A STUDY ON

NON PERFORMING ASSETS

With Reference to
ICICI BANK

A Project Report submitted to Andhra University, Visakhapatnam

In Partial fulfillment for the Award of the Degree of

BACHELOR OF COMMERCE
Submitted by

Y.RAMU
(Hall TicketNo: - 115128803259)

Under the Esteemed guidance of

Mr.B.SRINIVAS REDDY
Lecturer in commerce

Department of Commerce and Management Studies

Dr. LANKAPALLI BULLAYYA COLLEGE
Andhra University
Visakhapatnam-530013
(2015 - 2018)

1
 DECLARATION

I hereby declare that the project work entitled “NON PERFORMING

ASSETS” with reference to “ICICI BANK”, is a bonafide work done by me for the
award of the degree of “Bachelor of Commerce”, from Andhra University has been
done under the guidance of MR.B.SRINIVAS REDDY Lecturer in commerce,
Department of Commerce and Management Studies, during the academic years
2015 – 2018, and my work has not been submitted to any other University or
Institution for the award of any Degree or Diploma.

Y.RAMU

HallTicketNo:115128830259

2
 CERTIFICATE

This is to certify that the project report entitled “NON PERFORMING ASSETS”
with reference to “ICICI BANK” is a bonafide work done by Y.RAMU, student of
B.com, of Department of Commerce and Management Studies, Dr. Lankapalli
Bullayya College, Visakhapatnam, for the award of the degree of “Bachelor of
Commerce”, from Andhra University, done under my guidance, during the academic
years 2015 – 2018.

Y.RAMU

Hall Ticket.No115128803259

Date:
Place: Visakhapatnam

MR.B.SRINIVAS REDDY
Lecture in commerce
Dept. of Commerce and Management Studies
Dr.Lankapalli Bullayya College

Mr. Riaz Mohammed

Dean-UG Courses
Dept. of Commerce and Management Studies
Dr. Lankapalli Bullayya College
Visakhapatnam

3
 ACKNOWLEDGEMENT

Firstly, I would like to thank Dr.Y.Poli Reddy, Principal, Dr.Lankapalli

Bullayya College and Mr. Riaz Mohammed, Dean-UG Courses, Dr.Lankapalli
Bullayya College for giving me an opportunity to take up this project work.

I would like to thank Mr.H.Ranganaikulu, Asst.Dean, Department of

Commerce and Management Studies, Dr.Lankapalli Bullayya College, for
encouraging me to do this project work .I would also like to thank my Project
Guide,MR.B.SRINIVAS REDDY Lecturer in commerce, Department of
Commerce and Management Studies, for his valuable guidance, keen interest and
support which was helpful in the the completion of my project work.

I would also like to express my deep gratitude to all the teachers in the
Departmentof Commerce and Management Studies, Dr. Lankapalli Bullayya
College, who have helped me in various stages of the project work.

Lastly, I would like to thank my family and friends for their constant help and
support which helped me a lot in finalizing this project within the limited time frame.

Y.RAMU
Hall Ticket No:11528803259

4
 CONTENTS
CHAPTER 1- INTRODUCTION OF PROJECT 1-8

1.1 INTRODUCTION
1.2 OBJECTIVE OF THE STUDY
1.3 NEED OF THE STUDY
1.3 SCOPE OF THE STUDY
1.4 RESEARCH METHODOLOGY
1.5 LIMITATIONS

CHAPTER 2- INDUSTRY PROFILE & COMPANY PROFILE 9-30

2.1 INDUSTRY PROFILE

2.2 HISTORY OF BANKING INDUSTRY
2.3 TRANSFORMATION IN BANKING INDUSTRY
2.3 CHALLENGES IN BANKING INDUSTRY
2.4 COMPANY PROFILE
2.5 INTRODUCTION to ICICI BANK
2.6 HISTORY OF ICICI BANK
2.7 IMPACT OF FINANCIAL CRISIS
2.8 PROFILE OF BANKS

5
CHAPTER 3- THEORITICAL FRAMEWORK 31-37

3.1 INTRODUCTION
3.2 CONCEPTUAL FRAMEWORK OF NPAs
3.2 TYPES OF NPAS

CHAPTER 4- DATA ANALYSIS & INTERPRETATION 38-47

4.1 DATA ANALYSIS & INTERPRETATION

CHAPTER 5- CONCLUSION & BIBLIOGRAPHY 48-56

5.1 FINDINGS
5.2 SUGGESTIONS
5.3 CONCLUSION
5.4 BIBLIOGRAPHY

6
CHAPTER-I
INTRODUCTION

7
 INTRODUCTION

Since the introduction of economic liberalization and financial sector reforms,

Banks are under growing pressure to bring down their NPAs so as to improve their
performance and viability. What is bothering the bankers today is the management of
Non-performing Assets. Over the period this problem has aggravated alarmingly and
therefore needs urgent remedial actions, so in this context a good number of circular
instruction/guidelines have been issued by bank/Reserve Bank of India.

During pre-nationalization period and after independence, the banking sector

remained in private hands Large industries who had their control in the management
of the banks were utilizing major portion of financial resources of the banking system
and as a result low priority was accorded to priority sectors. Government of India
nationalized the banks to make them as an instrument of economic and social change
and the mandate given to the banks was to expand their networks in rural areas and to
give loans to priority sectors such as small scale industries, self-employed groups,
agriculture and schemes involving women.
To a certain extent the banking sector has achieved this mandate. Lead Bank
Scheme enabled the banking system to expand its network in a planned way and make
available banking series to the large number of population and touch every strata of
society by extending credit to their productive endeavours. This is evident from the
fact that population per office of commercial bank has come down from 66,000 in the
year 1969 to 11,000 in 2004. Similarly, share of advances of public sector banks to
priority sector increased form 14.6% in 1969 to 44% of the net bank credit. The
number of deposit accounts of the banking system increased from over 3 crores in
1969 to over 30 crores. Borrowed accounts increased from 2.50 lakhs to over 2.68
crores.

Without a sound and effective banking system in India it cannot have a healthy
economy. The banking system of India should not only be hassle free but it should be
able to meet new challenges posed by the technology and any other external and
internal factors.

8
 For the past three decades India's banking system has several outstanding
achievements to its credit. The most striking is its extensive reach. It is no longer
confined to only metropolitans or cosmopolitans in India. In fact, Indian banking
system has reached even to the remote corners of the country. This is one of the main
reasons of India's growth process.
Financial sector reform in India has progressed rapidly on aspects like
interest rate deregulation, reduction in reserve requirements, barriers to entry,
prudential norms and risk-based supervision. But progress on the structural-
institutional aspects has been much slower and is a cause for concern. The sheltering
of weak institutions while liberalizing operational rules of the game is making
implementation of operational changes difficult and ineffective. Changes required to
tackle the NPA problem would have to span the entire gamut of judiciary, polity and
the bureaucracy to be truly effective.
In liberalizing economy banking and financial sector get high priority. Indian
banking sector of having a serious problem due non performing. The financial
reforms have helped largely to clean NPA was around Rs. 52,000 crores in the year
2004. The earning capacity and profitability of the bank are highly affected due to
thisNon 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
The Reserve Bank of India. The level of NPA act as an indicator showing the bankers
credit risks and efficiency of allocation of resource.

9
 OBJECTIVE OF THE STUDY

Following are the objectives of the study:

 To find the factors that would effect level of NPAs.

 To analyze the significance of each variable that might effect the NPA level.

 To understand what is Non Performing Assets and what are the underlying
reasons for arising of the NPAs.

 To known the effect of NPAs on the operating results of ICICI.

 To know what steps are being taken by the ICICI Bank to reduce the NPAs?

10
 SCOPE OF THE STUDY

The scope of the study is very wide. There are 186 scheduled commercial
bank-28 public sector banks, 27 private sector banks Including icici bank , 29 foreign
banks and 102 regional rural banks. However , the researcher has selected five public
sector banks and five private sector banks. So total ten banks including five public
sector bank and five private sector bank have been cover for the study. And Non
Performing Assets and its impact on profitability , solvency and liquidity of the banks
is also a wide area but in this research , researcher only consider impact of NPA on
profitability of selected public and private sector banks in India

11
 NEED OF THE STUDY
The banks not only accept the deposits of the people but also provide them
credit facilities for their development. Indian banking sector has the nation in
developing the business and service sectors. But recently the banks are facing the
problem of credit risk. It is found that many general people and business people
borrow from the banks but due to some genuine or other reasons are not able to repay
back the amount drawn to the banks. The amount which is not given back to the banks
is known as the non performing assets. Many banks are facing the problem of NPAs
which hampers the business of the banks. Due to NPAs the income of the banks is
reduced and the banks have to make the large number of the provisions that would
curtail the profit of the banks and due to that the financial performance of the banks
would not show good results.
The main aim behind making this report is to know how public sector banks
are operating their business and how NPAs play its role to the operations of the public
sector banks. The report NPAs are classified according to the sector, industry, and
state wise. The present study also focuses on the existing system in India to solve the
problem of NPAs and comparative analysis to understand which bank is playing what
role with concerned to NPAs. Thus, the study would help the decision makers to
understand the financial performance and growth of public sector banks as compared
to the NPAs.
This report explores an empirical approach to the analysis of Non-Performing
Assets (NPAs) with special reference of ICICI bank in India. The level of NPAs is
one of the drivers of financial stability and growth of the banking sector. This report
aims to find the fundamental factors which impact NPAs of banks. A model
consisting of two types of factors, viz., macroeconomic factors and bank-specific
parameters, is developed and the behavior of NPAs of the three categories of banks is
observed. The empirical analysis assesses how macroeconomic factors and bank-
specific parameters affect NPAs of a particular category of banks. The
macroeconomic factors of the model included are GDP growth rate and excise duty,
and the bank-specific parameters are Credit Deposit Ratio (CDR), loan exposure to
priority sector, Capital Adequacy Ratio (CAR), and liquidity risk. The other important
results derived from the analysis include the finding that banks' exposure to priority
sector lending reduces NPAs.

12
 RESEARCH METHODOLOGY

Research is often described as active; diligent and systematic process of

inquiry aimed at discovering, interpreting and revising facts. This intellectual
investigation produces a greater understanding of events, behaviors or theories and
makes practical application through lawsand theories. In other words we can say, the
purpose of research is to discover answers to the questions through the application of
scientific procedures. The main aim of research is to find out the truth which is hidden
and which has not been discovered as yet.
Research methodology is a way to systematically solve the research problem.
It may be understood as a science of studying how research is done scientifically. In it
we study the various steps that are generally adopted by a researcher in studying his
research problem along with the logic behind them.

Source Of Secondary Data

 Annual reports of banks

 Reports of RBI
 Internet
 Books etc.


13
 LIMITATION OF THE STUDY

Every study has certain limitations. This study is not an exception. Limitations are as
follows:

 The study covers a period of 5 years only from 2011-12 to 2015-16.

 The study is based on secondary data and so its inherent limitations.

 Since my study is based on the secondary data, the practical operation as

related to the NPAs are adopted by the banks are not learned.

 This study is limited only to ICICI Bank












14
CHAPTER-II
INDUSTRY PROFILE &COMPANY PROFILE

15
 BANKING INDUSTRY

Banking in India

Banking in India originated in the last decades of the 18th century. The oldest bank
inexistence in India is the State Bank of India, a government-owned bank that traces
its origins back to June 1806 and that is the largest commercial bank in the country.
Central banking is the responsibility of the Reserve Bank of India, which in 1935
formally took over these responsibilities from the then Imperial Bank of India,
relegating it to commercial banking functions. After India's independence in 1947, the
Reserve Bank was nationalized and given broader powers. In 1969 the government
nationalized the 14 largest commercial banks; the government nationalized the six
next largest in 1980.

Currently, India has 88 scheduled commercial banks (SCBs) - 27 public

sector banks (that is with the Government of India holding a stake), 29 private banks
(these do not have government stake; they may be publicly listed and traded on stock
exchanges) and 31 foreign banks. They have a combined network of over 53,000
branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency,
the public sector banks hold over 75 percent of total assets of the banking industry,
with the private and foreign banks holding 18.2% and 6.5% respectively.

16
HISTORY
Early history

Banking in India originated in the last decades of the 18th century. The first
banks were The General Bank of India, which started in 1786, and the Bank of
Hindustan, both of which are now defunct. The oldest bank in existence in India is the
State Bank of India, which originated in the Bank of Calcutta in June 1806, which
almost immediately became the Bankof Bengal. This was one of the three presidency
banks, the other two being the Bank ofBombay and the Bank of Madras, all three of
which were established under charters from the British East India Company. For
many years the Presidency banks acted as quasi-central banks, as did their successors.
The three banks merged in 1925 to form the Imperial Bank ofIndia, which, upon
India's independence, became the State Bank of India.

Indian merchants in Calcutta established the Union Bank in 1839, but it failed
in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank,
established in 1865 and still functioning today, is the oldest Joint Stock bank in India.
It was not the first though. That honor belongs to the Bank of Upper India, which was
established in 1863, and which survived until 1913, when it failed, with some of its
assets and liabilities being transferred to the Alliance Bank of Simla.
When the American Civil War stopped the supply of cotton to Lancashire from the
Confederate States, promoters opened banks to finance trading in Indian cotton. With
large exposure to speculative ventures, most of the banks opened in India during that
period failed. The depositors lost money and lost interest in keeping deposits with
banks. Subsequently, banking in India remained the exclusive domain of Europeans
for next several decades until the beginning of the 20th century.

Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The
Comptoired'Escompte de Paris opened a branch in Calcutta in 1860, and another in
Bombay in 1862; branches in Madras and Pondichery, then a French colony,
followed. HSBC established itself in Bengal in 1869. Calcutta was the most active
trading port in India, mainly due to the trade of the British Empire, and so became a
banking center.

17
The first entirely Indian joint stock bank was the Oudh Commercial Bank, established
in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank,
established inLahore in 1895, which has survived to the present and is now one of the
largest banks in India.

Around the turn of the 20th Century, the Indian economy was passing through
a relative period of stability. Around five decades had elapsed since the Indian
Mutiny, and the social, industrial and other infrastructure had improved. Indians had
established small banks, most of which served particular ethnic and religious
communities.

The presidency banks dominated banking in India but there were also some
exchange banks and a number of Indian joint stock banks. All these banks operated in
different segments of the economy. The exchange banks, mostly owned by
Europeans, concentrated on financing foreign trade. Indian joint stock banks were
generally under capitalized and lacked the experience and maturity to compete with
the presidency and exchange banks. This segmentation let Lord Curzon to observe,
"In respect of banking it seems we are behind thetimes. We are like some old
fashioned sailing ship, divided by solid wooden bulkheads into separate and
cumbersome compartments."

The period between 1906 and 1911, saw the establishment of banks inspired
by the Swadeshi movement. The Swadeshi movement inspired local businessmen and
political figures to found banks of and for the Indian community. A number of banks
established then have survived to the present such as Bank of India, Corporation
Bank, Indian Bank, Bank ofBaroda, Canara Bank and Central Bank of India.
The fervour of Swadeshi movement lead to establishing of many private banks in
DakshinaKannada and Udupi district which were unified earlier and known by the
nameSouthCanara ( South Kanara ) district. Four nationalised banks started in this
district and also aleading private sector bank. Hence undivided Dakshina Kannada
district is known as "Cradle of Indian Banking".

18
From World War I to Independence

The period during the First World War (1914-1918) through the end of the Second
WorldWar (1939-1945), and two years thereafter until the independence of India were
challenging for Indian banking. The years of the First World War were turbulent, and
it took its toll with banks simply collapsing despite the Indian economy gaining
indirect boost due to war-relatedeconomic activities.
At least 94 banks in India failed between 1913 and 1918 as indicated in the following
table:

Years Number of banks Authorised capital Paid-up Capital

that failed (Rs. Lakhs) (Rs. Lakhs)

1913 12 274 35

1914 42 710 109

1915 11 56 5

1916 13 231 4

1917 9 76 25

1918 7 209 1

19
Post-independence

The partition of India in 1947 adversely impacted the economies of Punjab and
West Bengal, paralyzing banking activities for months. India's independence
marked the end of a regime of the Laissez-faire for the Indian banking. The
Government of India initiated measures to play an active role in the economic life
of the nation, and the Industrial Policy Resolution adopted by the government in
1948 envisaged a mixed economy. This resulted into greater involvement of the
state in different segments of the economy including banking and finance. The
major steps to regulate banking included:

history

In 1948, the Reserve Bank of India, India's central banking authority, was
nationalized, and it became an institution owned by the Government of India.

 In 1949, the Banking Regulation Act was enacted which empowered the
Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in
India."
 The Banking Regulation Act also provided that no new bank or branch of an
existing bank could be opened without a license from the RBI, and no two
banks could have common directors.

However, despite these provisions, control and regulations, banks in India except the
StateBank of India, continued to be owned and operated by private persons. This
changed with the nationalisation of major banks in India on 19 July, 1969.

20
Nationalisation

By the 1960s, the Indian banking industry has become an important tool to
facilitate the development of the Indian economy. At the same time, it has emerged as
a large employer, and a debate has ensued about the possibility to nationalise the
banking industry. Indira Gandhi, the-then Prime Minister of India expressed the
intention of the GOI in the annual conference of the All India Congress Meeting in a
paper entitled "Stray thoughts on Bank Nationalisation." The paper was received with
positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued
an ordinance and nationalisedthe 14 largest commercial banks with effect from the
midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described
the step as a "masterstroke of political sagacity." Within two weeks of the issue of the
ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer
of Undertaking) Bill, and it received the presidential approval on 9 August, 1969.

A second dose of nationalization of 6 more commercial banks followed in

1980. The stated reason for the nationalization was to give the government more
control of credit delivery. With the second dose of nationalization, the GOI controlled
around 91% of the banking business of India. Later on, in the year 1993, the
government merged New Bank of India with Punjab National Bank. It was the only
merger between nationalized banks and resulted in the reduction of the number of
nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks
grew at a pace of around 4%, closer to the average growth rate of the Indian economy.
The nationalised banks were credited by some, including Home minister P.
Chidambaram, to have helped the Indian economy withstand the global financia
crisis of 2007-2009.

21
Liberalisation

In the early 1990s, the then Narsimha Rao government embarked on a policy
of liberalization, licensing a small number of private banks. These came to be known
as NewGeneration tech-savvy banks, and included Global Trust Bank (the first of
such newgeneration banks to be set up), which later amalgamated with Oriental Bank
of Commerce, UTI Bank(now re-named as Axis Bank), ICICI Bank and HDFC Bank.
This move, along with the rapid growth in the economy of India, revitalized the
banking sector in India, which has seen rapid growth with strong contribution from all
the three sectors of banks, namely, government banks, private banks and foreign
banks.
The next stage for the Indian banking has been setup with the proposed
relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in
banks may be given voting rights which could exceed the present cap of 10%,at
present it has gone up to 49% with some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till
this time, were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of
functioning. The new wave ushered in a modern outlook and tech-savvy methods of
working for traditional banks.All this led to the retail boom in India. People not just
demanded more from their banks but also received more.

Currently (2007), banking in India is generally fairly mature in terms of

supply, product range and reach-even though reach in rural India still remains a
challenge for the private sector and foreign banks. In terms of quality of assets and
capital adequacy, Indian banks are considered to have clean, strong and transparent
balance sheets relative to other banks in comparable economies in its region. The
Reserve Bank of India is an autonomous body, with minimal pressure from the
government. The stated policy of the Bank on the Indian Rupee is to manage volatility
but without any fixed exchange rate-and this has mostly been true.

22
THE TRANSFORMATION OF THE INDIAN BANKING SECTOR

The financial sector reforms in the country were initiated in the beginning of
the 1990s.The reforms have brought about a sea change in the profile of the banking
sector. Our implementation of the reforms process has had several unique features.
Our financial sector reforms were undertaken early in the reform cycle. Notably, the
reforms process was not driven by any banking crisis, nor was it the outcome of any
external support package. Besides, the design of the reforms was crafted through
domestic expertise, taking on board the international experiences in this respect. The
reforms were carefully sequenced with respect to the instruments to be used and the
objectives to be achieved. Thus, prudential norms and supervisory strengthening were
introduced early in the reform cycle, followed by interest-rate deregulation and a
gradual lowering of statutory preemptions. The more complex aspects of legal and
accounting measures were ushered in subsequently when the basic tenets of the
reforms were already in place.

The public sector banks continue to be a dominant part of the banking system.
As on March 31, 2008, the PSBs accounted for 69.9 per cent of the aggregate assets
and 72.7 per cent of the aggregate advances of the Scheduled commercial banking
system. A unique feature of the reform of the public sector banks was the process of
their financial restructuring. The banks were recapitalised by the government to meet
prudential norms through recapitalisation bonds. The mechanism of hiving off bad
loans to a separate government asset management company was not considered
appropriate in view of the moral hazard. The subsequent divestment of equity and
offer to private shareholders was undertaken through a public offer and not by sale to
strategic investors. Consequently, all the public sector banks, which issued shares to
private shareholders, have been listed on the exchanges and are subject to the same
disclosure and market discipline standards as other listed entities. To address the
problem of distressed assets, a mechanism has been developed to allow sale of these
assets to Asset Reconstruction Companies which operate as independent commercial
entities.

23
 As regard the prudential regulatory framework for the banking system, we
have come a long way from the administered interest rate regime to deregulated
interest rates, from the system of Health Codes for an eight-fold, judgmental loan
classification to the prudential asset classification based on objective criteria, from the
concept of simple statutory minimum capital and capital-deposit ratio to the risk-
sensitive capital adequacy norms – initially underBasel I framework and now under
the Basel II regime. There is much greater focus now on improving the corporate
governance set up through “fit and proper” criteria, on encouraging integrated risk
management systems in the banks and on promoting market discipline through more
transparent disclosure standards. The policy endeavor has all along been to
benchmark our regulatory norms with the international best practices, of course,
keeping in view the domestic imperatives and the country context. The consultative
approach of the RBI in formulating the prudential regulations has been the hallmark
of the current regulatory regime which enables taking account of a wide diversity of
views on the issues at hand.
The implementation of reforms has had an all round salutary impact on the
financial health of the banking system, as evidenced by the significant improvements
in a number of prudential parameters. Let me briefly highlight the improvements in a
few salient financial indicators of the banking system.

24
 COMPANY PROFILE
ICICI GROUP

In 1955, The Industrial Credit and Investment Corporation of India Limited

(ICICI) incorporated at the initiative of the World Bank, the Government of India and
representatives of Indian industry, with the objective of creating a development
financial institution for providing medium-term and long-term project financing to
Indian businesses. Mr.A.RamaswamiMudaliar elected as the first Chairman of ICICI
Limited. ICICI emerges as the major source of foreign currency loans to Indian
industry. Besides funding from the World Bank and other multi-lateral agencies,
ICICI was also among the first Indian companies to raise funds from international
markets

OVERVIEW

ICICI Group offers a wide range of banking products and financial services to
corporate and retail customers through a variety of delivery channels and through its
specialised group companies, subsidiaries and affiliates in the areas of personal
banking, investment banking, life and general insurance, venture capital and asset
management. With a strong customer focus, the ICICI Group Companies have
maintained and enhanced their leadership position in their respective sectors.

ICICI Bank isIndia's second-largest bank with total assets of Rs. 3,997.95 billion
(US$ 100billion) at March 31, 2008 and profit after tax of Rs. 41.58 billion for the
year ended March 31, 2008. ICICI Bank is second amongst all the companies listed
on the Indian stock exchanges in terms of free float market capitalisation. The Bank
has a network of about 1,308 branches and 3,950 ATMs in India and presence in 18
countries.

25
ICICI Prudential Life Insurance Companyis a 74:26 joint venture with Prudential
plc(UK). It is the largest private sector life insurance company offering a
comprehensive suite of life, health and pensions products. It is also the pioneer in
launching innovative health care products like Diabetes Care and Cancer Care. The
company operates on a multi-channelplatform and has distribution strength of over 2,
90,000 financial advisors operating from 1956 branches spread across 1669 locations
across the country. In addition to the agency force, it also has tie-ups with various banks,
corporate agents and brokers. In fiscal 2008, ICICI Prudential attained a market share of
12.7% with new business weighted premium growth of 68.3% to Rs. 66.84 billion and
held assets of Rs. 285.78 billion at March 31, 2008.

ICICI Lombard General Insurance Company,a joint venture with the Canada
basedFairfax Financial Holdings, is the largest private sector general insurance
company. It has a comprehensive product portfolio catering to all corporate and
retail insurance needs and is present in over 200 locations across the country. ICICI
Lombard General Insurance has achieved a market share of 29.8% among private
sector general insurance companies and an overall market share of 11.9% during
fiscal 2008. The gross return premium grew by 11.4% from Rs. 30.3 billion in fiscal
2007 to Rs. 33.45 billion in fiscal 2008.

ICICI Securities Ltd isthe largest equity house in the country providing end-to-
endsolutions (including web-based services) through the largest non-banking
distribution channel so as to fulfill all the diverse needs of retail and corporate
customers. ICICI Securities (I-Sec) has a dominant position in its core segments of its
operations - Corporate Finance including Equity Capital Markets Advisory Services,
Institutional Equities, Retail and Financial Product Distribution.

ICICI Securities Primary Dealership isthe largest primary dealer in

Governmentsecurities. In fiscal 2008, it achieved a profit after tax of Rs.1.40
billion.

26
ICICI Prudential Asset Management isthe second largest mutual fund with asset
undermanagement of Rs. 547.74 billion and a market share of 10.2% as on March 31,
2008. The Company manages a comprehensive range of mutual fund schemes and
portfolio management services to meet the varying investment needs of its investors
through 235 branches spread across the country. Incorporated in 1987, ICICI Venture
is the oldest and the largest private equity firm in India. The funds under
management of ICICI Venture have increased at a 5 year CAGR of 49% to Rs.95.50
billion as on March 31, 2008.

PRODUCTS

ICICI Group has always been at the forefront of developing innovative financial
products, which caters to various needs of people from all walks of life. Over the
years, it has launched several financial products that offer financial support, security
and more to not just individuals, but to big and small organisations too.

Banking

 Personal Banking
 Global Private Clients
 Corporate Banking
 Business Banking
 NRI Banking

Insurance & Investment


 Life Insurance
 General Insurance
 Securities
 Mutual Fund

27
 ICICI BANK

ICICI Bank (formerly Industrial Credit and Investment Corporation of India)

is India's largest private bank and also the largest bank in the country. ICICI Bank
has total assets of about Rs.20.05bn (end-Mar 2005), a network of over 550
branches and offices, and about 1900 ATMs. ICICI Bank offers a wide range of
banking products and financial services to corporate and retail customers through a
variety of delivery channels and through its specialized subsidiaries and affiliates in
the areas of investment banking, life and non-life insurance, venture capital and
asset management.
ICICI Bank's equity shares are listed in India on stock exchanges at Kolkata
and Vadodara, the Stock Exchange, Mumbai and the National Stock Exchange of
India Limited and its ADRs are listed on the New York Stock Exchange (NYSE).

Formation:

 The World Bank, the Government of India and representatives of Indian

industry form ICICI Limited as a development finance institution to provide
medium-term and long-term project financing to Indian businesses in 1955.
 1994 ICICI establishes ICICI Bank as a subsidiary.
 1999 ICICI becomes the first Indian company and the first bank or financial
institution from non-Japan Asia to list on the NYSE.
 2001 ICICI acquired Bank of Madurai (est. 1943). Bank of Madurai was a
Chettiar bank, and had acquired Chettinad Mercantile Bank (est. 1933) and
Illanji Bank (established 1904) in the 1960s.
 2002 The Boards of Directors of ICICI and ICICI Bank approve the merger
of ICICI, ICICIPersonal Financial Services Limited and ICICI Capital
Services Limited, with ICICI Bank. After receiving all necessary regulatory
approvals, ICICI integrates the group's financing and banking operations,
both wholesale and retail, into a single entity.

28
 International Expansion

 2002 ICICI establishes representative offices in NY and London.

 2003 ICICI opens subsidiaries in Canada and the United Kingdom (UK),
and in the UK it establishes alliance with Lloyds TSB. It also opens an
Offshore Banking Unit (OBU) in Singapore and representative offices in
Dubai and Shanghai.
 2004 ICICI opens a rep office in Bangladesh to tap the extensive trade
between that country, India and South Africa.
 2005 ICICI acquires Investitsionno-Kreditny Bank (IKB), a Russia bank
with about US$4mn in assets, head office in Balabanovo in the Kaluga
region, and with a branch in Moscow. ICICI Bank offers a high-interest
(5.4% gross) internet savings account to UK customers

Overview of ICICI BANK

ICICI Bank is India's second-largest bank with total assets of Rs. 3,849.70 billion
(US$ 82 billion) at September 30, 2008 and profit after tax Rs. 17.42 billion for the
half year ended September 30, 2008. The Bank has a network of about 1,400 branches
and 4,530 ATMs in India and presence in 18 countries. ICICI Bank offers a wide
range of banking products and financial services to corporate and retail customers
through a variety of delivery channels and through its specialised subsidiaries and
affiliates in the areas of investment banking, life and non-life insurance, venture
capital and asset management. The Bank currently has subsidiaries in the United
Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong
Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative
offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand,
Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and
Germany.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the
National Stock Exchange of India Limited and its American Depositary Receipts
(ADRs) are listed on the New York Stock Exchange (NYSE).

29
 HISTORY OF ICICI

 1955 The Industrial Credit and Investment Corporation of India Limited

(ICICI) was incorporated at the initiative of World Bank, the Government of
India and representatives of Indian industry, with the objective of creating a
development financial institution for providing medium-term and long-term
project financing to Indian businesses.
 1994 ICICI established Banking Corporation as a banking subsidiary.formerly
Industrial Credit and Investment Corporation of India. Later, ICICI Banking
Corporation was renamed as 'ICICI Bank Limited'. ICICI founded a separate
legal entity, ICICI Bank, to undertake normal banking operations - taking
deposits, credit cards, car loans etc.
 2001 ICICI acquired Bank of Madura (est. 1943). Bank of Madura was a
Chettiar bank, and had acquired Chettinad Mercantile Bank (est. 1933) and
Illanji Bank (established 1904) in the 1960s.
 2002 The Boards of Directors of ICICI and ICICI Bank approved the reverse
merger of ICICI, ICICI Personal Financial Services Limited and ICICI Capital
ServicesLimited, into ICICI Bank. After receiving all necessary regulatory
approvals, ICICI integrated the group's financing and banking operations, both
wholesale and retail, into a single entity.
Also in 2002, ICICI Bank bought the Shimla and Darjeeling branches that
StandardChartered Bank had inherited when it acquired Grindlays Bank.
ICICI started its international expansion by opening representative offices in
NewYork and London.
 2003 ICICI opened subsidiaries in Canada and the United Kingdom (UK), and
in the UK it established an alliance with Lloyds TSB.
It also opened an Offshore Banking Unit (OBU) in Singapore and
representative offices in Dubai and Shanghai.
 2004 ICICI opens a rep office in Bangladesh to tap the extensive trade
between that country, India and South Africa.

30
 2005 ICICI acquired Investitsionno-Kreditny Bank (IKB), a Russia bank with
about US$4mn in assets, head office in Balabanovoin the Kaluga region, and
with a branch in Moscow. ICICI renamed the bank ICICI Bank Eurasia.

Also, ICICI established a branch in Dubai International Financial Centre and

in HongKong.
 2006 ICICI Bank UK opened a branch in Antwerp, in Belgium. ICICI opened
representative offices in Bangkok, Jakarta, and Kuala Lumpur.

 2007 ICICI amalgamated Sangli Bank, which was headquartered in Sangli, in

Maharashtra State, and which had 158 branches in Maharashtra and another
31 in Karnataka State. Sangli Bank had been founded in 1916 and was
particularly strong in rural areas.

ICICI also received permission from the government of Qatar to open a

branch in Doha.
ICICI Bank Eurasia opened a second branch, this time in St. Petersburg.

 2008 The US Federal Reserve permitted ICICI to convert its representative

office in New York into a branch

31
 AWARDS & REWARDS

 India's Most Trusted Service Brands" by Brand Equity,

o ICICI Bank won the Best Local Bank – Gold by Trade Awards, UK
ICICI Bank was awarded The Asset Triple A Awards, Hongkong Best
Domestic Transaction Bank (India)

o For 6th consecutive year won the Best Domestic Trade Finance
Bank (India)

 First Bank in India to launch website - 1996

o First Bank in India to launch Internet Banking -

1997 First Bank in India to launch online bill
payment-1999 Only Bank in India with million
online customers

 Tie-ups with 50 utilities for online payments

o Talks with state governments/ municipalities to facilitate

e-governance.

o Best e-Commerce Bank (India) Best SME Bank (India)

ICICI Bank brand to figure in the BrandZ Top 100 Most Valuable Global
Brands Report 2011

32
ORGANISATIONAL STRUCTURE

33
 ICICI GROUP OF COMPANIES

I. ICICI Bank
Personal or Global Private Banking NRI Banking & Mobile Banking Wealth
Management Corporate Banking
Business Banking

II. ICICI Prudential Life Insurance Company

Insurance

III. ICICI Securities

Dmat Services, Treasury &Custody
Retail Institutions

IV. ICICI Lombard General Insurance Company

CAR Insurance

V. ICICI Prudential AMC & Trust

Internet Banking

VI. ICICI Venture

Filing Tax Returns & Payments
Fund Manager

VII. ICICI Direct

Investments & Cards Business
Mutual Funds
FX Management

VIII. ICICI Foundation

Loans, Accounts & Deposits – Personal & Home Loans

IX. Disha Financial Counselling

Advisory & Consultancy Services Asset Management Services

34
CHALLENGES FACING BANKING INDUSTRY IN INDIA

The banking industry in India is undergoing a major transformation due to changes in

economic conditions and continuous deregulation. These multiple changes happening
one after other has a ripple effect on a bank (Refer fig. 2.1) trying to graduate from
completely regulated sellers market to completed deregulated customers market.

 Deregulation: This continuous deregulation has made the Banking market

extremelycompetitive with greater autonomy, operational flexibility, and decontrolled
interest rate and liberalized norms for foreign exchange. The deregulation of the
industry coupled with decontrol in interest rates has led to entry of a number of
players in the banking industry. At the same time reduced corporate credit off take
thanks to sluggish economy has resulted in large number of competitors battling for
the same pie.

35
New rules: As a result, the market place has been redefined with new rules of the
game.Banks are transforming to universal banking, adding new channels with
lucrative pricing and freebees to offer. Natural fall out of this has led to a series of
innovative product offerings catering to various customer segments, specifically retail
credit.

 Efficiency: This in turn has made it necessary to look for efficiencies in the
business. Banksneed to access low cost funds and simultaneously improve the
efficiency. The banks are facing pricing pressure, squeeze on spread and have to give
thrust on retail assets

 Diffused Customer loyalty: This will definitely impact Customer preferences, as

they arebound to react to the value added offerings. Customers have become
demanding and the loyalties are diffused. There are multiple choices, the wallet share
is reduced per bank with demand on flexibility and customization. Given the
relatively low switching costs; customer retention calls for customized service and
hassle free, flawless service delivery.

 Misaligned mindset: These changes are creating challenges, as employees are

made toadapt to changing conditions. There is resistance to change from employees
and the Seller market mindset is yet to be changed coupled with Fear of uncertainty
and Control orientation. Acceptance of technology is slowly creeping in but the
utilization is not maximised.

 Competency Gap: Placing the right skill at the right place will determine success.
Thecompetency gap needs to be addressed simultaneously otherwise there will be
missed opportunities. The focus of people will be on doing work but not providing
solutions, on escalating problems rather than solving them and on disposing
customers instead of using the opportunity to cross sell.

36
CHAPTER–III
THEORITICAL FRAMEWORK

37
 INTRODUCTION

With the introduction of economic reforms on the recommendation of

Narasimham Committee the Indian financial and banking sector has undergone a
significant conversion and transformation from a regulated environment to a
deregulated market based economy. The market players are now in a cut throat
competition and try to adopt international best practices of all their activities inter
alia non- performing assets (NPAs) to restore financial health. The Indian banking
sector did not bother about asset quality rather they focused on widening the network
/ branches, priority sector lending, employment generation etc. till 1991. As a result
the asset quality has been deteriorating day by day and the mounting pressure of
NPAs becomes the major concern of the financial and banking sector.

CONCEPTUAL FRAMEWORK OF NPAs

Meaning of NPA:

Non Performing Asset (NPA) refers to an asset, when it ceases to generate

income for any bank or finance company for more than 90 days. With effect from 31st
March, 2004 a non-performing assets (NPAs) shall 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,
iii. the bills remain overdue for a period of more than 90 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 purposes and
v. any amount to be received remains overdue for a period of more than 90 days in
respect of other accounts. (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)

38
Assets Classification and provisioning norms:
Banks are required to classify their loan assets into the following four groups, viz.

i. Standard Assets
ii. Sub-standard Assets
iii. Doubtful Assets and
iv. Loss Assets

Standard Assets: Standard assets are those which do not disclose any problem and
do not carry more thannormal risk attached to the business. Such assets are
considered as Performing assets. A general provision of 0.25% has to be provided
on global loan portfolio basis.

All non-standard assets are Non Performing Assets. These are: Sub- standard
Assets: An assets which has remained NPA for a period less than or equal to 12
months. Theassets are characterized by distinct possibility that bank will sustain some
loss. A provision of 10% on outstanding amount has to be provided on sub-standard
assets.

Doubtful Assets: Doubtful assets are those which have remained NPAs for a period
exceeding 12 months andwhich are not considered as loss assets. Banks have to
provide 100% of the unsecured portion of the outstanding advance after netting
realized amount in respect of DICGC scheme (Deposit Insurance and Credit
Guarantee Corporation) and realized/ realizable amount of guarantee cover under
ECGC (Export Credit Guarantee Corporation) schemes.

Loss assets: A loss asset is one where loss has been identified by the bank or internal
or external auditor or theRBI inspection but the amount has not been written off
wholly or partly. In other words, such an asset is considered uncollectible and of such
little value that its continuance as bankable asset is not warranted although there may
be some salvage or recovery value. However, only those advances are classifies as
loss assets where no security is available. The accounts in relation to which some

39
security/DICGC/ECGC cover is available cannot be treated as loss assets. Banks are
to provide 100% provision regarding loss assets.
Table 1: Provisioning norms of NPA
Type of
assets Provisions
Standard
assets 0.25% of standard assets
Sub-standard
assets 10% of sub-standard assets
Doubtful 100% of unsecured portion and 20% of
assets Up to 1 year secured portion
100% of unsecured portion and 30% of
1 to 3 years secured portion
More than 3 100% of unsecured portion and 100% of
years secured portion
100% of unsecured portion and 100% of
Loss assets secured portion
Source: RBI Handbook

Types of NPAs:
NPAs may be classified into two groups, namely Gross NPA and Net NPA.

Gross NPA: Gross NPA is the advance which is considered irrecoverable, for which
bank has made provisionsand which are still held in bank’s books of account. In other
words, it is the sum total of all non-standard assets i.e. sub-standard assets, doubtful
assets and loss assets.
Net NPA:Net NPA shows the actual burden of banks. The RBI defines net NPA as:
Net NPA= Gross NPA – (Balance in Interest Suspense account + DICGC/ECGC
claims received and held pending adjustment + Part payment received and kept in
suspense account + Total provisions held).

40
Factors for rise in NPAs:
The factors behind the rising NPAs may be of two types, one internal factors and
other external factors.

Internal factors: Internal factors include:

 Poor credit appraisal selects those who are not able to repay the loan.
 Absence of regular industrial visit decreases the collection of interest and
principals.
 Lack of post credit supervision
 Absence of sufficient securities
 Socio-political pressure on credit decision
 Compulsory lending to priority sectors
 Re-loaning to defaulters
 Lack of effective NPA management

External factors: External factors include:

 Natural calamities
 Adoption of obsolete technology by the borrowed firm
 Labour problems of borrowed firm
 Lack of demand of the product of borrowed firm
 Diversification of loans and not being used for the particular purpose
 Willful default / fraud
 Political pronouncements like debt relief
 Lack of conducive legal system for loan recovery

41
Impacts of NPAs:

The growing NPAs have tremendous effect on the bank itself as well as the whole
economy. The consequences are:

 Profitability of the banks hampered severely by the presence of NPAs. It’s a two
way sword. Banks do not earn any income from it rather they have to provide for
it.
 Rising NPAs change the banker’s sentiment towards lending which may hinder
the credit expansion to productive purpose.
 Banks may incline towards risk free investment which is not conducive for the
growth of economy.
 Banks may increase rate of interest to compensate the loss on NPAs, which in
turn affects the viability of many running units.
 NPAs will reduce the earning capacity of assets and badly affects the return on
investment (ROI).
 Higher provisioning requirement on mounting NPAs adversely affects the Capital
adequacy ratio (Capital to Risk Adjusted Assets Ratio).
 The Economic value addition (EVA) by banks gets upset because EVA is equal
to the net operating profit minus cost of capital.
 NPAs cause to decrease the value of share sometimes even below their book
value in the capital market.

42
The Factors Accounting For Bad Loans. Based on the formal interview with the
Branch of Indian Bank, Pallathur, Sivaganga District, Tamil Nadu, India, following
are the key factors contributing for bad loans:
 Economic Slowdown in India.
 Borrower’s lack of business management knowledge.
 Borrower’s lack of business experience and marketing.
 Lethargic customers do not care to repay the borrowed loans.
 Political influence and interferences.
 Ineffective monitoring of repayment of loans by the bank.
Furthermore, it is found from the research, that following factors hinder effective
monitoring of recovery of loans from the customers:
 Understaffing in the branch office.
 Lack of logistic support to the collection officer by the office.
 Poor road connectivity or facility to reach or inspect the progress in the project site
of the borrowers.

43
CHAPTER-IV
DATA ANALYSIS & INTERPRETATION

44
 ANALYSIS OF DATA

Data has been collected from the annual reports of the respective private sector banks.
The basis studying trend of NPAs is ratio of Gross Non- Performing Assets (GNPAs)
and ratio of Net Non-Performing Assets (NNPAs). Both are shown in terms of
percentage.

Ratio of GNPAs = Gross NPAs / Gross Advance. The following table shows
the year wise Gross NPAs and ratio of Gross NPAs of the three selected banks.

Table I: Gross NPAs and ratio of Gross NPAs of Banks (Rs. in Crores)

Year ICICI Bank

GNPA GNPA%
2011-12 9475.33 3.62
2012-13 9607.75 3.22
2013-14 10505.84 3.03
2014-15 15094.69 3.78
2015-16 26221.25 5.82
Average 14180.97 3.89
Source: Annual Reports

From the Table 1 it is evident that the NPA problem is more acute in case of
ICICI bank. On the other hand in case of ICICI Bank the GNPA is increased from Rs.
9475.33 crores in 2011-12 to Rs. 26221.25 crores in the reference period.. The
increasing trend of GNPAs ratio is somehow reduced in 2012-13 and 2013-14 in case
of ICICI Bank but from 2014-15

45
The above Table shown in two different figures:

From the above figure it is clear that the ratio of Gross NPAs in case of ICICI Bank is
The following paragraph shows the magnitude of net NPAs and ratio of net NPAs.

Ratio of NNPAs = Net NPAs / Net Advance. The following table shows the year wise
Net NPAs and ratio of Net NPAs of selected banks.

Net Advance = Gross Advance – Provisions for NPAs

46
Interpretation:-Above graph show that total assets of ICICI is increased in 2011-
12 by9475.33 crore, in 2015-16 increased by 26221.25. crore. So NAP of the ICICI
bank increased from last five year

47
 Table II: Net NPA and Ratio of Net NPA of Banks (Rs. in Crores)

Year ICICI Bank

NNPA NNPA%
2011-12 1860.84 0.73
2012-13 2230.56 0.77
2013-14 3297.96 0.97
2014-15 6255.53 1.61
2015-16 12963.08 2.98
Average 5321.594 1.412
Source: Annual Reports

Table II shows that the magnitude of net NPAs of ICICI banks has been
consistently increased during the years of study except 2011-16. it increased from Rs.
1860.84 crores to Rs. 12963.08 crores in five years in case of ICICI Bank. The
following Figure 2 shows the ratio of Net NPAs of the ICICI banks from the year
2011-12 to 2015-16.

48
We now try to examine whether the NPAs have any significant impact on the net
profit of the respective banks.
The following Table III shows the Pearson’s correlation coefficient between net profit
and gross NPAs.

Interpretation:-Above graph show that total NPA of ICICI is increased in 2011-12

by 1860.84crore, in 2015-16 increased by 12963.08 crore. So NAP of the ICICI bank
increased from last five year

49
GROWTH METRIC - LOAN GROWTH

The chart below shows that the last 5 years loan growth achieved by India's major
banks of ICICI. ICICI Bank showed consistent growth over the last 3 years (even
though it shows a slightfalling trend in the 5-year chart). ICICI Bank achieved a high
compounded annual growth during this period, followed by ICICI Bank.

Table III : Loan growth CAGR (from FY11 to FY16)

Interpretation:-Above graph show that total LOAN of ICICI is increased in 2011-

12 by 45%, in 2015-16 decreased by 25%. So NAP of the ICICI bank decreased from
last five year

50
 DEPOSITS RECEIVED BY ICICI BANK (from FY2011 to FY2016)

Table IV: Deposits growth CAGR

2011-12 2012-13 2013-14 2014-15 2015-16

ICICI BANK
35% 40% 70% 43% 25%

Interpretation:-Above graph shows that the total Deposit of ICICI is increased

from 35% in 2011-12 to 40% in 2012-13.Further, in 2013-14it increased to 70% and
decreased to 25% in2015-16.

51
GROWTH METRIC - LOAN GROWTH COMPARISON

The chart below shows that the last 5 years loan growth achieved by India's major
banks ICICI. ICICI Bank showed consistent growth over the last 3 years (even though
it shows a slig GROWTH METRIC - LOAN GROWTH COMPARISON.

LOAN BOOK ANALYSIS - UNSECURED LOANS AND NPAS

Unsecured loans primarily include personal loans and credit card exposures, priority
sector lending in rural areas, education loans, credits to SMEs (small and medium
entrepreneurs) up to Rs 5 lakh, etc. Exposure of Indian banks towards unsecured loans
rose consistently over the years. As shown in the chart below, ICICI Bank has the
highest, with around 40% of its total loans exposed to such loans.

Though there is no direct correlation between loan losses and unsecured loan
exposure, in an economic slowdown scenario, such exposure will carry a greater
stress, and hence, a higher probability of default. Banks need to be extremely vigilant
in terms of monitoring these loans regularly, so that losses in the form of NPAs do not
increase unreasonably and dent the quality of the loan book.

52
Table V:

2011-12 2012-13 2013-14 2014-15 2015-16

ICICI BANK
20% 40% 50% 60% 70%

Interpretation:-Above graph show that totalUNSECURED LOANS AND NPAS

of ICICI increased in 2011-12 to 20% and futher in 2015-16 it increased to 70%. This
trend of increase of unsecured loans and NPA is negative for a bank as effects the
profits of the bank.

53
CHAPTER-V
FINDINGS AND SUGGESTIONS

54
 Findings and Suggestions

The following are the findings of this study:

 The branch network of the Bank has increased from 855 branches at March 31, 2011
to 1,838 branches at April 24, 2016. The Bank is also in the process of opening 980
new branches which would expand the branch network to about 2,000 branches,
giving the Bank a wide distribution reach in the country.In line with the strategy of
prioritizing capital conservation and risk containment, the loan book of the Bank
decreased marginally to Rs. 218,311 crore (US$ 43.0 billion) at March 31, 2016 from
Rs. 225,616 crore (US$ 44.5 billion) at March 31, 2015.

 Profit before tax for the year ended March 31, 2016(FY2016) was Rs.26331.23 crore
(US$ 2,009 million), compared to Rs. 2501.56 crore (US$ 1,997 million) for the year
ended March 31, 20015 (FY20016).

 Profit after tax for FY2016 was Rs. 3,758 crore (US $ 741 million) compared to Rs.
4,158 crore (US $ 820 million) for FY2015 due to the higher effective tax rate on
account of lower proportion of income taxable as dividends and capital gains.

 There is a significance difference in the Operating Profits of ICICI Bank before and
after the bad debts were written-off. Thus, it is statistically proved that the bad debts
written-off had impacted the operating profits of the ICICI Bank over the last 5 years
from 2011 to 2016.

55
 Higher trends of credit deposit ratio – A positive sign
High trends of credit deposit ratio reveals that bank has performed satisfactorily as
regard to granting loans and advances to generate income. It suggests that credit
performance is good and the bank is doing its business good by fulfilling its major
objective as regards to granting loans and accepting deposits.

 ICICI bank the Average Gross NPA Ratio for the last 6 years was 1.30%, Average
Net NPA Ratio for the last 6 years from 2012 to 2016, was 0.48%, the highest NPA
1.33% prevailed in 2012 and the lowest 0.18% NPA prevailed in 2013.

 The ICICI Bank Average amount of NPA for the last 5 years, from 2011 to 2016 is
Rs. 2386.04 and Average Net NPA Ratio for thelast 5 years is 0.502%, highest
amount of NPA Rs. 11196.83 prevailed in 2012 and the lowest amount of NPA Rs.
93.81 prevailed in 2013.

 The Highest proportion of bad debt to loan interest income 8.16% prevailed in 2014
and the lowest proportion 0.59% prevailed in 2015.

 The highest loan interest income amount of Indian Bank Rs. 12,231 was earned in
2016 and the lowest amount of interest income Rs. 5,213 was earned in 2013.

56
 SUGGESTION

It is evident that NPA’s are a big problem faced by the banks in the recent
times. Due to this crisis the banks are also incurring losses and are forced to increase
their lending rates. Some of the remedial measures for this problem can be:

 Strengthening provision norms and loan classification standards based on forward

looking criteria (like future cash flows) were implemented.

 Through securitization they can reduce NPA

 Speed of action- the speedy containment of systematic risk and the domestic
credit crunch problem with the injection of large public fund for bank
recapitalization are critical steps towards normalizing the financial system.

1. Reduce Installment Amount and Increase Number of Installments.

Indian Bank may increase the number of installments payable by borrowers by

reducing the amount of installments in order to recover the loan.

2. The parties, viz., the Lenders and borrowers shall look forward to an amicable
settlement either through out-of-court settlement or through People’s Court.

3. Debt Recovery Tribunal

It was set up under the recovery of debts due to banks and Financial Intuitions Act,
1993 with exclusive jurisdiction to try and dispose of matters pertaining to
recovery of debts due to bank and financial assets. It has the potential of playing a
significant role in NPA realization. Parties can settle their dispute through this
mechanism by taking this as a last resort.

57
4. CIBIL:

Make borrowers realize that if they default in repayment of their loans, then their
name would get registered with CIBIL which means they are black listed and it
impacts the borrower’s credit history, which means one cannot borrow any loan
from any bank.

5. Collection staff for the branch office:

Collection officers for recovery of loans may be appointed on regular basis or

contractual basis. This would not only reduce the burden of the branch staff on
recovery of loans but also could help to reduce the NPA to a measurable extent.

6. Logistic support for Collection staff for the branch office:

A special vehicle along with travelling and petrol allowance support may be provided
to the collection officers so as to facilitate them to recover the loans

58
 CONCLUSION

The main objective of the project entitled “A Study on Non-Performing Assets

in ICICI Bank”, is to investigate the impact of Non-Performing Assets on the
profitability of ICICI Bank. Banking industry has undergone a major change after the
first phase of economic liberalization; hence, the importance of credit management
has emerged. In recent times banks are very cautious in extending loan, because of
mounting NPA.
This Research Study highlights the reasons for an assets becoming NPA and
remedial measures to be taken to trim down the NPA.

From the analysis, it is evident that NPA still remains a major concern for
banks in India. Even though the NPA during the last five years has not increased
drastically and continually, it still remains a big challenging when it comes to
recovery of bad loans. The recessionary pressure faced by the banking sector is an
important reason for the growth of NPAs. It should be managed to maintain a healthy
and viable banking environment.
The increased level of additions to NPA remained as an area of concern as it
indicates the real efficiency of credit risk management. Banks today take pro-active
measures to control Non-Performing Assets along with the assistance of Finance
Ministry and the Reserve Bank of India. Indian Bank is doing its level best to trim
down its NPA and will definitely succeed by following the right legal and diplomatic
ways to recover the same.
The issue of Non-Performing Assets (NPAs) in the financial sector has been
an area of concern for all economies and reduction in NPAs has become synonymous
with functional efficiency of financial intermediaries. Although NPAs are a balance
sheet issue of individual banks and financial institutions, it has wider macroeconomic
implications. It is important that, if resolution strategies for recovery of dues from
NPAs are not put in place quickly and efficiently, these assets would deteriorate in
value over time and only scrap value would be realized at the end. It should, however,
be kept in mind that NPAs are an integral part of the business financial sector and the
players are in as they are in the business of taking risk and their earnings reflect the
risk they take. They operate in an environment, where there would be defaults as well

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as deterioration in portfolio value, as market movements can never be predicted with
certainty. It is in this context, that countries have adopted regulatory measures and the
guiding structure has been provided by the Basel guidelines.
There are various reasons for assets turning non-performing and there can be
alternative resolution strategies. Identification of the reasons and timely action are the
key to improved profitability of financial sector intermediaries. In this context, the
details of the CAMEL model that RBI introduced for evaluating performance of
banks and the need for this arose from the systemic generation of large volume of
NPAs. CAMEL covers capital adequacy, asset quality, management quality, earnings
ability and liquidity.

Indian economy and NPAs

Undoubtedly the world economy has slowed down, recession is at its peak,
globally stock markets have tumbled and business itself is getting hard to do. The
Indian economy has been much affected due to high fiscal deficit, poor infrastructure
facilities, sticky legal system, cutting of exposures to emerging markets by FIIs, etc.
Further, international rating agencies like, Standard & Poor have lowered India's
credit rating to sub-investment grade. Such negative aspects have often outweighed
positives such as increasing forex reserves and a manageable inflation rate.Under
such a situation, it goes without saying that banks are no exception and are bound to
face the heat of a global downturn. One would be surprised to know that the
banksand financial institutions in India hold non-performing assets worth Rs.
1,10,000 crores.

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Global Developments and NPAs

The core banking business is of mobilizing the deposits and utilizing it for
lending to industry. Lending business is generally encouraged because it has the effect
of funds being transferred from the system to productive purposes which results into
economic growth. However lending also carries credit risk, which arises from the
failure of borrower to fulfill its contractual obligations either during the course of a
transaction or on a future obligation. A question that arises is how much risk can a
bank afford to take ? Recent happenings in the business world - Enron, WorldCom,
Xerox, Global Crossing do not give much confidence to banks. In case after case,
these giant corporates became bankrupt and failed to provide investors with clearer
and more complete information thereby introducing a degree of risk that many
investors could neither anticipate nor welcome. The history of financial institutions
also reveals the fact that the biggest banking failures were due to credit risk. Due to
this, banks are restricting their lending operations to secured avenues only with
adequate collateral on which to fall back upon in a situation of default. Performance
in terms of profitability is a benchmark for any business enterprise including the
banking industry. However, increasing NPAs have a direct impact on banks
profitability as legally banks are not allowed to book income on such accounts and at
the same time banks are forced to make provision on such assets as per the Reserve
Bank of India (RBI) guidelines.

Reserve Bank of India (RBI) has issued guidelines on provisioning requirement with
respect to bank advances. In terms of these guidelines, bank advances are mainly
classified into:
Standard Assets: Such an asset is not a non-performing asset. In other words, it
carries not more than normal risk attached to the business.

Sub-standard Assets: Which has remained NPA for a period less than or equal to 12
months.

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 BIBLOGRAPHY

Books
 Kothari C R (1990), Research Methodology, Methods & techniques published
by Wishwaprakasan
 Guptha S.P- statistical method -20002 Edition- Sulthan Chand & sons, New
Delhi

Annual Reports-
 Indian Bank -Annual Report, 2011
 Indian Bank-Annual Report, 2012
 Indian Bank-Annual Report, 2013
 Indian Bank-Annual Report, 2014
 Indian Bank-Annual Report, 2015
 Indian Bank-Annual Report, 2016

WEBSITE:
 http://www.indian-bank.com/annual_ report.php
 http://www.rbi.org.in/SCRIPTs/Publication
 ReportDetails.aspx? UrlPage=ReportonCurrencyandFinance&ID=502
 http://www.caclubindia.com/articles/banks-
 npa-and-impact-on-indian-economy-8146.as

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