Project on Non Performing Asset and Income Recognition & Asset Classification (IRAC) Norms at Apex Bank.

A Study on NPA & IRAC Norms
Department Of Management Studies, DSCE, Bangalore Page 1
1 Introduction about the internship
 Internship (Study on NPA & IRAC norms) is a part of project which assists to get
introduction of company and execute the information knowledge organization.
 An internship is a learning situation where the student has the opportunity to gain
practical experience.
 When placed in this situation, students expand their concepts of different
organizational structures and different working relationships within the workplace.
 In order to obtain academic credit for this experience, the intern is required to
complete Project Report
It was good experience to work in KSC Apex Bank, where in I learnt numerous things
about the working of organization as per the present patterns. The primary motivation
behind the internship is to make familiar with pragmatic learning about the generally
working of association. It comprehended the work society in the company. At last this
was the colossal chance to examine the NPA in KSC Apex Bank.
1.1 Topic chosen for the study
Study on impact of Non-Performing Assets on profitability {NPAs} & assessing the
implementation of Income Recognition & Asset Classification {IRAC} Norms at
Karnataka State Co-Operative Apex Bank.

1.2 Need for the study
• The level of NPA will have a direct impact on the banks profitability and growth of
the bank. NPA are always a burden to the bank since no income is derived from it.
• Banks try to minimize NPA due to their negative impact on the performance of the
bank. Many banks have incurred losses due to NPA’S.
• Modern Concepts of NPAs includes Income Recognition & Asset Classification Norms
provided by RBI.
• Hence there is need to study
i. The causes of such NPAs at KSC Apex Bank.
ii. Steps to be taken avoid and downsize such NPAs at KSC Apex Bank.
iii. Assessing the implementation Income Recognition & Asset Classification Norms by
the KSC Apex Bank.
1.3 Objectives of the study
1.To understand the concept of Non-Performing Assets {NPAs} and to intimate timely
steps to identify it.
2.To assess the implementation of Prudential Norms regarding Income Recognition &
Asset Classification {IRAC} as per Financial Regulating Authority.
3.To analyse the Non-Performing Assets at KSC Apex Bank and to know the reasons
behind the Non-Performing Assets at KSC Apex Bank.
4.To understand the need and nature of various strategies for reducing NPA level through
various recovery mechanisms at KSC Apex Bank.
5.To suggest appropriate measures to control the level of Non-Performing Assets at KSC
Apex Bank.

1.4 Scope of the Study
The present study will be conducted at Karnataka State Co-Operative Apex Bank
located Chamrajpet in Bangalore City and study covers the depth analysis of
relationship between NPA and its impact on bank performance during last 5 years
i.e.2011 to 2016. And the data will be analysed as provided by Apex Bank Ltd.
1.5 Methodology adopted
• The main source of data for this study is the past records prepared by the bank i.e.
“Historical Research Method”.
Historical Research Method comprises the techniques and guidelines by which
researchers use the primary sources and other evidence, including the evidence of
secondary sources, to research and then to draw conclusions in the form of accounts
of the past.
It is one type of qualitative research, which involves examining past events to draw
conclusions and make predictions about the future. The steps in historical research
are: formulate an idea, formulate a plan, gather data, analyse data and analyse the
sources of data.
• Primary data The primary data is collected through direct discussion with officials of
the bank and departmental & bank guides.
• Secondary data The secondary data will be collected from various sources such as,
• Banks annual report.
• Journals, Magazines.
• Bank’s website & Data from internet.

Tools of Data Analysis: The data collected from the primary and secondary sources relating
to NPAs has been analysed and tabulated and drawn the appropriate tables. Interpretations
were made based on tables. The collected data were classified and tabulated and analysed
with some of the statistical tools used as per the requirement of the study like
• Graphical representation and
• Ratio analysis
1.6 Literature review (latest)
• Khedekar Pooja S.(2012) A strong Banking Sector is essential for a flourishing
economy. Indian banking sector emerged stronger during 2010-11 in the aftermath of
global financial meltdown of 2008-10 under the watchful eye of its regulator. The
level of NPA's act as an indicator showing the credit risks & efficiency of allocation
of resource. NPA involves the necessity of provisions, any increase in which bring
down the overall profitability of banks. An excessive rise in interest rates over the past
18 months has led to a sharp increase in non-performing assets. This not only affects
the banks but also the economy as a whole. This paper deals with understanding the
concept of NPA, the causes and overview of different sectors in India.
• Kalra and Rosy (2012) Non-Performing Assets (NPAs) in the Indian banking system
have assumed astronomical dimensions through the introduction of the concept of
asset classification, income recognition and provisioning norms by Reserve Bank of
India to assess the credit risk of a bank. High level of NPAs in banks has attracted
public as well as foreign financial institutions to analyse the reasons for it. In this
paper, an attempt has been made to find out the various factors responsible for the
huge NPAs.

• Meeker Larry G. and Gray Laura (1987) : the public was given its first opportunity
to review bank asset quality in the form of non-performing asset information. The
purpose of this study is to evaluate that information. A regression analysis comparing
the non-performing asset statistics with examiner classifications of assets suggests
that the non-performing asset information can be a useful aid in analyzing the asset
quality of banks, particularly when the information is timely.
• Joseph, Mabvure Tendai Edson, Gwangwava (2012) the purpose of the study was to
find out the causes of non-performing loans in Zimbabwe. Loans form a greater
portion of the total assets in banks. These assets generate huge interest income for
banks which to a large extent determines the financial performance of banks.
However, some of these loans usually fall into non-performing status and adversely
affect the performance of banks. In view of the critical role banks play in an economy,
it is essential to identify problems that affect the performance of these institutions.
This is because non-performing loans can affect the ability of banks to play their role
in the development of the economy. A case study research design of CBZ Bank
Limited was employed. Interviews and questionnaires were used to collect data for
the study. The paper revealed that external factors are more prevalent in causing
nonperforming loans in CBZ Bank Limited. The major factors causing
nonperforming loans were natural disasters, government policy and the integrity of
the borrower.

• S.N.Bidani (2002) Non-performing Assets are the smoking gun threatening the very
stability of Indian banks. NPAs wreck a bank’s profitability both through a loss of
interest income and write-off of the principal loan amount itself. This is definitive
book which tackles the subject of managing bank NPAs in it’s entirely, starling right
from the stage of their identification till the recovery of dues in such ac-counts.
• Kavitha. N (2012), emphasized on the assessment of non-performing assets on
profitability its magnitude and impact. Credit of total advances was in the form of
doubtful assets in the past and has an adverse impact on profitability of all Public
Sector Banks affected at very large extent when non-performing assets work with
other banking and also affect productivity and efficiency of the banking groups. The
study observed that there is increase in advances over the period of the study.
• Debarsh and Sukanya Goyal (2012) emphasized on management of non-performing
assets in the perspective of the public sector banks in India under strict asset
classification norms, use of latest technological platform based on Core Banking
Solution, recovery procedures and other bank specific indicators in the context of
stringent regulatory framework of the RBI. Non-performing Asset is an important
parameter in the analysis of financial performance of a bank as it results in decreasing
margin and higher provisioning requirements for doubtful debts. The reduction of
non-per-forming asset is necessary to improve profitability of banks and comply with
the capital adequacy norms as per the Basel Accord.3

• Toor N.S. (1994) stated that recovery of non-performing as-sets through the process of
compromise by direct talks rather than by the lengthy and costly procedure of
litigation. He suggested that by constant monitoring, it is possible to detect, the sticky
accounts, the incipient sickness of the early stages itself and an attempt could be made
to review the unit and put it back on the road to recovery.
1.7 Limitations of the study
 Though sincere effort has been made during the study, certain limitations cannot be
avoided. They are as follows:
 Difference in definitions
 Non-performing assets is based on NPA Statement of the bank, prepared as
per Accounting Practices.
 This practice in some cases may lead to window dressing to cover up bad financial
position.
 NPA Statement suffers from inherent weakness of accounting practices, such as their
historical nature of matching principle etc.
 The study does not involve highly complex statistical tools for the purpose of analysis.

Industry profile
Banking is as old as civilization itself, initially banking meant money lending.
The business of banking existed in Babylonia as early as 2000 BC. The Babylonians
developed a banking system where money was lent in temples against the security of Gold
and Silver left with them for safe custody.
In ancient Greece around the same time, there existed banking business. Even then
temples were used as depositories for the surplus funds of the people and were also used as
centers of the money lending business. The priests acted as financial agents of the money
lending business.
The practice of granting credit existed in ancient Rome. The Romans adopted Greek
system of banking. The banking business had a set back after death of the emperor
JUSTINIAN in 565 AD. With the advent of trade and commerce in the middle age, the
banking business was mostly confined to only money lending. The JEWS and LAMBARDY
dominated the money lending business in the medieval period. The Christians were forbidden
by their religion to indulge in money lending. However in the course of time with the
weakening of the hold of religion and with development of trade and commerce around the
13th century, the Christians also entered the field of money lending.
Banking business originated in England during reign of Queen Elizabeth I. Goldsmiths
mainly did banking business. They accepted the valuables and the funds of their customers
for safe custody and issued receipts against the valuable lest for safe custody. But in the course
of time their receipts became payable to barrier on demand.

The banking business suffered a setback during the reign of Charles II in 1640 who
declined to return the funds and valuables deposited by the Goldsmiths with the exchequer
under the establishment of the Bank of England in 1694. Money banking system developed
only after the industry resolution.
1. Banking business in ancient times
The ancient Hindu Scripture refers to the prevalence of money lending activities in
the Vedic period. The epics Ramayana and Mahabharata refer banking business as full-
fledged activity. During the Smriti period, which followed the Vedic period the members of
the Vaish community largely carried on banking business. In ancient times banking business
was mainly in the form of money lending. It laid a strong foundation for banking industry.
2. Banking in pre-independence period
During the pre-independence period, Indigenous Banking and Money Lenders
primarily carried on banking business. Farmer’s main sources of loans were indigenous
bankers and money lenders, even to the present times especially in rural and urban areas.
Indigenous bankers have been operating in India since the ancient times mainly in
small towns, semi-urban areas and rural areas. Indigenous banking is carried on by all castes
of people, but it is generally monopoly/ed by certain banking caste such as Shroffs in
Maharashtra, Seths in West Bengal, Baniyas in Uttar Pradesh, Sahukars in Punjab, Chettiars
in Tamil Nadu, Marwaries and Jains n Rajasthan and Gujarat.
3. Development of Indian banking industry in the post-independence period.
During the pre-independence era Indian banking industry had to pass through several
economic crisis and bank failures. But with India attaining independence the banking situation
has completely changed. Some of the developments during the post- independence period
until today are:

 The nationalization of Reserve Bank of India on 1st
January 1949.
 The passing of the Banking Regulation Act in 1949.
 The nationalization and conversion of the Imperial Bank of India into the State Bank of
India on 11th July 1955.
 The nationalization of 14 major commercial banks on 19th
July 1969 and the future
nationalization of 6 commercial banks on 15th
April 1980.
 Establishment of Regional Rural Banks to cater to the needs of rural areas. About 196
rural banks are catering to the needs of rural people.
 Setting up of Land Development Banks to cater to the long-term credit needs of
agriculturists.
 Setting up of special financial institutions for meeting the specialized need of certain
sectors of the economy.
 Some of the specialized institutions are:
i. Industrial Developmental Bank of India (IDBI).
ii. Industrial Credit and Investment Corporation of India (ICICI).
iii. State Financial Corporation (SFC).
iv. Industrial Development Corporation (IDC).
v. Small Industries Development Bank of India (SIDBI).
vi. Industrial Bank of Reconstruction and Development (IBRD).
vii. National Bank for Agricultural and Rural Development (NABARD).
viii. Export Import Bank of India (EXIM).
ix. Export Credit Guarantee Corporation of India (ECGC).
x. The National Housing Bank.

Present Banking Scenario
The Indian Banking System of today can be compared with finest banking system in
the whole world. Today the Indian Banking System is on very sound lines with a network of
branch spread all over the country and serving all sections of the society with innovative
banking program.
Today’s Indian Banking System comprises of 27 public sectors banks, 30 private
sector non-schedule commercial banks, several private sector new commercial banks, 27
foreign schedule banks, 196 regional rural banks, several thousands of co-operative banks and
several land development banks. Institutions like Life Insurance Corporation of India and
Unit Trust Bank of India also plays an important role in Indian Banking System.
With the liberalization of the economy in 1991 the banking sector has undergone a
revolution. Foreign banks are based in India and this has led to further improvement and
sophistication of banking services due to competition.
Definition:
The Indian Banking Regulation Act of 1949 has aptly defined the term “Banking” in Sec 5(1)
(b) as “Accepting for the purpose of lending or investments of deposits of money from the
public, repayable on demand or otherwise and withdrawable by cheque, draft, order or
otherwise.”

Banking Structure or Banking system in India:
The constituents in the banking sector of India are:
1. The Reserve Bank of India.
2. The State Bank of India and its subsidiaries.
3. The Nationalized and the Private Sector Indian Commercial banks.
4. The Private sector Foreign Exchange Banks in India.
5. The Co-operative Banks and the Land Development Banks.
6. The Regional Rural Banks.
Indian Commercial Banks:
Banks that carry on commercial banking operations such as acceptance of Deposits from the
public, repayable on demand or after a short period and the granting of short term credit
mainly to trade commerce and industry with a wide network of branches through-out the
country.
Commercial Banks can be classified as:
1. Public Sector Banks
2. Private Sector Banks

Co-Operative Bank Structure

The beginning of co-operative banking in India dates back to 1904. The Institutional
source of credit for agriculture and related activities was very inadequate at that time. The
money lenders would provide some credit at very high rates of interest. The co-operative
banks were expected to substitute such unorganized money market agencies and provide short
and long term credit at reasonable rates of interest. It was expected that they would co-ordinate
the activities of unorganized and organized segments of Indian money market.
Subsequent to the adoption of economic planning in 1951, co-operative banks were expected
to play a crucial role in achieving agricultural and rural development. Before the nationalization of
commercial banks the cooperative banks were the only substitute for money lenders and other
informal sector lenders. But after nationalization and creation of Regional Rural Banks and
NABARD their relative share declined.
Co-operative Banks in India, (with their network; spread over remote rural areas and a large
number of smaller towns), have historically played a major role in mobilization of domestic savings
for economic development of the country. They have provided the farmers and non-farm
entrepreneurs with the needed credit support. These institutions have also contributed significantly
to private capital formation in agriculture and accelerated the pace of distribution of farm inputs
NABARD 2002).
Co-operative banks are promoted to meet the banking requirements of consumers. They are
established not only in the urban areas but also in the rural areas. In rural areas these banks supply
finance to agriculture, while in the urban areas they are started to provide finance to buy consumer
goods. They provided short and medium term loans. They provide loans at a lower rate
comparatively. They are formed on the co-operative society principles and as such are more service
oriented than profit oriented.

Definition of a Co-operative Bank:
A co-operative bank is a financial entity which belongs to its members, who are at the same time
the owners and the customers of their bank. Co-operative banks are often created by persons
belonging to the same local or professional community or sharing a common interest. Co-operative
banks generally provide their members with a wide range of banking and financial services (loans,
deposits, banking accounts…). Co-operative banks differ from stockholder banks by their
organization, their goals, their values and their governance. In most countries, they are supervised
and controlled by banking authorities and have to respect prudential banking regulations, which put
them at a level playing field with stockholder banks. Depending on countries, this control and
supervision can be implemented directly by state entities or delegated to a co-operative federation
or central body. Even if their organizational rules can vary according to their respective national
legislations. (Association, 2000)
Features of Co-operative Banks:
1. They are organized and managed on the principle 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 are perhaps the first government supported agency in India.
4. Co-operative banks belong to the money market as well as the capital markets.
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.
The co-operative banking is federal in character with three tier linkages between state,
district and village level institutions. At the state level, we have development banks (SLDBs) at the
district level, the central cooperative banks (CCBs) or the District Central co-operative banks
(DCCBs), then at the village level, the primary agricultural credit societies (PACs), and the primary
land development banks (PLDB’s and the branches of SLDBs). The lower tiers are the members
and the shareholders of the immediate higher ties. Besides, there are Urban Co-operative banks
(UCBs) or the primary co-operative banks (PCBs) which are outside this federal structure. Though
federal in its nature the system is integrated vertically on the basis of Functional responsibilities of
various components of the system. The SCBs, CCBs, & PACs form the short term and medium
term credit structure and it is the same in all states. The LDBs at various levels make the long term
credit structure which is not uniform in all states.

Company Profile
The Karnataka State Co-Operative Apex Bank Limited has been playing a very significant
role in the dispensation of production, credit to farmers. It is to the credit of Karnataka, that
the first co-operative credit institution in the entire country was established way back in the
year 1904 in a village called Kanaginahal now at Gadag district. Primary Agricultural Credit
Society (PACS) at the village level, federated later into District Central Co-Operative Banks
(DCCBs) at the district level. These DCC banks federated themselves at the state level to
form Apex Bank.
The Karnataka State Co-operative Bank was established in the year 1915 and the late
Varadaraja Iyengar has been its Founder President. It made a humble beginning with a
working capital of Rs. 1.80 lakhs comprising of Rs. 1.26 lakhs as deposits. Over 100 years,
the institution has grown by leaps and bounds and today it’s working capital is Rs.
14406.03 crores with deposit level of Rs.7201.48 crores and own fund of Rs. 808.55 crores.
Apex bank is a pioneer in agriculture finance and allied activities. Apex bank is ranked as
one of the premier state co-operative banks in the country. The main objectives of the bank
are to serve the farmers in the state by providing short term and long term agricultural loans,
general banking business and function as a leader of the co-operative banks in the state.

Nature of Business
The business carried by the bank is generally related with providing short term and long term
agricultural loans. It also accepts deposits from public. Apex bank also provides cash credits
loans to processing, marketing and consumer co-operatives as well as sugar factories in
Karnataka and working capital loans to State and National Level institutions.
Quality Objectives:
 To serve as a state co-operative bank and as a balancing centre in the state of Karnataka
for registered co-operative societies.
 To raise funds by way of deposits, loans, grants, donations, subscriptions, subsidies etc
for financing the members by way of loans, cash credits, overdrafts and advances.
 To develop, assist and co-ordinate the member DCCBs and other co-operative societies
and secure financial assistance for them.
 To arrange/hold periodical co-operative conferences of the DCCBs and other members
of the bank and to take action for the growth and development of the co-conferences of
the DCCBs and other members of the bank to take action for growth and development
of the co-operative credit movement.

Bank’s Operation
Apex bank works in the regional level only. It does not work in National level. The area of
operation covers the entire State. It has 42 branches in Bangalore and Head Quarters is situated
in Chamrajpet. The branch offices of bank are adequately delegated with power of sanction of
disbursements. If the loans are to be provided up to 10 lakhs then it is handled by concerned
branch offices but if it is more than 10 lakhs then it is handled by main branch.
Branches at Bangalore
1. Head Office Branch- Chamrajpet
2. Ashoka Pillar
3. B.T.M Layout
4. Banashankari
5. Banashankari III Stage
6. Basaveshwara Nagar
7. Bommasandra
8. Central Office
9. Chandra Layout
10. Gandhinagar
11. Ganganagar MR Palya
12. Girinagar
13. Gokul
14. Agara-HSR layout
15. Indiranagar
16. J.P.Nagar
17. Jayanagar IV Block
18. Jayanagar IX Block
19. K.R Puram

20. Kengeri Satellite Town
21. Koramangala
22. Legislators’ Home
23. Lakkasandra
24. M Puram, WCR II Stage
25. M.S Building
26. Magadi Road
27. Mahadevapura
28. NGEF EAST
29. Padmanabhanagar
30. Public Utility Building
31. R.P.C Layout
32. R.T.Nagar
33. Rajajinagar
34. Rajarajeshwari Nagar
35. Shivaji Nagar (K S Bazar)
36. Sunkadakatte
37. T Dasarahalli
38. Thanisandra
39. Vivekananda College (Ext. Counter)
40. Vidhana Soudha
41. Vijaynagar
42. Vyalikaval
43. Yelahanka

Ownership Patterns
Apex bank is state co-operative bank established by he state government in the year 1915 under
the organisation of Primary Agicultural Co-operatiives Credit Societies (PACS).
The Karnataka State Co-operative Apex Bank Ltd has shares worth Rs. 282.22 crores.
Sources of Funds:
The bank obtains its funds from
1. Shares.
2. Deposits.
3. Borrowings from NABARD, RBI, SBI, IDBI, ICICI and IFC.
4. Contribution from Co-operative Societies.
5. Other sources subject to approval to Board and the Registrar.
Vision, Mission & Quality Policy
Vision
- As a state co-operative bank, Apex bank shall be a dominant financial institution in the
state, leading the state to economic prosperity.
- They shall be the model of an effective, protective, dynamic and financial sound
organisation, respectively to state goals and aspiration.
- They shall maintain highly trained and motivated professionals committed to the highest
standards of ethics and excellence.
- They shall contribute to building progressive and standard of co-operative societies in the
service of farmers and rural areas.

Mission
Ensuring the best quality of life and success of their farmers, agricultural co-operative
societies, district central so-operative banks, clients and employees who are the for their
being.
Quality Policies
- For their farmers:
They shall continue to improve their socio-economic status through timely financial and
technical support.
- For their PACS and DCC banks
They shall ensure mutual cooperation and compliment action to achieve optimum gains in an
achievement of confidence and trust.
- For their employees:
They shall ensure a work atmosphere of mutual respect and team work within a system of
recognition and regards. They shall continue to provide appropriate training and value
enhancement to ensure the highest degree of professionalism and integrity.
- For the People of Karnataka:
They commit their unvarying loyalty and dedicated service in the pursuit of state farmer’s
interest

Service to Customers
The Karnataka State Co-operative Apex Bank Ltd provides following srvices to the societies:
 Financing of short term loans
 Financing of medium term loans
 Financing of Kisan Credit Card Scheme/Loans
 Credit facilities to self-help groups, advancing medium term loans for economic
development and providing cash credit loans
 Advancing workshop capital loans
 Collection of Cheques and drafts
 Loans through various schemes
 Personal banking
1) Financing of short term loans:
Financing of short term loans for seasonal agricultural operations and for
marketing of crops. These loans are repayable within one year
2) Financing of medium term loans:
These loans are sanctioned for agricultural purpose and non-agricultural purpose.
3) Financing of Kisan Credit Card Schemes/Loans:
Kisan credit aims at providing timely and adequate credit support to farmers for
their cultivation including investment credit needs in a flexible and cost effective
manner. All DCC banks in the state have implemented the Kisan credit scheme.
4) Credit facilities to Self-help groups:

All the DCCBs have taken keen interest in the formation of self-help groups in co-
ordination with PACS. Self hep groups mobilise their savings and avail credit
facilities from DCCBs and PACS.
5) Advancing medium term loans with economic development:
These loans are advanced for the agricultural infrastructures such as lift irrigation,
diary, poultry, plantation, gobar gas etc that constitutes schematic lending.
6) Providing cash credit loans:
Providing cash credit loans to processing marketing and consumer co-operatives
as well as sugar factories in Karnataka and also term loans to sugar factories under
consortium agreement.
7) Adavncing working capital loans:
Advancing working capital loans to state level co-operatives like MARKFED,
KCCF and to National level co-operatives like IFFCO and KRIBHCO. The bank
provides similar facilities to Public Sector undertakings like Karnataka Silk
Marketing Board, Karantaka Handloom Development Corporation, Karnataka
Small Scale Industries Development Corporations, Food Corporations of India
directly and also through consortium arrangements with commercial banks.
8) Collection of Cheques and Drafts:
The bank extends finance to the non-farm sector and to the development of cottage
industries, small scale industries and rural artisan and weavers. It is a scheduled

bank in all aspects including remittance of funds, demand drafts, mail transfers,
collection of cheques and drafts.
9) Loans through various schemes:
Such as:
 Vehicle loans
 Housing loans
 Mortgage loans
 Installment loans
 Jewel loans
10) Personal Banking:
Apex bank provides the following deposit schemes to the customers:
 Fixed Deposit
In this account, the customer deposits money for period upto 10 years.
 Current Deposits
In this type, the individuals or businessmen operate. This account is kept
open for the entire day. The customer can make any number of deposits
and withdrawals in a day during business hour.
 Savings Bank Deposits
In his deposits, the low income class groups and marginal customers
deposit money.

SWOT ANALYSIS
STRENGTHS WEAKNESS
 Its Apex Institution for all the Co-
operative Banks.
 Monitors & mentors the all other Co-
operative institutions working in the State.
 They lend to Agriculture Sector, Sugar
Sector and Others.
 Active in various Government schemes.
 Has branches all over Karnataka.
 Since it focuses on multi sectors, it may
affect its work efficiency.
 The responsibility of monitoring &
mentoring other co-operatives may divert
its time & attention. Thus, it may affect its
work efficiency.
 Inadequate advertising & branding.
OPPORTUNITY THREATS
 Small scale business banking across India.
 Expansion in other countries for
International Banking.
 They introduce new products & develop
the existing services.
 Installation of more ATMs and better
customer services.
 Opening of more branches across State.
 High competitive environment from
private sector banks.
 Economic fluctuations and Economic
Crisis.
 Stringent Banking Norms by the RBI and
the Governments.
 Interest rates may be affected adversely if
there is fall in inflation.
Thus the investors may shift their
investments to other profitable sectors.

Theoretical background of the study
The theoretical study provides the background and the tools for the NPA. It explains the
method of analysis, advantages and disadvantages, scope and limitations of various tools used
to analyse the Company’s financial position.
The focus of the financial analysis is on key figures in the financial statements and the
significant relationships that exist between them. The analysis of financial statements is a
process of evaluating relationship between component parts of financial statements to obtain
a better understanding of the Company’s position and performance. The first task of financial
analyst is to select the information relevant to the decision under consideration from the total
information contained in the financial statement. The second step involved in financial
analysis is to arrange the information in a way to highest significant relationships. The final
step is interpretation and drawings of inferences and conclusions. In brief, financial analysis
is the process of selection, relation and evaluation.
The present data is devoted to in-depth analysis of financial statements use for decision-
making. The present data is mainly focused on NPA as the most widely used technique of
financial statement analysis, importance of NPA and limitations of NPA.
Today banks have become a part and parcel of our life. Now banks activities extend to areas
which are untouched. Apart from their traditional business oriented functions they have now
come out to fulfill national responsibilities. They accelerate the economic growth of the
country and steer the wheels of the economy towards its goal of “self-reliance in all fields”.
NON-PERFORMING ASSETS

Definition
A loan or lease that is not meeting its stated principal and interest payments. Banks usually
classify as non-performing assets any commercial loans which are more than 90 days overdue
and any consumer loans which are more than 180 days overdue.
More generally, an asset which is not producing income.
In India, an[H1] asset is classified as a Non-Performing Asset (NPA) if interest or installments
of principal due remain unpaid for more than 180 day. 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 a 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 exists certain
advances/credit facilities having performing status.
What is NPA?
Action for enforcement of security interest can be initiated only if the secured asset is
classified as Non-Performing Asset.
Non-Performing Asset means an asset or account of borrower, which has been classified by
a bank or financial institution as Sub-standard, Doubtful or Loss asset, in accordance with the
directions or guidelines relating to asset classification issued by RBI.
An amount due under any credit facility is treated as “past due” when it has not been paid
within 30 days from due date. Due to the improvement in the payment and settlement systems,
recovery climate, up gradation of technology in the banking system etc., it was decided to
dispense with “past due” concept, with effect from March 31, 2001.
Accordingly, as from that date, a Non-Performing Asset (NPA) shall be advanced where

i. Interest and/or instalment of principal remain overdue for a period of more than 90
days in respect of Term Loan.
ii. The account remains “out of order” for a period of more than 90 days, in respect of an
overdraft/cash credit (OD/CC).
iii. The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted.
iv. Interest and/or instalment of principal remains overdue for two harvest seasons but for
a period not exceeding two & half years in the case of an advantage granted for
agricultural purpose, and
v. Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts.
Overdue
Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the
due date fixed by the bank.
Difficulties with the non-performing assets
1. Owners do not receive a market return on their capital. In the worst case, if the bank
fails, owners lose their assets. In the modern times, this may affect a broad pool of
shareholders.

2. Depositors do not receive a market return on savings. In the worst case if the bank
fails, depositors lose their assets or uninsured balance. Banks also redistribute losses
to other borrowers by charging higher interest rates. Lower deposits rates and higher
lending rates repress savings and financial markets, which hampers economic growth.
3. Non-performing loans epitomize bad investment. They misallocate credit from good
projects, which do not receive funding, to failed projects. Bad investment ends up in
misallocation of capital and, by extension, labour and natural resources. The economy
performs below its production potential.
4. Non-performing loans may spill over the banking system and contract the money
stock, which may lead to economic contraction. This spill over effect can channelize
through illiquidity or bank insolvency; (a) when many borrowers fail to pay interest,
banks may experience liquidity shortages. These shortages can jam payments across
the country, (b) illiquidity constraints bank in paying depositors e.g. cashing their pay
checks. Banking panic follows. A run on banks by depositors as part of the national
money stock become inoperative. The money stock contracts and economic
contraction follows (c) undercapitalised banks exceeds the bank’s capital base.
Lending banks has been highly politicised. It is common knowledge that loans are given
to various industrial houses not on commercial considerations and viability of project but
on political considerations; some politician would ask the bank to extend the loan to a

particular corporate and the bank would oblige. In normal circumstances banks, before
extending any loan, would make a thorough study of the need of the party concerned, the
prospects of the business in which it is engaged, its track record, the quality of
management and so on. Since this is not looked into, many of the loans become NPAs.
The loans for the weaker sections of the society and the waiving of the loans to farmers
are another dimension of the politicization of bank lending.
Most of the depositor’s money has been frittered away by the banks at the instance of
politicians, while the same depositors are being made to pay through taxes to cover the
losses of the bank.

An analysis of factors contributing to NPAs
An analysis of the contributory factors resulting in the emergence of NPAs on large scale
amongst commercial banks and financial institutions would lead to the following
conceptualization:
1. PSBs performed credibility in respect of all parameters set for them. However, in the
early 1990s, it emerged that PSBs were suffering from acute capital inadequacy and
many of them had negative profitability. This is because the parameters set for their
functioning were deficient and they did not project the paramount need for these
corporate goals. Incorrect goal perception and identification led them to the wrong
destination.
2. The pre-reform era witnessed directed banking for PSBs which functioned under the
overall control and direction of the Finance Ministry, which along with the Reserve
Bank of India (RBI), decided/directed all aspects of the working of the banks, leaving
little freedom to price their products in competition with each other, cater their
products to segments of their choice, or invest their funds in their best interest as they
determined.
3. Since the 1970s, the SCBs of India functioned totally as captive capsule units cut off
from international banking and unable to participate in the structural transformations,
the sweeping changes, and the new types of lending products emerging in global
banking institutions. Their personnel lacked needed training and knowledge resources
required to compete with international players.

4. Major policy decisions were taken externally by the Finance Ministry/RBI. The
environment of receiving decisions from a political background as distinguished from
a professional outfit prevented the best talents coming to occupy key positions.
5. The quantum of credit extended by the PSBs increased by about 160 times in the three
decades after nationalisation (from around 3000 crore in 1970 to 4751.13 Crore on 31
March 2000). The banks were not sufficiently developed in terms of skills and
expertise to regulate such growth and manage the diverse risks that emerged in the
process.
6. The need for organising an effective mechanism to gather and disseminate credit
information amongst the commercial banks was never felt or implemented. The
archaic laws of secrecy of customer information prevented banks from publishing
names of defaulters for common knowledge of the other banks in the system.
7. Effective recovery from defaulting and overdue borrowers was hampered on account
of seizable over hang component arising from infirmities in the existing process of
debt recovery, inadequate legal provisions on foreclosure and bankruptcv and
difficulties in the execution of court decrees. Legalremedies were beset with too many
formalities and were very time-consuming.
8. Effective corporate management was an alien concept. In respect of PSBs, the Boards
were ineffective and the only/main shareholder was the government of India. The

government exercised multiples roles and concerns, and the instinct to act as a
watchful shareholder and increase shareholders value of banks and financial
institutions was never felt or experienced.
9. Credit management on the part of the lenders to the borrowers to secure their genuine
and bonafide interests was not based on pragmatically calculated anticipated cash
flows of the borrower’s concern, while recovery of instalments of term loans was not
out of profits and surplus generated but through recourse to the corpus of working
capital of the borrowing concerns.
10. Functional inefficiency was also caused due to overstaffing, manual processing of
bloated operations and a failure to computerisation of operations.

CLASSIFICATION OF ASSETS:
 Performing assets/Standard assets
 Non-performing assets(NPA)
CLASSIFICATION OF NPAs:
 Standard assets
 Sub-standard assets
 Doubtful asset
 Loss Assets
1] Standard Assets:
Standard assets are one, which does not disclose any problem and which does not carry more
than normal risk attached to business. Thus in general, all the current loans, agricultural and non-
agricultural loans, which have not become NPA, may be treated as standard assets.
2] Sub-Standard Assets:
A non-performing asset may be classified as sub-standard on the basis of the following criteria.
 An asset which has remained overdue for a period not exceeding 3 years in respect of both
agricultural loans should be treated as substandard.
 In case of all type of term loans, where installments are overdue for a period not exceeding 3
years, the entire outstanding in term loan should be treated as sub-standard.
 An asset, where the terms and conditions of the loans regarding payment of interest and
repayment of principal have been renegotiated, after commencement of production should be
classified sub-standard and should remain so in such category for at least one year of satisfactory
performance under the renegotiated or rescheduled terms. In other words the classification of an
asset should not be upgraded merely as a result of rescheduling unless there is satisfactory
compliance of the above condition.

3] Doubtful Assets:
These are the assets “the recovery of which is highly questionable and impossible” it is usually
a non-performing asset for a period exceeding 3 years in respect of both agricultural and non-
agricultural loans. In case of all types of loans, where installments are overdue for more than 3 years,
the entire outstanding in term loan should be treated as doubtful. As in the case of sub-standard assets,
rescheduling does not entitle a bank to upgrade the quality of advance automatically.
4] Loss Assets:
They are those were lose is identified as no recoverable by the bank/auditor/RBI/NABARD
inspectors but the amount has not been written of wholly or partially. In other words, an asset which
is considered unrealizable and/or of such little value that its continuance as a doubtful asset is not
worthwhile, should be treated as a loss assets will include overdue loans in cases.
 Where decrees or execution petitions have been time barred or documents are lost or no legal
proof is available to claim the debt.
 Where the members and their sureties are declared insolvent or have died leaving no tangible
assets.
 Where the members have left the area of operation of the society (refers to the borrowers) in
whose the respective loan account with SCB /CCB leaving no property and their sureties have
also no means to pay the dues.

PROVISIONING NORMS:
 Standard Assets: - General provision of a minimum of 0.25%.
 Sub-Standard Assets:- 10% on total outstanding balance, 10% on unsecured exposures
identified as sub-standard and 100% for unsecured “doubtful” assets.
 Doubtful Assets: - 100% to the extent advance not covered by realizable value of security. In
case of secured portion, provision may be made in the range of 20% to 100% depending on the
period of asset remaining substandard.
 Loss Assets: - 100% of the outstanding.
Factors Contributing To NPAs:
 Poor credit discipline.
 Inadequate credit and risk management.
 Division of funds by promoters.
 Funding of non-viable projects.
 The bank had little freedom to price products, cater products to chosen segments or invest in their
best interest.
 Since 1970s, the SCBs functioned as units cuts off from international banking and unable to
participate in the structural transformation and thus unable to correct of serious flaws in policies
and directions.
 Audit and control functions were not independent and thus unable to correct the effect of serious
flaws in policies and directions.
 Banks were not sufficiently developed in terms of skills and experience to regulate the
homogeneous growth in credit and manage the diverse risks that emerged in the process.

Impact of NPA:
 NPAs are drag on profitability of banks because besides provisioning banks are also required to
meet the cost of funding these unproductive assets.
 NPAs reduce earning capacity of assets. Return on assets also gets affected.
 As NPAs do not earn any income, they adversely affect capital adequacy ratio.
 No recycling of funds.
 NPAs also attract cost of capital for maintaining capital adequacy ratio.
 NPAs will badly affect the image of the bank concerned.
 NPAs affect the moral of the employees and decisions making for fresh loans suffer.
 Enhance administrative, legal and recovery costs.
CONSEQUENCES OF NPAs:
Direct
 NPA affects profitability of the units substantially.
 NPA affects banks credibility and render against of fresh capital from the market difficult.
 Recycling of funds gets blocked.
Indirect
 Reduction in lending rate is made difficult.
 Affect risk taking ability which ultimately affects competitiveness of the branch unit.
 Lack of market competitiveness results in credit expansion. The cost of poor quality loans is
shifted to bank customers through higher spreads.

Difficulties due to NPAs:
 Drain on profitability.
 Impact on capital adequacy.
 Adverse effects on credit growth as the banker’s prime focus become zero percent risk and as a
result turn lukewarm to fresh credit.
 Excessive focus on credit risk management.
 High cost of funds due to NPAs.
 Owners do not receive a market return on their capital. In the worst case, if the bank fails, owners
lose their assets. In modern times this may affect a broad pool of shareholders.
 Depositors do not receive a market return on savings. In the worst case if the bank fails depositors
lose their assets or uninsured balance. Banks also redistribute losses to other borrowers by
charging higher interest rates. Lower deposits rates and higher lending rates repress savings and
financial markets, which hampers economic growth.

Impacts of NPAs on the working of cooperative banks:
NPAs affected the profitability, liquidity and comparative functioning of public and
private sector banks and finally the psychology of the bankers in respect of their
disposition towards credit delivery and credit expansion.
Impact on Profitability
Cooperative banks incurred a total amount of Rs.31251 crore towards
provisioning NPAs from 1 April 1993 to 31 March 2001. This has brought net NPAs to
Rs.32632 crore or 6.2% of net advances. The enormous provisioning of NPAs together
with the holding cost of such non-productive assets over the years has acted as severe
drain on the profitability of PSBs. Equity issues of nationalised banks that have already
tapped the markets are now quoted at a discount in the secondary market. Tus has
alternatively forced PSBs to borrow heavily from the debt market to build Tier II capital
to meet capital adequacy norms, thus putting severe pressure on their profit margins. It is
worthwhile to compare the aggregated figure of the 19 nationalised banks for the year
ended March 2001, as published by the RBI in its Report on Trends and Progress of
Banking in India.
Current status of NPAs and Indian Banks: A statistical introspection
Indian banking in 2002 represents a sea change from where it was in the preceding decade.
There has been a decade of professional banking moving towards global standards. Banks,
in-general, performed extremely well in 2001-2002 and onwards.
In 1992-1993, the profitability of the PSBs as a group turned negative with as many as
twelve nationalised banks reporting net losses. By March 1996, the outer time limit
prescribed for attaining capital adequacy of 8%, eight public sector banks were still short
of the prescribed limit.

The public sector banks which suffered losses of Rs.3293 crore in 1992-1993 and Rs.4349
crore in 1993-1994, i.e. in the initial years of introduction of prudential norms, ended the
year 1997-1998 with a net profit of Rs.5027 crore. Net NPAs of public sector banks
formed 8.2% of the net advances and 3.3% of the total assets as at the end of March 1998.
Corresponding figures as at 31 March 2002 are 5.82% and 2.42%. PSBs recorded an
aggregate net profit Rs.8301 crore in 2001-2002.
Measures taken to deal with NPAs
 Dismantling of controls and deregulation of working of commercial banks, permitting
entry of new private sector for foreign banks to open more branches. This had the effect
of opening Indian banking to global standards by making them function efficiently in
competitive environment. This was the initial step to create a structural framework for the
PSBs to enable them to adjust to new environment and turn into dynamic and self-reliant
operating units.
 The process of deregulation freed the banks from the control of the Finance Ministry
and RBI. The RBI, hereafter, acts as a regulator. In the year 1994, RBI further fine-tuned
the process by constituting a separate Board of Financial Supervision (BFS) with the
objective of segregating the supervisory role from the regulatory functions of RBI. Banks
now operate independently in a competitive financial market, but have to comply with
prudential norms and safeguards essential for their wellbeing.

 RBI made prudential norms, as conveyed by the Basel Accord of 1988, applicable to
Indian banks. These included standards relating to capital adequacy, income recognition,
asset classification and provisioning for non-performing assets. This had the effect of
providing much-needed transparency about the state of affairs of each bank and enabled
instant corrective measures to be executed.
 Banks were permitted to seek infusions of fresh equity from the public with the
government retaining a 51% share of equity capital. A number of PSBs entered the market
and raised Tier I and Tier II capital accordingly. This has created a new class of
stakeholder (albeit shareholders) vitally interested in the wellbeing of the banks and
qualified/empowered to question the Board of Directors at the appropriate forum.
 Governance: RBI emphasized the paramount importance of accepting norms of good
corporate governance by banks. While the Securities Exchange Board of India (SEBI) has
introduced a general set of norms applicable to all companies including banking
companies, RBI has further covered the special needs of banking companies by bringing
out an appropriate set of standards.
 The Credit Information Bureau (India) Ltd.: In order to expedite credit and investment
decisions by banks and financial institutions, and curb the accretion of fresh NPAs, the
Credit Information Bureau (India) Ltd., (CIBIL) was set up by the State Bank of India in
association with HDFC in August 2000. CIBIL was to be technology driven to ensure
speedy processing, periodic updating and availability of error-free data at all times in the
system. As a first step towards activating the CIBIL, it was decided to initiate the process
of collection and dissemination of some relevant information within the existing legal
framework. The RBI accordingly decided to constitute a group drawing representation
from CIBIL, the Indian Banks’ Association (IBA), select banks and FIs to examine the
possibility of the list of suit-filled accounts and the list of defaulters, including wilful

defaulters, which is presently handled by the Reserve Bank. The group is also expected
to examine other aspects of information collection and dissemination, such as the extent,
periodicity and coverage, and the feasibility of supplying information on-line to members
in the future.
 Norms of lenders’ liability: RBI has come out with broad guidelines for framing the Fair
Practices Code with regard to lenders’ liability to be followed by commercial banks and
financial institutions, emphasizing transparency and proper assessment of borrowers’
credit requirements. RBI has issued a draft of the model code and has advised the
individual banks to adopt model guidelines for framing their respective Fair Practices
Codes with the approval of their Boards. This is a balancing measure. It imposes self-
discipline on the part of the banks, which will only indirectly prevent accounts turning
into NPAs on account of the bank’s failures or wrong decisions.
 Risk assessment and risk management: Since the year 1998, the RBI has been making
serious efforts towards evolving a suitable and comprehensive model for risk management
by the bans and to integrate this new discipline in the working systems of banks. The RBI
has identified risk-prone areas in asset-liability management, credit management, changes
in market conditions and counter-party and country risks and has evolved suitable models
for managing all such risks. RBI has also evolved a system of Risk-based Supervision of
Banks. It also advised banks on a parallel scheme for carrying out internal audit based on
risk perception.
 E-banking and VRS: The influence of these areas of banking reforms may not appear
directly relevant to a reduction of NPAs. However, computerization provides for data-
accuracy and operational efficiency and results in a better Management Information
Services (MIS). VRS rationalises the work force, which in turn results in better
productivity and operational efficiency.

 RBI Guidelines on Fair Practices Code for Leaders are applicable to SCBs/AFFIs
(excluding RRBs and LABS): According to the Fai Practices Code, which is at the core
of lender liability, the lenders must treat their borrowers fairly, and when they do not, they
can be subject to litigation by the borrower for a variety of reasons, inter alia, breach of
fiduciary duty, fraud and misrepresentation, and negligent loan processing and
administration.
 Compromise settlement schemes: Banks are free to design and implement their own
policies for recovery and write-off incorporating compromise and negotiated settlements
with the approval of their Boards, particularly for old and unresolved cases falling under
the NPA category. The policy framework suggested by RBI provides for setting up of
independent Settlement Advisory Committees headed by a retired judge of the High Court
to scrutinize and recommend compromise proposals. Specific guidelines were issued in
May 1999 to PSBs for one-time non-discretionary and non-discriminatory settlement
(OTS) of NPAs of the small enterprise sector. The scheme was operative up to September
30, 2000 (Public sector banks recovered Rs.668 crore through compromise settlement
under this scheme). Guidelines were modified in July 2000 for recovery of the stock of
NPAs of Rs. 5 crore and less, as on 31 March 1997. (The above guidelines which were
valid up to 30 June 2001, helped the public sector banks to recover Rs.2600 crore by
September 2001). An OTS scheme covering advances of Rs.25000 and below continues
to be in operation and guidelines in pursuance to the budget announcement of the
Honourable Finance Minister providing for OTS for advances up to Rs.50,000 in respect
of NPAs of small/marginal farmers are being drawn up.

 Circulation of information on defaulters: The RBI has put in place a system for periodic
circulation of details of wilful defaults of borrowers of banks and financial institutions.
This serves a cautionary list while considering requests for new or additional credit limits
from defaulting borrowing units and also from the directors /proprietors/partners of these
entities. RBI also publishes a list of borrowers (with aggregate outstanding of Rs. 1 crore
and above) against whom banks and FIs have filed suits for recovery of their funds, as on
31st March every year. These measures serve as a negative basket of steps shutting off
fresh loans to these defaulters.
 Recovery action against large NPAs: RBI advised public sector banks to examine all
cases of wilful default of Rs. 1 crore and above and file suits in such cases, and file
criminal cases in regard to wilful defaults. Board of Directors are required to review NPA
accounts of Rs. 1 crore and above with special reference to fixing of staff accountability.

 Special mention accounts: In a recent circular, RBI has suggested to the banks to have
a new asset category or “special mention accounts” for early identification of bad debts.
This would be strictly for internal monitoring. Loans and advances overdue for less than
one quarter and two quarters would come under this category. Data regarding such
accounts will have to be submitted by banks to the RBI. However, special mention assets
would not require provisioning, as they are not classified as NPAs. An asset may be
transferred to this category once the earliest signs of sickness/irregularities are identified.
This will help banks look at accounts with potential problems in a focused manner right
from the onset of the problem, so that monitoring and remedial actions can be more
effective. Once these accounts are categorised and reported as such, proper top
management attention would also be ensured. Borrowers having genuine problems due to
a temporary mismatch in funds flow or sudden requirements of additional funds may be
entertained at the branch level and for this purpose, a special limit to tide over such
contingencies may be built into the sanction process itself.

DATA ANALYSIS AND INTERPRETATION
1. NPA & Net Profit Relationship
Table showing the relationship level of total NPA which will have direct impact on
the Bank’s profitability and future growth.
TABLE NO.1
Year NPA
(Rs. In Lakhs)
Net Profit
(Rs. In Lakhs)
2011-12 26437.30 2900
2012-13 21424.47 3100
2013-14 34178.45 3450
2014-15 35045.44 3030
2015-16 30900.86 3145

Graph showing the relationship of total NPA with net profit of the bank
GRAPH NO.1
Interpretation
From the above graph it is clear that increase in the level of NPA has impact on the level of profit of
the bank. This gives main reason why always banks wanted to decrease in the levelof NPA. Although
there has been increase in NPA, the level of profit is also maintained relatively. The bank has taken
the effective measures to ascertain the credit worthiness of the borrower before sanctioning any kind
of loan. This results in positive growth of the bank.
0
5000
10000
15000
20000
25000
30000
35000
40000
2011-12 2012-13 2013-14 2014-15
26437.3
21424.47
34178.45 35045.44
2900 3100 3450 3030
NPA & Net Profit Relation
NPA (Rs. In Lakhs) Net Profit (Rs. In Lakhs)

2. Total Advances
The following table shows the Total Advances made at KSC Apex Bank from
2011-12 to 2015-16.
Table No. 2
Year Total Advances
2011-12 538150.49
2012-13 650480.31
2013-14 810737.05
2014-15 930435.70
2015-16 950687.43
GRAPH NO.2
538150.49
650480.31
810737.05
930435.7 950687.43
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
1000000
2011-12 2012-13 2013-14 2014-15 2015-16
Total Advances
Total Advances

3. Gross NPA
The following table shows the Gross NPA at KSC Apex Bank from
2011-12 to 2015-16.
TABLE NO.3
Year Gross NPA
2011-12 26437.30
2012-13 21424.47
2013-14 34178.45
2014-15 35045.44
2015-16 30900.86
GRAPH NO.3
26437.3
21424.47
34178.45 35045.44
0
5000
10000
15000
20000
25000
30000
35000
40000
2011-12 2012-13 2013-14 2014-15
Gross NPA
Gross NPA

4. Ratio Of Gross NPA to Total Advances
The table shows the Gross NPA to total advances in percentage at the KSCAB Limited
Gross NPA
Gross NPA Ratio (%) = *100
Total advances
TABLE NO. 4
SL.NO Year Gross NPA Total Advances Gross
NPA
(In %)
1 2011-12 26437.30 538150.49 4.91
2 2012-13 21424.47 650480.31 3.30
3 2013-14 34178.45 810737.05 4.22
4 2014-15 35045.44 930435.70 3.77
5 2015-16 30900.86 950687.43 3.25
Analysis
The above table reveals the gross NPA of Apex bank. Gross NPA reduced step by step from 4.91%
in 2011-12 to 3.25% in 2015-16 progressively, but slightly increased to 4.22% in 2013-14.
Graph shows the Gross NPA to total advances in percentage at the KSCAB Ltd.

GRAPH No.4
Interpretation
The above graph reveals the total gross NPA in total advances from 2011-12 to 2015-16. The
total gross NPA gradually reduced because of good credit appraisal policy. In 2011-12 the gross NPA
was 4.91% over its total advances. In 2012-13 it reduced to 3.30%, but in 2013-14 it slightly increased
to 4.22% and in 2014-15 it reduced to 3.77% but in 2015-16 once again it further reduced to 3.25%
over its total advances.
Thus, we can conclude that over the years there has been good credit appraisal policy adopted.
5. Standard Assets
4.91
3.3
4.22
3.77
3.25
0
1
2
3
4
5
6
2011-12 2012-13 2013-14 2014-15 2015-16
Gross NPA (in %)
Gross NPA (in %)

The following table shows the ratio of Standard Assets to Gross NPA in percentage at
KSCAB Ltd.-
.
TABLE NO.5
Sl.
No
Year Standard
Assets
Total
Advances
Standard
Assets
(In%)
1 2011-12 511713.19 538150.49 95.08
2 2012-13 629055.84 650480.31 96.71
3 2013-14 776558.60 810737.05 95.78
4 2014-15 895390.26 930435.70 96.23
5 2015-16 919786.57 950687.43 96.75

Graph shows the Standard assets to Total Advances in percentage at the KSCAB Ltd.
GRAPH NO. 5
95.08
96.71
95.78
96.23
96.75
94
94.5
95
95.5
96
96.5
97
2011-12 2012-13 2013-14 2014-15 2015-16
Standard Assets (in %)
Standard Assets (in %)

6. Sub-standard assets
The following table shows the percentage change in sub-standard assets to Gross NPA at
KSCAB Ltd.
TABLE No. 6
Sl.
No
Year Sub-
Standard
Assets
Gross
NPA
Sub -
Standard
Assets
(In%)
1 2011-12 16057.47 26437.30 60.73
2 2012-13 11801.86 21424.47 55.08
3 2013-14 21306.18 34178.45 62.33
4 2014-15 18181.65 35045.44 51.88
5 2015-16 14531.73 30900.86 47.03
Analysis
The above table depicts that, there was noticeably diminishing Sub-standard assets from
2011-12 to 2012-13, whereas in 2013-14 it raised to 62.33%. Again Sub-standard assets
further reduced to 51.88% in 2014-15, however for the year 2015-16 it stood at 47.03%.

Graph showing sub-standard assets to Gross NPA in percentage given at KSCAB Ltd.
GRAPH NO.6
Interpretation
The above graph reveals the sub-standard assets in percentage wise. We can observe that, in
2011-12 sub-standard assets was 60.73%, progressively it was decreased in 2012-13 with
percentage of 55.08. But bank was unable to continue the recovery policy in efficient manner
with result of that we can view that sub-standard assets increased to 62.33% in 2013-14. With
good recovery policy of co-operative bank, sub-standard assets condensed to 41.46%.
However in 2015-16 sub-standard assets slightly increased to 58.83%.
0
10
20
30
40
50
60
70
2011-12 2012-13 2013-14 2014-15 2015-16
60.73
55.08
62.33
51.88
47.03
Sub-standard Assets (in%)
Sub-standard Assets (in%)

7. Doubtful Assets
The following table shows the doubtful assets to gross NPA in percentage.
TABLE NO. 7
SL.
NO
Year Doubtful
Assets
Gross
NPA
Doubtful
Assets (In%)
1 2011-12 9474.95 26437.30 35.84
2 2012-13 7932.33 21424.47 37.02
3 2013-14 12051.59 34178.45 35.26
4 2014-15 15741.96 35045.44 44.92
5 2015-16 14861.78 30900.86 48.09
Analysis
The above table exhibits that the doubtful assets increased noticeably from 2011-12, 2012-
13 and 2013-14 with percentage 35.84%, 37.02% and 35.26% respectively. Because of
good management recovery policy, doubtful assets decreased in 2013-14.
However it has in year 2014-15 and 2015-16 to 44.92% and 48.09% respectively.

GRAPH No.7
Interpretation
The above graph exhibits that the doubtful assets increased noticeably from 2011-12,
2012-13 and 2013-14 with percentage 35.84%, 37.02% and 35.26% respectively. Because
of good management recovery policy, doubtful assets decreased in 2013-14.
However it has in year 2014-15 and 2015-16 to 44.92% and 48.09% respectively.
0
5
10
15
20
25
30
35
40
45
50
2011-12 2012-13 2013-14 2014-15 2015-16
35.84
37.02
35.26
44.92
48.09
Doubtful Assets (In%)
Doubtful Assets (In%)

8. Doubtful Assets Break-up
The following table shows the break up Doubtful Assets based on its time period. .
TABLE NO.8
Year Doubtful Assets
3-4 yrs 4-6 yrs >6 yrs Un-
Secured
Total
2011-12 1211.09 2710.10 53.19 5500.57 9474.95
2012-13 637.71 2728.74 355.48 4210.40 7932.33
2013-14 3220.36 2949.57 1662.57 4218.71 12051.59
2014-15 6087.33 3481.55 745.69 5427.39 15741.96
2015-16 4346.92 4796.73 1720.3 3997.83 14861.78
GRAPH NO. 8
0
1000
2000
3000
4000
5000
6000
7000
2011-12 2012-13 2013-14 2014-15 2015-16
DOUBTFUL ASSETS
3-4 yrs 4-6 yrs >6 yrs Un-Secured

9. LOSS OF ASSETS
The following table shows the loss assets to gross NPA in percentage.
TABLE No. 9
SL.
NO
Year Loss
Assets
Gross
NPA
Loss
Assets
(In%)
1 2011-12 904.88 26437.30 3.42
2 2012-13 1690.28 21424.47 7.88
3 2013-14 820.68 34178.45 2.40
4 2014-15 1121.83 35045.44 3.20
5 2015-16 1507.35 30900.86 4.87
Analysis
The above table reveals that the loss of assets of Apex Bank has been decreasing
considerably from 2011-12 to 2015-16. However it has variably in the year
2012-13 with 7.88%. Loss of Assets has again slightly increased in 2015-16 at 4.87.
The variation caused is due reason that although the bank took appropriate decisions
at right time, the decisions taken did not serve the purpose.

Graph shows the loss assets to gross NPA in percentage.
GRAPH NO.9
Interpretation
The above graph reveals the loss assets to Apex Bank. In 2011-12 the loss assets of
Apex bank was 3.42%. In 2012-13 it increased to 7.88% and in 2013-14 it decreased
variably to 2.40% because bank had taken appropriate decision at right time in order
reduce the loss of assets. In the year 2014-15 it slightly increased to 3.20% but it
further increased to 4.87% in 2015-16 as the decisions earlier made by bank did serve
the purpose.
3.4
7.8
2.4
3.2
4.8
0
1
2
3
4
2011-12 2012-13 2013-14 2014-15 2015-16
Loss Assets (In%)
LOSS ASSETS

10. NPA IN AGRICULTURE SECTOR
The NPA in Agriculture sector to total advances in percentage at KSCAB Ltd is given in the
following table
TABLE NO.10
SL.NO Year NPA in
agricultural
sector (Rs in
lakhs)
Total advance in
agricultural
sector (Rs in
lakhs)
NPA in
agricultural
sector (in %)
1 2011-12 0 380227.92 -
2 2012-13 0 448174.82 -
3 2013-14 0 537515.96 -
4 2014-15 0 627041.5 -
5 2015-16 42.38 568835.34 0.0074
Analysis
There is no NPA in the financial year 2011-12, 2012-13, 2013-14 and 2014-15. It was
completely recovered by the bank and it is noticed that all farmers who took the advances,
paid very promptly to the bank within due date. In year 2015-16 there has been increase in
NPA with 0.0074%. However the above results reveal the total effort has been made to control
NPA in agriculture sector advances.

GRAPH No.10
Interpretation
The above chart reveals the NPA in agriculture sector to total advances from 2011-12 to 2015-16.
The NPA control in agriculture is good. The specific findings of the study are that, the bank took
proper measures to monitor NPA in agriculture sector.
0 0 0 0
0.0074
0
0.001
0.002
0.003
0.004
0.005
0.006
0.007
0.008
2011-12 2012-13 2013-14 2014-15 2015-16
NPA in Agriculture Sector
NPA in Agriculture Sector

11. NPA IN SUGAR SECTOR
The NPA in Sugar sector to total advances in percentage at KSCAB Ltd is given in the following
table.
TABLE NO: 11
SL.NO Year NPA in Sugar
sector (Rs in
lakhs)
Total advance
in Sugar sector
(Rs in lakhs)
NPA in
Sugar
sector (in
%)
1 2011-12 7979.90 27211.19 29.33
2 2012-13 4258.81 22088.21 19.28
-3 2013-14 9113.84 25730.19 35.42
4 2014-15 6356.67 33434.22 19.01
5 2015-16 4550.04 49414.37 9.21
Analysis
The percentage of NPA to total advance in Sugar sector is shows increasing & decreasing trend in
the alternative financial years. And in 2015-16 it stands-out at 9.21%. The above results reveal the
efforts taken to control NPA in Sugar sector advances have proven to be more effective.

The graph showing percentage of NPA in sugar sector to total advance given in sugar sector at
KSCAB ltd is represented in the following graph.
GRAPH No. 11
Interpretation
The above graph reveals decreasing trend in NPA in Sugar sector to total advances from 2011-
12 to 2015-16 and marginal increase in 2013-14. However, the NPA in Sugar sector shows
that is more than 30% of the total credit given, it indicates dangerous signal. Hence the bank
has to take proper measure to monitor NPA in Sugar sector in time.
0
5
10
15
20
25
30
35
40
2011-12 2012-13 2013-14 2014-15 2015-16
29.33
19.28
35.42
19.01
9.21
NPA IN SUGAR SECTOR
NPA(in%)

12. NPA IN OTHER SECTORS
The table showing NPA in other sector (other than Agriculture and sugar) to total advance given by
KSCAB ltd.
TABLE NO – 12
SL.NO Year NPA in Other
sector (Rs in
lakhs)
Total advance
in Other sector
(Rs in lakhs)
NPA in
Other sector
(in %)
1 2011-12
18457.4 130711.38 14.12
2 2012-13
17165.7 180217.28 9.52
3 2013-14
25064.6 247490.9 10.13
4 2014-15
28688.8 269959.98 10.63
5 2015-16
26308.4 332437.72 7.91
Analysis
The percentage of the total NPA in other sector to total credit given shows the decreasing trend
from the financial year 2011-12 to 2015-1 but it shows slightly increasing trend during the year
2014-15.

The graph showing percentage of NPA in other sector to total advances given in other sector at
KSCAB ltd.
GRAPH NO. 12
Interpretation
The above graph reveals the NPA in other sector to total advances is decreasing from 2011-
12 to 2012-13. And thereafter, there is step increase in the following four years indicates
unsafe/ dangerous signal. Hence bank has to take proper measure to monitor NPA in other
sector.
0
2
4
6
8
10
12
14
16
2011-12 2012-13 2013-14 2014-15 2015-16
5.91
5.06
5.67
8.86
14.03
NPA IN OTHER SECTOR
NPA(in%)

TABLE No.13
The table showing the percentage of NPA in different sectors
SECTOR % of NPA NPA in degree
Agriculture 18.48 67
Sugar 67.82 244
Others 13.20 49
Total 100 360
The chart showing the percentage of NPA in different sector:
Inference:
The above chart shows total NPA in different sectors.
Sugar sector has increasing trend with 67.82% from Sugar sector, 18.48% from the
Agriculture sector and 13.2% from the Other-sectors.
18.48
67.82
13.2
% of NPA
Agriculture
Sugar
Others

5.1 FINDINGS
Following are the findings of the study on Karnataka State Co-operative Apex Bank Ltd.
1. The Non-performing Assets of the bank stood at Rs. 30900.86 lakhs as on 31-03-2016 as
against Rs.35045.44 lakhs as on 31-03-2015. As on 31-03-2016 NPA is 3.25%.
2. In respect of agriculture loans, the percentage of recovery as on 31-03-2016 was almost
100%. For the corresponding period of the previous years also recovery percentage stood at
100%.
3. The total advance given to sugar sector is very less compared to agriculture sector. But total
NPA in sugar sector is very high compared to agriculture sector. Advances given to the
sugar sector in which more than 30% has become NPA.
4. Based on the observation in 2011-12, Sub-standard asset was 60.73%, progressively it was
decreased in 2012-13 with percentage of 55.08, with good recovery policy of cooperative
bank, in 2015-16 Sub-standard assets stood at 47.03%.
5. The percentage of total NPA in other sector has continuously increasing trend during the
year 2011-2016, and as on 31-03-2016 it stood at 7.91%.
6. The specific findings from the study are that, there is still a need to have controlling devices
to monitor NPA system in the Karnataka State Co-operative Apex Bank Ltd.

5.2 SUGGESTIONS
To control the Non–performing assets in Karnataka State Co-operative Apex Bank Limited,
some remedial measures are suggested as follows:
1. There must be an effective and regular follow-up with the customers and need to watch is
there any diversion of funds. This process can be taken up at regular intervals.
2. A number of personal visits after sanction and disbursal of credit and close monitoring of
the operations of the accounts of borrowed units.
3. Between the Bankers – borrower a healthy relationship should be developed. Many
instances reported that the banks uses force in recovery of loans, which is unethical.
4. Managers in charge of non-performing assets should have dynamism and seal in their
work.
5. Frequent discussions with the staff in the branch and taking their suggestions for recovery
of NPAs make them feel responsible.
6. Assisting the borrowers in developing his/her entrepreneurial skill will not only establish
a good relation between the borrowers but also help the bankers to keep a track of their
funds.

7. RBI need to take necessary actions against defaulters like, publishing names of defaulters
in News-papers, broad-casting media, which is helpful to other banks and financial
institutions.
8. Create awareness among the customers and staff about the effect of Non –performing
assets on the performance of the banks and ultimate on the customers.
9. The bank has to take care of recovery management in sugar and other sector.
10. The bank should avoid the wrong selection of borrowers. The staff must be additionally
trained to assess the borrower efficiency by proper credit appraisal.
11. Quality of advances can be improved by using the tools and techniques of credit appraisal
and applying the same effectively.
12. Establish special task force for the recovery of dues, which have fallen under the category
of Non –performing assets.
13. The bank should fully understand the borrowers’ financial position before issuing loans.
14. The manager must take actions of recovery of loans and advances within a specified time
frame with rational decisions.

5.3 CONCLUSION
 Finally we can conclude that the Apex bank can avoid sanctioning loans to the
non-creditworthy borrowers by adopting certain measures. They are careful appraisal
of the project which involves checking the economic capability of the project.
 Apex banker must consider the homecoming on investment on a proposed project. If
the calculated return is sufficiently higher than the credit amount he can sanction the
loan.
 Secondly, banker can constantly monitor the borrower in order to ensure that the
amount sanctioned is utilized properly for the purpose to which it has been sanctioned.
This involves the post sanction inspection by the Apex bank.
 Thirdly, the banker should get both the formal and informal reports about the goodwill
of the customer. If he had already proven as a defaulter then there is no question of
sanctioning loan to him.
 Fourthly, the banker also has to educate the borrowers regarding the effects and
consequences of defaulting. By considering all the above factors the banker can
reduce the non-performing assets in a bank.

 The use of technology like Core Banking Solutions in Apex bank should make more
reachable to all borrowers.
 At last the problem of NPAs has been a major issue for the banking industry. The RBI
which is the apex body for controlling level of non-performing assets have been giving
guidelines and getting norms for the banks in order to control the incidents of faults.
Reduction of NPAs in banking sector should be treated as national priority item to
make the Indian Banking system more strong, vibrant and geared to meet the
challenges of globalization

BIBLIOGRAPHY
BOOKS
 Prof. H.R. Appannaiah, Dr .P.N. Reddy, Vijayendra .S (2010) Law and practice of
banking, Himalaya publishing House.
 Company Profile Book
 Jagroop Singh (2011). Law and practice of Banking, Kalyani
WEBSITES
 http://www.karnatakaapex.com
 http:// www. mbaknol. com [Accessed 20thDec 2011]
 http://www.ebsco.com
REFERENCES
1. Boudriga, A., Taktak, NB., & Jellouli, S. (2009). Bank specific business and institutional
environment determinants of nonperforming loans
2. Dash, MK., & Kabra, G. (2010). The Determinants of Non-Performing Assets in Indian
Commercial Banks: an Econometric Study, Middle Eastern Finance and Economics, Issue
3. Karunakar, M., Vasuki, K., & Saravanan, S. (2008). Are non - Performing Assets
Gloomy or Greedy from Indian Perspective?
4. Management and resolution of NPAs legal and regulatory regime,
[Online] Available at: http:// www. mbaknol. com [Accessed 20thDec 2011] .
5. Yadav, M.S. (2011), Impact of Non Performing Assets on Profitability and Productivity of
Public Sector Banks in India.

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