credit appraisal system

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CREDIT APPRAISAL SYSTEM

EXECUTIVE SUMMARY

A project has been prepared under the title of ‘CREDIT APPRAISAL SYSTEM IN THE KENDRAPARA URBAN CO-OPERATIVE BANK’.

First of all the information regarding the banking industry is given. In that various facts regarding the bank industry is being provided.

The growing economic scenario in the country opens opportunity for big industry houses, both national and multinational companies to invest in industry sector specifically in power, Iron and steel, Mining, Infrastructure etc. This has given rise to competition among Banks to expand their loan and advance portfolio, the effective management of which has posed a challenge. In effect, the credit appraisal tool of the Bank assumes importance. An attempt has been made in this report to give an account of need and importance of strengthening credit management system in the present economic scenario.

Since Nationalized Banks handle large loan and advance portfolio, RBI has been emphasizing Banks to evolve suitable guidelines for effective management and control of credit risks. Credit appraisal is done to evaluate the credit worthiness of a borrower. The credit appraisals for any organization basically follow these steps: Assessment of credit need, financial statement analysis, and financial ratios of the company, credit rating, working capital requirement, term loan analysis, submission of documents, NPA classification and recovery. In other words, the Credit Appraisal System is meant to ensure safety of Bank’s funds with the borrowers. This has two stages. In the first stage i.e. Pre-sanction Credit Appraisal, the credit worthiness of the borrower is assessed by examining his current financial standing. In the second stage i.e. Post Sanction Credit Appraisal, the monitoring and control of the loan account is done to prevent the account tending to become NPA category. The Bank has devised suitable forms and formats to collect required information and interpret the data.

Detail about Kendrapara Urban Cooperative Bank, the organization which is started with the intention mainly to promote thrift among their members dwelling in urban centers and to provide credit to the needy members and thus to save them from the clutches of unscrupulous moneylenders and also undertakes various banking activities like sophisticated lending for the promotion of industrial growth with particular reference to small scale and cottage industries, foreign exchange and merchant banking etc . The Credit management system of urban cooperative bank, one of the oldest in the country, has been out lined in details. This would give a wide exposure in the field of finance management. Detailed analysis has been made on all aspects like project feasibility, risk and mitigations, financial strengths and weaknesses. Comments and conclusions have been drawn for the benefit of the organization and the major finding of the study was that overall credit appraisal system at this urban cooperative bank was according to the RBI norms and regulations and the non performing assets of the bank are coming down year after year and the project taken for case study is a financial feasible and generates enough

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cash flows not only to repay the credit on time, but has surplus funds for reinvestment. Suggestions also have been made for improving the service in the field of credit management. After that analysis comes. At the last find Conclusion & Suggestion. Then comes “facts and finding” part. In this part first of all the details about the non performing assets by me is given. Then a comparison is made among the three companies selected by me on various parameters.

INTRODUCTION

As you all know, Banking Sector in the country has been playing a key role in the Economic and social development of India .That is why Banks were nationalized in 1969 and again in 1980 in order to make them more prone towards mass and social banking. Co-operative Banks have played a very crucial role in the development of rural and agriculture sector in India. But the emergence of Urban Co-operative Banks in Co-operative sector has really earned a named for Co-operative movement in the Country. We should thank the Reserve Bank of India for extending the provisions of Banking Regulation Act, 1949 to Urban Co-operative Banks from 1st march 1966 after realizing and recognizing the performance, achievements and relief these Banks.

Initially, these banks were started with the intentions mainly to promote thrift among their members dwelling in Urban Centers and thus to save them from the clutches of unscrupulous money lenders. Reserve Bank of India also tried to regulate them in order to cater to the needs of small poor people in urban and semi urban areas.

Now it is a matter of great pleasure to mention that they are presently undertaking various Banking activities, which besides acceptance of deposits include sophisticated lending for the promotion of industrial growth with particular reference to small scale and cottage industries and for the various types of trades and professions, discounting & collecting of bills & hundis, provision of safe deposit locker facilities, provisions of Bank guarantees, foreign exchange and merchant banking activities etc.

Govt. & Reserve Bank of India have to give full credit and importance to their achievements and should take sound steps for their rapid growth & development.

With the setting in of liberalization Process of the financial sector in India from 1991 onwards, these banks have also been subjected to undergo policy changes in their style of functioning & operations. The Urban Co-operative Bank are required to determine their interest rates according to their financial Position and market trend. In view of India’s liberalized economic policy and globalization, huge investment proposals are flowing from Multi National Companies and big Industry Houses. As a result efficient finance management now assumes great importance. In view of increased competition for financial investment, new types of risks have emerged. Besides the safety of fund has been exposed to greater stake. Hence, the Finance Manager’s responsibilities in modern days have increased many folds.

The Credit Appraisal System is meant to ensure safety of Bank’s funds with the borrowers. Examining his current financial standing assesses the credit worthiness of the borrower and monitoring

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and control of the loan account is done to prevent the account tending to become NPA category. In this process the banks are posed with the following challenges.

To meet the financial requirements of rural and semi-urban people, urban co-operative banks manage huge Loans and Advances portfolio. Efficient management of this portfolio assumes greater significance as it is the largest asset of the Bank having direct impact on its profitability. The new scenario in the finance sector calls for strengthening of credit functions. RBI has also been emphasizing Banks to evolve suitable guidelines for effective management and control of credit risks.

With a view to ensuring a healthy loan portfolio, Urban co-operative Bank has taken following steps:

Updating its policies and procedures in line with changing scenario for effective management and disposal of credit risks.

Strengthening of pre-sanction appraisal and post sanction monitoring system. Strengthening of organizational set-up by opening specialized Branches to meet the credit

requirement of specific type of borrowers. Imparting intensive credit management training to staff. Development of trained staff at branches/offices having potential for credit growth.

BANK PROFILE

DEFINITION OF BANK

“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.”

DEFINITION OF BANKING

In general terms, “The business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to earn a profit”

So we can say that Banking is a company, which transacts the business of banking. The Banking Regulations Acts defines the business as banking by stating the essential function of a banker.

The term banking is defined as “Accepting for the purpose of leading or investment, deposits of money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise.”

On July 19, 1969 14 major banks were nationalized. Later on more banks were nationalized. At present the numbers of

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nationalized banks are 20. Several Foreign banks were allowed to operate as per the guidelines of RBI. At present the banking system can be classified in following categories.

1. PUBLIC SECTOR BANKS:Reserve Bank of IndiaState Bank of India and its 7 associate BanksNationalized Banks (20 in number)Regional Rural Banks Sponsored by Public Sector Bank.

2. PRIVATE SECTOR BANKS:Old Generation Private BanksNew Generation Private BanksForeign Banks of IndiaScheduled Co-operative BanksNon-Schedule Banks

3. CO-OPERATIVE SECTOR BANKS:State Co-Operative BanksCentral Co-Operative BanksPrimary Agriculture Credit SocietiesLand Development BanksUrban Co-Operative BanksState Land Development Banks

4. DEVELOPMENT BANKS:Industrial Finance Corporation of India (IFCI)Industrial Development Bank of India (IDBI)Industrial Credit & Investment Corporation of India (ICICI)Industrial investment Bank of India (IIBI)Small Industries Development Bank of India (SIDBI)Small Industries Development Bank of India (SIDBI)National Bank for Agriculture & Rural Development (NABARD)

All the types of banks have a centralized control of RBI. All these follow the guidelines of RBI. Government used banks to provide to weaker section. This lead to a serious crisis of unrecoverable of 1990 banks was saddled with NPA (Non Performing Assets recoverable debt touched to Rs. 75,000 core.

The Kendrapara Urban Co-operative Bank is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise.

This bank is established in the year Feb, 1988 but registered under No.123 KE Dt-26.09.1986 in the district of Kendrapara. The area of operation of this bank shall be confined to the entire district of Kendrapara.

In the tradition of their founders, Co-operatives members believe in the ethical values of honesty, openness, social responsibility and caring for others.

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Registered Office:-The Registered office of the Bank shall be situated at Kendrapara, P.o-Kendrapara, Dist-Kendrapara.Area of Operation:-

The area of operation of the bank shall be confined to the entire district of Kendrapara. For any revision in this regard prior approval of registering authority and Reserve Bank of India as indicated in Reserve Bank of India circular No. UBD.RBL (RCS)10/07.01.00/95-96 DT. 10th October 1995 shall be necessary.

Members:-i. ‘Member’ means a person joining in the application for registration of the Bank and a person

duly admitted to the membership of the Bank after registration and includes a nominal and an associate member.

ii. ‘Nominal’ member means a person who has been admitted as nominal member under Bye-law No.10.

iii. ‘Chief Executive’ means the SECRETARY appointed by the Board of Directors.iv. A person means an Adult individual, proprietorship concern and partnership firm duly

registered under the Indian Partnership Act, 1932, Company or any other Body corporate constituted under the law for the time being in force.

Objects:-i. To encourage thrift, self-help and cooperation among members.

ii. To accept deposits of money from the public repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise for the purpose of lending or investment.

iii. To borrow or raise money.iv. To buy and to sell foreign exchange including foreign bank notes.v. To collect and transmit money and securities.

vi. To prepare and to finance schemes for amelioration of the financial conditions of member.vii. To provide financial and technical assistance to self-employed persons for setting up their

own business etc.

Funds:-Funds may be raised by the following means:-a) Sharesb) Entrance Feec) Subscriptiond) Depositse) Loans, cash credits, over drafts and advancesf) Donations, Grants and subsidies.

Maximum Borrowing Power:- Maximum borrowing power of the bank shall not exceed 25 times the paid up share capital and reserves minus the bad debts reserve and accumulated losses.

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Shares:-The authorized share capital of the bank is Rs.50,00,000.00 made up of 2.5 lakhs share of Rs.20/-

each which should be paid in full on application.Explanation- A joint member consisting of two individuals related to each other as husband and

wife shall be deemed to be one individual and they shall have one vote which may be exercised by any one of them.No individual shall be eligible for being admitted or for continuing as a member of the bank; if he-

i. has been sentenced for an offence involving moral turpitude or sentenced to fine or imprisonment.

ii. provided such an employee may be admitted or retained as a nominal member or the authorized share capital may be increased from time to time by General Body resolution subject to the approval of the Registering authority.

Every member shall hold at least one share and the maximum share holding of a member shall be fixed keeping in view the provisions of Orissa cooperative Societies.

Nominal Member:-Any person who is co-parcener or who desires to stand surety for a borrowing member of the

bank who desires to borrow occasionally for a temporary period against certain tangible securities such as gold and silver ornaments, fixed deposit receipts life insurance policies and government and other Trustee. Securities may be enrolled as a nominal member upon his application in a prescribed form on payment of Rs.5/- as non-refundable entrance fee. Joint Shareholders:-

Shares may be purchased in the names of more than one person jointly.i. On death of a joint-holder the surviving person/persons shall be recognized as joint

shareholder/holders.ii. The person whose name stands first written on the share certificate shall enjoy all the rights of a

member and he responsible for all the liabilities of a member. He shall be entitled to receive the annual dividend and notice of the General Meeting.

Share Certificate:-Every person admitted as member shall be entitled to received a share certificate gratis stating

the number of share/s and their distinctive number/s. The share certificates shall be signed by the President or any duly authorised by the Secretary.

Transfer of share:-A member may transfer his share or shares after holding them for not less than one year to any

person duly approved by the Board of Directors.

Resignation, cessation and expulsion of members:-

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i. A member may resign his membership and withdraw his capital with the approval of the Board of Directors, as per the provision of the Orissa Cooperative Societies Act 1962 and Orissa Cooperative Societies Rules, 1965.

ii. Membership will cease: On death, or dissolution or liquidation On being adjudged as insolvent On transfer of all the shares On resignation or withdrawal of membership having been accepted

Nomination:-A member may nominate a person to receive the members interest in the bank after his death.

Nomination shall be made in the prescribed form and entered in the special register kept at the Bank’s registered office. Prior approval of the Board shall be necessary, if the person to be nominated is an employee of the bank. Nomination can be revoked and fresh nomination made any number of times after due.

Death of share Holder:-On death of a share holder, the bank may pay to the person or persons nominated a sum

representing the value of the share holder interest in the bank within six months from the death of share holder.

Liability of member:-The liability of a share holder shall be limited to the capital represented by the share of shares of

which such share holder is the registered share holder.

Lien on shares, Dividends and Deposits:- The bank shall have the first and paramount lien or charge upon all the shares, dividends and

deposits of any member or past member for all moneys due from him to the bank from time to time.

General Body:- i. Subject to the provision of Act and Rules the final authority of the bank shall vest in the general

Body.ii. General meetings shall be of two kinds viz. Annual General Meeting and Special General Meeting.

iii. The Annual General Meeting shall be called once on or before 1st April to 30th June in each year.iv. The special General Meeting may be called at any time by the Board of Directors. It shall also be

called on a written requisition made the president of the Board of Directors by one fourth (1/4 th) of the share holders.

Business of the Annual General Meeting:-The business of the Annual General Meeting shall be as under:-

i. Approval of the programme of activities of the bank prepared by the committee for the ensuing year.

ii. To sanction distribution of profits and to declare dividend.

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iii. Expulsion of members.iv. To elect the members of Board of Director.v. To fix the maximum limit upto which the Board of Directors may raise funds.

vi. To appoint duly qualified auditors if necessary for the ensuing year for conducting statutory audit and fix their remuneration.

Business or special General Meeting:- The business of special General Meeting shall be the business as stated in the notice of

requisition only.

Notice: Annual General Meeting and Special General Meeting:-i. General Meeting shall be convened by the committee or under its direction by the Secretary.

ii. A noticed of the General Meeting stating the date, place and hour of the meeting together with a statement of business to be transacted, at it shall be served on the members by publication of the same in Daily Oriya Newspaper having wide circulation in the area of operation of the bank.

iii. Absence at a meeting due to non-receipt of notice by any member shall not invalidate the proceedings of the meeting.

iv. No member can be admitted or any share transferred within thirty days prior to the election General Body Meeting.

v. A special General Meeting must be convene within 30 days of receipt of requisition from one fourth number of members.

Quorum:-Thirty members or one fifth of the total number of share holder member which is less, shall

continue quorum for a General Meeting. No business shall be transacted at any meeting unless the quorum of membership is present.

President of General Meeting:- The President of the Board of directors shall preside over the general meeting. In his absence the

Vice-President and in the absence of both, the share holder members present and entitles to vote shall elect one from amongst them.

Voting Rights:-i. Each share holder member shall have one vote irrespective of the number of shares held.

ii. Individual share holder shall vote in person while Government may appoint one of its officers to participate in the meeting and to exercise the right of vote.

iii. Individual share holder members shall vote in person, while a firm or a company or any other body corporate constituted under government which is a share holder member may appoint one of its partners, directors or officers to participate in meeting and to exercise the right of vote.

iv. The President presiding over the meeting shall have a casting vote, in case there is quality of votes for and against any resolution.

Resolution:-

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Resolution shall be carried by a majority of votes. Votes shall be taken by show of hands unless a share holder member demands a ballot in which case a ballot shall be taken forthwith.

Amendment of bye-laws of Kendrapara Urban Co-operative Bank Ltd.:-The Management of the bank shall vest in a committee of management consisting of 15 (fifteen)

elected members including president & Vice-President.

The above fifteen members of the committee of management shall be elected by the members of the bank in the following manner from the categories indicated below.

i. Schedule caste – one belonging to woman.ii. Schedule Tribe - one belonging to woman.

iii. Other backward caste - one belonging to woman.iv. Other categories – Ten nos. from their respective constituencies.

The president & Vice-President of the Bank shall be indirectly elected from among the members of the committee.In case, the president of the Committee is not a woman, the office of the Vice-president shall be reserved for woman member of the Committee.

Board of Directors:-i. The management of the affairs of the bank shall vest in a Board of Directors which means a

committee of management within the meaning of Orissa Co-operative societies act.ii. The term of the Board shall be for a period of four years from the date of assuming charge

subject to the provision of Orissa Cooperative Act.

Power of the Board of Directors:-i. To consider applications for membership, allotment transfer of shares and resignation.

ii. To raise with or without security, loans over drafts and cash credits within the maximum limit of borrowing fixed by the General Body of the bank.

iii. To approve the annual balance sheet, statement of profit and loss account and other statement.iv. To consider applications for loans and advances and discounting of bills.v. To approve investment of money belong to the bank in government and other trustee securities

deposits.vi. To consider proposals for opening branches.

vii. To fix the rate of interest on loans and deposits.viii. To approve appointment of brokers, agents and fix their remuneration.

ix. To accept deposits of all kinds of types.x. To arrange for election of Directors of the Board.

xi. To establish and support the provident fund scheme for benefit of the staff.xii. To make, alter, rescind or abrogate the rules from time to time regarding the following;

Deposits of all kinds and types. Traveling allowances of directors and salaries of staff. Provident fund, bonus and gratuity.

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Service Rules.

Secretary:-The powers and duties of Secretary, who will be responsible to the Board of Directors, will be as

under;i. To take action on the resolutions and decisions taken by the General Body and Board of

Directors.ii. To convene the meeting of the General Body Board of Directors, sub-committees, staff committee

or any other committee.iii. To conduct correspondence on behalf of the bank.iv. To receive applications for loans.v. To accept deposits of all kinds and types and arrange for issue of receipts, statements and pass

books.vi. To disburse moneys on behalf of the bank.

vii. To be the custodian of cash in hand, proper both moveable and immovable documents, securities and bonds.

viii. To take disciplinary action against the bank’s staff in accordance with service rules.ix. To issue orders of transfer of staff whenever necessary.x. To incure expenditure within the budget approved by the Board of Directors.

xi. To arrange for investments of moneys in accordance with the Board’s policy.xii. To sanction loans within the limit which shall not exceed Rs.5,000/- prescribed by the Board

against pledge of approved securities excluding immovable property.

Loans and Advance:-i. Loans, cash credit and / or overdraft on current accounts may be granted to members on

security or securities mentioned below or other security or securities approved by the Board of Directors.

ii. Personal security and / or surety /sureties of other member/members.iii. Collateral security of movable and immovable property.iv. Industrial, mercantile agricultural and other marketable commodities or machinery under

pledge, hypothecation or charge of the bank.v. Pledge of government, trustee securities shares of approved companies, debentures and fixed

deposits with the bank.vi. Insurance policies assigned to the bank within the surrender value.

vii. Ware house receipts.viii. Gold and silver ornaments.

ix. Any other tangible security.x. Short-term loans will be for periods upto 15 months, medium term loans for 15 months to

5years and long term loans over 5 years.

Linking of share holding with loan limits:-i. A borrower should hold five percent of his borrowings if such borrowings are an unsecured

basic.

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ii. In case of loans for small scale industrial units, granted on secured basis, the linking of share capital should be fixed initially at 1% of the borrowings to be raised in course of the next two years to 1.5%.

Deposits:-i. Regulations as may be fixed by the Board of Directors and also subject to the Deposits may be

received on such rates of interests and subject to such rules and directives, issued by the reserve bank of India in this behalf from time to time.

ii. Deposits may be received on current, savings, fixed, recurring, and cumulative and under any other special scheme/s.

Appropriation of Profits:-The net profit of the bank as shown in the audited balance sheet and declared distribution able

by the Registrar shall be disposed off in the order specified below:i. Not less than 25% shall go to the “Reserve Fund”

ii. Education fund (As per OCS Act and Rules).iii. 5% shall go to common good fund, which may be utilised by the Board of Directors from

time to time for any social, educational, charitable.iv. Dividend upto the maximum of 9%p.a may be allowed on each share.v. The balance, if any, shall be distributed as under:-

a) A sum not exceeding 10% of the net profit may be paid as honorarium.b) A sum not exceeding 10% of the net profit may go to the bad debt fund.c) A sum not exceeding 5% of the net profit may go to the dividend equalization fund.

Reserve Funds:-i. The reserve fund shall belong to the bank as whole and is intended to meet unforeseen losses. No

member can claim a share in it. It shall be invested in such manner as may be described by the Registrar, Cooperative Societies, subject to the provision of the Orissa Cooperative Societies Act.

ii. Bad debt fund, dividend equalization fund and building fund shall be in the nature of permanent serves and shall be drawn upon from time to time within the sanction of General Body.

Dividend:-i. The dividend declared shall be paid to the person whose name stands as the resistered share

holder in the books of the bank on the last day of the cooperative year to which the dividend relates.

ii. Dividends shall be proportionate to the amount paid on shares and the period in whole months for which the amount stood to the credit of the share holder.

iii. Dividend shall be payable at per at the bank’s Head Office as well as the branches.iv. Any dividend remaining undrawn for three years after having been declared shall be carried to

the Reserve Fund of Bank.

Accounts and Records:-

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Accounts and records shall be maintained in forms prescribed or approved by the Registrar and the Reserve Bank of India with such additions as the Board of Directors consider necessary.

Audit:-The accounts of the bank shall be audited by an auditor appointed by the bank with the approval

of the Registrar.

Seal:-The bank shall have a common seal which remain in the custody of the Chief Executive and shall

be affixed in the presence of a Director and the Chief Executive as per a specific resolution of the Board of Directors.

Amendment to bye-laws:-Any addition, on amendment, alternation or rescission resolved upon at such meeting shall take

effect from the date of receipt of the Registrar’s approval in writing.

LENDING POLICY OF KENDRAPARA URBAN CO-OPERATIVE BANK:

TYPES OF LOANS AND ADVANCES:

1. Term loan to small business man / retail trader.2. Term loan to wholesaler / distributors.3. Term loan to transport operators and fleet owners for purchase of new vehicles for road and

water transport.4. Term loan to transport operator for repairing of old vehicle financed by our bank.5. Cash credit and overdraft to wholesales / retailer dealing with consumer items.6. Consumer durable loan to salaried person (Govt. / public sector employer)7. Personal loan to salaried person.8. Term loan to purchase agricultural equipments like tractor, power tiller, pump-set and other

machineries required for agriculture.9. Term loan for allied agricultural activities like dairy, fisheries, poultry, and piggery etc.10. Term loan to professional and self employed persons.11. Term loan to small / cottage industries.12. Housing loan (Residential and commercial purpose).13. Personal surety loan to tiny business persons.14. Loan against pledge of gold ornaments.15. Loan against pledge of Govt. securities like postal certificates, LIC policies etc.

SANCTIONING AUTHORITY FOR VARIOUS TYPES OF LOANS

Branch Manager is the competent authority to sanction loan against pledge of gold, ornaments, against Govt. securities like, postal certificates, LIC policies and against term deposit of our own bank. Accountant / Jr. account / Field officer of the branch may sanction these types of loan in the absences of B.M. by delegation of power by the Branch Manager. For all other loans as mentioned above the Board

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of Management / President / Committee of Management is the competent authority to sanction / reject the loan proposals. The Secretary / Branch Manager / Loan sub-committee / any other officials of H.O. may sanction / reject loans on the delegation of power by the Board of Management, subject to ratification of the same by Board of Management.

Rate of interest and mode of charging of interest for various types of loans

The rate of interest on various types of loans will be fixed by H.O. as per R.B.I. guidelines or as decided by Board of Management. In case defaulter a/c Bank may charge excess 2% as penal interest

Security wise documents

Various types of documents are required for loans depending upon the type of security offered by the applicant. So the list of documents required for various types of security are given below.

A. For mortgage of loan :1. Original R.O.R. / Sale deed of the proposed land and building.2. Upto date original rent receipt of the said land.3. Valuation certificate of land and building from the local tahasil / bench mark.4. Encumbrance certificate of the land.5. Legal opinion from approved legal advisor of the Bank.6. Stress map of the said land.7. Registered mortgage deed.8. Continuity surety bond if necessary.9. Any other documents as desired by the legal adviser of the Bank.

B. For Pledge of Gold Ornaments :

1. The Bank should satisfy itself with the ownership of gold ornaments, before accepting them for pledge and obtained a declaration from the borrower that the ornaments are his/her own property and he/she has the fullest right to pledge them.

2. The ornaments should be sent to the appraiser, “appointed by the Bank” for valuation, and get the valuation certificate, which should clearly indicate the description of the ornaments, their fineness, the gross weight and net weight exclusive of stones, strings lakh etc. and the value of the gold at prevailing market price.

Advance to small businessman and retail traders

Small businessman / retail traders are those individuals, who manage their business for the purpose of providing service other than professional services like:

a) Selling goods on commission basis.b) Fair price shopc) Broking, clearing and forwarding agent.d) Press-cum-publishing housee) Hair dressers / saloons.

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f) Restaurant / Hotel / Canteens.g) Small retail trade deals in consumer items.h) Other small business

Eligibility

1. The applicant must be a regular member of the Bank.2. The applicant should have permanent / present residential house in the Kendrapara district.3. The business establishment should within the area of operation of the Branch.4. The applicant should be within the age groups of 18 to 60 years and he / she should

physically and mentally fit for managing the business.5. The applicant should have good transaction with the Bank.

Securities

1. The entire loan amount should be secured in shape of collateral securities/tangible securities.

2. The applicant has to deposit the required amount of share money as fixed by the Bank.3. Two nos. of valuable member-cum-customer of the Bank will stand as guarantor for him/her.

At least one should be an outsider (not from own family).4. The applicant has to deposit required percentage of margin money.

Mode of disbursement

After execution of all documents and fulfillment of all formalities bank will disburse the loan amount by way transfer to the existing a/c of the borrower.

Recovery

The loan will be recovered in 36 to 60 nos. of installments, depending upon size of the loan amount and nature of the business. The B.M. / F.O. of the branch will look and follow the procedure as mentioned earlier for smooth recovery of the loan.

Term loan to wholesaler / distributor

In this type of loan can finance to wholesaler / distributor, those are dealing with various consumer items. Term loan should not be financed for working capital.

Eligibility

1. The applicant must be regular member of the bank.2. The applicant should have permanent / present residential house within the area of operation of

the bank.3. The business establishment of the applicant should be within the area of operation of the

concerned Branch.

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4. The age limit of the applicant should be within 18 to 60 years, and he/she should have physically and mentally fit for managing business.

5. He / she should have a valid and up-to-date sale tax, income tax and VAT no.

Security:

1. The entire loan amount should be fully covered with collateral security / tangible security / hypothecation of stock.

2. The entire loan amount will be covered by insurance.3. Two nos. of share member-cum-customer of the bank will stood as guarantor. One should be

from outside of the applicant’s family.4. The applicant has to deposit required amount of share money.

Documents:

The applicant has to execute the following documents for disbursement of loan.

1. All statutory documents as mentioned earlier are necessary for this loan.2. All other documents as per security, as mentioned earlier should be kept.3. Authorization certificate or dealership certificate in of authorized dealer of any company.4. Income tax return of last three years.5. Audited balance sheet of last three years, audited by chartered accountant.


After execution of all documents and fulfillment of all terms and conditions, bank will disburse the amount to concerned a/c of the borrower. Bank also ensure about the utilization of funds by post disbursement supervision.

Recovery:The loan will be recovered along with accrued interest in 36 to 60 monthly installments. In case of

default concerned Branch will take appropriate steps for recovery of loans. So it is the duty of the B.M. / F.O. to watch the recovery position from time to time.

TERM LOAN FOR PURCHASE OF AGRICULTURAL EQUIPMENTS LIKE TRACTOR, POWERTILLER, PUMP-SET AND OTHER EQUIPMENTS REQUIRED FOR AGRICULTURE:

In this type of loan bank can finance to purchase tractor, power tiller, pump-set and other agricultural equipments for agricultural use. The rate of interest will be fixed by the bank itself.

Eligibility

1. The applicant must be a regular share member of the bank.2. His / her permanent residence must be within the area of operation of the bank.

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3. The age limit of the applicant should be within 18 to 60 years.4. The applicant should have at least 3 years of agricultural land of his own.

Securities:

The entire loan amount must be covered by 100% security. The security may be in shape of collateral / tangible or both. The vehicle or equipment should be insured for its full value and the policies should be in the joint names of the borrower and the bank. Borrower has to deposit required percentage of margin and share money as fixed by the bank.

Documentation:

The statutory documents as mentioned earlier must be kept for this loan. All other documents as per security should be obtained as per security kept. An undertaking should be obtained from the borrower that, if any subsidy came from govt. will be adjusted directly to his/her loan a/c.


Disbursement of loan should be made by way of D.D. / Banker’s cheque / pay order, directly to the firm concerned against the quotation supplied. Bank should acknowledge the money receipt and other sale proceeds documents from the concerned firm.

Recovery of loan:

The loan should be recovered within 36 to 60 monthly installments depending upon the size of loan and nature of loan. It is the duty of B.M. / F.O. should keep close watch on recovery of installments. In case of any default bank should follow the borrower immediately. In case default for more than six months bank may start legal procedures, as per suggestion of the board of management.

TERM LOAN FOR ALLIED AGRICULTURAL ACTIVITIES LIKE DAIRY, POULTRY, FISHERY AND ETC.:

Bank may finance to allied agricultural activities like dairy, poultry, fishery beekeeping etc.

Eligibility

1. The applicant must be a regular member of the bank.2. The applicant’s age limit should be within 18 to 60 years of age.3. The applicant must have permanent residence in the area of operation of the bank.4. The applicant should have sufficient experience in the concerned field.

Security:

The entire loan amount should be covered either in shape of collateral or tangible security. The unit financed should be covered with insurance. Two nos. of share member must stand as surety for the loan. The applicant has to deposit required share money as fixed by the bank.

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Documentation:

The applicant has to execute all statutory documents as mentioned earlier. The applicant has to execute security wise documents as per securities given by him / her. An undertaking should be obtained from the borrower that any type of subsidy if came from govt. that will be directly credited to the borrower’s a/c.

Mode of disbursement of loan:

Bank may disburse the sanctioned amount, after execution of all documents by the borrower, by way of transfer to the a/c of borrower.

Recovery and Supervision:

The entire loan amount will be recovered within 36 to 60 monthly installments depending upon the size of loan. It is the duty of B.M. / F.O. to ensure about the end use of funds by way of post sanction supervision. They should watch the recovery position regularly and in case of default they should follow-up the borrower immediately. And in case of default for more than six months bank should start appropriate legal action.

LOAN TO SSI AND COTTAGE INDUSTRIES:

Under this scheme of finance bank can finance for both fixed assets and working capital required for establishment of SSI / Cottage industry. In this type of finance bank can finance within the limit of exposure to individuals. The cost of plant and machinery (excluding land and building) should not be more than Rs.25.00 lakh.

ELIGIBILITY

1. The applicant must be a regular member of the bank.2. Permanent / present residence of the applicant must be within the area of operation of the bank.3. The said land, on which the proposed unit is to be established, must be within the area of

operation of the bank and that should be owned by the applicant.4. The age limit of the applicant must be within 18 to 60 years.5. The proposed unit should be eco-friendly and should be approved by environment pollution

control board

Security:

The entire loan amount must be secured with 100% security in shape of collateral / tangible security or both. The applicant has to deposit required percentage of share money and margin money. All the machineries, plant and stocks should be hypothecated to the bank, and that should be properly insured upto the full amount with banker’s clause.

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Documentation:

Following documents are required for disbursement of this loan.

1. All statutory documents are essential for this type of loan.2. All security wise documents must be obtained as per security kept.3. Approved project report of the unit.4. No objection certificate from environment pollution control board.

Mode of disbursement:

The disbursement of the loan should be done after execution of all documents. For capital assets payment should be made by way of D.D./ Banker’s cheque to the concerned firm as per quotation supplied and for working capital a c/c limit should be given. Drawing power should be fixed from time to time as utilization of funds. B.M. / F.O. of the branch should verify the unit from time to time regarding utilization of funds.

Recovery:The recovery should be made after production started, on monthly installment basis along with accrued

interest. Bank official should watch the recovery position closely and in case of default they should take appropriate legal action for recovery loan.

LOAN AGAINST TERM DEPOSIT AND RECURRING DEPOSIT:

Advances against term deposit and R.D. should be generally be granted to persons in whose names the deposits stand and that should be in our bank. The Branch manager of the concerned branch is the competent authority to sanction such type of loan and also the custodian of the certificates and file. If the deposit receipts are in the name of more than one name, the loan application as well as the documents should got signed jointly by all the concerned parties, with deposit receipts duly discharged by all of them, as per the specimen signatures.

In case of minor’s deposit a declaration from the guardian may be obtained that the amount of advance would be utilized for the benefit of the minor.

When advances are to be granted against a term deposit receipts in the name of the third party, a letter of consent signed by the depositors authorizing the Bank to hold the receipts as security, and an authority letter, authorizing the issuing branch to pay the amount to the bank towards liquidation of borrower’s dues should be obtained.

The bank should avoid granting loan against the term deposit receipts issued by another bank.

Documentation to be retained:

1. Loan application signed by all parties in whose name receipts stand.2. Demand promissory note.3. Letter of continuity (in case of overdraft and cash credit).4. Letter of lien and set-off.

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5. Fixed deposit receipts duly discharged.6. Authority to adjust the principal and interest towards the loan on maturity of deposit.7. Letter of consent or renunciation (in case of third party).8. Guardian’s declaration (in case of minor’s deposit).

VISIONTo become the bank of first choice in our chosen areas by building beneficial and lasting

relationship with customers through a process of continuous improvement.

CORPORATE MISSION A logical extension of the Vision Statement is the Mission of the Bank, which is to gain market

recognition in the chosen areas. To build a sizeable market shares in each of the chosen areas of business through effective

strategies in terms of pricing, product packaging and promoting the product in the market. To facilitate a process of restructuring of branches to support a greater efficiency in the retail

banking field. To sustain the mission objective through harnessing technology driven banking and delivery

channels. To promote confidence and commitment among the staff members, to address the expectations

of the customers efficiently and handle technology banking with ease.

PRODUCTS PROFILES:PRODUCTS :-

Personal Banking. Corporate Banking Home Loan Auto Loan Deposit Interest rate Credit Interest rate Agricultural loan Loan against pledge of gold ornaments Loan against shares, debentures Loan against pledge of Govt. securities like postal certificate, LIC policies etc.

SERVICE:-

Locker Facilities Merchant Banking Electronic Fund Service Electronic Charging Service Depository Service

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Service charges RTGS 12 hour Banking Tele Banking At par cheque facility available to customer in association with U.T.I Bank, HDFC,ICICI and Indus

Ind. Bank for the development of Non-fund business ..

RATIONALE OF THE STUDY:

Efficient and proper management of loans and advances to small poor people in urban and semi-urban areas and the reduction in NPA has assumed greater importance as it is the largest asset of the Bank. The present economic policy developmental program of our country make multinational companies and national big industry houses see big opportunities for large investments especially in infra-structure development, steel industries, mining development, etc. This calls for handling of large credit proposal by banking system. Consequently, safeguard of funds assumes greater importance. The risk management system needs to be strengthened. In this context, the present guidelines for credit management system of urban co-operative bank need to be reviewed to check their adequacy to meet the requirement of present day scenario.

For the financial managers this is a challenging job. Study of Credit management and monitoring system of an organization as big as urban co-operative Bank is certainly a plat form to succeed as a financial executive.

OBJECTIVES OF THE STUDY:

Study the procedure of credit appraisal system of urban co-operative bank.

Analyze the performance of Bank in this front.

Study the risk management system.

Study Review and monitoring system

To understand the credit appraisal policy and NPA recovery policy of bank.

SCOPE OF THE STUDY:

The prime area of the study was to understood the scope for establishing the thrift among their members dwelling in urban centers and to provide credit to the needy members and thus to save them from the

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clutches of unscrupulous moneylenders and also the reduction in NPA(Non-Performing Assets) level of Urban Co-operative bank.

LIMITATIONS OF THE STUDY:

The study has done in a limited time.

Since most Corporate were busy and couldn’t give appropriate details, the researcher had to sometime work with incomplete data.

The study has made through survey method. The information received by word of mouth only from the corporate, and may not be highly accurate.

I face difficulty in doing proper analysis as I don’t have prior experience for making project report.

ORGANISATIONAL STRUCTURE :

(CHAIRMAN)

(DIRECTORS)

(CEO)

(CHIEF MANAGER)

(DIVISIONAL MANAGER)

(AREA MANAGER)

(BRANCH MANAGER)

(OFFICER/CLERK )

SWOT ANALYSIS

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S&O (strength & opportunity)

Higher rate of interest on deposits than other commercial banks.

All the deposits are insured under the cover of the Deposit Insurance and Credit Guarantee Corporation (a RBI Subsidiary.)

Largest network Contact with many high profile persons Large manpower & implementation of

new technology Oldest Bank, established in 1966 Have good public relation Disclose all the facts to customers.

W&T (Weakness & Threats) High operating cost Possibility of assets & liability mismatch NPA(Non-performing Assets)

FUNCTIONAL AREAS:

Planning and Development.

Credit Department.

Inspection and Audit Department.

SAMD (special assets management department)

Security department.

Training department.

General \Administration Department.

REVIEW OF LITERATURE:

CREDIT APPRAISAL - The process by which a lender appraises the creditworthiness of the prospective borrower. This normally involves appraising the borrower’s payment history and establishing the quality and sustainability of his income. The lender satisfies himself of the good intentions of the borrower, usually through an interview.

Before extending any loan or credit to you, lenders check things like how much money you earn, how long you’ve been using credit and whether you’ve made payments ontime.

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To give a complete shape to my Project Report, I have gone through different books, journals and web sites. The references are given bellow.

Books Magazines & Journals

Website

Bank and institutional management.

Nilachala Google .com

Financial management Prospectus of Urban Co-operative Ban

Urban Co-operative Bank of India . com

Guidelines (pre sanction CA)

Yahoo .com

Annuals reports(2003-04 to07-08)Formats for review sheetsCredit information reportsRBI GuidelinesGuidelines of credit appraisal system of urban co-operative bankCo-operative banker’s Hand book

Lending policy of the kendrapara urban co-operative bank

Registered Bye-laws of Urban Co-operative Bank

Books:

1. Book Name Bank and institutional management.Author Vasant DasayPublisher Himalaya publishing houseFindings Credit Risk Management, Monitoring and Review

System.

2. Book Name Financial managementAuthor Shashi k. Gupta & R.K.SharmaPublisher Kalyani publishersFindings Loan financing

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3. Book Name Research Methodology Author C.R..Kothari Publisher New age international publishers Findings Research Design

Magazines & Journals:

1. Journal Prospectus of UCBPublished by : Urban co-operative Bank.Findings: Overall information about the organization.

2. Journal Guidelines (Pre-sanction Credit Appraisal)Published by : Urban co-operative Bank.Findings: Scrutiny Procedures before sanction of loan

3. Journal Annual Reports for the years from 2003-04 to 2007-08Published by : Urban co-operative Bank.Findings: Financial performance of the organization.

4. Journal Format for review sheet.

Published by : Urban co-operative Bank.Findings: Quarterly monitoring report.

5. Journal RBI Guidelines

Published by : Urban co-operative bankFindings: Credit appraisal.

6. Journal Course materials Published by : Urban co-operative bankFindings: Compilation of confidential report.

Website

1. Website Name Google.comFindings About credit appraisal, Types of loans and advances.

2. Website name Urbanco-operativebankindia.comFindings Organization profile, vision and mission

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3. Website Name Yahoo. ComFindings About credit appraisal.

RESEARCH METHODOLOGY:

Research may be defined as the objective and systematic methods of finding solutions to the problems i.e. systematic collection, recording, analysis, interpretation and reporting of information about various facts of phenomena under study.

Research Design:The researcher is required to prepare the design of the research project. A research design is the

arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure.There are three basic types of research design via I) Exploratory research design II) Descriptive and III) Experimental or casual. Among this descriptive type is used to do this research.

Descriptive:Descriptive research includes surveys and fact-findings enquiries of different tools. For doing

descriptive type of research, formal design is required to ensure that the description covers all phased desired, to ensure minimum basis in the collection of data and to reduce errors in interpreting the data collected. For the normal design of descriptive study there are two methods study are considered they are –

(1) Case methodS(2) Statistical method.

Out of the above two methods, Statistical method is used to do this research.

RESEARCH INSTRUMENTAs a research instrument I have taken guidance from the CEO of City bank and also my faculty of

college.

DATA COLLECTION: To done my project I need different data, those data are collected from two sources like:

Primary sources Secondary sources.

Primary sources: The data are collected from primary sources through interacting with different experts in the

bank and also from my faculty.

Secondary sources: The data for research have been collected from secondary sources like: Circulars and guide lines issued by Urban co-operative Bank Annual Reports of the said Bank

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Web sites like Google, 123india.com,and yahoo.com. Different articles and magazines etc

The study completely depends on secondary data, which have been collected from Urban Co-operative Bank. In the wake of the continued tightening of norms of income recognition, asset classification and provisioning, increased competition and emergence of new risks in financial sector, it has become imperative that the credit functions are strengthened. For efficient management of loans and advances portfolio, Punjab National Bank has laid down detailed guidelines to be followed while considering credit proposals. There are two distinct phases for credit management:

Pre-Sanction credit Appraisal System and Post Sanction review and monitoring system. The details of the same have been enclosed as an

annexureThe data have been presented in tabular form and the column charts were prepared for interpretation. Views and conclusions were drawn to improve the credit appraisal system for reducing the risk level of non- refund of the loans and advances. The performance of the Bank has been analyzed.

ANALYSIS AND REPORT WRITING:Here I have done ratio analysis and used various charts for analysis purpose and also I have

written report on it.

Steps in term loan processing:

Submission of Project Report along with the Request Letter.

Carrying out due diligence

Preparing Credit Report

Determining Interest Rate

Preparing and submission of Term SheetIf not approved if approved

Preparation of proposal

Submission of Proposal to designated authority

If No queries raised If queries raised

Project Rejected Solve the queries

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Sanction of proposal on various Terms & Condition

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PRESENTATION OF DATA

Analysis of non-performing assets :

Particulars Year Rupees in Crores

02-03 03-04 04-05 05-06 06-07 07-08NPAat the beginning of the year 54.06 55.70 47.35 27.21 15.35 42.55Reduction during the year 5.48 13.00 22.59 14.81 27.14 23.14Up gradation 1.62 1.50 16.63 0.63 0.10 10.23Write off 1.10 7.26 4.50 12.30 19.14 1.69Cash Recovery 2.76 4.24 1.46 1.88 7.90 11.22Addition during the period 7.12 4.65 2.45 2.42 54.34 12.39NPA at the end 55.70 47.35 27.21 14.82 42,55 31.80Target level - 47.50 28.00 8.50 8.00 15.00Reduction Target - 9.00 13.00 19.00 6.00 28.00

Data: (Secondary)

Trend Analysis of NPAs:

Analysis:

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Communication of Sanction Terms & Condition

Acknowledgement of Sanction

Application to comply with Sanction Terms & Condition & execution of Loan Documents

Disbursement

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Between the periods from 2002-03 to 2005 06 the amount under addition to NPAs have decreasing trend. Again it went up in 2006-07 and 2007-08. The phenomena call for close watch on credit appraisal system followed in the bank and need for a strong monitoring and controlling system. Cash recovery is much less than the write off amount for most of the year. This has effect on profit margin.

MEANING OF NON-PERFORMING ASSESTS:An asset becomes non-performing when it ceases to generate income for the bank. Earlier an

asset was considered as non performing asset based on the concept of “past due”.

NORMS FOR IDENTIFICATION OF NPA

With an intense to use the international best practice and to ensure greater transparency, “90 days” overdue norms are accepted for the identification of NPA from the year ended March 31, 2004.

With effect from March 31, 2004, a NPA shall be counted on loan and advances where:

A. Interest and / or installment of principal remain overdue for a period of more than 90 days in respect of a term loan.

B. The account remains out of order for a period of 90 days, in respect of an Overdraft/ Cash Credit (OD/CC).

C. The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted.

D. Any amount to be received remains overdue for a period of more than 90 days in respect of any other accounts.

FACTORS RESPONSIBLE FOR NPA

i. Improper selection of borrower’s activitiesii. Weak credit appraisal system

iii. Industrial problemiv. Inefficiency in management of borrowerv. Slackness in credit management & monitoring

vi. Lack of proper follow up by bankvii. Recession in the market

viii. Due to natural calamities and other uncertainties

ASSETS CLASSIFICATION:

CHART OF ASSETS CLASSIFICATION:

ASSETS

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PERFORMING ASSETS OR STANDARD ASSET NON-PERFORMING ASSETS

SUB-STANDARD DOUBTFUL LOSS ASSETS ASSETS ASSETS

LESS THAN 1 TO 3 ABOVE1 YEAR YEARS 3 YEARS

DEFINITION AS PER THE CLASSIFICATION OF ASSETS:

Reserve Bank of India (RBI) has issued guidelines on provisioning requirement with respect to bank advances. In terms of these guidelines, bank advances are mainly classified in to following categories:

STANDARD ASSETS:Standard assets are one which does not carry any problems and which does not carry more than normal

risk attached to the business.Such assets should not be an NPA.

SUB-STANDARD ASSETS:These assets involved the two types of view as follows…

In respect to the norms of March 31, 2005 an asset would be classified as Sub standard if it remained NPA for a period less than or equal to 12 months.An assets where the terms of the loan agreement regarding interest & principal have been regenerated or rescheduled after commencement of production, should be classified as sub-standard and should remain in such category for at least 12 months of satisfactory performance under the re-negotiated terms.

DOUBTFUL ASSETS:In respect to the norms of March 31, 2005 an asset is required to be classified as doubtful, if it has

remained NPA for more than 12 months.A loan which is classified as doubtful has all the weaknesses inherent as that classified as Sub-standard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently known facts, conditions and values, highly questionable and improbable.Some types of these assets are…

A. Less than 1 yearB. 1 to 3 yearC. 3 year and above

LOSS ASSETSA loss asset is one where loss has been identified by the bank or internal or external auditors or by

the Co-operation department or by the RBI inspection but the amount has not been written of, wholly or partly.MANAGEMENT OF NPA

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It is very necessary for bank to keep the level of NPA as low as possible. Because NPA is one kind of obstacle in the success of bank so, for that the management of NPA in bank is necessary. And this management can be done by following way:

Framing reasonably well documented loan policy and rules. Sound credit appraisal on well-settled banking norms. Emphasizing reduction in Gross NPAs rather than Net NPAs Pasting of sale notice/ wall posters on the house pledged as security. Recovery effort starts from the month of default itself. Prompt legal action should

be taken. Half yearly balance confirmation certificates are obtained from the borrowers

regularly. A committee is constituted at Head Office, to review irregular accounts. Due to lower credit risk and consequent higher profitability, greater

encouragement is given to small borrowers.

RECOVERY OF NPA:

IMPORTANCE OF RECOVERY:

1. Increase in the income of bank.2. Increase in the trust of share holder in bank.3. Level of NPA reduces as the recovery done.4. Decrease in provisioning requirements.

CREDIT APPRAISAL POLICY AT KENDRAPARA URBAN CO-OPERATIVE BANK:POLICY ON PRE-SANCTION

1) Application for loan should be in standardized form as devised by the bank.2) Branch to collect all the papers/information/documents as suggested in the respective

application form.3) Branch to visit the borrower’s office/factory/residence and to satisfy themselves before

recommending any loan to higher authority and to keep record of such visit.4) If applicant maintains loan/current/saving account with any other bank/financial institutions,

branch to verify such account statement and to satisfy them.5) Branch to ascertain the promptness of applicant in making payment of Power bill/Property

Tax/LIC Premium/Existing loan interest or installment, before recommending the proposal to higher authority.

APPRAISAL

A. WORKING CAPITAL FACILITY 1. Working capital requirement to be assessed properly considering past performance, holding period for debtors as also for inventory at various level, sales, etc…

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2. Working capital facilities beyond Rs. 5 lacs should not be considered in the form of overdraft.3. Margin for CC against stock be 30% and for receivables 50%.

B. TERM FINANCE 1. term loan limit to be arrived @ 25% margin in respect of Machinery/Equipment and Vehicles while 50% against land & building, electrification, furniture fixtures.2. Sources for margin money to be ascertained.3. Repayment capacity, considering existing earning to be ascertained.4. Moratorium period to be fixed considering time required going in for commercial production.

C. GENERAL 1. Credit facilities should not exceed segment wise, individual as also group exposures.2. in case of switch over from other bank, branch to obtain credit information report from the

concerned bank.3. In case of existing borrower/group borrower, branch to satisfy themselves about their dealing

with the bank.

EXPOSURE

As per the RBI guidelines per party exposure is restricted to 15% of share capital and Free Reserves and group exposures it is 40%. RBI has given liberty to recalculate the exposure on the basis of profitability of September half. However irrespective of these it is restricted at lower level i.e. Rs.1.55 crore for individual and Rs.3.50 crores for group.

DISBURSAL FORMALITIES

A. WORKING CAPITAL FACILITY 1. Fresh/additional limit against stock to be released only after party obtains adequate insurance for stock and submit stock/book debts statement.2. In case of new unit, working capital facility to be released, only after the unit starts commercial production.

B. TERM FINANCE 1. So far as possible, disbursement to be made by direct payment to seller.2. At every time of disbursement, matching contribution to be made by the borrower.3. Immediately after disbursement, branch to follow up insurance policy, receipt for payment made, invoice etc…

C. GENERAL 1. Disbursement to be made only after complying with all the terms and conditions of sanction, complete documentation and obtaining disbursal authority.2. In case of Private Ltd. Company, charge with ROC to be registered immediately on disbursal of credit facility.3. Before disbursal branch to ensure that borrowers/guarantors become member of the bank.POST SANCTION

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A. TERM FINANCE 1. On installation of machineries branch to inspect the unit and to ensure that machineries as per sanction is received & place the inspection report on record.2. At least twice a year, branch to inspect the unit to ensure that machineries financed by the bank are in running condition.

B. WORKING CAPITAL 1. No finance to be considered against inter-firm receivable and for the receivables of more than 90 days.2. Drawing power to be arrived at regularly every month on the basis of stock statement/book debt statement submitted by the party. 3. Branch to ensure that receipt and payment through CC/OD accounts represent genuine business transactions.4. Branch to carry out inspection of the unit at least on quarterly basis. Renewal of working capital facility

1. Personal balance sheet of proprietor/partner/directors is also to be obtained. 2. Branch to submit the renewal papers along with memorandum for renewal to higher authority for renewal, with its comments on performance with the bank, financial performance viz. sales, profit etc…3. If financial performance does not justify the limit at current level, branch to persuade the party to reduce the limit.4. Where the accounts are statutorily required to be audited, branch to obtain audited accounts at the time of renewal.

NPA NORMS OF CO-OPERATIVES BANKCLASSIFICATION:

1. SUB STANDARD ASSETSOverdue of 90 days and for loan up to Rs.1.00 lacs overdue for 6 monthsNPA up to 12 months remain in sub standard assets.

2. DOUBTFUL ASSETSNPA for more than 12 months is doubtful assets.

PROVISION:

1. STANDARD ASSETS 0.25% of standard assets in SME and direct agriculture advances. 0.40% in case of all other standard loans 1.00% for personal loan, Commercial Real Estate Loan, Loan against shares And for housing loan up to Rs.20.00 lacs the provision is 2.00%.

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2. SUB STANDARD ASSETS 10% of sub standard assets

3. DOUBTFUL ASSETS 20% for NPA from 13 months to 24 months 30% for NPA from 25 months to 48 months 50% for NPA from 49 months and above 100% for loss assets

RECOVERY POLICY AT CO-OPERATIVE BANKBANK’S POLICY:

At present they are making recovery but procedure for the same is not documented in the form of policy. Although the bank is committed to collection/recovery of its dues but the dignity of and respect for the customer is central to their recovery policy. The policy is framed on the principal of courtesy, fair treatment and persuasion.

GUIDELINES FOR BRANCH/RECOVERY STAFF:All the branches of Co-operative bank have to follow the following guidelines…

1. Branch to continuously inform the borrower about the due date of repayment schedule. Recovery efforts to starts from the first month of default itself.

2. Position of overdue account to be reviewed on the monthly basis to arrest slippage of fresh accounts to NPA category.

3. If the branch does not get response from the borrower for paying the amount, they have to visit the unit and meet with the borrower. During visit to customer’s place for collection of dues, decency and decorum would be maintained and customer’s privacy would be respected as far as practicable.

4. If the branch does not get any favorable response, during personal visit, they should write a notice letter to borrower.

5. If borrower still behaves irresponsible, they should meet the guarantor and ask guarantor to peruse the borrower. Guarantor must be informed about legal complication to arise if borrower fails to repay the dues.

6. On failure of all the recovery steps, branch to contact Area office/Control centre.7. Area office/Control centre to call the borrower along with guarantor and try to find out the

reason for overdue. If borrower is in genuine difficulty, problem to be resolved in a mutually acceptable and in an orderly manner.

8. If party behaves indifferent, legal actions must be initiated. In such case prompt legal action and seizure action to be taken. Preference to be given for steps under Securitization Act rather than go for filling a case in the court of Board of Nominees.

9. Reasonable notice would be given before Repossession of Security and its realization, unless the borrower is about to dispose of/remove the whole or any part of the security from the locality

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where it ordinarily remained or by whom it is used or caused to be remained or used, as the case may be, at the time of creation of security.

10. The aim of possession under Securitization or State co-op. Act will be to recover the dues and will not be aimed at whimsical deprivation of the property. The bank shall resort to repossession of the security only when the collection/recovery of dues is not forthcoming in spite of request made and the policy for repossession shall be in accordance with the terms and conditions of the loan documents and with in the legal framework. The policy fairness and transparency in repossession, valuation and realization of security.

ANALYSIS OF DATA:

YEAR WISE NPA AT KENDRAPARA URBAN CO-OPERATIVE BANK :

YEAR 2003 (RS. IN LACS)

Details Amount %of Total

STANDARD ASSETS 5912.67 91.90084

SUB-STANDARD ASSETS 189.75 2.949291

DOUBTFUL ASSETS 316.69 4.922324

LOSS ASSETS 14.64 0.22755

TOTAL 6433.75 100

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NPA OF 2003

91.90084

2.949291

4.922324

0.22755

0 20 40 60 80 100

STANDARD ASSETS

SUB-STANDARD ASSETS

DOUBTFUL ASSETS

LOSS ASSETS

ASSE

TS-->

VALUES-->

%of Total

YEAR 2004

(RS. IN LACS)






TOTAL 7369.18 100

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NPA OF YEAR 2004

93.95

1.95

3.95

0.15

0 20 40 60 80 100

STANDARD ASSETS

SUB-STANDARD ASSETS

DOUBTFUL ASSETS

LOSS ASSETS

ASSE

TS-->

VALUES-->

%of Total

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YEAR 2005 (RS. IN LACS)

NPA OF YEAR 2005

94.28

2.03

3.61

0.01

0 20 40 60 80 100

STANDARD ASSETS

SUB-STANDARD ASSETS

DOUBTFUL ASSETS

LOSS ASSETS

AS

SE

TS

-->

VALUES-->

%of Total

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TOTAL 7707.72 100

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YEAR 2006

(RS. IN LACS)






TOTAL 7093.63 100

NPA OF YEAR 2006

96.82

0.17

3.01

0

0 20 40 60 80 100 120

STANDARD ASSETS

SUB-STANDARD ASSETS

DOUBTFUL ASSETS

LOSS ASSETS

ASSE

TS-->

VALUES-->

%of Total

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YEAR 2007

(RS. IN LACS)

NPA OF YEAR 2007

94.78

1.16

2.5

1.54

0 20 40 60 80 100

STANDARD ASSETS

SUB-STANDARD ASSETS

DOUBTFUL ASSETS

LOSS ASSETS

AS

SE

TS

-->

VALUES-->

%of Total

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TOTAL 10340.26 100

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SEGMENTWISE CLASSIFICATION OF NPA:

SEGMENT

2005 2006 2007

NO OF A/C

AMOUNT NO OF A/C

AMOUNT NO OF A/C

AMOUNT

TOTAL ADVANCES

NPATOTAL

ADVANCESNPA

TOTAL ADVANCES

NPA

RETAIL TRADE 267 752.63 17.69 248 641.90 20.21 343 802.03 76.81

SMALL BUSINESS 31 46.48 4.38 25 44.17 20.15 122 88.02 50.93

SMALL SCALE IND 582 4021.55 210.74 642 3832.29 44.88 975 6323.86 180.86

CONSTRUCTION & REPAIRS

246 323.43 21.02 231 343.86 2.70 345 459.76 22.43

AGRICULTURE 2 3.72 0.00 0 0.00 0.00 517 115.64 0.12

SMALL ROAD & TRANSPORTATION

10 5.23 0.00 0 0.00 0.00 34 8.18 1.90

PROFESSIONAL 84 89.81 5.00 2 7.33 0.00 80 72.52 3.10

EDUCATION 2 10.71 0.00 8 3.41 0.00 3 7.26 0.00

OTHER PRIORITY SECTOR 0 0.00 0.00 55 41.82 3.47 326 68.05 16.42

OTHE NON PRIORITY SECTOR

375 2454.16 177.26 285 2178.85 134.41 310 2394.94 186.20

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TOTAL 1599 7707.72 436.09 1496 7093.63 225.82 3055 10340.26 538.77

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RATIO ANALYSIS:

To analyzed the NPA situation in bank and from that to know about the banks credit appraisal system and level of risk in bank I have done the ratio analysis. Ratio analysis is the tool which will help us to do financial analysis of bank.Some names of ratio are as follows:

1. GROSS NPA RATIO.2. NET NPA RATIO.3. PROBLEM ASSETS RATIO.4. SHAREHOLDER’S RISK RATIO.5. PROVISION RATIO.6. SUB-STANDARD ASSETS RATIO.7. DOUBTFUL ASSETS RATIO.8. LOSS ASSETS RATIO.

1. GROSS NPA RATIO

Gross NPA is the sum of the total assets which are classified as the NPA by bank at the end of every year. Gross NPA is the ratio of Gross NPA to Gross Advances. It is expressed in percentage form.

Gross NPA Ratio = Gross NPA * 100 Gross Advances

( RS. IN LACS)

YEAR GROSS NPAGROSS

ADVANCES

GROSS NPA RATIO

(%)

2003 521.08 6433.75 8.10%

2004 445.44 7369.18 6.04%

2005 436.09 7707.72 5.68%

2006 225.82 7093.63 3.18%

2007 538.77 10340.26 5.21%

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GROSS NPA RATIO

8.10%

6.04% 5.68%

3.18%

5.21%

0.00%

1.00%2.00%

3.00%4.00%

5.00%6.00%

7.00%8.00%

9.00%

2003 2004 2005 2006 2007

YEAR-->

PER

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>

RATIO

ANALYSIS

Gross NPA ratio shows the bank’s credit appraisal policy. High Gross NPA ratio means bank have liberal appraisal policy and vice-versa.

In Kendrapara Urban Co-operative Bank this ratio was 8.10% in March-2003 and it has been decreased from year 2003 to 2006 from 8.10% to 3.18%. But again in March-2007 this ratio reach at 5.21%.

However it is revels from the chart that bank’s Gross NPA ratio is continuously decreasing which is positive trend for bank and we can say that bank have good appraisal system.

2. NET NPA RATIO

The Net NPA Ratio is the ratio of net NPA to Net Advances. This ratio shows the degree of risk in bank’s portfolio. Net NPA ratio can be obtain by Gross NPA minus the NPA provisions divided by Net advances.

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Net NPA Ratio = Net NPA *100 Net Advances

(RS. IN LACS)

YEAR NET NPA NET ADVANCESNET NPA RATIO

(%)2003 299.13 6211.80 4.82%2004 0.00 6888.84 0.00%2005 0.00 7236.74 0.00%2006 0.00 6622.57 0.00%2007 0.00 9733.62 0.00%

Net NPA = Gross NPA – Provision for NPANet Advances = Gross NPA – Provision for NPA

NET NPA RATIO

4.82%

0.00% 0.00% 0.00% 0.00%0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

2003 2004 2005 2006 2007

YEAR-->

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NET NPA RATIO

ANALYSIS

Net NPA ratio shows the degree of risk in portfolio of bank. High net NPA ratio means banks don’t have enough fund to do provision against the Gross NPA.

In Kendrapara Urban Co-operative Bank Net NPA ratio was 4.82% in year March-2003 which shows that in that year bank had not enough fund for provisions. But after that from March-2004 to March-2007 Net NPA ratio is 0.00% which shows that bank has now enough provision capacity. So, here the degree of risk is less

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When all bank will do provision then Net NPA will become zero but if we want to know the true and fair situation of bank we must consider the Gross NPA of bank.

3. PROBLEM ASSETS RATIO

This ratio is also known as the Gross NPA to Total Assets ratio. This ratio shows the percentage of risk on the total assets of the bank. High ratio means high risk for bank.

Problem Assets Ratio = Gross NPA *100Total Assets

(RS. IN LACS)

YEAR GROSS NPA TOTAL ASSETSPROBLEM

ASSETS RATIO(%)

2003 521.08 13381.91 3.89%

2004 445.44 15935.97 2.80%

2005 436.09 16337.35 2.69%

2006 225.82 18675.05 1.21%

2007 538.77 24202.77 2.23%

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PROBLEM ASSETS RATIO

3.89%

2.80% 2.69%

1.21%

2.23%

0.00%0.50%

1.00%1.50%

2.00%2.50%

3.00%3.50%

4.00%4.50%

2003 2004 2005 2006 2007

YEAR-->

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PROBLEM ASSETSRATIO

ANALYSIS

This ratio shows the percentage of risk on the assets of bank. It shows the level of risk on bank’s assets. High ratio shows the high risk on liquidity

In This Kendrapara Urban Co-operative Bank this ratio was 3.89% in March-2003 and after that it has been decreased from 3.89% to 1.21% in March-2006. But again it increase to 2.23% in March-2007.

This ratio is continuously decreasing in bank except in March-2007. But overall this ratio is good for bank which indicates the level of risk is low in bank.

4.SHAREHOLDER’S RISK RATIO

It is the ratio of Net NPA to Total capital and reserve of bank.

Shareholder’s risk Ratio = Net NPA *100 Total Capital & Reserve

(RS. IN LACS)

YEAR NET NPATOTAL

CAPITAL & RESERVE

SHAREHOLDER’S RISK RATIO

(%)

2003 299.13 1793.76 16.68%

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2004 0.00 2075.06 0.00%

2005 0.00 2262.39 0.00%

2006 0.00 2551.64 0.00%

2007 0.00 3014.58 0.00%

SHAREHOLDER’S RISK RATIO

16.68%

0.00% 0.00% 0.00% 0.00%0.00%2.00%

4.00%6.00%

8.00%10.00%

12.00%14.00%

16.00%18.00%

2003 2004 2005 2006 2007

YEAR-->

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SHAREHOLDER’S RISKRATIO

ANALYSIS

This ratio shows the degree of risk with share holder’s investment. High ratio means high ratio with the investment.

In this Urban co-operatives Bank this ratio was 16.68% in year March-2003 which shows that in that year risk on share holder’s investment was quite high but after that this ratio is 0.00% up to year March-2007, which shows that Bank have enough capacity for provision and the risk on investment is nil.

As we know that this ratio is 0.00% show the risk is nil but on the other side because of more provision the profit will decrease and the shareholder will get less dividends.

5. PROVISION RATIO

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Provisions are to be made against the Gross NPA of bank. As bank make provision for NPA it directly affects the profit of bank. This ratio shows the relation of total provision to Gross NPA.

Provision Ratio = Total Provision *100Gross NPA

(RS. IN LACS)

YEARTOTAL

PROVISIONGROSS NPA

PROVISION RATIO

(%)

2003 221.95 521.08 42.59%

2004 480.34 445.44 107.83%

2005 470.98 436.09 108.00%

2006 471.06 225.82 208.59%

2007 606.64 538.77 112.60%

PROVISION RATIO

42.59%

107.83%108.00%

208.59%

112.60%

0.00%

50.00%

100.00%

150.00%

200.00%

250.00%

2003 2004 2005 2006 2007

YEAR-->

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PROVISION RATIO

ANALYSIS

Provision ratio shows the degree of provision that is made against the Gross NPA of bank. As bank made the provision it directly affect the profit of bank and also the dividend payout ratio of bank too.

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If Provision ratio is less then it means that bank has make under provision and if provision is more then it means that it is over provision.

In this Kendrapara Urban Co-operative Bank they have made 42.59% provision in March-2003 which shows that it was under provision but after that in March-2004 and March-2005 it is 107.83% and 108% respectively which indicate that provision was nearer to total amount of Gross NPA but in March-2006 the provision ratio reach at 208.59% which indicate that it is the very over provision. And again in March-2007 it is 112.60% which is fair ratio.

Kendrapara urban co-operative bank should make the provision in the range of 100% to 115%. The provision in March-2006 which is 208.59% is very high and it is not necessary to do that.

6. SUB-STANDARD ASSETS RATIO

Sub-standard Assets Ratio = Total Sub-standard Assets *100 Gross NPA

(RS. IN LACS)

YEARSUB-STANDARD

ASSETSGROSS NPA

SUB-STANDARD ASSETS RATIO

(%)

2003 189.75 521.08 36.41%

2004 143.60 445.44 32.24%

2005 156.65 436.06 35.92%

2006 12.24 225.82 5.42%

2007 120.12 538.77 22.30%

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SUB-STANDARD ASSETS RATIO

36.41%32.24%

35.92%

5.42%

22.30%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

2003 2004 2005 2006 2007

YEAR-->

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SUB-STANDARDASSETS RATIO

ANALYSIS

This ratio shows the percentage of Sub-Standard assets in the Gross NPA of bank. High Sub-Standard ratio means more proportion of Sub-Standard asset in the Gross NPA. High ratio shows that there is a chance of recovery of assets is high.

In this Urban Co-operative bank this ratio was 36.41% in March-2003 which is good for bank and it is 5.42% in year March-2006 which is not good for bank.

As the level of Sub-Standard assets are more the chances of recovery of NPA are high.

7. DOUBTFUL ASSETS RATIO

It is the ratio of total doubtful assets to Gross NPA of the bank.Doubtful Asset Ratio = Total Doubtful Assets *100

Gross NPA(RS. IN LACS)

YEARTOTAL

DOUBTFUL ASSETS

GROSS NPADOUBTFUL

ASSETS RATIO(%)

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2003 316.69 521.08 60.78%

2004 291.00 445.44 65.33%

2005 278.40 436.09 63.84%

2006 213.58 225.82 94.58%

2007 258.80 538.77 48.03%

DOUBTFUL ASSETS RATIO

60.78%65.33%63.84%

94.58%

48.03%

0.00%10.00%20.00%30.00%40.00%50.00%60.00%70.00%80.00%90.00%

100.00%

2003 2004 2005 2006 2007

YEAR-->

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DOUBTFUL ASSETSRATIO

ANALYSIS

This ratio shows the percentage of Doubtful assets in the Gross NPA of bank. High Doubtful assets ratio means more proportion of Doubtful asset in the Gross NPA.

More Doubtful assets means Bank should take action through recovery policy to reduce the level of Doubtful assets.

As the Doubtful assets ratio is high which shows that bank should take quick action to reduce that level.

This ratio should be less for the bank.

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In Kendrapara Urban Co-operative Bank this ratio is in between from 60.00% to 65.00% in year from March-2003 to March-2005 but in March-2006 this ratio reach at 94.58% which indicate that bank must take some necessary action to recover it. And again in March-2007 this ratio decrease to 48.03% which is good for bank.8. LOSS ASSETS RATIO

It is the ratio of Total loss assets to Gross NPA of bank.

Loss Assets Ratio = Total loss Assets *100Gross NPA

(RS. IN LACS)

YEARTOTAL LOSS

ASSETSGROSS NPA

LOSS ASSETS RATIO

(%)

2003 14.64 521.08 2.81%

2004 10.84 445.44 2.43%

2005 1.04 436.09 0.24%

2006 0.00 225.82 0.00%

2007 159.85 538.77 29.67%

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LOSS ASSETS RATIO

2.81% 2.43%0.24% 0.00%

29.67%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

2003 2004 2005 2006 2007

YEAR-->

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LOSS ASSETS RATIO

ANALYSIS

This ratio shows the percentage of loss assets in the Gross NPA of bank. High loss assets ratio means more proportion of loss asset in the Gross NPA.

This should be less in bank. The high ratio indicates that bank has more fraudulent account and it is bad for bank. The bank must take necessary action to reduce the level of loss assets.

In this Kendrapara Urban Co-operative Bank this ratio is 2.81% in March-2003 and from it reach at 0.00% in the year March-2006. This ratio is decreasing in bank which is good for bank but again in March-2007 this ratio reaches at 29.67% which is the very high increase and it is very bad for bank.

Hence, bank should take some action to reduce the level of loss assets from the total NPA.

FINDINGS FROM RATIO

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As I have already analyze the ratio and from that I can say that bank’s financial condition is good.From ratio I am able to find the following findings…

1. The Gross NPA ratio of bank is 8.10% in the year 2003 after then it reaches to 5.21% in the year 2007. Hence, the idle gross NPA ratio is 5.00% and bank have 5.21%. So, we can say that bank’s financial condition is good.

2. Bank’s Net NPA ratio is 4.82% in the year 2003 and from 2004 to 2007 it remains 0.00% which is positive for bank.

3. The Problem assets ratio was 3.89% in the year 2003 which was the highest ratio and from that year it is decrease to 1.21% in the year 2006 which is good for bank. And this ratio is 2.23% in the year 2007.

4. Provision ratio for the year 2003 is 42.59% which show that their was under provision in that year but in year 2007 this ratio is 112.60% which shows that bank have enough profit for the provision.

5. It will be considered good if the Sub-standard assets ratio is high. For kendrapara urban co-operative bank, this ratio is 36.41% in the year 2003 which is good but it reaches to 5.42% in the year 2006 which is very bad for bank’s health.

6. Doubtful assets ratio should be low for the good health of bank and in this bank this ratio is 94.58% in the year 2006 which is very bad but in year 2007 this ratio decrease to 48.03% which is positive for bank.

7. Loss assets ratio should be zero and bank have 0.00% in the year 2006 which is good but in year 2007 this ratio reaches to 29.67% which is very rapid change with in a one year. And it is also bad for bank.

CONCLUSION

Now as we know that NON-PERFORMING ASSETS is like a black spot on diamond. They affect the profit of bank and also the financial health of bank. This NPA have number of effects on banks working.

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During my training in bank I gathered as much as possible information about NPA from bank and on the basis my experience I conclude the following points:

Kendrapara urban Co. bank’s NPA level is decreasing year by year which good for bank.

The Gross NPA ratio of bank is 8.10% in the year 2003 after then it reaches to 5.21% in the year 2007. Hence, the idle gross NPA ratio is 5.00% and bank have 5.21%. So, we can say that bank’s financial condition is good.

Bank’s Net NPA ratio is 4.82% in the year 2003 and from 2004 to 2007 it remains 0.00% which is positive for bank.

Loss assets ratio should be zero and bank have 0.00% in the year 2006 which is good but in year 2007 this ratio reaches to 29.67% which is very rapid change with in a one year. And it is also bad for bank.

Kendrapara urban Co. Bank has sound credit appraisal system and also sound recovery policy.

Hence in present time the position of NPA in bank is much better then the past position. In year 1997 in India the Gross NPA was 15.7% but now it is 3.00% in the year 2007. This is very favorable to Indian economy and also banking sector of India.

Government’s act on NPA are very useful to reduce the level of NPA.

So, I can conclude that level NPA in any bank is important parameter to analyze the health of bank.

SUGGESTIONS:

1. Kendrapara urban Co. bank’s NPA level is decreasing year by year which good for bank but bank should follow the recovery policy strictly.

2. In Kendrapara urban Co. bank there is no any special recovery department so bank should develop the department for the fastest recovery of NPA.

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3. Bank should motivate the staff to do fast recovery NPA.

4. Bank have more NPA in Small Scale Industry so, they should try to reduce that level of NPA.

BIBLIOGRAPHY:

JOURNALS

Co-Operative Banker’s Diary 2008 -by John D’salve

Annual Report of Kendrapara urban Co-Operative Bank -year, 2003, 2004,2005,2006,2007

Periodical circular and statement of RBI regarding to NPA managing and UCB’s

WEBSITES

http://finance.indiamart.com/investment_in_india/banking_in_india.html

http://www.rbi.org.in/Home.aspx

http://www.banknetindia.com/banking/cintro.htm

http://www.investorwords.com/

http:// www.indiabankassociation.com /

http://www.google .Com

http://www.Yahoo .com

http://Wikipedia.Com

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http://www.indiabankassociation.com/

http://www.investorwords.com/

http://www.banknetindia.com/banking/cintro.htm

http://www.rbi.org.in/Home.aspx

http://finance.indiamart.com/investment_in_india/banking_in_india.html

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