A STUDY ON NPA MANAGEMENT

AT CANARA BANK, RO, SHIMOGA

Submitted By,
SHASHANK M C


Internal Guide, External Guide,
Dr. Sripathy Rao Dr. Hemalatha K G Mr. Suresh
Professor, DSCE Professor & HOD, Manager,NPA cell,
DSCE Canara Bank
Department of Management studies
DAYANANDA SAGAR COLLEGE OF ENGINEERING
Kumaraswamy Layout, Bangalore 560078
INDUSTRY PROFILE
The ancient Banking in India is tracced back in Maurya
dynasty (321 to 185 BC)
The establishment of modern type of bank in India dates
back to 18th century, called as General Bank of India
Milestones:
1949 : Enactment of Banking Regulation Act.
1955 : Nationalisation of State Bank of India.
1969 : Nationalisation of 14 major Banks.
1980 : Nationalisation of seven banks with deposits over
200 Crores.
1990 : Liberalization of Banks
2011 : RBI decided to issue new licenses for more Pvt
Banks
COMPANY PROFILE
Established in 1906 in Mangalore as Canara Hindu
Permanent Fund by Visionary Shree A.S.R Pai through
2000 shares of capital having Rs.50 each.
Nationalized with other 14 major bank in 1969.
In 1995-96 First bank with ISO 9002 in India.
In 2004-05 Complete Computerized Bank.
In 2010-11 Bank scored 5lakh crore benchmark of
business and earned SIFI status.
2011-12 Total number of branches reached 3600. The
Banks 5
th
foreign branch at Manama, Bahrain opened.
2012-13 Highest Dividend of 130% paid for the year.
As at December 2013, the total business of the Bank
stood at 696624 crore.
NATURE OF BUSINESS CARRIED
Internet Banking
NRI Banking
Corporate Banking
Personal Banking
Factoring Subsidiary
CanBank Venture Capital
Mutual Fund Business
SME Banking
VISION, MISSION & CORPORATE
OBJECTIVE
VISION STATEMENT
To emerge as a Best Practices Bank by pursuing
global benchmarks in profitability, operational
efficiency, asset quality, risk management and
expanding the global reach.

MISSION STATEMENT
To provide quality banking services with enhanced
customer orientation, higher value creation for
stakeholders and to continue as a responsive
corporate social citizen by effectively blending
commercial pursuits with social banking.
QUALITY POLICY
E- Efficiency.
P- Profitability and Productivity.
O- Organization Effectiveness.
C- Customers centric
H- Hi Tech Banking

SWOT ANALYSIS
Strength:
Weakness:
1. Innovative schemes
2. Technologically advance
3. Articulation of good banking
4. Canara bank has employed over 44,000 people
5. Canara bank made a partnership with UNEP to initiate a successful
solar loan programme
1. Inadequate Publicity
2. Low International presence
3. Customer service is lesser as compared to other banks


Opportunity:


1. Rural and social banking
2. Agriculture based consultancy

Threats:
1. Economic crisis
2. Highly competitive environment
3. Changing government and RBI policies
EXECUTIVE SUMMARY
The primary function of banks is to lend funds as loans to
various sectors such as agriculture, industry, personal loans,
housing loans etc.,
But in recent times the banks have become very cautious in
extending loans. The reason being mounting nonperforming
assets (NPAs) and nowadays these are one of the major
concerns for banks in India.
NPAs reflect the performance of banks. A high level of NPAs
suggests high probability of a large number of credit defaults
that affect the profitability and net-worth of banks and also
erodes the value of the asset.
The NPA growth involves the necessity of provisions, which
reduces the overall profits and shareholders value. The
present study is based on the empirical study that will
explore the trends in strategies to reduce non-performing
assets of Canara Bank.
OBJECTIVES
To study the classification of the Non Performing
Assets.
To know why account becomes Non Performing
Assets and the steps taken by the bank to reduce
Non Performing Assets.
To know the reason and measures adopted for
reducing NPAs
To study the movements of Non Performing Assets
and its effects on Bank.
To study the RBI guidelines and norms to control
Non Performing Assets.
To recommend some tentative suggestion based on
Ratio findings

LITERATURE REVIEW
Dr. A. Shyamala (June -2012), NPAs in Indian banking
sector: impact on profitability
Shahbaz Haneef, Tabassum Riaz, Muhammad Ramzan,
Impact of Risk Management on Non-Performing Loans and
Profitability of Banking Sector of Pakistan (April 2012,)
P.Malyadri2.S.SirishaAsset Quality and Non Performing
Assets of Indian Commercial Banks
Anshu bansal (January 15, 2012 A study on recent trends in
risk management of nonperforming assets (npas) by public
sector banks in india
Ms. Rajni Saluja, Dr. Roshan Lal (NOVEMBER-2007)
Comparative Analysis On NonPerforming Assets NPAS Of
Public Sector, Private Sector And Foreign Banks In India
Dr.Hosmani ,Mr.Jagadish Hudagi (December 2011,)
Unearthing the epidemic of non-per forming assets -a study
with reference to public sector banks in india
RESEARCH METHODOLOGY
Primary data: Primary data has been collected through
personal interview by direct contact method. The
method which was adopted to collect the information is
Personal Interview method.

Secondary data: The data is collected from the
Magazines, Annual reports, Internet, Text books. The
various sources that were used for the collection of
secondary data are: Internal files & materials
Websites Various sites like www. sharekhan.com,
www.indiainfoline.com, www.canarabank.com,
www.investopedia.com, www.wikepedia.com.
NPA & ITS CLASSIFICATION
NPA refers to those assets where in which the bank
does not earn income from that account, asset (or)
loan granted.
Classification of Assets:
The NPAs are classified into 3 categories namely:
Sub-standard Assets
Doubtful Assets
Loss Assets


Sub-Standard Assets:
An asset becomes NPA is first classified as a sub-
standard asset and which remains as NPA for a period
less than or equal to12 months (earlier18 months).
Doubtful Assets:
A substandard asset becomes a doubtful if it has
remained as a substandard for a period exceeding 12
months (before 18 months).
Loss Assets:
An asset, which is considered as irrecoverable by the
banks of internal or external auditor or the R.B.I.
Inspection is treated as loss Account but the amount has
not been written off wholly.

ANALYSIS & INTERPRETATION
ASSUMPTION:

There is no much differences between Net NPA and
Gross NPA. Hence I have taken only the Net NPA
for the study.
All the numbers, figures and facts related to
Advances and NPA are subjected to Canara Bank,
Reginonal Office, Shimoga.

PERFORMANCE RATIO:
1. RETURN ON ASSETS(ROA)
2011-12 2012-13 2013-14
0.92 0.73 0.54
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
2011-12 2012-13 2013-14
Return On Assets
Interpretation:
This ratio correlates between the total assets and
the net profit. The return on total assets (also return
on capital employed or return on investment) is
defined as Net Income (Profit) divided by average
total assets. A return of 10 percentages is
considered as ideal ratio. As such, if the actual ratio
is equal or more than 10 percentage, it indicates
the higher productivity of the total resources /
assets and vice verse in adverse cases.
2. EARNING PER SHARE(EPS)
Table showing Earning per Share (EPS)

2011-12 2012-13 20113-14
72.10 64.86 52.83
0
10
20
30
40
50
60
70
80
2011-12 2012-13 2013-14
Earning Per Share (EPS)
Interpretation:
The ratio measures the profit available to the equity
holders on a per share basis. It is found out by
dividing the amount of profit after tax by the number
of shares. The earning per share of the bank has
increased drastically in the year 2011-12 i.e. 74.10
compare to 2013 and 2014 which is good sign of
the bank.

3. NET NPA RATIO
It is the most important ratio which measures the
NPA as a percentage of advances. Table showing
the NPA ratio.
YEAR
Net
Advances(Amt
in lakhs)
NPA(Amt in
lakhs)
NPA Ratio
2011-12 490.53 244.32 0.498
2012-13 502.16 130.08 0.259
2013-14 547.14 126.13 0.230
Graph showing the movement of NPA Ratio.

0
0.1
0.2
0.3
0.4
0.5
0.6
2011-12 2012-13 2013-14
NPA Ratio
NPA Ratio
Interpretation:
From the above table and graph, it is seen
that disbursement of Advance has increased
slightly whereas the NPA level has decreased
drastically during 2012-13.
During FY 2013, Canara Bank has tightened
its credit policy that is the loans are issued by the
consultancy of CIBIL (Credit Information Bureau
Ltd) which rates the credit worthiness of a customer
by backtracking his/her credit information all over
India.
4.UP GRADATION / RECOVERY RATIO
Up gradation of NPA means the recovery of NPA. It
is one of the important ratio to conclude banks
recovery mechanisms effectiveness.
YEAR NPA inflow(amt
in lakhs)
NPA up
gradation(amt
in lakhs)
Up gradation
Ratio
2011-12 244.32 199.73 0.817
2012-13 130.08 127.00 0.976
2013-14 126.13 86.08 0.682
0
0.2
0.4
0.6
0.8
1
1.2
2011-12 2012-13 2013-14
NPA up gradation Ratio
NPA up gradation Ratio
Interpretation:
From the above table and graph, the amount
of NPA recovered/upgraded is higher during FY
2012 and FY 2011 that is 81% and 97% and has
fallen to 62% in FY 2014.
This shows that Canara Bank has effective
recovery mechanisms and team which has almost
recovered 80% and above of NPA. The reason for
the sudden drop in percentage in FY 2014 is given
as due to the policy change implemented by govt
on agriculture loans and subsidaries and external
factors like real estate in Shimoga circle.
5. NET PROFIT TO NPA
Profits are greatly affected by the level of NPA. So it
is important to see the behavior of profits. The
following table shows the NPA levels and respective
profits during past three years.

YEAR NPA level(amt in
lakhs)
Net Profit(amt in
lakhs)
2011-12 244.32 -17.38
2012-13 130.08 17.67
2013-14 126.13 31.20
-50
0
50
100
150
200
250
300
2011-12 2012-13 2013-14
Profits
NPA level
Interpretation:
The above table and graph shows the negative
profit in FY 2012 and a drastic come back in
preceding years FY 2013 and FY 2014. It is seen
that as the level of NPA increased, profits are
decreased. Thus we can say that profits are
inversely proportional to the NPA level.
The reason for decreased profit ie loss of
17.38 lakhs in FY 2012 because the interest
amount paid on deposits are more than the interest
received from loans and advances. That is bank
has accumulated more deposits. Further the bank
has overcome the loss and shown a attractive
profits by 50 to 70 % increase in 2013 and 2014
respectively by earning interests from loans and
advances.

SUMMARY OF FINDINGS

The Net NPA ratio of the Canara Bank, RO, Shimoga declined
from 49.8% as on March 31
st
2012 to 23% as on March 31
st

2014.
The Net Advances are up by Rs 4,90,53,000 as on March 31
st

2012 to Rs 5,47,14,000 as on March 31
st
2014.
The recovery of NPA was found reasonable as on March 31
st

2012 and as on March 31
st
2014.
It is seen an excellent recovery of NPA as on March 31
st
2013
with the efficiency of 97.2%.
There was a Net loss of Rs 17,38,000 in FY 2012.
The performance is seen well in FY 2013 with 97.2% of NPA
recovery and with 2X profits achieved of Rs 17,67,000
compared to FY 2012 & FY 2014.
The total assets of Canara Bank, all over India is increased
from 365269.07cr as on March 2012 to 477573.57cr as on
March 2014.
CONCLUSION
Non Performing Asset Management is a vast subject and it is
very difficult to cover all the aspects within a short period.
However, every effort has been made to cover most of the
important aspects which have a direct bearing on improving the
financial performance of Banking Industry.
To sum up, it would not be out of way to mention here that the
Canara Bank has given special impetus on Non Performing
Asset Management . In pursuance of the instructions and
guidelines issued by the Reserve Bank of India, the Canara Bank
has taken series of measures, to reduce the ratio of NPA
marginally. The measures initiated by the Bank have helped in
reducing the ratio of NPA which in turn has contributed in
improving its profit margin over the years.
The concerted efforts put in by the Management and Staff of
Canara Bank has helped the Bank in achieving remarkable
progress in almost all the important parameters. The Bank is
marching ahead in the direction of achieving the Number-1
position in the Banking Industry.
RECOMMENDATION / SUGGESTION
Recovery camps to be conducted at centers identified as having higher
concentration of irregular loans in the times of revenue recovery camps.
Across the table decisions on compromise proposals submitted at the
recovery campus. Officials from corporate office who attend such
campus to be delegated with powers to arrive at decisions.
Asset recovery cells to be strengthened with additional professional man
power.
At branches where concentration of NPA is more, one of the members of
the award staff who is well versed with locality and the borrowers should
be spared from other works of the office and asked to facilitate
recoveries through personal visits and assisting the recovery officers in
the unit / borrower visits. Conveyance expenses incurred by such staff
members to be reimbursed.
Presently Bank is spending 4 days a week on Public Working day in rural
areas and in other areas the Bank is spending 2 days a week for
recovering the NPA from the customer which to be increased to 5 days a
week, because the bank has to spend 1 day for selling the property.

Immediate action has to be taken for reduction of NPAs in
those sectors where NPAs is more like Agricultural sector.
Bank should protect the interest of the investor but not at the
cost of Banks profitability.
Bank is required to be cautious about availability of security
and ensure honesty of the both borrower and guarantor so as
to avoid the account becoming loss assets for which the bank
is required to make 100% provision.
There should be frequent follow ups by the Bank officials.
CANARA BANK should implement a system for selecting a
good borrower.
In some cases the Bank officials should conduct personal
visits for recovering NPAs.
The Bank should take every NPA case as a separate issue
and analyze the need for further form an economic point of
view.
The bank should take immediate action once the asset falls
into the sub standard category and ensure the speedy
recovery of the advances to avoid making the provisions for
the same.

BIBILOGRAPHY
Banking and Finance Clifford Gomez, 1/e, PHI,
2011
Banking Theory Gordon & Natrajan, 22/e,
Himalaya, 2011
http://www.canarabank.com
http://profit.ndtv.com/
http://economictimes.indiatimes.com/
http://www.indiainfoline.com/
http://www.scribd.com
http://money.livemint.com/
money.rediff.com/
www.investopedia.wiki
THANK YOU