Chapter-1

ABSTRACT
“A Comparative study on Non Performing Assets on advances on Old and New Private
Sector banks” is the project aimed at studying the NPA on advances of Old and New Private
Sector Banks with special reference to City Union Bank.
The type of research undertaken for the study was Descriptive Research. Six Banks
have taken for analysis. Three in Old Private Sector and Three in New Private Sector. Further
Four Sector has taken within the advances of the banks. The data was collected through
Secondary data collection method. The Trend analysis and magnitude analysis were used for
analysing the collected data.
The Study Reveals that the NPA % on various sectors are decreasing throughout the
years of study. The maximum repayment of loans has been done on this order Real estate,
Mortgage, SSI and Agri. The study further reveals that the ICICI Bank which has more NPA%
when compared to other banks and this NPA will impact them on profitability. The Axis Bank
is having minimum NPA% when compared to other banks. This shows the effectiveness of the
recovery management.

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 1.1 INTRODUCTION

The banking industry has undergone a sea change after the first phase of economic
liberalization in1991 and hence credit management. While the primary function of banks is to
lend funds as loans to various sectors such as agriculture, industry, personal loans, housing
loans etc., in recent times the banks have become very cautious in extending loans, The reason
being mounting non-performing assets (NPAs). An NPA is defined as a loan asset, which has
ceased to generate any income for a bank whether in the form of interest or principal
repayment. As per the prudential norms suggested by the Reserve Bank of India (RBI), a bank
cannot book interest on an NPA on accrual basis. In other words, such interests can be booked
only when it has been actually received.

Therefore, an NPA account not only reduces profitability of banks by provisioning in

the profit and loss account, but their carrying cost is also increased which results in excess &
avoidable management attention. Apart from this, a high level of NPA also puts strain on a
banks net worth because banks are under pressure to maintain a desired level of Capital
Adequacy and in the absence of comfortable profit level, banks eventually look towards their
internal financial strength to fulfill the norms thereby slowly eroding the net worth.

Under these circumstances, management of NPAs is a difficult task. Therefore, my

study focused on the problem of NPAs being faced by the private sector banks and its
management with a reference to City Union Bank.

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 1.2 THEORETICAL CONCEPTS
Definition of NPA
A NPA is a loan or an advance where;
• Interest and/ or installment of principal remain overdue for a period of more than90
days in respect of a term loan,
• The account remains “out of order” in respect of an overdraft/ cash credit
• The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted
• The installment or interest remains overdue for two crop seasons in case of short
duration crops and for one crop season in case of long duration crops

CATEGORIES OF NPA
Standard Assets:
A standard asset is one which does not disclose any problems and which does not carry
more than normal risk attached to the business. Such an asset is not an NPA.

Substandard Assets:
Substandard asset is one which has been classified as NPA for a period not exceeding 2
years. With effect from 31march 2001, a substandard asset is one which has remained as NPA
for a period less than or equal to 18 months.

Doubtful Assets:
A doubtful asset is one which has remained NPA for a period exceeding 2 years. With
effect from 31march 2001 an asset is to be classified as doubtful if it has remained NPA for a
period exceeding to 18 months.

Loss Assets:
A loss is one where loss has been identified by the bank or internal or external auditor or
the RBI inspection but the amount has not been writing off, wholly.

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 PROVISIONING NORMS
• Standard Assets – general provision of a minimum of 0.25%
• Substandard Assets – 10% on total outstanding balance, 10 % on unsecured exposures
identified as sub-standard & 100% for unsecured “doubtful” assets.
• Doubtful Assets – 100% to the extent advance not covered by realizable value of
security. In case of secured portion, provision may be made in the range of 20% to
100% depending on the period of asset remaining sub-standard
• Loss Assets – 100% of the outstanding

FACTORS CONTRIBUTING TO NPAs

• Poor Credit discipline.
• Inadequate Credit & Risk Management.
• Diversion of funds by promoters.
• Funding of non-viable projects.
• In the early 1990s PSBs started suffering from acute capital inadequacy and lower/
negative profitability. The parameters set for their functioning did not project the
paramount need for these corporate goals.
• The banks had little freedom to price products, cater products to chosen segments or
invest funds in their best interest.
• Since 1970s, the SCBs functioned as units cut off from international banking and
unable to participate in the structural transformations and new types of lending
products.
• Audit and control functions were not independent and thus unable to correct the effect
of serious flaws in policies and directions.
• Banks were not sufficiently developed in terms of skills and expertise to regulate the
humongous growth in credit and manage the diverse risks that emerged in the process.
• Inadequate mechanism to gather and disseminate credit information amongst
commercial banks.

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• Effective recovery from defaulting and overdue borrowers was hampered on account
of sizeable overhang component arising from infirmities in the existing process of debt
recovery, inadequate legal provisions on foreclosure and bankruptcy and difficulties in
the execution of court decrees.

IMPACT OF NPAs ON OPERATIONS

• Drain on Profitability
• Impact on capital adequacy
• Adverse effects on credit growth as the banker’s prime focus become zero percent risk
and as a result turn lukewarm to fresh credit.
• Excessive focus on Credit Risk Management
• High cost of funds due to NPAs

NPAs MANAGEMENT – PREVENTIVE MEASURES

• Formation of the Credit Information Bureau (India) Limited (CIBIL)
• Release of Willful Defaulter’s List. RBI also releases a list of borrowers with
aggregate outstanding of Rs.1 crore and above against whom banks have filed suits for
recovery of their funds.
• Reporting of Frauds to RBI Norms of Lender’s Liability – framing of Fair Practices
Code with regard to lender’s liability to be followed by banks, which indirectly
prevents accounts turning into NPAs on account of bank’s own failure.
• Risk assessment and Risk management.
• RBI has advised banks to examine all cases of willful default of Rs.1 crore and above
and file suits in such cases. Board of Directors are required to review NPA accounts of
Rs.1 crore and above with special reference to fixing of staff accountability.
• Reporting quick mortality cases.
• Special mention accounts for early identification of bad debts. Loans and advances
overdue for less than one and two quarters would come under this category. However,
these accounts do not need provisioning.

5
 NPAs MANAGEMENT – RESOLUTION
• Compromise Settlement Schemes
• Restructuring / Reschedulement
• Lok Adalat
• Corporate Debt Restructuring Cell
• Debt Recovery Tribunal (DRT)
• Proceedings under the Code of Civil Procedure
• Board for Industrial & Financial Reconstruction (BIFR)/ AAIFR
• National Company Law Tribunal (NCLT)
• Sale of NPA to other banks
• Sale of NPA to ARC/ SC under Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interest Act 2002 (SRFAESI)
• Liquidation

COMPROMISE SETTLEMENT SCHEMES

• Banks are free to design and implement their own policies for recovery and write off
incorporation compromise and negotiated settlements with board approval
• Specific guidelines were issued in May 1999 for one time settlement of small
enterprise sector.
• Guidelines were modified in July 2000 for recovery of NPAs of Rs.5 crore and less as
on 31st March 2007.

RESTRUCTURING/RESCHEDULEMENT
• Banks are free to design and implement their own policies for restructuring/
rehabilitation of the NPA accounts

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 • Re-scheduling of payment of interest and principal after considering the Debt service
coverage ratio, contribution of the promoter and availability of security

LOK ADALAT
• Small NPAs up to Rs.20 Lacs
• Speedy Recovery
• Veil of Authority
• Soft Defaulters
• Less expensive
• Easier way to resolve

CORPORATE DEBT RESTRUCTURING

• The objective of CDR is to ensure a timely and transparent mechanism for
restructuring of the debts of viable corporate entities affected by internal and external
factors, outside the purview of BIFR, DRT or other legal proceedings
• The legal basis for the mechanism is provided by the Inter-Creditor Agreement (ICA).
All participants in the CDR mechanism must enter the ICA with necessary
enforcement and penal clauses.
• The scheme applies to accounts having multiple banking/ syndication/ consortium
accounts with outstanding exposure of Rs.10 crores and above.
• The CDR system is applicable to standard and sub-standard accounts with potential
cases of NPAs getting a priority.
• Packages given to borrowers are modified time & again
• Drawback of CDR – Reaching of consensus amongst the creditors delays the proces

DRT Act
• The banks and FIs can enforce their securities by initiating recovery proceeding under
the Recovery if Debts due to Banks and FI act, 1993 (DRT Act) by filing an
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 application for recovery of dues before the Debt Recovery Tribunal constituted under
the Act.
• On adjudication, a recovery certificate is issued and the sale is carried out by an
auctioneer or a receiver.
• DRT has powers to grant injunctions against the disposal, transfer or creation of third
party interest by debtors in the properties charged to creditor and to pass attachment
orders in respect of charged properties
• In case of non-realization of the decreed amount by way of sale of the charged
properties, the personal properties if the guarantors can also be attached and sold.
• However, realization is usually time-consuming

BIFR AND AAIFR

• BIFR has been given the power to consider revival and rehabilitation of companies
under the Sick Industrial Companies (Special Provisions) Act of 1985 (SICA), which
has been repealed by passing of the Sick Industrial Companies (Special Provisions)
Repeal Bill of 2001.
• The board of Directors shall make a reference to BIFR within sixty days from the date
of finalization of the duly audited accounts for the financial year at the end of which
the company becomes sick
• The company making reference to BIFR to prepare a scheme for its revival and
rehabilitation and submit the same to BIFR the procedure is same as laid down under
the CPC.
• The shelter of BIFR misused by defaulting and dishonest borrowers
• It is a time consuming process

NATIONAL COMPANY LAW TRIBUNAL

• In December 2002, the Indian Parliament passed the Companies Act of 2002 (Second
Amendment) to restructure the Companies Act, 1956 leading to a new regime of
tackling corporate rescue and insolvency and setting up of NCLT.

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 • NCLT will abolish SICA, have the jurisdiction and power relating to winding up of
companies presently vested in the High Court and jurisdiction and power exercised by
Company Law Board
• The second amendments seeks to improve upon the standards to be adopted to measure
the competence, performance and services of a bankruptcy court by providing
specialized qualification for the appointment of members to the NCLT
SALE OF NPAs TO OTHER BANK
• A NPA is eligible for sale to other banks only if it has remained a NPA for at least two
years in the books of the selling bank
• The NPA must be held by the purchasing bank at least for a period of 15 months
before it is sold to other banks but not to bank, which originally sold the NPA.
• The NPA may be classified as standard in the books of the purchasing bank for a
period of 90 days from date of purchase and thereafter it would depend on the record
of recovery with reference to cash flows estimated while purchasing
• The bank may purchase/ sell NPA only on without recourse basis
• If the sale is conducted below the net book value, the short fall should be debited to
P&L account and if it is higher, the excess provision will be utilized to meet the loss on
account of sale of other NPA.

SARFESI ACT 2002

• SARFESI provides for enforcement of security interests in movable (tangible or
intangible assets including accounts receivable) and immovable property without the
intervention of the court
• The bank and FI may call upon the borrower by way of a written legal notice to
discharge in full his liabilities within 60 days from the date of notice, failing which the
bank would be entitled to exercise all or any of the rights set out under the Act.
• Another option available under the Act is to take over the management of the secured
assets
• Any person aggrieved by the measures taken by the bank can proffer an appeal to DRT
within 45 days after depositing 75% of the amount claimed in the notice.
• Chapter II of SARFESI provides for setting up of reconstruction and securitization
companies for acquisition of financial assets from its owner, whether by raising funds
9
 by such company from qualified institutional buyers by issue of security receipts
representing undivided interest in such assets or otherwise.
• The ARC can take over the management of the business of the borrower, sale or lease
of a part or whole of the business of the borrower and rescheduling of payments,
enforcement of security interest, settlement of dues payable by the borrower or take
possession of secured assets
• Additionally, ARCs can act as agents for recovering dues, as manager and receiver

1.3 EVOLUTION OF BANK

Opinions differ as to the origin of the work “Banking”. The word “Bank” is said
to be of Germanic origin, cognate with the French word “Banque” and the Italian word
“Banca”, both meaning “bench”. It is surmised that the word would have drawn its meaning
from the practice of the Jewish money- changers of Lombardy, a district in North Italy, who in
the middle ages used to do their business sitting on a bench in the market place. Again, the
etymological origin of the word gains further relevance from the derivation of the word
“Bankrupt” from the French word “Banque route” and the Italian word “Banca-rotta” meaning
“Broken bench” due probably to the then prevalent practice of breaking the bench of the
money- changer, when he failed.

Banking is different from money-lending but two terms have in practice been
taken to convey the same meaning. Banking has two important functions to perform, one of
accepting deposits and other of lending moneys and/or investment of funds. It follows from
the above that the rates of interest allowed on deposits and charged on advances must be
known and reasonable. The money-lender advances money out of his own private wealth
hardly accepts deposits and usually charges high rates of interest.

Definition as per banking regulation act 1949

A bank borrow by accepting deposits of money from the public, the deposits are to
be repaid on demand or after fixed period. They can be withdrawn by the depositors by means
of cheque, draft, order or any other way. A bank accepts deposits (i.e. borrows) for the

10
purposes of lending mainly to traders, industrialists and manufactures and the like as also, for
the purposes of investing in government securities to fulfill statutory obligations. Thus,
Banking Regulations Act, 1949 defines “Banking as accepting for the purposes of lending or
investment of deposits of money from the public repayable on demand or otherwise and
withdrawals by cheque, draft, and order or otherwise.”

By and large, this definition can be satisfactory. As per the provision of the Banking
Regulation Act, every company willing to do banking business must obtain license from the
Reserve Bank for carrying on banking business must use the word bank, banker or banking as
per of their names. It may be noted that money-lenders are not bankers.

Basic Concepts of Banking

Banking is different from money lending, but the two terms, usually carry the same
significance to the general public. The money lender, advances money out of his own private
wealth, hardly accepts deposits from general public and usually charges high rate of interest.
More often, the rates of interest relate to the needs of the borrower and at times the rates may
be exorbitant. On the other hand the banking is defined in section 5(b) of the Banking
Regulation Act, 1949, as the acceptance of deposits of money from the public are used for the
purpose of lending or investment. Such deposits may be repayable on demand or otherwise
and withdraw able by cheque, draft order or otherwise.

Thus a bank must perform two basic and essential functions:

(i) Acceptance of deposits and
(ii) Lending or investment of such deposits.

The deposits may be repayable on demand or for a period of time as agreed by the banker
and the customer. In terms of the definition, the banker can accept deposits of money and
not anything further accepting deposits form frolic unapplied that a banker accepts
deposits from anyone who offers money for such purpose accepting of deposits for lending
and investments have been the original functions of banking but gradually there functions

11
 were extended and others were added from time and presently banks perform a number of
economic activities which may affect all walks of economic life.

Significance of Banks
The importance of a bank to modern economy, so as to enable them to develop, can be stated
as follows:

(i) The banks collect the savings of those people who can save and allocate them to
those who need it. These savings would have remained idle due to ignorance of the
people and due to the fact that they were in scattered and oddly small quantities.
But banks collect them and divide them in the portions as required by the different
investors.

(ii) Banks preserve the financial resources of the country and it is expected of them
that they allocate them appropriately in the suitable and desirable manner.

(iii) They make available the means for sending funds from one place to another and do
this in cheap, safe and convenient manner.

(iv) Banks arrange for payments by changes, order or bearer, crossed and uncrossed,
which is the easiest and most convenient, besides they also care for making such
payments as safe as possible.

(v) Banks also help their customers, in the task of preserving their precious
possessions intact and safe.

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 1.4 INDUSTRY PROFILE
Banking in India has its origin as early as the Vedic period. It is believed that the
transaction from money lending to banking must have occurred even before Manu, the great
Hindu Jurist, who has devoted a session of his work to deposits and advances and lay down
rules relating to rate of interest. During the Mughal period, the indigenous bankers played a
very important role in lending money and financing foreign trade and commerce. During the
days of the East India Company, it was the turn of the agency houses to carry on the banking
business.

The General Bank of India was the first Joint Stock Bank to be established in the
year 1786. The others which followed were the Bank of Hindustan and the Bengal Bank. The
Bank of Hindustan is reported to have continued till 1906 while the other two failed in the
mean time. In the first half of the 19th century the East India Company established three banks;
the Bank of Bengal in 1809, the Bank of Bombay in 1840 and the Bank of Madras in
1843.These three banks also known as Presidency Banks were independent units and
functioned well. These three banks were amalgamated in 1920 and a new bank, the Imperial
Bank of India was established on 27th January 1921. With the passing of the State Bank of
India Act in 1955 undertaking of the Imperial Bank of India was taken over by the newly
constituted State Bank of India.

The Reserve Bank which is the central bank created in 1935 by passing Reserve
Bank of India Act 1934. In the wake of the Swadeshi Movement, A number of banks with
Indian management were established in the country namely, Punjab National Bank Ltd, Bank
of India Ltd, Canara Bank Ltd, Indian Bank Ltd, Bank of Baroda Ltd, the Central Bank of
India Ltd. On July 19, 1969, 14 major banks of the country were nationalized and in 15th April

13
1980 six more commercial private sector banks were also taken over by the government.
Today the commercial banking system in India may be distinguished into:

Public Sector Banks

• State Bank of India and its associated banks called the State Bank group
• 20 nationalized banks
• Regional Rural Banks mainly sponsored by Public Sector Banks
Private Sector Banks
• Old generation private banks
• New generation private banks
• Foreign banks in India
• Scheduled Co-operative Banks
• Non-scheduled Banks

Co-operative Sector Banks

The co-operative banking sector has been developed in the country to the supplement the
village money lender.
• State Co-operative Banks
• Central Co-operative Banks
• Primary Agriculture Credit Societies
• Land development Banks
• Urban Co-operative Banks
• Primary Agricultural Development Banks
• Primary Land Development Banks
• State Land Development Banks

Development Banks
• Industrial Finance Corporation of India (IFCI)

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 • Industrial Development Bank of India (IDBI)
• Industrial Credit and Investment Corporation of India (ICICI)
• Industrial Investment Bank of India (IIBI)
• Small Industries Development Bank of India (SIDBI)
• SCICI Ltd.
• National Bank for Agriculture and Rural Development (NABARD)
• Export Import Bank of India
• National Housing Bank
1.5 COMPANY PROFILE

The bank, 'The Kumbakonam Bank Limited' as it was then called was incorporated
as a limited company on 31st October, 1904. The first Memorandum of Association was
signed by twenty devoted and prominent citizens of Kumbakonam including Sarvashri R.
Santhanam Iyer, S.Krishna Iyer, V.Krishnaswami Iyengar and T.S.Raghavachariar. Shri
T.S.Raghavachariar was the First Agent of the Bank. In 1908, he was succeeded by Shri R.
Santhanam Iyer who became the Secretary of the bank under the amended Articles of
Association which created the office of a Secretary to be in charge of the Bank's Management
in the place of the Agent, which post he held till his death in 1926. He was succeeded by
Shri. S.Mahalinga Iyer as Secretary who subsequently became the First full-time Managing
Director of the bank in tune with the amendment of Articles in 1929. He held the position of
Secretary from 1926 to 1929 and that of Managing Director from 1929 to 1963.

The bank in the beginning preferred the role of a regional bank and slowly but
steadily built for itself a place in the Delta District Thanjavur. The first Branch of the Bank
was opened at Mannargudi on 24th January 1930. Thereafter, branches were opened at
Nagapattinam, Sannanallur, Ayyampet, Tirukattupalli, Tiruvarur, Manapparai, Mayuram and
Porayar within a span of twenty five years. The Bank was included in the Second Schedule of
Reserve Bank of India Act, 1934, on 22nd March 1945

15
 The Bank celebrated it's Golden Jubilee on 14th November, 1954 at Kumbakonam
under the President ship of Shri.C.R. Srinivasan, Editor, 'Swadesmitran' & Director, Reserve
Bank of India.

In 1957, the bank took over the assets and liabilities of the Common Wealth Bank
Limited and in the process annexed to it the five Branches of Common Wealth Bank Limited
at Aduthurai, Kodavasal, Valangaiman, Jayankondacholopuram and Ariyalur.

In 1963, Shri. R. A.Venkataramani Iyer took charge as the Chairman of the Bank
which position he held up to 1969.

In April, 1965, two other local banks viz., 'The City Forward Bank Limited' and
'The Union Bank Limited' were amalgamated with the Bank under a scheme of amalgamation
with the resultant addition of six more branches viz., Kumbakonam-Town, Nannilam,
Koradacherry, Tiruvidaimarudur, Tirupanandal and Kuttalam. Consequently, the Bank's name
was changed to 'The Kumbakonam City Union Bank Limited'.

In November 1965, the bank's first branch at Madras was opened at Thiyagaraya
Nagar. In May, 1969 the Bank secured the services of Shri. O.R. Srinivasan, a former Officer
of Reserve Bank of India to be at the helm of affairs as Chairman and Chief Executive Officer
which event proved to be a turning point in the annals of the Bank. Under the new
Management the Branch Expansion got a fresh impetus and branches were opened at
Eravancheri, Sembanarkoil, Tiruchirapalli, Madurai, Thanjavur, Dindigul, Keelapalur,
Tirumakkottai, Kottur, Tiruvarur Town and Coimbatore during the period from March, 1968
to August, 1973.

In April, 1974 the bank secured the services of Shri. K.Srinivasan, another former
Senior Officer of Reserve Bank of India as it's Secretary. At that time a Young Chartered
Accountant from Thippirajapuram, a village near Kumbakonam, Shri. V.Narayanan was
appointed as Assistant Secretary of the Bank.

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 During the period ended 31-12-1976 Branches were opened at Periyakulam,
Mandaveli (Madras), Pattukkottai, Triplicane (Madras), Cuddalore, Pudukkottai,
Chidambaram and Salem.

When Shri. O.R.Srinivasan relinquished his office in June 1977, the then Secretary
Shri. K.Srinivasan was appointed as Chairman and Chief Executive Officer of the Bank and
Shri. V.Narayanan was elevated to the rank of the Secretary.

From July,1977 to September,1979 the bank has opened ten more branches
including those at George Town (Madras), Mount Road (Madras), Tirunelveli and Karaikudi.

The Bank celebrated its Platinum Jubilee on 9th December, 1979 at Kumbakonam
with Dr. Rajah Sir M.A.Muthiah Chettiar, Shri. G.Rengasamy Moopanar, Shri. Kosi Mani and
Shri. M.V.Arunachalam as Guests of Honour.

In November, 1980, the then Secretary Shri. V.Narayanan, assumed charge as the
Chairman and Chief Executive Officer of the Bank consequent to the completion of the term
by Shri. K.Srinivasan. The event opened a glorious chapter in the history of the bank.

The first branch outside the state of Tamilnadu was opened at Sultan pet, Bangalore
in Karnataka in September, 1980. Branches were also opened at the twin cities of Hyderabad
and Secunderabad in Andhrapradesh. In tune with the national image attached to the Bank, the
Bank's name was changed to 'City Union Bank Limited' with effect from December, 1987.

The Bank started it's own Staff Training College on 21st August, 1989 at
Kumbakonam with the avowed objective of imparting need based and result oriented training
to its Staff Members irrespective of the cadre.

Taking into account the bank's financial strength, managerial competence and
consistent progress in all spheres of its activities, Reserve Bank of India has granted an
Authorized Dealers License to deal in Foreign Exchange business with effect from October,
1990.

17
 The bank has introduced computerization in the year 1990 and as of now all the
Branches have been computerized.

The Bank's Centenary Celebrations were inaugurated on 27th December, 2003 at

the Saraswathi Patasala Girl's Higher Secondary School Grounds, Kumbakonam under the
Chairmanship of Shri. V.Narayanan with Shri. R.Venkataraman, Former President of India,
Dr.A.R.Lakshmanan, Judge, Supreme Court, New Delhi and Shri. N.Rengachari, Retired
Chairman, IRDA & Advisor to the Government of Andhra Pradesh as distinguished Guests.

In the glorious history of City Union Bank Limited, nearly one third of the period
of its existence and progress centered on a key person, namely, Shri. V.Narayanan. The
enviable leadership style of Shri. V. Narayanan and his vision for the consistent growth of the
bank in all spheres, his tireless efforts in augmenting the Bank's Business, widening the branch
network, maintaining harmonious industrial relations, ensuring the unique achievement of not
loosing not even a single man-day by way of labor unrest-a record of sort in the country has
earned name and fame not only for himself but to the bank in the entire Banking Industry in
India. His famous words of 'Take care of the bank; the bank will take care of you' have made
wonders enhancing the morale and improving the productivity of the workforce, the facts of
which can be vouchsafed by the financial results of the bank during his tenure as Chairman.
But the bank has lost its illustrious Chairman Shri.V.Narayanan in an unexpected car accident
near Chennai on 5th November, 2004.

With the irreparable loss of Shri.V.Narayanan, the mantle of leading the bank to
make his dreams a reality has fallen on Shri.S.Balasubramanian, the then Executive Director,
who has been appointed as the Chairman & Chief Executive Officer of the Bank by the Board
of Directors with the approval of Reserve Bank of India with effect from 31-1-2005.

Sri.N. Kamakodi, the then General Manager has been elevated to the rank of
Executive Director.

To provide value added services, the Bank has entered into Memoranda of
understanding with Life Insurance Corporation of India and National Insurance Company

18
Limited for selling insurance products. The Bank has been accorded license by Insurance
Regsulatory Authority of India [IRDA] to act as Corporate Agent.

The bank has entered into an agreement with Tata Consultancy Services Limited for
introducing Core Banking Solution [CBS].As such all the branches have been brought under
CBS as on date.

The bank has made arrangements with IDBI Bank Ltd., and UTI Bank Ltd., for
issuing at par cheques and sending outstation bills for collection.

Automated Teller Machines are available at select branches of the bank where the
ATM Card holders can withdraw cash, make balance enquiries and obtain Statement of
accounts.

The Bank has tied up with Export Credit & Guarantee Corporation Limited [ECGC]
for marketing export credit insurance products through its branch network. The Bank has
obtained License to function as Depository Participant under National Securities Depository
Ltd., The Bank is having a network of 202 Branches spread in different parts of our Country as
on 01/02/2009

19
 Chapter-2
LITERATURE REVIEW
In the Indian context, Rajaraman and Vasishtha (2002) in an empirical study provided an
evidence of significant bi-variate relationship between an operating inefficiency indicator and
the problem loans of public sector banks. In a similar manner, largely from lenders’
perspective, Das and Ghosh (2003) empirically examined non-performing loans of India’s
public sector banks in terms of various indicators such as asset size, credit growth and
macroeconomic condition, and operating efficiency indicators. Sergio (1996) in a study of
non-performing loans in Italy found evidence that, an increase in the riskiness of loan assets is
rooted in a bank’s lending policy adducing to relatively unselective and inadequate assessment
of sectoral prospects. Interestingly, this study refuted that business cycle could be a primary
reason for banks’ NPLs. The study emphasized that increase in bad debts as a consequence of
recession alone is not empirically demonstrated. It was viewed that the bank-firm relationship
will thus; prove effective not so much because it overcomes informational asymmetry but
because it recoups certain canons of appraisal. In a study of loan losses of US banks,
McGoven (1993) argued that ‘character’ has historically been a paramount factor of credit and
a major determinant in the decision to lend money.

Banks have suffered loan losses through relaxed lending standards, unguaranteed credits, the

20
Influence of the 1980s culture, and the borrowers’ perceptions. It was suggested that bankers
should make a fairly accurate personality-morale profile assessment of prospective and current
borrowers and guarantors. Besides considering personal interaction, the banker should:
(i) try to draw some conclusions about staff morale and loyalty,
(ii) Study the person’s personal credit report,
(iii) Do trade-credit reference checking,
(iv) Check references from present and former bankers, and
(v) Determine how the borrower handles stress. In addition, banks can minimize risks by
securing the borrower’s guarantee, using Government guaranteed loan programs, and
requiring conservative loan-to-value ratios.

Gupta’s study (1983) on a sample of Indian companies financed by ICICI concludes that
certain cash flows coverage ratios are better indicators of corporate sickness. Bhatia (1988)
and Sahoo, Mishra and Soothpathy (1996) examine the predictive power of accounting ratios
on a sample of sick and non-sick companies by applying the multi discriminate analysis
techniques. In both the studies, the selected accounting ratios are effective in predicting
industrial sickness with a high degree of precision.

Bloem and Gorter (2001) suggested that a more or less predictable level of non-performing
loans, though it may vary slightly from year to year, is caused by an inevitable number of
‘wrong economic decisions by individuals and plain bad luck (inclement weather, unexpected
price changes for certain products, etc.). Under such circumstances, the holders of loans can
make an allowance for a normal share of non-performance in the form of bad loan provisions,
or they may spread the risk by taking out insurance. Enterprises may well be able to pass a
large portion of these costs to customers in the form of higher prices. For instance, the interest
margin applied by financial institutions will include a premium for the risk of nonperformance
on granted loans

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 Chapter-3
RESEARCH METHODOLOGY
3.1 Research Design
A research design is the arrangement of condition for collection and analysis of data in a
manner that aim to combine relevance to the research purpose with procedure. The
research design adopted for this study is Analytical is used because of its extensive
flexibility, scope and convenience.

Sources of data
The study completely depends on the secondary data. The secondary data collected from
the All Banks annual reports and audited reports.

Data Analysis
After the relevant data were collected, descriptive analysis was carried out which was
preferred for assessment purposes. Hence for all data interpretations were made and
diagrams and graphs have been used to support discussions related to findings.

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 Tools used
• Trend Analysis

• Magnitude of analysis

3.2OBJECTIVES OF THE STUDY

• To Study the trend of NPAs in Old and New Private Sector Banks

• To Study The Trend of NPA’s in SSI Advances, AGRI Advances, MORTGAGE

Advances and Real Estate Advances

• To Study the magnitude of NPA

 Between the old and new private sector banks

 Among the old private sector banks

 Among the new private sector banks

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 Across the various sectorial Advances

 Across the years

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