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This is to certify that of BBA (BANKING & INSURANCE) 3rd SEMESTER has
accomplished the project title “COMPARITIVE STUDY ON NON PERFORMING
guidance and supervision.

The project report submitted has been found satisfactory for the partial fulfillment of the

I take this opportunity to express my profound gratitude and deep regards to my guide
MS. SUHASINI PARASHAR - reader (Department of Business administration) for her
exemplary guidance, monitoring and constant encouragement throughout the course of my
thesis. The blessings, help and my guidance given by her time to time shall carry me a long
way in the journey of life on which I am about to embark.

I also take this opportunity to express a deep sense of gratitude for her cordial support,
valuable information and guidance, which helped me in completing this task through various

I am obliged for the valuable information provided by her in her respective field. I am
grateful for her cooperation during the period of my MINOR PROJECT REPORT.

Lastly, I thank almighty, my parents, teachers and friends for their constant encouragement
without which this project would not be possible.


1.1 Introduction
1.2 Objective of the study

1.3 Research Methodology

Chapter 1 5-11

1.4Limitations of the study

Chapter 2 Profile of the organization 12-15

3.1Review of literature and conceptual framework

Chapter 3 38-61
3.2Analysis and interpretation

Conclusion and Recommendations

Chapter 4 62-65





Non Performing Asset means an asset or account of borrower, which has been classified by
a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the
directions or guidelines relating to asset classification issued by RBI.

An amount due under any credit facility is treated as "past due" when it has not been paid
within 30 days from the due date. Due to the improvement in the payment and settlement
systems, 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 (NPA) 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 the case of bills
purchased and discounted,
iv. 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 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 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) shell be a loan or an advance where;
i. Interest and /or instalment 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 the case of bills
purchased and discounted,
iv. 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 purpose, and
v. Any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts.

Assets are classified into following four categories:

 Standard Assets:

 Sub-standard Assets

 Doubtful Assets

 Loss Assets

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 do 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.

Provisioning Norms:

 From the year ending 31.03.2000, the banks should make a general provision of a
minimum of 0.40 percent on standard assets on global loan portfolio basis.
 The provisions on standard assets should not be reckoned for arriving at net NPAs.

 The provisions towards Standard Assets need not be netted from gross advances but
shown separately as 'Contingent Provisions against Standard Assets' under 'Other
Liabilities and Provisions - Others' in Schedule 5 of the balance sheet.
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
reasonability of the dues:

1) Sub-standard Assets

2) Doubtful Assets

3) Loss Assets

 equent 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.

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 Sub-standard


With effect from 31 March 2005, a substandard asset would be one, which has remained
NPA for a period less than or equal to 12 month. The following features are exhibited
by substandard 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 jeopardize the
liquidation of the debt and are characterized by the distinct possibility that the banks
will sustain some loss, if deficiencies are not corrected.

Provisioning Norms
A general provision of 10 percent on total outstanding should be made without making
any allowance for DICGC/ECGC guarantee cover and securities available.

Doubtful Assets:

A loan classified as doubtful has all the weaknesses inherent in assets that were
classified as sub-standard, 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 sub-standard category for 12 months.

Provisioning Norms:

 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 (%)

One to three years 30

More than three years: 60% with effect from March

(1) Outstanding stock of NPAs as on 31, 2005.
March 31, 2004. 75% effect from March 31,
(2) Advances classified as „doubtful‟ 2006.
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:
i. As on31.03.2003, 50 percent of the additional provisioning requirement on the
assets which became doubtful on account of new norm of 18 months for
transition from sub-standard asset to doubtful category.

ii. 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 consassets” by t he bank
or internal or external auditors or the RBI inspection but the amount would not
have been written-off wholly.

Provisioning Norms:
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.


1. Gross NPA

2. Net NPA

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 nonstandard 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

Net NPA:

Net NPAs are those type of NPAs in which the bank has deducted the provision
regarding NPAs. Net NPA shows the actual burdenof 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


I. Objective of the research

 To study of the concept of Non Performing Asset in Indian perspective.

 To study NPA standard of RBI

 To study the Reasons for & Impact of NPAs

 To evaluate the efficiency in managing Non Performing Asset of different types of
banks (Public, Private & Foreign banks) using NPA ratios & comparing NPA with
 To check the proportion of NPA of different types of banks in different categories.

II. Scope of study

 To understand the concept of NPA in Indian Banking industry.

 To understand the causes & effects of NPA

 To analyze the past trends of NPA of Public, Private & Foreign banks
in different sector.


I. Research Design

The research design that will be use is Descriptive Research.

 Involves gathering data that describe events and then organizes,

tabulates, depicts, and describes the data.
 Uses description as a tool to organize data into patterns that emerge
during analysis.

 Often uses visual aids such as graphs and charts to aid the reader.

II. Data Collection Sources

Secondary Data

Secondary data refers to the data which has already been generated and is
available for use. The data about NPAs & its composition, classification of loan
assets, profits (net & gross) & advances of different banks is taken from Reserve
Bank of India website and
The limitations of the study done by me can fit somewhere in the given categories;

 The present information provided in the study is upto date with respect to study but
may change with passage of time.

 Collection of data was certainly an uphill task due to non-availability of exactly

required data.

 Time is a major constrain in performing the project.

 The topic being vast everything was not being able to cover.
1. Internal factors

2. External factors

Internal factors:

1) Funds borrowed for a particular purpose but not use for the said purpose.

2) Project not completed in time.

3) Poor recovery of receivables.

4) Excess capacities created on non-economic costs.

5) In-ability of the corporate to raise capital through the issue of equity or other debt
instrument from capital markets.
6) Business failures.

7) Diversion of funds for expansion\modernization\setting up new projects\ helping or

promoting sister concerns.
8) Will full defaults, siphoning of funds, fraud, disputes, management disputes, mis-
appropriation etc.
9) Deficiencies on the part of the banks viz. in credit appraisal, monitoring and follow-
ups, delaying settlement of payments\ subsidiaries by government bodies etc.,
External factors:

1) Sluggish legal system –

 Long legal tangles

 Changes that had taken place in labour laws

 Lack of sincere effort.

2) Scarcity of raw material, power and other resources.

3) Industrial recession.

4) Shortage of raw material, raw material\input price escalation, power shortage,

industrial recession, excess capacity, natural calamities like floods, accidents.
5) Failures, non payment over dues in other countries, recession in other countries,
externalization problems, adverse exchange rates etc.

6) Government policies like excise duty changes, Import duty changes etc.,

The RBI has summarized the finer factors contributing to higher level of NPAs in the
Indian banking sector as:

 Diversion of funds, which is for expansion, diversification, modernization,

undertaking new projects and for helping associate concerns. This is also coupled
with recessionary trends and failures to tap funds in capital and debt markets.

 Business failures (such as product, marketing etc.), which are due to inefficient
management system, strained labour relations, inappropriate technology/ technical
problems, product obsolescence etc.

 Recession, which is due to input/ power shortage, price variation, accidents, natural
calamities etc. The externalization problems in other countries also lead to growth of
NPAs in Indian banking sector.

 Time/ cost overrun during project implementation stage.

 Governmental policies such as changes in excise duties, pollution control orders etc.

 Will full defaults, which are because of siphoning-off funds, fraud/
misappropriation, promoters/ directors disputes etc.

 Deficiency on the part of banks, viz, delays in release of limits and payments/
subsidies by the Government of India.

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 doesn‟t 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.


Money is getting blocked, decreased profit lead to lack of enough cash at hand which
lead to borrowing money for shortest 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 day‟s
banks have special employees to deal and handle NPAs, which is additional cost to the

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.
By which one can recognize a performing asset turning in to
non-performing asset

Four categories of early symptoms:-

1) Financial:

 Non-payment of the very first instalment in case of term loan.

 Bouncing of cheque due to insufficient balance in the accounts.

 Irregularity in instalment.

 Irregularity of operations in the accounts.

 Unpaid overdue 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.

4) Others:

 Changes in Government policies.

 Death of borrower.





Early Recognition of the Problem:

Invariably, by the time banks start their efforts to get involved in a revival process, it‟s
too late to retrieve the situation- both in terms of rehabilitation of the project and
recovery of bank‟s dues. Identification of weakness in the very beginning that is : When
the account starts showing first signs of weakness regardless of the fact that it may not
have become NPA, is imperative. Assessment of the potential of revival may be done on
the basis of a techno-economic viability study. Restructuring should be attempted
where, after an objective assessment of the promoter‟s intention, banks are convinced of
a turnaround within a scheduled timeframe. In respect of totally unviable units as
decided by the bank, it is better to facilitate winding up/ selling of the unit earlier, so as
to recover whatever is possible through legal means before the security position
becomes worse.
Identifying Borrowers with Genuine Intent:

Identifying borrowers with genuine intent from those who are non- serious with no
commitment or stake in revival is a challenge confronting bankers. Here the role of
frontline officials at the branch level is paramount as they are the ones who have
intelligent inputs with regard to promoters‟ sincerity, and capability to achieve
turnaround. Based on this objective assessment, banks should decide as quickly as
possible whether it would be worthwhile to commit additional finance.
In this regard banks may consider having “Special Investigation” of all financial
transaction or business transaction, books of account in order to ascertain real factors
that contributed to sickness of the borrower. Banks may have penal of technical experts
with proven expertise and track record of preparing techno-economic study of the
project of the borrowers.

Borrowers having genuine problems due to temporary mismatch in fund flow or sudden
requirement of additional fund may be entertained at branch level, and for this purpose a
special limit to such type of cases should be decided. This will obviate the need to route
the additional funding through the controlling offices in deserving cases, and help avert
many accounts slipping into NPA category.

Timeliness and Adequacy of response:

Longer the delay in response, grater the injury to the account and the asset. Time is a
crucial element in any restructuring or rehabilitation activity. The response decided on
the basis of techno-economic study and promoter‟s commitment, has to be adequate in
terms of extend of additional funding and relaxations etc. under the restructuring
exercise. The package of assistance may be flexible and bank may look at the exit

Focus on Cash Flows:

While financing, at the time of restructuring the banks may not be guided by the
conventional fund flow analysis only, which could yield a potentially misleading
picture. Appraisal for fresh credit requirements may be done by analyzing funds flow in
conjunction with the Cash Flow rather than only on the basis of Funds Flow.

Management Effectiveness:

The general perception among borrower is that it is lack of finance that leads to sickness
and NPAs. But this may not be the case all the time. Management effectiveness in
tackling adverse business conditions is a very important aspect that affects a borrowing
unit‟s fortunes. A bank may commit additional finance to an aling unit only after basic
viability of the enterprise also in the context of quality of management is examined and
confirmed. Where the default is due to deeper malady, viability study or investigative
audit should be done – it will be useful to have consultant appointed as early as possible
to examine this aspect. A proper techno- economic viability study must thus become the
basis on which any future action can be considered.

Multiple Financing:
 During the exercise for assessment of viability and restructuring, a Pragmatic and
unified approach by all the lending banks/ FIs as also sharing of all relevant
information on the borrower would go a long way toward overall success of
rehabilitation exercise, given the probability of success/failure.
 In some default cases, where the unit is still working, the bank should make sure
that it captures the cash flows (there is a tendency on part of the borrowers to switch
bankers once they default, for fear of getting their cash flows forfeited), and ensure that such
cash flows are used for working capital purposes. Toward this end, there should be regular
flow of information among consortium members. A bank, which is not part of the
consortium, may not be allowed to offer credit facilities to such defaulting clients. Current
account facilities may also be denied at non-consortium banks to such clients and violation
may attract penal action. The Credit Information Bureau of India Ltd.(CIBIL) may be
very useful for meaningful information exchange on defaulting borrowers once the setup
becomes fully operational.

 In a forum of lenders, the priority of each lender will be different. While one set of
lenders may be willing to wait for a longer time to recover its dues, another lender may have
a much shorter timeframe in mind. So it is possible that the letter categories of lenders may
be willing to exit, even a t a cost – by a discounted settlement of the exposure. Therefore,
any plan for restructuring/rehabilitation may take this aspect into account.

 Corporate Debt Restructuring mechanism has been institutionalized in 2001 t o
provide a timely and transparent system for restructuring of the corporate debt of Rs. 20 crore
and above with the banks and FIs on a voluntary basis and outside the legal framework.
Under this system, banks may greatly benefit in terms of restructuring of large standard
accounts (potential NPAs) and viable sub-standard accounts with consortium/multiple
banking arrangements.

1. Internal Checks and Control

Since high level of NPAs dampens the performance of the banks identification of
potential problem accounts and their close monitoring assumes importance. Though
most banks have Early Warning Systems (EWS) for identification of potential NPAs,
the actual processes followed, however, differ from bank to bank. The EWS enable a
bank to identify the borrower accounts which show signs of credit deterioration and
initiate remedial action. Many banks have evolved and adopted an elaborate EWS,
which allows them to identify potential distress signals and plan their options
beforehand, accordingly. The early warning signals, indicative of potential problems in
the accounts, viz. persistent irregularity in accounts, delays in servicing of interest,
frequent devolvement of L/Cs, units' financial problems, market related problems, etc.
are captured by the system. In addition, some of these banks are reviewing their
exposure to borrower accounts every quarter based on published data which also serves
as an important additional warning system. These early warning signals used by banks
are generally independent of risk rating systems and asset classification norms
prescribed by RBI.

The major components/processes of a EWS followed by banks in India as brought out

by a study conducted by Reserve Bank of India at the instance of the Board of Financial
Supervision are as follows:

 Designating Relationship Manager/ Credit Officer for monitoring account/s

 Preparation of `know your client' profile

 Credit rating system

 Identification of watch-list/special mention category accounts

 Monitoring of early warning signals
Know your client' profile (KYC)

Most banks in India have a system of preparing `know your client' (KYC) profile/credit
report. As a part of `KYC' system, visits are made on clients and their places of
business/units. The frequency of such visits depends on the nature and needs of

Credit Rating System

The credit rating system is essentially one point indicator of an individual credit
exposure and is used to identify measure and monitor the credit risk of individual
proposal. At the whole bank level, credit rating system enables tracking the health of
banks entire credit portfolio. Most banks in India have put in place the system of
internal credit rating. While most of the banks have developed their own models, a few
banks have adopted credit rating models designed by rating agencies. Credit rating
models take into account various types of risks viz. financial, industry and management,
etc. associated with a borrowable unit. The exercise is generally done at the time of
sanction of new borrowable account and at the time of review renewal of existing credit

Watch-list/Special Mention Category

The grading of the bank's risk assets is an important internal control tool. It serves the
need of the Management to identify and monitor potential risks of a loan asset. The
purpose of identification of potential NPAs is to ensure that appropriate preventive /
corrective steps could be initiated by the bank to protect against the loan asset becoming
non-performing. Most of the banks have a system to put certain borrowable accounts
under watch list or special mention category if performing advances operating under
adverse business or economic conditions are exhibiting certain distress signals. These
accounts generally exhibit weaknesses which are correctable but warrant banks' closer
attention. The categorization of such accounts in watch list or special mention categoRY
2. Management/Resolution of NPAs

A reduction in the total gross and net NPAs in the Indian financial system indicates a
significant improvement in management of NPAs. This is also on account of various
resolution mechanisms introduced in the recent past which include the SRFAESI Act,
one time settlement schemes, setting up of the CDR mechanism, strengthening of
DRTs. From the data available of Public Sector Banks as on March 31, 2003, there were
1,522 numbers of NPAs as on March 31, 2003 which had gross value greater than Rs.
50 million in all the public sector banks in India. The total gross value of these NPAs
amounted to Rs. 215 billion. The total number of resolution approaches (including cases
where action is to be initiated) is greater than the number of NPAs, indicating some
double counting. As can be seen, suit filed and BIFR are the two most common
approaches to resolution of NPAs in public sector banks. Rehabilitation has been
considered/ adopted in only about 13% of the cases. Settlement has been considered
only in 9% of the cases. It is likely to have been adopted in even fewer cases. Data
available on resolution strategies adopted by public sector banks suggest that
Compromise settlement schemes with borrowers are found to be more effective than
legal measures. Many banks have come out with their own restructuring schemes for
settlement of NPA accounts. State Bank of India, HDFC Limited, M/s. Dun and
Bradstreet Information Services (India) Pvt. Ltd. and M/s. Trans Union to serve as a
mechanism for exchange of information between banks and FIs for curbing the growth
of NPAs incorporated credit Information Bureau (India) Limited (CIBIL) in January
2001. Pending the enactment of CIB Regulation Bill, the RBI constituted a working
group to examine the role of CIBs. As per the recommendations of the working group,
Banks and FIs are now required to submit the list of suit-filed cases of Rs. 10 million
and above and suit filed cases of willful defaulters of Rs. 2.5 million and above to RBI
as well as CIBIL. CIBIL will share this information with commercial banks and FIs so
as to help them minimize adverse selection at appraisal stage. The CIBIL is in the
process of getting operationalised.
3. Willful Defaulters

RBI has issued revised guidelines in respect of detection of willful default and diversion
and siphoning of funds. As per these guidelines a willful default occurs when a borrower
defaults in meeting its obligations to the lender when it has capacity to honor the
obligations or whenfunds have been utilized for purposes other than those for which
finance was granted. The list of willful defaulters is required to be submitted to SEBI
and RBI to prevent their access to capital markets. Sharing of information of this nature
helps banks in their due diligence exercise and helps in avoiding financing unscrupulous
elements. RBI has advised lenders to initiate legal measures including criminal actions,
wherever required, and undertake a proactive approach in change in management, where

4. Legal and Regulatory Regime

Debt Recovery Tribunals

DRTs were set up under the Recovery of Debts due to Banks and Financial Institutions
Act, 1993. Under the Act, two types of Tribunals were set up i.e. Debt Recovery
Tribunal (DRT) and Debt Recovery Appellate Tribunal (DRAT). The DRTs are vested
with competence to entertain cases referred to them, by the banks and FIs for recovery
of debts due to the same. The order passed by a DRT is appealable to the Appellate
Tribunal but no appeal shall be entertained by the DRAT unless the applicant deposits
75% of the amount due from him as determined by it. However, the Affiliate Tribunal
may, for reasons to be received in writing, waive or reduce the amount of such deposit.
Advances of Rs. 1 million and above can be settled through DRT process. An important
power conferred on the Tribunal is that of making an interim order (whether by way of
injunction or stay) against the defendant to debar him from transferring, alienating or
otherwise dealing with or disposing of any property and the assets belonging to him
within prior permission of the Tribunal. This order can be passed even while the claim is
pending. DRTs are criticized in respect of recovery made considering the size of NPAs
in the Country. In general, it is observed that the defendants approach the High Country
challenging the verdict of the Appellate Tribunal which leads to further delays in
recovery. Validity of the Act is often challenged in the court which hinders the progress
of the DRTs. Lastly, many needs to be done for making the DRTs stronger in terms of


 From the above it is observed that net NPA of public sector banks has a declining
trend up to year 2006-07 and after that it has a rising trend till 2009-10. The same
trend has been observed in both Private and Foreign Sector Banks. The declining
trend from 2004 to 2007 of NPA was due to the implementation of Securitization
Act (2002).
 But the increase in NPA was increasing in absolute term, as NPA as per percent of
advance shows a declining trend in Public Sector Banks while that of in Private and
Foreign Sector Banks shows an upward trend that is increase in NPA as per percent
of advance after 2007.

 The increase in NPA as per percent of advance of Private and Foreign Sector Banks
is because of they have a major proportion of lending in non- priority sectors
includes Medium and large scale industries which was highly affected by global
financial crisis.



 The above frequency distribution chart states that standard asset is increasing
every year & on the contrary all the other types of asset i.e. Sub-standard,
Doubtful & Loss Asset are decreasing every asset. This proves that public sector
banks have succeeded in reducing NPA over the years.

 Public sector banks have taken various measures to reduce NPA also convert Sub-
Standard, Doubtful & loss asset into the above category Standard, Sub-Standard &
Doubtful asset. The rise in sub standard ratio has major proportion indicates that
there is a high scope of up gradation or improvement in NPA recovery in initial
stage because it will be very easy to recover the loan as minimum duration of


 The above frequency distribution chart states that standard asset is increasing
every year & on the contrary all the other types of asset i.e. Sub-standard,
Doubtful & Loss Asset are decreasing every asset. This proves that public sector
banks have succeeded in reducing NPA over the years.

 Public sector banks have taken various measures to reduce NPA also convert Sub-
Standard, Doubtful & loss asset into the above category Standard, Sub-Standard &
Doubtful asset. The rise in sub standard ratio has major proportion indicates that
there is a high scope of up gradation or improvement in NPA recovery in initial
stage because it will be very easy to recover the loan as minimum duration of

The above chart clearly states that the rise in the standard assets over the
yearscompensates the fall in the other three types of assets. But in the year
2010, the percentage of Sub-Standard asset is highest among all the year. In 2010
percentage of standard asset has reduced by 0.5% which is compensated by
increase in Sub-Standard & doubtful assets. This increase is due to interest &
principle amount unpaid due to financial crisis in 2009. The percentage of
doubtful asset has reduced to a great extent amongst all. So the private sector
banks have managed to reduce the doubtful asset.

 The proportion of Standard Asset is increasing from 2005 and started getting stable
in 2008 & 2009. But it has fallen in 2010. The proportion of other three types of
assets is falling over the years, but in 2010 there is great increase in the proportion
of Sub-Standard asset which is as a result of decrease in proportion of Standard
asset. This increase in Sub-Standard asset is because of interest & principle amount
unpaid, due to poor global conditions, for the loan provided in a 2009. The interest
& principle amount remained unpaid for period of more than 180 days but less than
1 year.


 It is observed from the above graph there exist no particular relationship between
net profit & net NPA of public sector banks. There is constant increase in net profit
from 2001-02 to 2004-05 & from 2006-07 to 2009-10. The average of percentage
increase in net profit YOY basis comes to 32.3%

 On the contrary public sector banks have managed to reduce net NPA constantly
from 2002-03 to 2006-07. Although the percentage of reduction over the previous
year is low compared to percentage of rise in profit over previous year. The average
of percentage decrease in net NPA YOY basis comes to 2.5%


 It is clearly observed from the line graph that there is continuous rise in net profit
of private sector banks over the years. The average of percentage increase in net
profits of private sector banks comes to approximately 34%.

 On the contrary there is no continuous rise/fall in net NPA. But overall there is
rise in net NPA from 2001-02 to 2009-10. The average of percentage rise in net
NPA comes to almost 15%.

 The above line graph shows net profit of foreign banks is increasing throughout
the period from 2001-02 to 2009-10. The average of percentage increase in net
profit YOY basis comes to 32%. Whereas in case of net profit there is no
continuous upward or downward movement.

 But overall there is rise in net NPA of foreign banks. The average of percentage
increase in net NPA YOY basis comes to approximately 25%. So this shows there
is positive relationship between net NPA & net profit of foreign banks.


 The percentage in reduction of gross NPA to gross advances ratio is decreasing year
on year i.e. it has reduced by 34.5% from 2005-06 to 2006-07. Similarly it has
reduced by 25%, 18.5% & 9% respectively from 2006-07 to 2007-08, from 2007-
08 to 2008-09 & 2008-09 to 2009-10.

 While in case of net NPA to net advances ratio, the percentage change is varying. It
has reduced by 38% from 2005-06 to 2006-07. Similarly it has reduced by 15.38%,
27.27% & 12.5% respectively from 2006-07 to 2007-08, from 2007-08 to 2008-09
& 2008-09 to 2009-10.

 The above calculated figure states that the provisions made for NPA & other items
like interest due but not recovered, part payment received and kept in suspense
account, etc which is deducted from Gross NPA is changing over the years. It is not
decreasing in same proportion as gross NPA

 The difference in gross NPA/ gross advances & net NPA/net advances is highest in

2006-07 [67%] & lowest in 2007-08 [59%]. In other years it near to 63%. This gap is
highest in 2007 because in 2007 advances have increased tremendously over 2006. Due
to which NPA also increased & so provisions also increased.

 The percentage change in of gross NPA to gross advances ratio is decreasing

initially & thereafter started rising from 2007-08. It has reduced by 34.2% from
2005-06 to 2006-07. Similarly it has reduced by 12% from 2006-07 to 2007-08 &
thereafter increased by 18.5% & 9% respectively from 2007-08 to 2008-09 &
2008-09 to 2009-10.

 While in case of net NPA to net advances ratio, the percentage change is var ying
drastically. It has reduced by 47% from 2005-06 to 2006-07. It is unchanged from
2006-07 to 2007-08. It has increased by 20% & 25% respectively from 2007-08 to
2008-09 & 2008-09 to 2009-10.

 The percentage change in gross NPA to gross advances ratio & net NPA to net
advances ratio over the years states that private sector banks makes more provisions
in gross NPA & gross advances.

The difference in gross NPA/ gross advances & net NPA/net advances is highest
in2006-07 [60%] & lowest in 2009-10 [48%]. In other years it near to 54%. In
2007 there is highest increase in advances over previous year amongst all the year.

This resulted increase in NPA which in turn increased the provisions and
unrecognized interest income.

 Private sector banks have not succeeded to reduce NPA as against the advances
made over the years as both the ratios are increasing in later years.


 The gross NPA to gross advances ratio is decreasing till 2007-08.It is unchanged in
2008-09 & then increased in 2009-10. It has reduced by 28.5% & 10% respectively
from 2005-06 to 2006-07 & from 2006-07 to 2007-08. It has increased
tremendously by 122% from 2008-09 to 2009-10.

 While in case of net NPA to net advances ratio, there is great volatility. It has
reduced by 11% from 2005-06 to 2006-07. Thereafter it increased by 25% in 2007-
08. Again it reduced by 10% in 2009 and finally increased by 89% in 2009-10.

 The steep rise in gross NPA & net NPA 2009-10 is due to poor global conditions.

 The difference in gross NPA/ gross advances & net NPA/net advances is highest in
2005-06 & lowest in 2007-08. In 2005-06 provisions & unrecognized interest
income was highest compare to other years while it was lowest in 2007-08.

 The line graph clearly states that the ratio of gross NPA to gross advances & net
NPA to net advances is decreasing over the years. In all the public sector bank has
succeeded to reduce the non performing assets against the advances made over the

 Thus in foreign banks gross NPA to gross advances ratio & net NPA to net advances
ratio are not having parallel movement throughout the period. The change in net
NPA to net advances is quite higher than gross NPA to gross advances.


 From the above chart it is clearly observed that old private sector banks are
constantly improving in terms of net NPA to net advances ratio which is represented
by declining trend from 2001-02 to 2009-10. While on the other hand for new
private sector banks net NPA to net advances ratio is fluctuating over the years.

 NPAs were more noticeable in respect of new private sector and foreign banks, which
have been more active in the real estate and housing loans segments. It shows a upward
trends over the years as compared to others

 The old private sector banks, which had been registering a significantly lower growth
rate than their newer counterparts in the recent past, managed a better performance this

 Among all three sectors, public sector banks have managed to reduce NPAs over the
years. NPA profile in the < 2% category of public sector banks was reached to 100% in
2009-10 as compared to Private and Foreign sector banks which was around 80%

 Net NPA against net advances increased more in Foreign and Private sector banks in
2009-10 while Public sector banks have succeeded in reducing net NPA against net
advances made over the period of time

 Public sector banks have managed to increase the standard assets over the years. The
proportion of standard assets in Private sector banks reduced in 2009 and 2010 which
was compensated by increase in sub-standard and doubtful assets. In Foreign sectors
banks the proportion of sub-standard asset has increased tremendously by 3.5% of loan
assets in 2010 which was 1.2% of loan assets in 2009.

 The percentage change in gross NPA to gross advances ratio & net NPA to net advances
ratio over the years states that public sector banks makes more provisions in gross NPA
& gross advances as compared to private and foreign banks.

 Public sector banks almost 75% of income comes from Interest/Discount on
advances/bill. Whereas it is just 55% & 43% for private sector banks & foreign banks.

The NPA is one of the biggest problems that the Indian Banks are facing today. If the proper
management of the NPAs is not undertaken it would hamper the business of the banks. If the
concept of NPAs is taken very lightly it would be dangerous for the Indian banking sector.
The NPAs would destroy the current profit, interest income due to large provisions of t he
NPAs, and would affect the smooth functioning of the recycling of the funds

Banks also redistribute losses to other borrowers by charging higher interest rates. Lower
deposit rates and higher lending rates repress savings and financial markets, which hampers
economic growth.

Public sector banks are more efficient than private sector & foreign banks with regard to the
management of nonperforming assets. Even among private sector bank, old private sector
banks are more efficient than new private sector banks. But efficient management of NPA is
not the sole factor that determines the overall efficiency of banks

 New body like Debt Recovery Tribunal should be established & capacity of DRTs
should be enhanced.

 All banks should keep stringent check on advance being made to real estate & housing
segment as these segment contributed highly towards the NPA in 2009 & 2010.

 Uneven scale of repayment schedule with higher repayment in the initial years
normally should be preferred.

 Private sector & Foreign banks should focus more on recovery of sub-standard &
doubtful assets.

 Public sector banks should increase their non-interest income, as rise in NPA due
to default in interest income may affect the profits drastically.

I. Books
Management Of Non-Performing Assets In Banks by Sugan C Jain
Managing Non-performing Assets in Banks S. N. Bidani

II. Magazines
 Investor

 Business India

III. e-Newspapers
 The Economic Times

 The Business Standard

I V. Published Material

 RBI Guidelines Circulars on Income Recognition and Asset Classification

 Report on Trend and Progress of Banking in India 2009-10

Statistical Tables Relating to Banks of India

 Master Circular