PATNA UNIVERSITY

TABLE OF CONTENTS

Chapters

1. INTRODUCTION

• Rationale behind the study

• Objectives behind the study
• Hypothesis of the study
• Research Methodology
• Limitation of the study

2. INTRODUCTION TO CO-OPERATIVE BANKING

• Origin of the Co-Operative Banking

• Structure of the Co-Operative Banking
• The PACS
• State Co-Operative Banking
• The NABARD

3. THE PROFILE OF THE ORGANIZATION

• Establishment of the BSCB

• Organizational Set-up
• Operational Efficiency and future program
• Types of Loans given by the bank

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4. NPA AND ITS MANAGEMENT WITH REFERENCE TO BSCB

• About the NPAS

• Income Recognition concept
• Asset Classification
• Provisioning
• NPAS in BSCB
• Reasons for NPAS in banks
• Steps for preventing NPAS

5. ANALYSIS AND INTERPRETATION OF DATA

• Financial position of the Bank

• Year wise NPA of the Bank
• Data at a glance

6. CONCLUSION AND SUGGESTIONS

• Conclusion
• Suggestion

 BIBLIOGRAPHY

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RATIONALE BEHIND THE STUDY

A strong banking sector is important for flourishing economy. The

failure of the banking sector may have an adverse impact on other
sectors. NPAS reflect the performance of banks. A high level of NPAS
suggests high probability of a large number of credit defaults that affect
the profitability and net-worth of banks and also erodes the value of the
asset. The NPA growth involves the necessity of provisions, which
reduces the over all profits and shareholders value. The problem of
NPAS is not only affecting the banks but also the whole economy. In
fact high level of NPAS in Indian banks is nothing but a reflection of the
state of health of the industry and trade NPA is one of the foremost and
the most formidable problems that have shaken the entire banking
industry in India like an earthquake. At macro level, NPAS have
chocked off the supply line of credit the potential borrowers, thereby
having a deleterious effect on capital formation and arresting the
economic activity in the country. At micro level, the sustainable level of
NPAS has eroded the profitability of banks through reduced interest
income and provisioning requirements, besides restricting the recycling
of funds leading to serious asset liability mismatches.
On 16th March, 1914 The Bihar State Co-Operative Bank was
established to meet the difficulties arising out of the absence of banking
facilities in this region and help agriculture, industry and in general the
progress of the region.
The Bihar State Co-Operative Bank is one of the largest Banks in
India. The Bank has adopted a prudential approach to the valuation of its

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assets and is focusing on bringing down the level of its non-performing

assets.

NPAS should be controlled and necessary steps should be taken to

earn more profit. The main aim behind making this report is to know
how The Bihar State Co-Operative Bank is operating their business and
how NPAS play its role to the operations of the Public Sector Banks.
The report NPAS are classified according to the sector, industry, and
state wise. The present study also focuses on the existing system in India
to solve the problem of NPAS.

That’s why the study of NPAS become necessary due to the below
mentioned reasons:

 They erode current profits through provisioning requirements.

 They result in reduced interest income.
 They require higher provisioning requirements affecting profits
and accretion to capital funds and capacity to increase good quality
risk assets in future, and
 They limit recycling of funds, set in asset-liability mismatches, etc.

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OBJECTIVES OF THE STUDY

Primary Objective

To find out trend of NPAS of The Bihar State Co-Operative Bank.

Secondary Objectives

 To ascertain the reasons for advance becoming NPAS.

 To explore the strategies, how to manage minimum NPAS in
Bank.
 To analyze the growth rate of the Bank.
 To analyze the NPA and its relation with operating profit of the
bank.
 To study the general reasons for assets become NPAs.
 What are the methods adopted by the bank to look after NPA
management.

HYPOTHESIS OF THE STUDY

These are the hypothesis behind the management of NPAS:-

 NPAS in banks is increasing day by day.

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 NPAS Management has the vital role in the profitability of

the Bank.

RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the

research problem; it may be understood as a science of studying how
research is done scientifically. So, the research methodology not only
talks about the research methods but also considers the logic behind the
method used in the context of research study.

Data Collection

Primary sources: The Primary sources were preferred through

direct discussion from the Executives of the organization.

Secondary sources: The secondary sources were adopted

wherever possible. It will include financial data obtained mainly
form the;

a) Annual Reports
b) Newspapers & Journals
c) Websites

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LIMITATIONS OF THE STUDY

The limitations of the training were as follows:

 Non-availability of rare data.

 The analysis and interpretation are based on secondary data
contained in the annual reports of the Bank.
 The study of financial performance & NPAS can be only a means
to know about the financial condition of the bank and can’t show
the through picture of the activities of the Bank.
 Time is an important limitation. The period of training is six
weeks, which is not sufficient to carry out proper interpretation and
analysis.

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A co-operative bank is a financial entity which belongs to its members,

who are at the same time the owners and the customers of their bank.
Co-operative banks are often created by persons belonging to the same
local or professional community or sharing a common interest. Co-
operative banks generally provide their members with a wide range of
banking and financial services (loans, deposits, banking, accounts…). In
India Co-operative banks are regulated with the RBI and governed by
Banking Regulations Act 1949 and Co-operative societies Act, 1965.
Having made significant strides in the field of rural credit through its
short and the long-term structures, it continues to play a crucial role in
dispensation of credit for agriculture and rural development. Though
commercial banks after nationalisation and later on RRBs have entered
the rural areas, but cooperative banks still continue to enjoy an important
place in the rural credit scenario. The cooperative credit societies at the
grassroots level are intended not only to cater to the creditor requirements
of the members but also to provide several credit linked services like
input supply, storage and marketing of produce, supply of consumer
goods etc. Keeping in view the importance of cooperative banks and
credit societies, several committees, from the All India Rural Credit
Survey Committee to the latest Vaidyanathan Committee, have stressed
the need for major role of cooperatives in providing credit and allied
services in the rural sector.
The process of economic reforms began in India during 90’s
and the cooperative banking though being the integral part of the
financial system of the country, was kept insulated from the effects of
these reforms. Realising that a healthy financial system being the

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pre-requisite for the success of globalisation process, Govt. of India

initiated several steps to reform the financial system by appointing
Narsimhan Committee and implementing its recommendations. But
the cooperative banking was left out of the gambit of this process.
However, the financial discipline such as the recommendation of
Basel Committee on Bank Supervision, prudential norms, NPA norms
Capital Adequacy norms etc. were expected to be complied with on
par with other commercial banks. In case of cooperative banking
System also attempts were made for its reform by appointing Kapoor
Committee, Vikhe Patil Committee and Vyas Committee but no serious
attempts were made to implement the recommendations of these
committees. Keeping in view, the distinct nature of cooperative
banking, it is the need of the hour to assess the regulatory,
structural, operational and financial requirements to restore their
growth and development on sound lines in the competitive business
environment.

HISTORY

The bank was formed in 1872 in the city Manchester in UK. The co-
operative banks in INDIA have a history of almost 100 years. The Co-
operative banks are an important constituent of the Indian Financial
System. Co operative Banks in India are registered under the Co-
operative societies Act. The co operative bank is also regulated by the
RBI. They are governed by the Banking Regulations Act 1949 and
Banking Laws (Co-operative societies) Act, 1965. These banks were
conceived as substitutes for money lenders.

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ESTABLISHMENTS

 Co-operative bank performs all the main banking functions of

deposit mobilization, supply of credit and provision of remittance
facilities.
 Co-operative Banks belong to the money market as well as to the
capital market.
 Co-operative Banks provide limited banking products and are
functionally specialists in agriculture related products. However,
co-operative banks now provide housing and other loans also.
 UCBs provide working capital loans term loan as well.

FEATURE

 Customer-owned entities: In a Co-operative bank, the needs of

the customers meet the needs of the owners, as Co-operative bank

members are both.
 Democratic member control: Co-operative banks follow the

principle of “one person, one Vote”.

 Profit allocation: Profit is usually allocated to members which is

related to the number of shares subscribed by each member.

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• Co-operative Banks are organized and managed on the principal of

co-operation, self-help, and mutual help. They work on the basis
of “no profit no loss”. Profit maximization is not their goal.

• Co-operative bank do banking business mainly in the agriculture

and rural sector. However, UCBs, SCBs, and CCBs operate in
semi urban, urban, and metropolitan areas also.
• The State Co-operative Banks (SCBs), Central Co-operative Banks
(CCBs) and Urban Co-operative Banks (UCBs) can normally
extend housing loans upto Rs 1 lakh to an individual. The
scheduled UCBs, however, can lend up to Rs 3 lakh for housing
purposes. The UCBs can provide advances against shares and
debentures.

Finance Function:

1. Co-operative banks in India finance rural areas under-

Farming
Cattle
Milk
Personal finance

2. Co-operative banks in India finance urban areas under-

Self-employment
Industries
Small scale units

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Home finance
Consumer finance
Personal finance

CLASSIFICATION

Some co-operative banks are scheduled banks, while others are

non-scheduled banks. For instance, SCBs and some UCBs are scheduled
banks but other co-operative banks are non- scheduled banks. Co-
operative Banks are subject to CRR and liquidity requirements.
However, their requirements are less than commercial banks.

Sr. no Category of bank Minimum SLR holding in Government

and other approved securities as
percentage of Net Demand and Time
Liabilities(NDTL)
1. Scheduled Banks 25%
2. Non Scheduled Banks
a) with NDTL of
Rs. 25 crore & 15%
above
b) with NDTL Of 10%
less than 25
crore

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RECENT DEVELOPMENTS

Over the years, primary (urban) co-operative banks have registered

a significant growth in number, size and volume of business handled. As
on 31st march, 2003 there were 2,104 UCBs of which 56 were scheduled
banks. About 79% of these are located in five states, - Andhra Pradesh,
Gujarat, Karnataka, Maharashtra and Tamil Nadu. According to sources
the total deposits & lending’s of Co-operative Bans in India are much
more than Old private sector banks & also the New Private Sector Banks.

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The PACS

The Primary Agricultural Credit Societies (PACS) constitute the `hub’ of

the Indian co-op movement. Every fourth co-operative in India is a
primary credit society. The main objectives of a PACS are:

• To raise capital for the purpose of giving loans and supporting the
essential activities of the members.
• To collect deposits from members with the objective of improving
their savings habit.
• To supply agricultural inputs and services to members at
remunerative prices.
• To arrange for supply and development of improved breeds of
livestock for the members.
• To make all necessary arrangements for improving irrigation on
land owned by members.
• To encourage various income-augmenting activities such as
horticulture, animal husbandry, poultry, bee-keeping, pisciculture
and cottage industries among the members through supply of
necessary inputs and services.

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The DCCBs

The PACS are affiliated to the District Central Co-operative Banks

(DCCBs) who perform the following functions.

o Serve as balancing centre in the district central financing

agencies
o Organise credit to primaries
o Carry out banking business
o Sanction, monitor and control implementation of policies

State Co-Operative Banking (SCBs)

The DCCBs in turn are affiliated to State Co-operative Banks (SCBs),

which perform the following functions.

o Serve as balancing centre in the States

o Organise provision of credit for credit worthy farmers
o Carry out banking business
o Leader of the Co-operatives in the States

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Network of Agricultural Co-operative Societies

(Production Credit)

National Federation Of State

Cooperative Banks
State Cooperative Banks
(31)
District Cooperative Banks
()

Farmers Primary Large Size

service Co- Agricultural Multi-
operative Co-operative Purpose
Societies Societies Coop

The National Federation of State Co-operative Banks

The NCUI information brochure lists the following functions for the
National Federation of State Co-op Banks.

• Provides a common forum to the member banks.

• Promotes and protects the interests of the member banks.
• Co-ordinates and liaison with GOI, RBI, National Banks and
others.
• Provides research and consultancy inputs to the member banks.
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• Organises conferences/seminars/workshops/meetings.

The NABARD

However, the refinance of all the constituents in the above organ gram
(except the National Federation of State Co-operative Banks) is done by
the National Bank of Agriculture and Rural Development (NABARD),
which was set up in 1982 by the Government of India with the following
mandate.

• To serve as a refinancing institution for all kinds of production and

investment credit to agriculture, small scale industries, cottage and
village industries, handicrafts and rural crafts and rural artisans and
other allied economic activities with a view to promoting
integrated rural development;
• To provide short-term, medium-term and long-term credits to state
Co-operative Banks (SCBs), RRBs, LDBs and other financial
institutions approved by RBI;
• To give long-term loans (upto 20 years) to the State Governments
to enable them to subscribe to the share capital of co-operative
credit societies;
• To give long-term loans to any institution approved by the Central
Government or contribute to the share capital or invest in securities
of any institution concerned with the agriculture and rural
development;
• Responsibility of coordinating the activities of Central and State
Governments, the Planning Commission and other All-India and
State Level Institutions entrusted with the development of Small

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Scale Industries, Village and Cottage Industries, Rural Crafts,

Industries, in the tiny and decentralized sectors etc.;
• Responsibility to inspect RRBs and co-operative banks, other than
primary co-operative banks; and
• To maintain a research and development fund to promote research
in agriculture and rural development to formulate and design
projects and Programme to suit the requirements of different areas
and to cover special activities.

OVERVIEW:

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OUT REACH OF COOPERATIVES:

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Bihar State Co-operative Bank Ltd., Patna

Information about the Bank

1. Establishment:

The Bank was registered under the Co-operative Societies Act II of 1912 on
16.03.1914. Its registration no. is 267/1913-14. Its founder members were as
follows:

 Maharaja Bahadur Guru Mahadev Sharan Prasad Shahi (Hathua)

 Raja Bahadur Kritya Nand Sinha, (Banaili)

 Rai Bahadue Harihar Prasad Narayan Singh (Dumraon)

 Raja P.C.Lal (Purnea)

The Banking Regulation Act, 1949 was made applicable to this Bank on
01.03.1966 like other Co-operative Banks.

The Bank was included in the second schedule of RBI like some other
Commercial and Nationalized Banks in the month of July 1966. Thus this Bank
is a scheduled Bank.

2. Organizational Set-up:

(i) Board:

In terms of amended Bihar Co-operative Societies Act, 2002, total no. of Board
of Directors is 17. Against the above 17 members, 2 posts are reserved for SC
members, 2 for Backward and 2 for women. Three are ex-officio members i.e.
RCS, CGM, NABARD, Regional Office and Managing Director of the Bank.
Out of above 17, 4 posts are vacant under reserve category.

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Existing Board of Directors:

Sl. No. Elected/Co-opted Members

1 Shri Satyendra Narain Singh Chairman

2 Shri Vishal Kumar Director

3 Shri Ram Chandra Prasad,M.L.C. Director

4 Shri Suresh Chaudhary,Advocate Director

5 Shri Vinay Kumar Shahi Director

6 Shri Madan Mohan Yadav Director

7 Smt.Manorma Devi Director

8 Shri Shailendra Kumar Director

9 Shri Navendu Jha Director

10 Shri Sheonarayan Pd Mishra Director

Ex-Officio Members

11 Registrar, Co-operative Societies, Bihar Director

12 Managing Director of BSCB Director

13 C.G.M.,NABARD, Regional Office, Patna Director

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 A
dministrative&Org
anis
a tio nalStruc tureof
Coopera tiveDep artm ent.

Secretary

Dy. Director Stat.

Addl. Secretary/ Registrar
Field Offices
Joint Secretary Cooperative Societies
Statistical Officer.

Div. Joint Registrar (Audit) Div. Joint Registrar, CS

Dy. Secretary Head Quarter Dy. Chief Auditor CS

Under Secretary Addl. Registrar/ Dist. Coop. Officer

Sub. Div.
Joint Registrar, CS Dist. Audit Sr. Audit Officer
Audit Officer
Officer

Asst. Registrar, CS

Coop. Extension Off.

MD, DCC Bank

Spl. Officer Assistant Public Relation Dy. Director Accounts
Dy. RCS, CS Officer
(Consumer) Registrar Officer (Statistics)
General Manager
 PATNA UNIVERSITY

(ii) Staffing Pattern:

Officers of the Bank have been re-designated in terms of RCS letter no. 3261
dated 23.03.1988 like Commercial Banks i.e. General Manager, Dy. Gen.
Manager, Asstt. Gen. Manager, Manager, Deputy Manager, Asstt. Manager and
Staff Officer. Besides above there are Assistants and Class IV employees i.e.
peon, Night Guards and Drivers etc.

There is acute shortage of hand especially in the higher cadre. As against

the total sanctioned strength of 264, the existing no. of regular employees are 181.
Besides above regular employees, a total no. 50 employees have been taken on
deputation and contractual basis.

(iii) Number of branches:

There are altogether 16 branches of the Bank out of which 11 are located in the
Bihar State jurisdiction and 5 are located under the jurisdiction of Jharkhand State.

(iv) Affiliated DCCBs:

Previously, 34 DCCBs were affiliated with the Bank out of which one under the
jurisdiction of Jharkhand State i.e. Daltanganj and three under the jurisdiction of
Bihar State i.e. Chapra, Darbhanga and Madhepura have been bound up by the
RBI.

Accordingly, these DCCBs are presently under liquidation as per the order
of RCS. Thus there are only 30 DCCBs functional at present, affiliated to this
Bank. Out of 30, 22 DCCBs are under the jurisdiction of Bihar State and 8
DCCBs are under the jurisdiction of Jharkhand State. Out of 22 DCCBs functional
in the Bihar State, 18 DCCBs are not complying with the provisions regarding
minimum capital requirement i.e. Section 11 (1) of B.R.Act.

Four DCCBs which are complying with the provisions of Section 11(1) of
B.R.Act are Arrah, Patliputra, Bhagalpur and Gopalganj. Out of 18 DCCBs not

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complying with the provisions of Section 11 (1), 11 DCCBs namely Purnea,

Rohika, Aurangabad, Magadh, Sasaram, Katihar, Vaishali, Bettiah, Siwan and
Muzaffarpur have been issued Show-Cause notice by the RBI as to why their
license application should not be rejected.

3. Operational Efficiency and future programs:

Bank has improved its operational efficiency during the last 2-3 years. The
employees of the Bank are being sent to BIRD and other training institutions, for
imparting training. Some new recruitment on contractual basis have also been
made of the persons having technical qualification like MBA, MCA, BCA etc. to
improve the operational efficiencies.

Some other efforts have also been made by the Bank for improvement in the
present efficiencies of the Bank viz:

 Premises of Head Office as well as all the seven branches located at Patna
have been renovated and modernized. Modernization of the other outstation
branches are also under process.

 Computerization of all its branches except Motihari and Bihat have been
finalized. Computerization of above two remaining branches as well as
Head Office is under process.

 The Bank has also started Government security trading to increase its
profitability.

 The Bank has a proposal to install ATM at some inside/off-site location at

Patna.

4. Constraints:

(i) Shortage of Manpower:

There is a shortage of manpower especially in the higher cadre of the Bank

affecting the efficiency and progress of the Bank adversely. The vacancy in the

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higher cadre has to be filled up by promotion for which roster clearance is

essential. The Bank has already made a correspondence for the same.

In the mean time, Bank has a proposal to fill up the vacancy under higher
cadre i.e. Dy. Gen. Managers by taking officers on deputation basis from the
State Government for which also the correspondence has been made.

TYPES OF LOAN GIVEN BY THE BANK:

CURRENT RATE OF INTREST

SI.NO NAME OF THE SCHEME RATE

1. CONSUMER LOAN 12%
2. PERSONAL LOAN 12%
3. CASH CREDIT/TERM LOAN 12.50%
4. OVER DRAFT LOAN 14%
5. CAR LOAN 11%
6. HOUSING LOAN 8.50%
7. SMALL ROAD TRANSPORT OPERATOR LOAN 12%
8. GOLD LOAN 11%
9. EDUCATION LOAN 12%

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TYPES OF ADVANCE ACCOUNTS MAINTAINED BY BRANCH PATNA

1. Cash Credit/ Overdraft

2. Advance Against the security of deposits

3. Advance Against approved security of National Savings certificate/
Indra Vikas patras/ Kissan Vikas Patras.
4. Installment payment scheme
5. Demand Loan
6. Housing Loan
7. Staff Loan
a) Festival Loans
b) Demand Loans
c) Housing Loans
d) Consumer Loans
e) Vehicle Loans
f) Office Furniture Loans
8. Consumer Loan
9. Educational Loan

The Loan accounts are classified under the two heads namely.
i. Secured Advances
ii. Unsecured Advances

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CLASSIFICATION OF ADVANCES

As far as advance portfolio is concerned there has been steady growth

since 1993 onwards. The advances accounts are classified according to the
norms laid down into priority sector Advances andA Non-Priority sector
Advances.
PRIORITY SECTOR ADVANCE:
The priority sector advances includes the following category of advance
accounts:
1. Agriculture and Allied Activities
2. Small Scale Industries(SSI)
3. Road & Water Transport Operators(RTO)
4. Retail Traders(RT)
5. Small Business(SB)
6. Professional & Self Employed(P&S)
7. Housing Finance(HF)
NON-PRIORITY SECTOR ADVANCES:
It included the following category of advance accounts:
1. Non Priority Agriculture
2. Medium & Large Industries
3. Traders & Businessman
4. Leasing & Hire Purchase Companies
5. Akbari Contractors
6. Other Contractors
7. Shares/Debentures

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8. Against Deposits
9. Against approved securities(like NSC, LIC, Govt. securities, UTI)
10.Housing Finance
11.Real Estate
12.Consumer Loans
13.Others

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ABOUT THE NPA

An asset is classified as Non-performing Asset (NPA) if due in the form of

principal and interest are not paid by the borrower for a period of 90 days.
If any advance or credit facilities granted by banks 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 angry
regard to the fact that there may still exists certain advances/credit facilities
having performing status.

Though the term NPA connotes a financial asset of a commercial

bank, which has stopped earning an expected reasonable return, it is also a
refection of the productivity of the unit, firm, concern, industry and nation
where that asset is idling. Viewed with this perspective, the NPA is a result
of an environment that prevents it from performing up to expected levels.
The definition on NPAs in Indian context is certainly more liberal with two
quarters norm being applied for classification such assets. The RBI is
moving over to one-quarter norm from 2004 onwards.

NPAs MEANING:

o A NPA is a loan or an advance where Interest and/or installment

of principal remain overdue for a period of more than 90 days in
respect of a term loan.

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o The debt remains outstanding for 90 consecutive days or more

beyond the scheduled payment date or maturity.

o The debt exceeds the borrower’s approved limit for 90
consecutive days or more.
o Interest is due and uncollected for 90 days or more, or
o For overdrafts, the account has been inactive for 90 consecutive
days and/or deposits are insufficient to cover the interest
capitalized during the period.

HOW NPA GET PLACE IN BANKING SYSTEM

A committee was set up under the chairmanship of Mr. M.

Narsimham, Dy. Governor Reserve Bank Of India, to examine the existing
structure of the financial system and its various components and to make
recommendation for improving the efficiency and effectiveness of the
system with particular reference to the economy of operation, accountability
and profitability of the commercial bank and financial institutions.

In pursuance of the RBI’s decision to accept, with certain

modification, the recommendation of Narsimham Committee’s report of

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“Financial System” RBI has issued on 27th April 1992 the guideline on
Income Recognized taking into the prospectus of reliability of the security.

Bank creates asset for earning income from their loans and advances
and this forms a major part of bank’s asset. These assets generate income in
the form of interest on them. An asset which generates income is said to be
performing asset and the one which does not generate income is called NPA.
The realization of either will make the account NPA. An asset will be
considered Non Performing if interest on such asset remains past dues for a
period non exceeding 90 days as per prudential norms in Income
Recognition as stipulated by RBI.
The prudential norms for loans and advances can be divided into 3
parts.
They are as follows:
a) INCOME RECOGNITION
b) ASSET CLASSIFICATION
c) PROVISIONING

INCOME RECOGNITION

INCOME GENERATION:
Bank creates asset for earning from them.
Loans and advances from a major part of bank assets. This performance one
expects from an asset is the generation of income. As asset which generates

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income is said to be a performing asst and the one which does not generate
income is therefore, called NPA.

RECOVERY BASIS:

Debiting of interest in the account is not he same

as generation of income. In order to consider the debited interest as income
in its true sense, credit to the account, enough to cover the debited interest is
necessary. In other words, interest can be considered as income only when
it is realized.

ACCURUAL BASIS:

Banks debit interest to loans and advances

regularly at a fixed periodicity. The interest so debited to the account does
under ordinary circumstances get credited to the bank’s income head in
profit and loss account. The interest so debited to the account gets remitted
subsequently in accordance with the term and conditions of the loan
agreement. Here the crediting of interest to the income account takes place
before the interest gets realized.

NON PERFORMANCE:

When credits reduces to a trickle or stop

altogether, leaving the debited interest uncovered or unrealized, the account

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may soon come to stage where the account can no more be considered as
generating income. In other words, the account is therefore known as NPA.

The realization of interest as well as the realization of principal

amount is equally important. For an account to be considered performing,
but interest and principal have to be realized as per the term of agreement,
non-realization of either will make the account non-performing.

The RBI in their prudential norms of Income Recognition have

stipulated the period of default as two quarters during which the accounts to
be treated as performing assets on completion of which the account will be
treated as non-performing if the non-payment persists.

NON PERFORMING ASSET (NPA)

A credit facility should be

treated as NPA if interest or installment of Principal has remained past due
for a period 90 days. As per norms of Income Recognition the total fund
based credit facilities as divided 3 broad groups. They are as follows:

1) TERM LOAN
2) CASH CREDIT/ OVERDRAFT
3) OTHER ACCOUNT

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The three types of account are different from each other in many aspects,
especially in disbursement as well as repayment. In order to solve the
deficiency of the general definition of NPA the RBI has given different
groups. They are as follows:

TERM LOANS:

Term loans cover all those credit facilities where

repayment is scheduled in periodical installments. A term loan should be
treated as NPA if interest or installment of principle has remained past due
for 90 days. The stipulation that if interest or installment of principle is in
arrears for any 90 days of the four quarter the credit facilities should be
treated as NPA although the default may not be continuously for two
quarters during the year have been relaxed by RBI vide circular dated 29th
January 1997, according if the account is regularized on the balance sheet
date, the account need not be treated as NPA for a major part of the financial
year. Identification of NPA for a major part of the financial year.
Identification of NPA is to be done on the basis of the position as on the date
of balance sheet.

APPROPRIATION OF CREDIT:-

There are several options for appropriating of a credit in a term loan.

They are as follows:

PRIORITY:-

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The bank has the discretion to decide the priority at which a credit is
to be appropriated towards interest, installment and other dues. Fees,
commission and such other non interest income get the lowest priority as
default of these items will not an account Non-Performing Assets.

OPTION:-

The credit can be appropriated towards interest as well as installments

according to the chronological order in which they fell due for payment.
The date on which an interest or installment fell due for payment, will
determine the priority it gets in the appropriation of a credit.

Another option is to appropriate the credit first towards interest and

after extinguishing all the dues of interest, towards installments which are
due.

Yet another option is to appropriate the credit first towards due of

installment and then towards due of interest and last towards the non-interest
income.

However, in a term loan which is already treated as Non-Performing

Asset any credit ought to be appropriated first towards interest and then
towards installments, unless the credit is sufficient to bring the account of
NPA status, in which case, the credit should be brought out of Non-
Performing status.

CASH CREDIT/ OVERDRAFT:

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 PATNA UNIVERSITY

A cash credit or overdraft will be

treated as NPA if the account remains “OUT OF ORDER” for a period of 90
days.

The RBI vides their circular no. B.P.B.C 3/21-04.048/97 dated

29.01.1997 has clarified that a cash credit/overdraft account need not be
classified as NPA merely due to the existence of some deficiencies, which
are of temporary nature such as non-availability of adequate drawing power,
balance exceeding the limit, non-submission of stock statement and on
renewal of doubt, then it should be classified as NPA.

In the light of the above mentioned amendment made by RBI over

cash credit/overdraft account will be considered as NPA when the
outstanding balance remains continuously in excess of the sanctioned limit/
drawing power but there are not credits continuously for six months or credit
are not enough to cover the interest debited during the same period.

It is on the Balance Sheet (and on any date before it) that a cash
credit/ over draft account is to be treated as out of order if there are no
credits during the six months period as on the date of Balance sheet, or if the
credit are not enough to cover the interest debited during the same period.

OTHER ACCOUNT:

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There are other credit facilities which can be

converted into NPA according the stipulation that particular advances made
by the bank.

TERM LOAN- Term loan has been financed SIDBS. The

payment of term is 18 months. This can be refinanced by that institution.

MEDIUM TERM LOAN- This loan is financed for up to 3

years and its installment should be paid within 3 crop session otherwise it
would come into the preview of NPA.

SHORT TEM LOAN- It is financed to 1 crop year and is

recoverable to within crop season.

CATEGORIES EXEMPTED FROM PRUDENTIAL NORMS

Advances against the following items are not treated as NPA:-

1. Term Deposits
2. National Savings Certificates Eligible For Surrender
3. Indra Vikas Patras
4. Kissan Vikas Patras
5. Life Insurance Policies

The Bank making advances against the security of aforesaid items are
exempted from provisioning requirements. Even if interest is not paid for
90 days the account need to be treated as Non-Performing Assets. Interest

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on such accounts can be taken to the income account on accrual basis, on the
due dates, provided adequate margin is available.

Industrial projects where moratorium/repayment-holiday/gestation

period is available for payment of interest as well as installment, such
amount of interest do not become “past due” with reference to the date of
debit interest. In such cases interest need not be considered “past due” from
the first quarter onwards. Such loans need to be classified as NPA where
there is default in payment of interest or installment on the due date. The
due date for payment of interest or installment is the date as agreed upon in
the loan agreement.
A government guaranteed account is exempted from the norms of
Asset Classification and Provisioning, but is not exempted from the norms
of Income Recognition.

In the case of Housing Loan to staff members, it becomes past due

only on the dates as agreed upon in the loan agreement, after repayment of
the principal because the interest is payable only after the principal is repaid.
Such interest need to be treated as past due only if it remains unpaid 30 days
beyond its due date as per the loan agreement.

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ASSET CLASSIFICATION

The Banks have to classify all their loans and advances into four broad
groups as under:-

1) STANDARD ASSETS:- Standard Assets is one which does not

disclose any problems and which does not carry more than the normal
risk attached to the business. Such an asset is not a NPA.

2) SUB-STANDARD ASSETS:- Sub-Standard Assets are one which

has been classified as NPA for a period exceeding 2 years. In such

cases, the current net worth of the borrower/guarantor of the current
market value of the security charged is not enough to ensure recovery
of the dues to the bank.

3) DOUBTFUL ASSETS:- A doubtful asset is one which has remained

NPA for a period exceeding 2 years.

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4) LOSS ASSETS:- Where loss has been identified by the bank or

internal or external auditors or the RBI inspection but amount has not
been written off wholly. It is an asset identified by the bank, auditors
or by the RBI inspection as a loss asset. It is an asset for which no
security is available or there is considerable erosion in the realizable
value of the security.

PROVISONING

The provisioning norms are formulated taking into account the time lag
between an accounts becoming doubtful of recovery, its recognition as such,
the realization of the security and the erosion over time in the value of
security charged to the banks. Banks should make provision against sub-
standard asset, doubtful assets and loss assets.

PROVISION FOR LOSS ASSETS:

The entire assets should be written off. If the assets are permitted to
remain in the books for any reasons, 100% of the outstanding should be
provided for.

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PROVISION FOR DOUBTFUL ASSETS:

100% of the extent to which the advance is not covered is not by

realizable value of the security to which bank has a valid recourse and the
realizable value is estimated on realistic basis.

Depending on the period for which the asset has remained doubtful, a
certain percentage of the secured portion (i.e. estimated realizable value of
the outstanding) on the following basis:-

Period for which the advance -

has been considered as doubtful % of the provision

Up to one year 20%

One to Three year 30%

More than Three years 50%

PROVISION FOR SUB-STANDARD ASSETS:-

A general provision of 100% of total outstanding is to be made.

Availability of security DICGC/ECGC guarantee etc should be taken into
account while making provision for sub-standard assets.

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NPAS IN BSCB

(RS. IN LACS)

S.NO PARTICULARS 31.03.2004 31.03.2005 31.03.2006 31.03.2007 31.03.2008

1. N.P.A 25263.17 16123.11 16402.32 26710.75 23014.05
2. % of N.P.A to loan 51.56 28.67 30.33 42.51
o/s
3. Total demand 48744.04 5269.83 53864.63 47861.80
(30.06)
4. Total Collection 24785.58 22800.67 27636.31 17889.56
(30.06)
5. Net Worth as per (+)2185.17 (+)15251.74 (+)20434.76 14837.83 (+)16000.00
Bank’s Assessment

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There is a decreasing trend in the position of NPA of the Bank. The

NPA of the bank which was 51.56% of the loan outstanding as on
31.03.2004 has come down to 30.33% as on 31.03.2006. It has further at
42.5% as on 31.03.2007 due to reversal of adjustment made in the loan
account of BISCOMAUN.

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NPA
30000

25000

20000

15000

10000

5000

0
2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

CROP INSURANCE:

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Co-Operative Bank has made appreciable achievement under Crop

insurance and receipt of claim under Crop insurance during the last 4-5
years which will be evident from the following data:

Season/year No. of Sum Assured NO. of farmers Amount of claim

farmers benefited with received by Co-op
insured claim through Bank

C0-op. Banks
Rabi 2003-04
Kharif 2004
Rabi 2004-05 48100
Kharif 2005 83252
Rabi 2005-06 59810
Kharif 2006 166150 1903430129.5 60051 267635148.90
9

CROP LOAN ADVANCEMENT:

Crop loan financed by Co-Operative Banks and refinanced by

NABARD during the last four years is given below:

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(RS. IN LACS)
YEARS FINANCED BY DCCBS REFINANCE BY BSCB REFINANCE BY NABARD
2004-05 27469.02 23307.34 361.00
2005-06 23460.74 11876.99 475.00
2006-07 30299.54 15578.40 1801.50
2007-08 35580.97 17752.30 1857.11

40000
35000
30000
financed by
25000 DCCBs
20000 refinance by
15000 BSCB
refinance by
10000
NABARD
5000
0
2004-05 2005-06 2006-07 2007-08
THERE ARE SEVERAL GENERAL REASONS FOR AN ACCOUNT
BECOMING NPA

INTERNAL FACTORS:

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1) Funds borrowed for a particular purpose but not use for he said purpose.
2) Project not completed in time.
3) Poor recovery of receivables.
4) Excess capacities created on non-economic costs.
5) In-ability of the corporate to raise capital through the issue of equity or
other debt instrument from capital markets.
6) Business failures.
7) Diversion of funds for expansion\ modernization\ setting up new
projects\ helping or promoting sister concerns.
8) Willful defaults, siphoning of funds, fraud, disputes, management
disputes, miss-appropriation etc.
9) Deficiencies on the part of the banks viz. in credit appraisal, monitoring
and follow-ups, delay in settlement of payments\ subsidiaries by government
bodies etc.

EXTERNAL FACTORS:

1) Sluggish legal system

 Long legal tangles

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 Changes that had taken place in labor laws

 Lack of sincere effort.

2) Scarcity of raw material, power and other resources.

3) Industrial recession.
4) Shortage of raw material, raw material\ input price escalation, power
shortage, industrial recession, excess capacity, natural calamities like floods,
accidents.
5) Failures, non payment\ over dues in other countries, recession in other
countries, externalization problems, adverse exchange rates etc.
6) Government policies like excise duty changes, Import duty changes etc.

UNDERLYING REASON FOR NPAs IN INDIA

An internal study conducted by RBI shows that in the order of prominence,

the following factors contribute to NPAs.

Internal factors

Diversion of funds for-

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 Expansion/ diversification/ modernization

 Taking up new projects
 Helping/ promoting associate concerns time/ cost overrun during the
project implementation stage
 Business (product, marketing, etc.)
 Inefficiency in management
 Slackness in credit management and monitoring
 Inappropriate technology/ technical problems
 Lack of co-ordination among lenders

External factors

 Recession
 Input/ power shortage
 Price escalation
 Exchange rate fluctuation
 Accidents and natural calamities, etc.
 Changes in Government Policies in excise/ import duties, pollution
control orders, etc.

A brief discussion is provided below:-

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• Liberalization of economy/ removal of restrictions/ reduction of

tariffs- A large number of borrowers were unable to compete in a
competitive market in which lower prices and greater choices were
available to consumers. Further, borrowers operating in specific
industries have suffered due to political, fiscal and social
compulsions, compounding pressures from liberalization (e.g., sugar
and fertilizer industries)

• Tax monitoring of credits and failure to recognize early warning

signals- It has been stated that approval of loan proposals is generally
thorough many levels before approval is granted. However, the
monitoring of sometimes-complex credit files has not received the
attention it needed, which meant that early warning signals were not
recognized and standard assets slipped to NPA category without
banks being able to take proactive measures to prevent this. Partly
due to this reason, adverse trends in borrowers’ performance were not
noted and the position further deteriorated before action was taken.

• Over optimistic promoters- Promoters were often optimistic in

setting up large projects and in some cases were not fully above board
in their intentions. Screening procedures did not always highlight
these issues. Often projects were set up with the expectation that part
of the funding would be arranged from the capital markets
subsequently crashed, the requisite funds could never be raised,
promoters often lost interest and lenders were left stranded with
incomplete/ unviable projects.

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• Directed lending- Loans to some segments were dictated by

Government’s policies rather than commercial imperatives.

• Highly leveraged borrowers- Some borrowers were undercapitalized

and over burdened with debt to absorb the changing economic
situation in the country. Operating within a protected market resulted
in low appreciation of commercial/ market risk.

• Funding mismatch- There are said to be many cases where loans

granted for short terms were used to fund long term transactions.

• High Cost of Funds- Interest rates as high as 20% were not

uncommon. Coupled with high leveraging and falling demand,
borrowers could not continue to service high cost debt.

• Willful Defaulters- There are a number of borrowers who have

strategically defaulted on their debt service obligations realizing that
the legal recourse available to creditors is slow in achieving results.

STEPS FOR PREVENTING NPAs

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1. Internal Checks and Control- Since high level of NPAs dampens

the performance of the banks identification of potential problem

accounts and their close monitoring assumes importance. Though
most banks have Early Warning System (EWS) for identification of
potential NPAs, the actual processes followed, however, differ from
bank to bank. The EWS enable a bank to identify the borrower
accounts which show signs of credit deterioration and initiate
remedial action. Many banks have evolved and adopted an elaborate
EWS, which allows them to identify potential distress signals and
plan their options beforehand, accordingly. The early warning
signals, indicative of potential problems in the accounts, viz.
Persistent irregularity in accounts, delays in servicing of interest,
frequent devolvement of L/Cs, units financial problems, market
related problems, etc. are captured by the system.

The major components/ processes of a EWS followed by banks

in India as brought out by a study conducted by Reserve Bank Of India at
the instance of the Board of Financial Supervision are as follows:-
 Designating Relationship Manager/ Credit Officer for
monitoring accounts
 Preparation of ‘know your client’ profile
 Credit rating system
 Identification of watch-list/ special mention category accounts
 Monitoring of early warning signals

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Relationship Manager/ Credit Officer- The Relationship Manager/ Credit

Officer is an official is an official who is expected to have complete
knowledge of borrower, his business, his future plans, etc. The Relationship
Manager has to keep in constant touch with the borrower and report all
developments impacting the borrow able account. As a part of this contact
he is also expected to conduct scrutiny and activity inspections. In the credit
monitoring process, the responsibility of monitoring a corporate account is
vested with Relationship Manager/ Credit Officer.

Know your Client’ profile (KYC)- Most banks in India have a system of
preparing ‘know your client’(KYC) profile/ credit report. As a part of
‘KYC’ system, visits are made on clients and their places of business/ units.
The frequency of such visits depends on the nature and needs of
relationship.

Credit Rating System- The credit rating system is essentially one point
indicator of an individual credit exposure and is used to identify measure
and monitor the credit risk of individual proposal. At the whole bank level,
credit rating system enables tracking the health of banks entire credit
portfolio. Most banks in India have put in place the system of internal credit
rating. While most of the banks have developed their own models, a few
banks have adopted credit rating models designed by rating agencies.

Early Warning Signals- It is important in any early warning system, to be

sensitive to signals of credit deterioration. A host of early warning signals
are used by different banks for identification of potential NPAs. Most banks
in India have laid down a series of operational, financial, transactional

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indicators that could serve to identify emerging problems in credit exposures

at an early stage. Further, it is revealed that the indicators which may trigger
early warning depend not only on default in payment of installment and
interest but also other factors such as deterioration in opening and financial
performance of the borrower, weakening industry characteristics, regulatory
changes, general economic conditions, etc. Early warning signals can be
classified into five broad categorizes viz.

(a) Financial
(b) Operational
(c) Banking.
(d) Management and
(e) External Factors.

2. Legal and Regulatory Regime

A. DEBT RECOVERY TRIBUNALS-

DRTs are set up under the Recovery of Debts due to Banks and
Financial Institution Act, 1993. Under the Act, two types of Tribunals were
set up i.e. Debt Recovery Tribunal (DRT) and Debt Recovery Appellate
Tribunal (DRAT). The DRTs are vested with competence to entertain cases
referred to them, by the banks and FIs for recovery of debts due to the same.
The order passed by a DRT is appeal able to the Appellate Tribunal but no
appeal shall be entertained by the DRAT unless the applicant deposits 75%

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of the amount due from him as determined by it. However, the Affiliate
Tribunal may, for reasons to be received in writing, waive or reduce the
amount of such deposit. Advances of Rs. 1 million and above can be settled
through DRT process. An important power conferred on the Tribunal is that
of making an interim order (whether by way of injunction or stay) against
the defendant to debar him from transferring, alienating or permission of the
Tribunal. This order can be passed even while the claim is pending. DRTs
are criticized in respect of recovery made considering the size of NPAs in
the country. In general, it is observed that the defendants approach the High
Country challenging the verdict of the Appellate Tribunal which leads to
further delays in recovery. Validity of the Act is often challenged in the
court which hinders the progress of the DRTs.

B. LOKADALATS-

The institution of Lokadalat constituted under the Legal Services

Authorities Act, 1987 helps in resolving disputes between the parties by
conciliation, mediation, compromise or amicable settlement. It is known for
effecting meditation and counseling between the parties and to reduce
burden on the court, especially for small loans. Several people of particular
localities/ various social organizations are approaching Lokadalats which are
generally presided over by two or three senior persons including retired
senior civil servants, defense personnel and judicial officers. They take up
cases which are suitable for settlement of debt for certain consideration.
Parties are heard and they explain their legal position. They are advised to
reach to some settlement due to social pressure of senior bureaucrats or
judicial officers or social workers. If the compromise is arrived at, the

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parties to the litigation sign a statement in presence of Lokadalats which is

expected to be filed in court to obtain a consent decree. Normally, if such
settlement contains a clause that if the compromise is not adhered to by the
parties, the suits pending in the court will proceed in accordance with the
law and parties will have a right to get the decree from the court. In general,
it is observed that banks do not get the full advantage of the Lokadalats. It
is difficult to collect the concerned borrowers willing to go in for
compromise on the day when the Lokadalat meets. In any case, se should
continue our efforts to seek the help of the Lokadalat.

C. ENACTMENT OF SRFAESI ACT-

“The securitization and Reconstruction of Financial Assets and

Enforcement of Security Interest Act” (SRFAESI) provides the formal legal
basis and regulatory framework for setting up Asset Reconstruction
Companies (ARCs) in India. In addition to asset reconstruction and ARCs,
the Act deals with following largely aspects,

 Securitization and Securitization Companies

 Enforcement of security Interest
 Creation of a central registry in which all securitization and asset
reconstruction transactions as well as any creation of security interests
has to be filed.

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D. INSTITUTION OF CDR MECHANISM-

The RBI has instituted the Corporate Debt Restructuring (CDR)

mechanism for resolution of NPAs of viable entities facing financial
difficulties. The CDR mechanism instituted in India is broadly along the
lines of similar in the UK, and Thailand, Korea and Malaysia. The objective
of the CDR mechanism has been to ensure timely and transparent
restructuring of corporate debt outside the purview of the Board for
Industrial and Financial Reconstruction (BIFR), DRTs or other legal
proceedings. The framework is intended to preserve viable corporate
affected by certain internal/ external factors and minimize losses to
creditors/ other stakeholders through an orderly and coordinated
restructuring programme. RBI has issued revised guidelines in February
2003 with to the CDR mechanism. Corporate borrowers with borrowings
are eligible under the CDR mechanism. Accounts falling under standard,
sub-standard or doubtful categories can be considered for restructuring.
CDR is a non-statutory mechanism based on debtor obligations for bankers
with the cash flow projections as reassessed at the time of restructuring.
Therefore it is critical to prepare a restructuring plan on the lines of the
expected business plan along with projected cash flows.

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E. COMPROMISE SETTLEMENT SCHEMES

One Time Settlement Schemes

NPAs in all sectors, which have become doubtful as on 31st march

2000. The scheme also covers NPAs classified as sub-standard as on 31st
march 2000, which have subsequently become doubtful or loss. All cases
on which banks have initiated action under the SRFAESI Act and also cases
pending before Courts/DRTs/BIFR, subject to consent decree being
obtained from the Courts/DRTs/BIFR are covered. However cases of
willful default, fraud and malfeasance are not covered. As per the OTS
scheme, for NPAs up to Rs. 10 Crores, the minimum amount that should be
recovered should be 100% of the outstanding balance in the account.

Negotiated Settlement Schemes

The RBI/Government has been encouraging banks to design and

implement policies for negotiated settlements, particularly for old and
unresolved NPAs. The broad framework for such settlements was put in the
place in July 1995. Specific guidelines were issued in May 1999 to public
sector banks for one-time settlements of NPAs of small scale sector. This
scheme was valid until September 2000 and enabled banks to recover Rs.
6.7 billion form various accounts. Revised guidelines were issued in July

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2000 for recovery of NPAs of Rs. 50 million and less. These guidelines
were effective until June 2001 and helped banks recover Rs. 26 billion.

F. INCREASED POWERS TO NCLTs AND THE PROPOSED REPEAL OF

BIFR-

In India, companies whose net worth has been wiped out on account
of accumulated losses come under the purview of the Sick Industrial
Companies Act (SICA) and need to be referred to BIFR, once a company is
referred to the BIFR (and even if an enquiry is pending as to whether it
should be admitted to BIFR), it is afforded protection against recovery
proceedings from its creditors. BIFR is widely regarded as a stumbling
block in recovering value for NPAs. Promoters systemically take refuge in
SICA – often there is a scramble to tile a reference in BIFR so as to obtain
protection from debt recovery proceedings. The recent amendments to the
Companies Act vest powers for revival and rehabilitation of companies with
the National Company Law Tribunal (NCLT), in place of BIFR, with
modifications to address weakness experienced under the SICA provisions.
The NCLT would prepare a scheme for reconstruction of any sick company
and there is no bar on the lending institution of legal proceedings against
such company whilst the scheme is being prepared by the NCLT.
Therefore, proceedings initiated by any creditor seeking to recover monies
from a sick company would not be suspended by a reference to the NCLT
and, therefore, the above provision of the Act may not have much relevance
any longer and probably does not extend to the tribunal for this reason.
However, there is a possibility of conflict between the activities that may be

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undertaken by the ARC, e.g. change in management, and the role of the
NCLT in restructuring sick companies.

G. CREDIT INFORMATION BREAU (INDIA) LTD. (CIBIL)

Taking cognizance of the utility of an effective institutional

mechanism for sharing of information on borrowers/potential by banks,
CIBIL was set up in 2001. Banks were advised to go for parallel reporting of
data on suit filed accounts to both the RBI and CIBIL upto march 31, 2003
and switch over such reporting t the CIBIL effective from April 1, 2003.

Banks have been urged to make persistent efforts in obtaining consent

form all their borrowers in order to establish an efficient credit information
system which would help in enhancing the quality of credit decisions and
improving the asset quality of banks, apart from facilitating faster credit
deliver. Further, with a view to strengthening the legal mechanism and
facilitating credit information on borrowers of bank/FIs, a draft credit
information companies Regulation Bill, 2004 covering registration,
responsibilities of the bureaus, rights and obligations of the credit
institutions and safeguarding of privacy rights is under active consideration
of the Government.

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ANALYSIS AND INTERPRETATION OF DATA

The study was done in Branch Patna of the Bihar State Co-Operative Bank
Ltd. Mainly to know about the ‘Non-Performing Assets’ and the measure
taken by the bank as whole and the steps taken by bank in reducing the level
of Non-Performing Assets.
Now a days Non-Performing Assets in banking industry has become a
key factor and paramount thrust is given by banks to reduce Non-
Performing Assets to the maximum extent possible around which all other
business parameters revolves.
The Non-Performing Assets is the subject matter to be dealt
exclusively by the management of the bank at all levels. Now it has become
prime duty of every bank manager to see that the advance accounts does not
go out of order. A proper follow up of all advance accounts, following the
prudential norms for NPA and Asset Classification and follow up of
instructions meticulously contained in the circular released from Head
Office.
The data was collected form the different types of advance accounts
with consultation with senior Manager. The data was collected from the
monthly, quarterly, half yearly and annual statements submitted by bank to
its head office.
The bank has a prudent approach to the valuation of its assets and is
focusing on bringing down the level of NPA. The level of NPA has been
engaging the Bank’s close attention, although these are within manageable
limits.

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Financial Position:

financial position of the bank for the last eight years is given below.

Bihar State Co-operative Bank Ltd., Patna - 4

Financial Data
(Rs. In Lakh)
S.N. Particulars 31.03.2003 31.03.2004 31.03.2005 31.03.2006 31.03.2007 31.03.2008 31.03.2009 31.03.2010
1 Share Capital 2030.98 1861.61 1809.52 1829.12 1829.12 1838.26 1870.81 1881.08
2 Reserves 24475.52 19500.61 17113.50 15466.95 22817.02 30848.85 3865.91 5415.42
3 Provisions 8438.20 5431.64 3677.35 2914.72 4051.07 3533.31 30745.36 32956.49
4 Undisbursed Profit 0.00 1702.43 8543.27 13621.17 8661.35 3232.15 3207.15 0.00
5 Owned Fund 25685.71 28496.29 31143.64 33831.96 37358.56 39452.57 39689.23 40252.99

Owned Fund as per Revised Not Not

6 Defination Applicable Applicable 15251.72 20434.76 14837.83 13316.91
7 Deposit 73033.46 75136.17 93917.81 77540.27 89960.77 83801.89 115905.59 150569.73
8 Borrowings 10159.12 6923.23 10904.77 5177.33 2902.78 5294.62 6239.38 11874.36
9 Other Liabilities 11920.07 10532.82 11727.84 19866.02 27404.42 12430.04
10 Working Fund 130057.35 121088.51 147694.06 122794.36 144914.11 140578.80 177550.30 222979.86
11 Cash & Bank Balance 3268.10 4557.71 10398.09 5793.78 9099.84 7473.48
12 Investment 50621.35 52492.87 68947.09 52762.13 61125.34 52302.93 86769.41 132406.72
13 Loans & Advances O/S 54004.95 48997.61 56236.88 54080.02 62829.61 69294.77 61479.29 64157.08
14 Accumulated Loss 9258.99 ___ ___ ___ ___ ___ ___ ___
15 Other Assets 12903.96 15040.32 12112.00 10158.43 11859.69 11507.62
16 Profit during the year 126.07 11401.96 6840.84 5077.90 637.47 2594.67 1220.02 2896.48
17 Loan issued (Total) 12937.06 19141.96 28946.64 25113.27 23750.69 17774.30
(i) Agriculture 8491.00 13062.59 22680.34 12149.20 14705.40 17774.30
(ii) Non-Agriculture at H.O. 29.71 80.47 35.95 10042.87 5597.29 1500.00
(iii) Non-Agriculture at
Branches 4416.35 5998.90 6230.35 2921.20 3448.00 0.00

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1. Reserve:

The Reserve which was at Rs. 3865.91(lacs) as on 31.03.2009. It was

increased by Rs. 1549.51 & reached upto 5415.42 as on 31.03.2010. This
increase was due to shifting of undistributed profit i.e. 3207.15(lacs) as on
31.03.2009. Now some portions of undistributed profit was shifted in
Reserves and rest of fund used on other activity. Now as on 31.03.2010
undistributed profit is nil.

2. Deposit:

The deposit of bank which was at Rs. 115905.59(lacs) as on

31.03.2009 it was increased and reached upto 150569.73 as on 31.03.2010.
This increase reflects a good sign of the management of the BSCB.

3. Borrowings:

The borrowings of the bank which was at Rs. 6239.38(lacs) as on

31.03.2009 it was increased and reached upto 11874.36 as on 31.03.2010.
The above increase was due to increase in the borrowing from NABARD.

4. Working Fund:

The working fund of the bank which was at Rs.177550.30 as on

31.03.2009 it was increased and reached upto 222979.86 as on 31.03.2010.
This increase is due to increase in borrowings.

5. Net Worth:

Net Worth of the bank as on 31.03.2009 is Rs. 155915016238 it is

increased and reached upto Rs. 1965333837.54 as on 31.03.2010. It shows
strong financial position of the bank.

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 PATNA UNIVERSITY

BALANCE SHEET DETAILS-

The Bihar State Co-operative Bank Ltd.,Ashok Rajpath, Patna

BALANCE SHEET AS ON 31st March. 2010

As on
31.03.2010 As on
CAPITAL & LIABILITIES Schedule (Current Year) 31.03.2009
No. Amount (Rs.) Amount (Rs.)
Capital 1 188107650.00 187080650.00
Reserve and Surplus 2 1777226187.54 1372069512.38
Deposits 3 15056973138.11 11590558999.43
Borrowings 4 1187436494.76 613938133.81
Other Liabilities and provision 5 4088242058.80 3991382740.31
Total (Rs.) 22297985529.21 17755030035.93
ASSETS
Cash and balance with Reserve Bank of
India 6 628329688.37 863969297.27
Balance with Banks and money at call and
short notice 7 10231758691.73 6670600019.37
Investments 8 3556930100.00 2684199100.00
Advances 9 6415708101.66 6147929368.62
Fixed Assets 10 636919545.79 638393702.48
Other Assets 11 828339401.66 749938548.19
Total (Rs.) 22297985529.21 17755030035.93

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BALANCE SHEET DETAILS:

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 The Bihar State Cooperative Bank Ltd.,Ashok Raj Path,Patna
PATNA UNIVERSITY
SCHEDULE 1
Capital

As on
31.03.2010 As on
(Current Year) 31.03.2009
Amount (Rs.) Amount (Rs.)
Share Capital
Authrised Capital of 2000000 shares of
Rs.500/=each 1000000000.00 1000000000.00

Subscribed Share Capital of Rs.500/= each

(a) Central Cooperative Banks 128619550.00 127592550.00
(b) Cooperative Societies 11688100.00 11688100.00
(c) State Government 47800000.00 47800000.00
Total :- 188107650.00 187080650.00

SCHEDULE 2
Reserve & Surplus

As on
31.03.2010 As on
(Current Year) 31.03.2009
Amount (Rs.) Amount (Rs.)
i Statutory Reserve 541541867.53 386591064.23
ii Agriculture Credit Stablisation Fund 463126230.75 385163828.75
iii Building Fund 51754871.46 38754871.46
iv Bad & Doubtful Debt Reserve 265501785.80 201801632.14
v Investment Depreciation Fund 51827527.50 44827527.50
vi Capital Redemption Fund 39900.00 39900.00
vii Staff Benefit Fund 15707938.27 15707938.27
viii Administrative Fund Reserve 378060.85 378060.85
ix Risk Fund 900000.00 900000.00
x Building Depreciation Fund 18286367.68 18286367.68
xi Fund for Contigency Interest 3320935.17 3320935.17
xii Reserve for Contigency Expenditure 51113010.55 51113010.55
xiii Development Fund 5300000.00 5300000.00
xiv Capital Reserve Fund 59406716.78 59406716.78
xv Cooperative Education Development Fund 124510487.60 80238829.50
xvi Equity Redemption Fund 124510487.60 80238829.50
Total :- 1777226187.54 1372069512.38

SCHEDULE 3
Deposits

As on
72 31.03.2010 As on
(Current Year) 31.03.2009
Amount (Rs.) Amount (Rs.)
PATNA UNIVERSITY

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 PATNA UNIVERSITY

CONCLUSION

With the introduction of strict prudential norms for income

recognition asset classification and provisioning in the Banking industry
based on the recommendations of the committee on Financial System the
chairmanship of Shri M Narasimham, the profitability of the banks came
under heavy pressure. The transparency in balance sheet started exposing
the real health of the banks. Even the entire worth of some of the leading
public sector banks was eroded. Banks were forced to redefine its priorities
and fine tune the mechanism of asset management.
In the end of the financial year the focus is on the performance of the
Banking Industry. In the recent years Banking Industry as a whole have
undergone huge changes. The Banking Industry is now passing thorough a
complex situation which is created out of the changes in the policy outlook
of the monetary authorities, Central Government and the presence of
multinationals.
Since the launch of the banking sector reforms, the ration of none
performing of advances as a percentage to total advances of the public sector
banks has come down from 27% in 1990-91 to 21% in 1994-95. The level
of Non Performing Assets in the Co-Operative Banks Ltd has been engaging
the close attention, although these are within the manageable limits. As on

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31st March, 1997 net Non-Performing Assets constituted. As on 31st march,

1997 net Non-Performing Assets continued 4.87 of the net credit portfolio
slightly higher than the 3.94 a year conduct party because of various
external

factors impacting on the performance and financial health of he borrowers

concerned.
Though the level of Non-Performing Asset in the Bihar state Co-
Operative Bank is much below the industry level and within the prescribed
limit the trend in the recent past is quite perturbing.
Unless the bank takes effective measure for containing the NPAs within the
tolerable limits, the bank have to present a dismal performance in the near
future. It is high time that the bank have a proper strategies and action plans
for better asset management. The problem loans are to be properly tackled
and the level of NPAs brought down to the barest minimum level possible.

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SUGGESTION

Certain facts gleaned from the findings of the survey may prove to be
effective if properly implemented in improving the profitability of the Co-
Operative Bank Limited. Though the level of Non-Performing Assets in the
C0-Operative Bank is within the prescribed limit but the percentage of NPA
to total advance of the Branch Patna is very much on higher side.
The regulatory framework governing the operations of the bank is
undergoing significant changes. Only those banks with sustained
profitability records, capital adequacy of 8% and over and with low Non-
Performing level will be allowed greater freedom of operation.
The profitability should be the main concern of all banks around
which all other business parameters should revolve. The pricing of liability
has to keep in sharp focus the asset creation at acceptable spreads. Thus
asset management will be one of the major planks of our device towards
sustaining profitability. Quality of assets is one of the biggest challenges
that would continue to hurt the banks in the near terms.
Paramount thrust should be give to reduce the non-performing assets
to the maximum extent possible thereby augmenting profitability and

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eagling recycling of funds. The following strategies are suggested for better
results in the management of NON PERFORMING ASSETS:-

1. PROBABLE NPA ACCOUNTS-

The accounts which escaped NPA status as on last balance sheet date
but showing symptoms of sickness are to be short-listed and branded as
probable NPAs. It should ensured that adequate recovery is made in all such
accounts so that they will not cross over to NAP and this is possible only by
constant vigil on all advances accounts by a regular system of review of all
advances accounts at the branch level and remodel taken if deficiencies are
noted in the quality of assets.

2. RESCHEDULING OF LIMITS-
It should be ensured that adequate cushion period is sought
for/granted at the time of forwarding/sanctioning advance proposal by
looking at the various parameters of the proposal and suggest suitable
cushion period. It is felt that there will be time over run in project
implementation; immediate steps are to be taken for rescheduling the
repayment programme and moratorium period suggested for servicing the
interest.

3. BORROWS WITH MULTIPLE LIMITS-

If any one limit out of the multiple credit facilities enjoyed by the
borrower becomes NPA, all the other performing assets are also classified as

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NPA. Therefore, more vigilant is required to see that all the accounts are
kept performing.

4. PROPER ASSET CLASSIFICATION-

Classifying the assets appropriately is another thrust area in NPA
management. A proper understanding of the norms is essential in managing
NPAs. Any mistakes in the recognizing the date will result in wrong
creation of provision and non recognition of revenue.

5. WRONG VALUATION OF SECURITY-

Any laxity in keeping the updated records on valuation of securities
both primary and collateral will force the bank to make higher provisions
and can result in avoidable strain on the profitability of the bank. To keep
the record up to date the following guidelines must be followed:-

 Ostentation of stock statements of regular intervals and record the

realizable value and if the same is not submitted unit inspection has to
be conducted and value is to be recorded.
 Revalue immovable properties offered as collateral securities once in
three years.
 Apportionment of value of common collateral securities among all
limits on prorate basis in case of multiple limits.
 Securities should be insured for the full value.

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6. RECOVERY MANAGEMENT-
Recovery of overdue installments and interest will have direct impact
on the profitability of the bank. The recovery management of NPAs to the
find tuned to ensure better results strategic recovery drivers.

7. REVIEW/RENEWWAL OF ACCOUNTS-
Timely review/renewal of advance accounts will help us to prevent
the accounts turning into NPA.

8. Suits and executing of decrees are to be pursued expeditiously and

negotiated settlements arrived at in deserving cases within the framework
of the guidelines prescribed by Reserve Bank of India.

9. With a view to motivate its employees in recoveries and management of

Non-Performing Assets the bank should formulate schemes for award of
cash prizes, certificates of merits and trophies to branches showing
outstanding performing this respect.

10. Management of Non-Performing Assets should become one of the key

performance areas in the performance appraisal of officials of the banks.

Recovery of NPA ought to be foremost in the mind of the

functionaries while striving to recover NPAs every effort must be made to
prevent account from turning into NPA. All would well to remember the

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age old proverb, “prevention is better than cure” which is as relevant in

the matter of NPAs as anywhere else.

BIBLIOGRAPHY

i. BIHAR STATE CO-OPERATIVE BANK ANNUAL REPORT

ii. BSCB JOURNALS
iii. BOOKS
 MANAGEMENT OF INDIAN FINANCIAL INSTITUTION,
SRIVASTAVA R.M & NIGAM DIVYA, 10TH EDITION,2010, HIMALYA
PUBLISHING HOUSE, GURGAON MUMBAI
 FINANCIA INSTITUTION AND MARKETS, BHOLE L.M, 5TH
EDITION,2009, TATA Mc GRAW- HILLS,7 WEST PATEL NAGAR,
NEW DELHI
iv. WEBSITE
 www.biharbank.bih.nic.in
 www.rbi.gov.in
 www.google.com

v. NEWSPAPER

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