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INDEX
S.No. PARTICULARS PAGE No.
1. INTRODUCTION
2. COMPANY PROFILE
3. RESEARCH STUDY
OBJECTIVES OF THE STUDY
HYPOTHESIS OF THE STUDY
SCOPE OF THE STUDY
4 RESEARCH METHODOLOGY
5 DATA COLLECTION
6 DATA ANALYSIS AND INTERPRETATION
7. CONCLUSION
8. FINDINGS AND SUGGESTIONS
9. BIBLIOGRAPHY
10. ANNEXURE
INTRODUCTION:
Financial management:
Financial Management refers to the efficient and effective management of money (funds)
in such a manner as to accomplish the objectives of the organisation. It is the specialised
function directly associated with the top management. The significance of this function is
not seen in the ‘Line’ but also in the capacity of ‘Staff’ in overall of a company. It has
been defined differently by different experts in the field. The term typically applies to an
organisation or company’s financial strategy, while personal finance or financial life
management refers to an individual’s management strategy. It includes how to raise the
capital and how to allocate capital, i.e. capital budgeting. Not only for long term
budgeting, but also how to allocate short term resources like current liabilities. It also
deals with the dividend policies of the shareholders.
The financial management is generally concerned with procurement, allocation and
control of financial resources of a concern. The objectives can be-
1. To ensure regular and adequate supply of funds to the concern.
2. To ensure adequate returns to the shareholders which will depend upon the
earning capacity, market price of the share, expectations of the shareholders?
3. To ensure optimum funds utilization. Once the funds are procured, they should be
utilized in maximum possible way at least cost.
4. To ensure safety on investment, i.e., funds should be invested in safe ventures so
that adequate rate of return can be achieved.
5. To plan a sound capital structure-There should be sound and fair composition of
capital so that a balance is maintained between debt and equity capital.
Further classify nonperforming assets further into the following three categories based on
the period for which the asset has remained nonperforming and the reliability of the dues:
1. Substandard assets: a sub-standard asset is one which has been classified as NPA
for a period not exceeding 12 months.
2. Doubtful Assets: a doubtful asset is one which has remained NPA for a period
exceeding 12 months.
3. Loss assets: where loss has been identified by the bank, internal or external
auditor or central bank inspectors. But the amount has not been written off,
wholly or partly.
Substandard asset is the asset in which bank have to maintain 15% of its reserves. All
those assets which are considered as nonperforming for period of more than 12 months
are called as Doubtful Assets. All those assets which cannot be recovered are called as
Loss Assets.
Type Public
Industry Banking, Financial services
Founded 20 July 1908; 108 years ago
Founder Maharaj H.H. Sir SayajiraoGaekwad III
Headquarters Vadodara, India
Area served Worldwide
Key people P.S. Jayakumar(CEO and MD); Ravi Venkatesan(Chairman)
Total assets $113.3 billion (2015)
Owner Government of India
Website www.bankofbaroda.com
It all started with a visionary Maharaja's uncanny foresight into the future of trade and
enterprising in his country. On 20th July 1908, under the Companies Act of 1897, and
with a paid up capital of Rs 10 Lacs started the legend that has now translated into a
strong, trustworthy financial body, THE BANK OF BARODA.
It has been a wisely orchestrated growth, involving corporate wisdom, social pride and
the vision of helping others grow, and growing itself in turn.
The founder, Maharaja SayajiraoGaekwad, with his insight into the future, saw "a
bank of this nature will prove a beneficial agency for lending, transmission, and deposit
of money and will be a powerful factor in the development of art, industries and
commerce of the State and adjoining territories."
Between 1913 and 1917, as many as 87 banks failed in India. Bank of Barodasurvived
the crisis, mainly due to its honest and prudent leadership. This financial integrity,
business prudence, caution and an abiding care and concern for the hard earned savings
of hard working people, were to become the central philosophy around which business
decisions would be effected. This cardinal philosophy was over years of its existence, to
become its biggest asset. It ensured that the Bank survived the Great War years. It
ensured survival during the Great Depression. Even while big names were dragged into
the Stock Market scam and the Capital Market scam, the Bank of Baroda continued its
triumphant march along the best ethical practices.
Based on 2014 data, it is ranked 801 on Forbes Global 2000 list. BOB has total assets in
excess of ₹ 3.58 trillion, a network of 5326 branches in India and abroad, and over 8000
ATMs.
Among the Bank of Baroda’s overseas branches are ones in the world’s major financial
centres
(e.g., New York, London, Dubai, Hong Kong, Brussels and Singapore), as well as a
number in other countries. The bank is engaged in retail banking via the branches of
subsidiaries in Botswana, Guyana, Kenya, Tanzania, and Uganda. The bank plans has
recently upgraded its representative office in Australia to a branch and set up a joint
venture commercial bank in Malaysia. It has a large presence in Mauritius with about
nine branches spread out in the country.
The Bank of Baroda has received permission or in-principle approval from host country
regulators to open new offices in Trinidad and Tobago and Ghana, where it seeks to
establish joint ventures or subsidiaries. The bank has received Reserve Bank of India
approval to open offices in the Maldives, and New Zealand. It is seeking approval for
operations in Bahrain, South Africa, Kuwait, Mozambique, and Qatar, and is establishing
offices in Canada, New Zealand, Sri Lanka, Bahrain, Saudi Arabia, and Russia. It also
has plans to extend its existing operations in the United Kingdom, the United Arab
Emirates, and Botswana.
Mission:
The mission is to be a top ranking National Bank of international Standards which is
committed to augmenting stake holders’ value through concern, care and competence.
Objective:
Bank has the objective of serving its customers. They will provide all the banking
services that are needed to assist their customers.
The list of the online services of the Bank:
1. ASBA 2. Demat
Corporate Offices:
Zonal Offices 13
Regional Offices 74
CORE TOPIC:
NON PERFORMING ASSETS:
A Non-performing asset (NPA) is defined as a credit facility in respect of which the
interest and/or instalment of principal has remained ‘past due’ for a specified period of
time. In simple terms, an asset is tagged as non-performing when it ceases to generate
income for the lender.
A Non-performing asset (NPA) is defined as a credit facility in respect of which the
interest and/or instalment of Bond finance principal has remained ‘past due’ for a
specified period of time. NPA is used by financial institutions that refer to loans that are
in jeopardy of default. Once the borrower has failed to make interest or principle
payments for 90 days the loan is considered to be a non-performing asset. Non-
performing assets are problematic for financial institutions since they depend on interest
payments for income. Troublesome pressure from the economy can lead to a sharp
increase in nonperforming loans and often results in massive write-downs.
With a view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt the ‘90 days’ overdue’ norm for identification
of NPA, from the year ending March 31, 2004. Accordingly, with effect from March 31,
2004, a nonperforming asset (NPA) is a loan or an advance where;
Interest and/or instalments of principal remain overdue for a period of more than
91 days in respect of a term loan,
The account remains ‘out of order’ for a period of more than 90 days, in respect
of an Overdraft/Cash Credit (OD/CC),
The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted,
Interest and/or instalments 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
Further classify nonperforming assets further into the following three categories based on
the period for which the asset has remained nonperforming and the reliability of the dues:
4. Substandard assets: a sub-standard asset is one which has been classified as NPA
for a period not exceeding 12 months.
5. Doubtful Assets: a doubtful asset is one which has remained NPA for a period
exceeding 12 months.
6. Loss assets: where loss has been identified by the bank, internal or external
auditor or central bank inspectors. But the amount has not been written off,
wholly or partly.
Substandard asset is the asset in which bank have to maintain 15% of its reserves. All
those assets which are considered as nonperforming for period of more than 12 months
are called as Doubtful Assets. All those assets which cannot be recovered are called as
Loss Assets.
PROBLEM DEFINITION:
In order to meet the obligation of the banking business it is important to have enough
cash and liquidity. It is the responsibility of a company to decide the ratio between debt
and equity. It is important to maintain a good balance between equity and debt. Therefore,
minimizing the NPA.
The company has to decide to allocate funds into profitable ventures so that there is
safety on investment and regular returns is possible.
The company has not only to plan, procure and utilize the funds but it also has to exercise
control over finances. This can be done through many techniques like ratio analysis,
financial forecasting, cost and profit control, etc and hence, helps in controlling the level
of NPA.
When bank do not get loan repayment or interest payments, liquidity problems may
ensue. Bank shareholders are adversely affected. Therefore, banks need to have control
over their non-performing assets.
OBJECTIVES OF THE STUDY OF NON – PERFORMING ASSETS:
1. To study and understand the concept of NPA.
2. To analyse the bank policy on how to recover the level of NPA?
3. To study the various reasons due to which NPA problem has grown so
much.
4. To understand the effects of NPA on bank’s profit and its prestige.
5. To study how corrective measures are taken by the banks for NPA.
6. To study the credit appraisal policy of banks.
7. To find gross NPA and net NPA.
HYPOTHESIS:
Bank of Baroda has always settled the losses efficiently caused due to NPA.
Bank has maintained their position in banking industry despite fluctuation in level of
NPA.
SCOPE OF THE SYUDY:
1. The study of NPA helps us to know more about NPA and the situation of NPA.
2. It can help us to know the strategies adopted by banks to reduce the NPA level
and to understand the NPA provision norms in banks.
3. The study is limited to single bank only.
4. The study is conducted on NPA of Bank.
THEROTICAL PERSPECTIVE:
If customer do not repay the principal amount and interest for the certain period of time
then such loans becomes non-performing assets (NPA). Thus non-performing assets are
basically “Non-performing Loans”.
Non-performing assets means an asset or account of borrower, which has been classified
by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance
with the direction or guidelines related to asset classification issued by “The Reserve
Bank of India”.
90 days overdue:
With a view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt the ’90 days overdue’ norm for identification of
NPA, from the year ending March 31, 2004. Accordingly, with effect from March 31,
2004, a non performing asset (NPA) shall be a loan or an advance where;
Interest and/or instalments of principal remain overdue for a period of more than
91 days in respect of a term loan,
The account remains ‘out of order’ for a period of more than 90 days, in respect
of an Overdraft/Cash Credit (OD/CC),
The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted,
Interest and/or instalments 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.
Types of NPA:
There are two types of NPA namely Gross NPA and Net NPA. The Gross NPA reflects the
quality of the loans made by bank, while Net NPA shows the actual burden of banks.
1. Gross NPA: An advance which is considered irrecoverable for banks for which it
has made provision, but which is still held in banks books of accounts. An
improvement in the gross NPA generally indicates an improvement in the banks
system and procedures. Gross NPA reflects the quality of loans made by bank.
2. Net NPA: Net NPA are those types of NPA in which the bank has deducted the
provision regarding NPA.
NET NPA = (Gross NPA) – (Balance in Interest Suspense account + Claims
received from DICGC/ ECGC and pending for adjustments + Part payment
received and kept in suspense account + Total Provision held)
An improvement in the Net NPS indicates that the bank’s balance sheet has the strength
to sustain higher provisions. Net NPA shows the actual burden of banks.
Out of Order:
An account should be treated as ‘Out of Order’ if the outstanding balance remains
continuously in excess of the sanctioned limits/ Drawing Power. In case where the
outstanding balance in the principal operating account is less than the sanctioned limits/
Drawing Power, but there are no credits continuously for 6 months as on the date of
balance sheet or credits are not enough to cover the interest debited during the same
period, these account should be treated as Out of Order.
E.g.: Sanctioned Limits/ Drawing Power: 60 Lacs.
Drawing power: 55 Lacs
Amount Outstanding continuously from 1st Jan 2006 to 31st Mar 2006: 47 Lacs.
Total Interest Debited: 3.42 Lacs.
Total Credit: 1.25 Lacs.
(Since the credit in the account is not sufficient to cover the interest debited during the
period, the amount will be said as NPA.)
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.
Reasons:
Various studies have been conducted to analyse the reason for NPA. Whatever may be
complete elimination of NPA is impossible. The reason may be widely classified in two:
1. Over hang component
2. Incremental component
Over hang component is due to to environment reason, business cycle, etc.
Incremental component may be due to internal bank management, credit policy,
terms of credit, etc.
Classification of assets:
A classification used by financial institutions that refers to loans that are in
jeopardy of default. The RBI has issued guidelines to banks for classification of
assets into four categories:
1. Standard Assets:
A standard asset is a performing asset. Standard asset generate continuous
income and repayments as and when they fall due. Such assets carry a normal
risk and are not NPA in the real sense. So, no special provision is required for
Standard Assets.
Examples:
Loans on Fixed Deposits are the best example of standard assets as the
lent money can be recovered by the bank from the defaulters FD.
A home loan is a good example under standard assets as it is fixed
asset, the bankers can easily recover the money by selling the property.
2. Sub-Standard Assets:
All those assets (loans and advances) which are considered as non-performing
for a period of 12 months are called as Sub-Standards Assets. A general
provision of 10% of total outstanding is to be made.
Examples:
Vehicle loan because the client after taking the loan can run away with
vehicle and the bankers find it difficult to recover the loan.
3. Doubtful Assets:
All those assets which are considered as non-performing for the period of
more than 12 months are called as doubtful assets. Depending upon the period
for which the loan assets has remained doubtful, 20% to 50% of the secured
portion (i.e. estimated realizable value of outstanding) on the following basis:
If considered doubtful:
1. Up to 1 year – 20% provision.
2. 1 to 3 years – 30% provision.
3. More than 3 years – 50% provision.
4. Loss Assets:
All those assets which cannot be recovered are called as Loss assets.
Examples:
All the loans which are assets to the bank but fall into ‘Bucket-5’ are classified
as Loss assets as the client is bouncing the cheque or not paying requisite
amount from past 5 due dates.
2. Sub-standard Assets:
For the categories general provision made by the bank is 10% of funds from their
profit to meet the losses generated from NPA.
3. Doubtful Assets:
On doubtful assets provision made by the bank is from 20% to 100% as per the
period of assets. We can understand the provision made by the bank as per the
period of assets from the following:
If considered doubtful-
Up to 1 year – 20% provision made by the bank.
1 to 3 year – 30% provision made by the bank.
More than 3 years – 50% provision made by the bank.
4. Loss Assets:
In Loss assets if expected salvage value of the loss assets is negligible then 100%
provision should be made on it.
Overview:
It’s a known fact that the bank and financial institutions in India face the problem of
swelling non-performing assets and the issue is becoming more and more unmanageable.
In order to bring the situation under control, some steps have been taken recently. The
securitisation and reconstruction of financial assets and enforcement of Securities Interest
Act, 2002 was passed by Parliament, which is an important step towards elimination or
reduction of NPA’s.
Indian Economy and NPA’s:
Undoubtedly the world economy has slowed down, recession is at its peak, globally stock
market has tumbled and business itself is getting hard to do. The Indian economy has
been much affected due to high fiscal deficit, poor infrastructure facilities, sticky legal
system, cutting of exposure to emerging markets by FIIs etc. Under such situation, it goes
without saying that banks are now accepting and are bound to face the heat of global
downturn. One would be surprised to know that the banks and financial institutions holds
non-performing assets worth Rs. 1,10,000crores. Bankers have realised that unless the
level of NPS is reduced drastically, they will find it difficult to survive.
RESEARCH METHODOLOGY:
Research is the process of a systematic and in depth study on search of any particular
topic, subject or area of investigation, backed by the collection, complication presentation
and interpretation of relevant details or data. It is a careful search or enquiry into any
subject matter which is an Endeavour to discover to find out valuable facts, which would
be useful for further application or basic elements:
1. Selection of subject
2. Selection of the title dissertation
3. Selection of time period
4. Collection of data
5. Reliability of data
6. Analysis of data
7. Reporting
1. Selection of Subject:
The selection of subject for research is a commitment of one’s time and efforts in a
particular direction. There should not be any haste in deciding the topic, nor defining any
scope
2. Selection of the title of dissertation:
Keeping this in view the nature and object behind the selection of subject under research,
this dissertation is title as “NPA of YES Bank”.
3. Selection of time period:
Five years period is chosen for the above subject. The period starts from financial
accounting year 2010 to financial accounting year 2015.Reason behind the selection of
five year time period is that it is felt that 5 years period is sufficient for the analysis and
interpretation of financial statement of company.
4. Collection of data:
Primary data
Secondary data
5. Reliability of data:
Researchers feels that data collected from research work is quite reliable and authentic.
This is because the data has been collected from audited annual report of the company.
Researcher is fully satisfied with the data collected and means for the research work.
6. Analysis of data:
The data for the research purpose is analysed by capital adequacy ratio. Researcher has
chosen the above tools for his research work and feels that they serve the best to the title
of the research study.
7. Reporting:
In this study the structure analysis is adopted for analysing the financial statement of the
company.
DATA COLLECTION:
Primary data
Secondary data
Primary data:
Primary data are those which are collected for the first time. They are original in
character. They are collected by the researcher for the first time for her own use.
The source of primary data includes:
Interview
This implies the situation where the researcher goes into the field of study in person for
the collection of required data. Also, the investigation of this nature is normally confined
to a single locality and the information gathered is capital in nature.
Interview method:
Every interview has got its own balance of revaluation and has withheld information, an
interview can be effective informal verbal and non verbal conversation initiated for the
specific purpose focus on a certain planned contained areas.
Secondary data:
Secondary data are those which have already been collected by others. When it is not
possible to collect data in primary form, the researcher may take the help of secondary
data. They are thus which have already been collected for serving the objectives other
then what the researcher might have in his mind.
Books
Websites
Journals
Newspapers
1. Books:
A book is a collection of paper or other material with text, pictures, or both written on
them, bound together along one edge, usually with covers. In library and information
science, a book is calling a monograph to distinguish it from serial periodicals such as
magazines journals or newspapers.
2. Website:
3. Journals:
A journal may publication issued at stated intervals, such as magazines or the record of
the transactions of a society, are often called journals. In academic use, a journals refers
to a serious, scholarly publication, most often peer-reviewed. The purpose of a journal is
to provide a place for the introduction a scrutiny of new research and often a forum for
the critique of existing research.
4. Newspapers:
A newspaper can prove very useful in collecting such information. They can be easily
collected from the daily or from economic sections of newspaper where such companies
are point of hot discussion.
Researcher has used financial statements and secondary data for this project.
2011 3152.50
2012 4464.75
2013 7982.58
2014 11875.90
2015 16261.44
GROSS NPA
INTERPRETATION:
Gross NPA of Bank of Baroda in the abovementioned years is showing an upward trend
from 3152.5 crores in 2011 to 16261.44 crores in 2015. This climbing rate can be harmful
for the bank.
2011 1.36
2012 1.53
2013 2.40
2014 2.94
2015 3.72
NET NPA:
Year Rs. In Crores
2011 790.88
2012 1543.64
2013 4192.02
2014 6034.76
2015 8069.49
2011 0.35
2012 0.54
2013 1.28
2014 1.52
2015 1.89
2011 2361.62
2012 2921.11
2013 3790.55
2014 5841.14
2015 8191.95
2011 14.52
2012 14.67
2013 13.30
2014 12.87
2015 13.33
CRAR
INTERPRETATION:
The increased capital adequacy ratio value shows a strong market value. Since the capital
adequacy ratio of Bank of Baroda is diminishing we can say that market value of Bank of
Baroda is deteriorating.
2011 222.53
2012 277.88
2013 443.34
2014 593.42
2015 620.31
YIELD ON ADVANCES:
Year Percentage
2011 8.48
2012 9.39
2013 8.90
2014 8.32
2015 8.11
YIELD ON ADVANCES
INTERPRETATION:
The gradual decline can be seen throughout the time period. The decrease in yield results
in lower profitability position of the company.
2011 116.37
2012 127.84
2013 108.84
2014 107.38
2015 15.83*
*post-split of face value of the share. (From Rs.10 to Rs.2 per share)
EARNINGS PER SHARE (EPS) IN RS.
INTERPRETATION:
Earnings per share (EPS) reflect the earnings available to the shareholder on their shares.
EPS of Bank of Baroda is decreasing throughout the year because of the increase in NPA.
CONCLUSION:
In the present study I have analysed the NPA of Bank of Baroda.
From the above conclusion it is clear that hypothesis adopted by the researcher is proved
wrong.
SUGGESTIONS AND RECOMMENDATIONS:
1. Bank should follow strict parameters for sanctioning loans and there should be
vigorous post sanction follow up.
2. The recurrence for misuse or diversification of funds and selling of assets is to be
promptly and strictly arrested.
3. The limit of advance to priority sector should be well monitored.
4. The banks need to evaluate the credibility of the borrower more fairly.
5. Risk focused credit delivery system will reduce the chances of loans becoming
NPA.
6. The debt recovery tribunal should function efficiently.
7. The Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act 2002 should be implemented strictly and necessary action
should be taken immediately.
8. Complicated and delayed procedures which are responsible for creation of NPA
should be made flexible from time to time.
9. Integration of various channel of recovery of loans will certainly reduce the NPA
level.
10. The banks should motivate the other employees for implementation of monetary
NPA and promotional incentives for reducing the NPA amount.
11. Banks should educate their customers through programmers and several other
circulars and notifications issued by RBI from time to time.
BIBLIOGRAPHY:
1. Books:
Analysis of financial statement.
- T. S. Grewal
Practical approach to NPA management
- R. C. Kohli
2. Guidance Note on audit of banks issued by ICAI.
3. Websites:
www.bankofbaroda.com
www.financial analysis.com