CONTENTS

CHAPTER – 1: INTRODUCTION OF THE TOPIC

Introduction about banking industry1

Co-operative Banks8

Evolution of Co-operative Banks10

Definition and Features of Co-operative Bank12

Structure of Co-operative Bank14

Non-Performing Assets17

RBI Prudential Norms on the recommendations of the

Narasimham Committee in the year 1992-93 19

Impact of Non0Performing Assets22

General causes of Non- Performing Assets23

Measures to tackle Non-Performing Assets24

Introduction to Securitization Act 200226

Meaning of Securitization27

Objectives of Securitization28

Benefits of Securitization29

Transaction Structures33

Parties involved in the securitization transaction36

Process of securitization38

Summary of Regulatory Framework45

Provisions of the Act46

CHAPTER – 2: DESIGN OF THE STUDY

Title of the Study48

Statement of the Problem48

Needs & Importance of the study49

Objectives of the study49

Scope of the Study50

Assumptions of the study50

Methodology of the study51

Tools for the collection of data51

Limitations of the study52

Reference Period52

Chapter Scheme52

CHAPTER – 3: BANK PROFILE

History of The BCCBL54

Trade mark of the Bank55

Goals & Objectives55

Vision Statement57

Organization chart of the Bank 58

Branches59

Statement showing the Information about the growth

of Bank 60

Awards and Competitors Information 61

CHAPTER – 4: ANALYSIS & INTERPRETATION

Reasons for NPAs in the bank63

Measures for the recovery of NPAs adopted by the

bank 64

Recovery mechanisms are adopted by the bank for

reducing NPAs 66

Issues concern in the implementation of SARFAESIA 66

2002

Analysis and interpretation of the Study 68 - 85

CHAPTER – 5: SUMMARY OF FINDINGS, SUGGESTIONS & CONSLUSIONS

Summary of findings86

Suggestions89

Conclusions90

BIBLIOGRAPHY

ANNEXTURES

Questionnaire

LIST OF TABLES

4.1 Growth of deposits of the bank 68

4.2 Growth of loans & advances as a percentage of deposits 70

4.3 Growth of loans & advances and recovery performance 72

4.4 Gross NPAs as a percentage of Loans & Advances 74

4.5 Net NPAs as a percentage of loans & advances 76

4.6 Status of NPAs & provisions made in the bank 78

4.7 Status of NPAs & recovery performance of the bank 80

4.8 Profit position for both the period 82

4.9 Overall performance of the bank 84

LIST OF GRAPHS

4.10 Growth of deposits of the bank 68

4.11 Growth of loans & advances as a percentage of deposits 70

4.12 Growth of loans & advances and recovery performance 72

4.13 Gross NPAs as a percentage of Loans & Advances 74

4.14 Net NPAs as a percentage of loans & advances 76

4.15 Status of NPAs & provisions made in the bank 78

4.16 Status of NPAs & recovery performance of the bank 80

4.17 Profit position for both the period 82

4.18 Overall performance of the bank 84

CHAPTER – I:

INTRODUCTION

1.1 INTRODUCTION ABOUT BANKING INDUSTRY:

The word bank originated the French word ‘benque’ or

Italian ‘banco’ which means an office for monitory transaction

over the counter. In those days banks or desks were used as

centers for monitory transactions.

During the barter system also, there existed traces of

banking, i.e. people used to deposit cattle and agricultural

products in specified places get loans of some other form in

exchange for these. There is solid evidence found in records

excavated from Mesopotamia, showing some bank existed around

1700 B.C. During this time barley, silver, gold, copper, etc., were

used as a standard for valuation.

1.2 ORIGIN OF BANKING INDUSTRY:

Greece was the first country to introduce a satisfactory

system of coinage. After the invention of coins started, a

meaningful system of banking came into existence taking into

account all the avenue of banking a credit system.

Rome was the first country to start a bank at the

department of state level in the 4th century B.C. with transactions

such as depositing and investments in other forms. In India

ancient records show that banking was popular and money

lending was a common practice among the common people.

In the olden days’ Goldsmith, merchants and money lenders

conducted the business. They had transactions among themselves

by which funds were transferred from one business firm to

another. They had no general or uniform principles of banking,

lending, rate of interest, etc.

1.3 INTRODUCTION TO BANKING IN INDIA

The Indian Companies Act defines the term banking as

“accepting for the purpose of lending or investment of deposits of

money from the public, repayable on demand or otherwise and

withdrawable by cheque, draft or otherwise”.

A Banker is a dealer in money and credit. The business of

Banking consists of borrowing and lending banks acts as financial

intermediaries between savers (lenders) and investors

(borrowers) by accepting deposits of money from a large number

of customers and lending a major position of a accumulated ‘pool’

of money to those who wish to borrower. In this process banks

secure reasonable return for the savers, make funds available to

the investors at a cost and earn a profit for themselves after

covering the cost of funds and providing for corporate taxes to the

government. Thus, the banking institutions in a country mobilizes

savings by accepting monetary deposits from the people,

participate in the mechanism for the exchange of goods and

services and extend credit while lending money.

1.4 HISTORY OF MODERN BANKING IN INDIA

Pre-nationalization period:

The history of modern banking in India dates back to the

last quarter of 18th century. During this period the English agency

houses of Bombay and Calcutta started banking business to India.

They setup the Bank of Hindustan around 1770 followed by setting

up of quasi government banking institutions like presidency bank

of Bombay in 1840 and presidency Bank of Madras in 1873.

In 1921 all these banks were amalgamated and imperial

bank was constituted. In the late 19th and early 20th centuries, the

Swadeshi Movement inspired to start banks in India. The Indian

Banks were established during this period. In 1935 the Reserve

Bank of India was established as a central bank for regulating and

controlling the Banking business in the country. Soon after

independence, the Reserve Bank was nationalized in September

1948. The outlook of Reserve Bank further changed after the

inception of planning in 1950-51 and the country adopting a

socialistic pattern of society.

Post-nationalization period:

On an account of the top-sided growth of the banking

system and to bridge the gap between a few industrial houses and

banks, the scheme of the social control was imposed on banks

with effect from Feb 1, 1969. It resulted in setting up of National

Credit Council for more equitable distribution of bank credit and

legislative changes in the Banking Regulation Act for making the

board of directors of the banks more board based. As a result the

government resorted to a more radical measure by nationalizing

14 major banks on July 1969. Later on in April 1980, six more

banks were nationalized to achieve the objective.

The objective of nationalization was to control the

commanding heights of economy and to meet progressively and

serve he needs of the developing economy in conforming to the

national policy and objectives. Another welcome feature of post –

nationalization period is setting up of regional rural banks setting

up of regional rural banks as per the provisions of the Regional

Rural Bank Act 1976. These banks confine in themselves the

simplicity of operations as required by local conditions and the

efficiency and businesslike approach of commercial banks. At the

end of June 1986 there were 194 regional rural banks covering

342 districts. Thus, the banking system, during the post –

nationalization period has undergone a major structural

transformation. There has been a phenomenal expansion of

branch network particularly the hitherto under banked areas.

Present scenario of banking industry:

The Indian banking can be broadly categorized into

nationalized (government oriented), private banks and specialized

banking institution. The RBI acts as a centralized body monitoring

any discrepancies and shortcoming in the system. Since the

nationalized banks have required a place of prominence and has

then seen tremendous progress.

The need to become highly customer focused has forced

the slow of moving public sector banks to adapt a fast track

approach.

The Indian Banking has come a long way from a sleepy

business institution to a highly proactive and dynamic activity. This

transformation has been largely brought by the large close of

liberalization and economic reform that allowed banks to explore

new business opportunities rather than generating revenue from

conventional stream i.e. borrowing and lending. The Co-operative

banks too have invested heavily in information technology to after

computerized banks services o its clients.

New Generation Banking:

The liberalized policy of government of India permitted

entry of private sector in banking; the industry has witnessed the

entry of new generation private banks. The major parameter that

distinguishes these banks from all the other banks in Indian

Banking is the level of services that is offered to the customer.

Verifying the focus has always being centered on the customer

understanding his needs and delighting him with various

configurations of benefits and a wide portfolio of product and

services. The popularities of these banks can be gauged by the

fact, that in as short span of time, these banks have gained

considerable customer confidence and consequently have shown

impressive growth sales.

1.5 CLASSIFICATION OF BANKS

Banks are classified into several types based on the function

they perform. Generally banks are classified into

1. Investment banks

2. Exchange banks

3. Commercial banks

4. Co-operative banks

5. Land development banks

6. Savings banks

7. Central banks

1.6 FUNCTIONS OF BANKING

A. The main functions are as follows;

1. Borrowing of money in the form of deposits.

2. Lending or advancing of money in the form of different

types of loan.

3. The drawing, making, accepting, discounting, buying and

selling, collecting and dealing in bills of exchange,

promissory notes, coupons, drafts, bills of lading, railway

receipts, warrants, debentures, certificates, securities both

negotiable and non-negotiable.

4. The granting and issuing of credit, travelers cheques, etc.

5. The acquiring, holding, issuing on commission,

underwriting, dealing in stock, funds, shares, debentures,

bonds, securities of all kinds.

6. Providing safe deposits vaults.

7. Collecting transmitting of money and securities.

8. Buying and selling of foreign notes.

9. The purchasing and selling of bonds scripts and other forms

of securities on behalf of constituents or others.

B. The subsidiary functions of banks are:

1. Acting as agents for governments or local authorities or any

other persons.

2. Carrying out agency business of any description.

3. Contracting for public and private loans and negotiation and

issuing the same.

4. Carrying on guarantee and indemnity business.

5. Managing to sell and realize any property or any interest in

any such property.

6. Undertaking and executing of trusts.

7. Granting of pensions and allowances and making payments

towards pensions.

1.7 CO-OPERATIVE BANKS

The Co operative banks in India started functioning almost

100 years ago. The Cooperative bank is an important constituent

of the Indian Financial System, judging by the role assigned to co

operative, the expectations the co operative is supposed to fulfill,

their number, and the number of offices the cooperative bank

operate. Though the co operative movement originated in the

West, but the importance of such banks have assumed in India is

rarely paralleled anywhere else in the world. The cooperative

banks in India play an important role even today in rural financing.

The businesses of cooperative bank in the urban areas also have

increased phenomenally in recent years due to the sharp increase

in the number of primary co-operative banks.

While the co-operative banks in rural areas mainly finance

agricultural based activities including farming, cattle, milk,

hatchery, personal finance etc. along with some small scale

industries and self-employment driven activities, the co-operative

banks in urban areas mainly finance various categories of people

for self-employment, industries, small scale units, home finance,

consumer finance, personal finance, etc.

Co operative Banks in India are registered under the Co-

operative Societies Act. The cooperative bank is also regulated by

the RBI. They are governed by the Banking Regulations Act 1949

and Banking Laws (Co-operative Societies) Act, 1965.

Cooperative banks in India finance rural areas under:

1. Farming

2. Cattle

3. Milk

4. Hatchery

5. Personal finance

Cooperative banks in India finance urban areas under:

1. Self-employment

2. Industries

3. Small scale units

4. Home finance

5. Consumer finance

6. Personal finance

According to NAFCUB the total deposits & lending of

Cooperative Banks in India is much more than Old Private Sector

Banks & also the New Private Sector Banks. This exponential

growth of Co operative Banks in India is attributed mainly to their

much better local reach, personal interaction with customers and

their ability to catch the nerve of the local clientele.

1.8 EVOLUTION OF CO-OPERATAIVE BANK IN INDIA

The Cooperatives were first started in Europe to serve the

credit-starved people in Europe as a self-reliant, self-managed

people’s movement with no role for the Government. British India

replicated the Raiffeisen-type cooperative movement in India to

mitigate the miseries of the poor farmers, particularly harassment

by moneylenders.

The first credit cooperative society was formed in Banking

in the year 1903 with the support of Government of Bengal. It was

registered under the Friendly Societies Act of the British

Government. Cooperative Credit Societies Act of India was

enacted on 25th March 1904. Cooperation became a State subject

in 1919. In 1951, 501 Central Cooperative Unions were renamed

as Central Cooperative Banks. Land Mortgage Cooperative Banks

were established in 1938 to provide loans initially for debt relief

and land improvement.

Cooperatives have played an important role in the

liberation and development of our country. The word Cooperative

has become synonymous for dedicated and efficient management

of rural credit system. Reserve Bank of India started refinancing

cooperatives for Seasonal Agricultural Operations from 1939.

From 1948, Reserve Bank started refinancing State Cooperative

Banks for meeting the credit needs of Central Cooperative Banks

and through them the Primary Agricultural Cooperative Societies.

Only 3% of rural families availed farm credit in 1951.

In 1954, the All India Rural Credit Survey Committee

recommended strengthening of DCC Banks and PACS with State

partnership and patronage to solve the farmers’ woes. Registrar of

Cooperative Societies became the custodian of Cooperatives from

1962 with the enactment of respective State Acts. Reserve Bank

introduced Seasonality and Scale of Finance for crop loans and

provided for conversion, replacement and re-schedulement to

tide over crop loss due to calamities.

The Primary Agricultural Cooperative Societies became

multi-purpose. Reorganization of PACS into viable units, FSCS,

LAMPS started under action programme of RBI in 1964. The

finding of All India Rural Credit Review Committee that coverage

of cooperatives is limited to hardly 30% of farmers led to

nationalization of Banks. However, Cooperatives have played a

key role in meeting the credit needs of weaker sections of

farmers.

The establishment of Regional Rural Banks from 1975 has

not reduced the problems of rural credit as they reached only 6%

of the farmers. Cooperatives have contributed their part in the

implementation of 20-point programme and Integrated Rural

Development Programme. Though the Cooperatives were lagging

behind in rural credit till 1991, they regained their prime place

with 62% share in rural crop loans between 1991 and 2001

1.9 DEFINITION OF CO-OPERATIVE BANKS:

In the words of Henry Wolff “Co-operative banking is an

agency which is in a position to deal with the small means on his

own terms”.

Devine defines “a mutual society formed composed and

governed by working people themselves for encouraging regular

saving and generating miniature loans on easy terms of interest

and repayments”.

1.10 FEATURES OF CO-OPERATIVE BANKS:

1. They are organized and managed on the principles of co-

operation self-help and mutual help. They function with the

rule of “one member one vote”.

2. Co-operative banks perform all the main banking function of

deposit mobilization, supply of credit and provision for

remittance facilities.

3. Co-operative banks belong to the money market as well as the

capital markets.

4. Co-operative banks are perhaps the first government

supported agency in India.

5. Co-operative banks accept current, saving, fixed and other

types of time deposits from individuals and institutions

including banks.

6. Co-operative banks do banking business mainly in the

agricultural and rural sector.

7. Some co-operative banks are schedule co-operative banks

while others are non-schedule co-operative banks.

8. Co-operative banks also required to comply with requirement

of statutory liquidity ratio [SLR] and cash reserve ratio [CRR]

liquidity requirements as other scheduled and non-scheduled

banks.

1.11 STRUCTURE OF COOPERATIVE BANKS

Following are the features of cooperative banks, which make them

hold in integral position in banking sector:

1. The nature of cooperative banks is service oriented. So,

without intention of profit they provide quality service within

reach of common people.

2. Co-operative banks account for 42% of institutional lending in

rural sector and its covers about 65% of rural population.

3. The deposits and credit of these banks are about 15% and 35%

respectively of those of commercial banks.

CO-OPERATIVE BANKS

STATE CO-OPERATIVE BANKS

STATE LAND DEVELOPMENT BANKS

URBAN CO-OPERATIVE BANKS

CENTRAL CO-OPERATIVE

BANKS

PRIMARY AGRICULTURAL

CREDIT SOCIETIES

CENTRAL LAND DEVELOPMENT

BANKS

BRANCHES OF STATE LAND DEVELOPMENT BANKS

PRIMARY LAND DEVELOPMENT

BANKS

4. The government and RBI have taken a number of steps to

improve the health and strength of co-operative banking in

India. In keeping with other financial sector reforms certain co-

operative banking sector reforms have also been carried out

after 1991.

5. The main factor for their increasing role is their local

operations. They mobilize deposits in a local area, which are

used for lending in same locality. Hence with increase in its

branches it contributes to balanced regional development.

6. Co-operative banks operations are of mixed type. Urban co-

operative banks, primary co-operative banks and state co-

operative banks.

7. District cooperative banks have a number of branches subject

to this it can be said that each cooperative institution in a

separate entity with a definite jurisdiction and has an

independent board.

8. Cooperative banks belong to money market as well capital

market. Primary Agricultural credit societies provide short term

and long term loans. Land development banks provide long-

term loans. Urban co-operative banks meet working capital

needs and fixed capital requirements. They also issue

debentures.

1.12 REFORMS IN CO-OPERATIVE BANKS

The field of rural credit is so vast in India the problems so

diverse and complex and the field of experimentation so wise that

only if the important issues and challenges before the rural credit

are taken adequately cooperative banks as major purveyors of

rural credit would be able to make the crucial difference in the

lives of millions of our countrymen in the countryside.

The financial sector reforms 1991 aimed at promoting a

diversified and efficient, competitive financial sector with the

ultimate objective of improving the efficiency of available

resources, increasing the return on investments and promoting an

accelerated growth of the real sector of the economy. In

conformity with this and banking sector reforms gave raise to

reforms in cooperative sector, which is an integral part in delivery

of rural credit and promote its growth.

Reserve Bank of India has over the years put its faith in

cooperative banks as they hold a major share in agricultural credit.

With its number if branches it can percolate to all the corners of

the country. The Indian financial system has undergone several

changes and now comprises of widespread network of financial

institutions. Accordingly the co-operative credit structure has also

grown. Despite the progress reforms are required to bring out

efficiently reduce non-performing assets and increase capital

base.

These reforms aim at improving the financial health and

capabilities by prescribing prudential norms. Prudential norms are

required for cooperative banks to reduce non-performing assets.

Due to the non-performing assets co-operative credit system is

affected as a whole.

1.13 INTRODUCTION TO NON-PERFORMING ASSETS

Indian laws permitted banks to conceal much with the

result that the Balance Sheet and Profit and Loss A/c rarely

revealed the true state of their affairs.

The Narasimhan Committee therefore strongly emphasized

the need for bringing transparency in the financial statements of

the banks and recommended for a new set of formats for Balance

Sheet and Profit and Loss statements which were made effective

from 1991-1992.

Banks provide loan and advances subjects to borrowers

promise for the payment of principal and interest in the future. In

this process banks are exposed to various types of risks including

credit risk arising from non-performing of loans and defaults of

borrowers.

Moreover with Globalization and diversified ownership

where credit rating agencies constantly review the strength of the

banks managing the levels of NPAs assumes greater importance.

The cost of financial intermediation by banks is high partly

because of the cross subsidization of NPA. NPA is inevitable

burden of the banking industry. NPAs badly affect the financial

health of the banks. Hence control and management of NPAs have

assumed serious importance. It s well known fact that NPAs are

the threat on the profitability of the banks because the banks

have not only to make provisions but they have to meet the cost

of funding these unremunerative assets.

1.14 DEFINITIONS OF NON-PERFORMING ASSETS

An asset is classified as non-performing asset (NPA’s) if the

borrower does not pay dues in the form of principal and interest

for a period of 180 days. However with effect from March 2004,

default status would be given to a borrower if dues are not paid

for 90 days.

If any advance or credit facilities granted by bank to a

borrower become non-performing, then the bank will have to

treat all the advances/credit facilities granted to that borrower as

non-performing without having any regard to the fact that there

may still exist certain advances/ credit facilities having performing

status.

In simple words, an asset which ceases to yield is a non-

performing asset.

DEFINITIONS GIVEN BY THE NARASIMHAN COMMITTEE

The committee has defined non-performing assets as

advances here, as on the date of balance sheet,

1. In respect of term loans, interest remains past due for a

period of more than 90 days.

2. Overdrafts and cash credits accounts remain out of order

for more than 90 days.

3. Bills purchased and discounted remain over due and unpaid

for a period of more than 90 days.

An amount is considered past due when it remains

outstanding for 30 days beyond the due date.

1.15 RBI INTRODUCED PRUDENTIAL NORMS ON THE

RECOMMENDATIONS OF THE NARASIMHAM COMMITTEE IN

THE YEAR 92-93.

The above norms have three main criteria:

1. Asset classification

2. Income Recognition

3. Provisioning

1. ASSET CLASSIFICATION:

For the purpose of making provisions for bad and doubtful

loans and advances, banks need to classify them into the following

broad categories;

A. Performing assets: Also known as Standard Assets are the

assets which do not disclose any problem and which do not

carry more than the normal risk attached to the business.

Performing asset is one which generates income for the bank. It

is an asset where the interest and or principal are not overdue

beyond 180 days (modified to 90 days, w.e.f., Mar 2004) at the

end of the financial year.

B. Non-performing asset: An amount is to be treated as non

performing asset when it ceases to generate income for the

Bank. An asset may be treated as Non Performing Asset (NPA),

if interest and /or installment of Principal remain overdue for a

period exceeding 180 days (modified to 90 days w.e.f. Mar

04)and Banks and FIs should not take into their Income

account, the interest accrued on such NPAs, unless it is actually

received/recovered.

NPAs are further classified into:

Substandard Assets: Loans which are non-performing for a

period not exceeding two years, where the current net-worth

of the borrower or the current market value of the security,

against which the loan is taken, is not enough to ensure full

recovery of the debt.

Doubtful Assets: Loans which have remained non-performing

for a period exceeding two years and which are not classified as

loss assets by the management or the internal/external auditor

appointed by RBI.

Loss Assets: Assets where loss has been identified by the

internal/external auditor of the bank or the RBI, but the

amount has not been written-off wholly or partly. These assets

are considered unrecoverable and are of little value to the

lending institution.

2. INCOME RECOGNITION

The income recognition is linked to the concept of

performance of the assets. In other words the income from

performing assets only is to be recognized. The income from non-

performing assets is recognized only to the extent of actual

recovery made during the accounting year.

3. PROVISIONING

The amount of provision required to be created for each

asset depends on the classification of the assets, availability/value

of security, other guarantee available and the age of the NPA etc.

1.16 IMPACT OF NON-PERFORMING ASSSETS

a) Non-Performing Assets are drag on profitability of banks

because besides provisioning banks are also required to meet

the cost of funding these unproductive assets.

b) Non-Performing Assets reduce earning capacity of assets.

Return on assets also gets affected.

c) As Non-Performing Assets not earn any income, they adversely

affect capital adequacy ratio.

d) No recycling of funds.

e) Non-performing assets also attract cost of capital for

maintaining capital adequacy ratio.

f) Non-Performing assets demoralize the operating staff and

stakeholders.

g) It will badly affect the image of the bank concerned.

h) Affect the moral of the employees and decisions making for

fresh loans suffer.

i) Enhances administrative, legal and recovery costs.

1.17 GENRAL CAUSES OF NON-PERFORMING ASSETS

Directed and pre-approved natures of loans sanctioned under

sponsored programmes.

Misutilisation of loans and subsidies.

Diversion of funds.

Absence of security.

Lack of effective follow-up (post-sanction supervision& control).

Absence of bankruptcy and foreclosure laws.

Decrepit legal system.

Cost in-effective legal recovery measures.

Difficulty in execution of decrees obtained.

Lack of marketing support.

Improper and inadequate credit appraisal.

Demand recession.

Frequent changes in Government’s policies.

Industrial sickness and labour problems.

Technology obsolescence.

Incompetence-Management failures.

1.18 MEASURES TO TACKLE THE NON PERFORMING ASSETS

1. LOK ADALATS:

Lok Adalats have been set up for recovery of dues in

accounts falling in the Doubtful and loss category with

outstanding balance up to 5 lakhs, by way of compromise

settlement.

2. CIVIL COURTS

For claims below Rs.10 lakhs, the banks and FIs can

initiate proceedings under the Code of Civil Procedure of 1908,

as amended, in a civil court.

The courts are empowered to pass injunction orders

restraining the debtor through itself or through its directors,

representatives, etc from disposing of, parting with or dealing

in any manner with the subject property.

Courts are also empowered to pass attachment and sales

orders for subject property before judgment, in case necessary.

3. DEBT RECOVERY TRIBUNAL (DRT)

CDR is an non-statutory mechanism institutionalized in

the year 2001 to provide timely and transparent system for

restructuring corporate debts of Rs.20 crores and above, of

viable entities financed by Banks and FIs under consortium or

multiple banking arrangements.

It is a voluntary system based on Debtor - Creditor

Agreement (DCA) and Inters Creditor Agreement (ICA). At

present 10 FIs and 49 Public and Private sector Banks are the

members of the CDR mechanism

4. REVENUE RECOVERY ACT:

In some states, revenue recovery act has been made

applicable to banks. Since this is also expeditious process of

adjudicating claims, banks may be notified to cover the Act by

state.

5. ONE TIME SETTLEMENT SCHEMES (OTSS)

One Time Settlement Schemes launched in

May’99&July’00 has enabled Banks to recover outstanding

amount in default up to 10 crores has been introduced in the

month of Feb’03 its results will be seen in due course

1.

1.19 INTRODUCTION OF SECURITISATION ACT 2002

Securitisation And Reconstruction of Financial Assets and

Enforcement of Security Interest Act (SARFAESIA), 2002 extends

to whole of India including the State of Jammu & Kashmir. The act

is effective from 21.06.2002. It also covers the earlier loans which

are outstanding.

The need for the setting up an Asset Reconstruction

Company for acquiring distressed assets from Banks and FIs with a

view to develop market for such assets was being felt, since long.

Narasimhan Committee 1 &2 and the Verma Committee on

restructuring of weak Banks has strongly recommended the setting

up of Asset Reconstruction Companies (ARCs).

The business of Securitization and Reconstruction is

primarily meant for more than one purpose:

To regulate the business of securitization and reconstruction

of the financial interest.

To regulate enforcement of the security interest and for the

matters connected therewith or the matters incidental

thereto.

The debt securitization is a new concept in the Indian

financial markets and is primarily meant for enhancing the liquidity

of the Banks and FIs which have extended financial assistance to

the borrowers for various purposes. The debt securitization makes

available with these institutions the security papers against the

financial assets which have been created out of the financial

assistance sanctioned and disbursed by these institutions and in

the case of a default by the borrowers the secured creditors can

have a recourse to either the securitization of the financial asset or

the reconstruction of the same.

1.20 MEANING OF SECURITIZATION

Securitization is a process whereby the ‘originator’ of the

various financial assets including loans which are illiquid can

transfer such assets to special purpose vehicles(SPV) which issues

the tradable securities against these loans are issued to the

investors.

It is an acquisition of financial asset by any securitization

company from the ‘originator’ whether by raising of funds by such

securitization company from ‘qualified institutional buyer’ or by

issue of security receipts representing undivided interests in such

financial assets or otherwise.

Thus, there will have to be some sort of understanding

between the QIBs and the securitization company which can be

‘originator’ in the case of the banks and the FIs which has

extended the financial assistance to the ‘obligor’ who is supposed

to repay the financial assistance in installments on some future

dates as per the agreement entered into by it with the bank. This

can be referred to as the ‘security agreement. It is an instrument

or any other document or arrangement under which the ‘security

interest’ is created in favour of the secured creditors including the

creation of the mortgage by the deposit of the title deeds with the

secured creditors.

1.21 OBJECTIVES OF SECURITIZATION

There are two basic objectives of securitization:

To reduce the assets of the originator

To reduce the capital requirement.

To achieve the reduction in demand and time liability.

Once the assets go off the balance sheet the originator can

thus reduce his capital requirement, similarly on the liquidation of

the assets the need for the time assets and the demand liability

comes down as these are subject to the statutory reserves.

1.22 SECURITIZATION AS FINANCIAL PRODUCT

Securitization is considered as financial product and the

bonds/debentures can be issued based on the future installments

against the financial assistance already sanctioned and disbursed

by the banks and financial institutions.

THE ACT DEALS WITH THREE ASPECTS.

1. Enforcement of Security Interest by secured creditor

(Banks/Financial Institutions)

2. Transfer of non- performing assets to Asset Reconstruction

Company, which will then dispose of those assets and

realize the proceeds.

3. To provide a legal framework for securitization of assets.

1.23 BENEFITS OF SECURITISATION

Securitization increases the lending capacity of an FI

without having to find additional capital or deposits.

Securitization facilitates specialization and is gaining wide

acceptance as the most innovative form of asset financing. It

provides capital relief, improves market allocation efficiency,

expands opportunities for risk sharing and risk pooling, increases

liquidity, improves the financial ratios of FIs and banks, creates

multiple streams of cash flows for the investors, is tailored to the

risk profile of a number of customers and facilitates asset-liability

management.

A. BENEFITS TO THE ORIGINATORS

For Banks, securitization is an opportunity offered in the

form of capital relief, capital allocation efficiency, and

improvements in financial ratios.

Lower cost of borrowing: Securitization reduces the total cost

of financing as assets are transferred to a separate bankruptcy-

resistant entity. To that extent Banks need not maintain capital

to maintain their capital adequacy norms. Also, entities with a

riskier credit profile can benefit from lowered borrowing costs.

A source of liquidity: Banks could face a liquidity crunch either

due to their risky credit profile or delayed receivables. The

liquidity provided by securitization acts as a very powerful tool,

that Banks could use to adjust the asset mix quickly and

efficiently. Further, the risks in an asset portfolio can be

identified and apportioned to arrive at an effective asset mix.

Improved financial indicators: Securitization leads to capital

relief that improves the company’s leverage and in turn the

Return on Equity. The repercussions of securitization on the

balance sheet of a company can vary depending on the

strategy for its capital structure and its appetite for increasing

or decreasing leverage.

Asset-Liability Management: Securitization offers the flexibility

in structuring and timing cash flows to each security tranche. It

provides a means whereby customized securities can be

created which helps in matching the tenure of the liabilities

and assets.

Diversified fund sources: By securitizing its receivables, the

instrument of which could be sold to global investors, the

originator has an opportunity to diversify its funding source.

Positive signals to the Capital Markets: Lenders are at times

trapped in a situation where they cannot rollover their debt

due to downgrading of their ratings, possibly due to economic

changes. Under these circumstances, securitization enables

lenders like banks to increase the rating of debt much higher

than that of the issuer through the intrinsic credit value of the

asset. This enables the banks to obtain funding.

An avenue for divestiture: Securitization offers an optimal exit

route for entities that wish to exit a business comprising of

financial assets without going through the mergers and

acquisition route.

B. BENEFITS TO THE INVESTORS

Investors purchase risk-adjusted securities based on its level

of maturity and seniority. For instance, an auto loan or credit card

receivables backed paper carries regular monthly cash flows,

which can match the requirements of investors like mutual funds.

New Asset Class: Securitized products provide new investment

avenues for investors to enhance their return or to diversify

their portfolio. For instance, an investor in the United States

whose investment is predominantly in US assets can diversify

by investing in securities offered by an SPV in Asia.

Risk Diversification: As the underlying pool of receivables is

spread across diverse customers the investors need not have a

thorough understanding of the underlying assets. The investor

is insulated from customer specific event risk.

Customization: Securitization of financial assets allows tailoring

of cash flows to the risk profile of the investors. A certain

stream of cash flow coming from an underlying asset pool can

be broken into tranches and offered as per the investor risk

appetite.

Decoupling with Originator: The investor is insulated from the

credit profile of the Originator. This separation of the

Originator and the investor helps at the time of bankruptcy or

default or credit downgrades.

1.24 TRANSACTION STRUCTURES

STAGE 1:

Initially, an ARC acquires NPA by floating an SPV which acts

as a trust whereby the ARC is a trustee and manager. NPA are

acquired from banks/FIs at fair value based on assessment of

realizable amount and time to resolution. The banks/FIs may

receive cash/bonds/debentures as consideration or may invest in

securities issued by the ARCs.

The trust acquires NPAs from banks/FIs and raises

resources by formulating schemes for the financial assets taken

over. Accordingly, it issues securities to the investors which are

usually QIBs. Securities represent undivided right, title and

interest in the trust fund.

Subsequently, the ARC redeems the investment to the

bank/FIs out of the funds received from the issued securities.

After acquiring the NPA, the trust becomes the legal owner and

the security holders its immediate beneficiaries. The NPAs

acquired are held in an asset specific or portfolio trust scheme. In

the portfolio approach, due to the small size of the aggregate

debt the ARC makes a portfolio of the loan assets from different

banks and FIs. Whereas when the size of the aggregate debt of a

bank/FI is large, the trust takes asset specific approach.

FIRST STAGE

BANK 1BANK 1 BANK 2BANK 2 Bank 2Bank 2

BORROWERBORROWER

FUND / SCHEMEFUND / SCHEME

INVESTORS (BANKS, FIS)INVESTORS (BANKS, FIS)

Payment for subscription of

Instruments

Sale of Instruments

Reconstruction

Purchase Consideration

Sale of distressed loans assets

ASSET RECONSTRUCTION COMPANY (ARC)

STAGE 2:

Thereafter, different fund schemes are pooled together in a

master trust scheme and sold to other investors. The ARC

periodically declares the NAV of respective schemes.

POOLING AT SUBSEQUENT STAGE

INVESTORSINVESTORS

FUND / SCHEMEFUND / SCHEME FUND / SCHEMEFUND / SCHEME

INVESTORSINVESTORS

MASTER TRUST / SCHEME

MASTER TRUST / SCHEME

DISTRESSED ASSET INVESTORS

DISTRESSED ASSET INVESTORS

Instruments Instruments

Pooling of Instruments

InstrumentsPayment for

subscription to Instruments

1.25 PARTIES INVOLVED IN A SECURITISATION TRANSACTION

Primarily there are three parties to a securitization transaction:

The Originator: This is the entity on whose books the assets

to be securitized exist and is the prime mover of the deal.

The entity designs the necessary structures to execute the

deal. In a true sale of the assets, the Originator transfers

both the legal and the beneficial interest in the assets to the

SPV.

The SPV: This entity is the issuer of the bond/security paper

and is typically a low-capitalized entity with narrowly

defined purposes and activities. It usually has independent

trustees / directors. The SPV buys the assets to be

securitized from the Originator, holds the assets in its books

and makes upfront payment to the Originator.

The Investors: The investors could be either individuals or

institutions like financial institutions (FIs), mutual funds,

pension funds, insurance companies, etc. The investors buy

a participating interest in the total pool of assets and

receive their payments in the form of interest and principal

as per an agreed pattern.

Apart from these three primary players, others involved in a

securitization transaction include:

The Obligor(s): The obligor is the Originator’s debtor or the

borrower of the original loan. The credit standing of the

Obligor is very important in a securitization transaction, as

the amount outstanding from the Obligor is the asset that is

transferred to the SPV.

The Rating Agency: The rating process assesses the strength

of the cash flows and the mechanism designed to ensure

full and timely payment. In this regard the rating agency

plays an important role as it assesses the process of

selection of loans of appropriate credit quality, the extent

of credit and liquidity support provided and the strength of

the legal framework.

Administrator or Servicer: Also called as the receiving and

paying agent, it collects the payment due from the

Obligor(s) and passes it to the SPV. It also follows up with

delinquent borrowers and pursues legal remedies available

against defaulting borrowers.

Agent and Trustee: It oversees that all the parties involved

in the securitization transaction perform in accordance with

the securitization trust agreement. Its principal role is to

look after the interests of the investors.

External Credit Enhancements: Underwriters sometime

resort to external credit enhancements to improve the

credit profile of the instruments. There are various types of

external credit enhancements such as surety bonds, third-

party guarantees, letters of credit (LC) etc.

Structurer: Normally, an investment banker is responsible

for bringing together the Originator, credit enhancer, the

investors and other partners to a securitization deal. He also

helps in structuring the deals along with the Originator.

The segmentation of roles of different parties to the securitization

deal helps in building specialization and introducing efficiencies.

The entire process is broken into distinct parts with different

parties concentrating on origination of loans, raising funds from

the capital markets, servicing of loans, etc.

1.26 THE PROCESS OF SECURITIZATION

The bank sanctions and disburses the financial assistance to

the borrower for the purpose of setting up a project or for the

expansion or for the purpose of diversification.

As per the agreement between the above two parties the

amount of financial assistance will be repaid by the borrower to

the bank in installments along with the interest at the rate

specified at the time of sanction.

The borrower offers the various assets as security with the

bank for this purpose. The bank is thus the secured creditor and

has the necessary charge on the property of the borrower which

invariably would be a company.

The bank intends to sell the installments which will fall due

on the loan as they might be in need of the funds at some point of

time before the actual due dates. It is at this point of time that the

process of securitization comes into picture.

1) The bank intends to increase its liquidity on the strength of

the amount of the loan already disbursed to the borrower.

2) The bank will enter into an agreement with the Qualified

Institutional Buyer (QIB) for the purpose of disposing the

asset securitized by it.

3) The bank has to analyze its portfolio of the debts due and try

to classify the dues/borrowers that will be in a position to

pay the dues on time. The essence is that the entire

installments which are proposed to be sold to the QIB

should be repaid with 100% surety level or else the deal may

not fructify.

4) The bank converts these installments into suitable forms of

bonds/debentures as may be required by the QIB.

5) The nature of security, duration, the amount and the rate of

interest etc has to be discussed at length and the deal will

mature only if it fulfills the need of the QIB and the

‘originator’.

6) The borrower is not affected financially or technically by the

decision, He may be required to comply with certain

formalities.

1.27 DIAGRAMMATIC REPRESENTATION OF THE PROCESS OF

SECURITIZATION

In practice there would be a securitization company to

undertake the job of issue of bonds/debentures by first acquiring

the financial assets of the banks i.e. “obligor”.

1.28 DIAGRAMMATIC REPRESENTATION OF THE ROLE OF THE

SECURITIZATION COMPANY

It may be observed from the diagram that the securitization

company is a sort of intermediary company between the bank and

the qualified institutional buyer. The bank intends to sell its

financial assets to the securitization company which in turn

arranges the buyer of the asset.

There may be two specific occasions when the need for the

securitized asset and its transfer may be necessitated so far as the

‘originator’ is concerned:

To increase its liquidity

To handle the non performing assets (NPAs) effectively

The Securitization and Reconstruction of Financial Assets

and Enforcement of Security Interest Act, 2002 popularly called

the Securitization Act has provided an enabling legal framework

for the setting up of securitization or Reconstruction Company

and the manner of acquisition of financial assets by such

companies.

Securitization Company

Qualified Institutional

The Originator

1.29 ENFORCEMENT OF SECURITY INTEREST:-

Under the Act security interest created in favour of any

secured creditor may be enforced, without the intervention of

court or tribunal, by such creditor in accordance with the

provision of this Act.

Section 13(2),

Where any borrower, who is under a liability to a secured

creditor under a security agreement, makes any default in

repayment of secured debt or any installment thereof , and his

account in respect of such debt is classified by the secured

creditor as non-performing asset, then the secured creditor may

require the borrower by notice in writing to discharge in full his

liabilities to the secured creditor with in sixty days from the date

of notice failing which the secured creditor shall be entitled to

exercise all or any of the rights under sub-section (4).

In case the borrower fails to discharge his liability in full

within the period specified in sub-section(2), the secured creditor

may take recourse to one or more of the following measures to

recover his secured debt, namely:-

a) Take possession of the secured assets of the borrower

including the right to transfer by way of lease, assignment

or sale for releasing the secured asset.

b) Take over the management of the assets of the borrower

including the right to transfer by way of lease, assignment

or sale for releasing the secured asset.

c) Appoint any person to manage the secured assets the

possession of which has been taken over by the secured

creditor.

d) Require at any time by notice in writing, any person who

has acquired any of the secured assets from the borrower

and from whom any money any money is due or may

become due to the borrower, to pay the secured creditor o

much of the money as is sufficient to pay the secured debt.

1.30 COMMENCEMENT OF THE ACT

The Act has been made effective from 21st June 2002, the

date on which the first securitization and reconstruction of

financial assets and enforcement of security interest ordinance,

2002 was promulgated.

This Act has been enacted to help Banks and FIs to tackle the

NPA problem. This Act can be broadly divided into four heads:

Securitization of assets

Enforcement of security interest

Setting up of Central Registry

Establishment of an ARC

The two terms which have been used in the Act which are of special

significance are:

1. The security Interest

2. Financial Asset

1. ‘Security Interest’ means right, title and interest of any kind

whatsoever upon property, created in favour of any secured

creditor and includes any mortgage charge , hypothecation,

assignment other than those specified in section 31.

2. ‘Financial Asset’ means debt or receivable and includes;

A claim to any debt or receivables or part thereof,

whether secured or unsecured.

Any debt or receivables secured by, mortgage of, or

charge on, immovable property.

A mortgage, charge, hypothecation or pledge of movable

property.

Any right or interest in the security, whether full or part

underlying such debt or receivables.

Any beneficial interest in property, whether movable or

immovable, or in such debt, receivables, whether such

interest is existing, future, accruing, conditional or

contingent.

Any financial assistance.

1.31 SUMMARY OF THE REGULATORY/LEGAL FRAMEWORK:

Indian regulation provides for multiple ARCs encouraging

competition thus leading to better pricing and performance.

The advent of Basel II is likely to increase the flow of NPLs to

ARCs.

Government of India has permitted 49% FDI participation in

the ownership structure of the ARC while the rest of the

shareholding will be held by Indian Qualified Institutional

Investors (QIBs), provided no single sponsor may hold more

than 10%.

In addition foreign investors will be allowed to invest in the

securities of the ARC up to 49% through the FII route.

The SARFAESI Act empowers the ARC to do the following after

getting majority (75% by value) consent of the lenders.

Debt Restructuring

Final Settlement of Debt

Enforcement of Security Interest

Business and Management Restructuring of the

borrower (This power is on hold for the present, vide

RBI’s Directive)

1.32 PROVISIONS/HIGHLIGHTS OF THE ACT

The Securitization Act contains provisions to provide for the

following:

a) Registration and regulation of securitization companies or

reconstruction companies by the Reserve Bank of India (RBI).

b) Facilitating securitization of financial assets of banks or

reconstruction with or without the benefit of underlying

securities.

c) Facilitating easy transferability of financial assets by the

Securitization Company or Reconstruction Company to acquire

financial assets of banks and FIs by issue of debentures/bonds

or any other securities in the nature of a debenture.

d) Empowering securitization companies/reconstruction

companies to raise funds by issue of security receipts to

qualified institutional buyers.

e) Facilitating reconstruction of financial assets acquired by

exercising powers of enforcement of securities or change of

management or other powers which are proposed to be

conferred on the banks and FIs.

f) Declaration of any securitization company or reconstruction

company registered with the RBI as a public financial institution

for the purpose of section 4A of the Companies Act, 1956

g) Defining “security interest as any type of security including

mortgage and charge on immovable properties given for due

repayment of any financial assistance given by any bank or FIs.

h) Empowering banks and financial institutions to take possession

of securities given for financial assistance and sell or lease the

same or take over management in the event of default, i.e.

classification of the borrowers account as NPA in accordance

with the directions given or under guidelines issued by the RBI

from time to time.

i) The rights of a secured creditor to be exercised by one or more

of its officers authorized in this behalf in accordance with the

rules made by the Central government.

j) An appeal against the action of any bank or FIs to the

concerned Debt Recovery Tribunal and a second appeal to the

Appellate Debt Recovery Tribunal.

k) Setting up or causing to be set up a Central Registry by the

Central government for the purpose of registration of

transactions relating to securitization, asset reconstruction and

creation of ‘security interest’.

l) Application of the proposed legislation initially to banks and FIs

and empowerment of the Central government to extend the

application of the proposed legislation to non-banking financial

companies and other entities.

m) Non- application of the proposed legislation to security

interests in agricultural lands, loans not exceeding Rs. 1,00,000

and cases where 80% of the loans are repaid by the borrower.

CHAPTER – II:

DESIGN OF THE STUDY

2.1 TITLE OF THE STUDY

“Impact of Securitization & Reconstruction

of Financial Assets and Enforcement of Security

Interest Act, 2002 on NPAs – A study at

Bangalore City Co-operative Bank Ltd”.

2.2 STATEMENT OF THE PROBLEM:

The Banking Industry in India is progressively complying with

the international prudential norms and accounting practices, there

are certain areas like recovery management in which it does not

have a level playing field as compared to other participants in the

International financial markets.

Our existing legal framework relating to the commercial

transactions has not kept pace with the changing times, this

resulted in slow pace of recovery of defaulting loan & mounting

levels of NPA’s in Banks.

The Securitization Act was seen as a panacea to the entire

problem of NPAs.

2.3 NEED AND IMPORTANCE OF THE STUDY

The Banks and Financial Institutions have been burdened

with ever increasing Non Performing Assets.

Till 2002 neither there were any legal provisions for

facilitating Securitization of financial assets of Banks nor there

was any legal framework to take possession of securities and sell

them without the intervention of the court.

The Securitization and Reconstruction of Financial Assets

Act, 2002 was a step in this direction. The Act was bound to create

ripples and at the same time provide a much needed balm to the

banks and financial institutions.

2.4 OBJECTIVES OF THE STUDY

1. To study into the various provisions of the Act with special

emphasis on reduction of NPAs in Banks.

2. To analyze the reasons for NPAs and recovery mechanisms

adopted by the bank.

3. To assess the effectiveness of the Act in realizing the proposed

objectives.

4. To bring out the comparison of Pre-Securitization and Post-

Securitization Act Period.

5. To identify the loopholes in the Act, if any, and to make

suggestions to plug the same.

2.5 SCOPE OF THE STUDY

The study is focus on the impact of Securitization Act on

Non Performing Assets with reference to “The BCCB Ltd.” and how

this act is effective to reduce the non performing assets

The research was also held the comparison of pre-

securitization and post-securitization.

2.6 ASSUMPTIONS OF THE STUDY

Securitization and Reconstruction of Financial Assets and

Enforcement of Security Interest Act 2002 (SARFAESIA -2002) was

established by the Central Government to reduce the Non-

Performing Assets. It is applicable to all the Co-operative Banks

from 28.01.2003.

The Bangalore City Co-operative Bank Limited has adopted

the SARFAESIA-2002 from 20.03.2003.

Therefore the data is collected for 5 years which includes

both the period of Pre-Securitization and Post-Securitization. The

information obtained from the bank during pre-securitization

includes 2 years, i.e. 2001-02 and 2002-03 and the Post-

Securitization consists of three years, i.e.2006-07, 2007-08 and

2008-09 for effective analysis, so considered recent period in post

securitization.

2.7 METHODOLOGY OF THE STUDY

Methodology of literature review encompasses different

facets of information sources concerning Non-performing assets

and the Securitization Act.

2.8 TOOLS FOR THE COLLECTION OF DATA

Sources of data:

The data consisted of both primary data and secondary data

1. Primary data: “Primary data is first hand information which is

collected a fresh and thus happens to be original in character”.

This data is collected through Personal discussions with

the General Manager, Deputy General Manager, Assistant

General Manager and other officers in charge of recovery

department through structured questionnaire were held.

2. Secondary data: “Secondary data are those which have already

been passed through the statistical process”.

These data is collected from RBI/IBA bulletins and

journals, financial magazines, financial statements/Annual

reports and Audited Reports of the Banks, Text books and

Websites.

2.9 LIMITATIONS OF THE STUDY:

1. The study is confined to only one Bank i.e. The Bangalore City

Co-operative Bank Ltd.

2. Due to time constraint depth analysis could not be made.

3. The actual identity of the Banks is kept confidential due to the

sensitive nature of the topic

2.10 REFERENCE PERIOD

Five years annual reports & audited data are considered.

That is Pre Securitization Act period 2001-02 & 2002-03 and Post

Securitization Period includes 2006-07, 2007-08 and 2008-09.

2.11 CHAPTER SCHEME

The project report of The Bangalore City Co-operative Bank

Ltd. has been designed into five chapters.

CHAPTER – I: INTRODUCTION

It explains introduction about the banking industry, origin of

banking industry, functions of banking, introduction and evolution

of co-operative banks, definition, features, structure and reforms

of co-operative banks, introduction of NPAs, definitions, RBI

recommendations, impact, general causes, measures to tackle the

NPAs, introduction of securitization act, meaning, objectives,

process and provisions of the act.

CHAPTER – II: DESIGN OF THE STUDY

It explains title of the study, statement of the problem,

needs and importance of the study, objectives of the study, scope

of the study, some importance concept of securitization,

methodology and tools for the collection of data, limitations,

reference period and chapter scheme.

CHAPTER – III: BANK PROFILE

History of the Bank, Trademark, goals and objectives of the

bank, vision statement, organization structure of the bank,

branches, awards and competitive information of The Bangalore

City Co-operative Bank Ltd.

CHAPTER – IV: ANALYSIS AND INTERPRETATION OF DATA

This chapter explains the analysis and interpretation of data

collected.

CHAPTER–V: SUMMARY OF FINDINGS, SUGGESTIONS AND

CONCLUSIONS.

This chapter includes summary of findings, suggestions and

conclusions of the data analyzed.

CHAPTER – III:

BANK PROFILE

3.1 History of The Bangalore City Co-Operative Bank Limited

“THE BANGALORE CITY CO-OPERATIVE BANK LIMITED” was

the first urban co-operative bank in the country started in April 06,

1907 by Sri.K.Ramaswamy and others.

[Administrative Office: No.3, Pampamahakavi Road, Chamarajpet, Bangalore – 560018.]

The Bangalore City Co-operative Bank Limited was

established under the Co-operative society act bearing

registration number 314/CS, dated 08.04.1907 from the Registrar

of Co-operative Societies in Karnataka and the License was

granted by RBI No.UBD/KA/642, dated 11.11.1986 for conducting

the “Banking Business”. The bank has 12 branches along with one

administration office and all branches have been computerized

under the jurisdiction of Bangalore City Co-operative Corporation,

Bangalore Development Authority and Bangalore urban

&peripheral areas. The operation of the bank is throughout

Bangalore Co-operative Limited.

3.2 Trademark of “The Bangalore City Co-operative Bank Ltd”.:

In consideration of the application submitted to the Govt. of India,

to get registered the above image of godess Lakshmi as

Trademark, as per the Trademark Act of 1959, sec 23(2), rule 62(1)

Trademark No.943843 dated 31-7-2000

the Govt. approved and registered the

above image as a trademark and has been

given letter of approval on 15-03-2008.

3.3 GOALS AND OBJECTIVES OF THE BANK:

The Bangalore City Co-operative Bank Ltd., believes that

every individual from each status of society needs affordable,

relevant and quality services. The goals and objectives of bank are

as follows;

1. To take measures / steps to increase the deposits to Rs.500

crores and loans and advances to Rs.370 crores.

2. To earn more than Rs.9 crores of net profit.

3. To reduce the net non-performing assets to 0%.

4. To give more advantages to customers by converting all the

branches into core- banking system.

5. To take steps to have own building for all the branches.

6. To provide more and more training and development

programmes to increase efficiency of employees.

7. To encourage savings, self help and co-operative principles

among the members and depositors of the bank.

8. To undertake banking transaction and co-operative system

as per direction of RBI, Central Government and State

Government.

9. To reduce the cost of the management through the

honorary services of members and thereby keep the cost of

credit as low as possible.

10.To promote the effectiveness of credit and to reduce the

risk in granting a credit through careful and continuous

supervision of the operations of the borrowing members.

3.4 VISION STATEMENT

OUR VISION IS OUR MISSION

Founded in 1907, this unique financial institution rests on

the pillars of thrift, fellowship, character, accommodation and the

selfless service of all individuals and organizations who wish to

help themselves progress. We see ourselves as a family of honest,

loyal and committed professionals, harmoniously employing

technology, innovation and the human touch to achieve customer

satisfaction and goodwill are the cornerstones of our success and

the focus of all our efforts.

The prosperity of our customer is the engine of our success

and they will find in us a fast, timely, flexible, co-operative and

competitive partner in their progress. We are committed to

approachability, simplicity and transparency in our dealings with

all our stakeholders and shall be a temple of their trust.

`We shall use our employee involvement and sense of

togetherness to generate high levels of teamwork, efficiency,

excellence and profits. We shall mobilize aggressively, invest

wisely, disburse prudently, recover assiduously, reduce costs and

create a learning organization that offers products and services in

tune with and ahead of the time.

3.5 ORGANIZATION CHART OF THE BANGALORE CITY CO-OPERATIVE

BANK LTD.

3.6 BRANCHES:

At the end of the financial year 2008-09, including

administrative office “The Bangalore City Co-operative Bank Ltd” is

having 13 branches throughout the Bangalore City. Its branch wise

deposit, loans & advances and net profit are as follows.

Rs. 000’s

SL. NO.

BRANCHESDATE OF STARTED

TOTAL DEPOSITS

TOTAL LOANS &

ADVANCES

NET PROFIT

1. Main Branch, Chamarajpet.

06-04-2007 906580 819506 33202

2. Vijaynagar 24-02-1980 642129 419626 8777

3. Vijayanagar 9th Block 25.01.1981 396813 173112 302

4. Indiranagar 19-12-1983 571798 182287 1535

5. Chamarajpet West 07-02-1988 163382 248523 14617

6. Shanthinagar 03-09.1992 94564 143545 6492

7. Mahalakshmipuram 07-07-1994 264201 160861 1204

8. Sanjaynagar 11-08-1994 220257 95412 1045

9. Padmanabhanagar 04-09-1995 144098 113703 2157

10. Koramangala 30-10-1996 165431 181855 10849

11. Avalahalli 16-01-2002 154604 210876 10021

12. R.T.Nagar 15-02-2002 57433 159250 9038

13. Jnana Jyothi Nagar 22-03-2009 3019 838 3

3.8 AWARDS:

Since from the opening, the bank has been functioning

effectively. The Bangalore City Co-operative Bank Ltd., was

awarded by “Shri. Kanteerava Narasimha Raja Odeyar Bahadur”

Ex. King of Mysore in 1926, 1927 and 1928 as the “Best Urban Co-

operative Bank”.

In 2001-2002 and 2003-2004 the State Government of

Karnataka awarded as the “Best Urban Co-operative Bank”.

3.9 COMPETITORS INFORMATION:

As The Bangalore City Co-operative Bank Ltd., is the urban

Co-operative Bank, it is facing competition from the commercial

banks. Commercial banks undertake a number of banking

services. Since the urban co-operative banks are localized and do

not have network of bankers they are not in a position to meet all

the banking services. Therefore the institution like Government,

public sector undertakings and the urban co-operative banks are

facing competition from the commercial banks.

CHAPTER – IV:

ANALYSIS AND INTERPRETATION OF DATA

Banking system which constitutes the core of the financial sector

plays a vital role in transmitting monetary policy impulses to the

economic system. Therefore its efficiency and development are vital for

enhancing growth and improving the changes for stability. During the

recent past, profits of the Bank came under pressure due to rise in

interest rates, decrease in non-interest income and increase in provisions

and contingencies.

The Banks and Financial Institutions have also been burdened with

ever increasing Non Performing Assets

The mounting menace of NPAs has raised the cost of credit, made

Indian businessmen uncompetitive as compared to their counterparts in

other countries. It has made Banks more averse to risks and squeezed

genuine Small and Medium enterprises from accessing competitive credit

and has throttled their enterprising spirits as well to a great extent.

Till 2002 neither there were any legal provisions for facilitating

Securitization of financial assets of Banks nor was there any legal

framework to take possession of securities and sell them without the

intervention of the court.

The Securitization and Reconstruction of Financial Assets Act, 2002

was a step in this direction. The Act has provided an enabling legal

framework for setting up of Securitization or Reconstruction Company

and the manner of acquisition of financial Assets by such companies. This

Act has been enacted to help Banks and FIs to tackle the NPAs problem.

The Securitization Act enables the Banks and FIs to sell off/transfer

the NPAs without the intervention of court and the sale proceeds of the

assets are to be used for payment to the secured creditors for the assets

taken over from them. The Act was bound to create ripples in the

corporate sector and at the same time provide a much needed balm to

the banks and financial institutions.

4.1 REASONS FOR NPAs IN THE BANK:

The main reasons for NPAs in The Bangalore City Co-

operative Bank Ltd. are as follows;

1. Improper credit appraisal

2. Willful default

3. Diversion of funds

4. Lack of effective follow up

5. Cost ineffective legal measures

6. Difficulty in execution of decrees

4.2 MEASURES FOR THE RECOVERY OF NPAs ADOPTED BY THE

BANK

The Bangalore City Co-operative Bank follows following

measures to recover those NPAs;

1. Legal Measures

2. Persuasion method

3. Coercion method

4.3 LEGAL RECOVERY MEASURES TAKEN BY THE BANK

1. If the branch people are not able to recover the loan

amount, the file is referred to Legal Department for

arbitration.

2. The legal department will initiate all the steps to recover

the amount, finally E.P (Execution Petition) will be filled.

3. The E.P files are handed by Sale Officer / ARCs who is

appointed from co-operative department. As soon as the

file is received, the sale officer will send the recovery force

to identify the defaulter and his property. After

identification, form no.6 will be issued attaching the

property for sale and to pay the amount within 10days.

4. If the party does not settle the amount with in 10days, then

Form no.8 & 9 (sale date of the mortgaged property) will be

fixed gig one month time.

5. Even tough after issuing of Form No.8 & 9, if the party does

not give fruitful than a paper publication “fixing the sale of

property” will be advertised.

6. Before three days of option, the locality people where the

mortgage property exists and the others are invited to

participate.

7. Then auction of that property will be conducted among the

bidders and the auctions will be confirmed to the highest

bidder.

4.4 RECOVERY MECHANISMS ARE ADOPTED BY THE BANK FOR

REDUCING NPAs

Pre-Securitization Act: The bank use to Filing Arbitration

according to Karnataka Co-operative Societies Act of 1959.

Post Securitization Act: There was heavy pressure, burden or

risk for the bank due to increasing NPAs before Securitization

Act was introduced.

Now Securitization Act is one of the most effective

recovery mechanism adopted by the bank. It helps to recovery

the loans without much delay and difficulty and also reduces

the level of NPAs in the bank.

As most of the respondents said Securitization Act 2002

is one of the effective mechanisms when compared to all the

recovery mechanisms.

4.5 ISSUES CONCERN IN THE IMPLEMENTATION OF SARFEASIA

2002

There are some of the issues concerns for the bank in the

implementation of Securitization Act for the recovery of NPAs.

There are as under

1. Disposal of securitization is difficult without court

intervention

2. Lack of market for such securitization assets

3. Non-commencement of asset reconstruction and

securitization companies.

4. Difficulty in seizing the said property with tenants and

leaseholders occupying the property.

5. Under the Act, the bank has to issue a notice & wait for 60

days before proceeding to take possession of the security

and during this period the borrowers are degrading the

quality of the assets and are rendering them less valuable.

6. Stays from civil courts by the parties against the action

initiated by the banks for seizure.

7. Cost of manufacture to the bank of the seized assets

8. Parties delaying the process by contending in courts / DRTs.

9. Inability to prevent alienation of the said property by the

borrowers during the notice period.

10.Threats from the borrowers to the bankers.

TABLE-4.1:

GROWTH OF DEPOSITS OF THE BANK

YEARDEPOSITS

AMOUNT(Rs. IN LAKHS)

PERCENT (%)

2001-02 21095.74 100.00

2002-03 22348.54 105.94

2006-07 22443.62 106.39

2007-08 28910.54 137.04

2008-09 37863.10 179.48

FIGURE NO. 4.1

ANALYSIS:

From the above data, it can be observed that the deposit of the

bank is increasing year by year. During pre-securitization period, it was

RS.21095.74 lakhs in 2001-02, and then it is increased to RS.37863.10

lakhs @ 179.48 in 2008-09 during post securitization compared to 2001-

02.

INTERPRETATION:

It can be interpreted that, when there was no SARFAESI Act the

deposit was increasing only smaller ratio but after the implementation

of the act the rate of deposit is increased to a greater extent form 2006-

07 to 2008-09 up to 179.48%.

It shows bank offering very good rate of interest to attract the

customer in a recent years.

TABLE-4.2:

GROWTH OF LOANS & ADVANCES AS A PERCENTAGE OF DEPOSITS

YEAR DEPOSITSLOANS & ADVANCES

AMOUNT (Rs. in LAKHS) PERCENTAGE

2001-02 21095.74 13727.84 65.07

2002-03 22348.54 16554.52 74.07

2006-07 22443.62 15017.48 66.91

2007-08 28910.54 23367.95 80.83

2008-09 37863.10 29484.43 77.87

FIGURE NO. 4.2

ANALYSIS:Form the above statistics, it can be analyzed that the loans and

advances as a percentage of deposits is varied from year to year.

In 2001-02, it was RS.13727.84 lakhs @65.07%, in 2002-03 it was

RS.16554.52 lakhs @ 74.07%, in 2006-07 which was decreased to

RS.15017.48 lakhs @ 66.91%, then it is increased to RS.29484.43 @

77.87% but in 2008-09 the same has been decreased to 77.87%.

INTERPRETATION:

It can be interpreted that the loan given is reduced during 2008-

09 because the banker has some fear of crisis so they did not come

forward to lend loans.

The bank is lending more than 65% of the loans on deposits and

the bank also maintaining liquidity position to meet the demand of the

customers.

TABLE-4.3:

GROWTH OF LOANS & ADVANCES AND RECOVERY PERFORMANCE

YEAR LOANS & ADVANCES (AMOUNT Rs.IN LAKHS)

RECOVERY

AMOUNT (Rs.IN LAKHS)

PERCENT (%)

2001-02 13727.84 13159.37 95.86

2002-03 16554.52 15709.90 94.90

2006-07 15017.48 14436.91 96.13

2007-08 23367.95 22858.78 97.82

2008-09 29484.43 28888.17 97.98

FIGURE NO. 4.3

ANALYSIS:

From the above table, it is cleared that the %age of recovery

performance of the bank was decreased from 2001-02 to 2002-03 but

the amount recovered is more i.e. from Rs.13159.37 @ 95.86% to

Rs.15709.90 @94.90%.

In 2006-07 it was Rs.14436.91 lakhs @ 96.13%, in 2007-08

increased Rs.22858.78 @97.82% and in 2008-09 which increased to

Rs.28888.17 @ 97.98%.

INTERPRETATION:

From the above analysis, it is interpreted that during pre

securitization period, the percentage of recovery performance of the

bank was decreased from 2001-02 to 2002-03 because as there was no

strict recovery mechanism adopted by the bank which has to go only

through court.

Recovery performance of the bank was good after the

implementation of SARFAESI Act. In 2008-09, the recovery was increased

to 97.98% even there was economic crisis. Therefore it shows that the

SARFAESIA is helping the bank to recover the loans within a specified

period by giving more power, thereby reduces the level of NPAs of the

bank.

TABLE-4.4:

THE GROSS NPAs AS A PERCENTAGE OF LOANS & ADVANCES

YEARTOTAL LOANS & ADVANCES

GROSS NPAs

AMOUNT (Rs.IN LAKHS)

PERCENT (%)

2001-02 13727.84 1742.10 12.69

2002-03 16554.52 2965.95 17.92

2006-07 15017.48 2339.84 15.58

2007-08 23367.95 2268.83 9.71

2008-09 29484.43 3499.30 11.87

FIGURE NO. 4.4

ANALYSIS:

From the above table, it is observed that the loans and advances

were increased from 12.69% to 17.92% from 2001-02 to 2002-03.

During Post Securitization Act the Gross NPAs as a percentage of

Loans & Advances was gradually decreased from 2006-07 to 2008-09.

During 2006-07, it was 15.58% then it decreased in 2007-08 at 9.71%

and but it is increased in 2008-09 @ 11.87%

INTERPRETATION:

From the above analysis, it is interpreted that the Gross NPAs as a

percentage of loans & advances were increased from 2001-02 to 2002-

03 it is because the controlling measures taken by the bank was not

effective during Pre-Securitization Act.

The level of loans & advances is increasing and the percentage of

NPAs is decreased from 2006-07 to 2007-08 but in 2008-09, then it is

slightly increased because of two reasons;

1. There is increasing in the loans & advances. When the loans &

advances was Rs.15017.48 lakhs the NPAs was @ 15.58% but

when it is increased to Rs.29484.43, the same NPAs was @

11.87%. It is cleared that the loans given during the year 2008-

09 is increased.

2. It is also increased because of the economic crisis in India

during 2008-09.

Therefore it is concluded that the SARFAESIA 2002, is very effective in

the reduction of NPAs.

TABLE-4.5:

THE NET NPAs AS A PERCENTAGE OF LOANS & ADVANCES

YEARTOTAL LOANS & ADVANCES

NET NPAs

AMOUNT (Rs. IN LAKHS)

PERCENT (%)

2001-02 13727.84 1303.28 9.81

2002-03 16554.52 2308.22 14.91

2006-07 15017.48 359.23 2.76

2007-08 23367.95 203.71 0.96

2008-09 29484.43 1332.04 4.88

FIGURE NO. 4.5

ANALYSIS:

From the above table, it is analyzed that the Net NPAs as a

percentage of loans & advances was gradually increased from

RS.1303.28 lakhs @9.81% in 2001-02 to RS.2380.22 lakhs @ 14.91% in

2002-03.

During post securitization period the Net NPAs as a percentage of

loans & advances was decreased from RS.359.23lakhs @2.76% in 2006-

07 to RS.203.71 lakhs @ 0.96% in 2007-08 but it is increasing in 2008-09

for RS.1332.04 lakhs @ 4.88%.

INTERPRETATION:

From the above analysis, it is interpreted that, during pre

securitization period the NPAs as a percentage of loans & advances was

increasing year by year as there was no more power for the bank for the

recovery of loans & advances this leads to increasing of NPAs.

In 2007-08, the amount of NPAs was reduced from to 0.96% from

2.76%. It shows that the profitability position of the bank was increased.

It is because the Securitization Act given more power to the bank for the

recovery of loans.

But in 2008-09, the level of NPAs is increased to RS.1332.04 lakhs

due to the economic crisis. The borrower was not in a position to repay

their loan amount as their income level was low in that period.

TABLE-4.6

STATUS OF NPAs & PROVISIONS MADE IN THE BANK

YEAR GROSS NPAs PROVISIONS MADE NET NPAs

AMOUNT (IN LAKHS)

PERCENT (%)

AMOUNT (IN LAKHS)

PERCENT (%)

AMOUNT (IN LAKHS)

PERCENT (%)

2001-02 1742.10 12.69 438.82 3.20 1303.28 9.81

2002-03 2965.95 17.92 585.73 3.54 2380.22 14.91

2006-07 2339.84 15.58 1980.61 13.19 359.23 2.76

2007-08 2268.83 9.71 2065.12 8.84 203.71 0.96

2008-09 3499.30 11.87 2167.26 7.35 1332.04 4.88

FIGURE NO. 4.6

ANALYSIS AND INTERPRETATION:

From the above analysis it is clear that during Pre-securitization

Act, both Gross NPAs and Net NPAs were gradually increased and the

bank made less provision on NPAs.

During post securitization period the level of NPAs is decreasing

year by year from 2006-07 to 2007-08 i.e. from 15.58% to 11.87% that

means the Securitization Act 2002 is very effective in the reduction of

NPAs. The bank made more provisions on NPAs which leads to much

difference between Gross & Net NPAs of the bank.

In 2008-09, the non-performing assets is increased compared to

the year 2007-08 by 2.16% [11.87% - 9.71%] this is due to the impact of

economic crisis on financial institutions in India because of this the

income level of the borrower was reduced. Therefore the NPAs were

slightly increased in the year 2008-09.

TABLE-4.7

THE NPAs & RECOVERY PERFORMANCES OF THE BANK

Year %age of recovery %age of NPAs

2001-02 95.86 9.81

2002-03 94.90 14.91

2006-07 96.13 2.76

2007-08 97.82 0.96

2008-09 97.98 4.88

FIGURE NO. 4.7

ANALYSIS:

From the above table, it shows that the percentage of recovery on

loans & advances was decreased from 95.86% to 94.90% from 2001-02

to 2002-03 respectively and the percentage of NPAs was increased from

9.81% in 2001-02 to 14.91% in 2002-03.

During post securitization period, the recovery of loans &

advances of the bank was tremendously increased form the year 2006-

07 to 2008-09. i.e. from 96.13% in 2006-07, 97.79% in 2007-08 and again

increased 97.95% in 2008-09 and the non-performing assets of the bank

were fluctuating year by year.

INTERPRETATION:

From the above table, it is cleared that the percentage of recovery

was decreased from 2001-02 to 2002-03 due to increase in the level of

NPAs because the steps taken by the bank for the recovery of loans was

not effective.

From the above analysis, it can be interpreted that the recovery

performance of the bank is very effective as the recovery percentage of

the bank is increasing year to year by reducing the level of NPAs. This

shows that the Securitization Act is working effectively for reducing

NPAs.

TABLE-4.8

PROFIT POSITION OF THE BANK

YEARNET PROFIT

AMOUNT (RS.IN '000)

PERCENTAGE

2001-02 31094.62 100.00

2002-03 30374.22 97.71

2006-07 35549.26 114.36

2007-08 42723.79 137.44

2008-09 51700.06 166.32

FIGURE NO. 4.8

ANALYSIS:

From the above table, it has observed that the profit position was

decreased from the year 2001-02 of RS.31094.62 to RS.30374.22 in

2002-03.

But during Post Securitization Act it has gradually increasing from

the year 2006-07 to 2008-09, that is in 2006-07 it was RS.35549.26 in

2007-08 then it increased to RS.42723.79 and again increased to

RS.51700.06 during 2008-09.

INTERPRETATION:

From the above analysis, it can be interpreted that the profit

position of the bank was decreased during Pre Securitization Act, later

on it start to increasing year by year after the implementation of

Securitization Act.

Therefore the SARFAESIA is very powerful and effective

mechanism in reducing the level of NPAs and gives power for the bank

to the recovery thereby improves the profitability position of the Bank.

TABLE-4.9

OVERALL PERFORMANCE OF THE BANK

Year

Deposits Loans & Advances

Recovery Net NPAs

Amount (in Lakhs)

Percent (%)

Amount (in Lakhs Percentage

Amount (RS. in Lakhs

Percentage (%)

Amount (in Lakhs)

Percent (%)

2001-02 21095.74 100.00 13727.84 65.07 13159.37 95.86 1303.28

9.81

2002-03 22348.54 105.94 16554.52 74.07 15709.90 94.90 2308.22

14.91

2006-07 22443.62 106.39 15017.48 66.91 14436.91 96.13 359.23 2.76

2007-08 28910.54 137.04 23367.95 80.83 22529.85 97.82 203.71 0.96

2008-09 37863.10 179.48 29484.43 77.87 28498.69 97.98 1332.04

4.88

FIGURE NO.-4.9

ANALYSIS AND INTERPRETATION:

From the above table, it is cleared that the overall performance of

the bank is good and the SARFAESIA 2002 is very effective in reducing

NPAs.

The deposit ratio of the bank is increasing every year, loans &

advances was also increased but in 2008-09 it is decreased because the

banker has not come front to give loans to the customers due to

economic crisis. Even though the loan was decreased in 2008-09, the

recovery performance was not at all decreased after the enactment of

SARFAESIA.

Finally, the NPAs of the bank was so much during pre SARFAESIA

but it is decreased to a greater extent in post securitization period up to

2007-08, but in 2008-09 it is increased due to economic crisis, the

borrower was not having money in their hand to repay their loan

amount.

CHAPTER – V:

FINDINGS, SUGGESTIONS AND CONCLUSIONS

SUMMARY OF FINDINGS:

1. PRE SECURITISATION ACT PERIOD:

a. Deposit ratio of the bank was increased year by year and loans

advances given only by keeping some liquid money with them to

meet the demand of the customers.

b. The NPAs of the bank was increased and Recovery Performance

was decreased from the year 2001-02 to 2002-03 as there was

bank having less power to recover the loans.

c. In 2002-03, the Profit position of the bank was decreased due to

the increasing in the level of Non-performing Assets.

2. POST SECURITIZATION ACT PERIOD

a. Deposit ratio for the period was increased to 179.48% in 2008-09

and the loans & advances during the same year was reduced

because the banker did not provide loans liberally to customers

as there was a economic crisis.

b. During this period, the NPAs of the bank were decreased to a

greater extent and the recovery performance of the bank was

increased.

c. But in 2008-09, the position of NPAs was increased because of

the economic crisis; the borrower had no money with them to

repay their loans.

d. The Profit position of the bank also increasing since 2006, it

shows the Act is very effective.

3. The main reasons for an account becoming a non- performing asset

are diversion of funds, improper credit appraisal and willful default

followed by cost ineffective legal measures and difficulty in the

execution of decrees.

4. Before the enactment of the Securitization Act the banker had limited

options for recovery which consisted of having an intensive follow-up

and interaction with the borrower and initiating legal actions through

courts.

5. The Securitization Act empowers Banks to takeover the possession of

secured assets of the defaulting borrowers & sells or lease out the

assets without the intervention of the court.

6. The measures to tackle the NPAs adopted by the bank Post-

Securitization Act include:

a. Issuing notices as per the SRFAESI Act and waiting for 60 days

b. Issue possession notice after 60 days and initiate steps to take

physical possession of securities

c. Sell the securities and adjust the amount to the NPAs.

7. The act is not applicable to any security interest for securing

repayment of any financial asset not exceeding Rs.1,00,000.

8. Although the Securitization Act empowers banks to seize the secured

assets of the defaulting borrowers without the intervention of the

courts, borrowers are still able to get the proceedings under the act

stayed by appealing in civil courts

9. The major issues of concern with the implementation of the Act are:

a. Inability to dispose-off the assets acquired under the act by the

banks due to lack of market for such assets.

b. Problems in disposing of land due to the restrictions imposed by

the Land ceiling laws.

c. Difficulty in seizing the said property with tenants and

leaseholders occupying the property

d. Stays from civil courts by the parties against the action initiated

by the banks for seizure

10. Majority of the bankers opinioned that the act was helpful in the

reduction of NPAs.

SUGGESTIONS

The bank should be given more powers to seize and dispose-off the

security and to attach any other additional security/asset available with

the defaulting borrower and court intervention in such proceeding

should be eliminated.

The Act has to be made applicable for recovery of all dues of banks

irrespective of the Limitations Act.

Bankers handling the recovery operations should be educated on the

management and disposal process of the acquired assets and should

also be provided with management expertise while taking over the

operations of the companies.

The powers currently available to the bankers under the Act should be

explained to both the borrowers and the bankers for the effective

implementation of the Act.

The NPA assets must be rated by a rating agency which would facilitate

the market for such assets this would in turn reduce the holding cost of

the seized assets to the bank.

CONCLUSIONS

The Securitization Act is a fine comprehensive piece of legislation; it is

also a reassuring sign of Government’s commitment to reforms. The Act

empowers the banks to take over the possession of secured assets of the

borrowers and sell or lease out the assets. This is the first time that the banks

can take over the immovable assets of the defaulting borrowers without the

intervention of the courts.

Since the enactment of the Securitization Act, it was seen as a panacea

to the entire problem of NPAs. The banks are educated about the act and are

taking actions strictly by issuing notices to the defaulting borrowers. Defaulting

borrowers who were not responding previously started responding favourably

and cash recoveries became a reality.

In view of the above, it can be concluded that the Act has empowered

the banks with additional powers for recovery and facilitated the reduction of

NPAs. However, the Act should be much more effective in realizing its

proposed objectives by way of recovery reforms and development of market

for distressed assets of banks.

QUESTIONNAIRE

TOPIC:

“Impact of Securitization & Reconstruction of Financial Assets

and Enforcement of Security Interest Act, 2002 on NPAs – A study at

Bangalore City Co-operative Bank Ltd”.

Dear Sir / Madam,

This is with respect to my M.Com project in “The BCCB Ltd” on

impact of Securitization Act 2002 on NPAs. This questionnaire is to

be answered for y research purpose. I request you to give your co-

operation to do my survey as the same will be kept confidential.

NAME :

DESIGNATION :

DEPARTMENT :

Ph. No. :

1. According to Bank what is Non-Performing Assets?

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

________

_____________________________________________________

__

2. What are the criteria to treat different Loans & Advances as

NPAs?

_____________________________________________________

_____________________________________________________

_____________________________________________________

______

3. Does NPAs are classified into

□ Substandard Assets

□ Doubtful Assets

□ Loss Assets

□ All the Above

4. How much provisions are made on Performing Assets & NPAs by the bank for the

following years

Particulars 2001-02 2002-03 2006-07 2007-08 2008-09

Standard Assets

Substandard Assets

Loss Assets

Doubtful Assets

5. Details of different categories of Performing Assets & NPAs of bank

Particulars 2001-02 2002-03 2006-07 2007-08 2008-09

Standard Assets

Substandard Assets

Loss Assets

Doubtful Assets

6. What are the effects of NPAs on growth of “The BCCB Ltd”.

_____________________________________________________

_____________________________________________________

_____________________________________________________

______

7. What are the main reasons for NPAs in the Bank?

□ Improper credit appraisal

□ Lack of effective follow up

□ Management failure

□ Difficulty in execution of decrees

□ Diversion of funds

□ Willful default

□ Others (if any), Specify____________________

8. What are the measures for the recovery of NPAs adopted by the

bank?

□ Legal

□ Non-Legal

□ Both Legal and Non-Legal

□ Others (if any), Specify __________________

9. What are the recovery mechanisms are adopted by the bank for

reducing NPAs in the Pre-Securitization Act?

□ Lok Adalats

□ Civil Courts

□ Debt Recovery Tribunals

□ One Time Settlement Scheme

□ Others, Specify___________________________________

10. What are the recovery mechanisms are adopted by the bank

for reducing NPAs in the Post-Securitization Act?

□ Lok Adalats

□ Civil Courts

□ Debt Recovery Tribunals

□ One Time Settlement Scheme

□ ARCs / Securitization Co/s / Direct

□ Others,

Specify______________________________________

11. Which of the above measure is practicable & more effective?

and Why?

_____________________________________________________

_____________________________________________________

____

12. Has the enactment of Securitization Act reduced the level of

NPAs in the bank?

□ Yes

□ No

□ Can’t Say

13. Are there any issues of concern for the bank in the

implementation of the Act for the recovery of NPAs? If so, what

are they?

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

_____________________________________________________

__________

14. What is the Impact of Securitization Act in the reduction of

NPAs in the Banking Sector?

_____________________________________________________

_____________________________________________________

_____________________________________________________

______

15. Does bank have made any insurance coverage on NPAs

□ Yes If yes, how much and with whom?

____________________________________

_

□ No

16. Do you like to suggest any changes that are to be made to

make the Act more meaningful and effective?

_____________________________________________________

_____________________________________________________

_____________________________________________________

______