A

DESSERTATION REPORT
ON

COMPARATIVE ANALYSIS ON
NON PERFORMING ASSETS
OF PRIVATE AND PUBLIC SECTOR BANKS
SUBMITTED BY
AKASH GUPTA
(BATCH -2014-2016)
UNDER THE GUIDANCE OF
PROF.SHRADHA SHINDE
TO
SAVITRIBAI PHULE UNIVERSITY OF PUNE
IN PARTIAL FULFILLMENT OF TWO YEAR FULL TIME
MASTER OF BUSINESS ADMINISTRATION

ASM's Institute of Business Management and Research (IBMR)

BLOCK C
MIDC-CHINCHWAD
PUNE-MAHARASHTRA - 411019

DECLARATION
I hereby declare that the Project Report entitled COMPARATIVE
ANALYSIS ON
NON PERFORMING ASSET OF PRIVATE AND PUBLIC
SECTOR BANKS written and submitted by me to the University of Pune
in partial fulfillment of the requirements for the award of degree of Master of
Business Administration under the guidance of Prof. Shradha Shinde original
work and the conclusions drawn therein are based on the material collected by
me.

Date: 14/03/2016
Place: PUNE
Pune-411019.

Akash Gupta

ACKNOWLEDGEMENT
I would like to thank Dr. Asha Pachpande, director IBMR of ASMs group of institutes for
inspiring me to make the best of the opportunity provided.
I also thank to my internal faculty guide Prof. Shradha Shinde for co-ordination
the project work & giving me the guidance.
Heart full thanks too many respondents surveyed whole idea, critical insights &
suggestion have been valuable in preparation of this project. last but my not the least I would
like to thank to all the faculty members Institute of Business Management & Research for
giving me the Opportunity to work on this project.

Date: 14/03/2016
Place: PUNE

Akash Gupta

CONTENTS

CHAPTER

SUBJECT COVERED

NO.

PAG
E
NO.
5

Introduction to Topic

Impact, Reasons of npa

18

Preventive Measurement

22

Tools for Recovery

23

Research Methodology

25

Analysis and Interpretations

30

Conclusion

41

Suggestions

44

Bibliography

45

INTRODUCTION

The accumulation of huge non-performing assets in banks has assumed great importance. The
depth of the problem of bad debts was first realized only in early 1990s. The magnitude of NPAs in
banks and financial institutions is over Rs.1,50,000 crores.
While gross NPA reflects the quality of the loans made by banks, net NPA shows the
actual burden of banks. Now it is increasingly evident that the major defaulters are the big borrowers
coming from the non-priority sector. The banks and financial institutions have to take the initiative to
reduce NPAs in a time bound strategic approach.
Public sector banks figure prominently in the debate not only because they dominate the
banking industries, but also since they have much larger NPAs compared with the private sector
banks. This raises a concern in the industry and academia because it is generally felt that NPAs
reduce the profitability of a banks, weaken its financial health and erode its solvency.
For the recovery of NPAs a broad framework has evolved for the management of NPAs
under which several options are provided for debt recovery and restructuring. Banks and FIs have
the freedom to design and implement their own policies for recovery and write-off incorporating
compromise and negotiated settlements.
The three letters NPA Strike terror in banking sector and business circle today. NPA is short form of
Non Performing Asset. The dreaded NPA rule says simply this: when interest or other due to a bank
remains unpaid for more than 90 days, the entire bank loan automatically turns a non performing
asset. The recovery of loan has always been problem for banks and financial institution. To come out
of these first we need to think is it possible to avoid NPA, no can not be then left is to look after the
factor responsible for it and managing those factors.

Definitions:
An asset, including a leased asset, becomes non-performing when it ceases to generate income for
the bank.
A non-performing asset (NPA) was defined 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. 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 NPAs, from the year ending March 31, 2004.
Accordingly, with effect from March 31, 2004, a non-performing asset (NPA) shall be a loan or an
advance where;

Interest and/ or instalment of principal remain overdue for a period of

days in respect of a term loan,

The account remains out of order for a period of more than 90 days, in respect of an
Overdraft/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 instalment 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.

more than 90

As a facilitating measure for smooth transition to 90 days norm, banks have been advised to
move over to charging of interest at monthly rests, by April 1, 2002. However, the date of
classification of an advance as NPA should not be changed on account of charging of interest at
monthly rests. Banks should, therefore, continue to classify an account as NPA only if the interest
charged during any quarter is not serviced fully within 180 days from the end of the quarter with effect
from April 1, 2002 and 90 days from the end of the quarter with effect from March 31, 2004.

NON PERFORMING ASSETS (NPA)

WHAT IS A NPA (NON PERFORMING ASSETS) ?
Action for enforcement of security interest can be initiated only if the secured asset is classified as
Nonperforming asset.
Non performing asset means an asset or account of borrower ,which has been classified by bank or
financial institution as sub standard , doubtful or loss asset, in accordance with the direction or
guidelines relating to assets classification issued by RBI .
An amount due under any credit facility is treated as past due when it is not been paid within 30
days from the due date. Due to the improvement in the payment and settlement system, recovery
climate, up gradation of technology in the banking system etc, it was decided to dispense with past
due concept, with effect from March 31, 2001. Accordingly as from that date, a Non performing asset
shell be an advance where
i.

Interest and/or installment of principal remain overdue for a period of more than 180 days in
respect of a term loan,

ii.

The account remains out of order for a period of more than 180 days ,in respect of an
overdraft/cash credit (OD/CC)

iii.

The bill remains overdue for a period of more than 180 days in case of bill purchased or
discounted.

iv.

Interest and/or principal remains overdue for two harvest season but for a period not
exceeding two half years in case of an advance granted for agricultural purpose ,and

v.

Any amount to be received remains overdue for a period of more than 180 days in respect of
other accounts
With a view to moving towards international best practices and to ensure greater transparency, it
has been decided to adopt 90 days overdue norms for identification of NPAs ,from the year
ending March 31,2004,a non performing asset shell be a loan or an advance where;
i.

Interest and/or installment of principal remain overdue for a period of more than 90
days in respect of a term loan,

ii.

The account remains out of order for a period of more than 90 days ,in respect of
an overdraft/cash credit (OD/CC)

iii.

The bill remains overdue for a period of more than 90 days in case of bill purchased
or discounted.

iv.

Interest and/or principal remains overdue for two harvest season but for a period not
exceeding two half years in case of an advance granted for agricultural purpose ,and

v.

Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts

Out of order
An account should be treated as out of order if the outstanding balance remains continuously
in excess of sanctioned limit /drawing power. in case where the out standing balance in the principal
operating account is less than the sanctioned amount /drawing power, but there are no credits
continuously for six months as on the date of balance sheet or credit are not enough to cover the
interest debited during the same period ,these account should be treated as out of order.
Overdue
Any amount due to the bank under any credit facility is overdue if it is not paid on due date
fixed by the bank.

FACTORS FOR RISE IN NPAs

The banking sector has been facing the serious problems of the rising NPAs. But the
problem of NPAs is more in public sector banks when compared to private sector banks and foreign
banks. The NPAs in PSB are growing due to external as well as internal factors.

EXTERNAL FACTORS :

Ineffective recovery tribunal

The Govt. has set of numbers of recovery tribunals, which works for recovery of loans and
advances. Due to their negligence and ineffectiveness in their work the bank suffers the
consequence of non-recover, their by reducing their profitability and liquidity.

Willful Defaults

Natural calamities

This is the measure factor, which is creating alarming rise in NPAs of the
PSBs. every now and then India is hit by major natural calamities thus
making the borrowers unable to pay back there loans. Thus the bank has to
make large amount of provisions in order to compensate those loans, hence
end up the fiscal with a reduced profit.

Mainly ours farmers depends on rain fall for cropping. Due to irregularities of
rain fall the farmers are not to achieve the production level thus they are not
repaying the loans.

Industrial sickness

There are borrowers who are able to payback loans but are intentionally
withdrawing it. These groups of people should be identified and proper
measures should be taken in order to get back the money extended to them
as advances and loans.

Improper project handling , ineffective management , lack of adequate

resources , lack of advance technology , day to day changing govt. Policies
give birth to industrial sickness. Hence the banks that finance those
industries ultimately end up with a low recovery of their loans reducing their
profit and liquidity.

Lack of demand

Entrepreneurs in India could not foresee their product demand and starts production
which ultimately piles up their product thus making them unable to pay back the
money they borrow to operate these activities. The banks recover the amount by
selling of their assets, which covers a minimum label. Thus the banks record the non
recovered part as NPAs and has to make provision for it.

Change on Govt. policies

With every new govt. banking sector gets new policies for its operation. Thus
it has to cope with the changing principles and policies for the regulation of
the rising of NPAs.

The fallout of handloom sector is continuing as most of the weavers Cooperative societies have become defunct largely due to withdrawal of state
patronage. The rehabilitation plan worked out by the Central government to
revive the handloom sector has not yet been implemented. So the over dues
due to the handloom sectors are becoming NPAs.

INTERNAL FACTORS :

Defective Lending process :There are three cardinal principles of bank lending that have been followed by the
commercial banks since long.
Principles of safety

Principle of liquidity
Principles of profitability

Principles of safety :-

By safety it means that the borrower is in a position to repay the loan both principal and
interest. The repayment of loan depends upon the borrowers:

Capacity to pay
Willingness to pay

Capacity to pay depends upon:

1. Tangible assets
2. Success in business

Willingness to pay depends on:

1. Character
2. Honest
3. Reputation of borrower

10

Inappropriate technology
o

The banker should, there fore take utmost care in ensuring that the enterprise or
business for which a loan is sought is a sound one and the borrower is capable of
carrying it out successfully .he should be a person of integrity and good character.

Due to inappropriate technology and management information system, market driven

decisions on real time basis can not be taken. Proper MIS and financial accounting
system is not implemented in the banks, which leads to poor credit collection, thus
NPA. All the branches of the bank should be computerized.

Improper SWOT analysis

o

The improper strength, weakness, opportunity and threat analysis is another reason
for rise in NPAs. While providing unsecured advances the banks depend more on the
honesty, integrity, and financial soundness and credit worthiness of the borrower.

Banks should consider the borrowers own capital investment.

it should collect credit information of the borrowers from_

From bankers.

Analyze the balance sheet.

Enquiry from market/segment of trade, industry, business.

From external credit rating agencies.

Purpose of the loan

When bankers give loan, he should analyze the purpose of the loan. To
ensure safety and liquidity, banks should grant loan for productive purpose
only. Bank should analyze the profitability, viability, long term acceptability of
the project while financing.

Poor credit appraisal system

o

True picture of business will be revealed on analysis of profit/loss a/c and

balance sheet.

Poor credit appraisal is another factor for the rise in NPAs. Due to poor credit
appraisal the bank gives advances to those who are not able to repay it back. They
should use good credit appraisal to decrease the NPAs.

Managerial deficiencies

11

The banker should always select the borrower very carefully and should take tangible
assets as security to safe guard its interests. When accepting securities banks should
consider the_

Marketability
Acceptability
Safety
Transferability.

The banker should follow the principle of diversification of risk based on the famous maxim do
not keep all the eggs in one basket; it means that the banker should not grant advances to a few
big farms only or to concentrate them in few industries or in a few cities. If a new big customer
meets misfortune or certain traders or industries affected adversely, the overall position of the
bank will not be affected.

Like OSCB suffered loss due to the OTM Cuttack, and Orissa hand loom industries. The biggest
defaulters of OSCB are
the OTM (117.77lakhs), and the handloom sector Orissa hand
loom WCS ltd (2439.60lakhs).

Absence of regular industrial visit

o

The irregularities in spot visit also increases the NPAs. Absence of regularly visit of
bank officials to the customer point decreases the collection of interest and principals
on the loan. The NPAs due to willful defaulters can be collected by regular visits.

Re loaning process
o

Non remittance of recoveries to higher financing agencies and re loaning of the same
have already affected the smooth operation of the credit cycle.

Due to re loaning to the defaulters and CCBs and PACs, the NPAs of OSCB is
increasing day by day.

PROBLEMS DUE TO NPA

1. Owners do not receive a market return on there capital .in the worst case, if the banks fails,
owners loose their assets. In modern times this may affect a broad pool of shareholders.
2. Depositors do not receive a market return on saving. In the worst case if the bank fails,
depositors loose their assets or uninsured balance.
3. Banks redistribute losses to other borrowers by charging higher interest rates, lower deposit
rates and higher lending rates repress saving and financial market, which hamper economic
growth.
4. Non performing loans epitomize bad investment. They misallocate credit from good projects,
which do not receive funding, to failed projects. Bad investment ends up in misallocation of
capital, and by extension, labour and natural resources.

12

Non performing asset may spill over the banking system and contract the money stock, which may
lead to economic contraction. This spill over effect can channelize through liquidity or bank
insolvency:
a) When many borrowers fail to pay interest, banks may experience

liquidity shortage.

This can

jam payment across the country,

b) Illiquidity constraints bank in paying depositors
.c) Undercapitalized banks exceeds the banks capital base.
The three letters Strike terror in banking sector and business circle today. NPA is short form of Non
Performing Asset. The dreaded NPA rule says simply this: when interest or other due to a bank
remains unpaid for more than 90 days, the entire bank loan automatically turns a non performing
asset. The recovery of loan has always been problem for banks and financial institution. To come out
of these first we need to think is it possible to avoid NPA, no can not be then left is to look after the
factor responsible for it and managing those factors.

Interest and/or instalment 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.

As a facilitating measure for smooth transition to 90 days norm, banks have been advised to move
over to charging of interest at monthly rests, by April 1, 2002. However, the date of classification of an
advance as NPA should not be changed on account of charging of interest at monthly rests. Banks
should, therefore, continue to classify an account as NPA only if the interest charged during any
quarter is not serviced fully within 180 days from the end of the quarter with effect from April 1, 2002
and 90 days from the end of the quarter with effect from March 31, 2004.

'Out of Order' status:

An account should be treated as 'out of order' if the outstanding balance remains
continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance
in the principal operating account is less than the sanctioned limit/drawing power, but there are no
credits continuously for six months as on the date of Balance Sheet or credits are not enough to
cover the interest debited during the same period, these accounts should be treated as 'out of order'.

13

Overdue:
Any amount due to the bank under any credit facility is overdue if it is not paid on the due date fixed
by the bank.

Types of NPA
A] Gross NPA
B] Net NPA
14

A] Gross NPA:
Gross NPAs are the sum total of all loan assets that are classified as NPAs as per RBI guidelines as
on Balance Sheet date. Gross NPA reflects the quality of the loans made by banks. It consists of
all the non standard assets like as sub-standard, doubtful, and loss assets.
It can be calculated with the help of following ratio:

Gross NPAs Ratio

Gross NPAs
Gross Advances

B]

Net NPA:

Net NPAs are those type of NPAs in which the bank has deducted the provision regarding NPAs. Net
NPA shows the actual burden of banks. Since in India, bank balance sheets contain a huge
amount of NPAs and the process of recovery and write off of loans is very time consuming, the
provisions the banks have to make against the NPAs according to the central bank guidelines, are
quite significant. That is why the difference between gross and net NPA is quite high.
It can be calculated by following

Net NPAs Gross NPAs Provisions

Gross Advances - Provisions

Asset Classification
Categories of NPAs

15

Standard Assets:
Standard assets are the ones in which the bank is receiving interest as well as the principal amount
of the loan regularly from the customer. Here it is also very important that in this case the arrears of
interest and the principal amount of loan does not exceed 90 days at the end of financial year. If asset
fails to be in category of standard asset that is amount due more than 90 days then it is NPA and
NPAs are further need to classify in sub categories.
Banks are required to classify non-performing assets further into the following three categories based
on the period for which the asset has remained non-performing and the realisability of the dues:

(1) Sub-standard Assets

(2) Doubtful Assets
(3) Loss Assets

(1) Sub-standard Assets:-With effect from 31 March 2005, a sub standard asset would be one, which has remained NPA for a
period less than or equal to 12 month. The following features are exhibited by sub standard assets:
the current net worth of the borrowers / guarantor or the current market value of the security charged
is not enough to ensure recovery of the dues to the banks in full; and the asset has well-defined credit
weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct possibility
that the banks will sustain some loss, if deficiencies are not corrected.

(2) Doubtful Assets:-A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on
the basis of currently known facts, conditions and values highly questionable and improbable.

With effect from March 31, 2005, an asset would be classified as doubtful if it remained in the substandard category for 12 months.

(3) Loss Assets:

- A loss asset is one which considered uncollectible and of such little value that

its continuance as a bankable asset is not warranted- although there may be some salvage or
recovery value. Also, these assets would have been identified as loss assets by the bank or internal
or external auditors or the RBI inspection but the amount would not have been written-off wholly.

16

The entire asset should be written off. If the assets are permitted to remain in the books for any
reason, 100 percent of the outstanding should be provided for.

Doubtful assets:

100 percent of the extent to which the advance is not covered by the realisable value of the
security to which the bank has a valid recourse and the realisable value is estimated on a
realistic basis.

In regard to the secured portion, provision may be made on the following basis, at the rates
ranging from 20 percent to 50 percent of the secured portion depending upon the period for
which the asset has remained doubtful:

Period for which the advance has been

Provision

considered as doubtful

requirement (%)

Up to one year

20

One to three years

30

More than three years:

60% with effect from March

31,2005.

(1) Outstanding stock of NPAs as on

March 31, 2004.

75% effect from March 31,

2006.

(2) Advances classified as doubtful

more than three years on or after

100% with effect from March

April 1, 2004.

31, 2007.

Additional provisioning consequent upon the change in the definition of doubtful assets
effective from March 31, 2003 has to be made in phases as under:

As on 31.03.2003, 50 percent of the additional provisioning requirement on the assets

which became doubtful on account of new norm of 18 months for transition from substandard asset to doubtful category.

17

As on 31.03.2002, balance of the provisions not made during the previous year, in
addition to the provisions needed, as on 31.03.2002.

Banks are permitted to phase the additional provisioning consequent upon the reduction
in the transition period from substandard to doubtful asset from 18 to 12 months over a
four year period commencing from the year ending March 31, 2005, with a minimum of
20 % each year.

Note: Valuation of Security for provisioning purposes

With a view to bringing down divergence arising out of difference in assessment of the value of
security, in cases of NPAs with balance of Rs. 5 crore and above stock audit at annual intervals by
external agencies appointed as per the guidelines approved by the Board would be mandatory in
order to enhance the reliability on stock valuation. Valuers appointed as per the guidelines approved
by the Board of Directors should get collaterals such as immovable properties charged in favour of
the bank valued once in three years.

Impact of NPA

18

Profitability:NPA means booking of money in terms of bad asset, which occurred due to wrong choice of
client. Because of the money getting blocked the prodigality of bank decreases not only by
the amount of NPA but NPA lead to opportunity cost also as that much of profit invested in
some return earning project/asset. So NPA doesnt affect current profit but also future stream
of profit, which may lead to loss of some long-term beneficial opportunity. Another impact of
reduction in profitability is low ROI (return on investment), which adversely affect current
earning of bank.

Liquidity:Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead to
borrowing money for short period of time which lead to additional cost to the company.
Difficulty in operating the functions of bank is another cause of NPA due to lack of money
,routine payments and dues.

Involvement of management:Time and efforts of management is another indirect cost which bank has to bear due to NPA.
Time and efforts of management in handling and managing NPA would have diverted to some
fruitful activities, which would have given good returns. Now days banks have special
employees to deal and handle NPAs, which is additional cost to the bank.

Credit loss:Bank is facing problem of NPA then it adversely affect the value of bank in terms of market
credit. It will lose its goodwill and brand image and credit which have negative impact to the
people who are putting their money in the banks.

19

REASONS FOR NPA:

Reasons can be divided in to two broad categories:A] Internal Factor

B] External Factor

A] Internal Factors:Factors:-

Internal Factors are those, which are internal to the bank and are controllable by banks.

Poor lending decision:

Non-Compliance to lending norms:

Lack of post credit supervision:

Failure to appreciate good payers:

Excessive overdraft lending:

Non Transparent accounting policy:

[ B ] External Factors:External factors are those, which are external to banks they are not controllable by banks.

Socio political pressure:

Chang in industry environment:

Endangers macroeconomic disturbances:

Natural calamities

Industrial sickness

Diversion of funds and willful defaults

Time/ cost overrun in project implementation

Labor problems of borrowed firm

20

Business failure

Inefficient management

Obsolete technology

Product obsolete

21

Early symptoms by which one can recognize a performing asset

turning in to Non-performing asset
Four categories of early symptoms:(1) Financial:
Financial:

Non-payment of the very first installment in case of term loan.

Bouncing of cheque due to insufficient balance in the accounts.

Irregularity in installment.

Irregularity of operations in the accounts.

Unpaid over due bills.

Declining Current Ratio.

Payment which does not cover the interest and principal amount of that installment.

While monitoring the accounts it is found that partial amount is diverted to sister concern or
parent company.

(2)

Operational and Physical:

If information is received that the borrower has either initiated the process of winding up or
are not doing the business.

Overdue receivables.

Stock statement not submitted on time.

External non-controllable factor like natural calamities in the city where borrower conduct his
business.

Frequent changes in plan.

Non payment of wages.

(3) Attitudinal Changes:

Use for personal comfort, stocks and shares by borrower.
Avoidance of contact with bank.
Problem between partners.

22

(4) Others:

Changes in Government policies.

Death of borrower.
Competition in the market.

PREVENTIVE MEASURES FOR NPA

Early Recognition of the Problem

Identifying Borrowers with Genuine Intent
Timeliness
Timeliness and Adequacy of response
Focus on Cash Flows
Management Effectiveness
Multiple Financing

23

Tools for recovery of NPAs

Credit Default

Willful default

Inability to Pay

Unviable

Viable

Rehabilitation
Compromise

Lok Adalat
Debt Recovery
Tribunals

Sole Banker

Consortium Finance

Securitization
Act

Asset
Reconstruction

Corporate Debt Restructuring

Fresh Issue of
Term Loan

Conversion
into WCTL

Fresh WC Limit

Rephasement of
Repayment Period
24

PROBLEMS LOAN RECOVERY

1.

Inadequate security and Erosion in value of security:

Generally, banks tend to find that there is a major gap in the valuation of the
security, as carried out at the time of providing the loan and at the time of loan
recovery. The value of the security has generally deteriorated over the period
and according to experts, it may further deteriorate by almost 10-50% if quick
action is not taken for its immediate sale.

2.

Political interferences:
Political interference in the day -to-day functioning of public sector banks
created a number of problems for them. The populist policies of the national
level politicians, such as waiver in repayment only added to these problems.

3.

Slow legal procedure:

Before the establishment of DRTs in 1993, the banks had to approach the
normal courts to recover their dues. There were provisions under various acts
which hampered the smooth takeover and sale of secured assets. The legal
process could take years to be completed, with the borrower having ample
scope for delaying the takeover of assets. A number of loopholes provided the
borrower with opportunities to delay or ignore repayment of loans. During this
period, it was said by some unscrupulous businessmen that - "there is no
difference between equity and debt - you never have to repay either of them ".

4.

Swamping of DRTs with cases:

Once DRTs were established to quicken the pace of recovery procedures, the
pace of recovery improved quite a bit. However, the DRTs were soon
drowned in the ever increasing number of cases. The pending number of
cases with the DRTs increased manifold during the period 1993-2002.
25

RESEARCH METHODOLOGY
INTRODUCTION

The procedure adopted for conducting the research requires a lot of attention as it has direct bearing on accuracy,
reliability and adequacy of results obtained. It is due to this reason that research methodology, which we used at the
time of conducting the research, needs to be elaborated upon. Research Methodology is a way to systematically study
& solve the research problems. If a researcher wants to claim his study as a good study, he must clearly state the
methodology adopted in conducting the research so that it may be judged by the reader whether the methodology of
work done is sound or not.

The research method here includes:1.

2.
3.
4.
5.
6.
7.

Meaning of research
Research problem
Research design
Sampling design
Data coIlection method
Data analysis and interpretation
Recommendations

Meaning of Research
Research is defined as "a scientific & systematic search for pertinent information on a specific topic. Research is an
art of scientific investigation. Research is a systematized effort to gain new knowledge. It is a careful investigation or
inquiry especially through search for new facts in any branch of knowledge.
Research is an academic activity and this term should be used in a technical sense. Research corn prices defining and
redefining problems, formulating hypothesis or suggested solutions; making deductions and reaching conclusions to
determine whether they fit the formulating hypothesis. Research is thus, an original contribution to the existing stock
of knowledge making for this advancement. The search for knowledge through objective and systematic method of
finding solution to a problem is research.

Research Problem
The first step while conducting research is careful definition of research problem.

Research design
A research design is the arrangement of conditions for collection and analysis of data in a manner that aims to
combine relevance to the research purpose with economy in procedure. Research design is the conceptual structure

26

within which research is conducted. It constitutes the blue print for the collection measurement and analysis of data.
Research design includes an outline of what the researcher will do from writing the hypothesis and its operational
implications to the final analysis of data.
A research design is a framework for the study and used as a guide in collecting and analyzing the data. It is a strategy
specifying which approach will be used for gathering and analyzing the data. It also includes the time and cost budget
since most studies are done under these two constraints.

Research design can be categorized as:

Exploratory research
Descriptive
Diagnostic research
Experimental research

Sampling Design
Sampling is necessary because it is almost impossible to examine the entire parent population (i.e.
the entire universe) various factors such as time available, cost, purpose of study etc make it
necessary for the researchers to choose a sample. It should neither be too small nor too big. It
should be manageable.
Data Collection Method
After the sample has been taken the type of information to be sought was decided upon, the next
step is to collect the data. As the data collected is to be the base of what we plan to find out, the
relevant care should be taken that the errors in methods of collection of data involved are
minimized. The factors of availability of time, cost and human involvement come to effect the
reliability of the data collected. Broadly there are two types of data:

Primary data
Secondary data

Secondary data means the statistics not gathered for the immediate study at hand but for some
other data. It is the data collected by some one for purposes other than solving the problem being
investigated. On the other hand primary data are generated in a study specifically designed to
accommodate the data needs of the
problem at hand.
ANALYSIS AND INTERPRETATION OF DATA AND RECOMMENDATIONS

27

The data collected in the aforesaid manner have been tabulated in condensed form to draw the
meaningful result. The different techniques are adopted to analyze a data.
All the data and the material is arranged through internal resources and the last part of the project
consist of the conclusions drawn from the report, a brief summary and recommendations and
giving the final touch to the reports by stating a conclusion.

Type of Research

In this project Descriptive research methodologies were use.

At the first stage theoretical study is attempted.
At the second stage Historical study is attempted.
At the Third stage Comparative study of NPA is undertaken.

28

Scope of the Study

Concept of Non-Performing Asset

Guidelines

Impact of NPAs

Reasons for NPAs

Preventive Measures

Tools to manage NPAs

Sampling plan

To prepare this Project we took five banks from public sector as well as five banks from private
sector.

29

OBJECTIVES OF THE STUDY

The basic idea behind undertaking the Grand Project on NPA was to:

To evaluate NPAs (Gross and Net) in different banks.

To study the past trends of NPA
To analyze financial performance of banks at different level of NPA
To evaluate profitability positions of banks
To evaluate NPA level in different economic situation.
To Know the Concept of Non-Performing Asset
To Know the Impact of NPAs
To Know the Reasons for NPAs
To learn Preventive Measures

Source of data collection

The data collected for the study was secondary data in Nature.

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DATA ANALYSIS AND INTERPRETATIONS

For the purpose of analysis and comparison between private sector and public sector banks, we take fivefive banks in both sector to compare the non performing assets of banks. For understanding we further
bifurcate the non performing assets in priority sector and non priority sector, gross NPA and net NPA in
percentage as well as in rupees, deposit investment advances.
Deposit Investment Advances is the first in the analysis because due to these we can understand the
where the bank stands in the competitive market. As at end of march 2008, in private sector ICICI Bank
is the highest deposit-investment-advances figures in rupees crore, second is HDFC Bank and KOTAK
Bank has least figures.
In public sector banks Punjab National Bank has highest deposit-investment-advances but when we look
at graph first three means Bank of Baroda and Bank of India are almost the similar in numbers and Dena
Bank is stands for last in public sector bank. When we compare the private sector banks with public
sector banks among these banks, we can understand the more number of people prefer to choose public
sector banks for deposit-investment.
But when we compare the private sector bank ICICI Bank with the public sector banks ICICI Bank is more
deposit-investment figures and first in the all banks.

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PRIVATE BANKS
1. DEPOSIT-INVESTMENT-ADVANCES (RS.CRORE) of both sector banks and comparison
among them, year 2014-15.

BANK

DEPOSIT

INVESTMENT

ADVANCES

AXIS

322,441

132,342

281,083

HDFC

450,795

166,459

365,495

ICICI

361,562

186,580

387522

TOTAL

11,34,798

4,85,381

10,34,100

PUBLIC SECTOR BANKS

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BANK
BOI

DEPOSIT
531,906

INVESTMENT
119,792

ADVANCES
402,025

PNB

501378

151282

380534

SBI

1,5767,93

49,5027

1,300,026

TOTAL

2610077

766101

2082585

INTERPRETATIONS

Above graphs state that advances of public sector banks are higher than private
sector banks.

Higher rate of advances as bank loans lead to higher rate of bad debts.

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2.

COMPARISION ON BASIS OF GROSS NPA AND NET NPA

PRIVATE SECTOR
YEAR 2013-14(IN%)
BANK

GROSS NPA

NET NPA

AXIS

1.34

0.44

HDFC

1.00

0.30

ICICI

3.40

1.27

FOR YEAR 2014 TO 2015

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2014-15
BANK

GROSS NPA

NET NPA

AXIS
HDFC
ICICI

1.68
0.97
4.72

0.75
0.29
2.28

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PUBLIC SECTOR BANKS

2013-14(IN %)
BANK

GROSS NPA

NET NPA

BOI
PNB
SBI

7.55
5.25
4.95

4.31
2.85
2.97

2014-15(%)
BANK

GROSS NPA

NET NPA

BOI
PNB
SBI

9.18
6.55
4.25

5.25
4.06
2.12

36

INTERPRETATIONS
Here, we can see that there are huge difference between gross and net NPA. While
gross NPA reflects the quality of the loans made by banks, net NPA shows the
actual burden of banks. The requirements for provisions are:

NPA of public sector banks is higher than private sector banks which
clearly defines actual burden of public sector banks.

Here, there are gross and net NPA data for 2013-14 and 2014-16 we
taken for comparison among banks.

These data are NPA AS

PERCENTAGE OF TOTAL ASSETS. As we discuss earlier that gross

NPA reflects the quality of the loans made by banks. Among all the six
banks BOI has highest gross NPA as a percentage of total assets in the
year 2014-15 and also net NPA.

BOI shows vast difference between gross and net NPA.

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3.

There is almost same figures between SBI and ICICI.

COMPARISON OF GROSS NPA WITH ALL BANKS FOR THE YEAR 2014-15
GROSS NPA:-

38

INTERPRETATIONS

The growing NPAs affects the health of banks, profitability and efficiency. In the
long run, it eats up the net worth of the banks. We can say that NPA is not a
healthy sign for financial institutions. Here we take all the SIX banks gross NPA
together for better understanding. Average of these SIX banks gross NPAs is
4.55 as percentage of total assets. So if we compare in private sector banks
AXIS and HDFC Bank are below average of all banks and in public sector PNN
and BOI. Average of these 3 private sector banks gross NPA is 2.456% and
average of public sector banks is 6.66%. Which is higher in compare of private
sector banks.

4.

COMPARISON ON BASIS OF ADVANCES TO PRIORITY NON PRIORITY

SECTOR

39

BANK

PRIORITY

NON-PRIORITY

SECTOR
AXIS
HDFC
ICICI
TOTAL

210.59
194.41
1359.34
1875.85

275.06
709.23
6211.12
7929.28

When we further bifurcate NPA in priority sector and Non priority sector.
Agriculture + small + others are priority sector. In private sector banks ICICI
Bank has the highest NPA in both sector in compare to other private sector
banks. Around 72% of NPA is with ICICI Bank with Rs.1359 crore in priority
sector and around 78% in non-priority sector. We can see that in private sector
banks has more NPA in non-priority sector than priority sector.

BANK

PRIORITY SECTOR

NON PERFORMING ASSESTS

(ADVANCED RS.CRORE )
BOI

3269

325

40

PNB

3772

443

SBI

3590

408

INTERPRETATIONS

When we talk about public sector banks they are more in priority sector and they
given advanced to weaker sector or industries. Public sector banks give more
loans to Agriculture, small scale and others units and as a result we see that
there are more number of NPA in public sector banks than in private sector
banks. PNB given more advanced to priority sector in 2014-15 than other TWO
banks and BOI Bank is in least.

But when there are comparison between private bank and public sector bank still
ICICI Bank has more NPA in both priority and non priority sector with the
comparison of public sector banks.

Large NPA in ICICI Bank because the

strategy of bank that risk-reward attitude and initiative in each sector. Above we
also discuss that ICICI Bank has highest deposit-investment-advance than other
banks.

CONCLUSIONS
The Non-Performing assets are the outcome of credit activity of the bank, which
is their most important function to earn profit. The credit is associated with risk
41

and therefore the bank cannot totally avoid non-performing assets. However,
strict compliance of lending norms, steady growth of credit spread over different
segments and activities, careful planning, monitoring and follow up banks can
control the advances turning in to non performing advances. Even in case of
NPAs, recovery or reduction is possible by adopting various strategies. Although,
elaborate guidelines on management of non-performing assets have been
prescribed, it is necessary to keep in mind that application of these guidelines
may or may not bring the desired results. For this it is necessary to devise branch
specific strategy based on the analysis of non-performing assets and then
focusing on recovery by adopting different methods. Management of nonperforming assets is not limited to recovery of dues. It involves careful planning,
understanding the reasons for default, problems/ faced by individual borrower
and then deciding appropriate course of action for recovery. This naturally
requires dedicated and trained staff at branch totally involved in the process and
used exclusively for management of NPAs.
Analysis 1- DEPOSIT-INVESTMENT-ADVANCES (RS.CRORE) of both sector banks
and comparison among them, year 2014-15:

Graphs state that advances of public sector banks are higher than private sector
banks. Higher rate of bank loans lead to higher rate of bad debts

Analysis 2 - Comparison on basis of Gross NPA and Net NPA:We can see that there are huge difference between gross and net NPA. While gross
NPA reflects the quality of the loans made by banks, net NPA shows the actual
burden of banks. The requirements for provisions are:

NPA of public sector banks is higher than private sector banks which
clearly defines actual burden of public sector banks.

42

Here, there are gross and net NPA data for 2013-14 and 2014-16 we
taken for comparison among banks.

These data are NPA AS

PERCENTAGE OF TOTAL ASSETS. As we discuss earlier that gross

NPA reflects the quality of the loans made by banks. Among all the six
banks BOI has highest gross NPA as a percentage of total assets in the
year 2014-15 and also net NPA.

BOI shows vast difference between gross and net NPA.

There is almost same figures between SBI and ICICI.

Analysis 3 - Comparison of Gross NPA with all banks for the year 2014-15:The growing NPAs affects the health of banks, profitability and efficiency. In the
long run, it eats up the net worth of the banks. We can say that NPA is not a
healthy sign for financial institutions. Here we take all the SIX banks gross NPA
together for better understanding. Average of these SIX banks gross NPAs is
4.55 as percentage of total assets. So if we compare in private sector banks
AXIS and HDFC Bank are below average of all banks and in public sector PNN
and BOI. Average of these 3 private sector banks gross NPA is 2.456% and
average of public sector banks is 6.66%. Which is higher in compare of private
sector banks.
Analysis 4 - Bifurcate NPA in priority sector and Non priority sector:When we talk about public sector banks they are more in priority sector and they give
advanced to weaker sector or industries.

Public sector banks give more loans to

Agriculture, small scale and others units and as a result we see that there are more
number of NPA in public sector banks than in private sector banks. BOB given more
advanced to priority sector in 2007-08 than other four banks and Dena Bank is in least.

43

But when there are comparison between private bank and public sector bank still ICICI
Bank has more NPA in both priority and non-priority sector with the comparison of public
sector banks. Large NPA in ICICI Bank because the strategy of bank that risk-reward
attitude and initiative in each sector. Above we also discuss that ICICI Bank has highest
deposit-investment-advance than other banks.

RECOMMENDATIONS

44

 Effective use of early warning systems as the monitoring mechanism by the banks to
proactively detect and resolve issues related to the credit risk of the borrower. For the
resolution of NPAs, an end to end NPA lifecycle management can also help

Banks should also be encouraged to develop their internal rating models and validate these
ratings by comparing them with publicly available ratings and also seek more information
from the rating agencies, if necessary to be doubly sure of their credit assessment process

CRAs also need to effectively use market information in their credit ratings methodology and
put in place a strong corporate governance

Banks should do background check of their customers by help of third part consultancy firms
before providing loans.

Should take early action against the loan bearer if no payment is done till 90 days of notice.
Should monitor their money repaying capacity by looking into theie financial statements of
bank accounts.

Banks should monitor market risks they should also use this information in credit assessment.

BIBLOGRAPHY
Websites
www.Rbi.org.in
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www.pwc.in
www.moneycontrol.com
www.business-standard.com
Books
Research on npa management by Vandana Joshi
Management of npa by Lambert Publications

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