A PROJECT REPORT ON

"STUDY OF BANKING REQUIREMENTS OF RICE MILLS OF BAVLA AND NPA"

SUBMITTED TO:
AESPGIBM

PREPARED BY:
Mr.HARSHIL GANDHAKWALA (AESPGIBM)

ACKNOWLEDGEMENTS
First of all, we would like to express our deep gratitude to Mr. R. Sikka for allowing us to work under his guidance, thereby, giving us an opportunity to gain tremendous knowledge and skills in banking sector. We are also grateful to Mr. C.S.Patel (SBI-Bavla Br.) & Mr. Ravi Naidu without whose help, guidance, valuable inputs and constant monitoring, our learning would have been incomplete. We are also thankful to Mr.Uttam J.Gajjar (Guj.High Caurt Br.) and Mr.B.A.Patel ( Drive-in Br.) for extending helping hand in completing our project successfully. We are also sincerely thankful to our Director and faculty members for their guidance and valuable suggestions prior to and during the entire course of training.
.

PREFACE
As a part of our MBA program we are supposed to undertake SUMMER INTERNSHIP PROGRAM in any organization for a period of eight weeks. In order to gain practical knowledge as well as to access applicability of different aspects of organization, this kind of training enables us to face the real life situation of the market and allows better insight to take the practical industrial problem. We have undertaken this training at STATE BANK OF INDIA. The aim of the training is to utilize the knowledge and fell about the theories we studied in MBA. It will increase our ability to perform specific job systematically in a new way in business environment when we will come out into the market. We have studied the RICE MILL CLUSTER IN BAVLA and undertook research on the requirement of different rice mills in bavla. On the basis of the research we came to know about different financial needs of the Small and Medium Rice mills in Bavla.

TABLE OF CONTENTS
SR. NO 1 2 3 4 5 6 7 8 9 10 11 12 13 EXECUTIVE SUMMERY INTRODUCTION ABOUT SBI INTRODUCTION TO SMALL AND MEDIUM ENTERPRISE INFORMATION OF VARIOUS RICE MILL RICE MILL PLUS SCHEME MODEL PROJECT ON IMPROVED RICE MILL QUESTIONER FOR RICE MILL SURVEY VARIOUS CHARTS AND PICTURES DOCTOR PLUS SCHEME NET BANKING NON PERFORMING ASSETS CONCLUSION BIBILIOGRAPHY PARTICULAR PAGE NO. 5 7 18 22 25 28 38 42 49 53 58 72 73

EXECUTIVE SUMMARY

Our main project was to make a study of rice mill of bavla and the basics of NPA and also recovery of NPA. Apart from all this things we have tried to learn another asprcts of banking which includes procedure of home loan documentation, F.I.s, a complicated procedure for opening a Netbanking account. An attempt was also made to get information about the present banking services availed to the SMALL AND MEDIUM SCALE RICE MILLS, their further requirements and the ability of the banks to provide those services. We also find that corporate customer of bank requires a netbanking account because of e-tax facility. The first part of the project i.e. RICE MILL CLUSTER AND THEIR BANKING REQUIERMNETS was undertaken for the SBI BAVLA BRANCH. Hence, the region surrounding it i.e. DARAN ROAD, AHMEDABAD- SANAND HIGHWAY, RAJODA, DHOLKA, DHEDHAL, RUPAL, ANDRODA ROAD was considered. We found that most of the rice mills have a knowledge of rice mill plus scheme. This had been observed mainly in the Bavla region. The training was a great learning experience resulting in a better understanding of the banking sector. We found that in spite of so many private sector banks coming in, there are still a large number of companies who still prefer to carry out their transactions with the public sector banks. The security aspect is perhaps playing its part in this case. The findings of the project suggest that SBI BANK should pitch into the SMEs sector as fast as possible in order to cope up with the competition from other private sector as well as public sector banks &
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co-operative and commercial banks such as BOB, ICICI, HDFC, PUNJAB NATIONAL BANK, BAVLA NAGRIK SAHAKARI COOPP.BANK LTD, AHMEDABAD DISTRICT CO-OPP.BANK LTD, KALUPUR COMMERCIAL CO-OPP.BANK LTD. etc. Which have started penetrating aggressively. As a part of our second project of recovery of NPA, we have tried our level best to reduce the NPA of SBI. We were working at the Gujarat high court branch and Drive-in road branch. We have recoverd Rs.26000/- for Drive-in road Br. And Rs.40000/- for Gujarat high court Br. Within just one week. The report, which follows, is an outcome of our effort, which is prepared in partial fulfillment of the MBA program. The facts and figures mentioned in the report are absolutely true to us knowledge. Reader of this report is hence requested to keep the information confidential and not use it for any other purpose.

MR.HARSHIL GANDHAKWALA MR.KEYUR ACHARYA

INTRODUCTION ABOUT SBI

Evolution of SBI
The origin of the State Bank of India goes back to the first decade of the nineteenth century with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later the bank received its charter and was re-designed as the Bank of Bengal (2 January 1809). A unique institution, it was the first joint-stock bank of British India sponsored by the Government of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the Bank of Bengal. These three banks remained at the apex of modern banking in India till their amalgamation as the Imperial Bank of India on 27 January 1921. Primarily Anglo-Indian creations, the three presidency banks came into existence either as a result of the compulsions of imperial finance or by the felt needs of local European commerce and were not imposed from outside in an arbitrary manner to modernise India's economy. Their evolution was, however, shaped by ideas culled from similar developments in Europe and England, and was influenced by changes occurring in the structure of both the local trading environment and those in the relations of the Indian economy to the economy of Europe and the global economic framework.

Bank of Bengal H.O.

Business
The business of the banks was initially confined to discounting of bills of exchange or other negotiable private securities, keeping cash accounts and receiving deposits and issuing and circulating cash notes. Loans were restricted to Rs.one lakh and the period of accommodation confined to three months only. The security for such loans was public securities, commonly called Company's Paper, bullion, treasure, plate, jewels, or goods 'not of a perishable nature' and no interest could be charged beyond a rate of twelve per cent. Loans against goods like opium, indigo, salt woollens, cotton, cotton piece goods, twist and silk goods were also granted but such finance by way of cash credits gained momentum only from the third decade of the nineteenth century. All commodities, including tea, sugar and jute, which began to be financed later, were either pledged or hypothecated to the bank. Demand promissory notes were signed by the borrower in favour of the guarantor, which was in turn endorsed to the bank. Lending against shares of the banks or on the mortgage of houses, land or other real property was, however, forbidden. Indians were the principal borrowers against deposit of Company's paper, while the business of discounts on private as well as salary bills was almost the exclusive monopoly of individuals Europeans and their partnership firms. But the main function of the three banks, as far as the government was concerned, was to help the latter raise loans from time to time and also provide a degree of stability to the prices of government securities.

Old Bank of Bengal

A major change in the conditions of operation of the Banks of Bengal, Bombay and Madras occurred after 1860. With the passing of the Paper Currency Act of 1861, the right of note issue of the presidency banks was abolished and the Government of India assumed from 1 March 1862 the sole power of issuing paper currency within British India. The task of management and circulation of the new currency notes was conferred on the presidency banks and the Government undertook to transfer the Treasury balances to the banks at places where the banks would open branches. None of the three banks had till then any branches (except the sole attempt and that too a short-lived one by the Bank of Bengal at Mirzapore in 1839) although the charters had given them such authority. But as soon as the three presidency bands were assured of the free use of government Treasury balances at places where they would open branches, they embarked on branch expansion at a rapid pace. By 1876, the branches, agencies and sub agencies of the three presidency banks covered most of the major parts and many of the inland trade centres in India. While the Bank of Bengal had eighteen branches including its head office, seasonal branches and sub agencies, the Banks of Bombay and Madras had fifteen each.

The presidency Banks Act, which came into operation

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on 1 May 1876, brought the three presidency banks under a common statute with similar restrictions on business. The proprietary connection of the Government was, however, terminated, though the banks continued to hold charge of the public debt offices in the three presidency towns, and the custody of a part of the government balances. The Act also stipulated the creation of Reserve Treasuries at Calcutta, Bombay and Madras into which sums above the specified minimum balances promised to the presidency banks at only their head offices were to be lodged. The Government could lend to the presidency banks from such Reserve Treasuries but the latter could look upon them more as a favour than as a right.

Bank of Madras

The decision of the Government to keep the surplus balances in Reserve Treasuries outside the normal control of the presidency banks and the connected decision not to guarantee minimum government balances at new places where branches were to be opened effectively checked the growth of new branches after 1876. The pace of expansion witnessed in the previous decade fell sharply although, in the case of the Bank of Madras, it continued on a modest scale as the profits of that bank were mainly derived from trade dispersed among a number of port towns and inland centres of thepresidency India witnessed rapid commercialisation in the last quarter of the nineteenth century as its railway network
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expanded to cover all the major regions of the country. New irrigation networks in Madras, Punjab and Sind accelerated the process of conversion of subsistence crops into cash crops, a portion of which found its way into the foreign markets. Tea and coffee plantations transformed large areas of the eastern Terais, the hills of Assam and the Nilgiris into regions of estate agriculture par excellence. All these resulted in the expansion of India's international trade more than six-fold. The three presidency banks were both beneficiaries and promoters of this commercialisation process as they became involved in the financing of practically every trading, manufacturing and mining activity in the sub-continent. While the Banks of Bengal and Bombay were engaged in the financing of large modern manufacturing industries, the Bank of Madras went into the financing of large modern manufacturing industries, the Bank of Madras went into the financing of small-scale industries in a way which had no parallel elsewhere. But the three banks were rigorously excluded from any business involving foreign exchange. Not only was such business considered risky for these banks, which held government deposits, it was also feared that these banks enjoying government patronage would offer unfair competition to the exchange banks which had by then arrived in India. This exclusion continued till the creation of the Reserve Bank of India in 1935.

Bank of Bombay

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The presidency Banks of Bengal, Bombay and Madras with their 70 branches were merged in 1921 to form the Imperial Bank of India. The triad had been transformed into a monolith and a giant among Indian commercial banks had emerged. The new bank took on the triple role of a commercial bank, a banker's bank and a banker to the government for the further procedure which is very helpful. But this creation was preceded by years of deliberations on the need for a 'State Bank of India'. What eventually emerged was a 'half-way house' combining the functions of a commercial. The establishment of the Reserve Bank of India as the central bank of the country in 1935 ended the quasicentral banking role of the Imperial Bank. The latter ceased to be bankers to the Government of India and instead became agent of the Reserve Bank for the transaction of government business at centres at which the central bank was not established. But it continued to maintain currency chests and small coin depots and operate the remittance facilities scheme for other banks and the public on terms stipulated by the Reserve Bank. It also acted as a bankers' bank by holding their surplus cash and granting them advances against authorised securities. The management of the bank clearing houses also continued with it at many places where the Reserve Bank did not have offices. The bank was also the biggest tenderer at the Treasury bill auctions conducted by the Reserve Bank on behalf of the Government. The establishment of the Reserve Bank simultaneously saw important amendments being made to the constitution of the Imperial Bank converting it into a purely commercial bank. The earlier restrictions on its business were removed and the bank was permitted to undertake foreign exchange business and executor and trustee business for the first time.
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The Imperial Bank during the three and a half decades of its existence recorded an impressive growth in terms of offices, reserves, deposits, investments and advances, the increases in some cases amounting to more than six-fold. The financial status and security inherited from its forerunners no doubt provided a firm and durable platform. But the lofty traditions of banking which the Imperial Bank consistently maintained and the high standard of integrity it observed in its operations inspired confidence in its depositors that no other bank in India could perhaps then equal. All these enabled the Imperial Bank to acquire a preeminent position in the Indian banking industry and also secure a vital place in the country's economic life.

Stamp of Imperial Bank of India

When India attained freedom, the Imperial Bank had a capital base (including reserves) of Rs.11.85 crores, deposits and advances of Rs.275.14 crores and Rs.72.94 crores respectively and a network of 172 branches and more than 200 sub offices extending all over the country.

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Birth of SBI name

In 1951, when the First Five Year Plan was launched, the development of rural India was given the highest priority. The commercial banks of the country including the Imperial Bank of India had till then confined their operations to the urban sector and were not equipped to respond to the emergent needs of economic regeneration of the rural areas. In order, therefore, to serve the economy in general and the rural sector in particular, the All India Rural Credit Survey Committee recommended the creation of a statepartnered and state-sponsored bank by taking over the Imperial Bank of India, and integrating with it, the former state-owned or state-associate banks. An act was accordingly passed in Parliament in May 1955 and the State Bank of India was constituted on 1 July 1955. More than a quarter of the resources of the Indian banking system thus passed under the direct control of the State. Later, the State Bank of India (Subsidiary Banks) Act was passed in 1959, enabling the State Bank of India to take over eight former State-associated banks as its subsidiaries (later named Associates). The State Bank of India was thus born with a new sense of social purpose aided by the 480 offices comprising branches, sub offices and three Local Head Offices inherited from the Imperial Bank. The concept of banking as mere repositories of the community's savings and lenders to creditworthy parties was soon to give way to the concept of purposeful banking subserving the growing and diversified financial needs of planned economic development. The State Bank of India was destined to act as the pacesetter in this respect and lead the Indian banking system into the exciting field of national development.

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Recent Development
Today SBI is the leading bank in the country with more than 10,000 branches. SBI has also seven subsidiaries; if we count all these there are more than 35,000 branches. Since the evolution of SBI, it has played a vital role in the development of the Indian economy. SBI is also working in the field of mutual fund industries & life insurance business. SBI mutual fund is the Indias first public sector mutual fund established in 1987. Today in insurance industry SBI has also achieved renowned name within short time.

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INTRODUCTION TO SMALL AND MEDIUM ENTERPRISE

SMEs are major contributors to GDP, and an even larger contributor to exports and employment. Given this background, banks will find SME financing an attractive business opportunity rather than a compulsion, of lending to the priority sector. SIDBI and banks jointly have to play a pivotal and proactive role in financing the SMEs.

DEFINITION OF SME SECTOR

(a)

At present small scale industry is defined as one having original investment in plant and machinery not exceeding Rs.1 crore. While recognizing need of larger investment in some of the more important segments of SSI, the Government of India has enhanced this to Rs.5 crore in respect of certain specified industries. A process of graduation of several SSIs into medium enterprises, having larger investment is a natural progression of successful units. Therefore, it was agreed that a separate category of medium enterprises (ME) needs to be recognized. While ME may not qualify for priority sector lending, it must be seen as contiguous with SSI.

(b) The SME definition, adopted by other countries is generally based on number of employees, capital investment or turnover. The existing definition of SSI adopted in India, based on investment in plant and machinery, excludes the rapidly growing service sector. The past decade has witnessed the services sector contributing almost half of
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the GDP. The Working Group strongly recommends the adoption of turn over as a measure for defining the SME sector. Based on turn over, Tiny, Small and Medium enterprises may be redefined as under: Tiny :Turn over up to the financial limit of Rs.2 Crore, Small: Turn over up to the financial limit of above Rs 2 Crore and Up to Rs.10 Crores, Medium: Turn over above the financial limit Rs.10 Crores and up to Rs. 50 Crores. Till the Government of India takes a view regarding turnover as suggested above, the Working Group recommends that a medium enterprise may be defined as a undertaking where the original investment in plant and machinery is more than Rs.1 crore but less than Rs.10 crore.

ROLE OF SMEs: World over, the potential of SMEs has been realized. The following statistics make it apparent: There are 8 million SMEs in China that account for more than 99% of all the enterprises in the country. Both industrial output and export volume of these enterprises made up 60% of Chinas total. The government has set up various agencies to promote SME developed in China as SMEs play an important role in easing unemployment opportunities in Chinese cities. In a city-state like Singapore, there are 1,05,000 successful SMEs

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 Of the 18.6 million enterprises in the European Union, 99.7% are SMEs. There are only 35000 enterprises with more than 250 employees, but 18 million enterprises employ less than 10 people. In USA of the total number of firms, at least around 95% are SMEs. Likewise, the role played by SMEs in Indian economy is indelible. Here are some figures. 3.37 million SSIs in India provide jobs to 16.56 million people. The output of SSIs is around 40% of the total manufacturing sector. Over one third of national exports, excluding the handicraft sector, come from the SSIs. However, the post liberalisation period has been unkind for the small-scale industries because of increased internal and external competition. Further, the various WTO agreements have affected the fortunes of SSIs. In the absence of adequate infrastructure support and want of technological upgradation, small-scale industries have taken the beating of globalisation resulting in the hike of industrial sickness. Seeing from another perspective, the modern day economic priorities have in a way augmented the role of SMEs, particularly in the services sector. Current day strategies like business process outsourcing and supply-chain management is built around SMEs and are tailor-made to small business houses. The advantage of lean institutional structure and close and personal supervision, which the SMEs are inherently endowed with, have enabled them to reposition themselves in the competitive services sector.

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DETAIL INFORMATION OF THE CERTAIN RICE MILLS

PADMAVATI RICE MILL

Padmavati rice mill is situated at the Bavla-sanand road which is very famous in the Bavla region for its efficient management and for the growth of its turn over. We met Mr.Pritesh Shah over there. He has given us a very positive response. They have their current account in SBI Bavla branch. They have the CC limit of 1 crore which include 80% CC and 20% TL. Their annual Turn over is around 20 crore in last financial year. As the padmavati rice mill wants to increase their CC limit, UBI & HDFC Bank have offered them 5 to 6 crore CC limit. Even though Padmavati reject their offer and came in SBI for better prospects.

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GREEN & GREEN AGRO INDUSTRIES

By passing from ahmedabad-sanand highway we find one of the richest rice mill of the bavla. We come to know that Green & Green Agro Industry is having a turnover of 23 crore. We met young and dynamic manager of Green & Green Agro Industries Mr.Nirav Patel and talked with him about their banking needs. He had given us a very positive response. Green & Green have their account in PNB with 2.15 crore of Term Loan and 3.15 crore CC. they are little beat dissatisfied with the SBI service specially for draft charges which are costlier than other banks. We asked them about their need of extra CC but they told us that we have already finalized it with Bank of Baroda at an interest rate of 11% which is lower then SBI.

KANKESHWARI AGRO INDUSTRIES

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Mr.Kaushik Gandhi is a reputed person who owns the kankeshwari Agro Industries which is having an eighteen crore turnover. As per the manager of Kankeshwari Industries the turnover of their mill expected to reach at 30 crore in next year. They have a CC of 10 crore and TL of 2 crore in Bank of India. They told us that if SBI can waive the charges of transferring the CC account of other bank to SBI then they can open an account with SBI.

RICE MILLS PLUS

1. Target Group
2.

: :

Rice Mills with proven track record a) b) Profit making existing units with CRA rating of SB4 and above Take-over of units conforming to takeover norms is also permitted Acquisition of machinery/factory building for modernisation Working capital needs

Eligibility

3.

Purpose

a) b)

4.

Type of facilities

Term Loan, Cash Credit, outward bill limit, LCs , BGs, SME Credit Plus 21

5.

Quantum of Finance

6.

Margin

No upper Ceiling. Nayak Committee norms are applicable: minimum of 20% of projected annual turnover. A higher limit can be considered selectively on projected balance sheet method. Peak and non peak limits can be fixed depending on actual need. Separate limits for other activities:Wherever the borrowers are engaged in other activities, separate limits may be considered based on viability and other aspects of assessment and appraisal. Term Loan 15-25% Working Capital Stocks :Paddy &Rice - 15%-20% Brokens - 20% Bran - 30% Gunny bags - 40% Book debts40%(cover period max.60days) Margin for book debts can be lowered upto 25% where adequate collateral is available. CRA Rating SB1 SB2 SB3 SB4 Limits Rs.2 to Rs.25lacs Interest rates 1% below SBAR minimum 9.25% p.a. 1% below SBAR minimum 9.25% p.a. 0.75% below SBAR minimum 9.50% p.a. @ SBAR minimum10.25% p.a. @ SBAR minimum 0.25% pa

7.

Rate of Interest

For Term Loans SBTL 1 SBTL 2 SBTL3 SBTL 4 22 0.50% below SBAR minimum 9.75% p.a. 0.50% below SBAR minimum 9.75% p.a 0.25% below SBAR minimum 10% p.a 0.50% above SBAR minimum 10.75%pa

8.

Security: - Primary - Collateral

For units with limits of above 0.50% above SBAR Rs.2 lacs to Rs.25 lacs minimum 10.75%pa Hypothecation/pledge of assets created out of Bank finance For loans upto Rs.5lacs-NIL,Others-Tangible security of borrower or guarantor a value of not less than 75% of loan amount Rs.115/- per 1 lac Upfront fee for term loans 0.60% of the loan amount Issuance of drafts/ BCs/ cheque collection 50% of applicable charges. TL 5 to 7 years excluding the gestation period of maximum 12 months As applicable to SSI units

9.

Processing fees

10.Repayment

: :

11.Documentation

Product Highlights: So far, Rice Mills have been extended credit only on very stringent terms and even SB1 & SB2 rated companies could not be financed adequately due to the stiff terms of assessment. Keeping this constraint in view, this product has been introduced in the SSI segment with a simplified credit rating model which includes weightage for achievement for projected sales and loyalty to the Bank factor. A specially designed appraisal format has been designed for the product. This product can be extended at all branches handling CAAs and also those identified for the purpose by the Circle Management Committee. As regards assessment, for limits upto Rs.5 crores, Nayak Committee norms for working capital have to be adopted.

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Marketing Tips: All Rice Mills with CRA rating of SB4 and above can be targetted. Simplified assessment method for arriving at WC & TL components. SME Credit Plus can be granted which is repayable in 6 months. Non fund based facilities can be extended especially for exporters. Outward Bill limit upto 60 days cover can be considered in specific cases. A traditional banking product with a new look and very attractive terms of finance.
The rating model for this product is as under:Credit rating score Over 90% Between 75 to 90 % Between 60 to 75 % Between 50 to 60 % Rating SB1 SB2 SB3 SB4

MODEL PROJECT ON IMPROVED RICE MILL

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Introduction:
Rice is the staple food for 65% of the population in India. It is the largest consumed calorie source among the food grains. With a per capita availability of 73.8 kg it meets 31% of the total calorie requirement of the population.India is the second largest producer of rice in the world next to China. The all India area, production, and yield of rice in the year 2001-02 was 44.62 million hectares, 93.08 million tonnes and 2086 kg/ ha respectively. In India paddy occupies the first place both in area and production. The crop occupies about 37 % of the total cropped area and 44% (2001-02 position ) of total production of food grains in India. West Bengal is the leading producer of paddy in the country. It accounts for 16.39% of the total production, and the other leading states are Uttar Pradesh (13.38%), Andhra Pradesh (12.24%), Punjab (9.47%), Orissa (7.68%) and Tamil Nadu (7.38%); the remaining states account for 33.45% of the production. India is also one of the leading exporters of rice in the world market. India's export of rice stood at 23.89 lakh MT in 1997-98. The corresponding value of foreign exchange earned was to the tune of Rs. 3371.00 crore in 1997-98. Indian Basmati Rice has been a favorite among international rice buyers. Following liberalization of international trade after World Trade
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Agreement, Indian rice will become highly competitive and has been identified as one of the major commodities for export. This provides us with ample opportunity for development of rice based value-added products for earning more foreign exchange. Apart from rice milling, processing of rice bran for oil extraction is also an important agro processing activity for value addition, income and employment generation. Many of the rice processing units are of the traditional huller type and are inefficient. Modern rice mills are having high capacity and are capital intensive, although efficient. Small modern rice mills have been developed and are available in the market but the lack of information is a bottleneck in its adoption by the prospective entrepreneur. The present model will go a long way in bridging the information gap.

Description of Rice Milling Operation:

Paddy in its raw form cannot be consumed by human beings. It needs to be suitably processed for obtaining rice. Rice milling is the process which helps in removal of hulls and barns from paddy grains to produce polished rice. Rice forms the basic primary processed product obtained from paddy and this is further processed for obtaining various secondary and tertiary products. The basic rice milling processes consist of:

Process Definition
1. Pre Cleaning :

Removing all impurities and unfilled grains from paddy 2. De-stoning : Separating small stones from paddy 3. Parboiling (Optional) :
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Helps in improving the nutritional quality by gelatinization of starch inside the rice grain. It improves the milling recovery percent during deshelling and polishing / whitening operation
4. Husking :

Removing husk from paddy

5. Husk Aspiration :

Separating the husk from brown rice/ unhusked paddy

6. Paddy Separation :

Separating the unhusked paddy from brown rice 7. Whitening : Removing all or part of the bran layer and germ from brown rice 8. Polishing : Improving the appearance of milled rice by removing the remaining bran particles and by polishing the exterior of the milled kernel
9. Length Grading :

Separating small and large brokens from head rice 10. Blending : Mixing head rice with predetermined amount of brokens, as required by the customer 11.Weighing and bagging : Preparing the milled rice for transport to the customer

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The flow diagram of the various unit operations are as follows:

Status of Rice Milling Units in India:

Rice milling is the oldest and the largest agro processing industry of the country. At present it has a turn over of more than 25,500/- crore per annum. It processes about 85 million
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tonnes of paddy per year and provides staple food grain and other valuable products required by over 60% of the population. Paddy grain is milled either in raw condition or after par-boiling, mostly by single hullers of which over 82,000 are registered in the country. Apart from it there are also a large number of unregistered single hulling units in the country. A good number (60 %) of these are also linked with par-boiling units and sun -drying yards. Most of the tiny hullers of about 250-300 kg/hr capacities are employed for custom milling of paddy. Apart from it double hulling units number over 2,600 units, underrun disc shellers cum cone polishers numbering 5,000 units and rubber roll shellers cum friction polishers numbering over 10,000 units are also present in the country. Further over the years there has been a steady growth of improved rice mills in the country. Most of these have capacities ranging from 2 tonnes /hr to 10 tonnes/ hr.

Need for improved rice mills:

The recovery of whole grains in a traditional rice mill using steel hullers for dehusking is around 52-54%. There is excessive loss in the form of coarse and fine brokens. Further loss of large portion of endosperm layers during the dehusking operation further accentuates the problem. Against it, the recovery percent of whole grains in modern rice mills using rubber roll shellers for dehusking operation is around 62-64%. The whole grain recovery percent further increases to 66-68% in case of milling of parboiled paddy. Thus it can be seen that there is an overall improvement of recovery of whole grains by about 10-14% if one uses rubber roll shellers for rice milling operations. The conversion ratio ( i.e. recovery % of various final product and byproduct for every 100 kg feed of raw paddy) for these improved rice mills are can be as follows: 1. Percent of milled rice : 62-68% 2. Percent of rice bran : 4-5% 3. Percent of rice husk : 25%

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4. Percent of germ wastages : 2%-8% It has been observed that dehusking using rubber roll shellers reduces the risk of breaking the grain because husk is pulled off almost at once and pressure is applied by means of resilient surfaces across the width of the grain, where kernels, generally are much more uniform than they are by length. Moreover, the process does not remove the internal epidermis of the husk. Thus the deshelled grains with their silver skin envelope are protected against scratches and keep longer and better while the silver skin and the germ increases the quantity of bran which is produced while whitening. The improved rice mills have a better husk and rice bran aspiration system. The same prevents mixing of fine brokens with rice bran. Therefore the quality of rice bran obtained is better. It has also been observed that the location of rice mills are confined to a few selected production centres. Their development as a village level agro processing unit is yet to take a proper shape. In the absence of village level rice milling unit, the farmers have to travel great distances for milling the rice. This leads to increased transportation and handling losses. Thus there is a need to develop improved rice mills as a village level agro processing unit for bringing about technical upgradation and development of the sector. Value addition and generation of gainful and sustainable employment opportunities are the other possible benefits arising out of this agro processing industry. The Central Govt. is also providing a big boost towards the development of this industry. It has since repealed w.e.f. May 27, 1998 the Rice Milling Industry (Regulation) Act, 1958 and Rice Milling Industry (Regulation and licensing) Rules , 1959. Further, rice milling sector which was earlier reserved for the small scale sector, have now been dereserved. As such, no license/ permission is now required for setting up a rice mill.

Investment components of an improved rice mill:

The various investment components are as follows:
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Land, layout plan and site development requirement:

The land requirement for establishing an improved rice milling unit will depend upon 1. Whether the unit will be using a parboiling unit for pretreatment of paddy before commencement of milling operation or it will be directly milling raw paddy. 2. Whether a single pass or a multipass milling unit is to be installed. Generally 2.00 to 2.50 acre of land is required for establishing an improved rice milling unit having an installed processing capacity of 2 MT/ hr; operating for single shift / day of 8 hr duration; 300 days per annum; i.e. 4800 MT /annum. The land should be with proper elevation. Low lying areas should be avoided. Else proper land filling, compaction and consolidation should be done. Drainage and linkages with road and other communication should also be ensured. The layout of the rice milling plant should be done in a manner that helps in smooth operation of various unit operations in tandem to bring about optimal capacity utilization and economizing power consumption. The tentative cost of land and land development charges for the model project has been considered at Rs. 5.00 Lakh ( Rs. 3.75 Lakh being the cost of the land @ Rs. 1.50 Lakh per acre for 2.50 acre and the remaining Rs. 1.25 Lakh being the cost for site development such as construction of boundary wall, internal roads and drainage system etc.)

Civil construction:
The various construction requirement of an improved rice milling unit are as follows: 1. Raw paddy godown 2. Cleaning unit 3. Drier and necessary supporting structures such as, boiler /blower system etc.
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4. Milling section 5. Finished product stores 6. Machine rooms 7. Auxiliary structures such as office, watch and ward etc.

Technology:
It is better to use rubber roll shellers for dehusking of paddy in the unit for better performance.

Plant and machinery and electricals:

The details of the nature and type of plant and machinery, their capacity, power consumption, level of automation varies upon the market needs, nature and type of the end products and the investment capacity of the entrepreneur. Whenever paddy is required to be parboiled prior to deshelling, a parboiling unit with steam boilers has to be installed by the milling unit. The same will increase the P&M cost. The details of plant and machinery for the rice milling unit are as follows: 1. Paddy cleaner w 2. Rubber Roll Paddy Shellers 3. Paddy Separators 4. Blowers , Husk and Barn Aspirators

QUESTIONNAIRE

32

State Bank of India, Bavla Branch,

Name of the Unit: _____________________________________________ Year of Establishment: __________________________________________ Address: _____________________________________________________ _________________________________________________________ ____ _________________________________________________________ ____ Name of the Directors/Promoters & Ph No.: _________________________ _________________________________________________________ ____ _________________________________________________________ ____ Contact Persons Name, designation & Ph No.: _______________________ _________________________________________________________ ____ Annual Turnover: ________________ (in crores) Bankers Name: _______________________________________________ Since how long are you dealing with this Bank? 0-2 years 6.8 years above Have you taken any loan?
33

3-5 years 9 years and

Yes

No

Which type of loan have you taken from bank? SME Credit Card General Purpose Term Loan Stand by Line of Credit Open Term Loan Corporate Term Loan Other Bank_________________ (Please Specify) What is the amount of your loan? ------------------------------------------------------------------------------------ Facilities available from the current bankers

34

Facility Type

Limit (in crores)

Future Requirement: _____________________________________________ _________________________________________________________ ____

Would you like to Bank with SBI? `Yes / No What do you expect from SBI? ____________________________________ _________________________________________________________ ____ Which Bank do you prefer do the most other than the current Bank? _________________________________________________________ _____ Are private sector banks better than public sector banks? Yes / No Are your satisfied with SBI SMEs Products? Yes No

Which problems do you face, private banks address but SBI dont?

35

----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Which problem do you face, not addressed by any bank? ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Reasons:
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

VARIOUS CHARTS AND PICTURES

While doing survey of various rice mills we have tried to conclude all the things by showing them in the various charts. We have given our charts as under.

(1) MARKET SHARE OF THE VARIOUS BANKS AMONG THE RICE MILLS
36

 we found that there are seven banks in the bavla like SBI, PNB, Bavla nagrik sahakari bank ltd., Kalupur commercial co-opp. Bank, ahmedabad dist.co-opp. Bank, ICICI bank and recently newly opened on 10th june,2008 HDFC

we have visited around 40 rice mills and ask them in

which bank they are maintaining their current account. As per their details it shows that only 9 mills have their account with SBI and 17 of them have their account with Bavla Nagrik Sahakari Bank Ltd. Which is the local bank. BNB is the bank which is to be handled by the patel community and most of the rice mill owner are the patel. They are having close relationship with an employees of that bank. Even if any rice mill owner wants cash from BNB, he just send his peon. This type of thing SBI cant do because SBI always consider the security leve of bank.

REASON FOR HAVING A LESS ACCOUNT WITH SBI

37

(1) We found that SBI Bavla branch is not situated at proper place. It is situated at very congested place and people are not feel free to go at the branch. This branch is situated at the far away from the main road. (2) Main problem is of parking of vehicle. Even car can not go at the branch. And we found that most of the rice mill owner are rich people and having a car with them. (3) We also found that space in the bank are very less. Customer are not comfortable at the branch. HDFC

38

AHMEDABAD DISTICT CO.CP.BANK

KALUPUR COMERCIAL CO.APP. BANK

39

SBI,BAVALA BR.

(2) TURN OVER IN VARIOUS RICE MILL

RS.IN CRORE

40

We personally met to the managers of various rice mill and try to get the information about their turnover. Most of them deny to give their turnover details because they are considering turn over detail as a major financial information of their company. They do not want to disclose it. Almost 62% managers did not give us financial information.

ear which indicates that they require less cash credit. 3% of the rice mills having their turn over less than the 15 crore but more then 10 crore. There are 8% of the rice mills having their turn over less than the 20 crore but more then 15 crore. And finally The highest turnover as above 20 crore are appx. 3%.

(3) LIMITS IN VARIOUS RICE MILL

41

RS. IN CRORE

As per our data ,the rice mill which are having less turn over require the less cash credit . so 47% rice mill having a less then 1 crore cash credit .and 27% rice mill having a less then 5 crore but more then 1 crore cash credit. It is also suprising that only 3% rice mill having a less then 10 crore and more then 5 crore.and finally the largest limit like more then 10 crore cash credit incude 7% of the all rice mill. There are also

42

DOCTOR PLUS SCHEME

Purpose
To finance qualified medical practitioners of any discipline

For buying medical equipments (For dentists, the loan also covers dental implants besides equipments; for orthopedists, the loan also covers various replacements/ implants for hip/knee/shoulder/spine etc) Setting up clinic, X-ray lab, nursing home, pathological lab, drug stores etc For purchase of vehicles, ambulance, computers, etc Expansion/renovation/modernisation of existing premises For marketing exercises, business trips
43

Any other activities related to medical profession

Eligibility

Individuals/ partnerships / Corporates /Trusts (with powers to borrow) Promoters should be registered practitioners and possess minimum qualification such as MBBS / BAMS / GAMS / BDS / BHMS Key promoters should be qualified doctors.

Loan Amount Maximum of Rs 5 crores of which a sub ceiling for Working Capital limits at 10% of total loan amount for upto Rs 1 crore 5% of total loan amount for above Rs 1 crore Repayment Maximum period up to 7 years Maximum moratorium 12 months, except for construction purpose, for which moratorium can be upto 24 months

Primary Security Hypothecation of Assets financed by the Bank Collateral Security No need for tangible collateral security for loan amounts upto Rs 15 lakhs for Allopathic professionals and upto Rs 10 lakhs for other professionals (Homeopathic, Ayurvedic, Unani etc) Above Rs 10/15 lakhs: Tangible collateral security of at least 25% and Personal guarantee of promoters *There is provision for concession on collateral security

44

Insurance Insurance of assets purchased out of Bank loan and in respect of vehicles, comprehensive insurance as laid down Margin Upto Rs 5 lacs: 10% Above Rs 5 lacs: 15% * There is provision for concession on margin Interest rates Based on score obtained on simplified credit scoring model *There is provision for concession on interest rates Processing Charges 0.5% of Loan Amount Minimum Rs 500; Maximum Rs 50,000 **Sanctioning of loans upto Rs 25 lacs is based on credit scoring model. 50% and above scorers will qualify to avail this facility ***Sanctioning of loans above Rs 25 lacs is based on CRA rating.

SURVEY
Apart from our rice mill project at bavla, we have also gathered an information from various doctors of bavla about their banking needs and try to know that are they require any loan? We have explain them the doctor plus scheme of SBI and tell them the benefits which are available from it. We approach to the doctors like Dr.Jagdish, Dr.M.Gosai, Dr.Patel and others. We convince them to have a financial
45

relation with SBI by the doctor plus scheme. Generally doctors are come from the ahmedabad city and they have a account and loan in bank which is situated in ahmedabad city itself. It is unconventional to draw up with SBI, Bavla branch said by doctors as general perception. Finally we succeed to convince Dr. M.Gosai to come in SBI and met the manager for the future finacial relation with SBI. This matter is in process till the date.

NET BANKING
The main purpose that banks have been serving since their inception is keeping our money safe for us. while keeping our money safe, they also let us earn a certain amount of interest on the money deposited with them. Traditional banks have been doing this, and internet banks continue the same function. The only dfifference is in the way the transections are made. Online banking has been around for quit a few years. In fact it was introduce in the 1980s and has come a long way since then. The last decade has seen profuse growth in
46

internet banking transactions. Several pieces of legislation have also been introduce in this area. Though it begun in the 1980s, it was only in mid nineties that internet banking really caught on. What attracts customers to internet banking is the round the clock availability and ease of transections. Studies estimate that internet banking still has a long way to go. There are several banks that have customers who prefer banking in the traditional ways. Statastics released by the FDIC show that only 40% of the banks in the U.S. offer internet banking internet banking facilities worth mention. All the others may have an online presence but do not have enough online transections to justify their presence on the internet. Some customers have been known to turn to internet banking due to dissatisfaction with standard procedure and practices. The total absence of human interaction appeals to some people. Some customers turn to internet banking facilities for security reasons. This is mainly because of customers being assured of banks ability to keep transaction safe and secure. Most online transaction are made using the internet explorer interface. The internet explorer has been around for more then 10 years now.

NET BANKING IN SBI

As you know that our main project is of rice mill but we have also done net banking at bavla branch. We were aggressively helpful to our branch manager for opening a net banking account which has been recently introduce in SBI. By opening net banking account we came to know that the procedure for opening the account is too much complicated but it is too much easy to operate for a customer. This is the one of the value added service provided by SBI for their customer. There are basically two parts in net banking of SBI. The first part is for an individual and the second part is for corporate. Individual can easily operate
47

their account at their home. Even housewives using this service for knowing their savings account balance. This facility of net banking also useful for ordering a new cheque book, transfer of money from one account to another Now if we talk about the second part i.e. corporate banking which was handled by us at the bavla branch. We have opened around 10 net banking account. The procedure of opening was very complicated and lengthy which took almost 3 hours to open it. While we manage to complete it within 45 minutes.

Value Added Services

48

Discover a Simple, Secure and Convenient way to pay all your Utility Bills at OnlineSBI e-Rail reservation service using SBI accounts Mutual Funds investments handled with SBI accounts SBI e-Tax:Online payment facility for retail users and corporates Use your 3-in-1 account to trade online

HOW SAFE IS NET BANKING?

Internet has transformed several businesses. But few have been revolutionised as Banking operations have been. The advent of Internet has revamped the Indian banking system like never before. Very few of us remember our last visit to our banks branch. Everything can be today done at the click of a mouse, check balance, take statement, transfer money, make payments..., the list is endless. But one question that at times trouble our minds, specially while making those financial transactions is: How safe is my banks site? Are the transactions I do online foolproof? What can I do to ensure that my transactions are secure?

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50

Non-Performing Assets (NPAs)

In simple words, an asset, which ceases to yield income, is an NPA. NPAs are those loans given by a bank or financial institution (FI), where the borrower defaults or delays interest or principal payments for two quarters or more. The loans given by the banks are classified into performing and non-performing assets on the following basis. Performing Assets: Also known, as standard assets are loans where the interest and/or principal are not overdue beyond 180 days at the end of the financial year. Such loans do not carry more than the normal business risk.

Non-Performing Assets:
Any loan repayment, which is overdue beyond 180 days or two quarters is considered as NPA. NPAs are further classified into sub-standard, doubtful and loss assets. Sub-standard Assets: Loans, which are non-performing for a period not exceeding two years, where the current net worth of the borrower or the current market value of the security, against which the loan is taken, is not enough to ensure full recovery of the debt. Doubtful Assets: Loans which have remained Non-performing for a period exceeding two years and, which are not classified as loss assets by the management or the internal/external auditor appointed by RBI. Loss Assets:

51

Assets where loss has been identified by the internal/external auditor of the bank or the RBI, but the amount has not been written off wholly or partly. These assets are considered unrecoverable and are of little value to the lending institution.

Provisions for NPAs: Banks and other FIs have to make the following provisions in their books for advances which are considered NPAs : Sub-standard Assets: A general provision of 10% of the total outstanding should be made in this category

Doubtful Assets : a. 100% to the extent of which advance is unsecured .

b. Over and above (a) provision ranging from 20% to 50% of the secured portion for which the advance has been considered as doubtful depending upon the period given below:

Up to 1 Year old doubtful asset :20% 1 to 3 Years old doubtful asset:30% Over 3 Years old doubtful asset : 50% Loss Assets: The entire amount has to be written off. If the assets are to remain in the books for any reason, then 100% of the outstanding amount should be provided for. Banks cannot make any profits on the income from NPAs. Although banks can set aside a portion of their funds to safeguard against any losses incurred on loans classified as NPAs. 1. Gross NPA = Sum of all kinds of NPAs

52

2. Net NPA = Gross NPA Provisions

1. NPAs in India - The Current Scenario

For the past few years, the Indian Banking system has been struggling to manage the vast portfolio of bad loans, popularly known as Non-Performing Assets (NPAs). The problem is more acute in the case of PSU banks. As of March 2003, the total NPAs of the private and public sector banks put together stood at a whopping Rs 65,000 crore (Source: Trend and Progress of Banking in India, RBI). NPAs, simply defined, are those loans and advances in respect of which interest and/or principal installment have not been paid for 180 days from the due date. From April 1, 2004, however, any loan on which interest or principal installment is not paid for more than 90 days would be reckoned as NPA. The banking system is, therefore, sure to see a swelling NPA portfolio in the coming years. This poses a
53

serious liquidity and credit risk on the banking system, which unless managed effectively would jeopardize the same. Thus, to prevent the collapse of the whole system due to nonpayment of loans by the borrowers, there ought to be some mechanism in place. Two major steps were taken in this regard 1. The RBI directed the banks to maintain compulsory provisions for different types of NPAs; 2. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 was enacted. The SARFAESI Act allowed the banks and financial institutions to take possession of the collateral security given by the defaulting borrowers and sell these assets without having to go through protracted legal procedures. 2. Securitization Securitization is the process of conversion of existing assets or future cash flows into marketable securities. For the purpose of distinction, the conversion of existing assets into marketable securities is known as asset-backed securitization and the conversion of future cash flows into marketable securities is known as future-flows securitization A typical securitization transaction consists of the following steps:

Creation of a special purpose vehicle (SPV) to hold the financial assets underlying the securities; Sale of the financial assets by the originator or holder of the assets to the SPV, which will hold the assets and realize the assets; Issuance of securities by the SPV, to investors, against the financial assets held by it.

the purpose of the Securitization Act is to promote the setting up of asset reconstruction / securitization companies to take over the Non Performing Assets (NPA) accumulated with the banks and public financial institutions. The Act
54

provides special powers to lenders and securitization / asset reconstruction companies, to enable them to take over of assets of borrowers without first resorting to courts. The Act was welcomed by the banking community, but resisted by the borrower community. The validity was challenged in various courts on the ground that it was predominantly in favor of lenders. Hence, lenders were unable to enforce the provisions in full. But the crux of the issue was whether the Act would be an effective tool to make a drastic difference to the NPA menace. 3. Securitization - Relevance to the Banking Sector Other than freeing up the blocked assets of banks, securitization can transform banking in other ways as well. The growth in credit off take of banks has been the second highest in the last 55 years. But at the same time the incremental credit deposit ratio for the past one-year has been greater than one. Thus, for every Rs 100 worth of deposit coming into the system more than Rs 100 is being disbursed as credit. The growth of credit off take though has not been matched with a growth in deposits. So, the mismatch between the credit given and the funds received creates an issue of proper management of increased credit off-take. One of the measures adopted by the banks to cater to this credit boom is by selling their investments in government securities and giving the amount raised as loans. But there is a limit to such credit funding due to minimum SLR requirements of 25% in government and semi government securities. As a result of selling government paper to fund credit off take their investment in government paper has been declining. Once the banks reach this level of 25 per cent, they cannot sell any more government securities to generate liquidity. And given the pace of credit off take, some banks could reach this level very fast. So banks, in order to keep giving credit, need to ensure that more deposits keep coming in.
55

One option is to increase interest rates. Another alternative is Securitization. Banks can securitize the loans they have given out and use the money brought in by this to give out more credit. A. K. Purwar, Chairman of State Bank of India, in a recent interview to a business daily remarked that bank might securitize some of its loans to generate funds to keep supporting the high credit off take instead of raising interest rates. Securitization also helps banks to sell off their NPAs to asset reconstruction companies (ARCs). ARCs, which are typically publicly / government owned, act as debt aggregators and are engaged in acquiring bad loans from the banks at a discounted price, thereby helping banks to focus on core activities. On acquiring bad loans ARCs restructure them and sell them to other investors as 'Pass Through Certificates' (PTCs), thereby freeing the banking system to focus on normal banking activities. 4. Managing NPAs through Securitization - Facilitating Banks An interesting shift is noticed in the case of private sector banks. It is common knowledge that these banks have been notably driving the retail banking revolution in the country in the last few years. The Supreme Court verdict would help these banks in a limited manner in respect of their corporate NPAs. However, in case of defaults by retail borrowers, the banks would have to weigh the costs and benefits of tracing each delinquent retail borrower, seizing his assets and trying to sell them off to realize the dues. The lenders may prefer to create homogeneous pools of these assets and securitize them with an asset reconstruction company (ARC) instead. The salient provisions of the Securitization Act state that the lender can take possession of the asset in case the borrower does not discharge his liabilities within 60 days of the demand notice from the lender. The lender can then manage the assets with a right to transfer them by way of lease, assignment or sale.
56

Are banks today equipped for this? Imagine banks having thousands of such seized assets of various descriptions and

values in their physical possession. The sheer cost of maintaining such assets in marketable form could be formidable. The assets which form security for bank loans and advances have to be valued / revalued on a periodical basis to determine the security shortfall. The provisions made by banks depend on this valuation. In a period when interest rates are headed downwards, and asset values are on a steady ascent due to increased consumer spending, there is a possibility that the `security' could be overvalued on paper. But when the asset has to be liquidated or sold, reality may crack paper valuations.
Then the Act may seem futile for the time being. On the one hand, borrowers whose assets have been seized could be spurred to legal recourse by the striking down of the 75% down payment provision. On the other, existing assets may not yield the desired salvage values to the lenders. The third dimension would be the escalating NPA levels due to the implementation of the 90-day norm. This is the short-term picture. In the medium and long term, the Securitization Act would ensure that both lenders and borrowers learn their lessons. Lenders would fine-tune their appraisal and monitoring mechanisms to prevent future NPAs, and feel comfortable in the knowledge that securities can be liquidated without much bother. Borrowers would know that their assets are in jeopardy if they do not deliver on their promises or take the lenders into confidence in respect of their business risks. The change would be in the attitude. And this change would go a long way in enhancing the quality of the banking system's assets. 5. Future Outlook Securitization is expected to become more popular in the near future in the banking sector. Banks are expected to sell off a greater amount of NPAs to ARCIL by 2007, when they
57

have to shift to Basel-II norms. Blocking too much capital in NPAs can reduce the capital adequacy of banks and can be a hindrance for banks to meet the Basel-II norms. Thus, banks will have two options - either to raise more capital or to free capital tied up in NPAs and other loans through securitization Bad loans of banks: Causes and remedies BAD AND doubtful debts of banks, called non-performing assets or NPAs in banking jargon, have been attracting wide attention for varied reasons. Some of the reasons for the burgeoning NPAs are: Bank officers do not know how to lend and are also corrupt. A major portion of bad debts arose out of lending to the priority sector, at the dictates of politicians and bureaucrats. If only banks had monitored their loans effectively, the bad debt problem could have been contained, if not eliminated. The top managements of the banks were forced by politicians and bureaucrats to throw good money after bad in the case of unscrupulous borrowers. Many big borrowers defaulted only due to the recession in the economy. The absence of proper bankruptcy laws and the dilatory legal procedures in enforcing security rights are the root cause of bad debts in banks. These and similar views are freely expressed by knowledgeable people in the field. All the above statements have some elements of truth. It is like six blind persons looking at an elephant and describing its physical characteristics. Unless the problem is identified properly, no remedial action is feasible. First, the facts. The total NPA of all scheduled commercial banks in India had swollen from Rs. 47,300 crores to Rs. 70,904 crores during the five years from March 1997 to March 2002, as per the Reserve Bank's annual reports on trends and progress of banks in India. Against these, banks had provided for Rs. 35,358 crores or roughly half the total by 2002. Still, the net NPA was as high
58

as Rs. 35,546 crores and represented 5.5 per cent of the total advances; this is high compared to around 2 per cent for banks in advanced countries. A redeeming feature One extenuating feature for Indian banks is that the NPA amounted to a mere 2.3 per cent of total assets. This is because advances comprise less than 50 per cent of total assets, with the banks having invested heavily in government securities in India. With banks required to keep their own capital and reserves at a minimum of 9 per cent of the advances portfolio, the NPA level is not such as to cause concern about the health of the banking system. Perhaps a few weak and adventurous banks could be threatened with insolvency, but the system as a whole does not appear to be financially vulnerable. Let us now examine the reasons for the higher levels of NPA in Indian banks. At the outset, it has to be admitted that no bank can have zero NPA. Any business, and more so banking, does involve risks and one should learn proper lessons from the past. Incidentally, the Chettiar community of Tamil Nadu, who were pioneers in overseas trade and commerce, had recognised this basic principle long ago. When their young males were sent to do business abroad, there were losses in the initial years. Legend has it that the fathers in India will write the losses to an account called `Budhi Kolmuthal' or `Intellectual Capital' or `Capital for Experience'. Alas, the mandarins in Government expect the banks in the public sector to totally avoid NPAs and thereby engender counterproductive action among bankers. Wrong lending decisions One of the primary reasons for NPA could be that the lending decision was, ab initio, incorrect. Seasoned bankers would scoff at this as a preposterous statement, but the reality has to be faced.

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A major portion of bank lending is to industries and trade; this segment accounted for over 53 per cent of gross bank credit, excluding loans to food procurement agencies of governments, as at the end of March 2002, vide RBI data. In lending to these borrowers, bankers have to relearn a lot. Till the early 1960s, bankers lent only to traditional companies owned by "respected" business groups and relied primarily on the credentials of the group. The emergence of small scale industries and the gradual opening up of the economy changed the scenario with many new entrepreneurs on the scene and bankers had to learn newer ways of assessment and appraisal. In 1974, an expert committee under the chairmanship of Prakash Tandon rewrote the policies and procedures of lending to industries by banks. These were implicitly followed by all banks under the directions of RBI. While the `norms' prescribed by the Tandon Committee were appropriate for the conditions in 1970s, banks were following them even after 20 years. In the late 1990s the RBI freed banks from the shackles of the norms, but banks are yet to get out of their reliance on norms and arithmetical formulae and, instead of understanding and interpreting the numbers judiciously, they converted a tool into a talisman. Appraisal of credit needs of industrial units and business concerns cannot be put into a straitjacket and banks have to relearn the tricks of the trade. At present, either they deny needed credit to small and medium enterprises because of the norms or go overboard in relation to their bigger customers who enjoy "corporate loans" at ridiculously low interest rates at 5 to 6 per cent p.a. In their obsession with financial data, bank officers do not seem to probe vital aspects such as the need for and the purpose for which credit is needed.

Low level of expertise

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Another factor that can contribute to the low level of expertise in many big public sector banks is the constant rotation of duties among officers and the apparent lack of training in lending principles for the loan officers. Being dictated to by the bureaucrats in the Government, public sector banks are asked to frown upon specialisation of officers in any particular branch of banking; this also makes it hard for developing a fully trained cadre of lending officers. If the public sector has to compete in the fierce financial markets, they have to create and nurture a good cadre of officers in various disciplines. Corruption, as a cause for NPA, is, in the author's opinion, not a serious one. The number of officers who are not scrupulously honest will not be large in banks; in any case, unlike government departments, banks are not monopolies in rendering service and customers will not tolerate undue levels of corruption. Many among the intelligentsia, who belong to the service class, still believe that the priority sector, comprising the small trader, industrialist and the farmer, is responsible for the NPA problem. This arises from the notion that such small people are either more dishonest than the larger borrowers or are more prone to business failure. While a small business/industry/farmer is more susceptible to recessionary conditions in the economy, they are certainly not more dishonest than the bigger ones

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CONCLUSION

At the end of our project we can say that we are really feeling happy after working for an eight weeks with an Indias largest bank having a more then 10,000 branches in the world. We also learn how to deal with the customer and to maintain relation with them. We also developed skill of marketing. This project helps us to increase our practical knowledge in the banking sector as well as in our personal life. It will also helpful us for the future prospective. We have tried our level best to convince the customers. We, Mr. HARSHIL GANDHAKWALA and Mr. KEYUR ACHARYA wishing all the best to the STATE BANK OF INDIA and its dedicated staff for a better future.

BIBLIOGRAPHY
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 www.statebankofindia.com www.onlinesbi.com
directory of rice mill of bavla

wikipedia

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