NPA STUDY AT DISTRICT CO-OPERATIVE BANK KOTTAYAM
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The banking regulation Act 1949 defines the term banking as “Accepting for the purpose of lending or investment of deposits of money from the public, payable on demand or otherwise and withdrawal by cheque, draft, order or otherwise”
From the above definition infer that the essential functions of banks are borrowing and lending of money. Borrowing is done by accepting deposits and lending is done by providing loans and advances.
Lending of funds to the traders, business and individual enterprises constitute the main business of banking. The major portion of bank’s funds is employed by way of loans and advances which is the most profitable employments of funds. The major part of the banks income is earned from interest of loans. The business of lending, nevertheless, is not without certain inherent risks.
The major risk factor lies in non-repayment of loans. The bank incurs heavy losses due to the non repayment of principal and interest.
A non-performing asset is a credit facility for which instalment of principle remains outstanding for a period of 90 days after the due date. For instance if the due date of payment of interest/principal is 31st March, then: loan becomes past dues as on 30th April and to be treated as NPA on 29 June 2009.
NATURE OF NON-PERFORMING ASSETS
The term non-performing assets can be defined both in the wider and in the narrower sense. While in the narrow sense it includes only non-performing credit portfolio, in the wider sense it may also include the volume of unutilized cash balances, unutilized or underutilized physical assets like buildings and premises in the still wider sense, it may also include non-performing human resources – a large volume of workforce not effectively unutilized. A non-performing asset in the banking sector also is termed as an asset not contributing to the income of the Bank. In other words they are the zero yielding assets that are considered. The non-performing assets, interalia, includes surplus cash and bankers balances hold over the optimal levels, amounts lying in the suspense account, investments in shares or debentures and other securities not yielding any dividend or interest, advances where interest is not forthcoming and even the principal amount is difficult to recover. In terms of Health code basis, we may say that advances classified under the Health Code Numbers 6,7,8 and those advances under the Health Code Numbers 4,5 on which no interest is being charged, may be classified among non-performing assets.
REASONS FOR ACCUMULATION OF NON-PERFORMING ASSETS
There may be various internal and external factors behind the transformation of an asset from a performing one to a non-performing one. Some of the reasons for accumulation of the non-performing assets are: The fast and rapid geographical expansion of the banking sector during a short span, throughout the country, and our inability to cope with the voluminous work in an orderly manner. Lack of adequate care while appraising the various proposals in the initial stage. Inadequacy of the technical staff equipped with the latest market information and the technological developments is also an important factor in faulty appraisal of proposals. In case of most of the large and medium scale industries, the main reason for sickness has been found to be mismanagement. Power shortages, outdated machinery, fluctuations in supply of raw materials due to various causes, non-release of subsidy in time and deficiency in demand are also important reasons. Small scale industries are prone to sickness mainly due to lack of managerial experience, technical incompetence and decline in demand for their products and overall demand recession. Further cases are not unknown where deliberate efforts are made by a certain category of borrowers to declare their units sick, or weak to avail of benefits from different sources.
STATEMENT OF THE PROBLEM
The study entitled “A STUDY ON NON PERFORMING ASSETS OF DISTRICT CO OPERATIVE BANK, KOTTAYAM.” , is an attempt to evaluate the non performing asset, in order to evaluate statistical tools like correlation and trend analysis. Correlation indicates the strength and linear relationship between two random variables, Trend analysis is a tool used to predict the future events and also used to estimate uncertain events in the past.
REVIEW OF LITERATURE
The article taken for reference from this magazine and the article is named “Short term pains, long-term gain” on Pg.-4. It discusses about the rising NPAs, increase in provision coverage, sluggish credit offtake and dwindling treasury income. It states that these measures are going to set ways for better valuations. It tells about how the BSE Bankex has outperformed the BSE Sensex by recording robust returns of 174%. It discusses about various banks namely Bank of India, Union Bank of India, State Bank of India, Bank of Baroda, Punjab National Bank and IndusInd Bank have reached their all time high during Oct. – Nov. 2009 period. It discusses about the preparedness of various banks for reducing NPAs i.e. by improving capital adequacy ratio, increasing the minimum provision coverage ratio, introducing new policies for broader interest rate regime, creating more transparent system and extending banking reach. It also discusses about the benchmark prime lending rate (BPLR) concept of RBI which helps to ensure appropriate pricing of loans.
PUBLIC SECTOR BANKS
A sort of banking revolution was unleashed with the nationalization of major banks in our country. As consequences 85 percentage of the banking came into public sector and 15 percentages remained in the private sector. At the time of independence, there were 96 scheduled commercial banks and 544 small non-scheduled banks. Commercial bank has a number of branches in urban, semi-urban, rural areas etc. In recent years in India, around 73 percentage of the banking faculties have been expended in rural and semi-urban areas. Therefore the Public Sector Banks have a wide network of communication due to the more number of branches. Among the Public Sector Holdings, the SBI and its subsidiaries constitute the largest chain of bank branches and nearly 1/3rd of the total deposits.
There is a lot of scope for automation of banking industry in Public Sector Banks Nearly 70 percentages of the branches will be computerized till the end of this calendar year. This is done in order to implement some of the credit policy that will require elaborate credit planning with the aid of computers.
Economically, it raises hopes or millions of small enterprises, agriculturists and traders to contribute their share to the economy. In the area of social ides, it reflects a decisive shift to provide better living conditions of the people by assisting housing, schools, colleges, hospitals etc. in big way. To co-ordinate the activities of the banks in the public Sector a National Banking Corporation has to be established with its Head Office at Delhi and entrusted with the tasks of research, training executives, planning, inspection, policy making etc. The Corporation in due course of time may establish specialized banking institutions to finance priority sector in the economy. In financing the priority sector, the nationalized banks attach more importance to viability of the project instead of security.
INDIAN OVERSEAS BANK
Indian overseas Bank (IOB) was founded on February 10th 1937, by Shri. M. Chidambaram Chettyar, a pioneer in many fields – Banking Insurance and Industry with the twin objective of specializing in foreign exchange business and overseas banking.
IOB had the unique distinction of commencing business on 10th February 1937 in three branches simultaneously – at Karaikudi Chennai in India and Rangoon in Burma.At the dawn of independence IOB had 38 branches in India and 7 branches abroad.
During the period, IOB expended its domestic activities and enlarged it International Banking operations. As early in 1957, the bank established a training centre which has now grown into a Staff College at Chennai with 9 training centres all over the country.IOB was one of the major banks that were nationalized in 1969
PUNJAB NATIONAL BANK (PNB)
With its presence virtually in all the important centres of the county, Punjab National Bank offers a wide variety of banking services which include corporate and personal banking services which include corporate and personal banking industrial finance, agricultural finance, financing of trade and international banking.
Punjab National Bank is serving over 3 crores customs through 4062 branches and 447 extension counters – largest among Nationalized Banks. PNB’s attempts at providing best customer service has entered in 9 the place among India’s most trusted top 50 Service Brands in Economic Times – A.C. Nielson Survey. PNB is also ranked 368 amongst the top 1000 banks in the world according to “The Banker London.
PRIVATE SECTOR BANKS
Sound and vibrant financial system of a nation is a moving force towards the economic development. There is paradigm shift from restriction to competition and various private sector banks have entered into the fray due to deregulation of the entry norms. This has pumped in enormous amount of competition. Financial markets has witnessed a rapid growth during the post reform period due to emergence of new institutions, and diversified activities. Acquisitions and mergers have made the markets highly competitive. The private sector banks appeared to have declared better financial results than the bigger banks; facing the interest boldly they have tried to retain their customers by offering competitive rates on common loans. The completion from the foreign banks operating in the state capital has been indeed formidable for these smaller banks. Despite the absence of the level playing field the other banks could earn larger profit during the year 2002. The private sector banks concentrate more on Internet and E-commerce, expansion and modernization; some are focusing on mergers and acquisitions for their growth. The stock market was also enthusiastic about these banks. However the initial euphoria gave a way to growth pangs. Non performing Assets piled up, profitability slipped and growth seemed to elude the rest of banks. Size was the advantage of new private sector banks. They are able to grow faster by capturing market shares from public sector banking behemoth. The focus rightly turns to strategies for achieving rapid growth.