CHAPTER I

INTRODUCTION
Non-performing Asset
An asset, which ceases to yield income to the bank, is a Non-performing
asset (NPA). Income in any loan account should be recognized only when there is
actual cash recovery and not merely when it is accrued.
Availability of security or net worth of borrower/ guarantor should not be
taken into consideration for the purpose of treating an advance as NPA or
otherwise. Only the record of recovery as reflected in banks books should be the
criteria.
Non-performing assets cause Double jeopardy to banks because we cannot
book any income by way of interest, exchange, fee, commission etc. unless there is
cash recovery or realization. On the other hand, we are required to make provision
on such NPAs based on their age and value of security.
For a bank in general, an asset is to be classified as NPA, if the payments
(principal and interest) remain unpaid for more than 90 days. Any NPA would
migrate from substandard to doubtful category after 12 months. It would get
classified as loss asset if it is irrecoverable or only margin collectible.
MANAGEMENT OF NPAs:
The quality and performance of advances have a direct bearing on the
profitability and viability of banks. Despite an efficient credit appraisal and
disbursement mechanism, problems can still arise due to various factors. The
1

essential component of sound NPA management system is quick identification of

Non-performing advances, their containment at minimum levels and ensuring that
their impingement on the financials is minimum.
Causes for NPA :
The issue of Non-performing asset has come to occupy the centre stage in the
discussion on Indias financial sector reforms and the international rating agencies
have added to the concerns of the international financial community and the
multilateral agencies. The high level of NPAs has exhibited the fundamental
weakness of the banks. Some of the causative factors for the loan accounts turning
NPAs are as follows:
1. Often lending is not linked to product sale. The problem is compounded by
directed lending where banks are required to extend credit to meet targets
stipulated by the government, often disregarding the viability of loans.
2. Diversion of funds for expansion / modernization / setting up of new
projects / helping or promoting associate concerns.
3. External factors like raw materials shortage, raw material price escalation,
power shortage etc.
4. Business failures like product failing to capture market, inefficient
management, strike/ strained labor relations, wrong technology, technical
problems, product obsolescence etc.
5. Changes in the macro environment like recession, infrastructural
bottlenecks, sluggish growth in the economy etc.

6. Lack of financial autonomy

7. Time / Cost overrun while implementing the project
8. Lack of discipline, fraud and misappropriation and willful default.
9. Government policies like excise, import duty charges, deregulation and
pollution control orders etc.
10.Legal hurdles and constraints in realization of debts.
11.Inadequate professionalism
12.Natural calamities like flood, drought, earthquakes affects the economy of
the region which results in creation of NPAs
What Is NPA,S
An asset, which ceases to yield income to the bank, is a Non-performing
asset (NPA). Income in any loan account should be recognized only when there is
actual cash recovery and not merely when it is accrued.
Availability of security or net worth of borrower/ guarantor should not be
taken into consideration for the purpose of treating an advance as NPA or
otherwise. Only the record of recovery as reflected in banks books should be the
criteria.
Non-performing assets cause Double jeopardy to banks because we cannot
book any income by way of interest, exchange, fee, commission etc. unless there is
cash recovery or realization. On the other hand, we are required to make provision
on such NPAs based on their age and value of security.
3

For a bank in general, an asset is to be classified as NPA, if the payments

(principal and interest) remain unpaid for more than 90 days. Any NPA would
migrate from substandard to doubtful category after 12 months. It would get
classified as loss asset if it is irrecoverable or only marginally collectible.
Categories of NPAs:
Banks are required to classify non-performing asset further in to the
following three categories based on the period for which the asset has remained
non-performing and the reliability of the dues.

TYPES OF NON PERFORMANCE ASSETS

a) Sub-standard Asset
b) Doubtful Asset
c) Loss Asset

a) Sub-standard Asset:
A Sub-standard Asset was one, which was classified as NPA for a period of
not exceeding two years. A sub-standard asset is one which has remained NPA for
a period less than or equal to 18 months. In such cases, the current net worth of the
borrower/ guarantor or the current market value of the security charged is not
enough to ensure recovery of the dues to the banks in full.

b) Doubtful Asset:
A doubtful asset was one, which remain NPA for a period exceeding two
years. A loan classified as doubtful has all the weaknesses inherent in asset that
4

were classified as sub-standard, with the added characteristic that the weakness
make collection or liquidation in full on the basis of currently known facts,
conditions and value highly questionable and improbable.
c) Loss Asset:
A loss asset one where loss has been identified by the bank or internal
external auditors or the RBI inspection but the amount not been written wholly. In
other words such an asset is considered uncollectible and of such little value that
its continuance as a bankable asset is not warranted although there may be some
salvage or recovery value.
NET NON PERFORMANCE ASSETS
It will thus be observed that over the years the banks have made offers
To reduce the non performance assets . which are drain on their
profitability
Management of non performing assets is one of the important areas
in banks
Keep the non-performing under control
Management non-performance assets with special reference to
holding
Performance Recovery procedures problems and difficulties

MEASURES TAKEN BY CO-OPERATIVE FOR RECOVERY OF NPAs:

a) Personal contact is the first step in recovery
Contact the person who making delay for payment personally, and
understand his problem for payment
b) Early Alert System
All the accounts displaying unsatisfactory features/early warning signals are
on the threshold of falling into NPA category, if the bank does not take cognizance
of the same and initiate remedial action.
c) Watch Category Accounts
RBI describes Special mention account as an asset which exhibits signs of
sickness/irregularities. They are given the names as Watch and Special Watch
category accounts in our Bank. We have to place accounts in Watch/Special.
Watch category when the following symptoms of sickness are seen.
a) Non-payment of one quarterly interest/ installment
b) Frequent requests for excess drawings over the limit
c) Frequent return of bills purchased/cheques sent for collection
d) Cheques issued are returned for financial reasons
e) Non-submission of stock statements
d) Continuous Surveillance Statements
One of the best tools that is available to the branch to have a good slippage
management is the continuous surveillance statement. Branches are free to adopt
preparation of the same even for less than Rs 100 lacs working capital facilities.
Ultimately it is only the monitoring system that is devised to see the health of the

borrow accounts at the end of every month and to take corrective steps wherever
necessary.
e) Through Compromise Settlement
Several schemes were put in place framed both by RBI and by the banks on
their own, initially valid for a shorter duration and later on extended to enable the
banks recover those hard core NPAs where recovery was not possible under normal
circumstances and to provide relief to those who were affected.
Basically, it is an attempt that provides a lot of relief to the affected person
who has already suffered some loss or other in his business activity which forced
him not to keep up his commitments and honor the claims of the bank. This has
proved to be one of the best avenues to the banks to reduce their NPA portfolio.
While divergent views are expressed about the one time/negotiated settlement
schemes, the fact remains that this has proved to be the best possible way of
recovery in the cases where recovery had otherwise proved to be difficult.
f) Through the Debt Recovery Tribunal (DRT)
Debt Recovery Tribunals are special quasi-judicial forums established under
the provisions of Recovery of Debts due to Banks and Financial Institution Act,
1993 for speedy recovery of loans. Debt Recovery Appellate Tribunals (DRATs)
are the appellate bodies where all appeals arising out of the orders passed by DRTs
are filed. A person in the rank of a District Judge is the Presiding Officer of DRT.
DRAT is presided over by a Chair Person who is in the rank of High Court Judge.
The Pecuniary jurisdiction is Rs. 10 Lacs and above. The Tribunals will have
territorial jurisdiction. Only Banks and Financial Institutions can avail of the
benefit from the Tribunals. The Law of Limitation is applicable. The Tribunals are
mainly guided by the Principles of Natural Justice.
7

There are 29 DRTs in INDIA at present and 5 DRATs. The DRATs are
located in Mumbai, Delhi, Kolkata, Chennai and Allahabad. As per the latest
amendment to the Act which is effective from 17.01.2000, debt includes any
liability which is assigned or is payable under any arbitration award or under a
mortgage. DRAT can transfer, on application, any case from one tribunal to
another. If another Bank has a claim against the same person, then that Bank can
join the case before the final order is passed subject to separate fees. The Tribunals
has powers to order Attachment, to appoint a receiver and to appoint a
Commissioner for preparation of Inventory or for sale. The Recovery Officer is
empowered to require the Debtor to declare on affidavit the particulars of his or its
assets
g) Recovery of NPA through lock adulate
Lock Adulate is a process of administering justice. It is a voluntary process
and works on the Principle that both parties to the dispute are willing to sort out
their disputes amicably. Through this mechanism, disputes can be settled in a
simpler, quicker and cost-effective way.
The Lock Adulate is not a new concept. It is quite old and has its roots in
Panchayat Adulates. The system, however, has remained out of tune for long. The
Parliament, by enacting the Legal Services Authorities Act1987, conferred
legitimization and recognition to the system.
h) Recovery through court
If all the above measures are failed then the Bank will go for legal
procedures through court.

INDUSTRY PROFILE

MEANING AND SUGGESTION OF CO-OPERATIVES

A cooperative society is a voluntary association of individual who join
together on voluntary basis for the furtherance of their common economic
interest .
CO-OPERATIVE SOCIETY IN INDIA
IN 1904 ,the first central co-operative act was passed in India and
started the first co-operative society in madras city by sir Rajagopalachari
(30.08.3010) . the reason for the starting
of multi objective cooperative
society was made by act passed in 1912. This act was replaced in year
1932.
CO-OPERATIVE SOCIETY IN TAMILNADU
In Tamilnadu the first co-operative act was in 1961 and replaced in
1983 in 1988 , the co-operative rules came into act .
Sate cooperative bank

18

District central co-operative bank

23

District central bank branch

730

Primary agricultural co-operative bank

589

Tamilnadu agricultural village development bank

5504

Total

These cooperative banks performed many function such as mobilizing

deposits advancing loans against securities etc. it fulfills the financial needs
of the small scale industries and provide assistance to week section of the
society .
9

CO-OPERATIVE SOCIETY IN NAGAPATTINAM

Nagapattinam co-operative works according to the cooperative rules during
the year 1988.

FEATURES OF CO-OPRATIVE
Voluntary Association
A co-operative society is a voluntary association of persons and
not of capital the membership is open to all having a common interest
person can become member at their free will and also free to leave
it any time by giving a due notice to the society .
Open membership
Any person irrespective of this caste ,sex, creed, beliefs and
religion can become a member of a cooperative society . New members
are always allowed to the society. As there is no restriction on the number
of members. The membership list is not closed at any time.

Equal voting Rights

Service Motive
State control
Cash trading

KINDS OF CO-OPERATIVES
There is no hard and fast rule as regards the classification of cooperative Societies as they are formed practically for every purpose and
every walk of life . The principle
types of
co-operative Society are
enumerated below.
Consumer co--operative societies
This type of society aims at ensuring steady supply of consumer
goods and service of standard quality at reasonable prices to their
10

members . It purchases goods on wholesale basis and there on to its

members at fair price . There by it eliminates middlemen in the channel
of distribution . the forms of cooperative have been receiving Courts
attention and help them a with to contribution the general problem of
price rise .
Housing

co-operative societies

Housing co-operative societies are formed to private house to their

members either on ownership basis. They grant loans to the members for
construction of house some times to the society.
Marketing

co-operatives

The marketing co-operatives are

the association
procedures organized for the sales of there .

of independent

Co-operative credit societies

Co-operative credit societies are
formed
assistance in the form of direct loans to their members.

to provide financial

PRINCIPLES OF CENTRAL CO-OPERATIVE BANKING

Guidelines, which influence in the financing are certain of a central
bank.
Sprit of social welfare : the central banking in every country is a
non profit organization . This feature differentiates it from the
commercial banks. the central bank is to set up control over the entire
banking structure in the society in the interest of the public .
Growth with monetary
institution the country.

stability

11

: A central

bank

is an banking

 Entrusted with the task by resolution of money supply in the country

. The central bank act as an influent development while acting in their
direction should not target to maintain monetary stability in the
country .
Freedom from
political influence : A central
bank
should be
independent of all political influence if it is to work for the
development of the country . the ruling parties may change in the
country but it should not allow itself to be dominated by the ideology of
a particular political party . But it does not mean that it should not
influenced Government Policies . it is always necessary that there
should be perfect cooperation between the central bank and
Government of the country it is fact development of economy is to
achieved .

MERITS OF CO-OPERATIVE SOCIETIES

Easy information
Service motive
Democratic management
Avoidance of exploitation
Suitability
Minimum over head cost
Scope of self government

LIMITATIONS

Unsuitable for large business

Un efficient management
Absence or motivation
Attitude or members
Weakness in its lending system
Lack of secrecy

12

FUNCTIONS OF CO-OPERATIVE
They perform number of functions they are:
They main function of the Nagapattinam District central cooperative
bank is to lend to the primary credit societies . They provide short term
and medium term loan the primary credit societies. They finance the
primary credit societies and thereby enable them to extend credit to
farmers. Thus, they play a vital role in rural finance.
The function as the balancing central and assist in transferring the
excess primary society which is need of the funds .
They raise loans and advance from
the sate cooperative banks the
sate cooperative banks and lend the same to the primary credit societies.
Thus they act as a link between the state cooperative bank and they
primary credit societies .
They raise loan deposit from the members as well as non members for
the purpose of the meeting the credit requirements of the primary credit
societies.
They supervise and guide to the affiliated primary credits societies.
They also carry on commercial banking operation. such as acceptance of
type of deposit from the general public granting of loans and advance
to the needy against proper securities discounting of bill collect cheque
and bills on behalf of their customer , receiving of valuable of safe
custody etc.

13

INDIAN BANKING INDUSTRY

The Indian Banking industry, which is governed by the Banking Regulation
Act of India, 1949 can be broadly classified into two major categories. Nonscheduled banks and Scheduled banks. Scheduled bank comprise commercial bank
and the co-operative banks. In terms of ownership, commercial bank can be further
grouped into nationalized banks, the State Bank of India and its group banks,
regional rural banks and private sector banks. These banks have over 67,000
branches spread across the country.
The first phase of financial reforms resulted in the nationalization of 14
major banks in 1969 and resulted in a shift from Class banking to Mass banking.
This in turn resulted in a significant growth in the geographical coverage of banks.
Every bank had to earmark a minimum percentage of their loan portfolio to sectors
identified as priority sectors. The manufacturing sector also grew during the
1970s in protected environs and the banking sector was a critical source. The next
wave of reforms saw the nationalization of 6 more commercial banks in 1980.
Since then the number of scheduled commercial banks increased four-fold and the
number of bank branches increased eight-fold.
After the second phase of financial sector reforms and liberalization of the
sector in the early nineties, the Public Sector Banks found it extremely difficult to
compete with the new private sector banks and the foreign banks.
The new private sector banks first made their appearance after the guidelines
permitting them were issued in January 1993. Eight new private sector banks are
presently in operation. These banks due to their late start have access to state-ofthe-art technology, which in turn helps them to save on manpower costs and
provide better services.
14

During the year 2000, the State Bank of India (SBI) and its 7 associates
accounted for a 25 percent share in deposits and 28.1 percent share in credit. The
20 nationalized banks accounted for 53.2 percent of the deposits and 47.5 percent
of credit during the same period. The share of foreign banks (numbering 42),
regional rural banks and other scheduled commercial banks accounted for 5.7
percent, 3.9 percent and 12.2 percent respectively in deposits and 8.41 percent,
3.14 percent and 12.85 percent respectively in credit during the year 2000.
The industry is currently in a transition phase. On the one hand, the PSBs,
which are the mainstay of the Indian Banking system, are in the process of
shedding their flab in terms of excessive manpower, excessive non- Performing
Assets (NPAs) and excessive governmental equity, while on the other hand the
private sector banks are consolidating themselves through mergers and
acquisitions.
PSBs, which currently account for more than 78 percent of total banking
industry assets are saddled with NPAs (a mind-boggling Rs 830 billion in 2000),
falling revenues from traditional sources, lack of modern technology and a massive
workforce while the new private sector banks are forging ahead and rewriting the
traditional banking business model by way of their sheer innovation and service.
The PSBs are of course currently working out challenging strategies even as 20
percent of their massive employee strength has dwindled in the wake of the
successful Voluntary Retirement Schemes (VRS) schemes.
For instance HDFC Banks merger with Times Bank. ICICI Banks
acquisition of ITC Classic, Anagram Finance and Bank of Madura. Centurion
Bank, Induslnd Bank, Bank of Punjab, Vysya Bank are said to be on the lookout.
The UTI bank- Global Trust Bank merger however opened a Pandoras box and
15

brought about the realization that all was not well in the functioning of many of the
private sector banks.
Private sector Banks have pioneered internet banking, phone banking,
anywhere banking, mobile banking, debit cards, Automatic Teller Machines
(ATMs) and combined various other services and integrated them into the
mainstream banking arena, while the PSBs are still grappling with disgruntled
employees in the aftermath of successful VRS schemes. Also, following Indias
commitment to the W To agreement in respect of the services sector, foreign banks,
including both new and the existing ones, have been permitted to open up to 12
branches a year with effect from 1998-99 as against the earlier stipulation of 8
branches.

path. Apart from the brains, public have also come forward to contribute to
the corpus of the Trust. The trust provides a base for co-operative banks

Promotion

of Agriculture Seed Bank

Co-operative bank has supported a project in association with M.S.S

Research foundation, channel for establishment of seed Bank in various villages
falling under Dry land farming.

The aim of the project is to increase the

availability of good quality seeds at the right time to the farmer. Provision of
market linkage its pulses is also another area. Apart from these, co-operative bank
has involved in several other environment conservation also.
Co-operative bank Achievements
Co-operative bank made commendable progress in key areas of business
record growth its deposits, substantial credit expansion and diversification into
16

gold bank in were the highlights of the year. The Bank got autonomous status on
the basis of its track record in capital adequacy, net worth above the threshold
limit, control of NPA below the stipulated levels and continuous profit for the last
three years. The Bank posted hefty gross profit for the fourth consecutive year in
the post reform phase of Indian Banking Rs.154.3 crores. Net profit amounted to
Rs.113.1 crores. They were well above the gross a net profit of Rs.129.4 crores and
Rs.104.5 crores respectively for the preceding year.
Vision & mission of co-operative bank
Trend setter in co operative banking sector of the state
Class service at door stops
Leverage technology to the for cement
Partner in progress of state economy & nation building
Mission of co-operative
In elusion of people of strata to the co-operative fraternity
Abridge un banked pockets on banking service
Uplift the poor class for income generation
Create awareness on banking , thrift ,savings & on common effort
Prove reality of the proverb each for all & all for each

17

The Banks agenda for the immediate future includes offering custodial
services to clients and enlarge operation in the Capital Market and Leasing & hire
purchase business. Our aim is to concentrate in areas of Investment Banking, Forex
Trading, Project Finance, Institutional Asset Management and Personal Banking
co-operative also target to make itself a one-stop Banking center for corporate
sector. The Banks strength is in Retail Banking. Anchored to the tradition in
offering new products in the personal Banking segment, the Bank will continue to
innovate for the benefit of the individual customer.
Co-operative is big enough to serve the world and small enough to know
everyone. Success in the implementation of program for planned depends to a
large extent on the availability of adequate financial resources for a wide variety of
project. In View of the task and vast size of the country it was also decided to
setup more branches all over the India. The co-operative function in India can be
broadly classified into two types. Co-operative urban, rural, has a group from the
prep under and part of the organized agriculture system.
Reduction in NPAS
The Bank recovered nearly 160 cores of hard-core problem credit during the
year. Accordingly the Banks ratio of net NPAS drastically declined from 7.64% to
6.26% during the year. The Bank provides assistance in completion of legal
documentation and also organizing funds and assistance in arranging in working
capital finance.

The Banks agriculture business is running very successfully

because the bank provides low interest to farmers. The Bank always has fulfilled
his obligation to the priority sectors. This is the success of Indian Overseas Bank.

18

Investment
The Banks net domestic Investment Port folio expanded from 6,422.4
crores to Rs.7,191.0 crores. Marked to Market portion of investments was 85% as
against the stipulation of 60%. The Bank has to become a Depository participant
in the National Securities Depositories Limited.

Depository services will be

offered in Mumbai followed by other centers in course of time.

Empowerment of Women
The Bank and the staff members through the respective organization have
formed a trust to perpetuate the memory of the founder of Bank. The Trust is
primarily concerned with empowerment of women. During the year, the Trust
successfully trained 236 candidates in various vocational courses.
Credit Growth
The Banks global advances Rose from 7,254 crores to 8667.2. On the
domestic front, the bank was able to Post a credit growth of 17.6% which was
higher than 15.6% achieved by the banking system. The performance of the Bank
was quite creditable in a year of sluggish credit demand in the domestic sector.
Social banking continued to get close attention of the Bank, even in the present era
of resurgent commercial banking. The Bank more than fulfilled its obligation to
the priority sector with an achievement of 43.3% of net credit as against the
stipulate goal of 40%.
The Banks Agricultural Business consultancy services, a unique venture
offering project feasibility studies for hi-tech agro projects is very successful in
offering consultancy to both large small farmers. The pilot ventures of pulses
19

production through rain water harvesting technology has raised the living standards
of small farmers by giving them an income of Rs.2,306 in 65 days.
Personal Banking in co-operative bank
At co-operative, the customer has always been the first priority.

Co-

operative have a spectrum of tailor made saving schemes to suit the varying needs
of everyone and numerous loan schemes to meet the requirements of everyone.
Our array of service includes Credit, Safe Deposit Lockers, Travelers Cheques,
Gift Cheques and Remittance facilities. Co-operative deposit schemes embrace all
classes including the economically disadvantaged section of the society and suit
various age groups. Co-operative was the first to introduce the Recurring Deposit
way back in 1995.
Other Deposit Schemes
Savings Deposit
Fixed Deposit
Reinvestment Deposit Plan
Recurring Deposit

20

CO-OPERATIVE BANK SCHEMES

Deposit

Loans

Savings deposit

Personal segment

Current deposit (individual )

Housing

mortgage

individual

Current deposit (societies)

Special fixed deposit

Call deposit societies

M.t.c agriculture loans

Matured F.D deposit

Jewels loans

Mahatma

Jewels loan (NFS)

cash

certificate

(individual)

loan

Working women loan

Loan to pension

Cash certificate (societies)

Housing loan to individual

Security deposit of society

P.A.C.B Jewel loan

employee
Permanent income plan

Kinas credit card

Women micro credit salary

Cumulative benefit deposit

loan individual

Draft payable

Marketing society general

Eyesores price certificate

SRT to loan individual

Recurring deposit

Petty

loan

individual

Subsidy R.F Account

Interest or matured deposit

traders

Agriculture & allied activities

Reserve fund of societies

21

to

Investment
The Banks net domestic Investment Port folio expanded from 6,422.4 crores to
Rs.7,191.0 crores. Marked to Market portion of investments was 85% as against
the stipulation of 60%. The Bank has become a Depository participant in the
National Securities Depositories Limited. Depository services will be offered in
Mumbai followed by other centers in course of time.
Gold Banking
One of the major events during the year was nomination of the Bank as one of the
agencies for import of precious metals. The Bank took the lead to import bullion
on consignment basis and to start based trading for bullion dealers and started retail
trade as well.

22

CHAPTER -II
OBJECTIVE OF THE STUDY

Primary objective:
To analyses the effectiveness of recovery of Non-performing asset in the
co-operative bank, kumbakonam Branch.
Secondary Objective:
To assess the position of non-performing assets in Nagapattinam District
Central Co-operative Bank.
To study the effect of non-performing assets on the financial health of the
bank and recovery of co-operative credit.
To examine the factors for default of Co-operative credit thereby increase in
Non-performing Assets.

23

SCOPE OF THE STUDY

At present co- operative is facing a serious problem of slipping of

performing assets to non - performing assets. So the main need of this study is to
identify the areas where the (NPA) can be recovered easily and know the
effectiveness of its recovery.
Co-operative is facing a heavy competition from both public and private
sector banks, therefore they issuing loans without good credit appraisal. This leads
to increase NPAs.
Once a performing asset slipped to non performing asset, the recovery is the
major problem faced by the banks.

24

LIMITATIONS OF THE STUDY

Analysis is mainly based on secondary data.

Certain information & data which cannot be accessed or published

because it is confidential. The basic policy of any banking institution maintaining secrecy and honoring clients trust of the bank.
Difficulty in procuring adequate number of statements, hence the sample
size being small.
The inferences and conclusions are purely based only on the five year
financial statements from the bank.

25

CHAPTER -III
REVIEW OF LITERATURE
Non-Performing Assets an Overview
All sales are actually a gift until the proceeds have been collected
Prof. M.Bertoneh In the year 1991, the Government of India had appointed a
high level committee under the chairmanship of Shri.M.Narasimham, popularly
called Narasimham committee, to examine all aspects relating to the structures,
organization, function and procedures of the financial system. The committee had,
inter alia made recommendation in regard to proper system of recognition of
income, classification of asset and provisioning for bad debts on a prudential basis.
The Reserve Bank of India, in tune with the internationally accepted
accounting norms and as per the Narasimham committee recommendations,
introduced new guidelines for Income recognition, asset classification and
provisioning norms operative from the financial year 1992-93.With the
introduction of the new norms from the year 1992-93, the concept of performing
and Non-performing assets has been introduced.
Definition
An asset, including a leased asset, become non-performing when it ceases to
generate income for the bank, A non-performing asset (NPA) was defined as a
credit facility in respect of which the interest and/ or in installment of principal has
remained past due for a specified period of time. An amount due under any
credit facility is treated as past due when it has not been paid within 30 days from
the due date.
26

Banking regulatory authorities, policy makers and researchers alike are

interested in research on NPAs. Since prudential norms have been implemented in
co-operative banks only from 1999-2000, the study of NPAs in co-operative banks
is a relatively new field of study. Hence, literature of empirical studies on the
subject is limited. However, delinquency of co-operative credit is the object of
enquiry for many committees and researches.
A brief review of these studies is presented here. Since very few studies have
been done on NPA in co-operative banks, the studies on (i) Co-operative credit (ii)
Effect of overdues and NPAs (iii) Recovery and (iv) Factors influencing nonpayment of dues, have been reviewed.
Naik, et al., (1991) while reviewing the role of credit co-operatives in rural
development within Andhra Pradesh has concluded that cooperatives were the
most suitable institution for loan disbursement in thearea.36
Segynola (1992) has stated that the impact of the co-operative societies in Nigeria was
mainly in the areas of mobilization / allocation of resources, diversification of rural
economy , the provision of items of wealth, and the distribution of manufactured goods to
members.37
Kislev et al., (1993) study has revealed that co-operative credit supported
intensive development of the family farm sector in Israel. But mutual liability encouraged
over-borrowing when possible and could not be forced when needed.38
27

Teklu (1993) has considered the failure of co-operative credit program in western
Sudan. It was due to the inadequacy of its strategy with regard to the rural population's
broad income diversification strategy, and failure to provide protection from entitlement
and consumption risks.39
Varma and Reddy (1997) has showed that the agricultural credit through DCCBs
and PACS had grown in terms of coverage and growth of economy of Andhra Pradesh
after reorganization.40
Sourindra Bhattacharjee (1996) concluded that improving the total gross margin
was the most important route for increasing the profitability of the co-operatives.41
Murty and Durga (1998) while studying equity and efficiency of cooperative
credit, found that efficiency and recovery were related. Efficiency also suffered because
the recovery of loans was very poor.42 A study by the Office of the Comptroller of
Currency (OCC) of United States in 1988 found that poor asset quality was a major factor
responsible for the failure of 98 per cent of the banks. Hence, reduction in gross NPAs
was desirable.43
A study by the Office of the Comptroller of Currency (OCC) of United States in
1988 found that poor asset quality was a major factor responsible for the failure of 98 per
cent of the banks. Hence, reduction in gross NPAs was desirable.43
Prem Sharma (1998) opined that in the aftermath of the Financial Sector
Reforms, the co-operative banks had to meet the challenges of the financial sector
reforms by competing with Public Sector Banks and Private Sector Banks in mobilization

28

of deposits, savings and advancing of loans to tone up their functional effectiveness and
attain capital adequacy norms.44
According to the Report of the Agriculture Credit Review Committee (1989) over
dues prevented recycling of funds, impaired refinance eligibility and productivity of co
operative banks. Nearly 26 per cent of the resources deployed by the credit agencies for
the agriculture sector were locked up in over dues and were not available for recycling.
At the institutional level, the clogging of over dues had severely impaired the eligibility
of the credit agencies, for refinance from NABARD. As a defaulter, the borrower is cut
off from any access to credit from institutions. This affects his productive enterprise.45
The Tarapore Committee on Capital Account Convertibility(CAC) laid down that
5 per cent level of NPAs in banks is an important milestone to be reached for full
convertibility.46
According to the comparative study of NPA by Sathyanarayana (1988), the NPA in
Venezuela, Mexico, Thailand, Brazil, Japan, Taiwan, Colombia, Chile, Korea, Argentina,
Indonesia, Malaysia, Hongkong, USA,and Singapore indicated that except in Latin
America the NPA levels were in single digit (6 per cent to 7 per cent). India compared
unfavourably in the international arena, as India had the highest proportion of NPAs
(14.45 percent) among the 16 countries in 1994-1995.47
Sudhakar Patra (1998) revealed that the Boudh CCB in Orissa was not
successful in making profit due to non-repayment of loans in time.48

29

Phadnis (1999) justified the Narasimham Committee's observation that asset

quality was very poor in direct lending, since around 48 per cent of NPAs were in priority
sector advances group.49
According to Samal (2002) NPA overhang was due to defects in legal processes
like prolonged / delayed legal system, absence of proper legal framework for nonpayment of bank's dues.5
The Report of the Rural Banking Enquiry Committee (Thakurdas Committee)
(1949) concluded that proper follow-up action was very essential. Banks have to maintain
close contacts with the borrowers, keep track of the end-use of funds lent to the
borrowers effective recovery of advances as per the repayment schedule.51
The Report of the Study Group to frame guidelines for follow-up of bank
credit (Tandon Committee) (1979) framed guidelines for monitoring and follow up of
bank credit. It suggested norms for holding raw materials, stock in process, finished
goods, receivables and bills purchased and discounted.52
The Report of the Working Group to Review the System of Cash Credit
(Chore Committee) (1979) stressed the need to strengthen the monitoring system and
suggested simplification of the information system proposed by the Tandon
Committee.53
The Report of the Committee on Mechanization in Banking Industry
(Rangarajan Committee) (1983) emphasizes that mechanization was the first step to
recovery management.54

30

The Report of the Committee of Top Executives (1987) stressed that close
efforts on the part of banks to monitor end-use of funds would result in increased
productivity of the bon-owers.55
Ottonlenghi, et al. (1993) perceived that arbitration in co-operative societies in
Israel was too prolonged and the intervention of the courts in arbitration by the Registrar
were the major problems of arbitration. 56
Gopalakrishnan (1996) suggested that the bad effect of Debt Relief Schemes
should be erased from the minds of borrowers.57 According to Jain et al., (1996) the loan
waiver schemes had succeeded in redemption of old dept but recovery of fresh loans was
a major problem faced by the co-operative farm credit sector in Madya Pradesh. 58

Shollapur (1996) study on the Belgaum DCCB in Karnataka state showed that
more than fifty per cent of the PACBs remained uninspected. Inadequacy was
phenomenal even in passing the credit collection to the CCB. 59
The Working Committee (1999) on NPAs considered write-off, compromise, one
time settlement for recovery of NPAs. It recommended compromise model for the
recovery of NPAs as the most effective mechanism. However both write-off and
compromise are steps to be taken with caution and due monitoring.60
RBI study (1999) stated that banks were required to closely monitor the
operations of the borrowal units. In respect of accounts where the classification of asset
worsens, banks were required to take prompt steps to recover the dues and staff
accountability was required to be examined. Special emphasis was given on monitoring
31

of large NPA accounts, also on reduction of NPAs, through upgradation, recovery, and
compromise settlements.61
Lopoyetum (2000) held that there was a direct and positive relationship between
period of default and cost of default by the defaulters 62
Rao (2002) suggested declaring default of bank loans as criminal offence and
punishment be awarded along with financial recovery, authorizing seizure agencies and
giving them a legal status to recover loans 63
The following studies were about the factors influencing the defaultof co-operative credit
which increases overdues at PACB level andincreases the level of NPAs in the CCBs and
SCBs.
The Report of the Committee on Co-operation in India (Maclegan Committee)
(1914) stated that "unless loans are repaid punctually, cooperation is both financially and
educationally an illusion."64
The Report of the Central Banking Enquiry Committee (1931) found that the
intention prevailing among the borrowers not to repay cooperative credit while having the
capacity to repay was the cause for overdues.65
The Report of the All India Rural Credit Survey Committee (1954), found that
defective lending policies were the cause for overdues.66
The Report of the All India Rural Credit Review Committee (1969), stated that
overdues were a common problem both in developed and under-developed areas and
found that the bulk of overdues were caused by big farmers.67
32

The Report of the All India Rural Credit Review Committee (1972) strongly
stated that overdues were rising since co-operative credit was short of standards of
timeliness, adequacy and dependability.68
RBI's Study Team on Overdues (1974) estimated that more than three fourths
of the overdues were due to willful default. Faulty lending policies, failure to link credit
with marketing , lack of will on the part ofmanagement to take strong action against
recalcitrant and willful defaulters, lack of financial discipline and apathetic of some of the
State Governments towards creating an environment conducive and congenial to
repayment of dues were the causes for overdues.69
Dadhich (1977) specifically threw light on willful default. He found that there
was strong association between repayment and caste, crops grown, fertilizer utilization,
occupational pattern and irrigation. The main causes found for willful default were relending practices, which enabled to make profit out of the interest margins.70
The RBI conducted a special study in 1978, which made it clear that the
accumulation of overdues was largely due to willful default and partly due to irregular
lending, lack of supervision, indifferent recovery efforts, inaction against defaulters,
unnecessary interference of State Governments in the recovery of the credit, domination
by the vested interest of politicians and the elite.71
The CRAFICARD (1980) while endorsing the findings of the Study Team On
Overdues found that in many cases the default was willful and that too it was by the big
farmers.72

33

Kalyankar (1983) in his study on crop loan overdues of co-operative finance

revealed that 60 per cent of the overdues were from 27 per cent of the big farmers who
had the capacity to repay but had neither the will nor the intention to do so.74
Reddy

(1988)

found

an

association

between

socio-economic

factors,adequate/timely credit and borrowers' repayments in Andhra Pradesh.75

The Report of the Agricultural Credit Review Committee (1989) stated that
there was significant relationship between agro- climatic conditions, literary rate, major
crops grown and overdues. The Committee deduced that the general climate in rural areas
was becoming increasingly hostile to recoveries due to increasing politicization of
agricultural credit.
The Committee viewed that inadequate loan amounts compelling the borrowers to
resort to borrowings from money lenders and other informal sources of credit and
fixation of due dates unrelated to the harvesting and marketing seasons and absence of
linkages of credit with marketing were the main causes for overdues.76
Vaikunthe (1991) in the evaluation of the performance of the Dharwad DCCB
Karnataka, found that credit utilization in non-irrigated areas was not efficient, but
repayment was more regular.77
Reddy's (1993) study on overdues management in Andhra Pradesh portrayed that
unsound lending policy, defective appraisal, misuse and diversion, unsatisfactory
marketing arrangements, lack of effective followup, effect of natural calamities, political
considerations, writeoff/ waiver of interest, Government policy, sometimes, hindered the
recovery even from the borrowers who raise good crop production.78
34

Goyal, et al., (1993) conducted a study on Hisal DCCB, Haryana. The defaulted
borrowers utilized a relatively larger proportion of their total earnings for consumption
purposes, thereby leaving less for investment in
production processes .79
Lal and Singh (1993) studied the misutilization of co-operative credit in
agriculture in Kukathala of Achnera block of Area district and found that marginal and
small farmers i.e., weaker sections misutilized amaximum per centage of loans.80
In his study on overdues of co-operative banks in the state of Haryana, India,
Dhaka(1994) discovered that the inadequacy of loan was an important factor for
increasing overdues over the year.81
Kusumakara Hebbar (1994), in his study of 15 PACS in Mangalore, found that
the recovery problem was more in the case of short-term and medium-term loans.82
Balishter et al.,(1998), in their study in Agra District, found out that willful default was
mainly confined to medium and large farmers to the extent of over 90 per cent.83
D.R.Reddy and M.N.R. Readdy's study showed that there was a positive relationship
between asset status and debt accumulation and between the level of borowing and
willful default in Nellore District, Andhra Pradesh.84
Lakshmi, et al., (1998), in their study on Kuttanad region in Alappuzha district, the rice
bowl of Kerala, identified that marketed surplus, time of sowing and credit gap were the
major characeristics that discriminated the borrowers of crop loan from into defaulters.85

35

Rabi Narayan Mishra's (1998) study on the attitude towards repayment in Orissa
disclosed that the per centage of defaulters in literate category was higher than that of
illiterates and was the highest among the general caste borrower.86
Namasivayam and Ranachandriaiah (2000) concluded that the productive loan
as a proportion of total loan was higher for marginal farmers among non-defaulter and
control groups who were utilizing loans predominantly for digging and deepening wells.
The crop loan tended to be more often misused than term loans. This may be partly due to
untimelyissue of loans.87
Ravichandran (2000) in his study in Tamil Nadu concluded that political
exploitation became the major cause for delinquency, compared to other causes for
overdues, viz., crop failures, increasing family expenditure,and social obligations. A
significant portion of defaulters were of the opinion that Government waiving schemes
was the major cause for this delinquency.88
Das's (2002) study of Arunachal Pradesh SCB unveiled th improper utilization of
loan and the insignificant repayment behavior hz stood on the way of the development
procedure of rural sector89
Although many literatures are available on co-operative credit] recovery, default
etc., very few studies have been made with reference 1 NPAs in Co-operative banks and
the effect of NPAs. Particularly no such study has been conducted in the present study
area. Hence, these studies seel to probe into the position of NPAs and the factors leading
to default in the study area.

36

CHAPTER -IV

RESEARCH METHODOLOGY
In general research can be termed as an enquiry in to the nature of the reasons for and the
consequence of a particular set of circumstances. Research is the process of finding solution for
problem after a thorough study and analysis of situational factors. Under thesis project the data
collected from the ucal fuel systems, which is purely of secondary in nature.
Research methodology is the way to systemically sole the research problem this
study of inventory management is an analytical study because the facts and information that is
readily available are being just to make critical evaluations of inventory management at ucal fuel
systems.
RESEARCH DESIGN
A research is a logical and systematic planning and directing a piece of research,
it is translation form general scientific model into various research procedures. It is not a highly
specific plan to be followed without deviation, but rather than serous guideposts to keep one at
head or the researcher at the right direction, Research design constitutes the blue print for
collections, measurements and analysis of data.
Research design provides the glue that holds the research project together a design
is used to structure the research, to show how all of the major parts of the research project-the
samples or groups measures, treatment or programs and method of assignment work together to
try to address the central research questions.

37

Research design can be thought of as the structure of research, it is the glue that holds
all elements in a research in a project together. We often describe a design using a concise
notation that enables us to summaries a complex design structure efficiently;
TYPES OF RESEARCH
Analytical Research is the type of research that is used by the researcher for this
study is analytical in nature. The researcher has used facts or information already available and
analyzed those to make a critical evaluation of material.
DATA COLLECTION METHOD
Data collection for the study is collected secondary data
PRIMARY DATA:
Primary data collected through Co Operative Bank
SECONDARY DATA:
Secondary data collected from the sources which have been already created for
the purpose of first time and future use the secondary data collection involves Co Operative
Bank effort. Secondary May be either published data or published. In this project which is
collected as secondary in nature.
The secondary data for analysis are taken from the banks:
Annual Reports
Financial Statements
Monthly statements of recovery of NPAs

38

 Gross NPA:
Gross NPAs are the sum total of all loan assets that are classified as NPAs as per
RBI guidelines as on Balance Sheet date. Gross NPA reflects the quality of the
loans made by banks. It consists of all the non standard assets like as substandard, doubtful, and loss assets.
Gross NPAs

Gross NPAs___

Gross Advances
Net NPA:
Net NPAs are those type of NPAs in which the bank has deducted the provision
regarding NPAs. Net NPA shows the actual burden of banks.
Net NPAs Gross =
NPAs Provisions
Gross Advances - Provisions

39

CHAPTER V
DATA ANAYSIS AND INTERPRETATION

40

CHAPTER VI

FINDINGS

41

SUGGESTIONS

42

CONCLUSION

43

44

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May 2000: 1.
ENS Economics Bureau. "Narasimham Report Flaya Banks on NPAs." NewIndian
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1998):35.
Annual Report. Chennai: Tamil Nadu State Apex Co-operative Bank Ltd., 20022003.
Annual Reports. Salem District Central Co-operative Bank Ltd., 1996-2003. Balishter,
A.K. Singh, and Vishwajit. "A Study of Overdues of Loans in Agricultural." Indian Cooperative Review 31. 4(Apr. 1994): 337-383.
Baluswami,N. "An Empirical Study on Rural Indentedness." Indian Co-operative
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Battacharijee, Sourindra. "Factors Influencing Viability of Primary Agricultural
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Bidani, S. N. Managing Non-Performing Assets in Banks. New Delhi: Vision
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 Brahamananda. "RBI Report on Trend and progress in Banking-Interest Income asa

Measure of Viability." The Hindu Bussiness Line 20 Nov. 1999:4.
Das, Debrata. "Ulilisation pattern of Co-operating Credit:A Case Study." Cooperative
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46