Chapter 1: Introduction of Project

1.1 Introduction of Topic

Non-performing Assets

The three letters “NPA” Strike terror in banking sector and business circle today. NPA is

short form of “Non Performing Asset”. The dreaded NPA rule says simply this: when interest

or other due to a bank remains unpaid for more than 90 days, the entire bank loan

automatically turns a non performing asset. The recovery of loan has always been problem

for banks and financial institution. To come out of these first we need to think is it possible to

avoid NPA, no cannot be then left is to look after the factor responsible for it and managing

those factors.

MEANING:-

An asset that ceases to generate income for the bank is called Non-Performing Asset.

NPA are advances that have ceased to perform. An advance asset will cease to be a

Performing asset and will be deemed to have become a “Non-Performing” asset when there is

A default in the payment of interest amounts, which are debited to the advance

account.

A default in the repayment of the installments pertaining to the principal amount of

the advance.

DEFINITION OF NPA :

“Non Performing Asset means an asset or account of borrower, which has been

classified by a bank or financial institution as sub-standard, doubtful or loss asset, in

accordance with the directions or guidelines relating to asset classification issued by

RBI.”

An asset, including a leased asset, becomes non-performing when it ceases to generate

income for the bank.

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A ‘non-performing asset’ (NPA) was defined as a credit facility in respect of which the

interest and/ or instalment of principal has remained ‘past due’ for a specified period of time.

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; interest and /or

installment of principal remain overdue for a period of more than 90 days in respect of a

Term Loan, the account remains 'out of order' for a period of more than 90 days, in respect of

an overdraft/ cash Credit(OD/CC), the bill remains overdue for a period of more than 90 days

in the case of bills purchased and discounted, 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 any amount to be received remains overdue

for a period of more than 90 days in respect of other accounts.

1.2 Significance of Project

The outcomes analyzed from this study would be beneficial to various sections such as:

Banks: This study would definitely benefit the banks in a way that directs them as to which sector should be given priority for lending money.

Further Researchers: The major beneficiaries from the project would be the researchers themselves as this study would enhance their knowledge about the topic. They get an insight of the present scenario of this industry as this is the emerging industry in the financial sector of the economy.

Student: To get the understanding of NPA concept as a whole.

1.3 Rationale/ Reason behind the Project

1. Study the concept of Non-Performing Assets.

2. To study Classification of the asset in NPA.

3. To study rates of NPA provision according to classification of the asset.

4. To study various rules and policies, guidelines issued by RBI.

5. To understand various account statements we have to prepare in the NPA account.

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1.4 Scope of the project

The term NPA connotes a financial asset of a bank, which has stopped earning an

expected reasonable return; it is also a reflection 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.

Scope of NPAs deals with two sets of policies

1. Relating to existing NPAs.

2. To reduce fresh NPA generation.

As far as old NPAs are concerned, a bank can remove it on its own or sell the assets to

AMCs to clean up its balance sheet. For preventing fresh NPAs, the bank itself should

adopt proper policies.

Chapter 2: Research Methodology

2.1 Objectives of the Study

To study general reason for asset becoming NPAs.

To highlight effective NPA Management Policies.

To make the suggestion to overcome the problem of regarding the NPAs.

To evaluate profitability positions of banks

To Know the Impact of NPAs

To Know the Reasons for NPAs

To determine the factors affecting NPA

2.2 Research Design

The research design that will be use is Descriptive Research.

Involves gathering data that describe events and then organizes, tabulates, depicts, and

describes the data.

Uses description as a tool to organize data into patterns that emerge during analysis.

Often uses visual aids such as graphs and charts to aid the reader.

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2.3 Sample Design

Bank of Maharashtra Koradi Branch.

2.4Tools & techniques for data collection

Here both primary as well as secondary data would be used.

1. PRIMARY DATA 

Interview of Bankers.

2. SECONDARY DATA- 

Annual report

Books

Internet

2.5 Limitation of the study

The study is based on the Master Circular issued by the RBI.

The study is only for the academic purpose.

It was critical for me to gather the financial data of Maharashtra Bank.

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Chapter 3:Chapterization

Ch.1 Introduction

INDIAN BANKING INDUSTRY:

Banking in India originated in the last decades of the 18th century. The oldest bank in

existence in India is the State Bank of India, a government-owned bank that traces its origins

back to June 1806 and that is the largest commercial bank in the country. Central banking is

the responsibility of the Reserve Bank of India, which in 1935 formally took over these

responsibilities from the then Imperial Bank of India, relegating it to commercial banking

functions. After India's independence in 1947, the Reserve Bank was nationalized and given

broader powers. In 1969 the government nationalized the 14 largest commercial banks; the

government nationalized the six next largest in 1980.

Since the dawn of independence, Indian financial sector in general and banking in particular

has leaped giant strides into a systematized growth environment. Indian Banks have

consolidated their growth year after year. Measures like setting up of Reserve Bank of India

as the regulator, bank nationalization and other reforms have worked as catalyst in the

development drive. There was always a need to have regulated, uniform and prudent

accounting policies for the banks with special reference to the credit risk involved in lending

activities so that the significant growth in the business volumes of banks was ably supported

by a well set regulatory norms.

Currently, India has 169 scheduled commercial banks (SCBs) - 28 public sector banks (that is

with the Government of India holding a stake), 31 private banks (these do not have

government stake; they may be publicly listed and traded on stock exchanges) and 43 foreign

banks. They have a combined network of over 53,000 branches and 17,000 ATMs.

According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75

percent of total assets of the banking industry, with the private and foreign banks holding

18.2% and 6.5% respectively.

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BANK:

A bank is an institution that accepts deposits of money from the public, withdrawal by

cheque, and uses the money collected for lending to the household, the firm and the

government. An organization, usually a corporation, chartered by a state or federal

government, which does most or all of the following: receives demand deposits and time

deposits, honors instruments drawn on them, and pays interest on them; discounts notes,

makes loans, and invests in securities; collects checks, drafts, and notes; certifies depositor's

checks; and issues drafts and cashier's checks.

INDIAN BANKING REGULATION ACT, 1949 define the activity of the bank as:

“accepting for the purpose of lending or investing of deposits of money from the

public repayable on demand or otherwise, and withdrawal by cheque, draft and

order or otherwise.”

Following are the three important features of this definition of commercial bank:

1. Essential function of a bank is that it accepts chequeable deposits from the public.

Bank accepts deposits from the public at large. Moreover these deposits are repayable

on the demand and withdrawal is allowed by cheque.

2. The second essential function of a bank is that the bank uses these deposits for

lending to other and undertaking investment in securities.

3. Creation of money is a unique characteristic of commercial bank. Their debts

circulate as money in the economy. Banks have the power to create and destroy through

their lending activities. Money created by commercial bank is known as “Bank

Money.”

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Ch.2 Research Methodology

Research Methodology

Research Methodology is the systematic design, collection, analysis & reporting of data &

findings, relevant to appraisal specific situation facing the company. The Research was an

exploratory type, which aims at finding the true potential of the organization and also a

qualitative analysis regarding the Recovery Performance of NPA of a Nagpur City Region of

Bank of Maharashtra.

Type of Research

Exploratory / Formulative Research:

Exploratory research is a preliminary study of the subject matter. It aims to delve into the

nuances of the problem. It is usually a preliminary study and is followed by descriptive,

experimental research. It does not have a formal and rigid design as the researcher may have

to change his focus or direction, depending on the availability of new ideas and relationships

among variables. It attempts to see what is there, rather than trying to predict the underlying

relationships. An exploratory study usually involves three steps- a review of pertinent

literature, an experience survey, and an analysis of insight stimulating cases.

Learning the Theoretical aspects:

Various data on Non-Performing Assets have been collected from Bank of Maharashtra and

the theoretical aspects have been understood.

Analyzing the Data:-

The data of Recovery Performance of Nagpur City Region of Bank of Maharashtra was

collected and analyzed with various Graphs. With the help of Annual Report of the Bank of

Maharashtra and figures made available for Nagpur City Region the present NPA of the

Nagpur City Region are studied and analysis has been made in the project. On the basis of

that analysis some Findings and Suggestions are given at the end of the project.

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Ch.3 Company Profile

Bank of Maharashtra, established on 16th September, 1935, with an authorized capital of Rs

10.00 lakh. It is a Public Sector Bank. It came into commencement on 8 th February 1936.

First branch was opened at Bajirao Road, Pune, on 6th February, 1936. Thereafter it was

shifted to new corporate office at LOKMANGAL, Shivaji Nagar, Pune in 1978. At today’s

date Bank of Maharashtra has 1589 Branches and 13 extension counter spread over 22 States

and 2 Union territories. The Bank of Maharashtra has a network of 502 ATM’s with VISA

connectivity.

Bank of Maharashtra provides facilities in area like Agriculture High Tech, Overseas,

Industrial financing, V Sat facility, Remote access, Query terminal, Tele banking facility and

ATM, etc. Bank of Maharashtra also provides banking and other financial services to

corporate and private customers. The Bank offers personal banking, cash management, retail

loans and other financial services. These services include deposits, savings/current bank

account, vehicle loans, personal loans, retail trade finance, global banking, lending to priority

sector and small scale sector, foreign exchange and export finance, corporate loans and

equipment loans. Bank of Maharashtra has full-fledged Training College, Information

Technology Training Institute and Staff Training Centers.

The objectives behind establishing Bank of Maharashtra were to mobilize the savings of

household and extend financial support to persons of small means who were then not

considered for credit facilities by banks. In a nutshell, the philosophy of founder fathers of

the Bank was something more than what has been emphasized about the role of Public Sector

Banks in the economic upliftment of rural poor and neglected segments of the society.

The bank has fine tuned its services to cater to the needs of the common man and

incorporated the latest technology in banking offering a variety of customized services. The

Aim for Bank is to cater to all types of needs of the entire family, in the whole country. Its

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dream is "One Family, One Bank, Maharashtra Bank". The 3 M’s of the Bank are,

Mobilization of Money, Modernization of Methods and Motivation of Staff.

Vision

To be a vibrant, forward looking, techno-savvy, customer centric bank serving diverse sections of the society, enhancing shareholders’ and employees’ value while moving towards global presence.

Mission

To ensure quick and efficient response to customer expectations.

To innovate products and services to cater to diverse sections of society.

To adopt latest technology on a continuous basis.

To build proactive, professional and involved workforce.

To enhance the shareholders’ wealth through best practices and corporate governance.

To enter international arena through branch network.

To be a vibrant, forward looking, techno-savvy, customer centric bank serving diverse sections of the society, enhancing shareholders' and employees' value while moving towards global presence.

Our Logo

The Deepmal

With its many lights rising to greater heights.

The Pillar

Our institution- Symbolising strength.

The Diyas

Our Branches- Symbolising service.

The 3 M's symbolising

Mobilisation of Money

Modernisation of Methods and

Motivation of Staff.

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Philosophy:

TECHNOLOGY WITH PERSONAL TOUCH

(It is this philosophy that enables Bank of Maharashtra to reach out to its customers and cater

to the needs of the classes and masses.)

AIM:

The bank wishes to cater all types of needs of the entire family, in the whole country. Its

motto is “One Family, One Bank, Maharashtra Bank”

Special Services: -

All India help line numbers are 1800-222-340 & 1800-220-888.

ATM facility, Tele banking, Depository services, Touch screen facility and Mobile

Van information center facility for rural areas.

Bank has established its own corporate Networking “MAHANET” connecting 562

locations i.e. 524 branches, 32 regional offices, 5 circle offices, training colleges,

training centers and central offices.

Bank is establishing its own Data Center at IT Park, Kharadi, and Pune.

Maharashtra Bank has full-fledged Training College, Information Technology

Training Institute and 3 Staff Training Centers.

Bank of Maharashtra is now working as corporate agent for life and non life insurance

products of LIC of India and United India Insurance Company.

Bank has entered in to agreement with Mrs. TCS for providing Core Banking Solution

"BANCS" and has appointed Mrs. Ernst & Young as consultants for implementation

of CBS in 600 branches

For speedy and quality processing of retail loans, 12 Retail Assetbranches were opened taking the total number of Retail Asset Branches to 15.

The Bank has established Rural Development Centers at Hadpsar & Bhigwan. It has

also established MESETI at Pune, Aurangabad and Nagpur Centers for training the

new entrepreneurs. Gramin Mahila VA BAL Vikas Mandal is established at Pune for

the development of the women and children in rural areas and forming Self Help

Groups.

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Bank of Maharashtra acts as Lead Banker in 6 Districts and works as State Level

convener of Banker's committee for Maharashtra State.

Future Plans: -

Systematic approach for reducing Net NPA level to below .05%.

Consolidation of Regional Rural Banks sponsored by Bank of Maharashtra.

Extensive use of Wide Area Network-MAHANET inter-connectivity of branches by

providing more customer-centric applications like Any Branch Banking Service,

Demat etc.

Extending RTGS facility to 450 plus branches.

SHGs with special reference to agriculture to be promoted and financing be

implemented so as to increase financing to small and marginal farmers.

Plan to open 250 new branches.

Installation of 765 new ATMs taking total number of ATMs to 1267.

Sale of Gold Coins through designated branches.

Door Step Banking- Cash and Cheque pick up facility to HNI’s and Corporate

customers.

Value added Pay Roll Accounts for Corporate employees.

Special ASBA product for corporate clients

COMPANY’S PROFILE AS ON YEAR ENDED 2012-2013

Company Profile: Bank Of Maharashtra

Exchanges: BOM

Total Deposits: 94337.00 Crores

Total Advances: 76397.00 Crores

Major Industry: Financial Sector

Sub Industry: Commercial Banks

NET PROFIT 760

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Ch.4 Review of Literature

According to a study by Brownbridge (1998), most of the bank failures were caused by nonperforming loans. Arrears affecting more than half the loan portfolios were typical of the failed banks. Many of the bad debts were attributable to moral hazard: the adverse incentives on bank owners to adopt imprudent lending strategies, in particular insider lending and lending at high interest rates to borrowers in the most risky segments of the credit markets.

Bloem and Gorter (2001) suggested that a more or less predictable level of non-performingloans, though it may vary slightly from year to year, is caused by an inevitable number of ‘wrong economic decisions by individuals and plain bad luck (inclement weather, unexpected price changes for certain products, etc.). Under such circumstances, the holders of loans can make an allowance for a normal share of non-performance in the form of bad loan provisions, or they may spread the risk by taking out insurance. Enterprises may well be able to pass a large portion of these costs to customers in the form of higher prices. For instance, the interest margin applied by financial institutions will include a premium for the risk of nonperformance on granted loans. At this time, banks’ non-performing loans increase, profits decline and substantial losses to capital may become apparent. Eventually, the economy reaches a trough and turns towards a new expansionary phase, as a result the risk of future losses reaches a low point, even though banks may still appear relatively unhealthy at this stage in the cycle.

According to Gorter and Bloem (2002) non-performing loans are mainly caused by an inevitable number of wrong economic decisions by individuals and plain bad luck (inclement weather, unexpected price changes for certain products, etc.). Under such circumstances, the holders of loans can make an allowance for a normal share of nonperformance in the form of bad loan provisions, or they may spread the risk by taking out insurance.

Petya Koeva (2003), his study on the Performance of Indian Banks. During Financial Liberalization states that new empirical evidence on the impact of financial liberalization on the performance of Indian commercial banks. The analysis focuses on examining the behavior and determinants of bank intermediation costs and profitability during the liberalization period. The empirical results suggest that ownership type has a significant effect on some performance indicators and that the observed increase in competition during financial liberalization has been associated with lower intermediation costs and profitability of the Indian banks.

Das and Ghosh (2003) empirically examined non-performing loans of India’s public sectorbanks in terms of various indicators such as asset size, credit growth and macroeconomiccondition, and operating efficiency indicators. Sergio (1996) in a study of non-performing loans in Italy found evidence that, an increase in the riskiness of loan assets is rooted in a bank’s lending policy adducing to relatively unselective and inadequate assessment of sectoral prospects.

Vradi et.al (2006), his study on´ Measurement of efficiency of bank in India concluded that in modern world performance of banking is more important to stable the economy .in order to see the efficiency of Indian banks we have see the fore indicators i.e. profitability, productivity, assets, quality and financial management for all banks includes public sector,

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private sector banks in India for the period 2000 and 1999 to 2002-2003. For measuring efficiency of banks we have adopted development envelopment analysis and found that public sectors banks are more efficient then other banks in India.

Brijesh K. Saho et.al (2007), this paper attempts to examine, the performance trends of theIndian commercial banks for the period: 1997-98 - 2004-05. Our broad empirical findings areindicative in many ways. First, the increasing average annual trends in technical efficiency for all ownership groups indicate an affirmative gesture about the effect of the reform process on the performance of the Indian banking sector. Second, the higher cost efficiency accrual of private banks over nationalized banks indicate that nationalized banks, though old, do not reflect their learning experience in their cost minimizing behavior due to X-inefficiency factors arising from government ownership. This finding also highlights the possible stronger disciplining role played by the capital market indicating a strong link between market for corporate control and efficiency of private enterprise assumed by property right hypothesis. And, finally, concerning the scale elasticity behavior, the technology and market-based results differ significantly supporting the empirical distinction between returns to scale and economies of scale, often used interchangeably in the literature.

Roma Mitra et.al (2008), A stable and efficient banking sector is an essential precondition toincrease the economic level of a country. This paper tries to model and evaluate the efficiency of 50 Indian banks. The Inefficiency can be analyzed and quantified for every evaluated unit. The aim of this paper is to estimate and compare efficiency of the banking sector in India. The analysis is supposed to verify or reject the hypothesis whether the banking sector fulfils its intermediation function sufficiently to compete with the global players. The results are insightful to the financial policy planner as it identifies priority areas for different banks, which can improve the performance. This paper evaluates the performance of Banking Sectors in India.

B.Satish Kumar (2008), in his article on an evaluation of the financial performance of Indianprivate sector banks wrote Private sector banks play an important role in development of Indian economy. After liberalization the banking industry underwent major changes. The economic reforms totally have changed the banking sector. RBI permitted new banks to be started in the private sector as per the recommendation of Narashiman committee. The Indian banking industry was dominated by public sector banks. But now the situations have changed new generation banks with used of technology and professional management has gained a reasonable position in the banking industry.

M. Karunakar et.al (2008), Study the important aspect of norms and guidelines for making the whole sector vibrant and competitive. The problem of losses and lower profitability of Non- Performing Assets (NPA) and liability mismatch in Banks and financial sector depend on how various risks are managed in their business. Besides capital to risk Weightage assets ratio of public sector banks, management of credit risk and measures to control the menace of NPAs are also discussed. The lasting solution to the problem of NPAs can be achieved only with proper credit assessment and risk management mechanism. It is better to avoid NPAs at the market stage of credit consolidation by putting in place of rigorous and appropriate credit appraisal mechanisms.

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Nelson M. Waweru et.al (2009), Study that many financial institutions that collapsed in Kenya since 1986 failed due to non performing loans, this study investigated the causes of nonperforming loans, the actions that bank managers have taken to mitigate that problem and the level of success of such actions. Using a sample of 30 managers selected from the ten largest banks the study found that national economic downturn was perceived as the most important external factor. Customer failure to disclose vital information during the loan application process was considered to be the main customer specific factor. The study further found that Lack of an aggressive debt collection policy was perceived as the main bank specific factor, contributing to the non performing debt problem in Kenya.

Kevin Greenidge et.al (2010), study the evaluation of non-performing loans is of greatimportance given its association with bank failure and financial crises, and it should therefore be of interest to developing countries. The purpose of this paper is to build a multivariate model, incorporating macroeconomic and bank-specific variables, to forecast non-performing loans in the banking sector of Barbados. On an aggregate level, our model outperforms a simple random walk model on all forecast horizons, while for individual banks; these forecasts tend to be more accurate for longer prediction periods only.

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Ch.5 Data Analysis & Interpretation

Advances Position of Bank of Maharashtra

Ch.6 Conclusion

Ch.7 Recommendation

Bibliography

www.google.com

www.bankofmaharashtra.in

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