MBA report on KMF

Credit Risk Management On BDCC Bank

Investments, Advances, Deposits and Borrowings:

The following table shows various Investments of BDCC Bank:

Particulars As on 31/3/11 As on 31/3/12 As on 31/3/13

Central & State

Govt. Securities

12,05,00,000 14,25,00,000 505,00,000

Shares in Co-Op

Institutions

8,15,45,000 4,77,45,000 8,15,45,000

Other(debentures,

Bonds)

2,00,000 Nil 20,00,000

In the year 2010-12, the Bank invested high funds in Govt. Securities, Shares in Co.op

Institutions, Bonds and Debentures. In the year 2011-12 the bank did not invested in

Bonds -and Debentures and fully it invested in moderate returns Securities because of the

safest investment option. By this investing decision, Bank able to maintained its profit

growth.

BEC-Department Of Management Studies Page 1


The below Chart shows the inflows and outflows of funds of the bank:

Analysis and Interpretation

a) Investments:

Management of funds of the Bank was of prime importance obligation to invest their

Surplus funds in Securities, Bonds and Debentures within the parameters of directive

guidelines issued by RBI/NABARD from time to time, with a system of monitoring the

inflow and outflow of funds on day-to-day basis. The bank has been gauge the surplus

funds for the purpose of short term as well as long term investments or even for pre-

payment of refinances.

B) Advances

The bank is able to maintain dominance in the field of Advances by increased

operation of funds in the form of Loans and Advances.


31/3/2011 31/3/1 2 31/3/13


Sl.No Sector 2010-11 2011-12 2012-13

1 Agriculture 3150070864 3120369645 3636577380

2 Allied Activities 138400 138400 138400

3 Non-Agriculture 27708750 22905090 26198300

4 Trade and Service 201655164 188758519 191573470

5 Cash Credit 467427495 638302217 874154286

Total 4438581004 4908527415 5932538471

Analysis and Interpretation:

The above chart shows the loans and advances of the bank, in the respective years. It depicts

that the average funds outflow is increased year by year. In a similar way the recovery amount

increased and the percentage of NPA(i.e 7.98, 5.9 and 4.48 in the year 2011, 2012 and 2013

respectively) declined year by year it shows the good recovery performance by Bank.



Deposits:

There is consistent increase in the level of Deposits(i.e from Rs.435233576 to Rs 6508525005

from the year 2010 to 2013) in which the bank recorded the deposits growth rate of 49.54% in

two years.

Borrowings:

Bank used refinance made available by NABARD under the various Refinance schemes. The

repayments were made as per time schedule according to NABARD guidelines. Bank has

undertaken several measures for reducing NPA, it facilitates the high volume of funds recovery

and used in generation of funds with profit.

Here the Banks maintained stable in its borrowings( i.e from 1952022500 to 1983431700, from

2010 to 2013) for its operation. It shows the sufficient fund availability in banks by its

successful funds recovery and in its returns.



Demand Collection And Balance Sheet of AGRIL And NON AGRIL Loan Except Cash Credits as on June 2008

Sl.No Type of Loan Demand(lakhs) Collection(lakhs) Balance(lakhs)

1 Loan on Gold 1152.78 1048.13 104.65

2 Overdraft Loan 172.02 115.51 56.51

3 Vehicle Loan 28.10 11.90 16.20

4 Housing Loan 37.40 20.88 16.52

5 Ind. Salary Earner Loan

41.12 26.30 14.82

6 N.F.S 71.03 38.31 32.72

7 S.T.Non AGRIL S.E.sty

37.10 32.42 4.68

8 Weaver Societies Loan

0.00 0.00 0.00

9 Loan on NSc 0.00 0.00 0.00

10 M.T. Non AGRIL Loan

448.79 37.50 411.29

11 Eassy Loan 26.20 17.09 9.11

12 SHG 20.25 18.49 1.76

13 Swarojgar Credit Card

6.23 5.59 0.64

Total 2041.02 1372.12 668.90

Grand Total 37687.50 31971.25 5716.25



Analysis and Interpretation:

In the year of 2008 the Bank had provided the more loan on overdraft and Gold loan

and at average loan to M.T Non Agriculture and salary earner loan. But also it had recovered the

loan on averagely on all different types of loans. Bank has recovered more loan in Swarojgar

Credit and S.T.Non-Agricultural loan. Bank has not recovered loan from M.T.Non-Agril. Loan it

recovered 8.36%. So there will be more risk in the M.T.Non-Agril. Loan. Due to problem of

monsoon and climatical condition the farmers did not paid loan so the loan has not recovered. But

due to balance of the loan on different types of loan it had negative effect on the bank.



DEMAND COLLECTION AND BALANCE OF AGRIL AND NON AGRIL LOAN EXCEPT CASH CREDITS AS ON JUNE 2009

Sl.No Type of Loan

Demand(lakhs) Collection(lakhs) Balance(lakhs)

1 Loan on Gold

742.03 562.62 179.41

2 Overdraft Loan

170.99 125.60 45.39

3 Vehicle Loan

30.45 21.83 8.62

4 Housing Loan

47.64 20.85 26.79


29.40 18.07 11.33

6 N.F.S 54.29 19.88 34.41


37.41 33.49 3.92


542.43 37.50 504.93

9 Eassy Loan 21.43 13.93 7.50

10 SHG 42.73 31.89 10.84


19.62 12.04 7.58

12 Education Loan

0.25 0.25 0.00



Analysis And Interpretation:

In the year of 2009 there will be more loan granted to the gold loan and average

amount of loan granted to the other types of loan but there will be high percentage of recovery in

Swarojgar Credit Card 91.11% , S.T.Non. Agricultural loan 89.52% and averaged percentage of

recovery in Loan on Gold, Overdraft Loan, Vehicle Loan SHG and in the Educational loan it

recovered completely. But the percentage of recovery has decreased in the year of 2009compare

to 2008 in gold loan and recovery in S.T.Non-Agricultural loan has increased compare to last

year. In this year there will be more credit in M.T.Non-Agricultural loan.



DEMAND COLLECTION AND BALANCE OF AGRIL AND NON AGRIL LOAN EXCEPT CASH CREDITS AS ON JUNE 2010

Type of Loan


Loan on Gold

786.49 633.74 152.75

Overdraft Loan

106.26 59.48 46.78

Vehicle Loan

19.54 11.20 8.34

Housing Loan

47.55 31.61 15.94

Ind. Salary Earner Loan

18.49 10.46 8.03

N.F.S 60.32 17.25 43.07

S.T.Non AGRIL S.E.sty

37.88 37.80 0.08

M.T. Non AGRIL Loan

905.68 220.85 684.83

SHG 56.25 50.82 5.43

Swarojgar Credit Card

31.16 24.75 6.41

Education Loan

0.70 0.70 0.00




In the year of 2010 there will be more loan granted to the M.T.Non-Agricultural Loan. And

there will be high percentage of recovery in S.T.Non-Agricultural loan and percentage of

recovery in this loan has increased from compare to last year and also high percentage of

recovery in SHG and Education loan completely recovered. In this year there will be high risk in

the NFS loan and M.T.Non-Agricultural loan. Every year there will be more risk in the

M.T.Non-Agriculture loan due to the customers non repayment of loan amount because of high

rate of interest and due to customers financial problem.



DEMAND COLLECTION AND BALANCE OF AGRIL AND NON AGRIL LOAN EXCEPT CASH CREDITS AS ON JUNE 2011.

Sl.No Type of Loan


1 Loan on Gold

1026.86 952.43 74.43

2 Overdraft Loan

108.97 64.01 44.96

3 Vehicle Loan

16.91 9.53 7.38

4 Housing Loan

38.01 32.12 5.98


15.16 9.13 6.03

6 N.F.S 42.16 25.24 16.92


50.09 50.09 0


548.81 40.75 508.06

9 SHG 54.78 53.09 1.69


54.79 41.21 13.58

11 Education Loan

0.26 0.00 0.26




In the year of 2011 there will be high loan granted to the Gold loan compare to last years.

And the percentage of recovery is very high in SHG 96.91%, loan on Gold 92.75% and there

will be complete recovery in S.T.Non-Agricultural loan. But there will be no recovery in

education loan. In this year there will be high risk in M.T.Non-Agricultural loan. Every year

there will be high risk in the M.T.Non-Agricultural loan because of high rate of interest period of

repayment. And also bank not managing proper recovery policy regarding to those loans.



DEMAND COLLECTION AND BALANE OF AGRIL AND NON AGRIL LOAN EXCEPT CASH CREDITS AS ON JUNE 2012.


Type of Loan


Loan on Gold

1519.09 1384.86 134.23

Overdraft Loan

146.50 122.83 23.67

Housing Loan

18.15 16.47 1.68

Salary earner

9.23 3.92 5.31

Vehicle Loan

29.19 22.07 7.12

N.F.S 18.64 3.42 15.22

SHG 55.55 50.66 4.89

SJSY 64.3 50.51 13.79

MT Non-AGRIL LOAN

1665.75 973.11 692.64

Education Loan

1.57 0.74 0.83



In the year of 2012 there will be high loan sanctioned to the M.T.Non Agricultural loan and also

to the loan on Gold. But there is high percentage of recovery in Loan on Gold 91.16%, SHG

91.20% and Housing loan 90.74%. In this year there will more risk in the NFS loan 18.35%. In

this year Housing loan recovered well because of long period of repayment of period and the

interest rate. Because here the repayment period will be upto 7years on depending on the loan

amount its having the limits. Even rate of interest also in average as 10.5% to 12.5%. And same

as Gold loan also recovered well because of rate of interest and repayment of period and also its

having the limits of individual salary earner and for non individual salary earner like business

man and etc.



Sl.No Type of Loan

Recovery %-08

Recovery%-09

Recovery%-10

Recovery %-11

Recovery%-12

1 Loan on Gold

90.92 75.82 80.58 92.75 91.16

2 Overdraft Loan

67.15 73.45 55.98 58.74 83.84

3 Vehicle Loan

42.35 71.69 57.32 56.36 75.61

4 Housing Loan

55.83 43.77 66.48 84.30 90.74


63.96 61.46 56.57 60.22 42.47

6 N.F.S 53.93 36.62 28.60 59.87 18.35


87.39 89.52 99.79 100.00 ---

8 Weaver Societies Loan

0.00 -- --- --- ---

9 Loan on NSc

0.00 -- --- --- ---


8.36 6.91 24.38 7.43 58.42

11 Eassy Loan 65.23 65.00 --- --- ---

12 SHG 91.31 74.63 90.35 96.91 91.20


89.73 61.37 79.43 75.21 78.55

14 Education Loan

0.00 100.00 100.00 --- 47.13





Provision Made Towards NPAs

Interpretation

Here sub-standard assets position is highest in the year 2008-09 i.e. Rs 259.32 and it is decreased

in the year 2010-11 is Rs 184.28. It is lowest in the year 2010-11 as compared to 2008-09 and

2009-10.

The position of the doubtful assets decreased in the year 2009-10 as compared to previous year

i.e. it is decreased from 219.42 to 135.57.But again it is increased to Rs 473.69 in the year 2010-

11.

And the position of the loss assets is highest in the year 2009-10 t.e.92.93, as compared to the

remaining years.

Overall percentage of the NPAs to total assets for three years of Bagalkot District Central Co-operative Bank


Particulars 2008-09 2009-10 2010-11Sub Standard Assets 259.32 217.34 184.28Doubtful Assets 219.42 135.57 473.69Loss Assets 8.87 92.93 17.76Total 487.61 445.84 675.73


Sl. No Year % NPA1 2010-11 7.98%2 2011-12 5.95%3 2012-13 4.48%


Here the total percentage of NPAs is consistently decreasing year by year for the year

2010-11 it is 7.98. And it is decreased to 5.95 in the year 2011-12 and again it was declined to

4.48 in the year 2012-13.

NPA’s, in short are not just a problem for banks. They are bad for the economy. So

here the Bank maintained control on risk bearence capacity by its effective recovery policy and

recovery or credit risk management.

Findings:


2010-11 2011-12 2012-13


It is found that the Banks Non Performing Assets percentage declined from the effective

recovery of Loans during the three years (i.e 7.98%, 5.95% and 4.48% in the year 2011,

2012 and 2013 respectively.

The net profit of the bank is in increasing order. This shows the performance of the bank

is good. The net profit of the bank is also increasing order.

The Bagalkot District Central Co-operative Bank Ltd there is a separate department

working in order to recover the loan from the borrowers

BDCC Bank is expanding its Credit in the following focus areas:

a) Term Deposits

b) Recurring Deposits

c) Housing Loan

d) Educational Loans

e) Car loan

f) Personal Loan etc

It is found that in BDCC bank by looking at 5 years loan the recovery percentage of

loan is very less at every year in M.T.Non-Agricultural loan (i.e 8.36%, 6.91%, 24.38%,

7.43% and 58.42%) because of bank is not maintaining the proper recovery policy

towards the that loan.

It is found that bank agricultural advance is 30.5% of the Net Bank’s Credit, which

shows that Bank has lend enough credit to agricultural sector as compared with other

Education and Personal loans.

It is found that the BDCC bank has maintained the feasible and realistic Credit risk

management process and policies for its effective operations.

Suggestions:



Bases on the findings and analysis, I have given the following some of recommendations to the

Bank.

BDCC Bank should customize the Loan Products according to the customer’s needs and

necessities.

The Bank should keep on revising its Credit Policy which will help to correct the course

of the policies.

Bank should maintain the credit rating procedure or it should adopt any particular method

to reduce the credit risk.

Bank should maintain separate account for borrower whose monthly loan reports should

be made.

The Credit Policy of BDCC Bank has to implement sector-wise differentiation. If sector

wise differentiation is made then it would be easy for the bank to identify and avoid the

risk.

It is suggested that the BDCC Bank should have to computerize all the departments in

order to increase efficiency and effectiveness of the bank.

Bank should evaluate the credit worthiness towards the borrower to reduce the risk and

predict the future growth prospects.

Before providing credit facilities to the borrower the bank should analyse the major heads

of income & expenditure and current and future position of major assets and liabilities.

Conclusion:



I, according to the information given by the bank, learnt that the bank follows the RBI

guidelines and provisioning norms for the Non-performing assets.

In Bagalkot District Central Co-operative Bank Ltd most of the loans are sanctioned for

agriculture purpose. Before sanctioning the loan, each and every security documents are verified

by the concerned officer. The Government of India and RBI is concentrating more towards

Priority Sector Lending which mainly includes Agriculture and Small Scale Industries.

As mentioned credit risk ascertainment and balance in NPA maintenance are the sound for any

economy, so it becomes crucial for banks in lending. They need to understand the risk involved

in lending and the role of credit risk management.

Credit risk management is the area which mainly deals with risk assessment in lending. They

undertake the evaluation of financial and operational risk involved in lending to know the

credibility of the borrower.

Credit rating area of BDCC Bank has been performing at sound level at the time of lending;

Bank first understands the need of credit for the borrower. Then they undertake evaluation of

financial performance of borrower and inspection process.

Once lending is sanctioned, the credit manager takes periodical actions and evaluation of

borrowers. Most of the borrowers are satisfied with BDCC Bank services and they feel the

procedure of sanctioning the loan is simple and borrowers friendly.

The bank has the proper control on NPAs. It shows the Bank effective loan recovery policy

and its competence by sufficient funds and diversified investment approach.


Documents

MBA report on KMF