NPA MANAGEMENT – Jharkhand State Co-operative Bank Ltd

---

---

Video

---

See Presentation

---

Gallery

---

Case Study

NPA MANAGEMENT – Jharkhand State Co-operative Bank Ltd

In the year 2000, Jharkhand was carved out from Bihar as a separate state, resulting in significant changes in the rural cooperative banking landscape. Traditionally, each state operates through an apex cooperative bank to manage rural credit needs and promote financial inclusion. Jharkhand, at its inception, had nine District Central Cooperative Banks (DCCBs) across its 24 districts. To streamline operations and enhance financial governance, the employee association proposed merging eight DCCBs into one unified entity—the Jharkhand State Cooperative Bank Ltd. (JStCB). This merger received approval from the Jharkhand State Government, the Reserve Bank of India (RBI), and the National Bank for Agriculture and Rural Development (NABARD), with JStCB obtaining its banking license from the RBI on 26 August 2013. Additionally, five branches of the Bihar State Cooperative Bank operating in Jharkhand were incorporated into JStCB.

Following the merger, the bank inherited several legacy challenges, with Non-Performing Assets (NPAs) becoming the most pressing issue. By 31 March 2019, the Gross NPA (GNPA) was alarmingly high at 52.42%, while the Net NPA (NNPA) stood at 19.75%. These elevated levels threatened the bank’s financial stability and risked statutory repercussions from regulatory bodies such as the RBI and NABARD. Addressing the NPA crisis became a matter of urgency to ensure the bank’s sustainability.

The bank identified several core issues that contributed to the high NPA levels. A significant portion of the NPAs was due to historical non-recoveries. Staff motivation towards recovery efforts was lacking, and legal enforcement mechanisms had been underutilized, with no Certificate Cases filed previously. Moreover, there were legacy issues related to poor-quality lending and insufficient due diligence during loan disbursement. The bank also lacked robust mechanisms to monitor borrowers’ business performance and fund utilization post-disbursement, which further complicated recovery efforts.

Recognizing the severity of the problem, the bank’s leadership, including CEO Mr. Prem Prakash, Accounts Manager/Incharge CEO Mr. Rajesh Kumar Tiwary, and Administrator Dr. Neha Arora, initiated a comprehensive recovery strategy starting 1 April 2020. The strategy involved several coordinated interventions aimed at systematically reducing the GNPA.

The first step involved strengthening legal enforcement. Legal notices were issued to borrowers, guarantors, and employers. The bank initiated legal proceedings under Section 138 of the Negotiable Instruments Act against defaulters and actively pursued existing Certificate Cases before Certificate Officers, seeking actions such as distress and body warrants. The Registrar of Cooperative Societies (RCS) empowered Certificate Officers in key districts, including Deoghar, Dumka, Simdega, East Singhbhum, and Gumla, to expedite these processes.

Specialized recovery teams were formed in each Regional Office, supported by government-provided home guards, to intensify recovery operations. The bank also utilized alternative dispute resolution mechanisms by referring eligible cases to Lok Adalats across various districts, facilitating quicker settlements and reducing litigation backlogs. For willful defaulters, cases were filed with the Police Department, and insolvency proceedings were initiated where applicable.

Simultaneously, the bank reinforced its lending standards. New lending protocols emphasized thorough due diligence to ensure better loan quality and prevent fresh NPAs. Monthly review meetings were instituted to monitor recovery progress and assess lending practices continuously.

To diversify its credit portfolio and enhance the Credit-Deposit (CD) ratio, JStCB engaged in consortium financing with NABARD and RBI for the Food Corporation of India (FCI). This strategic move involved financing of Rs. 300 crore in FY 2021, Rs. 500 crore in FY 2022, and Rs. 800 crore in FY 2023, significantly boosting the bank’s financial position and contributing to NPA reduction.

Despite these concerted efforts, the bank faced several challenges during implementation. The absence of specialized recovery teams with expertise in legal, valuation, and negotiation skills posed initial difficulties. Legal actions against willful defaulters often faced procedural delays, hindering swift resolutions. Many NPAs were either unsecured or backed by overvalued or depreciated collateral, complicating the recovery process. Coordination with local administration, essential for actions like serving warrants, often encountered bureaucratic delays. Moreover, aligning and motivating the entire staff towards a unified recovery goal required persistent efforts.

The sustained execution of these strategies yielded remarkable outcomes. Between April 2020 and March 2025, the Gross NPA was successfully reduced from 51.63% to 9.53%, and the Net NPA dropped from 18.48% to 3.15%. The proactive legal measures instilled a sense of urgency among willful defaulters, prompting many to clear their dues promptly. Enhanced lending protocols ensured that new loans were less likely to turn non-performing, contributing to sustained financial health. Monthly monitoring and accountability mechanisms ensured that the recovery momentum was maintained consistently.

To maintain these gains, JStCB has outlined future plans focusing on sustainability. Employee sensitization programs on quality lending are conducted regularly to reinforce best practices. The bank continues to monitor borrower businesses and fund utilization closely post-disbursement. Recovery teams receive ongoing training to strengthen their legal and negotiation capabilities. Collaborative efforts with government agencies are sustained to enhance enforcement capabilities, while consortium financing continues to diversify the bank’s credit exposure.

The experience of JStCB offers several key lessons. Quality lending and continuous recovery efforts are indispensable for the long-term sustainability of financial institutions. A multi-pronged strategy, executed simultaneously, can effectively address deeply entrenched NPAs. Empowerment through legal and administrative channels, coupled with vigilant operational oversight, is crucial for successful recovery. Additionally, employee motivation and accountability are critical drivers of organizational transformation.

While the project has been largely successful, certain weaknesses remain. Coordination with local administration still occasionally slows down legal processes. Achieving full employee buy-in for recovery efforts requires ongoing motivational initiatives. Furthermore, loan monitoring mechanisms need continuous enhancement to effectively track fund utilization and borrower performance.

---

For more information, please contact:
Bibha Singh at chairman@jscb.gov.in

---

(The content on the page is provided by the Exhibitor)