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Project Proposal

Non-Performing assets with references in State bank Of India

Submitted to (HONOURS)

Shobhit Sharma
Student of (HONOURS)
Exam Seat No: 517141

Under the Guidance of

Mr. Jignesh Shah
Department of Accounting and Financial Management

Faculty of commerce

The Maharaja Sayajirao University of Baroda



1 Introduction 1
2 Literature Review 2
3 Objectives of Project Study 3
4 Research Design 3
5 Scope and Coverage of Study 4
6 Research Methodology 4
7 Data Analysis and interpretation 5-6
8 Limitations of the Research 7
9 Significance of Project Work 7
10 Chapterisation of Project 8
11 Bibliography 9

The Banking system of India constitutes a large financial backbone of the

industrial sector, by providing many short term and long term loans to them. But
when the lending companies can`t repay their outstanding amount of loan or
interest of loan, this constitutes a NPA in the banking sector.

This presence of NPA led to bank failure, some exit to destiny (e.g. United
Western Bank), while some banks merged with other banks (e.g. Lord Krishna
Bank). The Government also introduced the “Banking Regulation Act 1991”,
but this is still ineffective in solving NPA problem. The “Tandon Committee”
was also formed to probe into the matter of NPA problem in banks, but the RBI
can`t follow their recommendation, as it has to expand the banking business all
over the country by providing loans.

The present project shows the NPA status of the STATE BANK of
INDIA & it`s ASSOCIATES. The project also shows the way to get rid of this
NPA problem.

History of SBI

State Bank of India (SBI), state-owned commercial bank and financial

services company, nationalized by the Indian government in 1955. SBI maintains
thousands of branches throughout India and offices in dozens of countries
throughout the world. The bank’s headquarters are in Mumbai.
The oldest commercial bank in India, SBI originated in 1806 as the Bank of
Calcutta. Three years later the bank was issued a royal charter and renamed the
Bank of Bengal. Along with the Bank of Bombay (founded 1840) and the Bank
of Madras (founded 1843), it was one of three so-called presidency banks, each
of which was jointly owned by the provincial government and private subscribers.
In 1921 the presidency banks were merged to form the Imperial Bank of India
(IBI), which then became the largest commercial enterprise in the country.

Literature Review

According to a study by Brownbridge (1998), most of the bank

failures were caused by nonperforming loans. Arrears affecting more than half
the loan portfolios were typical of the failed banks. Many of the bad debts were
attributable to moral hazard: the adverse incentives on bank owners to adopt
imprudent lending strategies, in particular insider lending and lending at high
interest rates to borrowers in the most risky segments of the credit markets.

Bloem and Gorter (2001) suggested that a more or less predictable level
of non-performing loans, though it may vary slightly from year to year, is
caused by an inevitable number of ‘wrong economic decisions by individuals
and plain bad luck (inclement weather, unexpected price changes for certain
products, etc.). Under such circumstances, the holders of loans can make an
allowance for a normal share of non-performance in the form of bad loan
provisions, or they may spread the risk by taking out insurance. Enterprises
may well be able to pass a large portion of these costs to customers in the form
of higher prices. For instance, the interest margin applied by financial
institutions will include a premium for the risk of non- performance on granted
loans. At this time, banks’ non-performing loans increase, profits decline and
substantial losses to capital may become apparent. Eventually, the economy
reaches a trough and turns towards a new expansionary phase, as a result the
risk of future losses reaches a low point, even though banks may still appear
relatively unhealthy at this stage in the cycle.

Nelson M. Waweru (2009), Study that many financial institutions that
collapsed in Kenya since 1986 failed due to non-performing loans, this study
investigated the causes of nonperforming loans, the actions that bank managers
have taken to mitigate that problem and the level of success of such actions.
Using a sample of 30 managers selected from the ten largest banks the study
found that national economic downturn was perceived as the most important
external factor. Customer failure to disclose vital information during the loan
application process was considered to be the main customer specific factor. The
study further found that Lack of an aggressive debt collection policy was
perceived as the main bank specific factor, contributing to the non-performing
debt problem in Kenya.

Objectives of the Study

1) To explain the concept of Non-performing assets.

2) To discuss about the different aspects of Non-Performing Assets.

3) To discuss about the increase in the amount of Non-performing assets.

4) To discuss about the adverse effect of NPA in our Economy.

5) To state the major challenges that has to be overcome by the State Bank of


6) The initiatives that has already been taken by the Government and the

Reserve Bank of India.

Research Design of Study

The research conducted is to analyse the NPAs management in SBI bank.

The nature of research is exploratory as well as diagnostic. Project include

various data, the RBI circular journals, magazine data from internet will be

studied and interpretation made thereof.

Scope & coverage of Study

The scope of study is as given below:

 This project also give light upon Impact of NPAs.

 Concept of NPAs made clear.

 To present a picture of movement of NPAs in the SBI Bank.

 Cover various aspects of NPA.

 The study is carried out for 5 years i.e. 2013-2014 to 2017-2018.

Research Methodology

Data Source:- Mainly secondary data have been used to make this project.

1. Newspaper report.

2. Internet based data.

3. Annual report of bank.

4. Various press release of Reserve Bank of India, etc

• Software Used:- Microsoft Word 2010

Data Analysis and Interpretation

Ratio Analysis: The relationship between two related items of financial is

known as ratio. A ratio is just one number expressed in terms on another. The
ratio is customarily expressed in there different ways. It may be expressed as a
proportion between the two figures. Second, it may be expressed in terms of
percentage. Third, it may expressed in terms of rate.

The use of ratio become increasingly popular during the last few years only.
Originally, the bankers used the current ratio to judge the capacity of borrowings
business enterprises to repay the loan and make regular interest payments. Today
it has assumed to be important tools that anybody connected with the business
turns to ratio for measuring the financial strength and earning capacity of

Gross NPA Ratio:

Gross NPA Ratio is the ratio of gross advances of the Bank. Gross is the sum of
all loan assets that are classified as NPA as per RBI guidelines, the ratio is to be
counted in terms of percentage and the formula for GNPA is as follows:

Gross NPAs Ratio = Gross NPAs *100

Gross Advances



2013-14 61,605.35 1245122 4.95

2014-15 56725.34 1335424 4.25

2015-16 98172.80 1509500 6.50

2016-17 112342.99 1627273 6.90

2017-18 223427.46 20479.14 10.91


The above table makes it very clear that the average gross NPA of SBI is not
very satisfactory. It has seem that the gross NPA which was 4.95% in 2013-14
increased every year and finally reached 10.91 in 2017-18. It seems that SBI
need to take more care and follow ideal norms of granting advances, so that the
recovery is satisfactory leading to lower gross NPA.


The net NPA percentage is the ratio of NPA to net advances in which is to be
deducted from the gross advances. The provision is to be made for NPA
account. The formula for that is.


2013-14 31096.07 1209963.81 2.57

2014-15 27590.58 1300026.39 2.12

2015-16 55807.02 1463700.42 3.81

2016-17 58277.38 1571078.38 3.71

2017-18 110854.70 19346.37 5.73

st st
(Balance sheet as on...1 April to 31 March)
(Sources: SBI official website.)

Net NPA Ratio = Net NPAs *100

Net Advances


In this table we can see that increase or decrease in gross NPA is not because of
increase in advances. There is another possibility of increasing in NPA may be
this is because of poor credit system in bank.
Limitations of Study

Even utmost care is exercised in all through the assignment, certain limitations
have been perceived and acknowledged herewith: -

• The result of the study mainly focused on the NPA status of SBI.
But it does not reveal a clean picture about the other bank of India.
• The study period of this assignment is 2008-2014. If certain
measures are taken after this study period, it will influence the
• The NPA problem was first sited by the economists at late 1990s,
but as inadequacy of the data, we can’t give the data of NPA from
the year 1991 to 2007.
• The Narashimham Committee recommended about reduction of
NPA in two reports made in 1991 and 1998 respectively. But due
to shortage of time, we cannot discuss about this reports and their
• As the project is based on the secondary data, there may be some
minor mistakes in figures used in this project.
Significance of Project work

 Bank can improve their financial position or can increase their income from

credit with the help of this project.

 Bank also comparing its performance with the other bank.

 Bank also reduce mismatch between Assets & Liabilities by reducing NPA.

 Bank can easily increase its profitability by adopting the measures for

decreasing the NPA.



1 Introduction
2 Literature Review
3 Objectives of Project Study
4 Research Design
5 Scope and Coverage of Study
6 Research Methodology
7 Data Analysis and Interpretation
8 Limitations of the Research
9 Significance of Project Work
10 Bibliography


• Annual Report of Public Sector Banks (including SBI), Online URL: •
Annual Report of SBI in PDF file 2008-2010, Online URL:
• Annual Report of SBI & it’s associates in PDF file 2011-2015, Online
• Business Standard, (2012), “NPA levels highest in 2011-2012 during last
5 years: RBI”, 2012, Press Release dated 9-Nov-2012, Online URL:
• Chaudhary, S and Singh, S (2012), “Impact of Reforms on the Asset
Quality in Indian Banking”, International Journal of Multidisciplinary
Research, Vol. 2 issue 1, January 2012.
• History of SBI and its associates, URL:
• Master circular 2012 RBI/2013-13/647 UBD.BPD.
• Rasika Gynedi, “India’s Non Performing Assets: A Lurking Crisis”,