Mudasir

A Study On Non Performing Assets
INTRODUCTION
Meaning of Financial management The term financial management has a number of meanings including the administration and maintenance of financial assets. The process of financial management may also include identifying and trying to work around the various risks to which a particular project may be exposed. Some experts refer to financial management as the science of money management the primary usage of the term being in the world of financing business activities. However, the process of financial management is important at all levels of human existence, because every entity needs to look after its finances. From an organizational standpoint, the process of financial management is the process associated with financial planning and financial control. Financial planning seeks to quantify various financial resources available and plan the size and timing of expenditures. In the business world, this means closely monitoring cash flow. The inflow is the amount of money coming into a particular company, while outflow is the record of the expenditure being made by the company in various sources. At the corporate level, the main aim of the process of business organization is to achieve the various goals a company sets at a given point of time. Businesses also seek to generate substantial amounts of profits with the help of a particular set of financial processes.
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Financial planning aims to boost the levels of resources at their disposal, while also functioning on money invested in them from external investors. Another goal companies have is to provide investors with sufficient amounts of returns on their investments. At the individual level, financial management mostly involves tailoring expenses as per the financial resources the particular individual has. Individuals who are in a favorable financial position, with surplus cash on hand or access to funding, plan to either invest their money for a positive return (which normally means that they have made more money after calculating the double impact of tax and inflation) or to spend it on discretionary items. Financial decision-making is also an important part of the modern day financial management process. The particular entities involved in financial management also need to be able to take the financial decisions that are intended to benefit them in the long run and achieve their financial aims, which is the basic premise of financial management.
Objectives of Financial Management:-

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Provide support
support
for
decision
making. to
Financial
management the financial financial
provides managers with the information and knowledge they need to operational to monitor decisions their and understand for any implications of decisions before they are made. It also enables managers decisions potential implications and for lessons to be learned from experience, and to adapt or react as needed. Ensure the availability of timely, relevant and reliable financial and non-financial information, information. or is used Financial for management control gives and managers the information that either forms the basis for calculating financial management accountability purposes. Manage risks. Financial management enables an organization to identify, assess and consider the financial consequences of events that could compromise its ability to achieve its goals and objectives and/or result in significant loss of resources. Financial management is an important component of risk management and needs to be considered with the full range of business risks, such as operational and strategic risks as well as social, legal, political and environmental risks. Use resources efficiently, effectively and economically. Financial management is necessary to ensure that an organization has enough resources to carry out its operations, and that it uses these resources with due regard to economy, efficiency and effectiveness. Strengthen accountability. Financial management is essential for an organization to understand and demonstrate how it has used the

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financial resources entrusted to it and what it has accomplished with them. Provide a supportive control environment. Financial management contributes to promoting an organizational climate that fosters the achievement of financial management objectives - a climate that includes commitment from senior management, shared values and ethics, communication and organizational learning. Comply with authorities and safeguard assets. Financial
management is essential to ensuring that an organization carries out its transactions in accordance with applicable legislation, regulations and executive orders; that spending limits are observed; and that transactions are authorized. It also provides an organization with a system of controls for assets, liabilities, revenues and expenditures. These controls help to protect against fraud, financial negligence, violation of financial rules or principles and losses of assets or public money.
TOPIC CHOOSEN A Study On Non- Performing Assets In J&K Bank Ltd CNK REDDY COLLEGE OF BUSINESS MANAGEMENT
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INTRODUCTION OF TOPIC Non-performing assets, also called non-performing loans, are loans, made by a bank or finance company, on which repayments or interest payments are not being made on time. A loan is an asset for a bank as the interest payments and the repayment of the principal create a stream of cash flows. It is from the interest payments than a bank makes its profits. Banks usually treat assets as non-performing if they are not serviced for some time. If payments are late for a short time a loan is classified as past due. Once a payment becomes really late (usually 90 days) the loan classified as non-performing. A high level of non-performing assets compared to similar lenders may be a sign of problems, as may an sudden increase. However this needs to be looked at in the context of the type of lending being done. Some banks lend to higher risk customers than others and therefore tend to have a higher proportion of nonperforming debt, but will make up for this by charging borrowers higher interest rates, increasing spreads. A mortgage lender will almost certainly have lower non-performing assets than a credit card specialist, but the latter will have higher spreads and may well make a bigger profit on the same assets, even if it eventually has to write off the non-performing loans. In liberalizing economy banking and financial sector get high priority. Indian banking sector of having a serious problem due non performing. The financial reforms have helped largely to clean NPA CNK REDDY COLLEGE OF BUSINESS MANAGEMENT
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was around Rs. 52,000 crores in the year 2004. The earning capacity and profitability of the bank are highly affected due to this NPA is defined as an advance for which interest or repayment of principal or both remain out standing for a period of more than two quarters. The level of NPA act as an indicator showing the bankers credit risks and efficiency of allocation of resource.
Reasons of NPAs:Various studies have been conducted to analysis the reasons for NPA. Whatever may be complete elimination of NPA is impossible. The reasons may be widely classified in two:
(1) Over hang component
(2) Incremental component Over hang component is due to the environment reasons, business cycle credit policy, terms of credit etc. etc. Incremental component may be due to internal bank management,
Asset Classification: The RBI has issued guidelines to banks for classification of assets into four categories.

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1. Standard assets: These are loans which do not have any problem are less risk. 2. Substandard assets: These are assets which come under the category of NPA for a period of less than 12 months. 3. Doubtful assets: These are NPA exceeding 12 months 4. Loss assets: These NPA which are identified as unreliable by internal inspector of bank or auditors or by RBI. NORMS RELATED TO NPAs IN INDIA There are two concept related to NPAs- gross and net. Gross NPA refers to all NPAs on a banks balance sheet irrespective of the provisions made. It consists of all the non-standard assets, viz Substandard, doubtful and loss assets. A loan asset is classified as substandard if it remains NPA up to a period of 18 months; doubtful if it remains NPA for more than 18 months; and loss, without any waiting period, where the dues are considered not collectible or marginally collectible. Net NPA is a gross NPA less provisions. Since in India, bank balance sheet contains 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. While gross NPA reflect the

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quality of the loans made by banks, net NPA shows the actual burden of the banks. The requirements for provisions are: 100% for loss assets; 100% of the unsecured portion plus 20-50% of the secured portion, depending on the period for which the account has remained in the doubtful category; and 10% general provision on the outstanding balance under the sub-standard category. Net NPA Recovery RBI GUIDELINES FOR RECOVERY OF NON-PERFORMING ASSETS UPTO RS. 5.00 CRORE COVERAGE: (a) The revised guidelines will cover all. NPAs in all sectors irrespective of the nature of business, which have doubtful or loss as on 31st March 1997 with outstanding, balance of Rs. 5.00 crore and below on the cutoff date. (b) The guidelines will also cover NPAs classified as sub-standard as on 31st March 1997, which have subsequently become doubtful or loss category. c) These guidelines will also cover cases pending before Courts/Debt Recovery Tribunals/Board for Industrial Finance and Reconstruction subject to consent decree being obtained from the Courts/DRTs/BIFR. (d) Cases of willful default, fraud and malfeasance will not be covered. = Opening balance + Addition during the year

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(e) The revised guidelines will remain operative only up to 31st March 2001
GUIDELINES
FOR
RECOVERY
OF
NON-PERFORMING
ASSETS
OVER RS. 5.00 CRORE (a) CMDs should personally supervise the NPAs of Rs. 5.00 Crore and above on case-to-case basis. A list of such NPAs should be prepared and all cases reviewed by CMD personally and the course of action decided in terms of rehabilitation/restructuring, one time settlement of filing of suits, by 31st August 2000. The matter should be placed before the Board of Directors, finalizing the course of action by 30th September 2000 in each such case. (b) The Board of Directors may evolve policy guidelines regarding one time settlement of NPAs over Rs. 5.00 crore covering the computation formula, realizable amount, cutoff date and payment conditions with reference to factors of security and disposability, etc., as part of its loan recovery policy including setting up of Settlement Advisory Committee, staff accountability and other relevant aspects and decide individual cases in accordance with such policy. (c) Wherever a suit is required to be filed against the defaulters, who have not come up for one time settlement, or where restructuring is not feasible, suits must be filed in all such cases by 31st October, 2000. (d) Banks should follow up suit filed cases vigorously and effectively in the Courts to enable DRTs to decide the cases within 6 months as laid down in the DRT Act and realization of dues completed at the CNK REDDY COLLEGE OF BUSINESS MANAGEMENT
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earliest. A quarterly report in regard to outstanding of above Rs. 5.00 crore should also be prepared and held on the file. (e) Any deviation from the above settlement guidelines for any borrower should be made only by the Board of Directors. FUNDAMENTALS CAUSES FOR NPAS: In a few cases of NPA has been due to internal factors (to the banks) such as weak appraisal or follow-up of loans but more often than not, it is due to factors such as management inefficiency of borrowal units, obsolescence, lack of demand, non availability of inputs, environmental factors etc. Wherever the unit/segment is doing well the credit relationship is generally maintained except in cases of willful default/ misappropriation/ diversion of funds. The problems to the unit/segment arising out of various internal/ external factors were felt to be originating point for NPAs in banks. Diversion of funds, mostly for expansion/ diversification/ modernization, taking up new projects and for helping/ promoting associate concerns, is the single most prominent reason. Besides being so, this factors like recessionary trends
developing during the expansion/ diversification/ promotion phase and failure to raise capital/ debt from public issue due to market turning lukewarm. Time/cost overrun during the project implementation stage leading to liquidity strain and turning NPA is the next factor.
NPAs may result due to the following reasons:

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1. Willful Default: Some borrowers though have the capacity and resources to repay the loan will not do the same. These sorts of people will come under willful defaulters. They will take advantage of the loopholes in the legal system. As per RBI guidelines, willful default broadly covers the following: Deliberate non-payment of the dues despite adequate cash flow and good net worth. Assets financed have either not being purchased or have been sold and the proceeds have been misutilised. Misrepresentation/falsification of records. Disposal/removal of securities without the banks knowledge. Fraudulent transaction by the borrower.
The identification of the willful defaults is to be made keeping in view the track record of the barrower and not on the basis of isolated transaction/incident. The default to be categorized as willful must be intentional, deliberate and calculated. 2. Failure of a business unit either resulting from lack of its own competitive advantage or generic weakness of the industry. Business failure like product failing to capture the market, inefficient management, strike or strained labour relations, wrong technology, technical problems, product obsolescence, etc.,

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3. Lack of adequate risk assessment and monitoring system within the bank. Absence of proper credit management system is a very serious issue i.e., in many of the Indian banks particularly state owned ones there are several dimensions to the problem. The most important being lack of trained manpower i.e., the analysts should be in adequate number to appraise critically the credit worthiness of the potential clients. 4. Lack of prudential regulation. Risk management practices can be effective only when financial statements present accurate picture of level of risk. 5. Time or cost overrun while implementing the project. 6.Internal factors like raw material shortage, raw material/input price escalation, power shortage, industrial recession, excess capacity, natural calamities like floods, accidents, etc., 7. Failure, non-payment/over dues in other countries, recession in other countries, externalization problems, adverse exchange rates, etc. 8.Deficiencies on the part of the banks viz. in credit appraisal, monitoring and fallow-up, delay in release of limits, delay of settlement of payments or subsidies by government bodies etc., 9. Government or political interferences in the working of banking system. Government policies like excise, import duties changes, deregulation, pollution control orders, etc.,

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Apart from the above said points the following points are the cause for NPA in banking sector. The quality of loans. The quality of assets. Borrowers integrity. Intention of the borrower and the bank management. Lapses in supervision and follow-up of loans. Laxity in assessment. Political interference. Managerial in competencies. Absence of will to recover loans. Lack of professionalism. A lack of sponsorship any buy-in across the organization. Inadequate education and communication efforts. Failure to manage expectation from the performance
management system. Aspiring for implementation deadlines and timeliness that are too aggressive, the pressures of which may jeopardize the entire initiative. Inability to introduce effective incentive and penalty mechanism.

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Some categories of Indian banks have a culture legacy that hampers their ability to effectively influence performance through incentives or suitable penalties. RECOVERY TOOLS AND THEIR EFFECTIVENESS 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 Narasimham 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 in 1993.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. 2. Lok Adalats: For recovery of smaller loans the Lok Adalat have 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

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useful as supplement to the efforts of the recovery by the DRTs. Such agencies should be established in all the estates. 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.
4. Revenue Recovery Act: In some state, revenue recovery act has been made applicable to banks. Since this is also expeditious process of adjudicating claims, banks may be notified to cover under the Act by State.

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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 borrowers units and accounts by way of ostentation of periodic stock/ operation statements brought down, end use, etc. in the cases of incipient cases sickness, detailed guidelines have been issued to banks to take steps for avoiding 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 too 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 banks boards 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
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 pre-sanction appraisal and post sanction supervision which is

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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. Reduction in transition period of sub-standard asset to doubtful category to 12 months as against the current norm of 18 months effective 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 the credit dispensation, recovery of credit, etc.

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INDUSTRY PROFILE Banks safeguard money and valuables and provide loans, credit, and payment services, such as checking accounts, money orders, and cashiers checks. Banks also may offer investment and insurance products, which they were once prohibited from selling. As a variety of models for cooperation and integration among finance industries have emerged, some of the traditional distinctions between banks, insurance companies, and securities firms have diminished. In spite of these changes, banks continue to maintain and perform their primary roleaccepting deposits and lending funds from these deposits. Goods and services. Banking is comprised of two parts: Monetary AuthoritiesCentral Bank, and Credit Intermediation and Related Activities. The former includes the bank establishments of the U.S. Federal Reserve System that manage the Nations money supply and international reserves, hold reserve deposits of other domestic banks and the central banks of other countries, and issue the currency we use. The establishments in the credit intermediation and related services industry provide banking services to the general public. They securely save the money of depositors, provide checking services, and lend the funds raised from depositors to consumers and businesses for mortgages, investment loans, and lines of credit. Industry organization. There are several types of banks, which differ in the number of services they provide and the clientele they serve. Although some of the differences between these types of banks have lessened as they have begun to expand the range of products and services they offer, there are still key distinguishing traits.

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Commercial banks, which dominate this industry, offer a full range of services for individuals, businesses, and governments. These banks come in a wide range of sizes, from large global banks to regional and community banks. Global banks are involved in international lending and foreign currency trading, in addition to the more typical banking services. Regional banks have numerous branches and automated teller machine (ATM) locations throughout a multi-state area that provide banking services to individuals. Banks have become more oriented toward marketing and sales. As a result, employees need to know about all types of products and services offered by banks. Community banks are based locally and offer more personal attention, which many individuals and small businesses prefer. In recent years, online bankswhich provide all services entirely over the Internethave entered the market, with some success. However, many traditional banks have also expanded to offer online banking, and some formerly Internet-only banks are opting to open branches. Savings banks and savings and loan associations, sometimes called thrift institutions, They are the second largest group as of depository institutions. were first established community-based
institutions to finance mortgages for people to buy homes and still cater mostly to the savings and lending needs of individuals. Credit unions are another kind of depository institution. Most credit unions are formed by people with a common bond, such as those who pool their savings and, when they need money, they may borrow from

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the credit union, often at a lower interest rate than that demanded by other financial work for the same company or belong to the same labor union or church. Members institutions.
Federal Reserve banks are Government agencies that perform many financial services for the Government. Their chief responsibilities are to regulate the banking industry and to help implement our Nations monetary policy so our economy can run more efficiently by controlling the Nations money supplythe total quantity of money in the country, including cash and bank deposits. For example, during slower periods of economic activity, the Federal Reserve may purchase government securities from commercial banks, giving them more money to lend, thus expanding the economy. Federal Reserve banks also perform a variety of services for other banks. For example, they may make emergency loans to banks that are short of cash, and clear checks that are drawn and paid out by different banks. Interest on loans is the principal source of revenue for most banks, making their various lending departments critical to their success. The commercial lending department loans money to companies to start or expand their business or to purchase inventory and capital equipment. The consumer lending department handles student loans, credit cards, and loans for home improvements, debt consolidation, and automobile purchases. Finally, the mortgage lending department loans money to individuals and businesses to purchase real estate. The money banks lend comes primarily from deposits in
checking and savings accounts, certificates of deposit, money market CNK REDDY COLLEGE OF BUSINESS MANAGEMENT
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accounts, and other deposit accounts that consumers and businesses set up with the bank. These deposits often earn interest for their owners, and accounts that offer checking provide owners with an easy method for making payments safely without using cash. Deposits in many banks are insured by the Federal Deposit Insurance Corporation, which guarantees that depositors will get their money back, up to a stated limit, if a bank should fail. Recent developments. Technology is having a major impact on the banking industry. Direct deposit allows companies and governments to electronically transfer payments into various accounts. Debit cards, which may also be used as ATM cards, instantaneously deduct money from an account when the card is swiped across a machine at a stores cash register. Electronic banking by phone or computer allows customers to access information such as account balances and statement history, pay bills, and transfer money from one account to another. Some banks also have begun offering online account aggregation, which makes available in one place detailed and up-to date information on a customers accounts held at various institutions. Advancements in technology have also led to improvements in the ways in which banks process information. The use of check imaging allows banks to store photographed checks on the computer instead of paper files. Also, the availability and growing use of credit scoring software allows lending departments to approve loans in minutes, rather than days.

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Other fundamental changes are occurring in the industry as banks diversify their services to become more competitive. Many banks now offer their customers financial planning and asset management services, as well as brokerage and insurance services, often through a subsidiary or third party. Others are beginning to provide investment banking servicesusually through a subsidiary that help companies and governments raise money through the issuance of stocks and bonds. As banks respond to deregulation and as competition in this sector grows, the nature of the banking industry will continue to undergo significant change. Indian Banking System Indian Banking can be broadly categorized into nationalized (government owned) private banks and specialized banking institution. The Reserve Bank of India acts as a centralized body monitoring any discrepancies and shortcoming in the system. Since the nationalized of banks in 1969, the public sector banks or the nationalized banks have acquired a place of prominence and has since then seen tremendous progress. The need to become highly customer focused has forced the slow moving public sector banks to adopt a fast track approach. The unleashing of products and services through the net has galvanized players at all levels of the banking and financial institution market grid to take a new at their existing portfolio offering. Conservative banking practices allowed Indian banks to be insulated partially from the Asian currency crisis. Indian banks are That now quoting all higher valuation when compared to banks in other Asian countries (viz. Hong Kong, Singapore, Philippines etc.) has major problems linked to huge non performing Assets (NPAs) and

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payment defaults.
Commercial Banks are nimble footed in approach
and armed with efficient branch networks focus primarily on the high revenue niche retail segments. The Indian banking has come on a long way from being a sleepy business institution, it has been largely brought about by the large dose of liberalization and economic reforms that allowed banks to explore new business opportunities rather than generating revenues from conventional streams (i.e. borrowing and lending). The banking in India is highly fragmented with 30 banking units contributing to almost 50% of deposits and 60% of advances. Indian nationalized banks (banks owned by the government) continue to be the major lenders in the economy due to their sheer size and penetrative networks which assures them high deposit mobilization. The Indian Banking can be broadly categorized into Nationalized Privatized Banks and Specialized Banking Institution, The Reserve Bank of India acts as a centralized body monitoring any discrepancies and shortcoming in the system. It is the foremost monitoring body in the Indian financial sector. The nationalized banks (i.e. government owned Industry banks) continue to dominate that out the of Indian 274 banking arena. banks estimates indicate commercial
operating in India, 223 banks are in the public sector and 51 are in the private sector. The private sector bank grid also includes 24 foreign banks that have started their operations here. Under the ambit of the nationalized banks come the specialized banking institutions. These Commercial, of rural Banks focus on area of agriculture, rural development etc, unlike commercial banks these CNK REDDY COLLEGE OF BUSINESS MANAGEMENT
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commercial Banks do not lend on the basic of a prime lending rate. They also have various tax sops because of their holding pattern and lending structure and hence have lower overheads. This enables them to give a marginally higher percentage on savings deposits. Many of these commercial banks diversified into specialized area (catering to the vast retail audience) like car finance, housing loans, truck finance etc. in order to keep pace with their public sector and private counterparts, the commercial banks too have invested heavily in information technology to offer high end computerized banking services to its clients. Banking segment in India functions under the umbrella of Reserve Bank of India the regulatory, central bank. broadly consists of: Commercial Banks Co-operative Banks This segment
COMMERCIAL BANKS The commercial banking structure in India consists of: Scheduled Commercial Banks Unscheduled Banks
SCHEDULED COMMERCIAL BANKS
It constitutes those banks that have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this Schedule that satisfy the criteria laid down vide section 42 (60 of the Act). Some co-operative banks are

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scheduled commercial banks albeit not all co-operative banks are. Being a part of the second schedule confers some benefits to the bank in terms of access to accommodation by RBI during the times of liquidity constraints. At the same time, however, this status also subjects the bank certain conditions and obligation towards the reserve regulations of RBI during the times of liquidity constraints. At the same time, however, this status also subjects the bank certain conditions and obligation towards the reserve regulation of RBI. This sub sector can broadly be classified into: Public sector Private sector Foreign Banks
UNSCHEDULED BANKS Unscheduled banks are those joint stock banks, which are not included in the second scheduled of the RBI Act on account of the failure to comply with the minimum requirements for being scheduled. As on 30 t h June 1997, there are only 3 non scheduled commercial banks operating in the country with a total of 9 branches . Features of Commercial banks: Commercial Banks perform all the main banking functions of deposit mobilization, supply of credit and provision of remittance facilities. Commercial Banks do banking business mainly in the
agricultural and rural sector.

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Commercial Banks are perhaps the first government-supported agency in Kerala.
Some Commercial Banks are scheduled banks while others are non-scheduled banks.
Commercial Banks accept current, saving and fixed or other type of time deposits from individuals and institutions including banks.
Commercial Banks are also required to comply with requirement of SLR and CRR and liquidity requirements as other scheduled and non-scheduled banks.
Commercial Banks belong to the money market as well as the capital market.
RBI BANKING The Reserve bank of India is the central banking institution. for banking operations in India. exchange control and banking It
is the sole authority for issuing bank notes and the supervisory body It supervises and administers regulations and administers the
licenses for new bank branches. 25 foreign banks operate in India in India with full banking licenses. have been approved. Despite Several licenses for private banks fairly broad banking coverage
nationwide, the financial system remains inaccessible to the poorest people in India.
RESEARCH DESIGN CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

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Any field of investigation or reporting requires a preliminary plan. The aim and scope of the study must be understood at the outset. One has to present a clear idea of the reporting procedure used in the study since the value of any systematic research lies in its methodology. Any enquirer would prove unsuccessful if it is not done along certain methodical lines. Thus the validity of study to a great extent lies in its methodology. Research is a process by which the researcher tries to analyze the data available to him either to find a solution to an existing problem or to use an opportunity available in the environment. There are various types of research methods. Research design is like a blueprint for the researcher as to how he or she should proceed. It specifies the statement of the problem, data sources, and objective of the study, data analysis and interpretation. A good research design ensures effective research and results in fruitful use of resources. 2.1STATEMENT OF PROBLEM The study is conducted on, Non Performing Assets In J&K Bank to know about how the bank is managing its NPAs and what are the effects of NPAs on the banking sector in general and J&K Bank in particular.It's 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. 2.2SIGNIFICANCE OF THE STUDY CNK REDDY COLLEGE OF BUSINESS MANAGEMENT
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To gain new and valid ideas. To know the current issues as regards to the research area. To gain more knowledge, by direct and personal experience. To broaden the perspective and set the work in context. To know the actual importance of this research. To learn more about research methods and their application in practice.
To spot the areas which have not been researched.
2.3REVIEW OF PREVIOUS STUDIES ARTICLE1 Mismanagement of non-performing assets of banks AK SEN GUPTA( source: internet ) The issues and relating to definition, calling management for or
mismanagement
recommendations
spectacular
solutions to the problem of non-performing advances of banks are being deliberated at frequent intervals during last decade or so. It all started in the late 80s the concept of classification of bank advances in several health - code categories though the terminology of non-performing advances was not existent at that time. This followed, in early 90s, with Anglo-American model of categorization of bank lending portfolio in several blocks of nomenclature that included the non-performing advances.

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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. The sudden shock of guidelines relating to non-performing advances and simultaneous standard 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-performing advances as a one-time measure. Though it was a rather difficult, if not impracticable debate. For reasons best known to the Government and the central bank, it remained a non-starter. The other major creation of 90s namely, the debt-recovery tribunals have solving as the provisions therein prevented the banks and financial institutions proceeding was mooted again in the second Narasimham Committee recommendations with no obvious signs of implementation. The latest two developments in this regard are more perplexing: The reported recommendation by the sub-committee of CII for closure of weak banks plagued by the serious problem of nonperforming advances (later withdrawn by them) and now the apparent move to form corporate debt recast body modeled on the corporate debt-recast advisory committee (CDRAC) of the Bank of Thailand. ARTICLE2 STORY OF AN NPA CNK REDDY COLLEGE OF BUSINESS MANAGEMENT
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(NON-PERFORMING ASSET) Author - Anil Chawla Once upon a time, he was a bright young engineer full of patriotic zeal. He had graduated from the country's most prestigious institute and while his classmates were preparing for migrating to USA, he had decided to serve his country. Twenty years later, he has been converted to an NPA (Non-Performing Asset) and he spends his time reading law books to save his skin in the court case that will haunt him for the rest of his life. He had started as an employee in a blue-chip company but gave up job to be an entrepreneur. After spending five years to gather some initial capital, he started a small industry with a loan from the largest Bank of India. This was 1987 and the beginning of the tragedy. He had planned the unit based on commitment from a large scale industry who it turned out had given written commitments without being serious about what it committed. The baby was born sick and it was clear to the engineerentrepreneur that there was no hope. There was just no exit route and he was forced to keep the new-born alive. As soon as the production started in 1988, he thought of various ways of saving the baby and discussed the same with the Bank with who asked him to write it all out in hundred different ways. He did that and also followed it up with personal visits to officers of the Bank. Every day he would spend half the day shunting from one office of the Bank to the other where more often than not he was treated as a dignified beggar.

30
On the rarest of rare occasions when he displayed some sense of self-respect, he was insulted beyond imagination. Reports of such bad behaviour to higher officers were answered with sermons on learning to behave like a businessman. Bank refused to help him out by giving additional finance. Bank also refused to take over his unit or to help him find a buyer for the unit. In fact they pleaded that they had no such provision. Bank can only take over a unit after a Court orders it to and that may take a few years if not decades. Bank froze his account and insisted that he keep running the unit with a frozen account. He committed his first illegal act by opening an account in another bank. This started a witch-hunt with the Bank using all means at its disposal to pressurize the other bank to close his account. All this while he kept pleading with the Bank to settle the matter amicably, but they were not interested. In 1993, the Bank filed a court case. Seven years later he is still pleading with the Bank to take over his unit on as-is-where-is basis and recover the best value possible. But the Bank believes that a dead horse is more valuable than a live one and they would take over the assets (or what remains of the assets) a few years down the line after being ordered so by Debt Recovery Tribunal. He has offered to pay some money based on his paying capacity and settle the matter out-of-court. Bank is not even interested in talking. The case drags on and he keeps cursing the day he decided to serve the country. A long story that is boring because everyone likes to read about success and forget about failures. Yet, there is no denying that failure is an essential part of entrepreneurship. Accepting failures gracefully CNK REDDY COLLEGE OF BUSINESS MANAGEMENT
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is the key to success and a society that cannot accept failures is doomed. For a long time, India tried to follow socialism treating all businessmen as crooks and looking at entrepreneurs with suspicion. All talk of liberalization and economic reforms has not changed the mindset of Indian bankers and powers that control the bankers. The legacy of the British raj has survived and flourished in the form of India's gigantic cancerous bureaucracy. The tentacles of this cancer have spread to almost all fields in India including banking. Indian banks and financial institutions (FI's) are crying hoarse about their large Non-Performing Assets portfolio and are blaming the entrepreneurs, businessmen, Government, judicial system, courts practically everybody except themselves for the mess that has been created primarily by them. Any lending involves the following three stages where discretion needs to be exercised (a) Evaluation and assessment of the proposal (b) Continuing Support during the currency of the loan by additional loan or by non-fund based activities (c) Exit decision and modality. Indian Banks and FII's exhibit extremes of behaviour at each of the above stages. A rule-based approach precludes reasonable application of mind. Evaluation of project idea and the management is something that most Indian banks and FI's are least equipped for. This leads to the banker acting too liberal on all projects that are related to the flavor-of-the-month as well as to insisting on collaterals from everyone without taking into consideration any other competencies of the entrepreneur. For example if wind is blowing in favour of software,

32
all projects involving software will be supported. On the other hand if foods is not being favored, a genuinely good proposal in foods will be rejected by all banks. This naturally encourages crooks to keep smelling for the flavor-of-the-month. As soon as they smell it out, the next step is to get a ready mix 'bankable' project report from a conman (also called consultant). Banks and FI's are too willing to finance against such reports to shady businessmen who may also sometimes grease their palms instead of looking for genuine project ideas backed by competent men of integrity. Herd mentality of the bankers and FI's creates excess capacity in any industry that they choose to finance thereby laying the seeds of sickness of that industry. Coupled with the incompetency of the entrepreneurs and the shady intentions with which the projects were set up, the sickness spreads like wild fire. After a loan has been disbursed, it is an accepted norm that the Bank and FI's have a duty to keep smelling for and to act promptly on key signals that indicate the health of the recipient of the loan. Rulebound bankers in India do collect all the necessary information and pile it up in neat reports and files. It is not unusual for bankers to even advise their clients to cook up their accounts to either satisfy the Banker's Health Code requirements or to get their unit classified as sick under the relevant laws. This having been done, the banker can sleep peacefully. Acting on the signals that emanate from these reports is none of his business. It is the entrepreneur who has to exercise to convince a long chain of stubborn bank and FI officers to rise from their slumber. This long chain operates on a veto system. Each and every member of

33
the chain has a right to delay and veto and no one, howsoever senior, has a right to over-ride a veto or to ask someone to expedite. So the entrepreneur is now caught in a game where almost every petty Bank and FI officer satisfies his ego by kicking him where it hurts most before obliging him by moving the file to the next officer. Bank's and FII's key decisions about nursing versus exit get influenced by this merry-go-round ego trip of the officers. The attitude that the Bank will lose more than the entrepreneur by a delay in such key decisions is completely missing in Indian bankers and FI's who see themselves as demi-gods waiting for the right 'puja' (rites of worship) to be performed by the faithful before granting the boons. Honourable exit is something that is an alien concept to the Indian bankers and FI's. The only exit route known to banks and FI's in India is to issue a Recall of Loan letter. The letter is just a stepping stone to filing a suit and has no other practical utility. As soon as a Recall letter is issued, the banker is relaxed because his headaches are now over. He will pass the necessary entries in his books classifying the loan as Non-Performing Asset (NPA). He can now blame everybody else for all his omissions and commissions with the entrepreneur being the key accused. In any other part of the world, the first option that a banker is supposed to exercise with the support and consent of the entrepreneur is a change in ownership. It always makes more sense to sell a business as a going concern rather than sell it as a dead horse. In any business there are intangibles like goodwill, key customers, key employees who may be lost as soon as a court case is filed. Sometimes such intangible assets may be more valuable than tangibles like land,

34
building, plant & machinery etc. Indian banks and financial institutions live in a fool's paradise thinking that a court or tribunal can get them all that they need. What they do not realize is that no judicial body can help them get possession of a running unit without sacrificing its vitality. ANIL CHAWLA (source: Finance magazine ) 2.4OBJECTIVES OF THE STUDY To know about the Maintenance of adequate liquid assets in bank. To study the problem and causes of the Non- Performing Assets. To study the regulation of the Reserve Bank of India regarding Non-Performing Assets. To understand how it affect the performance of a Bank. To understand the extent to which The Jammu & Kashmir Bank has been successful in cutting down its NPA level.
2.5SCOPE OF THE STUDY This study is confined to The Jammu & Kashmir Bank, and the reference period of the study covers the year 2008-2009. The study is related to the role played by The Jammu & Kashmir Bank in managing

35
the Non Performing Assets & is based on the regulation of Reserve Bank of India & recommendations on the committees appointed by it.
2.6METHODOLOGY
I. Type of Research
The research carried out in this study is descriptive in nature. Descriptive research includes surveys and fact-finding enquiries of different kinds. The major purpose of descriptive research is description of state of affairs as it exists at present. The main characteristic of this method is that researcher has no control over the variables; he can only report what has happened or what is happening. II. Sample size Non probability sampling has been adopted for the study. The sample size taken up for the study was 15 respondents. The respondents include managers and employees of the bank
2.7SAMPLE DESIGN A sample design is a definite plan for obtaining a sample from a given population. It refers to the technique or the procedure the researcher would adopt in selecting items for the sample. Sample

36
design may as well lay down the number of items to be included in the sample i.e. the size of the sample. Sample design is determined before data are collected. 2.8SOURCES OF DATA The data was collected in two ways, which are detailed below: Primary Data Secondary Data
PRIMARY DATA: The Data collected for a specific purpose for the first time is Original known as Primary Data. The primary data was basically collected through Questionnaire method The Questionnaire method is a powerful tool to collect the information questions in a a structured Questionnaire order. involves in asking contained the a prearranged This research
questionnaire that had structured (prearranged order), close ended (limited answer can be given) questions.
SECONDARY DATA: This data is collected from materials provided by company annual reports, management reports, magazines, journals, RBI circulars and some essential books on banking . CNK REDDY COLLEGE OF BUSINESS MANAGEMENT
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2.9TOOLS AND TECHNIQUES OF DATA Questionnaire Pie charts Bar charts Percentage method
Questionnaire:A questionnaire was the only tool used for the collection of primary data. The questionnaire was prepared carefully, by sequencing the questions to create interest when possible as well as difficult. Most of the questions are closed ended. The survey was conducted around four weeks. Non-probability random sampling was done where the respondents were interviewed from different branches of the J&K Bank. 2.10LIMITATIONS OF THE STUDY: Due to time constraint in depth analysis cannot be made. The data taken for interpretation is for a limited period. The study is confined to only one company that is The Jammu And Kashmir Bank.
2.11Chapter scheme:CHAPTER 1: Introduction. CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

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CHAPTER 2: Research Design. CHAPTER 3: Profile of the Jammu & Kashmir Bank CHAPTER 4: Analysis and interpretation of data. CHAPETR 5: Summary of findings, conclusions and recommendations Bibliography Annexure
PROFILE OF THE BANK Historical Back Ground of J & K Bank

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The Jammu & Kashmir Bank was founded on October 1 1938 under letters patent issued by the Maharaja of Kashmir, Hari Singh. The Maharaja invited eminent Kashmiri investors to become founding diretors and shareholders of the bank, the most notable of which were Abdul Aziz Mantoo, Pesten Gee and the Bhaghat Family, all of whom acquired major shareholdings. The Bank commenced business on July 4, 1939 and was considered the first of its nature and composition as a State owned bank in the country. The Bank was established as a semi-State Bank with participation in capital by State and the public under the control of State Government. The bank had to face serious problems at the time of
independence when out of its total often branches two branches of Muzaffarabad , Rawalakot and Mirpur fell to the other side of the line of control (now Azad Kashmir ) along with cash and other assets. Following the extension of Central laws to the state of Jammu & Kashmir, the bank was defined as a government company as per the provisions of Indian companies act 1956. The Jammu & Kashmir Bank is considered as one of the fastest growing banks in India with a network of more than 500 branches/offices spread across the country offering world class banking products/services to its customers. Today, the Bank has a status of value driven organization and is always working towards building trust with shareholders, customers, borrowers, regulators, employees and other diverse stakeholders, for which it has adopted a strategy directed to developing a sound foundation of relationship and trust aimed at achieving excellence, which of course, comes from the womb of good corporate governance. Good governance is a source of competitive advantage and a critical input for achieving excellence in CNK REDDY COLLEGE OF BUSINESS MANAGEMENT
40
all pursuits. J&K Bank considers good corporate governance as the sine qua non of a good banking system and has adopted a policy based on all the four pillars of good governance transparency, disclosures, accountability and value. The J & K Bank is the first state owned bank of the country and 53% of equity is held by the Govt. of J & K. The bank has a consistent track record of growth and profitability. It has a unique distinction of being banker to the J & K State Govt. and has also been appointed by RBI as its agency in J&K, responsible for carrying general banking business of the Central Govt, and collection of Taxes pertaining to the Central Board of Direct Taxes. J&K Bank has, over the past few years, been reporting
sustained excellent performance in all the vital areas of business and achieving record-breaking levels in profit generation. However, what I feel is more reassuring is that bank is quietly working on a much larger objective of setting a strong foundation that will serve as a launch pad to support our aggressive growth plans for the future. J&K Bank has, today, acquired significant financial strengths on key benchmarks that give us great confidence in the journey forward. Today, the Bank has a status of value driven organization and is always working towards building trust with Shareholders, Employees, Customers, Borrowers, Regulators and other diverse Stakeholders. it has adopted a strategy directed to developing a sound foundation of relationship and trust aimed at achieving excellence, which of course, comes from the womb of good Corporate Governance. Good Governance is a source of competitive advantage and a critical input for achieving excellence in all pursuits. J&K Bank CNK REDDY COLLEGE OF BUSINESS MANAGEMENT
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considers good Corporate Governance as the sine qua non of a good banking system and has adopted a policy based on all the four pillars of good governance transparency, disclosures, accountability and value, enabling it to practice trusteeship, transparency, fairness and control, leading to stakeholders delight, enhanced shareholder value and ethical corporate citizenship. It also ensures that bank is managed by an independent and highly qualified Board following best globally accepted practices, transparent disclosure and empowerment of shareholders, besides ensuring to meet shareholder aspirations and societal expectations following the principles of management executive freedom to drive the bank forward without undue restraints but within the framework of effective accountability. The excellence achieved by the bank in its operations stemming from the roots of voluntary good Governance has not gone unrecognized and Bank has recently bagged three very prestigious award for following fair business practices and commitment to social obligations. Entire performed banking by is the state of till Jammu 1920- 30 and and Kashmir that was at
traditional
lenders
too
exorbitant interest rates. At the same time some banks function at a very limited scale, such as Punjab National Bank Limited, Grind lays Bank and Imperial Bank of India
The role of these banks was reduced to the acceptance of deposits, as they could not grant loans and advantage to the people of the state owing to the statutory limitations. Under this scenario banks could not ameliorate the financial and social position of the people of the state. To overcome this critical situation the then

42
Maharaja of the state conceived an idea of setting up of a state bank in the state. for After a prolonged of exercise and deliberations Kashmir the Bank assignment establishing The Jammu and
Limited was given to the late Sir Sorabji N Pochkhanwala, the then Managing Director of the Central Bank of India. Mr. Pochkhanwala formulated a scheme on 24-09-1930,
suggesting establishment of a semi state bank with participation in capital by state and the public under the control of state Government. Thus the bank was formally incorporated on the Ist of October 1938 and commenced business from 4 t h of July 1939 at its Registered office Residency Road Srinagar, Kashmir. YEAR BY YEAR EVENTS IN THE HISTORY OF J&K BANK LTD 1938:-The Jammu & Kashmir Bank Ltd was incorporated in 1938 to extend banking facilities in Jammu & Kashmir. The bank was constituted as a government company under Companies Act, 1956 and is functioning as bankers to the state government. 1993:- The Bank tied up with Reuter News Agency for instantaneous information about global foreign currency rates and fluctuations thereof. 1994:- The Bank tied up with Reuter News Agency for instantaneous information about global foreign currency rates and fluctuations thereof. 1995:- Banking Ombudsman Scheme was launched in June, with a view to provide of quick and inexpensive A facility to resolve system the was grievances banks' customers. loan delivery

43
introduced in April, to install discipline in the utilization of bank credit especially by large borrowers. 1998:- Jammu and Kashmir Bank Ltd (J&K Bank) is coming out with a public issue of 1,85,00,000 equity shares of Rs.10 each for cash at a premium of Rs.28 per share aggregating Rs.70.30 crore. loan accounts of chronic defaulters by A recovery court drive was launched which included settlement of long outstanding outside compromises.Bank introduced a new term deposit scheme under the title "Jana Priya Jamma Yojna" carrying flexibility in the repayment schedule. Housing Loan and Education Loan Schemes for general public have been introduced during the current financial year. 1999:-The bank entered into an agreement with IBA to connect its ATMs through a shared network. 2000:-Jammu Technologies and to Kashmir Bank has tied and up for its with Infosys
offer
internet
banking
e-commerce
initiatives. Jammu and Kashmir Bank is in talks with two foreign insurance companies for a joint venture for its insurance subsidiary to be floated by the year end. Jammu and Kashmir Bank Ltd, the Srinagar-based listed bank in the country, tied up with Infosys Technologies Ltd. Jammu and Kashmir Bank has tied up with American Express to launch a co-branded credit card. The J&K Bank American Express Credit card offers high value features including global validity, balance transfer facility, membership rewards and emergency cash. The Bank will broaden its areas of diversification by getting into non-life insurance and depository business, apart from life Insurance and asset management business following the recommendations of price water house Coopers .

44
2001:-The Bank has launched J&K Bank - AMEX Co. Branded Credit Card pursuant to agreement entered with American Express Bank. The Bank has tied up with the US-based insurance giant, Metlife, for the proposed foray in the insurance sector. 2003:-Jammu and Kashmir Bank has agreed to reduce the rate of interest rom 16 to 12% on various loans advanced to houseboat owners, taxi and shikariwalas. Jammu and Kashmir Bank has strengthened its bonds with Infosys by successfully deploying Finacle Core Banking. J & K bank has decided to launch Global Access Card ( an International Debit Card) in association with Master Card International. 2004:- J&K Bank slashes PLR to 11-pc. J&K Bank approves Rs 300-cr for Reliance Infocom. Jammu and Kashmir Bank ties up with ICICI Bank to share the ATM network. Jammu & Kashmir bank has received the Asian Banking Award 2004 in Manila for its customer convenience programme'. J&K Bank signs MoU with Bajaj Tempo. J & K Bank unveils international division in Srinagar. IDBI Bank ties up for Visa transactions with Jammu & Kashmir Bank to launch a platform for the state's merchant establishment. JK Bank inks pact with Birla Power Solutions 2006:- Jammu & Kashmir Bank receives approval from RBI for increasing the FII's Holding. Depository Services Scheme of J and K Bank Dematerialisation (Demat) Stock Broking through INVESTMART an initiative of ILFS

45
Depository Depository Participant Market transaction Off-market transactions Pledge of securities Rematerialisation (remat)
Insurance offered by J and K Bank Insurance products of Jammu and Kashmir Bank are offered in association with Bajaj Allianz General Insurance Co. Ltd.
Motor insurance Hospital cash Burglary Shop keepers In association with Metlife, the Bank is offering the following
Life Insurance Policy to its customers.
Met Bhavishya - A flexible money-back plan Met Junior - Par Endowment Met Mortgage Protector SP Single Premium Mortgage
Protection Plan

46
Met 100 - Limited Pay Whole Life Insurance Met 100 Gold - Par Whole Life Met Platinum (Endowment) - Participating endowment assurance for face amounts above Rs. 3 lakh
Met Riders - Customization tools for policies
Credit Card of J and K Bank Initially there are three types of Credit Cards issued by Jammu and Kashmir Bank. They are as mentioned below: Gold Card Silver Card Blue Card
UNIQUE CHARACTERISTICS ONE OF A KIND Private sector bank despite govt. holding 53% of equity.
Sole banker and lender of last resort to Govt of J&K.
Plan and non plan funds, taxes, and non-tax revenues
routed through the bank. Salaries of govt officials disbursed by the bank. CNK REDDY COLLEGE OF BUSINESS MANAGEMENT
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Only private sector bank designated as agent of RBI for
banking business.
Collects taxes pertaining the central board of direct taxes in J&K . INFRASTRUCTURE: Global Standards The fastest growing bank with 544 branches across the country. Over 98% of business computerized. Anywhere banking, tele banking, and SWIFT facilities available. Internet banking, SMS, and mobile banking provided. ATMs connected globally to all master card networked ATMs. Mobile ATM service available first of its kind in Northern India. J&K bank global access debit card, Cirrus, and maestro
enabled. Own Credit card. Departments of the J&K Bank The Bank J&K bank is a diverse and complex organization that has wide-ranging departments. The Bank's main departments are described below: a) Audit: Responsible for conducting independent and objective appraisals that examine and evaluate Bank operations. b) Banking Operations: CNK REDDY COLLEGE OF BUSINESS MANAGEMENT
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Key players in three of the Banks core functions: currency, financial system, and funds management. c) Communications: Helps the Bank meet its commitment to openness and transparency and public relations. d) Corporate Services: Comprises the following service areas: Human Resources, Information Technology, Knowledge and Information, Facilities and Protective Services. e) Debt Administration: Ensures the delivery of cost-effective back-office operations and provides policy advice. f) Executive and Legal Services: Supports the Bank's management by providing decision-support
functions to the executive and to the Board of Directors. g) Financial Markets: Functions include implementing monetary policy, managing the
federal government's cash balances and foreign exchange reserves. h) Financial Services: Responsible for the accounting and financial reporting of the Bank. i) Monetary and Financial Analysis: Monitors and carries out researches on the financial sector.

49
j) Research: Provides the Bank is management with high-quality analysis of the economy and related policy issues and new trends in the market.
The landmark achievements of the bank in some important fields of operation since its inception SHARE CAPITAL & RESERVES : The bank was incorporated with the authorised capital of Rs.2.00 Lakh shares of Rs.25/- each amounting to Rs.50.00 Lakh. The first issue comprised 80,000 shares amounting to Rs.20.00 Lakh .A total number of 62716 shares of the value of Rs.15,67,900/ were authorised and Rs.7.66 Lakh paid up as on 30.06.1940 .The authorised capital was subsequently reduced to 1.20 lakh shares amounting to Rs.30.00 Lacs in 1958 and latter enhanced to 40.00 Lacs in 1992 and 80.00 Lacs in 1993 amounting to Rs.10.00 Crores and Rs.20.00 Crores respectively. The issue capital of 28.00 lakh

50
shares amounting to 7.00 Crores stands subscribed and paid up as on March 31,1997 Rs.28/- per share .Thus where as the paid up capital would be increased to Rs. 48.50 Crores ,simultaneously the bank be able to earn the share premium of Rs.86.80 Crores . The bank has paid special attention to the vital aspect since its inception .The first Reserves were created by the bank when amount of Rs.10,000 / were transferred to the account as on 30.06.1941.The reserves were created not only to meet the statutory requirements but also for bad and doubtful debts and for meeting other contingencies. The free reserves which were of the order of less than one lakh in 1944 and Rs.7.00 lakhs in 1966 stood at Rs.42.50 Lacs in 1975 and less than one Crore in 1979. In a span of just over 16 years the reserves have grown ten thousand times and crossed Rs.100 Crores mark in 1995, excluding those held for the risk weighted assets. The Bank came out with unsecured non-convertible redeemable, subordinated tier-II Bond issue of Rs.75 crores in December 2000. The issue received an overwhelming response and the Bank mobilized Rs.87 crores against the size of Rs.75 crores at 11.75% p.a. with a tenure of 63 months. DEPOSITS The public has reposed its confidence in the standing of the bank from its very inception and the same has been growing ever since that dates; despite the shocks it received as a consequence of partition because of loss of two branches within eight years. In the first year of its operation the bank succeeded mobilizing deposits to the tune of Rs.14 Lacs after which there was no looking back .The deposits which stood at just over one Crores in 1949 and less than

51
100 Crores in 1978, grew with amazing pace within a span of 16 years . The growth of the deposits accelerated at an amazing pace for the decade 1980-1990, from Rs.191.67 Crores to Rs.1046.35 Crores. Barring few occasions, the growth rate has been more than the national average, doubling in 1991-1994 (in just four years) despite the slag economic trends in the state due to turmoil and difficult working conditions. It will be in order to reveal that when all nationalized banks closed down their offices in valley in 1990; the J & K bank alone braved against all odds and discharged its banking services to the public at great risks. Not only in deposits, the bank discharged its duties under those difficult situations in all spheres and made inroads in multifarious levels in pattern of client base. The bank performed commendably during the year by registering the growth rate of 26.40% against the national average of 16.1%. The deposits of the bank stood at Rs.3658.14 Crores as on March 31st, 1997 against the Rs.2895.18 Crores as on 31.03.1996. The deposit base of the Bank touched new high at 11,168 crores at the end of financial year 200001. The average deposits per branch work out to Rs.30.15 crore against the previous year figure of Rs.26.17 crore. The average deposit per employee stood at Rs. 172 lacs against Rs.150 lacs of the previous year. General Financial performance:Share Statistics of J&K Bank for three years:As on EPS (Rs.) 31-Mar-08 74.26 31-Mar-07 56.62 31-Mar-06 36.78

52
CFPS (Rs.) Book Value (Rs.) DPS (Rs.)
80.90 470.49 15.50
63.46 414.36 11.50
44.81 371.20 8.00
Financials performance: The Bank recorded an outstanding achievement in the last fiscal (2007-08) in key areas of its operations. The bank recorded a considerable increase in its profits .The banks investments also showed a commendable appreciation. The Capital & Reserves of the Bank increased by Rs.2720.93 mn to Rs. 22323.35mn.The Capital Adequacy Ratio stood at 12.80%, which is comfortably much above the minimum stipulated by Reserve Bank of India. The Bank posted a net profit of Rs.2848.63 mns in the last fiscal. The credit portfolio of the Bank also recorded an appreciable growth during the year. The total advances of the Bank increased by Rs.18026.7mn to Rs.188826.12 against Rs.170799.42Mn of the

53
corresponding previous year . The net NPAs stood at 1.00% against 1.13% of the previous year, which is one of the lowest in the industry. Keeping in view overall performance of the Bank, the dividend paid by the bank to its shareholders increased by 193.92mn to 751.41mn from 557.49mn.
CREDIT ADVANCE DEPARTMENT: The credit advance department (CAD) is situated in Moulana Azad Road, Srinagar Kashmir. The department started operating about 20 years back. Each year there was development and changes in the whole of the NPA considering department. This department is the core center for all outstanding balances of Rs.1, 00, 00,000 and above NPA of various branches of The Jammu and Kashmir Ltd. The CAD supervises the functioning of ARMBs (Assets Recovery Management Committee) and SACs (Special Account Cells). FUNCTIONS OF CAD:

54
1. To monitor NPAs of Rs 1, 00, 00,000 and above. 2. To organize submission of reports and NPA to the top level management. 3. To coordinate meetings of ARMC (Assets Recovery Management Committee). 4. To organize submission of returns to RBI. 5. To coordinate the SBUs (Strategic Business Units) for collection of data for submission to top level management. 6. To supervise the functioning of ARMCs and SACs (Special Account Cells).
Table 1
Showing the amount of advances made in three years
Year 2006 2007 2008
Advances (Rs in mn) 144831.05 170799.42 188826.12
Analysis:CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

55
From the above table it clear that the advances made in the year 2007 had increase by 25968.37 mn and in the year 2008 it had increased by 18026.7 mn. Inference:Thus we can infer that the advances made by the bank has increased considerably year by year.
Graph 1 Showing the amount of advances made in three years

56
200000 180000 160000 140000 120000 100000 80000 60000 40000 20000 0
Advances(R m s n)
2006
2007
2008
Table 2:Showing the level of NPAs in three consecutive years Years 2006 Percentage of NPAs 1.00

57
2007 2008
1.13 0.92
Analysis:It is clear from the above table that NPA level in the bank has shown a decreasing trend as compared to one preceding year. The %age of NPAs in 2006 was 1%.In 2007, the NPA level increased by 0.13% and in 2008, the NPA level came down by 0.21%. Inference:It is evident from the above that the bank stressed for curtailing down the NPA level in 2008 and the bank succeeded in its strategy up to a satisfactory level. Though the advances made by the bank had increased year by year still the bank is able to curb down the NPA level.
Graph 2 depicts:Level of NPAs in three consecutive years

58
1.2 1 0.8 0.6 0.4 0.2 0 2006 2007 2008 percentag of e NP As
Table 3 depicts:Since how long is the branch functioning
No. of Respondents
Percentage

59
0-2 yrs 2-4 yrs 4 yrs and above Total Analysis:-
0 4 11 15
0 26.66 73.33 100
From the above table it is clear that 74% of branches of functioning since 4 years and all other branches are functioning from a minimum period of 2 years. Inference:The above table shows that most of the branches of J&K bank have been functioning from a period of 4 years and above. So the management is looking forward for the maintenance of the present branches.
Graph 3 Showing period of functioning of branches

60
Table 4 depicts:Since how long are you working in this branch

61
No. of Respondents 0-2 yrs 2-4 yrs 4 yrs and above Total Analysis:2 8 5 15
Percentage 13.13 53.33 33.33 100
We can observe that most of the respondents (53.33%) are working for 2-4 years in the same branch. Inference:The above table shows that most of the respondents work in the same branch for a minimum period of 2-4 years.
Graph 4 depicts:Since how long are you working in this branch

62
Table 5 depicts:Do you think that the performance of your branch is improving year after year

63
No. of Respondents Yes No Total Analysis:12 3 15
Percentage 80 20 100
We can observe that the 80% of the respondents suggested that the performance of the branch is improving year by year while 20% of the respondents suggested that the performance of the branch is not improving year by year. Inference:We can infer that the performance of majority of the branches is improving year by year.
Graph 5 depicts:
Do you think that the performance of your branch is improving year after year

64
No of Respondents
yes no
Table 6 depicts:Do you think that NPA is one of the major factor affecting the performance of the banking sector

65
No. of Respondents Yes No Total 13 2 15
Percentage 86.67 12.5 100
Analysis:Here 86.67% of the respondents suggested that NPA is one of the major factor affecting the performance of the banking sector and 12.5% suggested that NPA is not one of the major factor affecting the performance of the banking sector. Inference:Clearly it can be observed that NPA is one of the major factor affecting the performance of the banking sector.
Graph 6 depicts:NPAs effects on the performance of the banking sector

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Table 7 depicts:Is your branch facing the problem of NPAs

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Analysis:It is evident that 100% of the respondents suggested that their branch is facing the problem of NPA.
Inference:From the above, we infer that NPA observed in all the branches.
Graph 7 depicts :Is your branch facing the problem of NPAs

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Table 8 depicts:Since how long the presence of NPA is observed in your branch
No of Respondents
Percentage

69
0-1 yrs 1-2 yrs 2-3 yrs 3 yrs & above Total
1 4 5 5 15
6.66 26.66 33.33 33.33 100
Analysis:It can be observed that 1 out of the total of 15 respondents suggested that the presence of NPA is observed since from 0-1 year,4 respondents suggested that the presence of NPA is observed since from 1-2 years,5 respondents suggested that the presence of NPA is observed since from 2-3 years and 5 respondents suggested that the presence of NPA is observed since from 3 years and above. Inference:We can infer that NPAs are maximum in those branches which are performing from two years and above, it can be observed that NPAs are present in all the branches of the bank.
Graph 8 depicts:Since how long the presence of NPA is observed in your branch

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Table 9 depicts:According to you which of the following is the main cause of NPAs
No. of Respondents
Percentage

71
Weak follow up of loans Improper selection of borrowers Willful default of the borrowers Other factors
2 3 9 1 15
13.33 20 60 6.66 100
Total
Analysis:It can be observed that 13.33% of respondents suggested that Weak follow up of loans,20% feel that improper selection of borrowers,60% feel that Willful default of the borrowers,6.66% feel that other factors are the main causes of NPA. Inference:From the above table we can infer that willful default of borrowers is the main cause of NPAs.
Graph 9 :
Showing the main causes of NPAs

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Table 10 depicts
What is the approximate value of NPA in your branch (Rs. in lakhs)

73
No. of Respondents 1-5 5-10 10-20 20-30 30-50 50 & above Total 0 0 3 2 5 5 15
Percentage 0 0 20 13.33 33.33 33,33 100
Analysis:It is evident that 20% of respondents suggested that approximate value of NPA in their branch is 10 -20 lakhs, 13.33% suggested that its value is 2030lakhs,33.33% suggested that its value is 30-50 lakhs and 33.33% suggested that its value is 50 lakhs and above. Inference:The branches of the bank have large amount of NPAs.
Graph 10:Showing the approximate value of NPA in your branch (Rs. in lakhs)

74
Table 11 depicts:Which of the following loans accounts for the major portion of NPAs
No. of Respondents Housing loan 2
Percentage 13.33

75
Education loan Vehicle loan Business Loans Total
2 5 6 15
13.33 33.33 40 100
Analysis:We can observe that 13.33% of the respondents suggested that housing loan accounts for major portion of NPAs, 13.33% feel that education loan,33.33% of respondents suggested that vehicle loan and 40% of the respondents suggested that business loans accounts for major portion of NPAs. Inference:We can infer that business accounts for major portion of NPAs .
Graph 11 :Showing %age of NPAs in different categories of loan accounts.

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Table 12 depicts:Is NPA affecting the profitability of your branch
No. of Respondents
Percentage

77
Yes No Total
13 2 15
86.67 13.33 100
Analysis:It can be observed that 86.67% of the respondents suggested that NPA is affecting the profitability of their branch and the remaining 13.33% suggested that NPA is not affecting the profitability of their branch. Inference:It is clear that NPA is affecting the profitability of majority of the branches.
Graph 12 depicts:Is NPA affecting the profitability of your branch

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Table 13 depicts:According to you which internal factors will be more effective for reducing NPAs
No. of Respondents Proper selection of borrowers 6
Percentage 40

79
Improved follow up of loans Improved performance of borrowal units All of the above Total
3 1 5 15
20 6.66 33.33 100
Analysis:We can see that 40% of the respondents suggested that proper selection of borrowers will be more effective for reducing NPAs,20% suggested that improved follow up of loans, 6.66% suggested that Improved performance of borrowal units, 33.33% suggested that all of the above factors will be effective for reducing NPAs. Inference:Clearly proper selection of borrowers will result in reduction of NPAs.
Graph 13:Showing which internal factors will be more effective for reducing NPAs

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Table 14 depicts:According to you, to what extent subprime loans are responsible for NPAs
No. of Respondents 0-10% 0
Percentage 0

81
10-25% 25-50% 50 % & above Total
3 4 8 15
20 26.66 53.33 100
Analysis:Here 20% of the respondents suggested that subprime loans are responsible for 10-25% of NPA, 26,66% of the respondents suggested that subprime loans are responsible for 25-50% 0f NPA and 53.33% of the respondents suggested that subprime loans are responsible for 50% and above of NPAs Inference:It is observed that subprime loans are one of the major factor responsible for NPAs.
Graph 14:Showing the extent to which subprime loans are responsible for NPAs

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Table 15 depicts:Do you think that J&K Bank is having efficient strategies to cover NPAs as compared to other Banks

83
Analysis:From the above table it is evident that 80% of the respondents suggested that the J&K bank is having efficient strategies to cover NPAs while as 20% of the respondents suggested that the strategies are not efficient as compared to other banks. Inference:Here we can infer that J&K bank is having more efficient strategies to cover NPAs as compared to other banks.
Graph15:Do you think that J&K Bank is having efficient strategies to cover NPAs as compared to other Banks

84
Table 16 depicts:Do you think internal policies of the bank are responsible for NPAs

85
Analysis:Clearly we can see that 80% of the respondents suggested that banks internal policies are not responsible for NPAs while 20% of the respondents suggested that banks internal policies are responsible for NPAs. Inference:We infer that banks internal policies are not responsible for NPAs.
Graph 16 :Showing whether internal policies of the bank are responsible for NPAs

86
Table 17 depicts:Are you satisfied with present norms of RBI regarding NPAs No. of Respondents They are efficient 9 Percentage 60

87
Improvement is needed They are to be revised totally. Total Analysis:-
4 2 15
26.66 13.33 100
It is clear that 60% of the respondents suggested that present norms of RBI are efficient, 26.66% suggested that Improvement is needed & 13.33% suggested that they are to be revised totally. Inference:It can be observed that the present norms of RBI regarding NPAs are efficient.
Graph 17:Showing efficiency of RBI norms regarding NPAs

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Table 18 depicts:According to you can NPAs be controlled totally
No. of Respondents Yes 3
Percentage 20

89
No Cant say Total
9 3 15
60 20 100
Analysis:In this table we can see that 60% of the respondents suggested that NPAs cannot be controlled totally, 20% of the respondents suggested that NPAs cannot be controlled totally and the remaining 20% suggested that they cannot say. Inference:It can be inferred that it is not possible to control NPAs totally.
Graph 18 :Showing can NPAs be controlled totally

90
Table 19 depicts:Do you think that more decentralization of authority should be made regarding the decisions related to the granting of advances
No. of Respondents Yes No 7 4
Percentage 46.67 26.67

91
Cant say Total Analysis:-
4 15
26.67 100
Here 46.67% of the respondents suggested that more decentralization of authority should be made regarding the decisions related to the granting of advances should be made, 26.67% suggested that decentralization is not needed and 26.67% said that they cannot say. Inference:It can be observed from the above that more decentralization of authority should be made regarding the decisions related to the granting of advances should be made.
Graph 19:Showing whether more decentralization of authority should be made regarding the decisions related to the granting of advances

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Table 20 depicts:According to you which of the following contributes towards the high NPAs in Indian banks
No. of Respondents legal impediments time consuming nature of asset disposal proposal postponement of problems in order to show higher earnings manipulation of debtors using political influence 6 4 2 3
Percentage 40 26.67 13.33 20

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Total
15
100
Analysis:Here 40% of the respondents suggested that legal impediments contribute towards the high NPAs in Indian banks,26.67% suggest that time consuming nature of asset disposal proposal,13.33% suggest that postponement of problems in order to show higher earnings, and 20% suggest that manipulation of debtors using political influence contribute towards the high NPAs in Indian banks. Inference:We can infer that legal impediments is the main cause of NPAs in Indian banks.
Graph 20:Showing the factors contributing towards the high NPAs in Indian banks

94
Table 21 depicts:Which of the following external factors (which are not even under the control of borrower) can also result in NPAs?
No. of Respondents
Percentage

95
Sluggish legal system Shortage of raw material Industrial recession Natural climaties Political instability Total
2 1 9 0 3 15
13.33 6.67 60 0 20 100
Analysis:Here 13.33% of the respondents suggested that sluggish legal system is the external factor which can also result in NPAs, 6.67% suggested that shortage of raw material, 60% of the respondents suggested that Industrial recession,20% of the respondents suggested that political instability can also result in NPAs. Inference:We can infer that industrial recession is the main uncontrollable external factor that can also result in NPAs.
Graph 21 :Showing the external factors (which are not even under the control of borrower) that can also result in NPAs

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Table 22 depicts:Which of the following steps taken by the government to recover and reduce NPAs do you think is more effective
No. of Respondents
Percentage 40 20
One time settlement /Compromise scheme Lok adalats
6 3

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Debt recovery tribunals SARFAESI ACT Total Analysis:-
4 2 15
26.67 13.33 100
40% of the respondents suggested that One time settlement /Compromise scheme is more effective,20% of the respondents suggested that Lok adalats,26.67% of the respondents suggested that Debt recovery tribunals and 13.33%% of the respondents suggested that SARFAESI ACT is the more effective step taken by the govt.to recover and reduce NPAs. Inference:We can infer that one time settlement /Compromise scheme is the more effective step taken by the government to recover and reduce NPAs.
Graph 22 :Showing the effective steps taken by the government to recover and reduce NPAs

98
No. of Respondents
One time settlement/compromise scheme lok adalats
debt recovery tribunals
SARFAESI ACT
Findings
It is found that the advances made by the bank have increased
considerably year by year. It is found that the bank is able to curb down its NPAs level. It is clear that NPAs is one of the major factor affecting the performance of the banking sector. It is found that NPAs are found in all the branches of the J&K bank. It is found that willful default of borrowers is the main cause of NPAs. It is found that large amount of NPAs are observed in all the branches of the bank. CNK REDDY COLLEGE OF BUSINESS MANAGEMENT
99
It is found that business loans accounts for the major portion of NPAs. The approximate value of NPAs in majority of the branches is 50 lakhs and above.
It is found that NPAs are affecting the profitability of the
majority of the branches of the J&K Bank. It is found that proper selection of borrowers result in the reduction of NPAs. It is observed that Subprime loans are one of the major factor responsible for NPAs. It is found that the strategies adopted by J&K bank to control NPAs are efficient as compared to other banks.
It is found that the external factors such as industrial recession
can also result in NPAs. It is found that the present norms of RBI regarding NPAs are efficient.
It is found that the performance of all the branches of the bank
in Bangalore is increasing year after year.
It is found that by reducing the level of NPAs the profit of the bank has considerably increased.

100
Suggestions:1) Proper selection of borrowers should be made for the grant of
loans. 2) The legal system dealing with the NPAs should be made more effective. 3) Proper contacts should be maintained with the borrowers to keep the track of the due amount. 4) Information provided by the borrowers should be made
documented before providing loans.

5) Information
should be provided to the bank managers and
employees regarding various norms to be implemented for reducing the level of NPAs.

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6) All the senior employees of the branch should be consulted before providing loans. 7) The bank should check the authentication of securities provided for the grant of advances. 8) Compromise schemes or one time settlements should be put into practice regarding the settlement of NPAs.
Conclusion
The Indian banking sector is facing a serious problem of NPA. The extent of NPA is comparatively higher in public sectors banks. To improve the efficiency and profitability, the NPA has to be scheduled. Various steps have been taken by government to reduce the NPA. It is highly impossible to have zero percentage NPA. But at least Indian banks can try competing with foreign banks to maintain international standard. The study revealed that J&K Bank has been successful in reducing its NPAs and its financial performance is improving year by year.

102

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A Study On Non Performing Assets

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

Objectives of Financial Management:-

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

management the financial financial

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

A Study On Non Performing Assets

A Study On Non Performing Assets

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

A Study On Non Performing Assets

NPAs may result due to the following reasons:

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

A Study On Non Performing Assets

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

Commercial Banks are nimble footed in approach

A Study On Non Performing Assets

SCHEDULED COMMERCIAL BANKS

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

agricultural and rural sector.

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

Commercial Banks are perhaps the first government-supported agency in Kerala.

RESEARCH DESIGN CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

A Study On Non Performing Assets

To spot the areas which have not been researched.

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets

A Study On Non Performing Assets

CNK REDDY COLLEGE OF BUSINESS MANAGEMENT

A Study On Non Performing Assets