allied
activities, small scale industries and technically qualified entrepreneurs. In these sectors with
Rs 137.89 cr. in agriculture sector, Rs 145.38 cr. in industries sector and Rs 241.09 cr. in
service sector.

The IT strategy emphasizes enhanced level of customer service through 24x7 hours
availability, multi channel banking and cost efficient through optimal use of electronic
channels, wider market reach and opportunities for cross selling.
 32

Currently more than 90.5% of the banks business is computerized. The J&K Bank is the first
bank to launch ATM cum debit card in Kashmir. The bank launched ATM cum Debit card
“J&K Bank global access card” in collaboration with the master card international. The bank
has grown the number of ATMs to 182 at the end of March 2006.

The bank has launched the three variant types of credit cards with different limits with an
interest free credit facility for 20 to 50 days at accept at 125000 mercantile establishments
across the globe. The customers have the access to their money for all the 365 days of a year
and 24 hours per day. The credit and debit cards of the bank are accept of cash with draws at
7000 ATMs in India and 1 million ATMs across the globe. To maximize value to its
customers, the innovation in products and improving the quality and speed of the services in
the Hall Mark of banks business strategy. The bank has launched several unique financial and
deposit products like education loans, car loans, consumer loans,
Flexi deposit recurring plus and Mehandi deposits schemes to meet the needs of customers.
The bank has recently won the prestigious Asian banking awards 2004 for Customer
convenience programs. The awards are given each to recognize and honor the bank in Asia
pacific region for outstanding innovating and world-class products services, projects and
programmers.

J&K Bank has embarked on brand strategy exercise and engaged removed consultants
to work on business development possibility and engaged over all processes that could be
improved in the future to enhance the overall profitability of the bank.
This would increase branding of the banks products in order to increase the value for
its customers. And now with the right kind of leadership efforts of dedicated employees and
State of art technology, the J&K Bank is on the path of growth and success building trust
profit, peace and property.
 33

CHAPER-V

BANK AT A GLANCE

BANK AT A GLANCE
PROFILE:-
 34

 Incorporated in 1938 as a limited liability company.

 Governed by companies Act and Banking regulation Act of India.
 Regulated by the Reserve bank of India and SEBI.
 Listed on National Stock Exchange (NSE) and Bombay Stock exchange
(BSE).
 53 per cent owned by the Govt. of J&K.
 Rated “P1+”by standard and poor-CRISIL connecting highest degree of
safety.
 Four decades of uninterrupted profitability and dividends.

SHAREHOLDING PATTERN (AS ON OCTOBER 24, 2008):

Unique characteristics: one of a kind

 Private sector Bank despite Government holding 53% of equity.

 Sole bankers and lender of last resort to the Govt.of J&K.
 35

 Plan and non plan funds, taxes and non-taxes revenues, routed through the bank.
 Salaries of Govt officials disbursed by the bank.
 Only Private sector designed as agent of RBI for banking business.
 Collect taxes pertaining to Central Board of Direct Taxes in J&K.

INFRASTRUCTURE GLOBAL STANDARDS

 The fastest growing Bank with 510 branches across the country.
 Over 98 per cent of the business computerized.
 Banking, Tele-banking and SWIFT facilities available.
 Internet Banking, SMS and Mobile Bank provided.
 ATMs connected globally to all Master card Networked ATMs.
 Mobile ATM Service available-first of its kind in Northern India.
 J&K bank Global Access Debit card cirrus and Maestro enabled.
Own Credit card.
 Live on RTGS System of RBI.

FINANCIAL SERVICES PORTFOLIO: ONE STOP FOR ALL FINANCIAL NEEDS.

 Insurance joint venture with MetLife international.

 Distributor of :
 Life Insurance products of MetLife (India) Pvt. Ltd.
 Non-life insurance products of Bajaj Allianz General Insurance Co.Ltd
 Providing depository Services.
 Offering Stocks Barking Service.
 Collection Agent for utility Services provided by State and private sector.
NEW BUSINESS INITIATIVES: SHAPING OURSELVES TO SERVE
BETTER.
 36

To meet the growing needs of the economy, in tune with the competitive banking
innovative financial products:

 Monetizing the Bank’s branch network.

 Third party products distribution.
 Investment Banking.
 Offshore Banking.
 37

CHAPTER-VI

ORGANISATIONAL HIERARCHY
&
BOARD OF DIRECTORS
 38

BRIEF PROFILE OF DIRECTORS:

HASEEB AHAMD DRABOO (CHAIRMAN & CHIEF EXECUTIVE)

Haseeb Ahmad Draboo, Chairman and Chief Executive of the bank is a professional
economist who has been on the board of directors of the bank since 11th July 2003.
Possessing a diverse skill set and wide ranging experience, he started his professional
career with a perspective planning division of the planning commission. Later, he worked as
consultant to the economic advisory of the Prime Minister. His final stint with policy making
was with the 10th finance commission.
At present, he continues to work as the economic advisor the Government of Jammu
and Kashmir, a position he has held January 2003. He is credited with having conceptualized
wide-ranging economic and physical reforms of the Govt. he has been inducted by the
planning commission to its working group on resources for the 11th five year plan.

MS VERMA:

M.S. Verma serves on the Board of a number of a number of public and private sector
companies and is associated with several educational and research institutions in a advisory
capacity. He is Vice-President of the governing body of the National Council of Applied
Economic Research and member of the Board of Governors of the Institution of Economic
growth, University of Delhi.

G.P. GUPTA:

G.P. Gupta a post graduate in commerce, having combined stints in both academic
and public sector, is also the Ex-Chairman and Managing Director, IDBI, and has served on
several distinguished positions such as Chairman, UTI, Chairman, SIDBI, Chairman,
National Stock Exchange of India Ltd., Member Life Insurance corporation of India ,
Director, Export-Import Bank of India, Director, Infrastructure Development Finance
Company Ltd., Director, Indian Airlines Ltd., Director, Discount & Finance House of India
Ltd., Director, Securities Trading Corporation Of India Ltd., Council Member, Indian
Institute of Bankers and President, Entrepreneurship Development Institute of India
Ahmadabad.
 39

B.B. VYAS (IAS):

Bharat Bushan Vyas belongs to the 1986 batch of Indian Administrative Services. During his
probation he was awarded Gold Medal by Lal Bhadur Shastri National Academy of
Administration, Mussoorie for best all round performance.
Mr. Vyas has held several distinguished positions both in State and Central
Governments. In the Government of J&K, Mr. Vyas worked as District Magistrate/ Deputy
Commissioner of Poonch, Udhampur districts.
He is presently holding the position of Commissioner/ Secretary to Government
Finance Department.

EXECUTIVE DIRECTORS:

ABDUL RAUF FAZILI

MUSHTAQ AHMAD

B.L. DOGRA

UMAR KHURSHEED TRAMBOO

SECRETARY TO BOARD:

PARVEZ AHMAD

EXECUTIVE DIRECTORS:

A.R. FAZILI…………………………………….. (Business Operations)

MUSHTAQ AHMAD…………………………… (Corporate Functions)

PRESIDENTS:
 40

ABDUL MAJID MIR…………………………… (Chief Financial Officer)

ALOK KUMAR MEHTA……………………… .(Chief Peoples Officer)

MANZOOR AHAMD SHAH…………………... (Chief Strategist/Chief Tech. Officer)

NISAR AHAMD KOUL………………………... (Chief Credit Officer)

AJIT SINGH…………………………………….. (Chief Regulatory Officer)

RAJ KUMAR…………………………………… (Chief Treasury Consultant)

VICE PRESIDENTS:

GHULAM MOHAMMAD RESHI……………… (Assist Monitoring and Information)

GHULAM AHMAD REGOO…………………... (Finance and Risk Management)

GHULAM AHMAD BEIGH……………………. (Strategy and Business Development)

MOHAMMAD BASHIR-UL-ISLAM…………... (Treasury Operations)

SUMAN DURASWAL………………………….. (Retail Credit)

PARVEZ AHMAD……………………………… (Company Secretary)

MUKHTAR AHMAD KAWOOSA…………….. (Insurance)

 41

CHAPTER-VII

FINANCIAL PRODUCTS
 42

FINANCIAL PRODUCTS:
LOAN PRODUCTS:

PERSONAL LOAN:

With the changing times, the luxuries of yesteryears have become basic
necessities of today ensuring that you don’t miss out living a quality for yourselves and
your family. Our whole suite of personal finance products helps you in owning all basic
necessities of life and proudly so be it having your own sweet home, renovating and
refurbishing it with items like: TV, refrigerator, washing machine etc. or bring a proud
owner of a stylish car, we have a loan product for every such need.

CONSUMPTION LOAN:

Eligibility:
 Permanent employees of central/state Govt., public sector undertakings,
autonomous bodies, institutions, having at least 3 years of active remaining
services.
Amount of Loan:
 Maximum Rs.7.00 Lakh or 30 times gross monthly salary
 Gross deductions including installments of the proposed loan not exceed 60%
of the gross income.
Margin: Nil

Repayment period: The loan along with interest would be repayable in 84 monthly
installments beginning one month after the disbursement of the loan.

HOME LOAN:

Eligibility:
 Professionals and self-employed like Doctors, engineers, chartered accounts,
advocated with minimum standing of 3 years.
 Employees of Govt./ semi-governments departments, public sector
undertakings with minimum 3 years service.
 43

Purpose:
 Purchase with construction of house/flat renovation/additions/alterations of
existing house, purchase of land
Margin:
 For construction/purchase of house: 15%
 For renovation: 25%

Repayment period: Up to 20 years including 9 months moratorium by equal monthly

installments.

Rate of interest:

Repayment Floating ROI Fixed ROI

Period Up to Above Up to Above
2 Lakh 2 Lakh 2 Lakh 2 Lakh
5 years 11.5% 13.25% 12% 14.25%
5 to 10 years 11.75% 14% 13% 15%
10 to15 years 12.75% 14.25% 13% 15%
Above 15 years 13% 14.75% 13% 15%

CAR LOAN:

Eligibility:
 Employees of Govt./semi-Government departments, autonomous bodies,
public sector undertakings, individual, firms, limited companies having a
minimum 5 years active service.

Security: Hypothecation of vehicle, third party guarantee of one person,

Quantum of Finance: Maximum 10 Lakh.

Margin: 20% of the cost of the vehicle.

 44

Repayment: 7 years in equal monthly installments

Rate of Interest:
12 % up to 4 Lakh
13.50 % above 4 Lakh

 EDUCATION LOAN:
For bright students with a good academic background and pursuing
graduation/post graduation courses in Science/Arts/Commerce, Medicine, Surgery, Hotel

Management, Design, Architecture, Biochemistry, Veterinary Science, ICWA,

CA, CFA, Computer Certificate Courses/leading to Diploma/Degree, MCA, MBA, MS etc.

Eligibility: Should have secured admission to professional/technical courses in

domestic/foreign universities/institutions through entrance test/selection process.

Margin:

Up to 5 Lakh: Nil

Above 5 Lakh

i) Studies in India: 5%
ii) Studies Abroad: 15

Repayment:
Moratorium: Course period + one year or Six months after getting Job
Whichever is earlier? The loan is to be repaid in 5 to 7 years after moratorium period.

Rate of Interest:

2.5 to 5 Lakh 11.5%

5 to 10 Lakh 12.5%
10 to 20 Lakh 14.5%
 45

J&K BANK DASTKAR FINANCE:

J&K Bank in its endeavor to promote trade, industry and to preserve the
traditional arts and crafts of the state devised a scheme aimed at the financial needs of the
artisan community aptly called ‘JK Bank Dastkaar Finance’. The scheme provides easy
and soft credit to craftsmen engaged in the trade and helps them to set up their own ventures,
weeding out the middlemen responsible for their exploitation. Keeping in view the specific
production cycle associated with this trade the loan comprises of a term loan and working
capital components.
The disbursement is phased in quarterly installments and aligned to the status
of WIP (work in Progress). This ensures proper end use, quality control and timely
completion of work. The weavers/ artisans are allowed a reasonable time for the

Repayment of the bank finance. To make the credit hassle free, no Collateral /third
party guarantee is required. The product has been designed on the bank’s philosophy of
confidence based lending as opposed to collateral based lending. There is no requirement of
any collateral security under this product. The legal documentation has been kept at
bare minimum with only two documents to be executed for disbursement of the loan. In order
to increase the reach of this product the database of the weavers/ artisans available with
various trade associations is being utilized besides identification of people by concerned
branches of the bank.

JK BANK ZAFRAN FINANCE SCHEME:

Kashmiri Saffron – the most expensive spice in the world – has a unique aroma and
flavor. It is considered worlds best because of its scientifically proven superior quality, hence
commanding a price much higher than the saffron from any other part of the world. Saffron is
extensively used for culinary and coloring purposes. Besides, because of its medicinal
qualities, it is an important ingredient for both traditional (Ayurvedic and Unani) and
allopathic medicines. Its demand in the markets, both domestic and international, is growing.
Saffron is a niche-economy, involving hundreds of Kashmiri families. Still, the recent decline
in saffron production is going to affect this segment of state economy. In 2003-04, around
6.98 metric tons of saffron was exported while as the exports declined to 5.19 metric tons in
2004-05.
 46

With a view of preserving this prized spice, J&K Bank tailored a specific product
named JK Bank Zafran Finance. Its purpose is to provide adequate, timely and need-based
finance to saffron growers. The scheme is for all saffron growers, especially the smaller and
marginal ones including even the contract farmers engaging in or intending to start its
cultivation. The quantum of finance is proportionate to the land holding of a grower. The
product also provides an additional finance for post harvest and packaging. A Product that
covers the entire plantation and production costs including plant material, agricultural
machinery, labor etc. this scheme is provided to Saffron growers.
The disbursement is done in two phases; 60% in the first year and 40% in the second, when
the growers are in need of funds. The repayment of the advance is scheduled within the four
year growing cycle of saffron. Re-financing facility can be availed for fresh plantation of the
crop. The documentation has been simplified and kept low to make it hassle-free.

With a view of preserving this prized spice, J&K Bank tailored a specific product
named JK Bank Saffron Finance. Its purpose is to provide adequate, timely and need-based
finance to saffron growers. The scheme is for all saffron growers, especially the smaller and
marginal ones including even the contract farmers engaging in or intending to start its
cultivation. The quantum of finance is proportionate to the land holding of a grower. The
product also provides an additional finance for post harvest and packaging.

Other such products like Khatamband Craftsmen Finance for Khatamband Craftsmen
and Ghiri Finance for taking complete care of the expenses involved in procurement
processing sale and export of walnut kernels.

AGRICULTURE AND ALLIED FINANCE:

Agriculture is the mainstay of our economy but unfortunately being financed mainly from
outside of the banking sector.
Our rural finance strategy envisages extending the frontier of formal finance ton
incorporate agriculture along with other rural economies on principles of sustainability,
efficiency and significant outrage.
 47

Rate of Interest:

Up to .50 Lakh: 12.5%

.50 to 2.00 Lakh 13.5%
2.00 to 5.00 Lakh 14.0%
5.00 to 20.00 Lakh 14.5%

J K BANKS ALL - PURPOSE AGRI-TERM LOAN:

The product aptly named as All-Purpose Agri-Term Loan has been designed in a way
that lays special emphasis on small and marginal farmers and provide sufficient and, more
importantly, timely finances to the farmers engaged in all types of agricultural and allied
activities. The product aims to cater to the needs of small farmers within very little land
holdings in the rural and semi-urban areas of the state.
The product is given to the people engaged in any kind agriculture and allied
activities. Horticulture, Sericulture, Animal Husbandry, Plantation and Fisheries can be
financed through this product.
The objective has been to provide easy finance to needy farmers through regular
channels of finance and to wean them away from the exploitative circle created by the non-
banking intermediaries. For that purpose, the product has been devised in such a way that
hitherto un-banked customers get an easy access to banking services through simple and
affordable documentation process. A maximum credit of Rs 1.00 Lakh, depending upon the
Agri-activity to be financed is provided but multiple activities can also be considered for
finance. The product is offered at affordable interest rates.

Rate of Interest:

Up to .50 Lakh: 13.0%

Above .50 Lakh 14.0%
 48

APPLE ADVANCE SCHEME:

Apple, the king of Kashmir fruit, lies at the heart of horticultural economy of J&K
state. Every year hundreds of truckloads of apple reach the markets of Delhi, Punjab, Jaipur,
Bangalore, Chennai and Ahmadabad. The potential yearly returns on the fruit, as per some of
the findings, stand at somewhere between Rs. 2000 to 2500 crores. Almost 2.5 million people
of the state are directly or indirectly associated with the apple business.
J&K Bank’s specially designed product named as Apple Advance has struck at the
root of this exploitative system that thrived on scant or untimely fund availability and at times
even lack of finance through formal channels. Last year, after a detailed study of the apple
economy, a need-based, time specific product was introduced. The product incorporated all
the critical inputs necessary to make our financial intervention effective and grower-friendly.
Apple Advance was introduced to meet the comprehensive requirements of the apple growers
with distinctive features like reduced margins, higher scale of finance that includes
production and post harvest maintenance, auto renewal of limits and most importantly very
easy and hassle free documentation. With an effective product monitoring mechanism in
place, the scale of finance was increased from Rs 1.50 Lakh per acre from Rs 40,000 per
acre. Regular revision of scales of finance is carried out to match the rising production and
marketing costs.

The objectives that guided the customization of the product included the easy access,
simplified documentation, `avoiding redundancies, shortened process time and flexible fund
limit. Even for the growers who have just leased orchards can avail finance under the scheme.
With hypothecation of fruit crop and Third Party Guarantee of 2 persons as security and no
emphasis on collaterals, the borrower is also allowed withdrawals up to 50% of the previous
year’s limit till the bank renews the sanction for the next year. The process has been made
extremely easy and hassle free to ensure that comprehensive requirements of Apple growers
to take care of Production & Marketing Costs are fulfilled adequately and in time. Simplified
legal documentation has been made to expedite the loan processing.

Rate of Interest:

Up to .50 Lakh: 12.5%

.50 to 2.00 Lakh 13.5%
 49

2.00 to 5.00 Lakh 14.0%

5.00 to 20.00 Lakh 14.5%

BUSINESS LOAN:

Right from financing the contractors, providing credit to transporters, funding the
working capital of shopkeepers, providing financial solution to business men to corporate,
SME and infrastructure finance, our regular loan products cater to all kinds of business of
industrial activities in the state and rest of country.

Rate of Interest:

Up to .50 Lakh: 13.0%

.50 to 2.00 Lakh 14.0%
2.00 to 5.00 Lakh 14.5%
5.00 to 20.00 Lakh 15.0%

MICRO-FINANCE:

J&K Bank is working on empowering people and demonstrating that people with
lesser means can be reached profitably. For us, at J&K Bank, empowerment is the process of
enhancing the capacity of individuals or groups make choices and to transform those choices
into desired actions and outcomes.
One of the many of such products is our craft development loan which caters to the
needs of our highly talented and skilled artisans engaged in Wood Craving, Paper Mache,
Namdasazi, Copper Smithy, Willow Wicker and Kangri making etc.
Likewise all our other such products have been designed keeping in view the seasonal and
craft specific requirements.
 50

CHAPTER-VIII

NPA WITH SPECIAL REFERENCE TO J&K

BANK

The Non-Performing Assets (NPAs) problem is one of the greatest problems that have
shaken the entire banking industry in India. This malady is spreading and has infected every
limb of the banking system in the country. The fast growing NPAs in Banks have a worst
effect on capital formation arresting the economic activity in the country on one hand; it
erodes the profitability of banks through reduced interest income and provisioning
 51

requirements on the other hand, besides restricting the recycling of funds leading to serious
asset liability mismatches.
The recovery of money has never been an easy experience for banks, as India’s legal
system has so far been more geared to protect borrowers and not lenders. The borrowers, in
India, have been using thousands of delaying tactics to keep lenders at bay.
Major reasons for high incidence of NPAs can be:-
 Improper and inadequate credit appraisal.
 Diversion of funds.
 Miss utilization of loans and subsidies.
 Industrial sickness and labor problems.
 Corruption.
 Political Compulsions.
 Willful default.
 Bad financial management.
 Fear psychosis among banks for compromise settlements.

Seeing the gravity of the situation, Reserve Bank of India, has taken several
constructive steps for arresting the trend of increasing NPAs. Some of the steps taken are;-
i) Lok Adalats; Lok Adalats have been set up for recovery of debts in
doubtful and loss category by way of compromise settlements.
ii) Debt Recovery Tribunals; DRTs set up in the country have not been able
to deliver, as expected, as they got swamped under the large number of
cases filed with them.
iii) One-Time Settlement Schemes; These schemes launched in May, 99 and
thereafter have proved useful in recovering a considerable portion of NPAs.
iv) Corporate Debt Restructuring; CDR is a non-statutory mechanism
institutionalized in the year 2001 to provide timely and transparent system
for restructuring corporate debts of Rs.20 Crores and above, of viable
entities financed by banks.
v) Securitization Act; Sec. Act is a comprehensive piece of legislation. It is a
giant leap forward in the realm of financial sector reforms. This act is
revolutionary in the Indian context, as it gives sweeping powers to banks to
 52

seize the assets charged to them without intervention of courts and sell them
off to realize the loans, which have become NPAs.
But it is to be realized that the Act is not a financial TADA. It is a tool
and not a weapon in the hands of Banks. It is to be seen whether this act is
going to cure this fundamental illness until more legal reforms are made and
strictly enforced. The problem is so serious that the NPAs will continue to
haunt banks though in a different way.

Like other Banks in the country The Jammu & Kashmir Bank Ltd., has also been
facing the problem of increasing NPAs. The problems faced are multidimensional in
view of regional character of the Bank.
The Bank has adopted the following strategies for reducing the NPAs:-
1. Replacement/Rescheduling of Loans.
2. Rehabilitation of potentially viable units.
3. Acquisition of sick units by healthy units.
4. Compromise and settlement with borrowers.
5. Enforcement of Securities under SARFAESI ACT-2002.
6. Sale of NPAs.
7. Establishment of special loan recovery branches.
8. Legal action.
9. Write-off in deserving cases.
In addition to this the Bank has also taken steps to improve Credit Appraisal, Monitoring,
Supervision and Follow-up. A separate Risk Management Cell has been created at Head
office Level for proper risk assessment, rating and review. The bank is studying the problem
of NPAs; branch-wise, amount-wise and age wise besides creating special recovery cells at
Head Office/Zonal Office levels. The bank is also fixing branch-wise and zone-wise targets
for recovery in NPAs.
Despite all these steps the increasing NPAs are a matter of concern for the
Bank. However, the percentage of gross NPAs at 2.34% and net NPAs at 0.96% as on 30-06-
2008 is among the lowest at industry level as per statement of the Bank. The capital
Adequacy ratio of the Bank is 12.20% as against prescribed 9%, which is comfortable at
present, but the bank will have to strive hard to keep the NPAs under control. The Bank
accepts that it is not possible to bring down the NPA ratio to 0-level but the steps taken by
 53

them and the strategies adopted by the bank at Macro/Micro levels have helped them to keep
the NPAs at minimum level.

NPA FIGURES FOR FINANCIAL YEAR ENDING 31

MARCH 2008-2009/Q1 09-10:

PARTICULARS 2005-06 2006-07 2007-08 2008-09 Q1 09-10

GROSS NPAs(in Rs Cr) 370.19 501.83 485.23 559.27 511.32

NET NPAs (in Rs Cr) 133.87 193.57 203.55 287.51 159.56

Gross NPA Ratio (%) 2.52% 2.89% 2.53% 2.64% 2.44%
Net NPA Ratio (%) 0.92% 1.13% 1.08% 1.37% 0.77%
NPA Coverage Ratio (%) 63.64% 61.43% 58.05% 48.59% 68.79%
Gross NPA to Net Worth 20.57% 24.98% 21.02% 21.32% 18.66%
Ratio (%)

Interpretation:
According to the above table the gross NPAs of J&K bank have been increasing from
the year 2005 onwards but the first quarter of current financial year (Q1 09-10) shows the
decline in the gross NPAs, which indicates that bank is able to contain the NPAs. The net
NPAs also shows the same position over previous years and has shown big decline in current
financial year’s first quarter (Q1 09-10). Now the ratios of both Gross NPA and Net NPA
show decline in current financial years beginning i.e., 2.44% and 0.77% respectively-lowest
as compared to previous years.
Now the important thing in the above table is the coverage of NPAs by the bank over
a given period of time above, and the coverage has been highest in the current year’s first
quarter which is almost 69%. It indicates that the bank is recovering its advances plus interest
on it at good percentage; in fact it is the highest percentage as compared to the previous
years. The ratio of NPAs to Net worth has also decreased in the first quarter of current
financial year.
 54

Some recent article related to NPAs of JK Bank;

Article I:
“According to the recent announcement by the Chairman of the bank the
Gross NPAs as on March, 2010 have declined considerably to Rs 462.31 crore from
Rs 559.27 crore a year ago, according to him J&K bank NPAs were the lowest in the
country. The gross and net NPAs as proportion of gross and net advances as on
March 2010 had further come down to 1.37 percent a year ago. He said the bank
had increased the NPA coverage ratio as on March 2010 by 37 percent to 86
percent from 49 percent a year ago. “This means even if all NPAs of the bank go
bad, it will not collapse the bank,” he said, adding that this limit was well above the
RBI stipulated norm of 70 per cent”.

Article II:
Operating profits up by 31 per cent
Rising Kashmir News
Srinagar, Jan 29:
Continuing its steady performance, J&K Bank registered a net profit of Rs. 392.33
crore for the nine months ending December 2009, up by 18 per cent when compared
to the net profit of Rs.331.16 crore of the corresponding period of the previous
financial year. 
For the third quarter ended December 2009, the net profit was registered at Rs
139.99 crores as against Rs 120.67 crores during the same quarter last financial
year. The operating profits of the Bank increased by 31 per cent during the same
period.
This was announced during the review of the financial results for the quarter ended
December, 2009, by the bank’s Board of Directors in a meeting.
The distinguishing feature of the Q3 results is the remarkable increase of 143% in
the income earned by the bank other than the interest during the period ended
December, 2009. The income of the Bank rose to Rs 95.81 crore from Rs 39.39
crore earned during the quarter ended December, 2008. The boost in the income
has been primarily by the earnings on Commission/Exchange and profit on
investments.
The other highlight of the quarter is that the bad loans of the bank have decreased
by almost 100 crores compared to March 2009. The J&K Bank now has coverage of
its NPAs at 88 per cent, is well above the RBI stipulation of 70 per cent which Banks
have to do by October this year. In fact, it is among the highest in the banking
industry. It indicates the stability of the bank.
Commenting on the quarterly results, Dr Haseeb A Drabu, Chairman and CE said,
“This has been a difficult quarter as the macro-economic environment has become
adverse. We have outperformed the market, because our balanced policy approach
that aims to achieve our short-term targets while keeping in mind our long-term
objectives as the leading financial organization of the state”.
Dr Drabu further stated, “That is one of the reasons why we have maintained a
steady focus on the development of all the segments of local economy through
enhanced credit deployment and smooth disbursement mechanisms in J&K”.
“We are a commercial bank but we are also a developmental organization of our
state. Under the JK specific lending, the advance portfolio in the J&K state has seen
a spectacular leap from mere Rs.1200 crores to Rs.12000 crores in just four years.
 55

Besides, the credit - deposit (CD) ratio has risen from 20% to 65%”, said Dr. Drabu.
The total Balance Sheet size of the bank as on December, 2009 increased to Rs
39204 crore by 11 % from Rs 35282 crore a year ago. The Operating Profit has
increased by 30.77% YoY to Rs 723.46 crore from Rs 556.10 crore earned during
the corresponding period of last fiscal year.
The low cost Demand and Savings Deposits of the Bank as on Dec, 2009 are at Rs
13842.80 crore up by 21 % YoY from Rs 11476.69 crore as on Dec, 2008 taking the
CASA (Current Account to Savings Account) ratio up to 41.12 % from 36.73 % a
year ago.
Besides, the Return on Assets for the current quarter improved to 1.43%
(annualized) compared to 1.37 % for the corresponding quarter of last financial year.
Thanks to the prompt follow-up procedures that have been put in place, the Gross
NPAs as on Dec, 2009 have declined to Rs 460.27 crore from 545.69 crore a year
ago. This has in turn resulted in an improved NPA Coverage Ratio as on Dec, 2009
to 82.87 % from 53.60 % a year ago. The said ratio is well above the RBI stipulated
norm of 70%

Bank continuously is monitoring the NPA level and simultaneously ensuring

maintenance of standard assets to avert further slippage. The existing NPAs would have been
still lower but for the loan waiver scheme announced by Govt. of India some years ago. The
recovery process got some reversals as the borrowers expectations mounted. But the situation
is now clear and the borrowers outside the ambit of the waiver scheme have started
repayments

The bank has several novel schemes in New Delhi. For e.g. in some branches of New
Delhi the bank has been able to have a traders / fruit growers association who undertake the
repayment responsibility of their members, which does a great deal in recovery and resultant
reduction in NPA.
 56

Credit risk-General disclosure of J&K Bank:

The general qualitative disclosure requirement with respect to credit risk including:

1) Any account or bill wherein the repayment of principal or interest remains overdue
for more than 90 days is declared as NPA. In case of agricultural advances the period
is between two consecutive crop periods. If an account receives credits, which is less
than the interest applied during the period or where the limit remains overdrawn as on
date of Balance sheet, it is declared as irregular. A bill or loan is declared overdue if it
remains unpaid on its due date.

2) In respect of securities, where interest/principal is in arrears, the bank does not reckon
income on the securities and makes appropriate provisions for the depreciation in the
value of the investment. A non-performing investment is similar to a NPA in
classification as defined above.

3) The bank has a credit risk management policy in place, which is aimed at supporting
the business strategies, achieving target earnings with satisfaction of its customer
needs and maintaining a sound credit portfolio. It also seeks to achieve prudent credit
growth –both qualitative and quantitative and adhere to the prudential norms with
balanced sartorial and diversified growth of credit. The bank has put in place
prudential limits for controlling credit concentration across industries, sections and
geographies. The bank has a well defined credit appraisal & approval authority, legal
support, reporting cum monitoring and follow-up system.

4) The bank is following standardized approach as prescribed by RBI for computing

capital for credit risk.

5) The Bank has developed a robust Management Information System (MIS) hosting the
complete credit portfolio database of the Bank. In addition to the regulatory returns,
the MIS is doubling as a real-time DSS tool providing information about parametric
distribution, maturity profiling and NPA tracking of the portfolio, among others.
 57

NPA COVERAGE BY J&K BANK

80

70

60

50
PERCENT CHANGE
40

30

20

10

0
Q1-2008Q2-2008Q3-2008Q4-2008Q1-2009Q2-2009Q3-2009Q4-2009Q1-2010

According to the above chart the NPA coverage by the bank has been the highest in first
quarter of the year 2010 i.e., 70% of advances since 2008. There have been ups and downs
from the year 2008 in case of recovery of NPAs but has recovered good percentage
throughout this time period. Fourth quarter of the year 2009 has shown biggest slow down in
case of recovery but immediately after this bank has recovered a good percentage of NPAs
which indicates that bank is getting its advances back from the customers.
 58

Asset Quality
Non Performing Asset (In crores)
Particulars 31.03.2009 31.03.2008

Particulars 31-03-2009 31-03-2008

Net NPAs to Net Advances (%) 1.38% 1.07%
Movement in Gross NPAs
a) Opening Balance 485.23 501.83
b) Additions during the year 401.89 227.93
c) Reduction during the year 327.85 244.53
d) Closing balance 559.82 485.23
Movement in Net NPAs
a) Opening balance 203.55 193.57
b) Additions during the year 346.09 197.93
c) Reductions during the year 261.82 188.06
d) Closing balance (after reducing interest suspense 287.51 203.55
amounting to Rs. 1.29 cr previous year 0.98 cr)
Movement of Provisions for NPAs (excluding
provisions on standard assets)
a) Opening balance* 280.70 307.17
b) Add/Transfer Provision made during the year 55.80 30.00
c) Less write-off 66.03 56.47
d) Closing Balance* 270.48 280.70
*Including floating provision of Rs.52.90 crores.

The performance of the Bank in recovery of NPAs during the year continued to be good.
During the year, the Bank effected cash recovery, up-gradation of NPAs and technical write-
off of Rs. 327.85 crore compared to Rs. 244.53 crore in the previous year.

ILLUSTRATIVE STEPS WHICH MAY BE TAKEN BY THE CONTROLLING

OFFICES OF COMMERCIAL BANKS FOR REDUCING NPAS
 59

Step 1 Study the problem of NPAs: Branch-wise, amount-wise and age-wise

Step 2 Formulate a loan recovery policy and several strategies for reducing NPAs
Step 3 Create special recovery cells at HO/ZO/RO/ other controlling offices
Step 4 Identify Critical branches for recovery
Step 5 Fix branch-wise and region/zone-wise targets for recovery and draw time bound
action programmers for the branches/ROs/ZOs etc to enable them to achieve their respective
targets
Step 6 Select proper strategy (including combination of strategy) and techniques for solving
the problem of each critical NPA on a case to case basis and common strategy and technique
for other NPAs.
Step7 Monitor implementation of the time bound action plan drawn
Step8 Take corrective steps wherever necessary and change/modify the original plan, if
necessary.

THE SECURITISATION AND RECONSTRUCATION OF FINANCIAL ASSETS

AND ENFORCEMENT OF SECURITY INYEREST ACT,2002

A) Important Provision of the ACT

Chapter 1: Preliminary Definition
1. “Asset Reconstruction” means acquisition by any securitization company or
reconstruction company of any right or interest of any bank or financial institution for
the purpose of realization of such financial assistance;
2. “Borrower” means any person who has been granted financial assistance by any Bank
or FI or who has given any guarantee or created any mortgage or pledge as Security
for the financial assistance granted by any bank or FI and includes a person who
becomes borrower of a securitization company or reconstruction company
consequent upon acquisition by it of any rights or interest of any bank or FI in relation
to such financial assistance.
3. “Debt” has the same meaning as in sec 2(g) of RDDBFI Act1993.
 60

4. “Default” means nonpayment of any principal debt or interest there on or any other
amount payable by a borrower in any secured creditor consequent upon which the
account of such borrower is classified as nonperforming assets. Sec2 (I) (j)
5. “Financial Asset” means debt or receivable and includes;
 A claim to any debt or receivable or part thereof whether secured or
unsecured.
 A debt or receivables secured by , mortgage of or charge on , immovable
property;
 A mortgage charge ,hypothecation or pledge of immovable property;
 Any right or interest in the security , whether full or part under lying such
debtor receivable
 Any beneficial interest In property whether movable or immovable or in such
debt receivables whether such interest is exiting , future, accruing, conditional
or contingent
 Any financial assistance
6. “Hypothecation” means a charge in or upon any movable property , existing or future
created by a borrower in favor of a secured creditor with delivery of position of the
movable property to such creditor as a security for financial assistance and includes
floating charges and crystallization of such charge into fixed charge on movable
property
7. “Non performing Assets” means an asset or account of a borrower which has been
classified by a bank or financial institution as sub standard ,doubtful or loss assets, in
accordance with the directions or guidelines relating to asset classification issued by
the regulatory /administering authority/body or by Reserve Bank as the case may be.
8. “Obligor” means a person liable to the originator whether under a contract or other
wise to pay a financial asset or to discharge any obligation in respect of a financial
asset, whether existing future, conditional or contingent and includes a borrower;
9. “originator” means the owner of the financial asset which is acquired by a
securitization company or reconstruction company for the purpose of securitization or
asset reconstruction
10. “Securitization” means acquisition of financial assets by any securitization company
or reconstruction company from qualified institutional buyers by issue of security
receipts representing undivided interest in such financial assets or otherwise; “secured
creditor” means any bank or FI or group of banks or FIs and includes:
 61

 Debenture trustee appointed by any bank or financial institution.

 Securitization company (sc) or reconstruction company (Rc) whether acting as such
or its managing a trust set up for securitization /reconstruction;
 Any other trustee holding securities on behalf of a bank or FI I whose favor security
interest is created for due repayment by any borrower of any financial assistance.

Chapter II:
1. Registration of securitization/ Reconstruction companies
2. Acquisition of right or interest in financial assets
3. Issue of Security By Security Reconstruction Company
4. Measures for asset reconstruction
5. other functions of security Reconstruction Company
6. Regulation of disputes.
Chapter III: Enforcement of security interest
1. Notwithstanding anything u/s 69A in TPA 1882 without intervention of any court
tribunal the secured creditor may enforce the security interest.
2. The secured creditor may issue a notice in writing to the borrower of NPA account
with details of amount payable by him and the securities intended to be enforced in
case of his failure to pay by the stipulated date and giving him 60days time to adjust
his dues in full.
3. If the borrower makes any representation /raises any objection on receipt of notice
the secured creditor shall communicate with in one week the reasons for its non
acceptance Provided that such reasons communicated /likely to be communicated
shall not confer any right upon the borrower to prefer an application to the DRT/ court
of dist judge.
4. If the borrower fails to repay in full within the specified period the creditor may do
one or more of the following:
(i) Take possession of the secured assets of the borrower including the right
to lease/assign/sell to realize the secured asset.
(ii) Take over the management of the business of borrower including the right
to lease/assign/sell to realize the secured asset.
 62

5. All costs, charges and expenses incurred with connection of action taken u/s 13(4)
shall be recovered first and the balance shall be paid to the entitled person from the
money received by the secured creditor.
Chapter IV: Central Registry
1. setting up central registry for registration of securitization and reconstruction of
financial assets and creation of security interest S. 20
2. Filling of transactions of securitization and reconstruction of financial assets and
creation of security interest S. 23
3. modification of security interest
4. Securitization Company or Reconstruction Company or secured creditor to report
satisfaction of security interest.

Chapter VII: Offences and Penalties

1. Penalties: penalties up to Rs 5000 per day for every company secured creditor /their
every officer in default in filling particulars u/s 23 or sending particulars u/s 24 or
giving intimation u/s 25.
2. Penalties for non-compliance of directives of RBI by any securitization
company/reconstruction company: Finance up to Rs 5lakhs and in case of a
continuing offence with an additional fine, which may extend to Rs 10,000 per day
during the period of default-s.no 28

3. Offence: Imprisonment up to 1 year or fine or both for contravening or attempting to

contravening or a betting the contravention of the provisions of the ACT or of any
rules made there under. S.no 29.
Chapter VI: Miscellaneous;
1. Provisions of the Act not apply in case of:
(a) Lien on any good/money/ security.
(b) Pledge of movables.
(c) Creation of security in any aircraft/ vessel
(d) Any conditional sale/ hire-purchase/lease/any other contract. Where no
security interest has been created
(e) Any right of unpaid seller.
 63

(f) Any properties not liable to attachment (excluding the properties specially
charged with the debt recoverable under this Act) or sale under the first
provision to S.no 60 (1) of CPC
(g) Repayment of loans not exceeding Rs1lakh.
(h) Agriculture land and
(i) Amount of due<20% of principal & interest.
 64

CHAPTER- IX

DATA COLLECTION AND

INTERPRETATION
 65

DATA COLLLECTION AND INTERPRETATION:

1. DO YOU HAVE A BANK ACCOUNT?

YES 49
NO 1

DO YOU HAVE A BANK ACCOUNT ?

NO ANALYSIS:
2%
According to
the above chart
the percentage
of respondents
having bank

YES
account is
98%
considerably
very high i.e.,
98% and the main reason behind it is that people feel themselves secure while depositing
huge amounts of their money in banks and also get interest on such money from the bank,
and can demand their money back as and when needed. There are also people who do not
keep their money deposited in the bank and one of the major reason we were told by the
respondents is that they don’t have savings whatever they earn gets spent.

2. IN WHICH BNAK DO YOU HAVE AN ACCOUNT?

 66

SBI 18
PNB 04
JK BANK 25
OTHERS 03

IN WHICH BANK DO YOU HAVE AN ACCOUNT?

OTHERS
6%

SBI
36%

J&K BANK
50%

PNB
8%

ANALYSIS:

According to the above fig J&K bank has got the highest percentage as compared to the other
banks as having maximum number of customers and the reason told by the respondents was
that the bank being the first and old in the state is being trusted by the people because of the
kind of services and facilities it provides to its customers. SBI has also got the good
percentage of customers in the state as it is the other fully reliable bank in the state. PNB and
other banks the state also have good business spread all over the state of Jammu and
Kashmir.

3. HAVE YOU TAKEN THE FACILITY OF LOAN FROM YOUR BANK?

 67

YES 30
NO 20

HAVE YOU TAKEN THE FACILITY OF LOANFROM YOUR BANK ?

NO
40%

YES
60%

ANALYSIS:

According to the survey only 60% of respondents agreed that they have taken the facility of
loans from their respective banks, and almost 40% of them were those who didn’t had taken
the facility of loan from bank.
 68

4. FROM WHICH BANK HVE YOU TAKEN THE LOAN?

JK BANK 16
SBI 09
PNB 02
OTHERS 01
NIL 22

FROM WHICH BANK HAVE YOU TAKEN THE LOAN ?

J&K BANK
NILL 32%
44%

SBI
18%

OTHERS PNB
2% 4%

ANALYSIS:

The above chart describes that the maximum number of loans and advances have been raised
through J&K bank as 32% of respondents said that they have taken loan from J&K bank.
After J&K bank SBI plays major role in advancing loans to the people as it contributes 18%
of the whole sample size. But the majority of people denied and told that they haven’t taken
loan from any bank. PNB with Other banks contribute less percentage towards loans and
advances given to people.

5. ARE YOU REPAYING YOUR LOAN?

YES 24
 69

NO 06
NILL 20

ARE YOU REPAYING YOUR LOAN ?

NOT RAISED
40% YES
48%

NO
12%

ANALYSIS:

While asking about the repayment of loan to respondents majority agreed that they are
repaying their loan at regular intervals which contributes almost 48% of the whole sample
size and 40% of them have not taken the facility of loan and 12% of the whole respondents
were those who were not repaying of their loan due to some reasonable problems.
 70

6. ARE YOU AWARE ABOUT THE PRESENT STATUS OF YOUR

LOAN?

YES 24
NO 06
NOT 20
RAISED

ARE YOU AWARE ABOUT THE PRESENT STATUS OF YOUR

LOAN ?

NOT RAISED
40% YES
48%

NO
12%

ANALYSIS:

According to the above chart when respondents were asked about the present status of their
loan majority of them who have taken loan from the bank know the status of their loan and
are repaying it at regular intervals in installments. 40% of respondents have not taken the loan
at all from bank. About 12% were those who don’t know the status of their loan as they
didn’t disclosed the fact that why they were not able to know the status of their loan and told
there are some personal reasons.
 71

7. ARE YOU INTERESTED IN FUTURE TO OPEN A BANK

ACCOUNT?

YES 35
NO 15

ARE YOU INTERESTED IN FUTURE TO OPEN A BANK ACCOUNT ?

NO
30%

YES
70%

ANALYSIS:

In above chart about 70% respondents agreed about their interest in opening bank accounts in
future and the main reason they told was that they feel safe and secure to keep their money
with bank rather than keeping it at their own custody. 40% of respondents were those who are
not interested to open bank accounts in future the reason they told that either they have a
number of existing accounts in banks or they are satisfied with their existing bank accounts.
 72

8. IN WHICH BANK WILL YOU BE INTERESTED IN OPENING A

BANK ACCOUNT?

SBI 07
PNB 02
JK BANK 24
OTHERS 02
NILL 15

IN WHICH BANK WILL YOU BE INTERESTED IN OPENING A BANK

ACCOUNT ?

SBI
14%
NIL PNB
30% 4%

OTHERS J&K BANK

4% 48%

ANALYSIS:

The above chart shows the response of people towards those banks in which they would like
to open their bank accounts in near future, according to above chart it clearly reveals that
people prefer to have their money in J&K bank and the main reason behind it is that J&K
bank is one of the oldest financial institution existing in the state of Jammu and Kashmir.
Other major portion of chart is covered by SBI as it is also one of the trusted banks in the
state, banks like PNB and other private banks have less portion as compared to J&K bank and
SBI this clearly indicates that J&K bank and SBI are working up to the expectations of
people.
 73

9. ANY OTHER FAMILY MEMBERS ACCOUNT?

YES 47
NO 03

ANY OTHER FAMILY MEMBERS ACCOUNT ?

NO
6%

YES
94%

ANALYSIS:

The above chart shows that the interest of people towards the banks as it shows the
percentage of family members of respondents having bank accounts, and the major portion of
the chart indicates that family members are having bank accounts belonging from the same
family and there is very less portion of people who do not have any other bank account
accept one that of respondent himself.
 74

10. HIS/HER EXPERIENCE WITH THE BANK?

EXCELLENT 07
VERY GOOD 09
GOOD 26
SATISFACTORY 04
NILL 04

OTHER FAMILY MEMBERS EXPERIENCE WITH THE BANK

NIL EXCELLENT
8% 14%
SATISFACTORY
8%

V. GOOD
18%

GOOD
52%

ANALYSIS:

In the above chart we can clearly see that people are enjoying good experience with their
bank because of the kind of facilities and services they provide.

11. What are the reasons for default in repayment of loan?

As it was an open ended question and also one of the important questions for our research,
there were rare number of people who responded aptly to this question some of them had
raised loan for business purpose and due to failure of business they were not able to repay
their loan and needed sufficient amount of time to repay it, some of them had their family
problems and increasing day by day cost. Some of them also were willingly doing this.
 75

CONCLUSION & FINDINGS

The data collected through Questionnaire based on NPA’s particularly with special
reference to J&K bank clearly reveal that people showed positive response especially for
J&K bank. In the state of Jammu and Kashmir J&K bank being the oldest and first financial
institution is highly trusted and successful bank in the state of Jammu and Kashmir, as our
questionnaire also reveals this fact that people show their trust towards J&K bank and in
reply J&K bank is also fully reliable and providing good value to its each and every customer
and serve them in any kind of situations as J&K is trusted to be the highly disturbed state in
country and to exist under such circumstances is work of bravery.
Now concluding especially regarding NPAs with special reference to J&K bank, bank
has provided huge amounts of loans and advances to its customers and huge amount out of
these have turned into NPAs. The bank authorities provided me the list of number of its
customers who have turned into NPAs and have been declared as defaulters as not being able
to repay the loans raised by them. I personally went to them to fill my questionnaire and some
of them totally disagreed with being the defaulters and even some of them totally disagreed
with the fact that they have raised the loan from the bank; this clearly shows their intention
and reveals that the fault lies with them. And some said that due to failure of their purpose for
which loan was raised was not accomplished.
In case of NPAs bank has taken several steps in order to make the recovery of NPAs.
In the first quarter of current financial year 2010 bank has recovered almost 70% of NPAs
which is positive sign for the bank.
Bank should maintain proper record of the loans and advances given out to its
customers with time period mentioned and there should be proper credit management in order
to gauge and control the loans provided to customers. Defaulters should be given proper time
and should be motivated to pay their respective debts to bank. Otherwise a strict action needs
to be taken because NPA one of the major threat faced by each and every bank in the country
and public sector banks have got the highest NPAs as compared to private banks and
international financial institutions.
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FINDINGS:
 J&K bank is the highly trustable bank of the state of J&K.
 Percentage of recovery of NPAs was the highest in the country at the end of
the first quarter of current year.
 Bank has huge number of customers in the whole state besides the competitors
like SBI, PNB, and HDFC etc.

RECOMMENDATIONS:
1. Bank should have its own independence credit rating agency which should
evaluate the financial capacity of the borrower before than credit facility.
2. Special accounts should be made of the clients where monthly loan concentration
report should be made.
3. There should be proper monitoring of the restructuring accounts because there is
every possibility of the loan slipping into NPAs category again.
4. Proper training is important to the staff of the bank at the appropriate level either
ongoing process. That how they should deal with the problem of NPAs and what
steps should be taken to reduce the NPAs.
5. It is recommended that the proper documentation and verification to be made
before sanctioning the loan.
6. Constant interactions have to be maintained with the customers to keep track of
their loan payment.
7. Strict measures have to be taken while issuing or sanctioning the loan. The
measures can include verification of job and salary slips, verification of securities
and the like.
8. When all possible attempts for recovery is failed only option is to proceed with
legal action and this should be speedy otherwise this will be costly.
9. It is also wise for the bank to carryout special investigative audit of all financial
and business transactions and books of accounts of the borrower company when
there is possibility of the diversion of the funds and mismanagement.
10. Independent settlement procedure should be more strict and faster and the
decision made by the settlement committee should be binding both borrowers and
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lenders and any one of them failing to follow the decision of the settlement
committee should be punished severely.
11. The bank should come out with new and innovative methods to recovered NPA
and should motivate customers to pay their dues in time.
12. Wilful Default of Bank loans should be made a Criminal Offence.
13. Identifying reasons for turning of each account of a branch into NPA is the most
important factor for upgrading the asset quality, as that would help initiate suitable
steps to upgrade the accounts.

14. The bank must focus on recovery from those borrows who have the capacity to
repay but are not repaying initiation of coercive action a few such borrows may
help.

15. The recovery machinery of the bank has to be streamlined; targets should be fixed
for field officers / supervisors not only for recovery in general but also in terms of
upgrading number of existing NPAs.
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Lovely Campus, Jalandhar- Ludhiana G.T Road

1. Do you have a Bank Account ?(if no go to Qno11)

YES NO
2. In which Bank you have an account?(IF OTHERS PLEASE SPEACIFY)

SBI

PNB

J&K

OTHERS

OTHERS____________________________________________________________________
__________
3. Have you taken the facility of loan from your bank?

YES NO

4. What is the amount of loan availed______________________________

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5. From which branch you have taken the

loan_______________________________________________________

6. When was loan availed(date)___________________________________

7. What was the purpose of loan

availed__________________________________________________________________
__________

8. Are you repaying your loan?

YES NO
9. Are you aware about your present status of your loan amount?
YES NO
10. What are the reasons for Default in repayment of loan

11. Why don’t you have bank account?

12. Do you have any other account apart from loan account(specify if yes)

13. Are you interested in future to open a bank account?(if NO go to Q no 16)

YES NO
 80

14. In which bank will you be interested in opening a bank account?(if others please specify)
SBI

PNB

J&K

OTHERS
OTHERS_____________________________________________
15. What are the reasons of opening bank account with the bank you specified above?

16. Any other family members account

YES NO

17. His/her experience with bank

18. First Name

19. Last Name

20. S/O

21. R/O_____________________________________________________________________
________________
 81

___________________________________________________________________________
__________

22. AGE_____________________________________

23. Occupation_______________________________________________________________
________________

___________________________________________________________________________
_________________
 82

BIBLIOGRAPHY AND REFERENCES

During the completion of this project work I have taken

references from various sources which include:

Books
 Pandey, I.M. (2006), Financial Management, 7th Ed. New Delhi: Vikas
Publishing House Pvt. ltd
 Kotler, P. (2006), Marketing Management, 12th Ed. New Delhi:
Pearson Publishers Ltd.
 Gupta, Shashi K.(2007), Financial Management, 5th Ed. Ludhiana:
Kalyani Publishers.
 Risk Management by Indian institute of banking and finance.
(Macmillan).

He, Dong (2002): Resolving Non-performing Assets of the Indian Banking System. Published
in: India: Selected Issues and Statistical Appendix IMF Country Report No. 02/193 (2002)

Journal of Asset Management (2010) 11, 62–70. doi:10.1057/jam.2010.1

WEBSITES:
www.jkb.net
www.moneycontrol.com
www.rbi.org.in

"http://www.articlesbase.com/banking-articles/problems-and-recovery-of-npa-at-branch-
banks-1284736.html"
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BOOKS AND ARTICLES:

 Annual report of The Jammu and Kashmir Bank Ltd.

 Magazines such as Business Economics.
 Newspapers such as Greater Kashmir (Corporate Section), bank
dairy, bank magazine, catalogue etc.
 Yearly journals of The Jammu and Kashmir Bank Ltd.