A Project Report On CUSTOMER SATISFACTION IN PUBLIC RELATION SUBMITTED TO MUMBAI UNIVERSITY FOR THE PARTIAL FULFILLMENT OF THE REQUIREMENT

OF THE AWARD OF THE DEGREE OF MASTER OF MANAGEMENT STUDIES

BY Miss. PATEL DEEPA NARENDRA UNDER THE GUIDANCE OF Miss. RACHANA PATNE

Aldel Education Trusts

ST. JOHN INSTITUTE OF MANAGEMENT AND RESEARCH, PALGHAR 2010-2012

Acknowledgement

I express my sincere thanks to Prof. Rachana Patne of MMS Department of St. John Institute Of Management & Research for her valuable suggestion and help to prepare this project. I wish to take opportunity to express my deep sense of gratitude to Dr. Latha Ramchandran Dean of St. John Institute Of Management & Research She has been a constant source of inspiration. I express my deep sense o gratitude to Prof. Chitra Gounder and to other faculty members of the MMS department, for offering me suggestion and help me in successfully completing my project. Finally it is my foremost duty to thank my parents who has also been the source of inspiration. Place: MUMBAI Date: DEEPA PATEL

Declaration
I hereby declare that this project report CUSTOMER SATISFACTION IN PUBLIC RELATION is a record of work carried out by me under the guidance of Prof. Rachana Patne in the partial fulfillment of the requirement for the award to degree of Masters of Management Studies. I also hereby declare that this project report is the result of my own effort and has not been submitted at any time to any other University or institute for the award of any degree or diploma.

Place: MUMBAI Date: DEEPA PATEL

COLLEGE CERTIFICATE
This is to certify that DEEPA N. PATEL a student of St. John Institute Of Management And Research, Palghar has completed his specialization project on CUSTOMER SATISFACTION IN PUBLIC RELATION in the field of Marketing under the guidance of Prof. RACHANA PATNE.

Dr Dr. Latha Ramchandran (DEAN)

GUIDE CERTIFICATE
This is to certify that Ms. DEEPA N. PATEL student of final year of Masters of Management Studies of St. John Institute Of Management & Research specializing in Marketing has prepared his specialization project report titled CUSTOMER SATISFACTION IN PUBLIC RELATION under my guidance for the partial fulfillment of Masters of Management Studies from University of Mumbai in the Academic year (201112)

Place: Date:

MUMBAI Prof. Rachana Patne

Chapter 1
1.1 INTRODUCTION

Public relations (PR) is a field concerned with maintaining a public image for businesses, non-profit organizations or high-profile people, such as celebrities and politicians. An earlier definition of public relations, by The first World Assembly of Public Relations Associations held in Mexico City in August 1978, was "the art and social science of analyzing trends, predicting their consequences, counseling organizational leaders, and implementing planned programs of action, which will serve both the organization and the public interest." Others define it as the practice of managing communication between an organization and its publics. Public relations provides an organization or individual exposure to their audiences using topics of public interest and news items that provide a third-party endorsement and do not direct payment. Common activities include speaking at conferences, working with the media, crisis communications, social media engagement, and employee communication. The European view of public relations notes that besides a relational form of interactivity there is also a reflective paradigm that is concerned with publics and the public sphere; not only with relational, which can in principle be private, but also with public consequences of organizational behavior. A much broader view of interactive communication using the Internet, as outlined by Phillips and Young in Online Public Relations Second Edition (2009), describes the form and nature of Internet-mediated public relations. It encompasses social media and other channels for communication and many platforms for communication such as personal computers (PCs), mobile phones and video game consoles with Internet access. The increasing use of the mentioned technologies give the media a democratization power and thus, aid to the demystification of subjects.

Public relations is used to build rapport with employees, customers, investors, voters, or the general public. Almost any organization that has a stake in how it is portrayed in the public arena employs some level of public relations. There are a number of public relations disciplines falling under the banner of corporate communications, such as analyst relations, media relations, investor relations, internal communications and labor relations. Most of them include the aspect of peer review to get liability.

1.2 INRODUCTION TO PUBLIC RELATION:

The practice of public relations is spread widely. On the professional level, there is an organization called Public Relations Society of America (PRSA), the world's largest public relations organization. PRSA is a community of more than 21,000 professionals that works to advance the skill set of public relations. PRSA also fosters a national student organization called Public Relations Student Society of America (PRSSA).

ORIGIN:
The origin of public relations is mostly confined to the early half of the twentieth century; however there is evidence of the practices scattered through history. One notable practitioner was Georgiana Cavendish, Duchess of Devonshire whose efforts on behalf of Charles James Fox in the 18th century included press relations, lobbying and, with her friends, celebrity campaigning. A number of American precursors to public relations are found in the form of publicists who specialized in promoting circuses, theatrical performances, and other public spectacles. In the United States, where public relations has its origins, many early public relations practices were developed in support of railroads. In fact, many scholars believe that the first appearance of the term "public relations" appeared in the 1897 Year Book of Railway Literature.

DEFINITION:
The PRSA 1982 National Assembly formally adopted a definition of public relations, which remains widely accepted and used today: Public relations helps an organization and its public adapt mutually to each other. Organization is denoted in this context, as opposed to the more limiting company or business, to stress public relations use by businesses, trade unions, government agencies, voluntary associations, foundations, hospitals, schools, colleges, religious groups and other societal institutions.

Company Profile
ZZebra Public Relation is a leading communication consultancy providing cutting-edge solutions in the areas of Media Strategy and Relations, Content Development and Management, Online Reputation Management, and Thought Leadership. Founded in 2003, Zzebra has, in a short span of time, rapidly grown into a national agency with offices in seven cities and representation in all other cities and towns in India. Zzebra was adjudged the Most Promising Agency 2008 by the Public Relations Council of India (PRCI). Zzebra is a member of IPREX, one of the worlds largest public relations networks, made up of leading, independent PR agencies in major markets worldwide. Zzebra is part of the Concept Group, which includes Concept Communication, Indias largest independent advertising agency. Zzebra is about new and newer dimensions. We leverage the experience of our leaders to meet the multi-dimensional needs of our clients. Our innovative thinking helps convert seemingly strange ideas into measurable goals or turn around linear thoughts into talk-of-the-town one-of-a-kind achievements. It all depends upon the goal our clients set. You finalise the deliverables and watch our experienced professionals work at giving your brief a tangible and profitable dimension. Zzebra is about new and newer dimensions. We leverage the experience of our leaders to meet the multi-dimensional needs of our clients. Our innovative thinking helps convert seemingly strange ideas into measurable goals or turn around linear thoughts into talk-of-the-town one-of-a-kind achievements. It all depends upon the goal our clients set. You finalize the deliverables and watch our experienced professionals work at giving your brief a tangible and profitable dimension. Build Thought Leadership 9

Reputation Management has now gone beyond the realm of issuing reactive press releases and organizing press conferences. Zzebras specialists in the content services team work with you to create compelling messages for diverse target audiences, including the digital space, with the single-minded objective of delivering thought leadership in your industry domain. Create Communities The power of the internet has unified communities across the world into interest-based verticals. Mobile networks are also emerging as one of the most cohesive platforms to build robust marketing campaigns. Zzebras social communication and new media team actively works with clients to scan this horizon and deploy tools that achieve marketing goals within communities. We also work with clients to build offline communities, the benefits of which can be strategically leveraged in the future. Manage Crisis More often than not, clients think of deploying PR firepower only when a crisis breaks out. Zzebras experienced crisis and issues management team works along with organizations to pre-empt any potential crisis. These include outlining a 3600 scenario identification, developing key messaging, media training and providing media play to counter balance damage when it is needed the most. We would never allow any of the above to happen, but just in case, rest assured our experience will definitely be a strategic weapon in your armour. Develop Support for an Issue The Indian sub-continent is probably one of the most complex social meshes to capture. With over ten thousand languages and thirty thousand sub-dialects, identifying key messages to build support for an issue can be a significant challenge. Zzebras public affairs team partners clients in developing campaigns that influence decision makers in the bureaucracy and media, positively. Market Entry and Penetration India is currently on the radar of major global corporations. Given the extremely high budgets for ATL spends, PR is definitely a cost optimizer in reaching out to diverse communities across the region. Zzebras team of professionals in the media practice team ensures your

10

messages are customized for each market and deliver higher Share of Voice than your competition. New Product Launch The sheer pace of growth in the Indian market has resulted in media fatigue when it comes to new product launches. Zzebras specialists in the consumer and lifestyle space work with clients to develop unique dimensions, which deliver surprising results to our clients for new product launches. We love to work on challenges that stretch our teams to the hilt and deliver ROI and promotions for you. Influence Opinion Leaders The Indian sub-continent is a complex smrgsbord of influencers across diverse ethnicities and social strata. Zzebras experienced team works with clients to identify the pivots of your campaign and build key messaging to win and influence behaviour on a long-term basis. Build Investor Audience In a country of over a billion people, there are over 50 million investors. With the gradual shift to Capital Account Convertibility, Indians are investing not only in India but in other countries too. To be on the radar of these investors, companies need to track their social and behaviour patterns both online and offline. Zzebras financial services team partners closely with clients to work on investor catchments areas, thought leadership platforms, analyst conferences, and media one-to-ones, to ensure that the message reaches the moneybags consistently.

11

Chapter 2
RESEARCH METHODOLOGY

3.1 Type of Research The research methodology adopted for carrying out the study were In this project Descriptive research methodologies were use. At the first stage theoretical study is attempted. At the second stage Historical study is attempted. At the third stage qualitative research design is attempted. 3.2 OBJECTIVES OF THE STUDY The basic idea behind undertaking the Project on Customer Satisfaction in Public Relation was to:
To get an insight through the concept of PR. To know what are the activities performed by Zzebra Public Relation. To study client relationship and customer satisfaction towards the services provided by Zzebra Public Relation. To study the impact of PR on Clients Business.

3.3 Scope of the Study Public relation is a window of the corporation through which management can monitor external changes and simultaneously a window through which society can affect corporate policy. Today most social conflicts are caused by changing values and higher expectation from the superiors.

12

We find regular conflicts between employer-employee consumer-manufacturer, management-shareholders, citizens-government and so on due to misconception and misunderstandings. These are generally the major challenges where public relation practitioners can play a crucial role. They should get to know the psychology of the public mind and acquire skill in solving and also avoiding such conflicts.

In our market economy there are information gaps which cannot be filled by the interaction of supply and demand via . cost, wages or prices. Here public relations activity steps in. It provides relevant information on planning technical and organizational developments, inventions and their potential utilization, etc.

The relations activity is becoming more and more important for the procurement of economically essential production factors. It makes it easier to tap the money-market or financing their projects by issuing bonds or shares.

If the corporation cultivates public relations, it is easier for them to acquire land from a community and bring in own interest in harmony with these of the community.

Today the public relation profession has even entered into the fields of noncommercial organizations, government departments, hospitals, universities and other nonprofit organizations. According to Edward L. Bernays, the fundamental laws and the necessity of public relation may be expressed in three words, information, adjustment and integration.

The scope of public relation is wide and also include political filed. Entrepreneurs, teachers, political leaders, social workers, religions, leaders are all involved in public relations day in and day out.

In business public relation is tool of management like marketing, production and finance. It is investing and creating asset for an organization which is finally reflected in improved performance profitability, and growth of the organization.

13

3.4 Limitations of the project: Due to time constraint depth analysis could not be made. Some of the information is considered confidential and not available for the study. Geographical Location: Area limited to Mumbai.

Clients mostly related to Lifestyle and not Corporate.

3.5 Sampling plan To prepare this Project I took 10 clients of Zzebra Public Relation from different sectors.

3.6 Data collection The data collected for the study was secondary data and Primary data in Nature. Primary data collected through survey and testimonials. Secondary data was collected from office website www.zzebra.net , http://drypen.in/publicrelations/disadvantages-of-public-relations.html, http://books.google.com/books? id=Oth3OXBkXsC&printsec=frontcover&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false , some books like Public relations research by Danny Moss, Toby MacManus and Public Relation Strategies (IGNOU).

14

Chapter 3 About the topic

4.1 INTRODUCTION:
Its a known fact that the banks and financial institutions in India face the problem of swelling non-performing assets (NPAs) and the issue is becoming more and more unmanageable. In order to bring the situation under control, some steps have been taken recently. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 was passed by parliament, which is an important step towards elimination or reduction of NPAs.

EMERGENCE OF THE WORD NON-PERFORMING ASSET:

The issues relating to definition, management or the mismanagement and recommendations calling for spectacular solutions to the problem of non-performing advances of banks are being deliberated at frequent intervals during last decade or so. In late 80s the concept of classification of bank advances in several health code categories took place though the terminology non-performing advances did not exist at that time. This is followed by early 90s Anglo-American model of categorization of bank lending portfolio in several blocks of nomenclature in that included the non-performing advances. The rapid popularity of the phenomenon can be ascribed to the opening up of the Indian economy and consequent pressure from western powers to influence our banking system in the name of international standards of accounting, congruence of banking supervision by Basle committee, and so on.

15

The sudden shock of guidelines relating to non-performing advances and simultaneous of income recognition made the Indian banking system totter and a number of public sector banks started incurring losses from the mid-nineties. Then came the recommendations of the Narasimham committee with the proposition of creating asset-reconstruction fund for cleaning the balance sheets of the banks of non-performi8ng advances as a one-time measure.

MEANING OF NPAs:
An asset is classified as non-performing asset (NPAs) if the borrower does not pay dues in the form of principal and interest for a period of 180 days. However with effect from March 2004, default status would be given to a borrower if dues are not paid for 90 days, if any advance or credit facilities granted by bank to a borrower become non-performing, then the bank will have to treat all the advances/credit facilities granted to that borrower as nonperforming without having any regard to the fact that there may still exist certain advances/ credit facilities having performing status. In simple words, an asset which ceases to yield is a non-performing asset.

DEFINITION GIVEN BY THE NARASIMHAM COMMITTEE:

The committee has defined non-performing assets as advances here, as on the date of balance sheet, 1. In respect of term loans, interest remains past due for a period of more than 90 days. 2. Overdrafts and cash credits accounts remain out of order for more than 90 days. 3. date Bills purchased and discounted remain over due and unpaid for a period of more than 90 days.

An amount is considered past due when it remains outstanding for 30 days beyond the due

SUGGESTIONS BY NARASIMHAM COMMITTEE:

Some suggestions made by Narasimham Committee are: Set up an Asset Reconstruction Fund to take over doubtful debts SLR to be reduced to 25% of total deposits 16

CRR to be reduced to 3 to 5% of total deposits Banks to get more freedom to set minimum lending rates Share of priority sector credit be reduced to 10% from 40%

All concessional rates of interest should be removed Banks should go for new sources of funds such as Certificates of Deposits Branch expansion should be carried out strictly on commercial principles Diversification of banking activities Almost all suggestions of the Narasimham Committee have been accepted and implemented in a phased manner since the onset of Reforms

NPA Management The Narasimham Committee recommendations were made, among other things, to reduce the Non-Performing Assets (NPAs) of banks To tackle this, the government enacted the Securitization and Reconstruction of Financial Assets and Enforcement of Security Act (SARFAESI) Act, 2002 Enabled banks to realize their dues without intervention of courts

SARFAESI Act Enables setting up of Asset Management Companies to acquire NPAs of any bank or FI (SASF, ARCIL are examples) NPAs are acquired by issuing debentures, bonds or any other security As a second creditor can serve notice to the defaulting borrower to discharge his/her liabilities in 60 days Failing which the company can take possession of assets, takeover the management of assets and appoint any person to manage the secured assets Borrowers have the right to appeal to the Debts Tribunal after depositing 50% of the amount claimed by the second creditor

17

4.2 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

18

4.3 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.

4.3.1 -

EXTERNAL FACTORS :-

1. 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. 2. 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. 3. 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.

19

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. 4. 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.

5. 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. 6. 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.

20

4.3.2

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

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:

Capacity to pay

II Willingness to pay

3 Reputation of borrower

21

The banker should, therefore 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.

4 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.

5 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.

6 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.

7 Poor credit appraisal system 22

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. 8 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.

9 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. 10 Re loaning process

23

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.

4.4 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.

24

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 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. liquidity

25

4.5 Impact of NPA 4.5.1 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.

26

4.5.2. 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.

4.5.3 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.

4.5.4 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 .

27

Chapter 4 Preventive measures of NPA

5.1 Early identification:
I) Identification of accounts showing early warning signals.

II) III)

High values NPAs should be given focused attention. A systematic review of problems loans should be done. The time norms for the problem loan review should be adhered to. Action plan to be drawn up for each account and follow up.

28

5.2 Recovery:
Actual recovery occurs in the accounting in which the total recovery of the dues is warranted. Through regular pre and post sanction monitoring, follow-ups, the NPAs can be eliminated.

5.3 Up gradation:
The NPA accounts in which part recovery of the total, dues will upgrade the account from NPA to performing asset. Generally the NPA accounts with less than 2 years of the age under NPA are covered. The main characteristic of these accounts is after elimination from NPA, also these accounts continued to be part of advances. Since lending is a main business of the banks up gradation of accounts is preferred. Substandard accounts to be specially targeted for up gradation.

Up gradation strategies would include adjustment of irregularity, repayment of over due interest/installment and up gradation following restructuring/ rehabilitation.

Replacement/re-schedulement of loans should be done in deserving cases promptly. After 1 year of successful implementation, account to be reviewed for up gradation.

5.4 Rehabilitation:
Rehabilitation of units should be taken up in deserving cases.

5.5 Repayment:
Fixing repayment programme for accounts while continued viability is in doubt.

Fixing installments for irregular amount were limits to be continued with reduced exposure. 29

5.6 Compromise:
Through compromise the accounts are closed by negotiated settlement with the borrowers as per the compromise policy of the bank. Generally compromises are encouraged in cases of chronic NPA accounts.

Compromise proposals need to be considered where necessary, and in time.

Option of OTS through Lok Adalat should be examined.

30

Chapter 5 RECOVERY TOOLS AND THEIR EFFECTIVENESS:

6.1. DEBT RECOVERY TRIBUNALS: Lack of expeditious court remedies has been one of the major impediments experienced by banks and financial institutions in the recovery of NPA. On the basis of the recommendation of Tiwari Committee(1981) and Narsimham Committee on financial systems(1991), which emphasized the need for the establishment of special tribunals for banks and financial institutions, the recovery of debts due to banks and financial institutions act was enacted in1993. The act applies only to cases where the amount of debt due to banks/financial institution is Rs 10 lakhs or above. Filing of cases at the DRT has been a cause of concern for almost every bank in the country today. One reason for the slow pace is the requisite infrastructure at the respective DRT was inadequate to handle the huge number of cases pending with it. There has been a decision to add about 7 more DRT to the existing 22 DRT and 5 appellate authorities. This enables the banks to settle some of the pending NPAs. 6.2. LOK ADALATS: For recovery of smaller loans, the Lok Adalat has proved a very good agency for quick justice and settlement of dues. The Gujarat State Legal Service Authority and the DRT, Ahmadabad have nominated and appointed conciliators to deal with the cases before the Lok Adalat comprising of retired High Court Judge and two members from senior advocates/industrialists/executives of the banks. These Adalats in the state of Gujarat have been found to be useful as supplement to the efforts of the efforts of the recovery by the DRTs. Such agencies should be established in all the states. 31

6.3. ASSET RECONSTRUCTION COMPANY: The setting of Asset Reconstruction Company may be another channel to discount the NPAs of the bank to such an agency and to developing the process of securitization of banks loan assets for providing liquidity. Perhaps secondary market of derivatives based on securitized assets could also be developed as in individual countries.

6.4. REVENUE RECOVERY ACT: In some states, revenue recovery act has been made applicable to banks. Since this is also expeditious process of adjudicating claims, banks may be notified to cover the Act by state.

32

THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 (SARFAESI ACT):
There was an acute need being felt for assistance to the banks and other financial institutions in the recovery of loans, for there were heavy losses being incurred on account of unpaid debts. To regulate securitization and reconstruction of financial assets and enforcement of security interest the president, on 21st day of June 2002 promulgated the securitization and reconstruction of financial assets and enforcement of Security Interest Act.

Definition of securitization:
Securitization means acquisition of financial assets by any securitization company or reconstruction company from any originator, whether by raising of funds by such Securitization Company or Reconstruction Company from qualified institutional buyers by issue of security receipts representing undivided interest in such financial assets.

Measures for assets reconstruction:

When the borrower fails to repay the loan amount, then according to RBI guidelines the construction company can take following measures: The proper management of business of the borrower, by change in, or take over of, the management of the business of the borrower. The sale or lease of a part or whole of the business of the borrower. Rescheduling of payments of debts payable by the borrower. Enforcement of security interest in accordance with the provisions of this Act. Settlement of dues payable by the borrower. Taking possession of secured assets in accordance with the provisions of the act.

33

STEPS OR INTIATVES TAKEN BY RBI TO CURTAIL NPA:

Recognizing the fact that the origin of Non-performance could be at the initial stage of loan decision-making, RBI had impressed upon banks from time to time, to strengthen credit appraisal and credit supervision. After sanction and dispersal of credit, banks are required to closely monitor the operation of the borrower units and accounts by way of ostentation of periodic stock/operation statements brought down, end use, etc. in the cases of incipient cases sickness, nursing back the sick units, etc. problem accounts above a certain outstanding balance are required to be monitored individually by designated senior officials of the bank. In respect of accounts where the classification of assets of the banks are required to take prompt steps to recover the dues and staff accountability is required to be examined. Banks have also been advised to take decisions regarding finding of source expeditiously and to effectively follow up the cases of suit filed and decreed accounts. During periodic discussions with bank management, special emphasis is given on monitoring of large NPA accounts at the highest level in the banks and also on reductions of NPA through up gradation, recovery and compromise settlements. RBI has advised and accordingly bank boards have laid down policies in regard to credit dispensation, recovery of credit etc. Banks have constituted recovery cells, recovery branches and NPA management departments and fixed recovery targets. Policies evolved and steps taken in this regard are critically examined during the annual on sight inspection of banks. The off sights returns also provide RBI and insight into the quality of credit portfolio at quarterly intervals. Introduction of prudential norms on income recognition, asset classification , provisioning during 1992-93 and other steps initiated apart from beginning in transparency in the loan portfolio of banking industry have significantly contributed towards improvement of the presanction appraisal and post sanction supervision which is reflected in lowering of the levels of fresh accretion of non-performing advances of banks after 1992. RBI impressed upon the banks to strengthen the credit appraisal and credit supervision. Adoption of 90 days norm for recognition of loan impairment as against the current norm of 180 days effective March 2004.

34

 Reduction in transition period of sub-standard asset to doubtful category to 12 months as against the current norm of 18 months effective from March 2005. Revision in the CRAR norms in terms of new Basel Capital Accord after 2005.

In cases of incipient sickness, detailed guidelines have been issued to banks to take steps for avoiding sickness, nursing back the sick units etc. During periodic description with bank management special emphasis is given on monitoring of large NPA accounts at the highest level in the banks and also on reduction of NPAs through up gradation, recovery and compromise settlements.

RBI has advised and accordingly banks boards laid down policies in regard to credit dispensation, recovery of credit, etc. Policies evolved and steps taken are critically examined during the annual on sight inspection of banks.

35

36