Canara Bank NPA analysis.
A study on NPA management
1. INDUSTRY PROFILEBanking Regulation Act of India, 1949 defines banking as accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawal by cheques, draft, and order or otherwise. The word bank has been derived from French word BANQNUE and Latin word BANQCUS which means a bench. The banking structure in India comprises RBI at the top, scheduled commercial banks (established under a schedule of Government of India Act of Parliament). These include Commercial banks and Cooperative banks. Cooperative banks are established in both rural and urban areas by groups of members for mutual benefit. At present there are 52 urban and 16 rural co-operative banks. Commercial banks include 27 PSU (of which SBI and its associates are 8), 29 private and 31 foreign banks apart from 196 Regional Rural Banks. The first bank in India was called General Bank of India which was established in 1786. From 1786 till today, the journey of Indian banking system can be segregated into three distinct stages. It is explained under the heads Stage I, Stage II, and Stage III in detail.
STAGE IDuring this period, public had lesser confidence in the banks, as a result deposit mobilization was slow and also saving bank facility provided by the postal department was considered comparatively safer. In the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. In order to streamline the functioning and activities of commercial banks, the government of India came up with the Banking Companies Act, 1949 which was later changed to Banking Regulation act 1949 as per amending act of 1956 (Act No. 23 of 1956). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the central banking authority.
STAGE II In this phase, the process of nationalization was undertaken in big way by the government. In 1955, Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi urban areas was nationalized. State Bank of India was formed to act as the principal agent of RBI and to handle banking transactions of the union Department of MBA, PESIT Page 1
A study on NPA management
and state government all over the country. In 1960 seven banks forming subsidiary of State Bank of India were also nationalized. In 1969, fourteen major Commercial Banks in the country were nationalized. This initiative was the effort of the then prime minister of India Mrs. Indira Gandhi. Second phase of nationalization was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under government ownership. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India.The government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions.
STAGE III This phase is characterized by the introduction of many products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M. Narashimham, a committee was set up by his name which worked for the liberalization of banking practices. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom in India. People not just demanded more from their banks but also received more.The country is flooded with foreign banks and their ATM stations.. Phone banking and net banking is introduced. The entire system became more convenient and swift. Currently, banking in India is generally fairly mature in terms of supply, product range and reach-even though reaching rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The Indian GDP is expected to grow at 6.9-7% for the year 2012.With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As and takeovers.
Department of MBA, PESIT
A study on NPA management2. COMPANY PROFILE
2.1 BACKGROUND AND INCEPTION OF THE COMPANY:Founded as Canara Bank Hindu Permanent Fund', by late Sri. Ammembal Subba Rao Pai, a great visionary and philanthropist, in July 1906, at Mangalore in Karnataka, it blossomed into a limited company as 'Canara Bank Ltd.' in 1910 and became Canara Bank in 1969 after nationalization Expansion of bank started in 1926. It strengthened the banking structure in the South India and emerged as one among the large nationalized banks in the country.In 1954 the administrative offices were shifted from Mangalore to Bangalore. In the sixties, the bank expanded the network of branches to northern states of the country and gained a national stature. By 1962, the bank emerged as the largest bank in South India. By 1968, it was the sixth largest bank in the country. In 1974, it stood fifth largest bank in the country. In 1985, the bank acquired a coveted position of THIRD AMONG 20 NATIONALIZED BANKS. Growth of Canara Bank was phenomenal, especially after nationalization in the year 1969, attaining the status of a national level player in terms of geographical reach and clientele segments. Eighties was characterized by business diversification for the Bank. Canara Bank has taken over many banks. In 1985, The Lakshmi Commercial Bank Ltd having its head office at New Delhi with 230 branches in northern states merged with Canara Bank and its 3500 employees became members of Canara Bank family. This is the biggest merger that ever took place in the banking industry in India. In June 2006, the Bank completed a century of operation in the Indian banking industry. FOUNDING PRINCIPLES: To remove Superstition and ignorance. To spread education among all to sub-serve the first principle. To inculcate the habit of thrift and savings. To transform the financial institution not only as the financial heart of the community but the social heart as well. To assist the needy. To work with sense of service and dedication. To develop a concern for fellow human being and sensitivity to the surroundings with a view to make changes/remove hardships and sufferings. Department of MBA, PESIT Page 3
A study on NPA management
Sound founding principles, enlightened leadership, unique work culture and remarkable adaptability to changing banking environment have enabled Canara Bank to be a frontline banking institution of global standards. Today, Canara Bank occupies a premier position in the comity of Indian banks. With an unbroken record of profits since its inception, Canara Bank has several firsts to its credit. These include: Launching of Inter-City ATM Network Obtaining ISO Certification for a Branch Articulation of Good Banking Banks Citizen Charter Commissioning of Exclusive Mahila Banking Branch Launching of Exclusive Subsidiary for IT Consultancy Issuing credit card for farmers Providing Agricultural Consultancy Services
2.2 NATURE OF THE BUSINESS CARRIED:In the word of late Sri Ammembal Subbarao Pai A good bank is not only the financial heart of the community, but also one with an obligation of helping in every possible manner to improve the economic conditions of the common people" Bank is into pooling together the savings of the community scattered all over and from the very same pool, granting loans to the needy in the society. Thus it acts as a link between the savers and the needy. Thus the two main products of the bank are deposits and loans. Over the years, the Bank has been scaling up its market position to emerge as a major 'Financial Conglomerate' with as many as nine subsidiaries/sponsored institutions/joint ventures in India and abroad. As at September 2011, the Bank has further expanded its domestic presence, with 3432 branches spread across all geographical segments. Keeping customer convenience at the forefront, the Bank provides a wide array of alternative delivery channels that include 2623 ATMs, covering 899 centres. With 100% CBS, the Bank offers technology banking, such as, Internet Banking and Funds Transfer through NEFT(National Electronic Funds Transfer) and RTGS ( Real Time Gross Settlement) across all branches. The bank also has international presence in several centres, including London, Hong Kong, Moscow, Shanghai, Doha, and Dubai. As at September 2011, the total business of the Bank stood at 530515 crore. Net profit of the Bank crossed 4000 crore. Department of MBA, PESIT Page 4
A study on NPA management
SUBSIDIARIES OF CANARA BANK Canara Robeco Asset Manangement Company Ltd Canara Bank Financial Services Ltd Canfin Homes Ltd Canbank Factors Ltd Canbank Venture Capital Fund Ltd Canbank Computer Service Ltd Canara Bank Securities Ltd
2.3 VISION, MISSION AND QUALITY POLICY:
VISION: To emerge as a Best Practices Bank by pursuing global benchmarks in profitability, operational efficiency, asset quality, risk management and expanding the global reach.
MISSION: To provide quality banking services with enhanced customer orientation, higher value creation for stakeholders and to continue as a responsive corpo