Chapter 1

INTRODUCTION

A) Company Profile:

The bank was founded by a group of visionaries led by the late Prof.

V.G.Kale and the late Shri. D.K. Sathe and registered as a banking company on

16th September, 1935 at Pune. The authorized capital was Rs.10 lakhs and

issued capital of Rs. 5 lakhs. Their vision was to reach out and serve the

comman man and meet all their working needs. Successive leadership of the

Bank and the employees have Today, Bank of Maharashtra has over 12 million

customers across the length and breadth of the country served through a

network of 1428 branches in 22 states and2 union territories – a truly pan India

bank.

The Birth

Registered on 16th Sept 1935 with an authorized capital of Rs 10.00 lakh

and commenced business on 8th Feb 1936.

1
The Childhood

Known as a common man’s bank since inception, its initial help to small

units has given birth to many of today’s industrial houses. After

nationalization in 1969, the bank expanded rapidly. It now has 1428 branches

all over India. The Bank has the largest network of branches by

any Public sector bank in the state of Maharashtra.

The bank has fine tuned its services to cater to the needs of the common

man and incorporated the latest technology in banking offering a variety of

services. To be a vibrant, forward looking, techno-savvy, customer centric bank

serving diverse sections of the society, enhancing shareholders’ and employees’

value while moving towards global presence.

Our Logo

The Deepmal

With its many lights rising to greater heights.

The Pillar

Our institution- Symbolising strength.

The Diyas

Our Branches- Symbolising service.

2
The 3 M’s

Symbolising

• Mobilisation of Money

• Modernisation of Methods and

• Motivation of Staff.

Our Aim:

The bank wishes to cater to all types of needs of the entire family, in the

whole country. Its dream is “One Family, One Bank, Bank of Maharashtra”.

The Autonomy

The Bank attained autonomous status in 1998. It helps in giving more

and more services with simplified procedures without intervention of

Government.

Our Social Aspect

The bank excels in Social Banking, overlooking the profit aspect; it has a

good share of Priority sector lending having 38% of its branches in rural areas.

3
Other Attributes

Bank is the convener of State level Bankers committee.

Bank offers Depository services and Demat facilities at 131 branches.

Bank has a tie up with LIC of India and United India Insurance company

for sale of Insurance policies.

All the branches of the Bank are fully computerised.

Strengths:

1. Strong customer base in Maharashtra

2. Loyal group of customers since many years

3. Highly qualified staff with doctorates, economists and CAs

4. Strong network in Maharashtra and Gujarat

5. Large number of branches in semi-urban areas in Maharashtra and

Madhya Pradesh

6. Large retail customer base (Low cost deposits from retail of Bank of

Maharashtra were highest upto last year)

7. Efficient internal system

8. Adequate sanctioning powers of authorities internally

4
Weaknesses:

1. The name of the bank carries a regional image.

2. NPA (Non-performing assets) is high.

3. Forex business is low.

4. No branches abroad.

5. Density of branches in Maharashtra alone is very high.

6. Larger risk involved in retail customer base.

7. Retail customers are more demanding.

Opportunities:

1. Acquisition of smaller private sector banks.

2. Acquiring more government business such as pension and PPF.

3. More scope into Retail advances and Macro finances.

Threats:

1. Reducing NPI (Net Profit Interest).

2. Reducing Feebased income.

3. Free entry of foreign banks after 2009.

5
PRODUCT

A) Huge Range of Products :

1) Retail financing

2) Housing loan to public

3) Model Educational Loan scheme-from learning to earning

4) Aadhar Scheme for pensioners-no old age blues

5) Mahabank Kisan Credit Card (MKCC)- farmers ease

6) Finance for Non-conventional Sources of Energy-beyond time

7) Micro Finance-never too small for us

8) Swarna jayanti Gram Swarozgar Yojana (SGSY)-Rural focus

9) Swarna Jayanti Shahari Rozgar Yojana (SJSRY)- of towns and cities

10) Assistance to SC/ST Category-finance for everyone

11) Advances to Minority Community-no bars

12) Maha-Entrepreneur-for the spirit of challenge

13) Women Empowerment

b) Products catering to different segments of population such as students,

senior citizens or even NRIs.

c) Products catering to different needs of people such as educational

loans, consumer loans, banking needs of women in rural areas,

e-banking etc

6
PROCESS :

a) Use of simple and less complicated technology at all branches to

facilitate easy and smooth transactions.

b) Implementation of Information Technology

801 branches are connected through Core Banking Solutions while the

rest in semi-urban and rural areas use Bibas software solution.

c) Disaster Recovery and Contingency management plans are in place

in case of any calamities.

d) Process Control Mechanisms implemented in Bank of Maharashtra

History:

1969 - The bank was Incorporated on 19th July. The Bank is a

Government of India undertaking and carries on all types of banking business.

The Bank was brought into existence by an ordinance issued on 19th July, by

the Central Government. In terms of the Ordinance, the undertaking of `The

Bank of Maharashtra Ltd.' was transferred to and vested in the new bank. The

ordinance was replaced by the Banking companies (Acquisition and Transfer of

Undertakings) Act, 1969. The Act was declared null and void by the Supreme

Court on 10th February, 1970. An Ordinance was thereupon promulgated which

was latter replaced by the Banking Companies (Acquisition and Transfer of

7
Undertaking) Act, 1970 which was made effective retrospectively from 19th

July.

- Under the `Lead Bank Scheme' the Bank was allotted 5 districts of

Maharashtra, viz. Pune, Satara, Nasik, Aurangabad (jointly with Central Bank

of India) and Thane. Surveys were carried out in these districts for the

identification of growth centres.

1970 - The Bank opened 39 branches in these five `Lead Bank' districts

out of the total of 47 branches opened. The Bank continued to follow the

scheme in the subsequent years and another district was allotted to it.

1976 - In August, the Bank sponsored a regional rural bank under the

name `The Marathwada Gramin Bank Ltd.,' Nanded.

1980 - Rs.81,30,725 capitalised from Reserve Fund.

1982 - One more Regional Rural Bank was sponsored on 7th December,

under the name Aurangabad-Jalna Gramin Bank Ltd. In the subsequent years,

another RRB under the Thane Gramin Bank was sponsored by the Bank. These

three RRBs together had 312 branches as at the end of March 1994. 1984 -

Rs.12 lakhs contribution by Government.

1985 - Rs.1,308 lakhs contributed by Government.

1986 - Rs.800 lakhs contributed by Government.

1988 - Rs.2,100 lakhs contributed by Government.

1991 - Rs.10,500 lakhs contributed by Government.

8
 1992 - Rs.3,500 lakhs contributed by Government.

1993 - Rs.15,000 lakhs contributed by Government.

1996 - The bank opened two extension counters at Gogal (Goa) and

Khandala (Ratnagiri) during the year.

- The bank introduced a new motivational scheme titled "The Best

Colleague Scheme) to encourage, recognise and motivate sincere, meritorious

and helpful staff members.

- The Bank launched a major computerisation programme with the basic

objective of making use of the latest developments in information technology

towards betterment of customer service and improvement in housekeeping.

- Shri. V. Leeladhar, has been appointed as the Executive Director of the

Bank vide the Government of India, Ministry of Finance, Department of

Economy Affairs. 1999 - The bank introduced its telebanking service, which is

the first of its kind by any of the nationalised bank in the region.

- The bank has also set up a core credit monitoring cell at its

headquarters in Pune to continuously assess the performance report of

borrowers (above Rs. 25 lakhs), which would be provided by regional and zonal

centres.

2000 - Bank of Maharashtra (BoM) is launching its new cash

management product.

9
 - The Export Import Bank of India (Exim Bank) is slated to sign a

Memorandum of Understanding (MoU) with Bank of Maharashtra (BoM) on

February 28 for providing advisory services on export finance. - BoM launched

its information technology training institute, the first of its kind in banking

industry in the country.

- Sukomal Chandra Basu has succeeded Madan Mohan Vaish as the

Chairman and Managing Director of the Company. - Bank of Maharashtra

(BoM), a public sector (PSU) bank, has formed an equal joint venture with

Magic Software, an Israeli software developer and its Indian subsidiary.

2011

-Comes out with Rs 230 crore public issue of equity shares (100,000,000

equity shares of Rs 23 each), issue oversubscribed 10.5 times

Bajaj Auto and Bank of Maharashtra (BoM) have signed a strategic

alliance to offer two-wheeler loans in India.

2011 -Bank of Maharashtra has informed that Mrs. Lila F Poonawalla,

Director resigned from the Directorship of the Bank and she stands relieved

from her Directorship with effect from August 01, 2011

2013-Bank of Maharashtra ties up with United Insurance Company

2015 - Bank of Maharashtra and Life Insurance Corporation of India

have together unveiled two products, Maha Suraksha Deposit Scheme and

MahaGrih Suraksha scheme.

10
 2017- Bank of Maharashtra has informed that in terms of guidelines of

the RBI vide letter dated December 01, 2008, the Bank has appointed following

five Chartered Accountants firms as Statutory Central Auditors (SCAs) of the

Bank for the year 2016-17.

11
Award & Excellence

1) Bank of Maharashtra awarded for business excellence; 2013

2) Bank of Maharashtra was awarded Rajbhasha Puraskar for commendable

use of Official Language Hindi in a grand function organized at Mumbai

recently 2013

3) Bank of Maharashtra has been felicitated as a Best Public Sector Bank in

India at the Dun & Bradstreet- Polaris Financial Technology Awards

2013

4) Bank of Maharashtra Grabbed 7 IPE BFSI Awards in 2nd IPE Banking

Financial Services and Insurance award. 2013

5) Bank Grabbed 4 Awards- 1. Best Indian Banker (large), 2. Best Public

Sector Banker (large), 3. Best Banker -Customer Friendliness (large) 4.

Best Banker -Efficiency & Profitability (large) from "The Sunday

Standard Best Bankers Award 2013

6) Bank of Maharashtra a Premier Nationalized Bank was conferred as

BEST BANK PUBLIC SECTOR in BFSI Awards-2014

12
B) Theoretical Background

A Non-performing asset (NPA) is defined as a credit facility in respect

of which the interestand/or installment of principal has remained ‘past due’ for

a specified period of time. In simple terms, an asset is tagged as non performing

when it ceases to generate income for the lender.

A Non-performing asset (NPA) is defined as a credit facility in respect

of which the interest and/or installment of Bond finance principal has remained

‘past due’ for a specified period of time. NPA is used by financial

institutions that refer to loans that are in jeopardy of default the so called NPL.

Once the borrower has failed to make interest or principal payments for 90 days

the loan is considered to be a non-performing asset. Non-performing assets are

problematic for financial institutions since they depend on interest payments for

income. Troublesome pressure from the economy can lead to a sharp increase

in NPLs and often results in massive write-downs.

With a view to moving towards international best practices and to ensure

greater transparency, it has been decided to adopt the ‘90 days’ overdue’ norm

for identification of NPA, from the year ending March 31, 2004. Accordingly,

with effect from March 31, 2004, a non-performing asset (NPA)is a loan or an

advance where;

13
 Interest and/or installment of principal remain overdue for a period of more

than 91 days in respect of a term loan,

 The account remains ‘out of order’ for a period of more than 90 days, in

respect of anOverdraft/Cash Credit (OD/CC),

 The bill remains overdue for a period of more than 90 days in the case of

bills purchased and discounted,

 Interest and/or installment of principal remains overdue for two harvest

seasons but for a period not exceeding two half years in the case of an

advance granted for agricultural purposes, and

 Any amount to be received remains overdue for a period of more than 90

days in respect of other accounts.

 Non submission of Stock Statements for 3 Continuous Quarters in case of

Cash Credit Facility.

 No active transactions in the account (Cash Credit/Over Draft/EPC/PCFC)

for more than 91days

A nonperforming asset (NPA) refers to a classification for loans or

advances that are in default or are in arrears on scheduled payments of principal

or interest. In most cases, debt is classified as nonperforming when loan

payments have not been made for a period of 90 days. While 90 days of

nonpayment is the standard, the amount of elapsed time may be shorter or

longer depending on the terms and conditions of each loan.

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BREAKING DOWN Non-Performing Asset (NPA)

Nonperforming assets are typically listed on the balance sheets of banks.

Banks usually categorize loans as nonperforming after 90 days of nonpayment

of interest or principal, which can occur during the term of the loan or at

maturity. For example, if a company with a $10 million loan with interest-only

payments of $50,000 per month fails to make a payment for three consecutive

months, the lender may be required to categorize the loan as nonperforming to

meet regulatory requirements. A loan can also be categorized as nonperforming

if a company makes all interest payments but cannot repay the principal at

maturity.

Banks are required to classify nonperforming assets in one of three

categories according to how long the asset has been non-performing: sub-

standard assets, doubtful assets, and loss assets. A sub-standard asset is an asset

classified as an NPA for less than 12 months. A doubtful asset is an asset that

has been non-performing for more than 12 months. Loss assets are assets with

losses identified by the bank, auditor, or inspector and have not been

fully written off.

15
The Effects of NPAs

Carrying nonperforming assets, also referred to as nonperforming loans,

on the balance sheet places three distinct burdens on lenders. The nonpayment

of interest or principal reduces cash flow for the lender, which can disrupt

budgets and decrease earnings. Loan loss provisions, which are set aside to

cover potential losses, reduce the capital available to provide subsequent loans.

Once the actual losses from defaulted loans are determined, they are written off

against earnings.

Recovering Losses

Lenders generally have four options to recoup some or all losses

resulting from nonperforming assets. When companies struggle to service debt,

lenders take proactive steps to restructure loans to maintain cash flow and avoid

classifying loans as nonperforming. When defaulted loans are collateralized by

borrowers' assets, lenders can take possession of the collateral and sell it to

cover losses.

Lenders can also convert bad loans into equity, which may appreciate to

the point of full recovery of principal lost in the defaulted loan. When bonds are

converted to new equity shares, the value of the original shares is usually

eliminated. As a last resort, banks can sell bad debts at steep discounts to

16
companies that specialize in loan collections. Lenders typically sell defaulted

loans that are unsecured or when methods of recovery are not cost-effective.

NPA Management in Banks

One cannot comprehend an economic and industrial growth without a

healthy banking industry. The banking sector acts as the catalyst for the

country’s economy playing an instrumental role in providing financial

resources especially to capital-intensive sectors such as infrastructure,

automobiles, iron and steel, pharmaceuticals, healthcare etc. From the Indian

perspective, the economy was on the upside during the period 2002 to 2008,

which saw a credit growth of around 22% pursuant to by all the banks/FIs

across various verticals. The scenario continued to be healthy until the

economic slowdown across the globe from 2009 and onwards, which adversely

impacted Business across the globe and the Indian economy was no exception.

The continued slow down resulted in a speedy deterioration of financial health

of companies leading to failures in meeting their debt obligations to the

Banks/FIs, and the resultant growth in the NPAs of Banks/FIs. Apart from

global slowdown, the increase in NPAs is also attributable to reckless lending

by some banks in the past, improper monitoring of borrowers’ accounts, higher

interest rates etc. The menace of NPAs is ever growing as companies across

17
various verticals which have amassed huge debts are not in a position to service

the same.

Preventive Measures:

Improving the credit appraisal standards is the key to a healthy credit

portfolio and consequent prevention of NPAs. In the past, reckless lending by

banks without appropriate credit appraisal of the project and its financial needs

has been one of the significant reasons for the present state of NPAs. The

viability assessment parameters need to be strengthened and stress should be

laid on carrying out an independent techno economic viability study of a project

before the banks proceed to carry out any kind of lending. The banks should

strive to enhance their in-house capabilities for the same and if required should

engage independent experts and professionals in the field for establishing the

techno economic viability of the project. The Banks should also keep a more

realistic approach while stipulating repayment schedule which should be solely

based on the expected cash flows of the project rather than on the basis of a

thumb rule which may be applicable to all and sundry. The banks need to come

out of their thought process of `one size fits all’ and accordingly stipulate

realistic repayment schedules. In many cases it has been observed that due to

delays in completion and commencement of projects the repayment commences

even before the facility has actually commenced commercial productions which

18
itself marks the beginning of stress in the accounts right from inception. In line

with the above perception the Reserve Bank of India in July 2014, introduced a

flexible financing scheme allowing banks to extend long term loans of 20-25

years to match the cash flows of projects while refinancing them every five or

seven years (commonly known as 5-25 scheme). Further during the course of

appraisal it is imperative to factor in any contingency credit facility to enable

the company to finance the cost over runs / project delays which may arise in

future. In the absence of such a mechanism it is seen that in many cases, either

there are delays in sanctioning of additional loans to meet the cost over runs or

such loans are not sanctioned and the borrower utilizes the working capital

funds for meeting its long term fund requirements which marks the

commencement of vicious circle of working capital depletions, under

utilizations of capacities, non generation of sufficient EBIDTA and non

servicing of Banks’ interest etc.

19
Remedial Measures

1. Restructuring of Debt: Despite the best possible preventive measures

being in place, a slippage in the account cannot be ruled out which may be

attributed to several reasons beyond anybody’s control. Once the account starts

showing signs of slippage or mortality the Banks, in genuine delinquent cases

affected by external factors and keeping the wilful defaulters at bay, should

actively consider restructuring of the same in order to arrest the slippage and

keep alive the hopes of revival of the account. Till March 2015 the Banks were

keen to restructure the potential NPAs as the RBI guidelines provided

regulatory forbearance and such restructured accounts were not to be classified

as NPAs, subject to fulfilment of certain conditions. However, post March 2015

there has been a marked reluctance on part of the Banks to undertake

restructuring as the incentive of asset classification as `Standard’ is no more

available, which is evident from the fact that since March 2015, no accounts

were referred to CDR Cell by Banks. There is an urgent need to bring a change

in such a thought process as preserving economic value of assets in case of

viable units and minimizing the loss to the stake holders is of larger importance

for the overall economic growth as compared to `Asset Classification’ and

`Provisioning’ to be made in the banks’ financial statements.

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 2. Corporate Debt Restructuring Mechanism: Presently the

restructuring of debts is undertaken either on bilateral basis or through the CDR

forum (in case of multiple banking and aggregate debt being in excess of

Rs.10.00 crore). However the success rate of structuring undertaken by the

CDR is not very encouraging. The CDR restructurings have only been reduced

to `mere ever greening’ of accounts rather than addressing the real problem.

Most of the CDR schemes are vanilla schemes encompassing deferment of

repayments, reduction in interest, part conversion of debt into

Equity/Preference Capital or any other debt instruments etc. as such the same

has also not been able to fully accomplish the end for which it was envisaged.

3. Joint Lenders’ Forum and the Corrective Action Plan: The RBI

came up with a fresh set of guidelines in February 2015 `Framework for

Revitalizing Distressed Assets in the Economy’ which recommended setting up

of Joint Lenders’ Forum (JLFs) for early identification of stressed assets and

formulation of corrective action plan (CAP) to bail out viable units which are

presently under stress and to initiate recovery action against the un-viable ones

in order to arrest any further depletion in value. Exit Route The Banks should

have a clear cut exit policy and should lay down definitive parameters which

may be applied to the various bad loan accounts, which are incapable of being

revived, depending upon the merit of each case. The banks may resort to either

21
court driven or out of court measures to ensure the recovery of amounts from

NPAs.

1. Compromises and Settlements: The banks may resort to

compromises and settlements with the defaulting borrowers and stipulate he

repayment terms in accordance with the RBI guidelines and the respective

bank’s internal settlement policy. The same ensures a legal and dispute free

resolution of NPA both for the borrower.

2. Sale of NPAs to Asset Reconstruction Companies: For an effective

resolution of distressed assets, debt aggregation capability and necessary skill

sets for resolution are decisive. ARCs with ability to aggregate debt of different

classes are in a better position to tackle complexities of recovering from a bad

loan. ARCs have access to SARFAESI Act to take necessary steps for recovery

and resolution of bad loans acquired from banks. Thus, ARCs with focus and

domain expertise in resolution and the statutory/ regulatory empowerments for

resolution are in a better position to implement timely resolution strategy

thereby enhancing the value of stakeholders. Of late the RBI has issued several

guidelines relating to the functioning and operations of the ARCs with an

overall intent to equip the system to handle the enlarged stress assets base. The

various guidelines issued by the RBI w.r.t. ARCs include an increase in the

minimum threshold investment of ARC in the SRs from the initial level of 5%

to 15%. The increased stake would encourage better due diligence on part of the

22
ARCs and more realistic pricing of the debt which in the opinion of the ARC is

actually doable. Further, the limit of FDI investment in an ARC has been raised

from 49% to 74% (under Automatic route) to give further leverage to ARCs to

strengthen their capital base to be able to effect more meaningful acquisition of

large asset accounts. The ARCs have also been permitted to convert a portion of

their debt into equity and also acquire a debt from another ARC. The RBI has

permitted an extension of resolution period from 5 years to 8 years to enable the

ARCs to give an extended re-structuring period to the borrowers who have

entered into a restructuring arrangement with the ARCs post acquisition of their

debts. To improve the financial ability of the ARCs, those ARCs which have

acquired assets worth Rs.500.00 crore and above have been permitted to float a

fund (to be subscribed by QIBs) and utilize up to 25% of the same for

restructuring of the debts acquired.

3. Recovery Action If the banks are of the view that the restructuring is

not a viable option with respect to a particular stressed account then they may

initiate recovery proceedings against the defaulting borrower by filing a suit for

recovery before the Debt Recovery Tribunal or the Banks may proceed to take

Possession of the secured assets under the provisions of SARFAESI Act 2002

and thereafter proceed to sell the same in a transparent manner, to be able to

realize the best possible returns.

23
 Chapter 2

RESEARCH METHODOLOGY

Title of the Study:

“A Study on Non Performing Assets (NPA) of Bank of Maharashtra,

Chandrapur”

Problem of the study:

NPAs do not just reflect badly in a bank’s account books, they adversely

impact the national economy. Hence researcher decided to study on NPAs of

Bank of Maharashtra, Chandrapur.

Rationale of the study:

This study will be helpful to the know concept NPA in Bank of

Maharashtra, Chandrapur. The study will try to know reasons of NPAs in Bank

of Maharashtra. The study is important to know the effect of NPAs on financial

performance of Bank of Maharashtra.

24
Objectives of the Study:

1) To study the status of Non Performing Assets of Bank of Maharashtra,

Chandrapur.

2) To study the impact of NPAs on Bank of Maharashtra, Chandrapur.

3) To know the recovery of NPAS through various channels.

4) To make appropriate suggestions to avoid future NPAs and to manage

existing NPAs in Bank of Maharashtra, Chandrapur.

Hypothesis:

1) NPA impact the performance and profitability of bank.

2) Reduce the earning capacity of assets of bank.

3) NPAs affect the risk facing ability of bank.

25
REVIEW OF LITERATURE:

1) A Study of Non-Performing Assets of Commercial Banks and it’s

recovery in India Vivek Rajbahadur Singh

The Indian banking sector has been facing serious problems of raising

Non- Performing Assets (NPAs). The NPAs growth has a direct impact on

profitability of banks. Non- performing assets are one of the major concerns for

scheduled commercial banks in India. The recommendations of Narasimham

committee and Verma committee, some steps have been taken to solve the

problem of old NPAs in the balance sheets of the banks. It continues to be

expressed from every corner that there has rarely been any systematic

evaluation of the best way of tackling the problem. There seems to be no

unanimity in the proper policies to be followed in resolving this problem. 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. NPAs affect the

liquidity and profitability, in addition to posing threat on quality of asset and

survival of banks. The problem of NPAs is not only affecting the banks but also

the whole economy. In fact high level of NPAs in Indian banks is nothing but a

reflection of the state of health of the industry and trade. It is necessary to trim

down NPAs to improve the financial health in the banking system. An attempt

26
is made in this paper to understand NPA, the status and trend of NPAs in Indian

Scheduled commercial banks, The factors contributing to NPAs, reasons for

high impact of NPAs on Scheduled commercial banks in India and recovery of

NPAS through various channels.

2) A Study of Non-Performing Assets and its Impact on Banking

Sector; Dr. Ujjwal M. Mishra

Banks plays an important role in the economic development of a

country. Banks are growth-driver and the banking business is exposed to

various risk, such as credit risk, liquidity risk, interest risk, market risk,

operational risk and management risk. Apart from these risks the very important

risk is loan recovery. The sound financial position of a bank depends upon the

recovery of loans or its level of Non-performing assets (NPAs). Reduced NPAs

generally gives the impression that banks have strengthened their credit

appraisal processes over the years and growth in NPAs involves the necessity of

provisions, which bring down the overall profitability of banks. The Indian

banking sector is facing a serious problem of NPA. The magnitude of NPA is

comparatively higher in public sectors banks. To improve the efficiency and

profitability of banks the NPA need to be reduced and controlled. The bank

seems to have an increasing trend of NPA in last four years. The bank needs be

proactive in the selection of clients and customers while sanctioning of loans.

27
The operation of the bank is wide enough to cater to the needs of broad

spectrum of the society and economy of India at large. Bank of Maharashtra

should strictly follow all the norms and derivatives given by RBI. Bank needs

to have better credit appraisal system so as to prevent NPAs from occurring.

However, once NPAs do come into existence, the problem can be solved only if

there is enabling legal structure, since recovery of NPAs often requires

litigation and court orders to recover stock loans. With long-winded litigation in

India, debt recovery takes a very long time. Even if the bank is taking necessary

measures for recovering the loans, but it needs the support of the system. But it

takes at least one to two years to get permission from the court for physical

possession of any property, which delay’s the further procedure.

OPERATIONAL CONCEPTS & VARIABLES OF THE STUDY:

An asset, including a leased asset, becomes non-performing when it

ceases to generate income for the bank and is then termed as Non-Performing

Asset (NPA). RBI has defined NPA as a credit facility in respect of which the

interest and / or instalment of principal has remained ‘past due’ for a specified

period of time as stipulated by RBI. NPA is an important parameter in the

analysis of financial performance of a bank as it results in higher provisioning

requirements and thus decreasing margin.

28
RESEARCH DESIGN:

Nature/ Type of the study:

The Study is of empirical in nature. The data will be collected from bank

websites, annual reports, manuals, journals and interview with the company

authorities. So the study is of exploratory and formulative.

Universe of the Study:

For the purpose of the study the present researchers has selected Bank of

Maharashtra, Chandrapur as a Universe of study.

Method of Data Collection:

Research Methodology

Every project work is based on certain methodology, which is a way to

systematically solve the problem or attain its objectives. It is a very important

guideline and lead to completion of any project work through observation, data

collection and data analysis.

Research will be based on two sources:

1. Primary data

2. Secondary data

29
 In this research work only secondary data is used.

1) Secondary Data:

Secondary data will consist of different literatures like books which are

published, articles, internet, the company manuals and websites of company. In

order to reach relevant conclusion, research work needed to be designed in a

proper way.

Statistical Tools Used

The main statistical tools used for the collection and analyses of data in

this project are:

1) Bar Diagrams 2) Line Charts

LIMITATIONS OF STUDY:

1) The study is limited to the Bank of Maharashtra,, Chandrapur.

2) The study is limited only for receipt and payment of Bank of

Maharashtra, Chandrapur.

3) The data will be collected only from the secondary sources.

4) The study is only for the academic purpose.

30
TIME SCHEDULE
The maximum time available for the study will be as per the time table

provided by the university

Sr. No. Work Expected Duration

I Selection & approval of the topic & working 10 Days

out problem

II Research Methodology (Research Design) 10 Days

III Collection of Data 10 Days

IV Preparation of Chapters 20 Days

V Report Writing 10 Days

VI Total 60 Days

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CHAPTER SCHEME:

The study is presented in the following chapter scheme:

Chapter I

This chapter gives an overall view about the theoretical background of the study

and company details.

Chapter II

This chapter deals with Research Methodology

Chapter III

This chapter briefly describes analysis and interpretation of data

Chapter IV

This chapter narrates the major findings, conclusions and suggestion.

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 Chapter 2

DATA ANALYSIS AND INTERPRETATION

A loss asset is one where loss has been identified by the bank or internal

or external auditors or by the Co-operation Department or by the Reserve Bank

of India inspection but the amount has not been written off, wholly or partly.

In other words, such an asset is considered un-collectible and of such

little value that its continuance as a bankable asset is not warranted although

there may be some salvage or recovery value.

Table 1. NPA position of Bank of Maharashtra

2014-15

2015-16
2016-17

2017-18

The above table shows that the percentage of gross NPA to gross

advances has been considerably increased in the year 2014 viz 7.73% and has

successfully gone down in the year 2016 viz 5.23%. The percentage of gross

NPA to gross advances changes from 5.23% to 6.39% which is the result of

increase in the gross advances in the year 2017.There is 1.16% increase in NPA

level in the year 2017. Such increase is not favorable for the bank. Increase in

33
the NPA level is unfavorable for bank as it directly affects the profitability and

needs more provisional requirements.

In the year 2014-2015 NPA in the category of Sub-Standard assets is

highest i.e. 67.34% as compared to the year 2014- 2015, 2015-2016 & 2016 -

2017. In the year 2014-2015 NPA in the category of Doubtful assets is highest

i.e. 61.67% as compared to the year 2014- 2015, 2016-2017 & 2017- 2018. In

the year 2015-2016 NPA in the category of Loss assets is highest i.e. 12.98% as

compared to the year 2014-15, 2015-2016 & 2017- 2018. The bank suffer the

losses in spite of the recovery measures taken to reduce NPA. In the year 2015

the bank has more NPA in the category of loss assets as compared to rest of the

years.

Gross NPA is highest in the year 2016 - 17 viz Rs. 203.37 crores which

is unfavourable for Bank. Gross NPA level has been lowest in the year 2014 -

15 viz Rs. 139.92 crores. The above graph shows that the provisions made as

per statutory requirement was unable to cover the loss of bank due to NPA.

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 NPA a/cs and NPA amount at Bank of Maharashtra

2014-15
2015-16
2016-17
2017-18

Interpretation: The numbers of NPA A/Cs were increasing from the

year 2014-15 to 2017-18. The amounts blocked in the NPA were also increases

year by year. The bank has taken the effective measures to recover NPA under

SARFEASI ACT 2002 issuing

NPA position of Bank of Maharashtra

% of NPA in urban area of BoM Nasik zone is lower as compared to

semi-urban &Rural area. Agriculture loan NPA contributes more to the Rural

area.NPA level is increased due to natural calamities like untimely rains,

hailstorm, etc because of this main crops are badly affected throughout the last

3 years.

35
Compromise Settlement and One Time Settlement (OTS)

The bank is also taking innovative initiatives in recovery management.

One of the important initiatives taken by bank in tackling the problem of raising

NPA’s is settlement of Accounts by OTS /compromise. Bank is aware that

some of the cases deserve sympathetic consideration as a default may be due to

circumstances beyond the control of borrower. Bank has formulated clear cut

policy framework to settle the Accounts by compromise/ OTS. While doing so

bank waives certain portion of the loan and recovers balance amount from the

borrower. Bank has resorted to various model called M0, M1, M2, M3, M4 and

M5 for quick settlement and resolution of loan defaulters. The model rests on

size of advance, availability of security, time required for recovery by legal

action, and discounted value of money recovered in short span of time.

36
OTS MODEL M1 (sanction limit upto Rs.10 Lakhs and security value

between 0% to 133% of Ledger Balance)

OTS MODEL M2 (sanction limit upto Rs. 10 lakhs and security value

above 133% of Ledger Balance)

37
Net NPA Ratio :

Net NPA
Net NPA Ratio = ------------------ x 100
Net Advances

Year Net NPA Net Advances Net NPA Ratios (%)

(In Crore)
2017-18 6832.03 107562.67 6.35
2016-17 4126.57 98599.1 4.19
2015-16 1807.32 88920.4 2.03
2014-15 392.93 75470.78 0.52
2013-14 469.57 56059.76 0.84

7
6.35

5
4.19
4

2.03
2

0.84
1 0.52

0
2017-18 2016-17 2015-16 2014-15 2013-14

38
 It can be noticed that Net NPA ratio which was 0.84% in 2013-14 has

reduced to 0.52% which is good sign that the bank is succeeded in making good

provisions against NPA. But in the last three years of study i.e. from 2015-16 to

2017-18, the net NPA has increased and finally reached to 6.35% which

indicates that the bank had failed to make sufficient provisions against NPA in

these years which is not satisfactory. The Management of the Bank has not

taken enough care in granting advances and they are not able to recover from

defaulters.

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Total Provisions Ratio
Total Provisions
Total Provisions Ratio = -------------------- x 100
Gross NPAs

Year Provision Gross Total Provision Ratios

NPA (%)
( in crore)
2017-18 3266.62 10385.85 31.45
2016-17 2136.49 6402.06 33.37
2015-16 1009.90 2859.85 35.31
2014-15 709.69 1137.55 62.39
2013-14 790.11 1297.03 60.92

70 62.39 60.92
60

50

40 33.37 35.31
31.45
30

20

10

0
2017-18 2016-17 2015-16 2014-15 2013-14

From the above table it can be interpreted that Bank has not made

enough provisions for their gross NPAs. From the table we can see that of 5

consecutive years under study, in 2014-15 the provisions was the highest i.e.

62.39% but after it is being decreased to 31.45% in the year 2017-18, which is

not a good sign for bank. The bank need to make sufficient provision in order to

reduce the level of NPA.

40
Shareholder’s Risk Ratio

Net NPAs
Shareholder’s Risk Ratio = ------------------------------ x 100
Total Capital & Reserves

Year Net NPA Capital & Shareholder’s Risk

Reserves Ratios (%)( In Crore)
2017-18 6832.03 8787.14 77.75
2016-17 4126.57 8067.33 51.15
2015-16 1807.32 7368.15 24.53
2014-15 392.93 6396.94 6.14
2013-14 469.57 4722.66 9.94

90

80 77.75

70

60
51.15
50

40

30 24.53

20
9.94
10 6.14

0
2017-18 2016-17 2015-16 2014-15 2013-14

41
 From the table given above, we can see the position of Bank. A risk ratio

was low in the year 2013-14. After that it is increasing year by year and reached

to 77.75% which is the highest in the given period. This indicates the bank has

failed in making provisions against NPAs. However, it is not the good sign that

the risk ratio is increasing, the bank has to take some instant actions to lower

down the risk or it can affect the goodwill, market price of the shares and the

competitive market. This signifies that the shareholder’s fund in this bank are

not clearly safe.

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Doubtful Assets Ratio
Total Doubtful Assets
Doubtful Assets Ratio = ----------------------------- x 100
Gross NPAs

Year Total Gross NPA Doubtful Assets

Doubtful Ratios (%)
Assets (In Crore)
2017-18 4498.9 10385.85 43.32
2016-17 2375.02 6402.06 37.10
2015-16 587.66 2859.85 20.55
2014-15 388.91 1137.55 34.19
2013-14 467.37 1297.03 36.03

50
43.32
45
40 37.1 36.03
34.19
35
30
25 20.55
20
15
10
5
0
2017-18 2016-17 2015-16 2014-15 2013-14

The doubtful assets ratio of Bank are presented in the above table. Banks

can recover more of the advances through compromise. From the table we

understand that the ratio had been decreasing from the year 2013-14 to 2014-15

which is satisfactory except for the years i.e. 2015-16 & 2016-17. Nevertheless,

the doubtful assets ratio is less than sub-standard assets ratio which is a positive

sign. The management must try to recover as much doubtful advances as

possible so that the gross NPAs are reduced

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Loss Assets Ratio
Total Loss Assets
Loss Assets Ratio = ----------------------- x 100
Gross NPAs

Year Total Loss Gross NPA Loss Assets Ratio

Assets (%)(In Crore)

2017-18 544.2 10385.85 5.24

2016-17 1052.35 6402.06 16.44

2015-16 113.15 2859.85 3.96

2014-15 166.93 1137.55 14.67

2013-14 148.15 1297.03 11.42

18
16.44
16 14.67
14

12 11.42

10

6 5.24
3.96
4

0
2017-18 2016-17 2015-16 2014-15 2013-14

44
 Loss assets ratio shows the proportion of loss that the banks are likely to

suffer as compared to gross NPAs. The ratio must be minimum, as it will

indicate that the assets to be lost would be lower as compared to gross NPAs.

The loss assets are likely to be recovered at all and so higher ratio would

suggest higher losses. From the above table it is understood that the loss assets

ratio had been very low in the years of study i.e. 2017-18 but it is high for

remaining years and is 16.44% for the year 2016-17. The bank should take its

condition seriously and work out action plans to reduce the loss assets ratio.

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 Chapter 4

FINDINGS, CONCLUSION AND SUGGESTIONS

NON-PERFORMING ASSETS is like a black spot on diamond .They

affect the profit of bank and also the financial health of bank. This NPA have

number of effect on banks working. The nonperforming assets reduce of

substantial portion from the profitability of the bank’s balance sheet. The

management of NPA’S is very crucial from the banks point as non performing

assets if not managed with due diligence and sincerity can turn the bank

insolvent. The prudential norms for asset classification, income recognition and

provisioning introduced by the RBI have helped in reflecting the true financial

health of the banks.

Bank of Maharashtra has sound credit appraisal system and also sound

recovery policy. It is having separate Department for credit monitoring where

they take care of potential NPA. In the year 2015 the bank has more NPA in the

category of loss assets as compared to rest of the years. The amount of NPA

significantly increased from the year 2014-15 to 2015 - 16 at Bank of

Maharashtra..

46
 The provisions made as per statutory requirement was unable to cover

the loss of bank due to NPA. Bank should give more emphasis on managing

NPA of agricultural loan because its NPA level is higher than other segments.

The increase in the number of NPA accounts indirectly points towards

the inefficiency and casual approach of bank officials while sanctioning loan as

well as failure to recover the loan or interest accrued on it.

NPA level is increased due to natural calamities like untimely rains,

hailstorm, etc because of this main crop of Nasik District pomegranate and

grapes are badly affected throughout the last 3 years.

The bank seems to have an increasing trend of NPA in last four years.

The bank needs be proactive in the selection of clients and customers while

sanctioning of loans. The operation of the bank is wide enough to cater to the

needs of broad spectrum of the society and economy of India at large. Bank of

Maharashtra should strictly follow all the norms and derivatives given by RBI.

Bank needs to have better credit appraisal system so as to prevent NPAs from

occurring. However, once NPAs do come into existence, the problem can be

solved only if there is enabling legal structure, since recovery of NPAs often

requires litigation and court orders to recover stock loans. With long-winded

litigation in India, debt recovery takes a very long time.

47
 Even if the bank is taking necessary measures for recovering the loans,

but it needs the support of the system. But it takes at least one to two years to

get permission from the court for physical possession of any property, which

delay’s the further procedure.

Other factors responsible for growths of NPA are poor credit monitoring,

willful default, etc. For the recovery of NPA bank uses tools like Lok Adalat,

DRT, & SARFEASI ACT 2002.One of the important initiatives taken by bank

in tackling the problem of raising NPA’s is settlement of Accounts by OTS

/compromise.

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Suggestions:

1) RBI should revise existing credit appraisals and monitoring systems.

2) Banks should improved upon and strengthen the loan recovery methods

Credit appraisal and post –loan monitoring are crucial steps which need

to concentrate by all the public sector banks.

3) There must be regular follow-up with the customers and it is the duty of

banker to ensure that there is no diversion of funds. This process can be

taken up at regular intervals.

4) Personal visits should be made after sanction and disbursal of credit and

further close monitoring of the operations of the accounts of borrowed

units should be done periodically.

5) Managers under credit monitoring and recovery department should have

dynamism in their work. Many managers say that “we do not fear to

negotiate but we do not negotiate out of fear. Such fear leads to arbitrary

negotiation, which fails.

6) Frequent discussions with the staff in the branch and taking their

suggestions for recovery of dues.

7) RBI may initiate actions against defaulters like, publishing names of

defaulters in News papers, broadcasting media, which is helpful to other

banks and financial institutions.

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 BIBLIOGRAPHY

1) Shashi K. Gupta & R. K. Sharman; “Financial Management Theory and

Practice”; 6th revised edition, Kalyani Publishers

2) C.R. Kothari, “Research Methodology, Methods & Techniques”; 2nd

revised edition, New Age International Publishers.

3) Prasana Chandra; “Financial Management Theory & Practice”, 7th

Edition, Tata McGraw Hill

4) Ravi M. Kishore; “Financial Management” 7th edition; Taxman’s

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 PHOTO GALLERY

Researcher at Bank of Maharashtra, Chandrapur during her visit.

51