53675634 Sbi Project Report

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PREFACE

Loans have to be paid back one day. Had this been realized by all, how nice life would

have been on this Planet. It would not have prompted the poet to say Neither be a Lender,

nor a Borrower Be. Alas! Given the realities in life, this could remain at best a wishful

thinking.

So their business is to lend and lend more. Their proficiency; skill; competency are all

tested in how much they lend and how much they RECOVER and how quickly. Suffice it

would be to state that this can be likened to the vigour and strength with which one goes

about after fully recovering from any ailment. It is agreed by al beyond doubt Recovery

is essential and get recovery is very essential.

We know right form the appraisal stage up to the actual repayment stage the banks need to

be careful. We also know that once the money is in the hands of a borrower, attitudinal

changes take place. The borrower, with some few exceptions may be, feels a bit more

complacent as after all it is not this own money which is at stake. Therefore an attempt

is made here to put all that we know already proper perspective.

TNRCMS MAYANK SHAH 1


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ACKNOWLEDGEMENT

At outset, we would like to thank the institutions for having provided us with an

opportunity to carry out a project of this magnitude that helped me satisfy my curiosity as

far as my area of interest was concerned.

The essence of this project, i.e. its contents have been compiled with help of varied

sources of secondary database, but we would specially like to acknowledge the support,

suggestions and feedback received from my Project Guide-

1) Mr.K.P.S.Arya

AGM, Of RASMECCC

State Bank Of India, Rajkot

2) Mr.M.D. Raval

Manager of RASMECCC,

State Bank of India, Rajkot.

3) Mrs.Jyoti & Mr.Avinash Singh

Officer, RASMECCC,

State Bank Of India, Rajkot.

Also my faculty member Mr. Abhay Raja guide and suggest me about the project. A

lot of other people have also contributed directly and indirectly to completion of this

project would not have seen light of the day. Our hearts felt gratitude to all of them.



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DECLARATION

I the undersigned Mr.Mayank S. Shah, a student of MBA (Finance) Semester-III,

hereby declare that the project work presented in this report is my original work.

This work has not been previously submitted to any other university for any other

examination.

Date: 15 t h July,2008

Place: Rajkot

----------------------

(Mayank S. Shah)



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EXECUTIVE SUMMARY

The most important problem that the Indian banks are facing is the problem of their NPAs.

It is only since a couple of years that this particular aspect has been given so much

importance. The banks have to overcome these difficulties properly in order to effectively

counter the competition faced by the foreign banks. With the framing of laws as per

international standards and setting up of Debt recovery tribunal we can say that steps have

been taken in this direction.

Banks in India have traditionally been saddled with very high Non-Performing Assets. The

banking sector was heading for a crisis in 2001 with NPAs crossing a mammoth 64000

crores. Banks burdened with huge NPAs faced uphill tasks in recovering then due to

archaic laws and procedures. Realizing the gravity of the situation the government was

quick to implement the recommendations of the Narsimham Committee and Andhuarjuna

Committee leading to the enactment of the SRESI ACT 2002.( Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest Act).

This Act gave the banks the much needed teeth to curb the menace of NPAs. The non

performing assets (NPAs) of banks have at last begun shrinking. As reported from

surveys, it is understood that there has been substantial improvements in non performing

assets and this has been because of several measures such as formation of asset

reconstruction companies, debt restructuring norms, securitization, provisioning norms

and prudential norms for income recognition. The gross NPAs of the banking system areabout 16 per cent of the total assets of the nationalized banks as of 2000-01. This is against

a global norm of about 5%. Hence there is a long way to go before we can say that the

NPAs of our banks are under control. The improvements in NPAs of individual

nationalized banks have been in the order of 10% to 20%, thanks to the various schemes

and measures introduced. This paper addresses the results we have achieved so far since



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the measures have been implemented and the thrust on measures that need to be taken to

expedite recovery of NPAs. We also give our suggestions as to how NPA retrieval can be

made easy and in what way the NPA scenario is headed.

The problem is no doubt about recovery management where the objective is to find out

about the reasons behind NPAs and to create networks for recovery. Banks of Rajkot have

been considered where 21 executive have been approached with a structured question to

elicit information.

The crucial factor that decides the performance of banks now days is the spotting of non-

performing assets (NPA). NPAs are those loans given by a bank or financial institution

where the borrower defaults or delays interest or principal payments banks are nowrequired to recognize such loans faster and then classify them as problem assts.

As far as the study is concerned the following may be summarized.

Nearly 10% of the banks in Gujarat responded within a month for loan applications

received by them from their corporate clients. If was also found that 67 % of the banks

used to appraise loan proposals from their corporate clients with the viewpoint of

recovery. In Gujarat region it was found that about 62 % of the banker opined that there

was a need to evaluate the loan applications critically.

The respondents assigned highest weight to companys current performance and the

second highest was assigned to companys past performance. Around 10 % of the banks in

Gujarat recovered their dues on time from their corporate clients after maturity in Gujarat.

The most preferred measures were pervasion and legal action. The most common

suggestion received for improving the recovery system in Gujarat was regarding

improving the judicial system and delegating more power and autonomy to the banks.



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INDEX

Sr. Particular PageNo.

Preface

Acknowledgment

Declaration

Executive Summery

1

2

3

4

1. Introduction

Early History of Bank

Type of Bank

Status wise bifurcation of Banks

8-15

10

12

14

2. About SBI

History

Awards & Recognition

Mission

Organization Structure

3. Survey & Research on NPAs

Research Plan

Introduction

Debt Recovery Problem

NPAs and Their Effects



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Steps to solve NPAs

Tools for Managing NPAs

Strategy for Prevention ofNPAs

Non Legal Measure

4. SWOT Analysis5. FUTURE PLAN6. CONCLUSION7. BIBLIOGRAPHY 8. ANNEXURE



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INTRODUCTION

The word bank it derived from the word bancus or banque that is French.

There was other of the opinion that the word bank is originally derived from the German word

back meaning joint for which was Italianized into banco. But whatever be the origin of the

word bank as Prof. Rramchandra Rao says. It would trace the history of banking in Europe from

middle ages.

General ly, banks do the bus iness of money they take deposi ts of moneys f rom

client and give loan to the person who has need of money. But in this age, for the

convenience of customer, banks provides some other services to their customer

such as bankers cheque, overdraft , internet banking, ATM facil i ty, paying of

bills, credit card, telegraphic transfer, insurance, demat etc.

For a people, i t i s di f f icul t to keep a very big amount of money in his house

safely. So, people save their money to bank. Bank gives loan to the person who

has need of money and gets higher interest on i t than the interest of deposit . The

margin between the interest of loan and interest of deposit is the income of bank.



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EARLY HISTORY OF BANKING

As early as 2000 B.C. the Babylonians had developed a banking system. There is

evidence to show the temples of Babylon were used as banks. After a period of

t ime, there was a spread of irrel igion, which soon destroyed the public sense of

securi ty in deposit ing money and valuable in temples. The priests were longer

act ing as f inancial agents . The Romans did minute regulat ions , as to conduct

private banking and to create confidence in it. Loan banks were also common in

Rome. From these the poor c it izens r eceived loans without paying interes t,

against security of land for 3 or 4 years.

During the ear ly per iods, al though pr ivate individual most ly did the banking

business, many countries established public banks either for the purpose of

facilitating commerce or to serve the government.

However, upon the revival of civi l izat ion, growing necessity forced the issued in

the middle of the 12 t h century and banks were established at Venice and Genoa.

The Bank of Venice established in 1157 is supposed to be the most ancient bank.

Originally, it was not a bank in the modern sense, during simply an office for the

transfer of the public debt.

In India, as early as the Vedic Period, banking, in most crude from existed. The

books of Manu contain references regarding deposits, pledges, policy of loans,

and rate of interest . True, the banking in those days largely mint money lending

and they did not know the complicated mechanism of modern banking.

This is t rue not only in the case of India but also of other countries. Although,

the business of banking is as old as authentic history, banking inst i tut ions have



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s ince than changed in character and content very much. They are developed from

a few simple operations involving the sat isfaction of a few individual wants to

the compl icated mechanism of modern banking, involving the sati s faction of

capital s lowly seeking employment and thus providing the very l i fe blood of

commerce.



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TYPE OF BANKS

Regional Rural Bank (RRB)

Nationalized Bank

State Bank Group

Co-operative Bank

Private Bank

Foreign Bank

RESERVE BANK OF INDIA

The Hilton-young commission, appointed in 1926 has recommended the necessity

of central ly empowered inst i tut ion to have effective control over currency and

financial transaction in the county. Accordingly, the Government had then passed

Reserve Bank of India Act, 1934 and established the Reserve Bank of India with

effect from 1 s t April 1935. The principal aim behind this was to organize proper

control over the currency management in the interest of country benefi ts and to

maintain f inancial s tabil i ty. With this , the RBI mainly looks after the following

important functions:

To keep effective control over creation of credits and currency supply

To control the Banking transactions of Central and State Governments.

To act as Central administered Authority of all other Banks in the country.

To organize control over Foreign Currency Transaction.

To assist for improvement in financial aspect of the country.

NATIONALISED BANKS



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The Banking Company Act es tablishes i t in July 1969 by nat ionalization of 14

major banks of India. The sent percent ownership of the bank is of government of

India.

STATE BANK GROUP

The State Bank of India was established under

the State Bank of India Act, 1955, the subsidiary

banks under the State Bank of India (subsidiary

Banks) Act 1959. The Reserve Bank of India

owns the State Bank of India, to a large extent,

and rest of the part is some private ownership in

the share capital of State Bank of India. The State

Bank of India owns the subsidiary Banks.

OLD PRIVATE BANK

These banks are registered under Company Act, 1956. Basic Difference

between co-operative banks and private banks is its aim. Co-operative

banks work for its member and private banks work for earn profit.

NEW PRIVATE BANKS

These banks lead the market of Indian banking business in very

short period. Because of its variety services and approach to handle

customer and also because of long working hours and speed of



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services. This is also registered under the Company Act. 1956. Between old and new private

sector bank, there is wide difference.

FOREIGN BANKS

Foreign Bank means multi-countries bank. In case of India Foreign Banks are such Banks. Which

open its branch office in India and their head office is outside of India.



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STATUS WISE BIFURCATIONOF BANKS

They are divided into two groups:

Scheduled Banks

Non Scheduled Banks

SCHEDULED BANKS

In first schedule, government of India notifies the Primary Banks, which are licensed and whose

demand and time liability are not less than 50 crores in 1987.

Government of India notify the Primary banks, which are licensed and whose demand and time

liability are not less than 100crores can only qualify to be included in the second schedule since

1993.

A bank becomes scheduled when it fulfils the followings:

A grade rating from RBI

Demand and Time Liability over 100crores.

Satisfy the RBI guidelines related to CRR and SLR

As per the norms Priori ty Sector wise landing benefi ts of being a Scheduled

co-operative are described below:-

RBI would provide Rediscounting facility at nominal rate

RBI gives remittance facility at par



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The demerits of becoming a scheduled co-operative bank is that the bank will not get 0.5%

subsidy from RBI

The conferment of scheduled status on the banks has certain advantages like refinance facility,

directly industrial finance from Reserve Bank of India. Avail of Reserve Bank of India

Remittance facility scheme, accept deposits from local bodies, quasi-government organization,

religious, and charitable institutions, guarantees and cheques issued by Banks are accepted by

Government Departments. At the same time, it casts greater responsibility on the banks in the

maintenance of books of accounts and submissions of returns.

Scheduled banks in India

Scheduled Commercial Bank

Scheduled Co-operative Bank

NON-SCHEDULED BANKS

The banks, which are not applicable as per the cri ter ia of Scheduled Banks, are

called as a Non-scheduled Banks. These are very small banks.



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STATE BANK OF INDIA

The origin of the State Bank of India goes back to the first decade of the nineteenth century with

the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later the bank

received its charter and was re-designed as the Bank of Bengal (2 January 1809). A unique

institution, it was the first joint-stock bank of British India sponsored by the Government of

Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the

Bank of Bengal. These three banks remained at the apex of modern banking in India till their

amalgamation as the Imperial Bank of India on 27 January 1921.

Primarily Anglo-Indian creations, the three presidency banks came into existence either as a result

of the compulsions of imperial finance or by the felt needs of local European commerce and were

not imposed from outside in an arbitrary manner to modernise India's economy. Their evolution

was, however, shaped by ideas culled from similar developments in Europe and England, and was

influenced by changes occurring in the structure of both the local trading environment and those

in the relations of the Indian economy to the economy of Europe and the global economic

framework.

Bank of Bengal H.O.



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Establishment

The establishment of the Bank of Bengal marked the advent of limited liability, joint-stock

banking in India. So was the associated innovation in banking, viz. the decision to allow the Bank

of Bengal to issue notes, which would be accepted for payment of public revenues within a

restricted geographical area. This right of note issue was very valuable not only for the Bank of

Bengal but also its two siblings, the Banks of Bombay and Madras. It meant an accretion to the

capital of the banks, a capital on which the proprietors did not have to pay any interest. The

concept of deposit banking was also an innovation because the practice of accepting money for

safekeeping (and in some cases, even investment on behalf of the clients) by the indigenous

bankers had not spread as a general habit in most parts of India. But, for a long time, and

especially up to the time that the three presidency banks had a right of note issue, bank notes and

government balances made up the bulk of the invertible resources of the banks.

The three banks were governed by royal charters, which were revised from time to time. Each

charter provided for a share capital, four-fifth of which were privately subscribed and the rest

owned by the provincial government. The members of the board of directors, which managed the

affairs of each bank, were mostly proprietary directors representing the large European managing

agency houses in India. The rest were government nominees, invariably civil servants, one of

whom was elected as the president of the board.



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Group Photograph of Central Board (1921)

Business

The business of the banks was initially confined to discounting of bills of exchange or other

negotiable private securities, keeping cash accounts and receiving deposits and issuing and

circulating cash notes. Loans were restricted to Rs.one lakh and the period of accommodation

confined to three months only. The security for such loans was public securities, commonly called

Company's Paper, bullion, treasure, plate, jewels, or goods 'not of a perishable nature' and no

interest could be charged beyond a rate of twelve per cent. Loans against goods like opium,

indigo, salt woollens, cotton, cotton piece goods, mule twist and silk goods were also granted but

such finance by way of cash credits gained momentum only from the third decade of the

nineteenth century. All commodities, including tea, sugar and jute, which began to be financed

later, were either pledged or hypothecated to the bank. Demand promissory notes were signed by

the borrower in favour of the guarantor, which was in turn endorsed to the bank. Lending against

shares of the banks or on the mortgage of houses, land or other real property was, however,

forbidden.

Indians were the principal borrowers against deposit of Company's paper, while the business of

discounts on private as well as salary bills was almost the exclusive monopoly of individuals

Europeans and their partnership firms. But the main function of the three banks, as far as thegovernment was concerned, was to help the latter raise loans from time to time and also provide a

degree of stability to the prices of government securities.



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Old Bank of Bengal

Major change in the conditions

A major change in the conditions of operation of the Banks of Bengal, Bombay and Madras

occurred after 1860. With the passing of the Paper Currency Act of 1861, the right of note issue of

the presidency banks was abolished and the Government of India assumed from 1 March 1862 the

sole power of issuing paper currency within British India. The task of management and circulation

of the new currency notes was conferred on the presidency banks and the Government undertook

to transfer the Treasury balances to the banks at places where the banks would open branches.

None of the three banks had till then any branches (except the sole attempt and that too a short-

lived one by the Bank of Bengal at Mirzapore in 1839) although the charters had given them such

authority. But as soon as the three presidency bands were assured of the free use of government

Treasury balances at places where they would open branches, they embarked on branch expansion

at a rapid pace. By 1876, the branches, agencies and sub agencies of the three presidency banks

covered most of the major parts and many of the inland trade centres in India. While the Bank of

Bengal had eighteen branches including its head office, seasonal branches and sub agencies, the

Banks of Bombay and Madras had fifteen each.



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Bank of Madras Note Dated 1861 for Rs.10

Presidency Banks Act

The presidency Banks Act, which came into operation on 1 May 1876, brought the three

presidency banks under a common statute with similar restrictions on business. The proprietary

connection of the Government was, however, terminated, though the banks continued to hold

charge of the public debt offices in the three presidency towns, and the custody of a part of the

government balances. The Act also stipulated the creation of Reserve Treasuries at Calcutta,

Bombay and Madras into which sums above the specified minimum balances promised to the

presidency banks at only their head offices were to be lodged. The Government could lend to the

presidency banks from such Reserve Treasuries but the latter could look upon them more as a

favour than as a right.



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Bank of Madras

The decision of the Government to keep the surplus balances in Reserve Treasuries outside the

normal control of the presidency banks and the connected decision not to guarantee minimum

government balances at new places where branches were to be opened effectively checked the

growth of new branches after 1876. The pace of expansion witnessed in the previous decade fell

sharply although, in the case of the Bank of Madras, it continued on a modest scale as the profits

of that bank were mainly derived from trade dispersed among a number of port towns and inland

centres of the presidency.

India witnessed rapid commercialisation in the last quarter of the nineteenth century as its railway

network expanded to cover all the major regions of the country. New irrigation networks in

Madras, Punjab and Sind accelerated the process of conversion of subsistence crops into cash

crops, a portion of which found its way into the foreign markets. Tea and coffee plantations

transformed large areas

of the eastern Terais, the hills of Assam and the Nilgiris into regions of estate agriculture par

excellence. All these resulted in the expansion of India's international trade more than six-fold.

The three presidency banks were both beneficiaries and promoters of this commercialisation

process as they became involved in the financing of practically every trading, manufacturing and

mining activity in the sub-continent. While the Banks of Bengal and Bombay were engaged in the

financing of large modern manufacturing industries, the Bank of Madras went into the financing



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of large modern manufacturing industries, the Bank of Madras went into the financing of small-

scale industries in a way which had no parallel elsewhere. But the three banks were rigorously

excluded from any business involving foreign exchange. Not only was such business considered

risky for these banks, which held government deposits, it was also feared that these banks

enjoying government patronage would offer unfair competition to the exchange banks which had

by then arrived in India. This exclusion continued till the creation of the Reserve Bank of India in

1935.

Bank of Bombay

Presidency Banks of Bengal

The Presidency Banks of Bengal, Bombay and Madras with their 70 branches were merged in

1921 to form the Imperial Bank of India. The triad had been transformed into a monolith and a

giant among Indian commercial banks had emerged. The new bank took on the triple role of a



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commercial bank, a banker's bank and a banker to the government.

But this creation was preceded by years of deliberations on the need for a 'State Bank of India'.

What eventually emerged was a 'half-way house' combining the functions of a commercial bank

and a quasi-central bank.

The establishment of the Reserve Bank of India as the central bank of the country in 1935 ended

the quasi-central banking role of the Imperial Bank. The latter ceased to be bankers to the

Government of India and instead became agent of the Reserve Bank for the transaction of

government business at centres at which the central bank was not established. But it continued to

maintain currency chests and small coin depots and operate the remittance facilities scheme forother banks and the public on terms stipulated by the Reserve Bank. It also acted as a bankers'

bank by holding their surplus cash and granting them advances against authorised securities. The

management of the bank clearing houses also continued with it at many places where the Reserve

Bank did not have offices. The bank was also the biggest tendered at the Treasury bill auctions

conducted by the Reserve Bank on behalf of the Government.

The establishment of the Reserve Bank simultaneously saw important amendments being made to

the constitution of the Imperial Bank converting it into a purely commercial bank. The earlier

restrictions on its business were removed and the bank was permitted to undertake foreign

exchange business and executor and trustee business for the first time.

Imperial Bank

The Imperial Bank during the three and a half decades of its existence recorded an impressive

growth in terms of offices, reserves, deposits, investments and advances, the increases in some

cases amounting to more than six-fold. The advances, the increases in some cases amounting to

more than six-fold. The financial status and security inherited from its forerunners no doubt

provided a firm and durable platform. But the lofty traditions of banking which the Imperial Bank

consistently maintained and the high standard of integrity it observed in its operations inspired



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confidence in its depositors that no other bank in India could perhaps then equal. All these

enabled the Imperial Bank to acquire a pre-eminent position in the Indian banking industry and

also secure a vital place in the country's economic life.

Stamp of Imperial Bank of India

When India attained freedom, the Imperial Bank had a capital base (including reserves) of

Rs.11.85 crores, deposits and advances of Rs.275.14 crores and Rs.72.94 crores respectively and a

network of 172 branches and more than 200 sub offices extending all over the country.

First Five Year Plan

In 1951, when the First Five Year Plan was launched, the development of rural India was given

the highest priority. The commercial banks of the country including the Imperial Bank of India

had till then confined their operations to the urban sector and were not equipped to respond to the

emergent needs of economic regeneration of the rural areas. In order, therefore, to serve the

economy in general and the rural sector in particular, the All India Rural Credit Survey



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Committee recommended the creation of a state-partnered and state-sponsored bank by taking

over the Imperial Bank of India, and integrating with it, the former state-owned or state-associate

banks. An act was accordingly passed in Parliament in May 1955 and the State Bank of India was

constituted on 1 July 1955. More than a quarter of the resources of the Indian banking system thus

passed under the direct control of the State. Later, the State Bank of India (Subsidiary Banks) Act

was passed in 1959, enabling the State Bank of India to take over eight former State-associated

banks as its subsidiaries (later named Associates).

The State Bank of India was thus born with a new sense of social purpose aided by the 480 offices

comprising branches, sub offices and three Local Head Offices inherited from the Imperial Bank.

The concept of banking as mere repositories of the community's savings and lenders tocreditworthy parties was soon to give way to the concept of purposeful banking sub serving the

growing and diversified financial needs of planned economic development. The State Bank of

India was destined to act as the pacesetter in this respect and lead the Indian banking system into

the exciting field of national development

The Bank is actively involved since 1973 in non-profit activity called Community Services

Banking. All SBI branches and administrative offices throughout the country sponsor and

participate in large number of welfare activities and social causes. SBI business is more than

banking because we touch the lives of people anywhere in many ways. SBI commitment to

nation-building is complete & comprehensive.

TECHNOLOGY UPGRADATION

SBIs Information Technology Programme aims at achieving efficiency in operations, meeting

customer and market expectations and facing competition. SBI achievements are summarized

below:



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FULL BRANCH COMPUTERISATION (FCBs): All the branches of the Bank are now fully

computerised. This strategy has contributed to improvement in customer service.

ATM SERVICES: There are 5290 ATMs on the ATM Network. These ATMs are located in 1721

centers spread across the length and breadth of the country, thereby creating a truly national

network of ATMs with an unparalleled reach. Value added services like ATM locator, payment of

fees for college students, multilingual screens, voice over and drawl of cash advance by SBI credit

card holders have been introduced.

INTERNET BANKING (INB): This on-line channel enables customers to access their account

information and initiate transactions on a 24x7, boundary less basis. 2225 branches, covering 555

centers are extending INB service to their customers. All functionalities other than Cash and

Clearing have been extended to individual retail customers. A separate Internet Banking Module

for Corporate customers has been launched and available at 1305 branches. Bulk upload of data

for Corporate, Inter-branch funds transfer for Retail customers, Online payment of Customs duty

and Govt. tax, Electronic Bill Payment, SMS Alerts, E-Poll, IIT GATE Fee Collection, Off-line

Customer Registration Process and Railway Ticket Booking are the new features deployed.

GOVT. BUSINESS : Software has been developed and rolled out at 7785 fully computerised

branches. Electronic generation of all reports for reporting, settlement and reconciliation of Govt.

funds is available.

STEPS: Under STEPS, the bank's electronic funds transfer system, the Products offered are

eTransfer (eT), eRealisation (eR), eDebit (CMP) and ATM reconciliation. STEPS handles

payment messages and reconciliation simultaneously.



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SEFT: SBI has launched the Special Electronic Fund Transfer (SEFT) Scheme of RBI, to

facilitate efficient and expeditious Inter-bank transfer of funds. 241 branches of our Bank in

various LHO Centres are participating in the scheme. Security of message transmission has been

enhanced.

MICR Centre: MICR Cheque Processing systems are operational at 16 centre viz. Mumbai, New

Delhi, Chennai, Kolkata, Vadodara, Surat, Patna, Jabalpur, Gwalior, Jodhpur, Trichur, Calicut,

Nasik, Raipur, Bhubaneswar and Dehradun.

Core Banking: The Core Banking Solution provides the state-of-the-art anywhere anytime banking

for our customers. The facility is available at 1012 branches.

Trade Finance : The solution has been implemented, providing efficiency in handling Trade

Finance transactions with Internet access to customers and greatly enhances the bank's services to

Corporate and Commercial Network branches. This new Trade Finance solution, EXIMBILLS,

will be implemented at all domestic branches as well as at Foreign offices engaged in trade

finance business during the year.

WAN : The bank has set up a Wide Area Network, known as SBI connect, which provides

connectivity to 4819 branches/offices of SBI Group across 385 cities as at 31st March 2008. This

network provides across the board benefits by providing nationwide connectivity for its business

applications

Directors on the Bank's Central Board

as on 31st December 2008



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BOARD OF DIRECTORS

Central Board Of State Bank Of India (As on 1st April 2008)

Sl.No. Name of Director Sec. of SBI Act, 1955

1.Shri O.P. BhattChairman

19(a)

2.Shri S.K.Bhattacharyya

MD & CC&RO19(b)

3. Shri Suman Kumar Bery 19(c)

4. Dr. Ashok Jhunjhunwala 19(c)

.5 Dr. Deva Nand Balodhi 19(d)

6. Prof. Mohd. Salahuddin Ansari 19(d)

7. Dr.(Mrs.) Vasantha Bharucha 19(d)

8. Shri Arun Ramanathan 19(e)

9. Smt. Shyamala Gopinath 19(f)

ASSOCIATE BANKS

State Bank of India has the following seven Associate Banks (ABs) with controlling interest

ranging from 75% to 100%.1. State Bank of Bikaner and Jaipur (SBBJ)

2. State Bank of Hyderabad (SBH)

3. State Bank of Indore (SBIr)

4. State Bank of Mysore (SBM)

5. State Bank of Patiala (SBP)

6. State Bank of Saurashtra (SBS)

7. State Bank of Travancore (SBT)

As on 31st march, 2008 the financial information of State bank of India is given as under



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Financial Details RS (in crore)

Capital 631.47

Borrowings 51,727.41

Deposits 5,37,403.94

Investments 1,89,301.27

Advances 4,16,768.19

Profit 6,729.55

Source : balance sheet and profit and loss accounts schedule of state bank of

India from annual reports of year ending 31st march, 2008

General Shareholder Information



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Number of shareholders as on 30.9.2004 was 5.61 lacs. The shareholding pattern was as under.

SHARE HOLDERSSHARE HOLDERS PERCENTAGESPERCENTAGESReserve Bank of India 59.73 %

Non-residents (FIIs, OCBs, NRIs) 19.83 %

Banks, FIs including insurance companies 6.21 %

Mutual funds/UTI 6.47 %

Domestic companies/private corporate bodies/trusts 1.79 %

Resident individuals 5.97 %

59.73%19.83%

6.21%

6.47%1.79%5.97%

Reserve Bank of IndiaNon-residents (FIIs, OCBs, NRIs)Banks, FIs including insurance companiesMutual funds/UTIDomestic companies/private corporate bodies/trustsResident individuals



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Mr. Kalam also asked the SBI to adopt and innovatively fund at least one lakh sick units in thesmall-scale sector to infuse the latest technology and turn them into profitable ventures.

Another sector with great potential, Mr. Kalam said, was medical tourism in which the bank could

extend funds at competitive interest rates for setting up corporate hospitals which would alsoserve the rural areas. Likewise, yet another sector for the bank's participation, he said, wasinfrastructure development, including provision of 50 million quality houses with basic

infrastructure in rural areas in association with state and Central entities.

Turning to the plight of villagers caught in the ``vicious cycle of borrowing,'' Mr. Kalam asked the

SBI to adopt a ``villager-friendly'' banking system to free them from the clutches of money-lenders.

Mr. Kalam also lamented that hassle-free loans were being extended by the SBI to students of

only the best engineering colleges, medical colleges and business schools. ``I would request the

SBI to examine the possibility of providing loans to students who would like to pursue scienceand commerce as a career," he said.

Besides, ways should be found to fund the education of those meritorious students who could not

get admission to top engineering, medical and B-schools owing to stringent competition, Mr.Kalam said.



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SBI has bagged

the awards for

Most Preferred

Bank and Most

preferred brand

for home Loan in

CNBC Awaaz

ConsumerAwards in

August 2007

SBI is placedat 70th in Top1000 BanksSurvey byBankerMagazine, July

2007, (upfrom 107 lastyear)

SBI is placedat 70th in Top1000 BanksSurvey byBankerMagazine, July2007, (up

from 107 lastyear)

SBI ranked 6thin theEconomics

Times MarketCap List, (upfrom 50 last

year)

SBI ranked 6thin theEconomics

Times MarketCap List, (upfrom 50 lastyear)

Today, SBI/SBICAP is theNo.1syndicator ofdomestic debtin AsiaPacific

REGION.

Today, SBI/SBICAP is theNo.1syndicator ofdomestic debtin AsiaPacificREGION.

No.1 inmergers &AcquisitionDeals (31Deals of US $19.8bn)

.

No.1 inmergers &AcquisitionDeals (31Deals of US $19.8bn)

.

The onlyIndian Bankto find aplace in theFortuneGlobal 500

List


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SBI is No 1provider ofAGRIFinance andNo. 1 inCreditLinking ofRs 9.35 lacs

SHGS

SBI is No 1provider ofAGRIFinance andNo. 1 inCreditLinking ofRs 9.35 lacs

SHGS

SBI is marketLeader infinancingSSIs with amarket shareof 29%

SBI is marketLeader infinancingSSIs with amarket shareof 29%

Readersdigest May07 GoldenAward forbeingamong thetwo most

trustedbanks inIndia

Readersdigest May07 GoldenAward forbeingamong thetwo most

trustedbanks inIndia

Up gradation of

ratings by citi

group/ Morgan

Stanley

Moodyss S&P

Up gradation of

ratings by citi

group/ Morgan

Stanley

Moodyss S&P

3rd in the

Economic

Times brand

Equity Ranking

Top 50 most

trusted service

brands in the

service sector

3rd in the

Economic

Times brand

Equity Ranking

Top 50 most

trusted service

brands in the

service sector

Business

Standard has

Awarded the

Best Banker of

the Year Award

to Shri

O.P.Bhatt for his

initiative toreenergize the

Bank

Business

Standard has

Awarded the

Best Banker of

the Year Award

to Shri

O.P.Bhatt for his

initiative to

reenergize theBank


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Margin

New/used vehicles 10-15% when loan is upto Rs.6 lacs

20-30% when loan exceeds Rs.6 lacs

Repayment

You enjoy the longest repayment period in the industry with us. Repayment period for new vehicles:

Maximum of 84 months

Repayment period for old vehicles: Up to 84 months from the date of original purchase of the vehicle.

SCHEME FOR LOAN FOR TWO WHEELERS

Existing Interest Rate

Structure w.e.f. 31.03.2008

Revised Interest Rate

Structure w.e.f. 27.06.2008

Floating Rate of Interest 12.25% p.a. 12.75% p.a.

Fixed Rate of Interest 12.50% p.a. 13.00% p.a.

NOTE: All these interest rates are subject to change, without notice .

The revised interest rates are applicable only on fresh deposits and renewal of maturing deposits.



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EDUCATION LOAN:

A term loan granted to Indian Nationals for pursuing higher education in India or abroad where admission

has been secured.

Eligible Courses

All courses having employment prospects are eligible.

Graduation courses/ Post graduation courses/ Professional courses

Other courses approved by UGC/Government/AICTE etc.

Amount of Loan

For studies in India, maximum Rs. 10 lacs

Studies abroad, maximum Rs. 20 lacs

Interest Rate

For loans upto Rs. 4 lakh 10.50% p.a.

For loans above Rs. 4 lakh 11.50% p.a.

Repayment Tenure

Repayment will commence one year after completion of course or 6 months after securing a job, whichever i

earlier.

Place of Study Loan AmountRepayment Period

in Years

In IndiaUp to Rs. 7.5 lacs 5-7

Above Rs. 7.5 lacs 5-10

AbroadUp to Rs. 15 lacs 5-7

Above Rs. 15 lacs 5-10



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Research Plan

(A) Defining the Problem:

Non performing Assets in banking Industry has become asubject of intense importance and discussion. It has assumedgreater significance in the world of banking and banks. It hasbecome a barometer of the health of banks and discussions onany bank is incomplete without the mention of NPA, NPA hasnow become heart of the banking Industry, which in turn, is theheart of finance and economy of a nation.

Assets of a bank, generally, consist of cash investment, loans and advances, fixed assets and

miscellaneous assets. The resources of a bank are deployed in these assets. The resources

consist of capital and reserves, deposits, borrowings and other liabilities. These liabilities are

carried at a cost and hence its deployments into various assets should generate enough income

to service the cost of the liabilities. In other words, the assets in which the liabilities are

deployed should perform in such a way that it generate income to cover the cost of resources

and also a surplus, which is a profit of the bank, Thus the performance of assets reflects the

health of the banking industry.

Earlier, the buzzword in the banking industry was deposits as it is the basic raw material for

the banking industry. The status of the bank was, determined on the volume and size of its



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deposits. The career of bankers used to depend on the level of deposits achieved by him.

Banks were not bothered about the performance of their assets. But from 1991, a sea change

was made in the way income of banks was recognized. With the first generation economic and

finance sector reforms coming into being, the method of income recognition in

the banking sector was changed from accrual basis to cash basis. An income will be carried to

profit and loss account only of it is realized in cash in 90 days. This was like a bolt from blue

for deposit happy bankers. All along, they were simply doing an accounting exercise in

debiting a loan account and credit the income account without bothering to see whether it is

actually paid by the borrower or not. Thus the performance of an asset was defined for the first

time in Indian Banking Industry.This change of income recognition compelled the banks to unrecognized the income if the

interest is not received in cash from the borrowers. Not only is this, depending upon the

quality of the assets, various provisions now required to be made on such non performing

assets. This had compelled many large banks to declare loss for the first time in history of

banking. This had ominous portents for the entire banking industry. This also resulted in

dwindling flow of credit of trade and industry.

Thus NPA has the potential to directly affect the economy of the country. Many big nations

like Japan are suffering from this disease of high NPAs. Our country also now having a large

portion of bank credit locked in NPAs and hence NPA is receiving greater importance of

NPAs , that we thought to select it as a subject for Grand Project.



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1 Research Problem

To study the state of recovery management.

2 Research Objective

To identify reasons that lead to Standard assets of the bank becoming NPAs

To Suggesting Strategy to recovery Non Performing Assets and prevention offurther NPAs

3 Research Methodologies

(1) Sample Design

The target population consists of State bank of India of Rajkot.

The sample size comprise of Twenty one Executives of State bank of India of

Rajkot.

(2) Collection of Data

A structured questionnaire was prepared to elicit information form the respondents.Secondary data collection was done through data available from Books, Bank

Register and Bank system.

(3) Sampling Method

The research was done using Simple Random Sampling.

(4) Data Analysis

The analysis of primary data is done with the help of computerized statistical tools.



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According to RBI (NPAs) :- Any loan repayment or interest thereof that is delayed

beyond 90 days has to be identified as an NPA. NPAs are further sub-classified into sub-

standard, doubtful and loss assets:

Sub-standard Assets: Sub-standard assets are those that are non-performing for a period

not exceeding two years. Also, in cases where the loan repayment is rescheduled, RBI has

asked banks to recognize the loans as sub-standard at least for one year.

Doubtful Assets: Loans which have remained non-performing for a period exceeding two

years and which are not considered as loss assets are known as doubtful assets. Major

portions of assets under this category relate to sick companies referred to the Board forIndustrial and Financial Reconstruction (BIFR) and waiting finalization of rehabilitation

packages.

Loss Assets: A loss asset is one where loss has been identified but the amount has not been

written off wholly or partly. In other words, such an asset is considered uncollectible. There

may be some salvage value.

Provision for NPAs

The RBI has also laid down provisioning rules for the non-performing assets. This means

that banks have to set aside a portion of their funds to safeguard against any losses incurred

on impaired loans. Banks have to set aside 10 percent of sub-standard assets as provisions.

The provisioning for doubtful assets is 20 percent and for loss assets it is 100 percent.



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Debt Recovery Problems

(1) To identify assets and properties of borrowers and guarantors is a difficult exercise. Even

when banks get the decrees, execution may be difficult as the exact position of borrowers/

guarantors properties may not be known .i.e. whether it is unencumbered, in good

physical and financial condition etc.

(2) Constraints of time and adequate staff to supervise and follow-up the large number of

accounts that are often scattered over wide areas, also hinders recovery effort. At times

inadequate transport and roads also hinders recovery effort. At times inadequate transport

and roads also make it difficult to reach borrowers.

(3) Despite the good intentions, it will depend on how fast the measures are implemented.

Since their introduction in 1994, DRTs have not been able to make a sound impact due to

the lethargy on the implementation front. Unless the Government takes concrete and

speedy measures to strengthen the Tribunals and streamline the legal systems, the DRTs

will amount to deferring the NPA problem.

(4) As against 50 to 60 Judges in High Courts, the Act provides for only one presiding Officer

for each Tribunal. The appellate Tribunal has suggested that when the number of pending

cases exceeds 2000, Government should appoint another Presiding Officer. This

suggestion needs to be acted upon quickly to prevent further delay in the settlement of

cases. Further, the Tribunals need to have their own permanent staff instead of depending

mainly on persons who are on deputation.



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(5) Legal Methods-present scenario

Delay in disposing of the cases (10 to 20 years) are prohibitive and expensive appeals

further delay the process of awarding decree. Also the interest is only 6% p.a. simple on

principal.

Suggestions

(a) Need for a time frame for disposal of cases.

(b) For non payment of bank decretal dues parties to be put in civil imprisonment

without fail.

(c) Misuse of hypothecated securities to be treated as an offence punishable on the lines

of Sec 138 of N.I. Act with 2 years rigorous imprisonment.

(6) Statutory powers

Empowering banks to acquire assets for disposal without intervention of courts. (sec. 29

of State Financial Act.) This would work as deterrent against intentional defaulters.

(7) Lok Adalats



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Several banks and availed facilities with predetermined criminal intention to

Cheat the banks with false and fabricated documents.

(11) Valuation reports of properties are inflated to suit the needs of the borrowers.

(12) Several problems have been faced by the banks while obtaining shares as

Collateral security. As the shares are not transferred in the name of the

Bank, Ultimately the matter has to be taken to the Company Law Board

(CLB) for Redressed, which, not to mention, consumes very much time.

Why assets become NPAs?

A several factors are responsible forever increasing size of NPAs in PSBs. The Indian

banking industry has one of the highest percent of NPAs compared to international

levels. A few prominent reasons for assets becoming NPAs are as under:

Poor credit appraisal system. Lack of vision/fore slightness while

sanctioning/reviewing or enhancing credit limits.

Lack of proper monitoring and follow up measures.

Reckless advances to achieve the budgetary targets.

Lack of sincere corporate culture. Inadequate legal provisions on foreclosure and

bankruptcy.

Change in economic policies/environment.

Non transparent accounting policy and poor auditing practices.

Lack of coordination between Banks/FIs.

Directed lending to certain sectors.

Failure on part of the promoters to bring in their portion of equity from their own

sources or public issue due to market turning unfavorable.

Abolition of license raj and tough competition in the liberalized Indian economy.



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NPAs and Its Effects

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 power of assets. Return on assets (ROA) also gets affected.

NPAs carry risk weights of 100% (to the extent it is uncovered). Hence, they

block capital for maintaining capital adequacy.

As NPAs do not earn any income, they adversely affect capital adequacy ratio

(CAR).

No recycling of funds.

NPAs also attract cost of capital for maintaining capital adequacy ratio. Capital

cost involves dividend for Tier I capital and Interest for Tier II capital.

Carrying NPAs require incurring of cost of capital adequacy and cost of funds

blocked in NPAs. PSBs are incurring around as high as 11% of their earnings as

operating cost for monitoring and recovering NPAs every year.

NPAs demoralizes the operating staff.

Regulatory and credit rating agencies abroad are also not comfortable with the

high level of NPAs of Indian Banks.

New Branch license are also not given to the Banks that have high level of

NPAs.



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Data collect and bifurcate in different category as per their loan, which I mentioned earlier, Home

loan, Personal Loan, Education Loan, Vehicle Loan and SBF.

For our Summer Project we got permission in RASMECCC Department of State Bank of India,

Rajkot. Our department is a Process department. But our main work is to Survey and Recovery

the NPAs.

This is a Head Office and they provide us Data of NPAs account. State Bank of India have a 6

Branch in Rajkot. We got a Combine data of whole branch

Six Branch

Jagnath Plot.

Bhaktinagar.

Marketing Yard

Commercial Branch

Main Branch

Lakhaji Raj



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Edu Loan

29 19%

Home Loan

48 32%

Per.Loan

44 29%

Vehicles

Loan 17

11%

SBF 13 9%

Edu Loan Home Loan Per.Loan Vehicles Loan SBF

Our Survey on P- Segment of Loan

Education Loan

Personal Loan

Home Loan

Vehicle Loan

SBF

I have provided near about 250 Account but only 150 NPAs account person can cover and their list are

under.

No.OfBorrowers

Edu.Loan Home Loan PersonalLoan

Vehicle Loan SBF

151 29 48 44 17 13

LOAN PROFILES



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Total O/S,

11796076

Recovery,

3088732

0

2000000

4000000

6000000

8000000

10000000

12000000

Total O/S Recovery

Total O/S

Recovery

During my Summer Project I recovered Rs.30,88,732and its a 26 % of the total Debt.

Account Become Regular

NO. of Defaulter Regular %

151 63 42%

RECOVERY FROM BORROWERS

Edu.Loan Per.Loan Home Loan Vehicle

Loan

SBF Total



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13,80,900 113.800 7,72,550 3,90,512 4,30,970 30,88,732

Amount Recover

Edu.Loan

44%Home Loan

25%

Per.Loan 4%

Vehicles

Loan 13%

SBF 14%

Edu.Loan Home Loan Per.Loan Vehicles Loan SBF

Here, as per above chart more amount in Education loan amount is Rs.13,80,900and

percentage is 44%.

EDUCATION LOAN

No. of Loan Amt. O/s Amt. Recover Amt. %



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Borrowers

29 2,67,41,533 27,69,046 13,80,900 49.86%

HOME LOAN

No. of

Borrowers

Loan Amt. O/S Amt. Recover Amt. %

48 1,94,43,624 65,63,936 7,72,550 11.76%

PERSONAL LOAN

No. of

Borrowers


44 31,96,000 11,28,844 113,800 10.08%

SBF

No. of

Borrowers

Loan Amt. O/s Amt. Recover Amt. %

13 69,37,250 11,03,276 4,30,970 39.06%

VEHICLE LOAN

No. of

Borrowers


17 35,69,821 7,63,758 3,90,512 51.11%

As per above show that more amount is recovery from Education LoanRs.13,80,900but if

we see the recover by more share from vehicles loanthat 51.11 %.

What steps have been taken so far to solve NPAsProblems?



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Banks need to have better credit appraisal systems so as to prevent new NPAs from

occurring. However, once NPAs do come into existence, the problem can be solved only if

there is enabling legal structure, since recovery of NPAs often requires litigation and court

orders to recover stuck loans. With long-winded litigation in India, debt recovery takes very

long time.

Banks are now working on utilizing the services of Debt Recovery Tribunals to solve this

problem. The government has also mooted the suggestion of an Asset Reconstruction

Company, which will be specialized agency set up for rehabilitating revivable NPAs (say,

salvaging projects which are inherently sound) and recovering funds out of unrevivable

NPAs.

Other Strategies

Fixing up of budgets for profits and recovery rather than for advances. Budget

oriented approach, at times leads to release of credit facilities without ensuring

compliance of covenants of sanction. A suitable mechanism could be drawn at each

Bank level to provide monetary benefits/recognition to the operating staff

particularly for recovery in NPAs/write off cases.

Project with old technology should not be considered for finance.

Large exposure on big corporate/single project should avoid.

There is a need to shift in PSBs approach from collateral security to viability of the

project and intrinsic strength of promoters.

Up gradation of credit skills of the operating staff working in advances department.

Timely sanction/release to avoid time and cost overruns.

A fresh look at Recovery Problem



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Basically each branch engaged in lending has to plan for recovery of loans disbursed

by it. The manager should be familiar with the prospects of recovery through internal

and external factors. Knowledge about willful defaulters is equally important. Thus

three pronged strategy is necessary.

(A) RECOVERY : INTERNAL SOURCES(a) Computation of demand

Guidelines suggest that repayment of installments of loans should be fixed in such

manner, which will coincide with the harvesting of crops or sale of milk or any other

farm output proposed to be produced through the bank loan. The demand for croploans or for installment of term loans should therefore be computed in a manner

conducive to the income flow.

(b) Appraisal of loan application and pre-sanction surveys

During the initial processing of the proposal, it has to be ensured that the repayment

program for an item\equipment is fixed in accordance with the guidelines prescribed

by R.B.I. Awareness about R.B.I. guidelines should be increased at the branch level.

(c) Recovery camps

The central idea of recovery camp is to bring a maximum number of persons together

at one place and repay the loans. The recovery camps in addition to effecting recovery

create a proper climate for recovery.

(d) Non-banking business day

This day should be utilized fully for field visits and contact with the borrowers



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(e) Compromise proposals

In genuine cases, the banks can consider compromise proposal and a lot depends upon

the initiative of the branch manager in utilizing this facility.

(f) Conversions/rescheduling of loans

There are guidelines for the operating staff of the banks for conversion./rescheduling

of loans in the areas affected by natural calamities. Crop loans can be made repayable

over period of one year in the event of crop loss.

(g) Integration of recovery in branch budgeting

Recovery targets should be fixed at the time of settlement of branch business budget.

(B) RECOVERY: EXTERNAL SOURCES

Wherever the states have enacted laws on the pattern of the Talwar Model Bill, supportof the government machinery can be enlisted accordingly.

If the branches prepare village-wise action plans in this regard, it will be still

appropriate for the agencies to have a concerted effort towards recovery.

The branches may also compile detailed position of defaulters and share the same with

the convener banks and government authorities periodically.



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2)SETTLEMENT ADVISORY COMMITTEES:

To tackle chronic NPAs in priority sector RBI had come out with a one time measure

constitution of Settlement Advisory Committees (SACs) by banks. This was to promote

compromise settlement in small sector viz., SSI small business including trades,

agricultural and personal segments, Bankers need to appreciate the fact that compromise

settlement is an effective and accepted non legal remedy for recovery in chronic NPA.

According the scheme, applicable to NPA accounts which are at least 3 years old at 31-03-

1999, was effective up to 30 sept. 2000. There is a case for extending the deadline and

matching these guidelines applicable for compromise settlement in medium and large

sectors.

EVALUATION

ADVANTAGES TO BORROWER

1) Settling for a lower payout than the contracted one, scaling down of dues.

2) Releasing assets charged to the bank

3) Saving time, energy and expense on defending the inevitable legal case.

4) Keeping avenues of bank finance open for further development needs.

5) Restoring status/position in the market/society, avoiding stigma of being branded as a

borrower who is litigant type.



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In view of this unique advantage the government is thinking of strengthening them and

raising the monetary limit set for referred cases

Demerits-

It is observed that banks have not taken adequate advantage of Lokadalats for

compromise settlement of their NPAs

No cut off date is suggested since Lokadalat is an on going process. But this may

contribute to increasing delays in settlement of cases.

Most Lokadalats should be set up in different parts of country to set up the recovery

procedures.

(5) DEBT RECOVERY TRIBUNALS

The MOF has taken a number of steps to strengthen the DRTs. Banks and FIs now can

nominate one nodal officer for each DRP. There is a suggestion for setting up co-

ordination committees for DRTs a Debt Recovery Appellate Tribunal with representations

from major banks and financial institutions.

In the context of recovery from NPAs, DRTs are assuming great importance since efforts

are to set up mere DRTs during this year and also to strengthen them. Though the recovery

through DRTs is at present less than two percent of the claim amount, banks FIs have to

depend heavily on them, efforts are as to amend the recovery Act to assign more power to

DRT. More importantly, the borrowers tendency to challenge the verdict of the Appellate



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Board of Directors are required to review NPA accounts of Rs.1 crore and above with

special reference to fixing of staff accountability.

On their part RBI and the Government are contemplating several supporting measuresincluding legal reforms, some of them I would like to highlight.

8) ASSET RECONSTRUCTION COMPANY:

An Asset Reconstruction Company with an authorised capital of Rs.2000 crore and initial

paid up capital Rs.1400 crore is to be set up as a trust for undertaking activities relating to

asset reconstruction. It would negotiate with banks and financial institutions for acquiring

distressed assets and develop markets for such assets.. Government of India proposes to go

in for legal reforms to facilitate the functioning of ARC mechanism.

EVALUATION

The ARCs will assist in cleansing the Balance Sheet of the weaker as well as potential

weak banks.

It will also try to identify possible conceptual glitches and legal infirmities in the

arrangement.

It is to be noted that given the inadequacies of SICA, BIFR, DRTs foreclosures and

other recovery processes, an ARC may find it difficult to lead a viable existence.

Therefore, simultaneously it is required to make radical changes in bankruptcy and

recovery laws and procedures. Under this scheme the banks liabilities will get transferred from one bank to another.

The total liability to the banking system would remain unchanged.

9) CREDIT INFORMATION BUREAU



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Institutionalisation of information sharing arrangements through the newly formed Credit

Information Bureau of India Ltd. (CIBIL) is under way. RBI is considering the

recommendations of the S.R.Iyer Group (Chairman of CIBIL) to operationalise the

scheme of information dissemination on defaults to the financial system. The main

recommendations of the Group include dissemination of information relating to suit-filed

accounts regardless of the amount claimed in the suit or amount of credit granted by a

credit institution as also such irregular accounts where the borrower has given consent for

disclosure. This, I hope, would prevent those who take advantage of lack of system of

information sharing amongst lending institutions to borrow large amounts against same

assets and property, which had in no small measure contributed to the incremental NPAs

of banks.

10) PROPOSED GUIDELINES ON WILLFUL DEFAULTS/DIVERSION

OF FUNDS

RBI is examining the recommendation of Kohli Group on willful defaulters. It is working

out a proper definition covering such classes of defaulters so that credit denials to this

group of borrowers can be made effective and criminal prosecution can be made

demonstrative against willful defaulters.

11) CORPORATE GOVERNANCE

A Consultative Group under the chairmanship of Dr. A.S.Ganguly was set up by the

Reserve Bank to review the supervisory role of Boards of banks and financial institutions

and to obtain feedback on the functioning of the Boards vis--vis compliance,

transparency, disclosures, audit committees etc. and make recommendations for making

the role of Board of Directors more effective with a view to minimizing risks and over-

exposure. The Group is finalizing its recommendations shortly and may come out with



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ROE

Book Value

RONW.

These parameters can be applied after the bank has posted its financial performance & hence

are not preventive or proactive measures. As the traditional tools of NPA management have

not proved to be satisfactory on the parameters of credit monitoring, follow up procedures,

preventing an assets from becoming non performing as well as timely settlement & recovery

of non performing loans, an attempt is made to bring out some untraditional techniques as well

as to reengineer the existing practices and improving them so as to bring the performance of

Indian Banks in tune with the international practices.

1) SLIPPAGE MANAGEMENT

A) Process of Slippage

Any performing assets does not turn into non-performing overnight. The Performing

Asset passes through a relatively lengthier period of 2 quarters, in some cases seven-

months, after becoming due but before slipping down to the dangerous red band of non

performing assets. During this journey, every asset is giving out certain signals forwarning the banker that something bad is about to happen.

B) Slippage signals.

Depending upon the type of credit facility and nature of business these distress signals

may look like:



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Non Payment of the very first installment in case of term loans.

Non-submission of stock statements in time.

Cheque drawn on the account are bouncing.

Credits into the cash credit account are not sufficient to meet the debits in the account.

The overdue bill is lying unpaid;

Installments are irregular.

Amount paid is not fully covering the principal and interest debited.

No regular operations in the cash credit account.

Bank has information that party is not doing the business;

Post-sanction inspection report speaks of diversion and misutilization;

There has been a natural calamity in the borrowers village.

C) How to act on the Slippage Signals?

Once there signals start to come in, the banker is supposed to act immediately. There is no

point in waiting with the feeling that there are few more months for the 2 quarter cut-off

and things may turn all right before that, any symptom unattended would lead to major

complications. Steps taken at the initial stage itself would help to keep the accounts

performing and the costly slippage would never happen. The NPA reduction techniques

like replacement; nursing may be attempted while the accounts are still in the performing

basket by continuous monitoring of the individual assets. This type of constant &

continuous surveillance requires co-operation & attention from all concerned in a branch.



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Any one-shot measure like recover camps can at best be of supplementary native and

may never be a permanent solution.

D) Journey from NPA to PA

While the journey, from the 6-month bottom but within the PA basket- to the top would be

easier it would certainly be costly, difficult and time consuming form of NPA to PA . This

uphill task usually is very difficult and such assets cannot be brought back to the PA

basket immediately; there needs to be an isolation period of one year after which only

the asset will become eligible for classification under PA category. During this critical

period it has to perform continuously. This is like a patient who has been admitted to the

intensive care unit (ICU) is not sent back home immediately after bringing him out ofICU; he will be kept in the non- critical area for further observation, before his final

discharge. Hence, the action before Slippage assumes further significance in cases of

bringing back the NPA to PA.

E) What if Slippage Management Fails?

Even after careful management of assets before Slippage, if some assets cross the band to

become NPA, then there is no other alternative except to arrange for fire-fighting. Thispost-incidence measure, again, needs to be undertaken on war footing. It will not be

prudent to wait any further at this stage as any time lag is going to cost the bank very

dearly because some of these assets may become doubtful inviting a more provisioning.

2) INCREASED PROPORTION OF NON-FUND BASED BUSINESS

When deregulation is thinning the margins, it is necessary to go in for non-fund based

business, which will increase the non-interest income of the branch. Non-fund basedbusiness involves no fund at all but a good service and a marketing strategy to capture the

customers is needed. It also helps the branch in promoting fund-based business. Non-fund

based business activities generally include following services.

Safe custody of customers valuables



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Issuing letters of credit/guarantee

Remittance of funds: Mail transfer

Credit card related service

Gift Cheque/ Travelers Cheque

Locker service

There are other services also like underwriting, guarantee, merchant banking and other

agency services, etc. but for small branches and rural branches increase in volume of these

facilities can boost their profile. The problem is that the rural people are not aware of these

services but by creating awareness the branch can reap the benefit. At present the non-

interest income of the rural branches forms a very insignificant proportion of total income.This can be increased with little efforts.

3) TURNAROUND STRATEGIES FOR LOSS MAKING BRANCHES

This will need a well-designed profit plan. It must be ensured that each and every branch

of the bank is viable on its won and that is possible when each and every branch starts

evaluating each business transaction from profit angle.

(A) DEPOSITS



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The main source of profit comes from remunerative deposits. The deposit portfolio

includes savings bank current and time deposits. The deposit mix decides the cost of

funds. It is found that in some of the branches the deposit growth is either stagnant or ithas a deposit of Rs. 50/60 lacs over a period of 5 to 6 years. To keep the cost of funds low,

the efforts should be to canvas low cost current and savings bank deposits. In rural

branches agriculture income is seasonal and most of the agriculture based customers keep

the money idle and spend only in specific exigencies. If this sector is approached just in

time then the savings bank deposits can be mobilized in large volumes. In this contest, one

home one account has been a successful strategy to woo the customer. What is more

important is the timing for deposit mobilization. But the best way to augment the deposits

is by improving customer service. A satisfied customer is the best ambassador of a branch.

The customer meets can be utilized to popularize the various deposits schemes so that

they could suggest suitable schemes to customers. In addition, special letters cab be sent to

customers on regular basis inviting their help to improve the business growth.

(B) MANAGEMENT OF ADVANCES PORTFOLIO

Advances portfolio is another vital area for making the branch profitable. The branch has

to find out the industry-wise exposure to determine the extent of NPAs in different

category. This will help them in concentrating their efforts in the area s where the

percentage of NPAs is on the low side. Moreover, it is observed that the advances of Bank

are not picking up to the desired level. The branch should concentrate on retail lending i.e.

canvassing car loans, consumer durables and housing finance, etc. Earlier the banks were

giving small loans for middle/upper class people. Housing finance is one such area where

there is tremendous scope and the percentage of NPAs in this sector is negligible.

Moreover, the rate of interest is quite attractive which will increase the yields on advancesand hence would enhance the profitability. On the whole branch should analyses its credit

portfolio and gradually increase credit delivery to earn better profits. It is in the interest of

both and banks to stimulate credit delivery.



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REQUIREMENTS

Easy availability of skilled personnel in both finance and information technology

sectors.

Experiments with various credit risk modeling techniques for Indian banks.

In a nutshell, it is difficult to conceive an integrated risk management framework

for Indian banks without derivative product to hedge against credit risk. The

introduction of credit derivatives could make hitherto dormant credit market liquid,

vibrant and broad based. Whether or not our banks are able to implement the

international norms within the prescribe timeframe (20040, its essential to know

the nature and magnitude of credit risks that Indian banks ate now exposed to and

the risk capital requirement thereof.

9) LEGAL RECOURSE:

Updating of certain statues: The legal framework within which banks have to operate

and particularly manage the recovery of their dues from the borrowers is far from

adequate. For understandable reasons many legal provisions have, infect a positive

bias favoring the debtor who has been seen as the weaker party and therefore in need

of protection. Unfortunately, these very well intentioned provisions cause an immense

load (and backlog of cases) on legal system, making lending a hazardous operation for

banks. These provisions need to be amended urgently and some new enactment is

called for in order to cater to the requirements of the changed and far more complex

current economic and business environment.

Legalizations on bankruptcy or foreclosure: Legislation to empower banks to

realize the property charged without court intimation, as in case of State Financial

Institutions.



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Creditors right to change the management to companies in the event of

default/warring signals : Though this requires certain amendments to existing statues,

such a notification should be made to have a far-reaching impact on the health of the

industry, as it will enable re-orientation of the management towards the right

perspective for turning around the company.

Opening more DRTs and DRATs

Strengthening DRT set-up : Bench of presiding officers, more recovery officers withadequate infrastructure.

Mandatory honor of commitment by Government in respect of advancesguaranteed by them.

10) CIRCULATION AND PUBLISHING OF LIST OF DEFAULTERS:

Currently the RBI circulars among banks and financial institution the list of defaulters,

which is found useful in avoiding willful defaulters. The RBI has defined a willful

defaulter for the first time. It has provided the broad parameters for identification of

willful defaulters whose list will be circulated among banks and financial institutions.

Auditors of companies have to report in their certificate about diversion of funds if any. In

addition, on Jan 30, 2001, credit information Bureau (CIB) was set up to provide critical

data required by any credit institution before arriving at credit decision. State Bank Of

India, HDFC, Dun and Bradstreet and Trans Union set up CIB jointly, It will collect

information from its members and make it available to any credit institution on demand.

CIB is yet to be operationalised. Its success depends upon cooperation extended by the

members in supplying the required information on timely basis.

Moreover it is also suggested that the banks should publish the list of defaulters in the

news paper or blacklist them and circulate the list to all other banks so that no other banks



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Proper Co Ordination and Communication between Bank and Customer

Time to time follow up to customer and their Guarantors

Properly check all the documents

Proper Valuation of their Assets

Strict to recovery Steps

When first installment will be due at that time Bank have to inform to



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FUTURE PLAN

INNOVATIONS & INITIATIVES:

Bank has successfully initiated various measures toward widening its SHG network. To list a few

examples:

A) Sensitisation of staff: Banks aim is to sensitise the entire staff from Manager toMessenger working in rural and semi-urban branches towards the programme.

B) Special training programmes in SHGs are being conducted at 54 training centres ofthe Bank in the country apart from State Bank Institute of Rural Development,

Hyderabad.

C) Close liaison with NGOs: Operating functionaries at branch level and regionlevel are in close contact with NGOs in their area to take the movement ahead. For

the purpose, regular meetings are arranged with the NGOs and their support is

solicited.

D)SHG cells: Special SHG cells have been opened at major branches.

E) Lending to NGOs / Federations of SHGs: Lending to credible NGOs/ Federationsof SHGs on selective basis for on lending to SHGs is being encouraged.

F) Sahayog Niwas: SBI has launched its Housing Loan product SAHAYOG NIWASmeant for SHG members. Under the scheme formulated keeping the socio

economic conditions of villages insight, housing loans are given to the SHG

members without any mortgage of house / land. Response to this product is veryencouraging.

G)SBI Life- Shakti: SBI Life, our insurance subsidiary, is the first to introduce a life

insurance scheme, especially designed for SHG members. Special feature of thescheme is that entire premium amount paid by the member is refunded after

maturity, i.e., 10 years.

H) Rural training institutes: To help the rural youth to stand on their feet, twoRUDSETI type training institutes have been established at Gulbarga and Gadag inKarnataka State, to impart training in self employment to youth free of cost.



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I) SBI staff as SHPI: The main role of formation and nurturing of SHGs have beenplayed by NGOs who, apart from their fundamental role of social service, also aim

to make the poor economically self sufficient. But in SBI, our committed work

force is not lagging behind and a number of committed staff members have workedhard to form and nurture SHGs on their own.

J) Appreciation by Government: A number of our branches / Circles have also receivedcommendation and appreciation from various State Governments for doing

excellent job in SHG-Bank Credit Linkage programme.

K)NABARD felicitated 15 SHGs at a function organized in New Delhi on 13th Se

53675634 Sbi Project Report

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Transcript of 53675634 Sbi Project Report