A STUDY ON NPA MANAGEMENT AT CANARA

BANK, RO, SHIMOGA

Submitted By,

SHASHANK M C

Internal Guide, External Guide,

Dr. Sripathy Rao Dr. Hemalatha K G Mr. Suresh

Professor, DSCE Professor & HOD, Manager,NPA cell,

DSCE Canara Bank

Department of Management studiesDAYANANDA SAGAR COLLEGE OF ENGINEERING

Kumaraswamy Layout, Bangalore – 560078

INDUSTRY PROFILE The ancient Banking in India is tracced back in

Maurya dynasty (321 to 185 BC) The establishment of modern type of bank in India

dates back to 18th century, called as General Bank of India

Milestones: 1949 : Enactment of Banking Regulation Act. 1955 : Nationalisation of State Bank of India. 1969 : Nationalisation of 14 major Banks. 1980 : Nationalisation of seven banks with deposits

over 200 Crores. 1990 : Liberalization of Banks 2011 : RBI decided to issue new licenses for more Pvt

Banks

COMPANY PROFILE Established in 1906 in Mangalore as Canara Hindu

Permanent Fund by Visionary Shree A.S.R Pai through 2000 shares of capital having Rs.50 each.

Nationalized with other 14 major bank in 1969. In 1995-96 First bank with ISO 9002 in India. In 2004-05 Complete Computerized Bank. In 2010-11 Bank scored 5lakh crore benchmark of

business and earned SIFI status. 2011-12 Total number of branches reached 3600.

The Bank’s 5th foreign branch at Manama, Bahrain opened.

2012-13 Highest Dividend of 130% paid for the year. As at December 2013, the total business of the Bank

stood at 696624 crore.

NATURE OF BUSINESS CARRIED

Internet Banking NRI Banking Corporate Banking Personal Banking Factoring Subsidiary CanBank Venture Capital Mutual Fund Business SME Banking

VISION, MISSION & CORPORATE OBJECTIVE

VISION STATEMENT “To emerge as a „Best Practices Bank‟ by

pursuing global benchmarks in profitability, operational efficiency, asset quality, risk management and expanding the global reach”.

MISSION STATEMENT“To provide quality banking services with

enhanced customer orientation, higher value creation for stakeholders and to continue as a responsive corporate social citizen by effectively blending commercial pursuits with social banking”.

QUALITY POLICYE- Efficiency.P- Profitability and Productivity.O- Organization Effectiveness.C- Customers centricH- Hi Tech Banking

SWOT ANALYSIS

Strength:

Weakness:

1. Innovative schemes2. Technologically advance3. Articulation of good banking4. Canara bank has employed over 44,000 people5. Canara bank made a partnership with UNEP to initiate a successful solar loan programme

1. Inadequate Publicity2. Low International presence3. Customer service is lesser as compared to other banks

Opportunity:

1. Rural and social banking2. Agriculture based consultancy

Threats:

1. Economic crisis2. Highly competitive environment3. Changing government and RBI policies

EXECUTIVE SUMMARY The primary function of banks is to lend funds as loans to

various sectors such as agriculture, industry, personal loans, housing loans etc.,

But in recent times the banks have become very cautious in extending loans. The reason being mounting nonperforming assets (NPAs) and nowadays these are one of the major concerns for banks in India.

NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a large number of credit defaults that affect the profitability and net-worth of banks and also erodes the value of the asset.

The NPA growth involves the necessity of provisions, which reduces the overall profits and shareholder’s value. The present study is based on the empirical study that will explore the trends in strategies to reduce non-performing assets of Canara Bank.

OBJECTIVES

To study the classification of the Non Performing Assets.

To know why account becomes Non Performing Assets and the steps taken by the bank to reduce Non Performing Assets.

To know the reason and measures adopted for reducing NPA’s

To study the movements of Non Performing Assets and its effects on Bank.

To study the RBI guidelines and norms to control Non Performing Assets.

To recommend some tentative suggestion based on Ratio findings

LITERATURE REVIEW Dr. A. Shyamala (June -2012), “NPAs in Indian banking

sector: impact on profitability” Shahbaz Haneef, Tabassum Riaz, Muhammad Ramzan,

“Impact of Risk Management on Non-Performing Loans and Profitability of Banking Sector of Pakistan” (April 2012,)

P.Malyadri2.S.Sirisha“Asset Quality and Non Performing Assets of Indian Commercial Banks”

Anshu bansal (January 15, 2012 “A study on recent trends in risk management of nonperforming assets (npas) by public sector banks in india”

Ms. Rajni Saluja, Dr. Roshan Lal (NOVEMBER-2007) “Comparative Analysis On Non‐Performing Assets NPAS Of Public Sector, Private Sector And Foreign Banks In India”

Dr.Hosmani ,Mr.Jagadish Hudagi (December 2011,) “Unearthing the epidemic of non-per forming assets -a study with reference to public sector banks in india”

RESEARCH METHODOLOGY Primary data: Primary data has been collected

through personal interview by direct contact method. The method which was adopted to collect the information is ‘Personal Interview’ method.

Secondary data: The data is collected from the Magazines, Annual reports, Internet, Text books. The various sources that were used for the collection of secondary data are: Internal files & materials

Websites – Various sites like www. sharekhan.com, www.indiainfoline.com, www.canarabank.com, www.investopedia.com, www.wikepedia.com.

NPA & ITS CLASSIFICATION

NPA refers to those assets where in which the bank does not earn income from that account, asset (or) loan granted.

Classification of Assets:The NPA’s are classified into 3 categories namely:

Sub-standard Assets Doubtful Assets Loss Assets

Sub-Standard Assets: An asset becomes NPA is first classified as a sub-standard asset and which remains as NPA for a period less than or equal to12 months (earlier18 months).

Doubtful Assets:A substandard asset becomes a doubtful if it has remained as a substandard for a period exceeding 12 months (before 18 months).

Loss Assets: An asset, which is considered as irrecoverable by the banks of internal or external auditor or the R.B.I. Inspection is treated as loss Account but the amount has not been written off wholly.

ANALYSIS & INTERPRETATION

ASSUMPTION:

There is no much differences between Net NPA and Gross NPA. Hence I have taken only the Net NPA for the study.

All the numbers, figures and facts related to Advances and NPA are subjected to Canara Bank, Reginonal Office, Shimoga.

PERFORMANCE RATIO:1. RETURN ON ASSETS(ROA)

2011-12 2012-13 2013-14

0.92 0.73 0.54

2011-12 2012-13 2013-14Return On Assets

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Interpretation:This ratio correlates between the total assets and the net profit. The return on total assets (also return on capital employed or return on investment) is defined as Net Income (Profit) divided by average total assets. A return of 10 percentages is considered as ideal ratio. As such, if the actual ratio is equal or more than 10 percentage, it indicates the higher productivity of the total resources / assets and vice verse in adverse cases.

2. EARNING PER SHARE(EPS)

Table showing Earning per Share (EPS)

2011-12 2012-13 20113-14

72.10 64.86 52.83

2011-12 2012-13 2013-14Earning Per Share (EPS)

0

10

20

30

40

50

60

70

80

Interpretation:The ratio measures the profit available to the equity holders on a per share basis. It is found out by dividing the amount of profit after tax by the number of shares. The earning per share of the bank has increased drastically in the year 2011-12 i.e. 74.10 compare to 2013 and 2014 which is good sign of the bank.

3. NET NPA RATIO

It is the most important ratio which measures the NPA as a percentage of advances. Table showing the NPA ratio.

YEAR Net

Advances(Amt

in lakhs)

NPA(Amt in

lakhs)

NPA Ratio

2011-12 490.53 244.32 0.498

2012-13 502.16 130.08 0.259

2013-14 547.14 126.13 0.230

Graph showing the movement of NPA Ratio.

2011-12 2012-13 2013-140

0.1

0.2

0.3

0.4

0.5

0.6

NPA Ratio

NPA Ratio

Interpretation: From the above table and graph, it is

seen that disbursement of Advance has increased slightly whereas the NPA level has decreased drastically during 2012-13.

During FY 2013, Canara Bank has tightened its credit policy that is the loans are issued by the consultancy of CIBIL (Credit Information Bureau Ltd) which rates the credit worthiness of a customer by backtracking his/her credit information all over India.

4.UP GRADATION / RECOVERY RATIO

Up gradation of NPA means the recovery of NPA. It is one of the important ratio to conclude bank’s recovery mechanisms effectiveness.

YEAR NPA inflow(amt

in lakhs)

NPA up

gradation(amt

in lakhs)

Up gradation

Ratio

2011-12 244.32 199.73 0.817

2012-13 130.08 127.00 0.976

2013-14 126.13 86.08 0.682

2011-12 2012-13 2013-140

0.2

0.4

0.6

0.8

1

1.2NPA up gradation Ratio

NPA up gradation R...

Interpretation: From the above table and graph, the

amount of NPA recovered/upgraded is higher during FY 2012 and FY 2011 that is 81% and 97% and has fallen to 62% in FY 2014.

This shows that Canara Bank has effective recovery mechanisms and team which has almost recovered 80% and above of NPA. The reason for the sudden drop in percentage in FY 2014 is given as due to the policy change implemented by govt on agriculture loans and subsidaries and external factors like real estate in Shimoga circle.

5. NET PROFIT TO NPA Profits are greatly affected by the level of

NPA. So it is important to see the behavior of profits. The following table shows the NPA levels and respective profits during past three years.

YEAR NPA level(amt in

lakhs)

Net Profit(amt in

lakhs)

2011-12 244.32 -17.38

2012-13 130.08 17.67

2013-14 126.13 31.20

2011-12 2012-13 2013-14

-50

0

50

100

150

200

250

300

ProfitsNPA level

Interpretation: The above table and graph shows the

negative profit in FY 2012 and a drastic come back in preceding years FY 2013 and FY 2014. It is seen that as the level of NPA increased, profits are decreased. Thus we can say that profits are inversely proportional to the NPA level.

The reason for decreased profit ie loss of 17.38 lakhs in FY 2012 because the interest amount paid on deposits are more than the interest received from loans and advances. That is bank has accumulated more deposits. Further the bank has overcome the loss and shown a attractive profits by 50 to 70 % increase in 2013 and 2014 respectively by earning interests from loans and advances.

SUMMARY OF FINDINGS

The Net NPA ratio of the Canara Bank, RO, Shimoga declined from 49.8% as on March 31st 2012 to 23% as on March 31st 2014.

The Net Advances are up by Rs 4,90,53,000 as on March 31st 2012 to Rs 5,47,14,000 as on March 31st 2014.

The recovery of NPA was found reasonable as on March 31st 2012 and as on March 31st 2014.

It is seen an excellent recovery of NPA as on March 31st 2013 with the efficiency of 97.2%.

There was a Net loss of Rs 17,38,000 in FY 2012. The performance is seen well in FY 2013 with 97.2% of

NPA recovery and with 2X profits achieved of Rs 17,67,000 compared to FY 2012 & FY 2014.

The total assets of Canara Bank, all over India is increased from 365269.07cr as on March 2012 to 477573.57cr as on March 2014.

CONCLUSION

“Non Performing Asset Management “is a vast subject and it is very difficult to cover all the aspects within a short period. However, every effort has been made to cover most of the important aspects which have a direct bearing on improving the financial performance of Banking Industry.

To sum up, it would not be out of way to mention here that the Canara Bank has given special impetus on “Non Performing Asset Management “. In pursuance of the instructions and guidelines issued by the Reserve Bank of India, the Canara Bank has taken series of measures, to reduce the ratio of “NPA” marginally. The measures initiated by the Bank have helped in reducing the ratio of “NPA” which in turn has contributed in improving its profit margin over the years.

The concerted efforts put in by the Management and Staff of Canara Bank has helped the Bank in achieving remarkable progress in almost all the important parameters. The Bank is marching ahead in the direction of achieving the Number-1 position in the Banking Industry.

RECOMMENDATION / SUGGESTION Recovery camps to be conducted at centers identified as having

higher concentration of irregular loans in the times of revenue recovery camps.

Across the table decisions on compromise proposals submitted at the recovery campus. Officials from corporate office who attend such campus to be delegated with powers to arrive at decisions.

Asset recovery cells to be strengthened with additional professional man power.

At branches where concentration of NPA is more, one of the members of the award staff who is well versed with locality and the borrowers should be spared from other works of the office and asked to facilitate recoveries through personal visits and assisting the recovery officers in the unit / borrower visits. Conveyance expenses incurred by such staff members to be reimbursed.

Presently Bank is spending 4 days a week on Public Working day in rural areas and in other areas the Bank is spending 2 days a week for recovering the NPA from the customer which to be increased to 5 days a week, because the bank has to spend 1 day for selling the property.

Immediate action has to be taken for reduction of NPAs in those sectors where NPAs is more like Agricultural sector.

Bank should protect the interest of the investor but not at the cost of Banks profitability.

Bank is required to be cautious about availability of security and ensure honesty of the both borrower and guarantor so as to avoid the account becoming loss assets for which the bank is required to make 100% provision.

There should be frequent follow ups by the Bank officials. CANARA BANK should implement a system for selecting a

good borrower. In some cases the Bank officials should conduct personal

visits for recovering NPAs. The Bank should take every NPA case as a separate issue

and analyze the need for further form an economic point of view.

The bank should take immediate action once the asset falls into the sub standard category and ensure the speedy recovery of the advances to avoid making the provisions for the same.

BIBILOGRAPHY

Banking and Finance – Clifford Gomez, 1/e, PHI, 2011

Banking Theory – Gordon & Natrajan, 22/e, Himalaya, 2011

http://www.canarabank.com http://profit.ndtv.com/ http://economictimes.indiatimes.com/ http://www.indiainfoline.com/ http://www.scribd.com http://money.livemint.com/ money.rediff.com/ www.investopedia.wiki

THANK YOU