Jour of Adv Research in Dynamical & Control Systems, 07-Special Issue, July 2017

Special Issue on Management Studies

Non-performing Asset Management in

District Central Co-operative Banks, A
Special Reference to the Kollam District
Co-operative Bank Ltd.
Dr.S. Venkatachalam, Associate Professor, Dept of MBA, Karpagam Academy of Higher Education, Coimbatore.
R. Saji Kumar, Research Scholar (PT) (Category B), Bharathiar University, Coimbatore.
Abstract--- The Reserve Bank has introduced prudential norms for income recognition, asset classification and
provisioning for the advances portfolio of the banks. Non Performing Asset (NPA) is an important issue regarding
the growth of the economy in general and the co-operative sector in particular. NPAs do not generate interest
income for the bank, but at the same time, the bank is required to make provisions for such NPAs from their current
profit. The accumulation of huge non-performing assets in our bank has assumed great importance. The present
study covers the analysis of the total loan accounts including the cash credit and overdraft accounts (here after
termed as the loan borrowers/customers) for a period of 10 years.
Keywords--- Co-Operative Bank, NPA, Society loans, Overdue, Global Economy, Financial Position.

I. Introduction
In order to reflect a bank’s actual financial health in its balance sheet, The Reserve Bank has introduced
prudential norms for income recognition, asset classification and provisioning for the advances portfolio of the
banks. Non Performing Asset (NPA) is an important issue regarding the growth of the economy in general and the
co-operative sector in particular. In the present day global economy, it may be difficult for the co-operative banks
and financial institutions to stick to old and conventional methods of financing and recovery of dues.
NPAs do not generate interest income for the bank, but at the same time, the bank is required to make provisions
for such NPAs from their current profit. The accumulation of huge non-performing assets in our bank has assumed
great importance. Even though this problem has been emerged as a universal phenomenon, The Kollam DCB’s
recent position accounted a much worse picture.
The present work, “Non-Performing Asset Management in District Co-operative Banks, A special Reference to
The Kollam District Co-operative Bank Ltd.”, refers to search for problem identification in the Bank’s existing
system of Non Performing Assets management and to suggest a better healthy system so as to solve the problem
existing there. i.e., it is aimed to limelight the SWOT (Strength, Weakness, Opportunities and Threats) of KDCB’s
NPA Management based on financial parameters. The study gives more emphasis on the scientific and systematic
search for information on a specific area namely the N P A Management or the huge accumulation of overdue of the
bank.

II. Statement of the Problem

The Kollam District Co-operative Bank Ltd No 4311, Kollam, Kerala, popularly known as ‘KDCB’ is a District
Central Co-operative Bank, registered under the Registrar of Co-operative Societies, Kerala, and Head office at the
heart of Kollam. The bank is having 63 branches located in the nook and corners of the district, by providing
financial services to all class of people, especially the poor and middle class. The aims, objectives and the work of
the bank are much beneficial for the district as a whole. But, since last three decades, its function shows that, there is
an alarming growth of overdue loans and resultant NPAs.
"The bank’s huge amount of overdue, bad debts and the resultant mounting of NPA create fear, anxiety, and a
loss of profit and confidence among the management, members, depositors and the employees of the organisation."
As far as KDCB is concerned, the total over dues of the bank under term loans at Rs. 17293.13 lakh constituted 10%
of the demand as on 31st March 2016. Provision for NPA as on the date was Rs. 8883.12 lakhs. The present study

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Special Issue on Management Studies

covers the analysis of the total loan accounts including the cash credit and overdraft accounts (here after termed as
the loan borrowers/customers) for a period of 10 years.

III. Objective of the Study

The questions and answers regarding the KDCB’s management through the Grand Project on NPA were to:
a. To study the present and past NPA management system in KDCB.
b. To analyse the financial performance and profitability of the bank at different levels of NPA.
c. To learn and formulate preventive measures and recommend a better NPA management system in Kollam
District Co-Operative Bank Ltd.
Hypothesis: Loan Overdue and its recovery management have no influence over NPA management.
Data Collection and period of study (Secondary data): 10 years annual reports for a period from 2006-07 to
2015- 16 are collected and analysed.
Methodology: Descriptive research methodologies were used. Methodologies adopted for carrying out the study
were;At the first stage, theoretical study is attempted. At the second stage, Historical study is attempted. At the
Third stage, analytical study of Loans, Overdue, and NPA are undertaken.
Tools used for analysis: Data analysis is carried out with the help of SPSS. Analysis like Ratio, Percentage,
Correlation, Trend analysis, Moving average etc. Graphs & Charts are also used for more clarity and understanding.
Comparative % Analysis of Individual and Society Loans and their Overdue Positions
(Rs. in lakhs)
Description 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Total Loans 73219 64953 63071 71208 111690 124916 145444 164361 150308 172471
Total Loan - Soc 13796 13472 14306 13483 20495 20675 26204 30237 25895 21526
Overdue - Soc 6267 6066 4701 2595 2852 3283 3468 3565 2256 2390
% of Overdue - Soc 45.43 45.03 32.86 19.25 13.92 15.88 13.23 11.79 8.71 11.1
Total Loan - Ind. 59163 51221 48482 56992 76621 85965 97895 115891 124413 150945
Overdue - Ind. 17581 15934 16605 15719 13937 15670 19339 15898 14882 14903
% of Overdue - Ind. 29.72 31.11 34.25 27.58 18.19 18.23 19.75 13.72 11.96 9.87
Total Overdue 23848 22000 21306 18314 16789 18953 22807 19463 17138 17293
% of Overdue - Soc 45 45 33 19 14 16 13 12 9 11
% of Overdue - Ind 30 31 34 28 18 18 20 14 12 10
Total % of overdue to Total loans 33 34 34 26 15 15 16 12 11 10
The percentage of overdue loans (both Societies and Individuals) shows a better position than in the beginning. It
is clear that, the percentage of over dues in individual loans and its trend shows a far better position than the
societies.
Analysis of Correlation between Loan Balance and Overdue
(Rs. In lakhs)
Year Outstanding Balance (x) Overdue loans (y) xy x2 y2
2007 732 238 174216 535824 56644
2008 650 220 143000 422500 48400
2009 631 213 134403 398161 45369
2010 712 183 130296 506944 33489
2011 1117 168 187656 1247689 28224
2012 1249 190 237310 1560001 36100
2013 1454 228 331512 2114116 51984
2014 1644 195 320580 2702736 38025
2015 1503 171 257013 2259009 29241
2016 1725 173 298425 2975625 29929
Total 11417 1979 2214411 14722605 397405
Analysis of overdue loans with the help of correlation test will help us to understand the relationship between
Balance outstanding of the loans and their overdue for the past 10 years. Therefore, relationship tested as under.
Correlation coefficient between the variables = 0.92
From the analysis, it can be seen that there is a positive correlation between the variables. The coefficient value
obtained in this case is 0.92. When the correlation value is near about one (1) we can say that the relationship of the
overdue loans and the Balance outstanding is near perfect correlation.

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Special Issue on Management Studies

Analysis of Non-Performing Assets

NPA is the major determinant that affects the profitability, liquidity and economic viability of a financial
organisation. In order to analyse the NPA portion of the bank’s loan are categorised into various segments and each
segment is analysed.
Non-Performing Asset and its Borrower Wise Classification
(Rs. In lakhs)
Borrowers 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Total Loans 73219 64953 63071 71208 111690 124916 145444 164361 150308 172471
NPA Societies 3186 2907 2263 2281 2461 2320 2497 2674 1950 2174
NPA Individuals 15678 13192 12835 10927 11958 11389 11691 13125 13065 9866
Total NPA 18864 16099 15098 13208 14419 13709 14188 15799 15015 12040
% of NPA to total loans 26 25 24 19 15 13 11 11 10 7
(Source: Annual Reports of KDCB)
From the above it is clear that the loan outstanding of the bank increased from 73219 lakhs to 172471 lakhs. That
is there is an increase of 136% increase in its total loan outstating. NPA analysis shows that one out of four loans
was NPA at the beginning and now it came down to 07 out of 100. That is only 7% of the loans are NPA. Even
though the bank’s NPA position is much better than the beginning, the bank has to take much strain to attain the
industry average 4%. It also found that the higher volume of loan outstanding directly helped to reduce the
percentage of NPA to a great extent.
Analysis of Reserves and Provisions
As per the prudential Norms on Income Recognition, Asset Classification and Provisioning of advances, every
bank has to keep maintain provision requirement as per the RBI rules and regulations. When the bank keeps reserve
for the period for which the advances remained in doubtful category, the profit, liquidity and stability of the bank
goes down by that much.
Reserves and Provisions for NPA
(Rs. In lakhs)
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

NPA Provision 4173 4413 4681 5439 6057 6692 7030 7864 8589 8250
(Source: Annual Reports of KDCB)

There was an alarming growth in NPA provisioning during the period from 2007 to 2015. But last year (in 2016)
it shows a down ward trend/tendency and it came down from Rs. 8589 to Rs. 8250 lakhs. When a bank keeps this
much amount as provisioning, the profit also reduces by that extent.
Percentage analysis of Overdue and NPA Loans
(Rs. In lakhs)
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Overdue loans 23848 22000 21306 18314 16789 18953 22807 19463 17138 17293
NPA 18863 16046 15315 13208 14418 13709 14188 15799 15015 12040
% of NPA to Over Due loans 79 73 72 72 86 72 62 81 88 70
(Source: Annual Reports of KDCB)

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Special Issue on Management Studies

Overdue and NPA are much correlated than Total loans and NPA. It shows that how much portion of the
overdue loans are considered as loss making assets to the bank in the way of sub-standard asset, doubtful and loss
asset (together known as NPA). Percentage of NPA to overdue shows the NPA portion of loans in the total overdue
loans. Lower percentage shows a better position and vice versa.
Analysis of Net Profit and Reserve for NPA
(Rs. In lakhs)
Description 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Provision for NPA 4173 4413 4681 5439 6057 6692 7030 7864 8589 8250
Net profit -1177 -1126 -845 -318 456 244 903 351 1876 1946
Correlation Coefficient Analysis of Net Profit and Reserve for NPA
(Rs. In lakhs)
YEAR NET PROFIT (X) dx=X-A A=903 dx2 NET NPA (Y) dy=Y-A A= 14418 dy2 dxdy
2007 -1177 -1421 2019241 18863 4445 19758025 -6316345
2008 -1126 -1370 1876900 16046 1628 2650384 -2230360
2009 -845 -1089 1185921 15315 897 804609 -976833
2010 -318 -562 315844 13208 -1210 1464100 680020
2011 456 212 44944 14418 0 0 0
2012 244 0 0 13709 -709 502681 0
2013 903 659 434281 14188 -230 52900 -151570
2014 351 107 11449 15799 1381 1907161 147767
2015 1876 1632 2663424 15015 597 356409 974304
2016 1946 1702 2896804 12040 -2378 5654884 -4047356
2310 -130 11448808 148601 4421 33151153 -11920373
Correlation coefficient = - 0.91. i.e., Negative correlation. Here the values move in opposite direction. It shows
that, when the NPA increase the profit of the bank decrease.

IV. Suggestions
1. Judicious allotment of Loans and advances: The loans are to be issued only after proper
evaluation/appraisal. Bank should give more importance in the repaying capacity of the customer than the
security offered.
2. Know Your Customer: Loan customer enquiry should start from the first day when an officer concerned
meets him. Proper identification has to be done. Detailed back history should be tracked from various credit
agencies.
3. Strong Credit assessment ability: If the Credit assessment is qualitative, then the probability to become
Non-Performing Assets comes down considerably.
4. Sound Documentation: A robust system for credit documentation is a necessary pre-requisite for the
healthy status of NPA.
5. Regular and constant follow-up: Follow-up for loan repayments should be an ongoing process. It should
start from the customer enquiry and last till the loan repaid in full.
6. Skilled and trained human resources: This is one of the most important pre-requisites for the efficient
management of a large and diverse credit portfolio and NPA. Only highly skilled and experienced
manpower can withstand in such a diverse and complex scenario.
7. Quantitative lending to be changed as qualitative: At present the branches are giving importance to the
security offered, not for the repayment capacity or credit worthiness of the customer. It is highly essential
to shift from conventional banking to convenience banking.
8. Accountability to officials: Accountability is one of the major factors that lead people to adhere in quality
maintenance.
9. Effective utilisation of Securitisation Act: Securitisation is one of the most effective tools for the speedy
recovery of defaulted/NPA loans without the intervention of civil court.
10. Separate Strategic recovery management and targets for each Branch.
11. Court intervention, Government policies etc.: Court interventions, Government policies like debt relief,
politically motive programs etc. accelerate the growth of NPA, so the management should take effective
steps to minimise the external influences to the maximum possible level.

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V. Conclusion
The unscientific and prolonged loan recovery management system of the bank apparently causes abnormal
increase of NPA. Lack of proper evaluation about the repaying capacity of the borrower, the security oriented loan
processing policy, manual system of monitoring, delay in recovery procedure, lack of follow-up, lack of proper
training to the staff etc, are the main reasons for the high level NPA.
It is not possible eliminate NPA from the banking business but can only be minimized. It is always wise to
follow a proper policy for appraisal, supervision and follow-up of advances to avoid NPAs. The banks should not
only take steps for reducing present NPAs, but necessary precaution should also be taken to prevent future NPAs.
Judicious allotment of loan after proper appraisal will ensure the timely repayment. Strategic recovery and risk
management are inevitable to bring the NPA of the bank to an Industry average level of below 04%.
Due to time constraints, the study could not touch all aspects, which cause, NPA (like borrower related aspects).
Therefore, the research strongly recommends to-extend the study by taking into account the borrowers and their
opinion about the cause of default in their loan.

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