EXECUTIVE SUMMARY

Studying books and merely passing exams is not worth, the education, knowledge
and experience is incomplete without being exposed to what is happening in real.
In order to make students competent enough to face real world, there is a
requirement of course for undergoing training for six to eight weeks with some
reputed organization. This exposure to real life situation gives an insight to the
students the kind of pressure and problems they can expect to face during their
career.
For the requirement of undergoing training I sent my request for training to HDFC
BANK and fortunately it was accepted. I was assigned the project a study of
investment behavior of people in respect to demographic features i.e. Age and
Occupation.
There are lot many investment avenues are available these days to invest money
like Insurance, Bank Deposits, Equity Market etc. The report studies the various
investment avenues preferred by people and the various factors like Age and
Occupation that influence the investment behavior of people.

Chapter gives the introduction to investment. It provides information about the

various investment options available to the investor like mutual funds, bonds,
shares, real estate, bank deposits etc. Next chapter describes the industry profile
stating about investment management, investment banking & major players. Then
comes the turn of company profile where the History, Mission & the Products
offered by HDFC Bank are discussed. Some of the products offered are saving
account, current account, fixed deposit, anywhere banking, online broking,
insurance, lockers etc.
Series of steps were undertaken in order to study the investment behavior of people.
Descriptive research design & Non probability convenient sampling technique is
used.
 CHAPTER-1
INTRODUCTION
 INTRODUCTION
The accumulation of huge non-performing assets in banks has assumed great
importance. The depth of the problem of bad debts was first realized only in early 1990s. The
magnitude of NPAs in banks and financial institutions is over Rs.1,50,000 crores.

While gross NPA reflects the quality of the loans made by banks, net NPA shows the
actual burden of banks. Now it is increasingly evident that the major defaulters are the big
borrowers coming from the non-priority sector. The banks and financial institutions have to take
the initiative to reduce NPAs in a time bound strategic approach.

Public sector banks figure prominently in the debate not only because they dominate
the banking industries, but also since they have much larger NPAs compared with the private
sector banks. This raises a concern in the industry and academia because it is generally felt that
NPAs reduce the profitability of a banks, weaken its financial health and erode its solvency.

For the recovery of NPAs a broad framework has evolved for the management of
NPAs under which several options are provided for debt recovery and restructuring. Banks and
FIs have the freedom to design and implement their own policies for recovery and write-off
incorporating compromise and negotiated settlements.

WHAT IS A NPA (NON PERFORMING ASSETS) ?

Action for enforcement of security interest can be initiated only if the secured asset is classified as
Nonperforming asset.

Non performing asset means an asset or account of borrower ,which has been classified by bank
or financial institution as sub standard , doubtful or loss asset, in accordance with the direction
or guidelines relating to assets classification issued by RBI .

An amount due under any credit facility is treated as past due when it is not been paid within
30 days from the due date. Due to the improvement in the payment and settlement system,
recovery climate, up gradation of technology in the banking system etc, it was decided to dispense
with past due concept, with effect from March 31, 2001. Accordingly as from that date,

a Non performing asset shell be an advance where

i. Interest and/or installment of principal remain overdue for a period of more

than 180 days in respect of a term loan,

ii. The account remains out of order for a period of more than 180 days ,in
respect of an overdraft/cash credit (OD/CC)

iii. The bill remains overdue for a period of more than 180 days in case of bill
purchased or discounted.

iv. Interest and/or principal remains overdue for two harvest season but for a
period not exceeding two half years in case of an advance granted for
agricultural purpose ,and

v. Any amount to be received remains overdue for a period of more than 180
days in respect of other accounts

With a view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt 90 days overdue norms for
identification of NPAs ,from the year ending March 31,2004,a non performing asset
shell be a loan or an advance where;

i. Interest and/or installment of principal remain overdue for a period of

more than 90 days in respect of a term loan,

ii. The account remains out of order for a period of more than 90 days
,in respect of an overdraft/cash credit (OD/CC)

iii. The bill remains overdue for a period of more than 90 days in case of
bill purchased or discounted.
 iv. Interest and/or principal remains overdue for two harvest season but
for a period not exceeding two half years in case of an advance granted
for agricultural purpose ,and

v. Any amount to be received remains overdue for a period of more than

90 days in respect of other accounts

Out of order

An account should be treated as out of order if the outstanding balance

remains continuously in excess of sanctioned limit /drawing power. in case where
the out standing balance in the principal operating account is less than the
sanctioned amount /drawing power, but there are no credits continuously for six
months as on the date of balance sheet or credit are not enough to cover the
interest debited during the same period ,these account should be treated as out of
order.

Overdue

Any amount due to the bank under any credit facility is overdue if it is not
paid on due date fixed by the bank.

FACTORS FOR RISE IN NPAs

The banking sector has been facing the serious problems of the rising NPAs.
But the problem of NPAs is more in public sector banks when compared to private
sector banks and foreign banks. The NPAs in PSB are growing due to external as
well as internal factors.
 EXTERNAL FACTORS :-
----------------------------------

Ineffective recovery tribunal

The Govt. has set of numbers of recovery tribunals, which works for
recovery of loans and advances. Due to their negligence and ineffectiveness
in their work the bank suffers the consequence of non-recover, their by
reducing their profitability and liquidity.

Willful Defaults

There are borrowers who are able to payback loans but are
intentionally withdrawing it. These groups of people should be identified and
proper measures should be taken in order to get back the money extended to
them as advances and loans.

Natural calamities

This is the measure factor, which is creating alarming rise in NPAs of

the PSBs. every now and then India is hit by major natural calamities thus
making the borrowers unable to pay back there loans. Thus the bank has to
make large amount of provisions in order to compensate those loans, hence
end up the fiscal with a reduced profit.
Mainly ours farmers depends on rain fall for cropping. Due to irregularities of
rain fall the farmers are not to achieve the production level thus they are not
repaying the loans.

Industrial sickness

Improper project handling , ineffective management , lack of adequate

resources , lack of advance technology , day to day changing govt. Policies
give birth to industrial sickness. Hence the banks that finance those industries
 ultimately end up with a low recovery of their loans reducing their profit and
liquidity.

Lack of demand

Entrepreneurs in India could not foresee their product demand and starts
production which ultimately piles up their product thus making them unable
to pay back the money they borrow to operate these activities. The banks
recover the amount by selling of their assets, which covers a minimum label.
Thus the banks record the non recovered part as NPAs and has to make
provision for it.

Change on Govt. policies

With every new govt. banking sector gets new policies for its
operation. Thus it has to cope with the changing principles and policies for
the regulation of the rising of NPAs.

The fallout of handloom sector is continuing as most of the weavers

Co-operative societies have become defunct largely due to withdrawal of
state patronage. The rehabilitation plan worked out by the Central
government to revive the handloom sector has not yet been implemented. So
the over dues due to the handloom sectors are becoming NPAs.

INTERNAL FACTORS :-
---------------------------------

Defective Lending process

 There are three cardinal principles of bank lending that have been followed
by the commercial banks since long.
i. Principles of safety
ii. Principle of liquidity
iii. Principles of profitability

i. Principles of safety :-

By safety it means that the borrower is in a position to repay the loan both
principal and interest. The repayment of loan depends upon the borrowers:

a. Capacity to pay

b. Willingness to pay

Capacity to pay depends upon:

1. Tangible assets
2. Success in business

Willingness to pay depends on:

1. Character
2. Honest
3. Reputation of borrower

The banker should, there fore take utmost care in ensuring that the enterprise
or business for which a loan is sought is a sound one and the borrower is
capable of carrying it out successfully .he should be a person of integrity and
good character.

Inappropriate technology
 Due to inappropriate technology and management information system,
market driven decisions on real time basis can not be taken. Proper MIS and
financial accounting system is not implemented in the banks, which leads to
poor credit collection, thus NPA. All the branches of the bank should be
computerized.

Improper SWOT analysis

The improper strength, weakness, opportunity and threat analysis is another

reason for rise in NPAs. While providing unsecured advances the banks
depend more on the honesty, integrity, and financial soundness and credit
worthiness of the borrower.

Banks should consider the borrowers own capital investment.

it should collect credit information of the borrowers from_

a. From bankers.
b. Enquiry from market/segment of trade, industry, business.
c. From external credit rating agencies.

Analyze the balance sheet.

True picture of business will be revealed on analysis of profit/loss a/c

and balance sheet.

Purpose of the loan

When bankers give loan, he should analyze the purpose of the loan. To
ensure safety and liquidity, banks should grant loan for productive
purpose only. Bank should analyze the profitability, viability, long term
acceptability of the project while financing.
 Poor credit appraisal system

Poor credit appraisal is another factor for the rise in NPAs. Due to poor credit
appraisal the bank gives advances to those who are not able to repay it back.
They should use good credit appraisal to decrease the NPAs.

Managerial deficiencies

The banker should always select the borrower very carefully and should take
tangible assets as security to safe guard its interests. When accepting
securities banks should consider the_

1. Marketability
2. Acceptability
3. Safety
4. Transferability.

The banker should follow the principle of diversification of risk based

on the famous maxim do not keep all the eggs in one basket; it means that
the banker should not grant advances to a few big farms only or to
concentrate them in few industries or in a few cities. If a new big customer
meets misfortune or certain traders or industries affected adversely, the
overall position of the bank will not be affected.

Like OSCB suffered loss due to the OTM Cuttack, and Orissa hand
loom industries. The biggest defaulters of OSCB are the OTM
(117.77lakhs), and the handloom sector Orissa hand loom WCS ltd
(2439.60lakhs).

Absence of regular industrial visit

The irregularities in spot visit also increases the NPAs. Absence of

regularly visit of bank officials to the customer point decreases the collection
 of interest and principals on the loan. The NPAs due to willful defaulters can
be collected by regular visits.

Re loaning process

Non remittance of recoveries to higher financing agencies and re loaning of

the same have already affected the smooth operation of the credit cycle.

Due to re loaning to the defaulters and CCBs and PACs, the NPAs of OSCB
is increasing day by day.

PROBLEMS DUE TO NPA

1. Owners do not receive a market return on there capital .in the worst case, if
the banks fails, owners loose their assets. In modern times this may affect a
broad pool of shareholders.

2. Depositors do not receive a market return on saving. In the worst case if the
bank fails, depositors loose their assets or uninsured balance.

3. Banks redistribute losses to other borrowers by charging higher interest rates,

lower deposit rates and higher lending rates repress saving and financial
market, which hamper economic growth.

4. Non performing loans epitomize bad investment. They misallocate credit

from good projects, which do not receive funding, to failed projects. Bad
investment ends up in misallocation of capital, and by extension, labour and
natural resources.
Non performing asset may spill over the banking system and contract the money
stock, which may lead to economic contraction. This spill over effect can
channelize through liquidity or bank insolvency:
a) When many borrowers fail to pay interest, banks may experience liquidity
shortage. This can jam payment across the country,
b) Illiquidity constraints bank in paying depositors
.c) Undercapitalized banks exceeds the banks capital base.

The three letters Strike terror in banking sector and business circle today. NPA is
short form of Non Performing Asset. The dreaded NPA rule says simply this:
when interest or other due to a bank remains unpaid for more than 90 days, the
entire bank loan automatically turns a non performing asset. The recovery of loan
has always been problem for banks and financial institution. To come out of these
first we need to think is it possible to avoid NPA, no can not be then left is to look
after the factor responsible for it and managing those factors.

Interest and/or instalment of principal remains overdue for two harvest

seasons but for a period not exceeding two half years in the case of an
advance granted for agricultural purposes, and

Any amount to be received remains overdue for a period of more than 90

days in respect of other accounts.

As a facilitating measure for smooth transition to 90 days norm, banks have been
advised to move over to charging of interest at monthly rests, by April 1, 2002.
However, the date of classification of an advance as NPA should not be changed on
account of charging of interest at monthly rests. Banks should, therefore, continue
to classify an account as NPA only if the interest charged during any quarter is not
serviced fully within 180 days from the end of the quarter with effect from April 1,
2002 and 90 days from the end of the quarter with effect from March 31, 2004.

'Out of Order' status:

An account should be treated as 'out of order' if the outstanding

balance remains continuously in excess of the sanctioned limit/drawing power. In
cases where the outstanding balance in the principal operating account is less than
the sanctioned limit/drawing power, but there are no credits continuously for six
months as on the date of Balance Sheet or credits are not enough to cover the
interest debited during the same period, these accounts should be treated as 'out of
order'.
Overdue:
Any amount due to the bank under any credit facility is overdue if it is not paid on
the due date fixed by the bank.

Impact of NPA

Profitability:-
NPA means booking of money in terms of bad asset, which
occurred due to wrong choice of client. Because of the money getting
blocked the prodigality of bank decreases not only by the amount of NPA but
NPA lead to opportunity cost also as that much of profit invested in some
return earning project/asset. So NPA doesnt affect current profit but also
future stream of profit, which may lead to loss of some long-term beneficial
opportunity. Another impact of reduction in profitability is low ROI (return
on investment), which adversely affect current earning of bank.

Liquidity:-
Money is getting blocked, decreased profit lead to lack of enough cash at hand
which lead to borrowing money for shot\rtes period of time which lead to additional
cost to the company. Difficulty in operating the functions of bank is another cause
of NPA due to lack of money. Routine payments and dues.

Involvement of management:-
Time and efforts of management is another indirect cost which bank has to bear due
to NPA. Time and efforts of management in handling and managing NPA would
have diverted to some fruitful activities, which would have given good returns. Now
days banks have special employees to deal and handle NPAs, which is additional
cost to the bank.

Credit loss:-
Bank is facing problem of NPA then it adversely affect the value of bank in terms of
market credit. It will lose its goodwill and brand image and credit which have
negative impact to the people who are putting their money in the banks .

REASONS FOR NPA:

Reasons can be divided in to two broad categories:-

A] Internal Factor
B] External Factor

[ A ] Internal Factors:-

Internal Factors are those, which are internal to the bank and are controllable by
banks.
 Poor lending decision:

Non-Compliance to lending norms:

Lack of post credit supervision:

Failure to appreciate good payers:

Excessive overdraft lending:

Non Transparent accounting policy:

[ B ] External Factors:-
External factors are those, which are external to banks they are not controllable by
banks.

Socio political pressure:

Chang in industry environment:

Endangers macroeconomic disturbances:

Natural calamities

Industrial sickness

Diversion of funds and willful defaults

 Time/ cost overrun in project implementation

Labour problems of borrowed firm

Business failure

Inefficient management

Obsolete technology

Product obsolete

Types of NPA

A] Gross NPA
B] Net NPA

A] 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 sub-standard,
doubtful, and loss assets.
It can be calculated with the help of following ratio:

Gross NPAs Ratio Gross NPAs

Gross Advances
B] 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. Since in India, bank
balance sheets contain a huge amount of NPAs and the process of recovery and
write off of loans is very time consuming, the provisions the banks have to make
against the NPAs according to the central bank guidelines, are quite significant.
That is why the difference between gross and net NPA is quite high.
It can be calculated by following_

Net NPAs Gross NPAs Provisions

Gross Advances - Provisions

PREVENTIVE MEASUREMENT FOR NPA

Early Recognition of the Problem:-

Invariably, by the time banks start their efforts to get involved in a revival process,
its too late to retrieve the situation- both in terms of rehabilitation of the project and
recovery of banks dues. Identification of weakness in the very beginning that is :
When the account starts showing first signs of weakness regardless of the fact that it
may not have become NPA, is imperative. Assessment of the potential of revival
may be done on the basis of a techno-economic viability study. Restructuring
should be attempted where, after an objective assessment of the promoters
intention, banks are convinced of a turnaround within a scheduled timeframe. In
respect of totally unviable units as decided by the bank, it is better to facilitate
winding up/ selling of the unit earlier, so as to recover whatever is possible through
legal means before the security position becomes worse.

Identifying Borrowers with Genuine Intent:-

Identifying borrowers with genuine intent from those who are non- serious with no
commitment or stake in revival is a challenge confronting bankers. Here the role of
frontline officials at the branch level is paramount as they are the ones who has
intelligent inputs with regard to promoters sincerity, and capability to achieve
turnaround. Base don this objective assessment, banks should decide as quickly as
possible whether it would be worthwhile to commit additional finance.

In this regard banks may consider having Special Investigation of all financial
transaction or business transaction, books of account in order to ascertain real
factors that contributed to sickness of the borrower. Banks may have penal of
technical experts with proven expertise and track record of preparing techno-
economic study of the project of the borrowers.

Borrowers having genuine problems due to temporary mismatch in fund

flow or sudden requirement of additional fund may be entertained at branch level,
and for this purpose a special limit to such type of cases should be decided. This
will obviate the need to route the additional funding through the controlling offices
in deserving cases, and help avert many accounts slipping into NPA category.

Timeliness and Adequacy of response:-

Longer the delay in response, grater the injury to the account and the asset. Time is
a crucial element in any restructuring or rehabilitation activity. The response
decided on the basis of techno-economic study and promoters commitment, has to
be adequate in terms of extend of additional funding and relaxations etc. under the
restructuring exercise. The package of assistance may be flexible and bank may
look at the exit option.

Focus on Cash Flows:-

While financing, at the time of restructuring the banks may not be guided by the
conventional fund flow analysis only, which could yield a potentially misleading
picture. Appraisal for fresh credit requirements may be done by analyzing funds
flow in conjunction with the Cash Flow rather than only on the basis of Funds Flow.

Management Effectiveness:-

The general perception among borrower is that it is lack of finance that leads to
sickness and NPAs. But this may not be the case all the time. Management
effectiveness in tackling adverse business conditions is a very important aspect that
affects a borrowing units fortunes. A bank may commit additional finance to an
aling unit only after basic viability of the enterprise also in the context of quality of
management is examined and confirmed. Where the default is due to deeper
malady, viability study or investigative audit should be done it will be useful to
have consultant appointed as early as possible to examine this aspect. A proper
techno- economic viability study must thus become the basis on which any future
action can be considered.

Multiple Financing:-

A. During the exercise for assessment of viability and restructuring, a

Pragmatic and unified approach by all the lending banks/ FIs as also
sharing of all relevant information on the borrower would go a long way
toward overall success of rehabilitation exercise, given the probability of
success/failure.
B. In some default cases, where the unit is still working, the bank should make
sure that it captures the cash flows (there is a tendency on part of the
borrowers to switch bankers once they default, for fear of getting their cash
flows forfeited), and ensure that such cash flows are used for working capital
purposes. Toward this end, there should be regular flow of information
among consortium members. A bank, which is not part of the consortium,
may not be allowed to offer credit facilities to such defaulting clients. Current
account facilities may also be denied at non-consortium banks to such clients
and violation may attract penal action. The Credit Information Bureau of
India Ltd.(CIBIL) may be very useful for meaningful information exchange
on defaulting borrowers once the setup becomes fully operational.

C. In a forum of lenders, the priority of each lender will be different. While one
set of lenders may be willing to wait for a longer time to recover its dues,
another lender may have a much shorter timeframe in mind. So it is possible
that the letter categories of lenders may be willing to exit, even a t a cost by
a discounted settlement of the exposure. Therefore, any plan for
restructuring/rehabilitation may take this aspect into account.

D. Corporate Debt Restructuring mechanism has been institutionalized in

2001 to provide a timely and transparent system for restructuring of the
corporate debt of Rs. 20 crore and above with the banks and FIs on a
voluntary basis and outside the legal framework. Under this system, banks
may greatly benefit in terms of restructuring of large standard accounts
(potential NPAs) and viable sub-standard accounts with consortium/multiple
banking arrangements.
Once NPA occurred, one must come out of it or it should be managed in most
efficient manner. Legal ways and means are there to over come and manage NPAs.
We will look into each one of it.

Willful Default :-
A] Lok Adalat and Debt Recovery Tribunal

B] Securitization Act

C] Asset Reconstruction

Lok Adalat:

Lok Adalat institutions help banks to settle disputes involving account in

doubtful and loss category, with outstanding balance of Rs. 5 lakh for
compromise settlement under Lok Adalat. Debt recovery tribunals have been
empowered to organize Lok Adalat to decide on cases of NPAs of Rs. 10 lakh and
above. This mechanism has proved to be quite effective for speedy justice and
recovery of small loans. The progress through this channel is expected to pick up in
the coming years.

Debt Recovery Tribunals(DRT):

The recovery of debts due to banks and financial institution passed in March
2000 has helped in strengthening the function of DRTs. Provision for placement of
more than one recovery officer, power to attach defendants property/assets before
judgment, penal provision for disobedience of tribunals order or for breach of any
terms of order and appointment of receiver with power of realization, management,
protection and preservation of property are expected to provide necessary teeth to
the DRTs and speed up the recovery of NPAs in the times to come. DRTs which
have been set up by the Government to facilitate speedy recovery by banks/DFIs,
have not been able make much impact on loan recovery due to variety of reasons
like inadequate number, lack of infrastructure, under staffing and frequent
adjournment of cases. It is essential that DRT mechanism is strengthened and vested
with a proper enforcement mechanism to enforce their orders. Non observation of
any order passed by the tribunal should amount to contempt of court, the DRT
should have right to initiate contempt proceedings. The DRT should empowered to
sell asset of the debtor companies and forward the proceed to the winding up
court for distribution among the lenders

Inability to Pay

Consortium arrangements:
Asset classification of accounts under consortium should be based on the
record of recovery of the individual member banks and other aspects having a bearing on the recoverability of the
advances. Where the remittances by the borrower under consortium lending arrangements are pooled with one bank
and/or where the bank receiving remittances is not parting with the share of other member banks, the account will be
treated as not serviced in the books of the other member banks and therefore, be treated as NPA. The banks
participating in the consortium should, therefore, arrange to get their share of recovery transferred from the lead bank
or get an express consent from the lead bank for the transfer of their share of recovery, to ensure proper asset
classification in their respective books.

Corporate debt Restructuring (CDR):

Background
In spite of their best efforts and intentions, sometimes corporate find themselves in
financial difficulty because of factors beyond their control and also due to certain
internal reasons. For the revival of the corporate as well as for the safety of the
money lent by the banks and FIs, timely support through restructuring in genuine
cases is called for. However, delay in agreement amongst different lending
institutions often comes in the way of such endeavours.

Based on the experience in other countries like the U.K., Thailand, Korea,
etc. of putting in place institutional mechanism for restructuring of corporate debt
and need for a similar mechanism in India, a Corporate Debt Restructuring System
has been evolved, as under :

Objective
The objective of the Corporate Debt Restructuring (CDR) framework is to
ensure timely and transparent mechanism for restructuring of the corporate debts of
viable entities facing problems, outside the purview of BIFR, DRT and other legal
proceedings, for the benefit of all concerned. In particular, the framework will aim
at preserving viable corporate that are affected by certain internal and external
factors and minimize the losses to the creditors and other stakeholders through an
orderly and coordinated restructuring programme.
 CHAPTER-2

COMPANY PROFILE
ABOUT HDFC

The Housing Development Finance Corporation Limited (HDFC) was amongst the
first to receive an 'in principle' approval from the Reserve Bank of India (RBI)
to set up a bank in the private sector, as part of the RBI's liberalization of the Indian
Banking Industry in 1994.

The bank was incorporated in August 1994 in the name of 'HDFC Bank
Limited', with its registered office in Mumbai, India. HDFC Bank commenced
operations as a Scheduled Commercial Bank in January 1995.

HDFC is India's premier housing finance company and enjoys an impeccable

track record in India as well as in international markets. Since its inception in
1977, the Corporation has maintained a consistent and healthy growth in its
operations to remain the market leader in mortgages. Its outstanding loan portfolio
covers well over a million dwelling units. HDFC has developed significant
expertise in retail mortgage loans to different market segments and also has a
large corporate client base for its housing related credit facilities. With its
experience in the financial markets, a strong market reputation, large
shareholder base and unique consumer franchise, HDFC was ideally positioned to
promote a bank in the Indian environment. HDFC Bank began operations in 1995
with a simple mission : to be a
 World Class Indian Bank. We realized that only a single minded focus on
product quality and service excellence would help us get there. Today, we are
proud to say that we are well on our was towards that goal.

As of March 31, 2008, the Banks distribution network was at 761 Branches
and 1977 ATMs in 327 cities as against 684 branches and 1,605 ATMs in 320
cities as of March 31, 2007. Against the regulatory approvals for new branches
in hand, the Bank expects to further expand the branch network by around 150
branches by June 30, 2008. During the year, the Bank stepped up retail customer
acquisition with deposit accounts increasing from 6.2 million to 8.7 million and
total cards issued (debit and credit cards) increasing from 7 million to 9.2 million.

PERSONAL BANKING

Loan Product Deposit Product Investment & Insurance

Auto Loan Saving a/c Mutual Fund

Loan Against Current a/c Bonds
Security Fixed deposit Knowledge Centre
Loan Against Demat a/c Insurance
Property Safe Deposit General and Health
Personal loan Lockers Insurance
Credit card Equity and
2-wheeler loan Derivatives
Commercial Mudra Gold Bar
vehicles finance
Home loans
 Retail business
banking
Tractor loan
Working Capital
Finance
Construction
Equipment Finance
Health Care
Finance
Education Loan
Gold Loan

Cards Payment Services Access To Bank

Credit Card NetSafe NetBanking

Debit Card Merchant OneView
Prepaid Card Prepaid Refill InstaAlert
Billpay MobileBanking
Visa Billpay ATM
InstaPay Phone Banking
-------------------------------- DirectPay Email Statements
Forex Services Branch Network
VisaMoney
--------------------------------
Transfer
Product & Services
eMonies
Trade Services Electronic
Forex service Funds Transfer
Branch Locater Online Payment
RBI Guidelines of Direct Tax
WHOLESALE BANKING

Corporate Small and Medium Financial Institutions

Enterprises and Trusts

Funded Funded Services BANKS

Services Non Funded Clearing Sub-
Non Funded Services Membership
Services Specialized Services RTGS
Value Added Value added services submembership
Services Internet Banking Fund Transfer
Internet ATM Tie-ups
Banking Corporate Salary a/c
Tax Collection
Financial Institutions

Mutual Funds

Stock Brokers

Insurance Companies
 Commodities Business

Trusts

HDFCs main goals are to :-

The primary objective of HDFC is to enhance residential housing stock and to

promote home ownership.

To acquire by purchase, lease, exchange, hire or otherwise lands & property or any
interest in the same in India.

To advance money to any person/ persons, company or corporation, society or

association either at interest without, and or with or without any security and in
particular to advance money to shareholders of the company or to oth4r persons to
enable the person to erect, or purchase, or enlarge, or repair any house or building
or any part or portions thereof or to purchase any freehold or leasehold or any lands
or estate or property in India upon the terms and conditions as laid by the company.
 CHAPTER-3
RESEARCH
METHODOLOGY
 RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem.

Research methodology constitutes of research methods, selection criterion of
research methods, used in context of research study and explanation of using of a
particular method or technique so that research results are capable of being
evaluated either by researcher himself or by others

TITLE:

PROCEDURE TO REDUCE NON-PERFORMING ASSETS IN BANKS .

OBJECTIVES OF THE STUDY

The basic idea behind undertaking the Grand Project on NPA was to:
To Know the Concept of Non Performing Asset
To know Preventive Measures
To evaluate NPAs (Gross and Net) in different banks.
To analyze financial performance of banks at different level of NPA
To Know the Impact of NPAs
To Know the Reasons for NPAs
SIGNIFICANCE OF THE STUDY

This is a limited study which takes into consideration the responses of 100 people.
This data can be exported to take in the trends across the industry. The significance
for the industry lies in studying these trends that emerge from the study. It is a
rapidly changing and evolving sector. People are only beginning to wake up to its
vast possibilities. A study like this can attempt to guide the future of the industry
based on current trends.

SCOPE OF THE STUDY

The scope of the study refers to the job that to know about the activities of the
organization. The study means that the analysis of the products of the company on
which he/she has to focus.
Scope of the Study
Concept of Non Performing Asset
Guidelines
Impact of NPAs
Reasons for NPAs
Preventive Measures
Tools to manage NPAs

During the summer training the volunteer need to find out the corporate strategies
of the running company and The mile stone which the company has covered during
its journey. In the summer training, it is necessary for the student that he /she
involve with the experience guys to get the knowledge about the company. That is
how the company has got the success, Or if it is going in the loss, why.
RESEARCH DESIGN

NON-PROBABILITY

EXPLORATORY &DISCRIPTIVE EXPERIMENTAL RESEARCH

The research is primarily both exploratory as well as descriptive in nature. The

sources of information are both primary & secondary.

Primary Data:
Primary data is basically the live data which I collected on field while doing
cold calls with the Distributor and shopkeeper, customers, I shown them list of
question for which I had required their responses. In some cases I got no
response form their side and than on the basis of my previous experiences I
filled those fields.
Source: Main source for the primary data for the project was questionnaires
which I got filled by the customers or some times filled myself on the basis of
discussion with the customers.
Secondary Data:
1 Internet ,
2 Books
3 Journals ,
4 Newspaper,
5 Annual report,
6 Database available in the library,
7 Catalogues and presentations.
Tools and Techniques:
As no study could be successfully completed without proper tools and techniques,
same with my project. For the better presentation and right explanation I used tools
of statistics and computer very frequently. And I am very thankful to all those tools
for helping me a lot. Basic tools which I used for project from statistics are-
- Bar Charts
- Pie charts
- Tables
bar charts and pie charts are really useful tools for every research to show the result
in a well clear, ease and simple way. Because I used bar charts and pie charts in
project for showing data in a systematic way, so it need not necessary for any
observer to read all the theoretical detail, simple on seeing the charts any body
could know that what is being said.
Technological Tools
Ms-Access
Ms-Word
Above application software of Microsoft helped me a lot in making project more
interactive and productive.
Microsoft-Excel had a great role in my project, it created for me a situation of you
sit and get. I provided it simply all the detail of data and in return it given me all
the relevant information..

SAMPLING METHODOLOGY

Sampling Technique:

Initially, a rough draft was prepared keeping in mind the objective of the research. A
pilot study was done in order to know the accuracy of the Questionnaire.

The final Questionnaire was arrived only after certain important changes were done.
Thus my sampling came out to be judgment and convenient

Sampling Unit:

The respondent who were asked to fill out questionnaires are the sampling units.
These comprise of employees of MNC, Govt. Employees, Self Employed etc.

Sample size:

The sample size was restricted to only 100, which comprised of mainly peoples
from different regions of BHOPAL due to time constraints.
Sampling Area :

The area of the research was New Delhi.

CHAPTER-4
DATA ANALYSIS &
INTERPRETATION
Gender:
Classification of Customers Based On Sex
Sex No. of respondents Percentage %

Male 35 35
Female 65 65
total 100 100

Interpretation:
35% of the respondents are male and 65% of the respondents are female.
From the above table we can conclude that, the majority of the respondents were
belongs to female group.
Occupation:
Analysis of Occupation of the Respondents

Occupation No. of. respondents Percentage

%
Business 20 20
Employee 10 10
House wife 65 65
Others 05 05
Total 100 100

Interpretation:
20% of the respondents are business, 10% of the respondents are employees,
and 65% of the respondents are house wives, 05% of the respondents are others
group.
Income:
Analysis of Monthly Income of the Respondents

Monthly income No. of respondents Percentage %

Below 5000 38 38
5001-10000 30 30
10001-15000 21 21
15001 & above 11 11
Total 100 100

Interpretation:
As per the data 38% of the respondents earn per month below 5000, 30% of the
respondents earn 5001 to 10000, 21% of the respondents earn above 10001 to
15000. 11% of the respondents earn 15000 & above. From the above table we can
conclude that majority of the respondents monthly income group of below 5000
and more than 5000 to 10000.

1. DO YOU KNOW THE NON PERFORMING ASSETS OF BANK

Opinions No. of Respondents Percentage (%)
Yes 10 10
No 90 90
Total 100 100

Interpretation:
Only 10% of the respondents said that they know about NON
PERFORMING ASSETS while 90% dont know about NON PERFORMING
ASSETS

2. IT IS POSSIBLE TO ELIMINATE TOTALLY THE NPAS IN THE BANKING

BUSINESS
Analysis of Recommendations
Recommended No. of Respondents Percentage (%)
Yes 95 95
No 05 05
Total 100 100

Interpretation:
Out of 100 respondent , 95% of the respondents were recommended It is
possible to eliminate totally the npas in the banking business while only 5% told It
is not

3. EFFECTIVE INSPECTION SYSTEM SHOULD BE IMPLEMENTED

Option Percentage of respondents

Yes 64

No 36

INTERPRETATION

Out of 100 respondent 64 % respondent were satisfied with effective inspection

system should be implemented while 36% told no.

4. DO YOU THINK OPERATING STAFF SHOULD SCRUTINIZE THE LEVEL

OF INVENTORIES/RECEIVABLES REGULARLY

Option Percentage of respondents

Yes 78

No 22

INTERPRETATION

Out of 100 respondent 78 % respondent are satisfied with the statement that
operating staff should scrutinize the level of inventories/receivables regularly
while only 22% were not satisfied.

5. DO YOU THINK LARGE EXPOSURE ON BIG CORPORATE OR SINGLE

PROJECT SHOULD BE AVOIDED

Option Percentage of respondents

Yes 24

No 76

INTERPRETATION

Out of 100 respondent only 24% think large exposure on big corporate or single
project should be avoided
While 76% dont think about that.

6. UNEVEN SCALE OF REPAYMENT SCHEDULE WITH HIGHER

REPAYMENT IN THE INITIAL YEARS NORMALLY IS PREFERRED

RESPONSE NO. OF SHARE (%)

 RESPONDENT
S

Satisfied 45 45%

Not satisfied 55 55%

Not Responded 0 0.0%

Total 100 100%

45.00%
55.00%

Satisfied Not satisfied

INTERPRETATION

45% of the respondents are satisfied with uneven scale of repayment schedule with
higher repayment in the initial years normally is preferred

55% of the respondents are not satisfied with that statement.

7. ARE YOU SATISFIED WITH STATEMENT THE BANKS SHOULD NOT

ONLY TAKE STEPS FOR REDUCING PRESENT NPAS, BUT NECESSARY
PRECAUTION SHOULD ALSO BE TAKEN TO AVOID FUTURE NPAS

RESPONSE NO. OF SHARE (%)

RESPONDENT
 S

Satisfied 60 60%

Not satisfied 40 40%

Not Responded 0 0.0%

Total 100 100%

0%

40%

60%

Satisfied Not satisfied Not Responded

INTERPRETATION

60% of the respondents were think the banks should not only take steps for reducing present
NPAs, but necessary precaution should also be taken to avoid future NPAs . 40% of the
respondents are not satisfied with that statement.

8. DO YOU THINK THAT NECESSARY PRECAUTION SHOULD ALSO BE

TAKEN TO AVOID FUTURE NPAS?

RESPONSE NO. OF SHARE (%)

RESPONDENT
S

Yes 70 70%

No 30 30%
 Total 100 100%

30%

70%

Yes
No

INTERPRETATION

Out Of the sample size of 100 surveyed respondents 70% of the respondents think
that necessary precaution should also be taken to avoid future NPA 30% dont think
that.

9.DO YOU THINK THERE IS SIGNIFICANT RELATIONSHIP BETWEEN

GROSS NPA OF A BANK TO ITS OPERATING PROFIT?

RESPONSE NO. OF SHARE (%)

RESPONDENTS

Yes 87 87%
 no 13 13%

Total 100 100%

13.0%

87.0%

yes no

INTERPRETATION

Out of 100 respondent 87% think there is significant relationship between gross
NPA of a bank to its operating profit only 13% dont think there is significant
relationship between gross npa of a bank to its operating profit.

10. DO YOU THINK THE BANK WILL ALWAYS FACE THE PROBLEM OF
NPA BECAUSE OF POOR RECOVERY OF ADVANCES GRANTED BY THE
BANK

RESPONSE NO. OF SHARE (%)

RESPONDENT
 S

YES 45 45%

NO 55 55%

Not Responded 0 0.0%

Total 100 100%

45.00%
55.00%

YES NO

INTERPRETATION

Out of 100 respondent 55% respondent think the bank will always face the problem
of npa because of poor recovery of advances granted by the bank while 45% dont
think.

ANALYSIS

For the purpose of analysis and comparison between private sector and public sector
banks, we take five-five banks in both sector to compare the non performing assets
of banks. For understanding we further bifurcate the non performing assets in
priority sector and non priority sector, gross NPA and net NPA in percentage as well
as in rupees, deposit investment advances.
Deposit Investment Advances is the first in the analysis because due to these we
can understand the where the bank stands in the competitive market. As at end of
march 2008, in private sector ICICI Bank is the highest deposit-investment-
advances figures in rupees crore, second is HDFC Bank and KOTAK Bank has least
figures.
In public sector banks Punjab National Bank has highest deposit-investment-
advances but when we look at graph first three means Bank of Baroda and Bank of
India are almost the similar in numbers and Dena Bank is stands for last in public
sector bank. When we compare the private sector banks with public sector banks
among these banks, we can understand the more number of people prefer to choose
public sector banks for deposit-investment.

But when we compare the private sector bank ICICI Bank with the public sector
banks ICICI Bank is more deposit-investment figures and first in the all banks.

DEPOSIT-INVESTMENT-ADVANCES ( RS.CRORE) of both sector banks

and comparison among them, year 2007-08.

BANK DEPOSIT INVESTMENT ADVANCES

AXIS 87626 33705 59661
HDFC 100769 49394 63427
ICICI 244431 111454 225616
KOTAK 16424 9142 15552
INDUSIND 19037 6630 12795
TOTAL 468287 210325 377051
BANK DEPOSIT INVESTMENT ADVANCES
BOB 152034 43870 106701
BOI 150012 41803 113476
DENA 33943 10282 23024
PNB 166457 53992 119502
UBI 103859 33823 74348
TOTAL 606305 183770 437051
ICICI BANK AND PUNJAB NATIONAL BANK :-

BANK DEPOSIT INVESTMENT ADVANCES

ICICI BANK 244431 111454 225616
PNB 166457 53992 119502
There are two concepts related to non-performing assets_ gross and net. Gross
refers to all NPAs on a banks balance sheet irrespective of the provisions made. It
consists of all the non standard assets, viz. sub standard, doubtful, and loss assets.
A loan asset is classified as sub standard if it remains NPA up to a period of 18
months; doubtful if it remains NPA for more than 18 months; and loss, without
any waiting period, where the dues are considered not collectible or marginally
collectible.
Net NPA is gross NPA less provisions. Since in India, bank balance sheets contains
a huge amount of NPAs and the process of recovery and write off of loans is very
time consuming, the provisions the banks have to make against the NPA according
to the central bank guidelines, are quite significant.

Here, we can see that there are huge difference between gross and net NPA. While
gross NPA reflects the quality of the loans made by banks, net NPA shows the
actual burden of banks. The requirements for provisions are :
100% for loss assets
 100% of the unsecured portion plus 20-50% of the secured portion,
depending on the period for which the account has remained in the doubtful
category
10% general provision on the outstanding balance under the sub standard
category.

Here, there are gross and net NPA data for 2006-07 and 2007-08 we taken for
comparison among banks. These data are NPA AS PERCENTAGE OF TOTAL
ASSETS. As we discuss earlier that gross NPA reflects the quality of the loans
made by banks. Among all the ten banks Dena Banks has highest gross NPA as a
percentage of total assets in the year 2006-07 and also net NPA. Punjab National
Bank shows vast difference between gross and net NPA. There is almost same
figures between BOI and BOB.

YEAR 2007-08

BANK GROSS NPA NET NPA

BOB 1.46 0.35

BOI 1.48 0.45
DENA 2.37 1.16
PNB 2.09 0.45
UBI 1.82 0.59
 2007-08

BANK GROSS NPA NET NPA

BOB 1.10 0.27

BOI 1.08 0.33
DENA 1.48 0.56
PNB 1.67 0.38
UBI 1.34 0.10
2006-07

BANK GROSS NPA NET NPA

AXIS 0.57 0.36

HDFC 0.72 0.22
ICICI 1.20 0.58
KOTAK 1.39 1.09
INDUSIND 1.64 1.31

2007-08
 BANK GROSS NPA NET NPA

AXIS 0.45 0.23

HDFC 0.68 0.22
ICICI 1.90 0.87
KOTAK 1.55 0.98
INDUSIND 1.69 1.25

COMPARISON OF GROSS NPA WITH ALL BANKS FOR THE YEAR

2007-08. The growing NPAs affects the health of banks, profitability and
efficiency. In the long run, it eats up the net worth of the banks. We can say
that NPA is not a healthy sign for financial institutions. Here we take all the
ten banks gross NPA together for better understanding. Average of these ten
banks gross NPAs is 1.29 as percentage of total assets. So if we compare in
private sector banks AXIS and HDFC Bank are below average of all banks
and in public sector BOB and BOI. Average of these five private sector
banks gross NPA is 1.25 and average of public sector banks is 1.33. Which is
higher in compare of private sector banks.

GROSS NPA :-
 COMPARISON OF NET NPA WITH ALL BANKS FOR THE YEAR 2007-
08. Average of these ten banks net NPA is 0.56. And in the public sector
banks all these five banks are below this. But in private sector banks there are
three banks are above average. The difference between private and public
banks average is also vast. Private sector banks net NPA average is 0.71 and
in public sector banks it is 0.41 as percentage of total assets. As we know
that net NPA shows actual burden of banks. IndusInd bank has highest net
NPA figure and HDFC Bank has lowest in comparison.

NET NPA of banks:-

PRIORITY NON PRIORITY SECTOR

When we further bifurcate NPA in priority sector and Non priority sector.
Agriculture + small + others are priority sector. In private sector banks ICICI Bank
has the highest NPA in both sector in compare to other private sector banks.
Around 72% of NPA is with ICICI Bank with Rs.1359 crore in priority sector and
around 78% in non priority sector. We can see that in private sector banks , banks
has more NPA in non priority sector than priority sector.
 BANK AGRI SMALL OTHERS PRIORITY NON-
(1) (2) (3) SECTOR PRIORITY
( 1+2+3 )
AXIS 109.12 14.76 86.71 210.59 275.06
HDFC 36.12 110.56 47.70 194.41 709.23
ICICI 981.85 23.35 354.13 1359.34 6211.12
KOTAK 10.00 33.84 4.04 47.87 405.20
INDUSIND 30.44 3.18 30.02 63.64 328.67
TOTAL 1167.53 185.69 522.60 1875.85 7929.28

BANK PRIORITY SECTOR NPA

(ADVANCED
RS.CRORE )
BOB 5469 350
BOI 3269 325
DENA 1160 106
PNB 3772 443
UBI 1924 197
When we talk about public sector banks they are more in priority sector and they
given advanced to weaker sector or industries. Public sector banks give more loans
to Agriculture , small scale and others units and as a result we see that there are
more number of NPA in public sector banks than in private sector banks. BOB
given more advanced to priority sector in 2007-08 than other four banks and Dena
Bank is in least.

But when there are comparison between private bank and public sector bank still
ICICI Bank has more NPA in both priority and non priority sector with the
comparison of public sector banks. Large NPA in ICICI Bank because the strategy
of bank that risk-reward attitude and initiative in each sector. Above we also
discuss that ICICI Bank has highest deposit-investment-advance than other banks.

Now, when we compare the all public sector banks and public sector banks on
priority and non-priority sector than the figures are really shocking. Because in
compare of private sector banks, public sector banks numbers are very large.

PUBLIC SECTOR NEW PRIVATE

2006-07 2007-08 2006-07 2007-08
SECTOR
PRIORITY 22954 25287 1468 2080
PUBLIC 490 299 3 0
NON PRT 15158 14163 4800 8339
TOTAL 38602 39749 6271 10419
Here, there are huge difference between private and public sector banks NPA.
There is increase in new private sector banks NPA of Rs.4148 cr in 2007-08 which
is almost 66% rise than previous year. In public sector banks the numbers are not
increased like private sector banks.

CHAPTER-6
FINDING, SUGGESTION
CONCLUSION
 FINDING

For the purpose of analysis and comparison between private sector and public sector
banks, we take five-five banks in both sector to compare the non performing assets
of banks. For understanding we further bifurcate the non performing assets in
priority sector and non priority sector, gross NPA and net NPA in percentage as well
as in rupees, deposit investment advances.
55% respondent think the bank will always face the problem of npa because of poor
recovery of advances granted by the bank while 45% dont think.
45% of the respondents are satisfied with uneven scale of repayment schedule with
higher repayment in the initial years normally is preferred
55% of the respondents are not satisfied with that statement

60% of the respondents were think the banks should not only take steps for reducing
present NPAs, but necessary precaution should also be taken to avoid future NPAs .
40% of the respondents are not satisfied with that statement.

Deposit Investment Advances is the first in the analysis because due to these we
can understand the where the bank stands in the competitive market. As at end of
march 2008, in private sector ICICI Bank is the highest deposit-investment-
advances figures in rupees crore, second is HDFC Bank and KOTAK Bank has least
figures.
In public sector banks Punjab National Bank has highest deposit-investment-
advances but when we look at graph first three means Bank of Baroda and Bank of
India are almost the similar in numbers and Dena Bank is stands for last in public
sector bank. When we compare the private sector banks with public sector banks
among these banks, we can understand the more number of people prefer to choose
public sector banks for deposit-investment. comparison of net npa with all banks for
the year 2007-08. Average of these ten banks net NPA is 0.56. And in the public
sector banks all these five banks are below this. But in private sector banks there are
three banks are above average
SUGGESTION

Effective inspection system should be implemented.

Operating staff should scrutinize the level of inventories/receivables

regularly.

Large exposure on big corporate or single project should be avoided.

Uneven scale of repayment schedule with higher repayment in the initial

years normally is preferred.

Large exposure on big corporate or single project should be avoided

 CONCLUSION

It is not possible to eliminate totally the NPAs in the banking business but can
only be minimized. It is always wise it follow the proper policy appraisal,
supervision and follow-up of advances to avoid NPAs.

The banks should not only take steps for reducing present NPAs, but
necessary precaution should also be taken to avoid future NPAs.

The bank has achieved its target because the net profit is also increased and
there is a decrease in NPAs. So it is in better position compared to last year
 CHAPTER-7
BIBLIOGRAPHY
 BIBLIOGRAPHY

Marketing Management Philip Kotler, The Millennium Edition, Prentice Hall

Of India Private Limited, New Delhi.

Marketing Research: G.C Brek, Tata Mc Graw-Hill Publishing Company

Limited, New Delhi

Periodical: Business Word

Research Methodology: C.R.Kothari , 2nd edition.

S.N Murty and U Bhojanna

Website Address:
www.hdfcbank.com
www.scribed.com
www.googlesearch.com
QUESTIONNAIRE
 QUESTIONNIRE

I am student of first year MBA of the G.G.I.T.M. Bhopal, I am doing project on

Procedure to reduce non performing assets in banks as a part of study. I request
you to provide the required information for the completion of my study.
Promise that the information is used exclusively for academic purpose only.

1. personal profile:
2. A. Name:
B. Address:

C: Sex: Male: [ ] Female [ ]

G: Age: [ ]
1.DO YOU KNOW THE NON PERFORMING ASSETS OF BANK

1) YES 2) NO

2.IT IS POSSIBLE TO ELIMINATE TOTALLY THE NPAS IN THE BANKING

BUSINESS

1) YES 2) NO

3.EFFECTIVE INSPECTION SYSTEM SHOULD BE IMPLEMENTED.

1) YES 2) NO

4.DO YOU THINK OPERATING STAFF SHOULD SCRUTINIZE THE LEVEL

OF INVENTORIES/RECEIVABLES REGULARLY

1) YES 2) NO

5.DO YOU THINK LARGE EXPOSURE ON BIG CORPORATE OR SINGLE

PROJECT SHOULD BE AVOIDED

1) YES 2) NO

6.UNEVEN SCALE OF REPAYMENT SCHEDULE WITH HIGHER

REPAYMENT IN THE INITIAL YEARS NORMALLY IS PREFERRED
1) YES 2) NO

7.DO YOU THINKTHE BANKS SHOULD NOT ONLY TAKE STEPS FOR
REDUCING PRESENT NPAS, BUT NECESSARY PRECAUTION SHOULD
ALSO BE TAKEN TO AVOID FUTURE NPAS

1) YES 2) NO

8.NECESSARY PRECAUTION SHOULD ALSO BE TAKEN TO AVOID

FUTURE NPAS.

1) YES 2) NO

9.DO YOU THINK THERE IS SIGNIFICANT RELATIONSHIP BETWEEN

GROSS NPA OF A BANK TO ITS OPERATING PROFIT.

1) YES 2) NO

10.THE BANK WILL ALWAYS FACE THE PROBLEM OF NPA BECAUSE OF

POOR RECOVERY OF ADVANCES GRANTED BY THE BANK

1) YES 2) NO

11.NON PERFORMING ASSETS ARE MORE IN

1) PRIORITY SECTOR
2) NON PRIORITY SECTOR
12.WHAT ARE THE METHODS ADOPTED BY THE BANK TO LOOK AFTER
NPA MANAGEMENT

........................................

13.WHAT IS THE CRITERIA TO RECOVER THE ADVANCES FROM THE

BANK

....