NON-PERFORMING ASSETS IN INDIAN BANKING INDUSTRY:

A DESCRIPTIVE STUDY
Dr. B. S. Bodla,
Director, Institute of Management Studies,
K. U. Kurukshetra, email id:- bsbkuk@gmail.com

Abstract
A major threat to banking sector is prevalence of NPAs. An asset which ceases to generate
income for the bank is called Non-Performing Asset. NPAs in loan portfolio affect operational
efficiency which in turn affects profitability, liquidity and solvency position of banks. The
NPAs have become a nuisance and headache for the Indian banking sector, particularly in
recent years. It is against above background that the present study titled “Non-Performing
Assets in Indian Banking Industry: A Descriptive Study” has been conducted to present the
magnitude and trends of non-performing assets in India’s banking sector. The study examined
the status of Non Performing Assets of Scheduled Commercial Banks in India during 1996-96 and 2014-
15. The paper discusses the conceptual framework of NPA and it also highlights the trends, status and
recovery channels of NPAs in case of scheduled commercial banks. The data taken in this study are
mainly secondary in nature. The main source of data has been the website of Reserve Bank of India.
The study brought out that the ratio of gross NPAs to gross advances went up from 2.3% in
year 2008 to 4.3%, in year 2015 in case of all SCBs. Further, in case of PSBs, the ratio of gross
NPAs to gross advances reached to the level of 5% in 2015 from 2% in 2009 and the ratio of
net NPAs to net advances in increased to 2.6% in 2014 from 0.9% in 2009. Fourth, the ratio of
ne NPAs to net advances came down to 0.55% in 2007-08 from 7.4% in 1998-99, in case of
PVBs. However, there is no significant improvement has been seen in this regard during the
last six years.

Key words: NPAs, Commercial Banks, Capital Adequacy, Priority sector NPA

INTRODUCTION
Banking sector is an indispensable financial service sector supporting development plans through
channelizing funds for productive purpose, intermediating flow of funds from surplus to deficit units
and supporting financial and economic policies of the government. The importance of bank’s stability
in a developing economy is noteworthy as any distress affects the development plans thereby the
economic progress. The stability of banking sector plays a pivotal role in the economic development
of a country as well as it provides resilience against financial crisis. Beside others, success of a bank is
determined with the help of profit and quality of asset it possesses. Even though bank serves social
objective through its priority sector lending, mass branch networks and employment generation,
maintaining asset quality and profitability is critical for banks survival and growth. A major threat to
banking sector is prevalence of NPAs. An asset which ceases to generate income for the bank is called
Non-Performing Asset. With effect from March 31, 2005, a non-performing asset (NPA) shall be a
loan or an advance where-

 Interest and/or installments of principal remain overdue for a period of more than 90 days
in respect of a Term Loan;
 The account remains 'out of order' for a period of more than 90 days, in respect of an
Overdraft/Cash Credit (ODICC);
 The bill remains overdue for a period of more than 90 days in the case of bills purchased
and discounted;
 An advance granted for agricultural purpose remain overdue for a period not exceeding two
and a half year; and
 Any amount to be received remains overdue for a period of more than 90 days in respect
of other accounts.

NPAs represent bad loans, the borrowers of which failed to satisfy their repayment obligations. NPAs
in loan portfolio affect operational efficiency which in turn affects profitability, liquidity and solvency
position of banks. In addition to that, the influence on profitability, liquidity and competitive
functioning, NPAs also affect the psychology of bankers in respect of their disposition of funds towards
credit delivery and credit expansion. NPAs generate a vicious effect on banking survival and growth,
and if not managed properly leads to banking failures. Various reasons can be cited for an account
becoming NPAs. An asset leads to NPA when the borrower fails to repay the interest and/or principal
on agreed terms. The reasons for NPAs are numerous as mentioned below:
1. Lack of proper pre-appraisal and follow up.
2. Under- financing or untimely financing.
3. Delay in completing the project.
4. Willful defaults, fraud, mismanagement and misappropriation of funds.
5. Non-compliance of sanction terms and conditions.
6. Poor debt management by the borrower, leading to financial crisis.
7. Business failures.
8. Deficiencies on the part of the banks, viz., in credit appraisal, monitoring and follow-ups.
9. Delay in settlement of payments\Subsidies by government bodies, etc.

An important implication of the NPAs is that the credit risk management becomes a priority for a
banking institution over its other functions. The bank’s whole machinery would thus be pre-occupied
with recovery procedures rather than concentrating on expanding business. RBI, through various
circulars, stipulated guidelines to manage NPA. Second, NPA affects the performance and profitability
of banks because of the provision of doubtful debts and consequent write off as bad debts. Credibility
of banking system is also affected greatly due to higher level NPAs because it shakes the confidence of
general public in the soundness of the banking system. The increased NPAs may pose liquidity issues
which is likely to lead run on bank by depositors. Third, NPA change banker’s sentiments which may
hinder credit expansion to productive purpose. Banks may incline towards more risk-free investments
to avoid and reduce riskiness, which is not conducive for the growth of economy. Next, NPA results
in harmful impact on the return on assets because of the interest income of banks will fall and it is to be
accounted only on receipt basis. As per Basel norms, banks are required to maintain adequate capital
on risk-weighted assets on an ongoing basis. Every increase in NPA level adds to risk weighted assets
which warrant the banks to shore up their capital base further. So, due to the rising non-performing
assets the cost of capital or interest on loan will go up. Thus, the increased incidence of NPAs not only
affects the performance of the banks but also affect the economy as a whole. In a nutshell, the high
incidence of NPA has cascading impact on all important financial ratios of the banks viz., Net Interest
Margin, Return on Assets, Profitability, Dividend Payout, Provision coverage ratio, Credit contraction
etc., which may likely to erode the value of all stakeholders including Shareholders, Depositors,
Borrowers, Employees and public at large.

Keeping into account the mounting non-performing assets, The Supreme Court recently( April 27,
2016 | Samanwaya Rautray , ET Bureau) asked the Narendra Modi government to overhaul the banking
system to prevent bad loans and hasten recovery from defaulting borrowers, instead of acting as if
everything is fine. Had the system been working, the public sector banks would not have had to write
off more than Rs 1,14,000 crore of bad loans, it said. "Don't say that the existing system is working
fine. Carry out reforms. According to a news(April 26, 2016 | PTI), as many as 701 accounts with bad
loans exceeding Rs 100 crore owed public sector banks (PSBs) Rs 1.63 lakh crore at the end of
December,2015 with State Bank of India accounting for the biggest chunk. SBI had 85 such accounts
with aggregate non-performing assets (NPAs) of Rs 23,726 crore, followed by Bank of India with 93
accounts with cumulative NPAs of Rs 21,398 crore. Bank of Baroda had 59 accounts with NPAs of Rs
13,657 crore. Worried over rising bad loans, a Parliamentary Panel has suo motu decided to examine
the non-performing assets of the public sector banks that touched Rs 3.61 lakh crore at the end of
December 2015. "We examined chairpersons of the PSBs as well as Governor of Reserve Bank (
Raghuram Rajan )," Chairman of Public Accounts Committee K V Thomas told reporters (April 29,
2016 | PTI).
Thus, the above discussion on NPAs and the review of literature carried out in the next section indicate
that NPAs account not only reduces profitability of banks by provisioning in the profit and loss account,
but their carrying cost is also increased which results in excess & avoidable management attention.
Apart from this, a high level of NPAs also put strain on a bank’s net worth because banks are under
pressure to maintain a desired level of Capital Adequacy. Really, the NPAs have become a nuisance
and headache for the Indian banking sector, particularly in recent years. It is against above background
that the present study titled “Non-Performing Assets in Indian Banking Industry: A Descriptive Study”
has been conducted to present the magnitude and trends of non-performing assets in India’s banking
sector.

REVIEW OF LITERATURE

Many research studies are available in the area of non-performing assets and a large number of
researchers have studied the issue of NPAs in banking industry. Some of the quality research studies
and article pertaining to NPAs are briefly reviewed here.
Reddy(2002) discusses about the financial sector refor ms in India which has
progressed rapidl y on aspects like interest rate deregulation, reduction in reserve
requirements, barriers to entr y, prudential nor ms and risk based supervision but the
progress on the struct ural -institutional aspects has been much slower and is a cause
for concern. It tells about what changes are required to tackle the NPAs problem.
This paper also deals with the experiences of other Asian countries in handling of
NPAs. It also sug gests mechanisms to handle the problem by drawing on experiences
from other countries .

Kaur and Pasricha(2004) suggested that for effective handling of NPAs, there is an urgent need for
creating proper awareness about the adverse impact of NPAs on profitability amongst bank staff,
particularly the field functionaries. Bankers should have frequent interactions and meeting with the
borrowers for creating better understanding and mutual trust.

Karunakar (2008), in his study Are non - Performing Assets Gloomy or Greedy from Indian
Perspective, has highlighted problem of losses and lower profitability of Non- Performing Assets (NPA)
and liability mismatch in Banks and financial sector depend on how various risks are managed in their
business. The lasting solution to the problem of NPAs can be achieved only with proper credit
assessment and risk management mechanism.
 Poongavanam (2011) finds that a NPAs account not only reduces profitability of banks by provisioning
in the profit and loss account, but their carrying cost is also increased which results in excess &
avoidable management attention. Apart from this, a high level of NPAs also put strain on a bank’s net
worth because banks are under pressure to maintain a desired level of Capital Adequacy and in the
absence of comfortable profit level; banks eventually look towards their internal financial strength to
fulfill the norms thereby slowly eroding the net worth. Considering all the above facts banking industry
has to give more importance to NPAs and to structure proper remedial solutions.

Rai (2012) in his study on “Study on performance of NPAs of Indian commercial banks” finds out that
corporate borrowers even after defaulting continuously never had the fear of bank taking action to
recover their dues. This is because there was no legal framework to safeguard the real interest of banks.
Gupta (2012) suggested that each bank should have its own independence credit rating agency which
should evaluate the financial capacity of the borrower before credit facility and credit rating agencies
should regularly evaluate the financial condition of the clients.

Kumar (2013) in his study titled “A Comparative study of NPAs of Old Private Sector Banks and
Foreign Banks” said that Non-performing Assets (NPAs) have become a nuisance and headache for the
Indian banking sector for the past several years. One of the major issues challenging the performance
of commercial banks in the late 90s adversely affecting was the accumulation of huge non-performing
assets (NPAs).

Singh (2013) in his paper entitled Recovery of NPAs in Indian commercial banks says that the origin
of the problem of burgeoning NPAs lies in the system of credit risk management by the banks. Banks
are required to have adequate preventive measures in fixing pre- sanctioning appraisal responsibility
and an effective post-disbursement supervision. Banks should continuously monitor loans to identify
accounts that have potential to become non- performing.

Sonia Narula and Monika Singla (2014) conducted a study titled “Empirical Study on Non Performing
Assets of Bank”, with the motive to assess the non - performing assets of Punjab National Bank and
its impact on profitability & to see the relation between total advances, Net Profits, Gross & Net NPAs.
The study uses the annual reports of Punjab National Bank for the period of six years from 2006-07 to
2011-12. The data has been analyzed by using tables and coefficient of correlation. The important point
to be noted is that the decline of NPA is essential to improve profitability of banks. Advances provided
by banks need to be done pre-sanctioning evaluation and post-disbursement control to constrain rising
non-performing assets in the Indian Banking sector. When PNB Gross & NET NPAs compared with
total advances we get the result that there is mismanagement on the side of PNB. While analysing the
impact of NPAs level on PNB we derived the conclusion that there is a positive relation between Net
Profits and NPAs of PNB. It simply means that as profits increase, NPAs also increase. It is because of
the mismanagement on the side of bank.

Ashly Lynn Joseph and Prakash, M. (2014) in their paper titled “A Study on Analyzing the Trend of
NPA Level in Private Sector Banks and Public Sector Banks” state that a healthy and a sound banking
system is essential for an economy in order to grow and survive in the present competitive environment.
They emphasise that the best indicator for the health of the banking industry is its level of Non-
performing assets (NPAs). This paper basically deals with the trends of NPA in banking industry, the
factors that mainly contribute to NPA raising in the banking industry and also provides some
suggestions how to overcome this burden of NPA on banking industry. Singh (2015) made an attempt
to understand NPA, the status and trend of NPAs in Indian Scheduled commercial banks, the factors
contributing to NPAs, reasons for high impact of NPAs on Scheduled commercial banks in India and
recovery of NPAS through various channels. This study shows that extent of NPA is comparatively
very high in public sectors banks. Although various steps have been taken by government to reduce the
NPAs but still a lot needs to be done to curb this problem.

Durafe & Singh(2016) examine the cyclical behaviour of both the public and private sector banks in
India with a focus on non-performing assets. The motivation behind this study is to find out whether
non-performing assets of public sector banks and private sector banks in India exhibit pro-cyclical
behaviour. Pearson correlation coefficient results suggest countercyclical behaviour of gross non-
performing assets and current state of economy in both public and private sector banks. The study also
employed multiple regression analysis which shows that all bank specific variables have significant
effect on gross non-performing assets in public sector banks while macroeconomic variables are found
to be insignificant in presence of bank specific variables. In case of private sector banks, current state
of economy is found to be significant in presence of bank specific variables with negative sign. In
another model, which includes only macroeconomic variables, economy wide fluctuations and inflation
are found significant in both public and private sector banks in India.

SOURCES OF DATA AND METHODOLOGY

The objective of this study was to examine the status of Non Performing Assets of Scheduled
Commercial Banks in India during 1996-96 and 2014-15. The paper discusses the conceptual
framework of NPA and it also highlights the trends, status and recovery channels of NPAs in
case of scheduled commercial banks. The data taken in this study are mainly secondary in
nature. The main source of data has been the website of Reserve Bank of India. Several reputed
research papers and articles on banking have been referred for this study. Further, RBI Report
on Trend and Progress of Banking in India for various years, various websites and books on
banking were referred during the study. Data was analysed by using appropriate statistical tools
such as percentage, t-test and ANOVA. SPSS was used to make statistical analysis.

RESULTS AND INTERPRETATION OF DATA

Gross NPAs and Net NPAs are the two basic concepts about bad loans of a bank. The gross NPAs are
the total amount of sub-standard assets, doubtful assets and loss assets along with loss of interest
outstanding on them. For analysis, these are taken as percentage to gross loan assets of the bank. On the
other hand, Net NPAs are simply the total bad assets (actual) minus the provision left aside. Net NPAs
to Net Advances is the ratio generally taken to make precise explanation of the net NPAs. The position
of NPAs in banking industry in India over the last 19 years is presented by Table 1.

Table 1: Gross and Net NPAs of Scheduled Commercial Banks-

Bank Group-Wise (Rs. Billions)

Scheduled Commercial Banks

Advances Non-Performing Assets

Gross Net Gross Net

Year
(End- As As As As
March) Percentage Percentage Percentage Percentage
Amount of of Amount of of
Gross Total Net Total
Advances Assets Advances Assets

2014-15 75620.0 3229 4.3

2013-14 68757.48 67352.32 2641.95 3.8 2.4 1426.57 2.1 1.3

2012-13 59882.79 58797.73 1940.74 3.2 2.0 987.10 1.7 1.0

2011-12 46655.44 50735.59 1429.03 3.1 1.7 652.05 1.3 0.8

2010-11 40120.79 42987.04 979.00 2.5 1.4 417.00 1.1 0.6

2009-10 35449.65 34970.92 846.98 2.4 1.4 387.23 1.1 0.6

2008-09 30382.54 29999.24 683.28 2.3 1.3 315.64 1.1 0.6

2007-08 25078.85 24769.36 563.09 2.3 1.3 247.30 1.0 0.6

2006-07 20125.10 19812.37 504.86 2.5 1.5 201.01 1.0 0.6

2005-06 15513.78 15168.11 510.97 3.3 1.8 185.43 1.2 0.7

2004-05 11526.82 11156.63 593.73 5.2 2.5 217.54 2.0 0.9

2003-04 9020.26 8626.43 648.12 7.2 3.3 243.96 2.8 1.2

2002-03 7780.43 7404.73 687.17 8.8 4.1 296.92 4.0 1.8

2001-02 6809.58 6458.59 708.61 10.4 4.6 355.54 5.5 2.3

2000-01 5587.66 5263.28 637.41 11.4 4.9 324.61 6.2 2.5

1999-00 4751.13 4442.92 604.08 12.7 5.5 300.73 6.8 2.7

1998-99 3994.36 3670.12 587.22 14.7 6.2 280.20 7.6 2.9

1997-98 3526.96 3255.22 508.15 14.4 6.4 237.61 7.3 3.0

1996-97 3016.98 2764.21 473.00 15.7 7.0 223.40 8.1 3.3

Public Sector Banks

Advances Non-Performing Assets

Year Gross Net Gross Net

(End-
March) As % of As % of As % of
As % of
Amount Gross Total Amount Net
Total Assets
Advances Assets Advances

2014-15 56167.00 2785.0 5.0

2013-14 52159.20 51011.43 2280.74 4.4 2.9 1306.24 2.6 1.6

2012-13 45601.69 44728.45 1656.06 3.6 2.4 900.36 2.0 1.3

2011-12 35503.89 38773.08 1178.39 3.3 2.0 593.91 1.5 1.0

2010-11 30798.04 33056.32 746.00 2.4 1.4 360.00 1.2 0.7

2009-10 27334.58 27013.00 599.26 2.2 1.3 293.75 1.1 0.7

2008-09 22834.73 22592.12 449.57 2.0 1.2 211.55 0.9 0.6

2007-08 18190.74 17974.01 404.52 2.2 1.3 178.36 1.0 0.6

2006-07 14644.93 14401.46 389.68 2.7 1.6 151.45 1.1 0.6

2005-06 11347.24 11062.88 413.58 3.6 2.1 145.66 1.3 0.7

2004-05 8778.25 8489.12 483.99 5.5 2.7 169.04 2.1 1.0

2003-04 6619.75 6313.83 515.37 7.8 3.5 193.35 3.1 1.3

2002-03 5778.13 5493.51 540.90 9.4 4.2 248.77 4.5 1.9

 2001-02 5093.68 4806.81 564.73 11.1 4.9 279.58 5.8 2.4

2000-01 4421.34 4152.07 546.72 12.4 5.3 279.77 6.7 2.7

1999-00 3794.61 3527.14 530.33 14.0 6.0 261.87 7.4 2.9

1998-99 3253.28 2977.89 517.10 15.9 6.7 242.11 8.1 3.1

1997-98 2849.71 2604.59 456.53 16.0 7.0 212.32 8.2 3.3

1996-97 2442.14 2209.22 435.77 17.8 7.8 202.85 9.2 3.6

Private Sector Banks

Advances Non-Performing Assets

Year Gross Net Gross Net

(End- As Percentage
March) As Percentage As Percentage As Percentage
of
Amount of Amount of of
Gross
Total Assets Net Advances Total Assets
Advances
2014-15 16087 337 2.1

2013-14 13613 13429.35 242 1.8 1.1 88.61 0.7 0.4

11592 8733.11 208 1.8

1.1 39.00 0.4
0.4
2012-13

9814 7363.23 185 1.9

1.1 30.65 0.4
0.3
2011-12

2010-11 8118 6128.86 182 2.2

1.25 34.00 0.6
0.3

6442 4783.58 176 2.7

1.45 52.34 1.1
0.55
2009-10

5850 4468.24 170 2.9

1.5 62.52 1.4
0.65
2008-09

5259 4067.33 130 2.5

1.35 49.07 1.2
0.55
2007-08

4201 3218.65 92 2.2

1.45 31.37 1.0
0.55
2006-07

3176 2300.05 78 2.5

1.75 17.96 0.8
0.65
2005-06

2004-05
1978.32 1913.97 87.82 4.4 2.35 42.12 2.2 1.1

1774.19 1707.54 103.81 5.8 3 41.28 2.4 1.3

2003-04

1460.47 1389.51 117.82 8.1 4.05 39.63 2.8 1.6

2002-03

1209.58 1164.73 116.62 9.6 4.55 66.76 5.7 2.65

2001-02

712.37 680.59 59.63 8.4 3.6 37 5.4 2.25

2000-01

582.2 560.35 47.61 8.2 3.4 30.31 5.4 2.2

1999-00

430.49 397.31 46.55 10.8 4.05 29.43 7.4 2.6

1998-99

1997-98
367.53 354.11 31.86 8.6 3.3 18.63 5.26 2
 299.59 286.46 25.42 8.5 3.25 15.39 5.4 2.05
1996-97

Foreign Banks In India

Advances Non-Performing Assets

Year Gross Net Gross Net

(End- As Percentage
March) As Percentage As Percentage As Percentage
of
Amount of Amount of of
Gross
Total Assets Net Advances Total Assets
Advances
2014-15 3366.0 108.0 3.2

2013-14 2995.75 2911.54 115.79 3.9 1.6 31.72 1.1 0.4

2012-13 2689.67 2636.80 79.97 3.0 1.3 26.80 1.0 0.4

2011-12 2347.10 2298.49 62.97 2.7 1.1 14.12 0.6 0.2

2010-11 1993.21 1955.39 50.00 2.5 1.0 12.00 0.6 0.3

2009-10 1674.37 1632.60 71.33 4.3 1.6 29.77 1.8 0.7

2008-09 1697.16 1653.85 64.44 3.8 1.5 29.96 1.8 0.7

2007-08 1629.66 1611.33 28.59 1.8 0.8 12.47 0.8 0.3

2006-07 1278.72 1263.39 22.63 1.8 0.8 9.27 0.7 0.3

2005-06 989.65 975.62 19.28 1.9 1.0 8.08 0.8 0.4

2004-05 770.26 753.54 21.92 2.8 1.4 6.39 0.8 0.4

2003-04 626.32 605.06 28.94 4.6 2.1 9.33 1.5 0.7

2002-03 541.84 521.71 28.45 5.3 2.4 9.03 1.7 0.8

2001-02 506.31 487.05 27.26 5.4 2.4 9.20 1.9 0.8

2000-01 453.95 430.63 31.06 6.8 3.0 7.85 1.8 0.8

1999-00 374.32 355.43 26.14 7.0 3.2 8.55 2.4 1.0

1998-99 310.59 294.92 23.57 7.6 3.1 8.66 2.9 1.1

1997-98 309.72 296.52 19.76 6.4 3.0 6.66 2.2 1.0

1996-97 275.25 268.53 11.81 4.3 2.1 5.16 1.9 0.9

Notes : 1. Data for 2013-14 and 2014-15 are provisional.

2. Data on Scheduled Commercial Banks & Public Sector Banks for 2004-05 include the impact of conversion of a
non-banking entity into a banking entity.

Table 1 indicates that percentage of gross NPAs to gross advances of scheduled commercial banks has
been declining continuously between 1996-97 and 2007-08. The ratio of gross NPAs to gross advances
came down to 2.3% at March end 2008 from the whopping level of 15.7% in year 1997. However, the
absolute amount of gross NPAs increased to Rs 563.09 billion from Rs 473 billion in the corresponding
period. The above pattern of absolute amount of bad loans also holds true in case of net NPAs which
rose to Rs 247.30 billion in 2008 from Rs 223 billion in the end of March, 1997. The ratio of net NPAs
to net advances declined to 1.0 per cent in 2007-08 from 8.7 per cent in 1996-97. The trend of declining
percentage of net as well as gross NPAs reversed in 2008-09, the year of financial crisis for many
economies, particularly America. The bad loans of SCBs have risen to Rs. 3229 billion in March end
 2015. The ratio of net NPAs to net advances has increased to 2.1 in 2015 from 1.0 in 2008. Similarly,
the ratio of gross NPAs to gross advances went up from 2.3% in year 2008 to 4.3%, in year 2015.

Table 1 further show that, in PSBs, the amount of gross NPAs declined to RS. 389.68 billion in year
2006-07 from Rs. 564.73 billion in the beginning of the twenty first century. The ratio of gross NPAs
to gross advances declined appreciably and came down to 2% in year 2007-08 from 11.1% in 2001-02
and 17.8% in 1996-97. Similarly, the ratio of net NPAs to net advances in PSBs, reduced to 0.9% in
2008-09 from 5.8% in 2001-02 and 9.2% in 1996-97. However, this downward trend of NPAs took
upward direction immediately with the arrival of sub-prime crisis in US economy in the end of 2008.
Resultantly, the ratio of gross NPAs to gross advances reached to the level of 5% in 2015 from 2% in
2009 in case of PSBs. The ratio of net NPAs to net advances in the banks of this sector increased to
2.6% in 2014 from 0.9% in 2009.
The bad loans of public-sector banks grew at a rate of 4 per cent between 2004 and 2012; however, in
financial years 2013 to 2015, they rose at almost 60 per cent. The bad debts written off in financial year
ending March 2015 make up 85 per cent of such loans since 2013. Bank-wise break-up shows that the
State Bank of India, India’s largest bank, is way ahead of others in declaring loans as unrecoverable,
with its bad debts shooting up almost four times since 2013 — from Rs 55.94 billion in 2013 to Rs
213.13 billion in 2015. The figure of bad loans for 2014 and ‘15 combined, Rs 344.90 billion, was Rs
100.00 billion more than that of between 2004 and 2013, Rs 239.92 billion. The country’s second-
largest public sector bank, Punjab National Bank, has also witnessed a consistent rise in bad debts since
2013. These grew by 95 per cent between 2013 and 2014 but climbed by 238 per cent between 2014
and 2015 — from Rs 19.47 billion in 2014 to Rs 65.87 billion in 2015. With public sector banks sitting
on over Rs 7000 billion stressed assets, including NPAs and restructured loans, Rajan, Governor of
RBI, recently said the estimates of NPAs being 17-18 per cent are bit on the high side and that entities
should be careful not to treat NPAs as total write-offs but see if they can change promoters and repay
as the economy recovers. He also said that some banks would have to merge to optimise their use of
resources. Gross NPAs of public-sector banks rose to 6.03 per cent as of June 2015, from 5.20 per cent
in March 2015. RBI has asked banks to review certain loan accounts and their classification over the
two quarters ending December 31, 2015, and March 31, 2016(
http://indianexpress.com/article/india/india-news-india/bad-loan)-financial-year-rti-rbi-bank-loan-
raghuram-rajan-bad-loan....).
Regarding the position of NPAs among PVBs, Table 1 reveals that ratio of gross NPAs to gross
advances continued to decline sharply since 1998-99, but the trend reversed in 2007-08 when it
increased to 2.5% from 1.9% in the preceding year. The ratio of ne NPAs to net advances also came
down to 0.55% in 2007-08 from 7.4% in 1998-99, in case of PVBs. However, no significant
improvement has been seen in this regard during the last six years. A comparison of the percentage of
bad loans to advances of PSBs and PVBs indicates that the problem of bad loans is graver in case of
the former category of banks.
It may be noted from the data given in the table under reference that the quality of assets has always
been better in foreign banks than PSBs, but poorer than that of PVBs during the last 7 years. Obviously,
the ratio of net NPAs to net advances was found 1.1% in foreign banks, 0.7% in private banks and 2.6%
in PSBs in the end of March, 2014. But since the occurrence of sub-prime crisis in US there seems no
sign of improvement in the quality of assets of foreign banks operating in India.

TABLE 2: Composition of NPAs of Public Sector Banks

(Amount in Billion Rs.)

As on March 31
Bank PRIORITY SECTOR NON PRIORITY SECTOR PUBLIC SECTOR TOTAL
Group/Yea
Amount Percentage Amount Percentage Amount Percentage Amount
rs
Nationalise
d Banks Amount Percentage Amount Percentage Amount Percentage
2015 709.34 34.61 1337.67 65.26 2.59 .13 2049.59
2014 537.50 36.45 935.67 63.46 1.30 0.09 1474.48
2013 408.34 40.16 599.01 58.91 9.48 0.93 1016.83
2012 324.24 46.96 355.55 51.49 10.68 1.55 690.48
2011 246.20 55.61 194.10 43.84 2.42 0.55 442.72
2010 195.67 53.76 165.23 45.40 3.05 0.84 363.95
2009 157.54 59.35 106.68 40.19 1.21 0.46 265.43
2008 159.72 63.96 85.63 34.29 4.38 1.76 249.74
2007 153.44 58.63 103.40 39.51 4.87 1.86 261.72
2006 149.22 51.78 132.27 45.90 6.68 2.32 288.17
SBI &
its
Associates Amount Percentage Amount Percentage Amount Percentage
2015 256.76 34.93 478.32 65.07 0.00 0.00 735.08
2014 261.49 32.76 536.68 67.24 0.00 0.00 798.17
2013 264.42 42.12 361.30 57.55 2.06 0.33 627.79
2012 233.56 48.44 232.71 48.27 15.88 3.29 482.15
2011 155.67 51.22 148.26 48.78 0.00 0.00 303.93
2010 109.29 46.45 125.91 53.51 0.09 0.04 235.29
2009 84.47 45.70 98.60 53.35 1.76 0.95 184.83
2008 89.02 57.50 64.44 41.62 1.36 0.88 154.82
2007 71.75 56.57 52.63 41.49 2.45 1.93 126.83
2006 73.14 58.27 50.52 40.25 1.87 1.49 125.52
Public
Sector Amount Percentage Amount Percentage Amount Percentage
2015 966.11 34.69 1815.98 65.21 2.59 0.09 2784.68
2014 798.99 35.16 1472.35 64.79 1.30 0.06 2272.64
2013 672.76 40.91 960.31 58.39 11.55 0.70 1644.61
2012 557.80 47.57 588.26 50.17 26.56 2.27 1172.62
2011 401.86 53.82 342.35 45.85 2.43 0.32 746.64
2010 304.96 50.89 291.14 48.58 3.14 0.52 599.24
2009 242.01 53.75 205.28 45.59 2.97 0.66 450.26
2008 248.74 61.48 150.07 37.10 5.74 1.42 404.56
2007 225.19 57.96 156.03 40.16 7.32 1.88 388.54
2006 222.36 53.75 182.79 44.18 8.55 2.07 413.70
Source: Statistical table related to banks in India,RBI
It is clear from table 2 that the level of NPAs in priority sector has been found decreasing from
year after year. In 2006, the percentage of NPA in priority sector was 53.75 % in public sector
which decreased to 34.69% in 2015. However, in case of Non priority sector, the level of NPA
increased to 65.21% in 2015 from 44.18% in 2006. So from the given data we can conclude
that NPAs have been increasing continuously in Non priority sectors. So banks should give
proper attention in giving loan to corporate sectors.

TABLE 3: NPAs of SCBs Recovered through Various Channels

(Amount in ` Billion)

Year Sr Recovery Channel Lok DRTs SARFAESI Total

No. Adalats Act

2012- 1 No. of cases referred 840,691 13,408 190,537 1,044,636

13
2 Amount involved 66 310 681 1,057

3 Amount recovered 4 44 185 233

4 3 as per cent of 2 6.1 14.1 27.1 21.9

2013- 1 No. of cases referred 1,636,957 28,258 194,707 1,859,922

14
2 Amount involved 232 553 953 1,738

3 Amount recovered 14 53 253 320

4 3 as per cent of 2 6.2 9.5 26.6 18.4

2014- 1 No. of cases referred 9,131,199 171,113 1,241,086 10,543,398

15
2 Amount involved 887 3,789 4,705 9,381

3 Amount recovered 43 531 1,152 1,726

4 3 as per cent of 2 4.8 14 24.5 18.4

Source: Statistical table related to banks in India,RBI,2015

It is clear from Table 3 that recovery of NPAs through various channels is not getting momentum.
Amount of NPAs recovered through SARFAESI act decreased from 27.1% in 2012-13, to 24.5% in
2014-15. Recovery of NPAs through Lok Adalats also decreased from 6.1% in 2012-13 to 4.8% in
2014-15. Debt Recovery Tribunal also becoming ineffective in recovering NPAs. Amount recovered
through DRT was 14.1% in 2012-13.but it decreased to 9.5% in 2013-14, however, it increased to 14
% in 2014-15. So we can conclude that various recovery channels play an important role in recovery of
NPAs, but there is need to make the recovery process smoother and faster.
 Table 4: Classification of Loan Asset of NPAs in Scheduled Commercial
Banks in India(Amount in Rs billions)

As on March 31
Sub-Standard
Standard Advances Doubtful Advances Loss Advances Gross NPAs
Bank Advances Total
Group/ Year Percen Percentag Advances
Amount Percentage Amount Percentage Amount Percentage Amount Amount
tage e

Public Sector

2015 53382 95.0 1054 1.9 1630 2.9 100 0.2 2785 5.0 56167

2014 49887 95.6 958 1.8 1216 2.3 99 0.2 2273 4.4 52159

2013 43957 96.4 815 1.8 761 1.7 68 0.2 1645 3.6 45601

2012 38255 97.0 623 1.6 490 1.2 60 0.2 1173 3.0 39428

2011 32718 97.8 350 1.1 332 1.0 65 0.2 747 2.2 33465

2010 26735 97.8 288 1.1 254 0.9 58 0.2 599 2.2 27335

2009 22378 98.0 203 0.9 206 0.9 41 0.2 450 2.0 22828

2008 17786 97.8 173 1.0 192 1.1 40 0.2 405 2.2 18191

2007 14262 97.4 143 1.0 198 1.4 48 0.3 389 2.7 14651

2006 10926 96.4 113 1.0 246 2.2 55 0.5 414 3.7 11340

2005 8379 94.6 110 1.2 308 3.5 59 0.7 476 5.4 8856

Private
Sector Banks

2015 15750 97.9 108 0.7 176 1.1 52 0.3 337 2.1 16087

2014 13371 98.2 86 0.6 114 0.8 42 0.3 242 1.8 13613

2013 11384 98.2 64 0.6 112 1.0 32 0.3 208 1.8 11592

2012 9629 98.1 52 0.5 104 1.1 29 0.3 185 1.9 9814

2011 7936 97.8 45 0.6 108 1.3 29 0.4 182 2.2 8118

2010 6265 97.3 89 1.4 66 1.0 22 0.3 176 2.7 6442

2009 5681 97.1 106 1.8 50 0.9 13 0.2 170 2.9 5850

2008 5129 97.5 73 1.4 45 0.9 12 0.2 130 2.5 5259

2007 4109 97.8 44 1.0 39 0.9 9 0.2 92 2.2 4201

2006 3099 97.6 24 0.8 44 1.4 9 0.3 78 2.5 3176

2005 2172 96.1 22 1.0 56 2.5 9 0.4 88 3.9 2259

Foreign
Banks

2015 3259 96.8 23 0.7 54 1.6 30 0.9 108 3.2 3366

2014 2880 96.1 43 1.4 43 1.4 29 1.0 116 3.9 2996

2013 2610 97.0 29 1.1 27 1.0 23 0.9 80 3.0 2689

2012 2284 97.3 21 0.9 22 1.0 20 0.8 63 2.7 2347

2011 1943 97.5 19 0.9 21 1.1 11 0.6 51 2.5 1994

2010 1603 95.7 49 2.9 14 0.9 8 0.5 71 4.3 1674

2009 1624 95.7 59 3.5 10 0.6 4 0.3 73 4.3 1697

2008 1599 98.1 20 1.2 8 0.5 4 0.2 31 1.9 1631

2007 1255 98.1 14 1.1 6 0.5 4 0.4 24 1.9 1279

2006 969 97.9 9 1.0 7 0.7 4 0.4 21 2.1 989

2005 747 97.0 7 0.9 10 1.3 6 0.7 23 3.0 770

All
Scheduled
Commercial
Banks

2015 72391 95.7 1186 1.6 1861 2.5 182 0.2 3229 4.3 75620

2014 66138 96.2 1087 1.6 1374 2.0 170 0.2 2630 3.8 68768

2013 57951 96.8 909 1.5 900 1.5 123 0.2 1932 3.2 59883

2012 50168 97.3 695 1.4 617 1.2 109 0.2 1420 2.8 51589

2011 42596 97.8 414 1.0 461 1.1 104 0.2 979 2.3 43575

2010 34603 97.6 426 1.2 334 0.9 87 0.2 847 2.4 35450

2009 29683 97.7 367 1.2 266 0.9 59 0.2 693 2.3 30375

2008 24514 97.8 265 1.1 244 1.0 56 0.2 565 2.3 25079

2007 19626 97.5 200 1.0 243 1.2 62 0.3 505 2.5 20131

2006 14994 96.7 146 0.9 297 1.9 69 0.4 512 3.3 15506

2005 11299 95.1 139 1.2 374 3.2 74 0.6 587 4.9 11886

It is clear from Table 4 that the percentage of standard assets in public sector banks has been decreasing
over the years. The level of standard assets was 94.6% of total advances in 2005 and 97.8% in 2011,
but it decreased to 95% in 2015. It is an alarming situation for all public sector banks. In case of private
banks level of standard assets increased from 2009 to till 2014. But in 2015 it decreased to 97.9%.
Quality of standard assets is getting low also in case of foreign banks. It was 97.0% in 2005 but in 2015
it decreased to 96.8%.

TABLE 5 NPA of Indian banks in comparison of other countries

Country 2013 2014 2015

Australia 1.5 1.1 1.0

Japan 2.3 1.9 1.6

Singapore 0.9 0.8 0.8

United States 2.5 1.9 1.7

 Brazil 2.9 2.9 3.1

India 4.0 4.3 4.2

Malaysia 1.8 1.6 1.6

Source : Data from World Bank indicator

It is clear from the table 5 that India’s percentage of NPAs to total gross loans is very high in comparison
of other countries. NPAs level of countries like Singapore, United States, and Malaysia is decreasing
on year basis. But the NPAs of Brazil and India is increasing. NPAs of India as a percentage of total
gross loan was 4.0% in 2013 but in 2015, it increased to 4.2%. So the banks in India should take proper
attention in providing loans.

CONCLUSION

The study has brought numerous points in the light. First, the bad loans of SCBs have risen to Rs. 3229
billion in March end 2015; the ratio of net NPAs to net advances has increased to 2.1 in 2015 from 1.0
in 2008. Second, the ratio of gross NPAs to gross advances went up from 2.3% in year 2008 to 4.3%,
in year 2015 in case of all SCBs. Third, in case of PSBs, the ratio of gross NPAs to gross advances
reached to the level of 5% in 2015 from 2% in 2009 and the ratio of net NPAs to net advances in
increased to 2.6% in 2014 from 0.9% in 2009. Fourth, the ratio of ne NPAs to net advances came down
to 0.55% in 2007-08 from 7.4% in 1998-99, in case of PVBs. However, no significant improvement has
been seen in this regard during the last six years. Fifth, a comparison of the percentage of bad loans to
advances of PSBs and PVBs indicates that the problem of bad loans is graver in case of the former
category of banks. Sixth, the quality of assets has always been better in foreign banks than PSBs, but
poorer than that of PVBs during the last 7 years. Seventh, India’s percentage of NPAs to total gross
loans is very high in comparison of other countries. Next, the level of NPAs in priority sector has been
found decreasing from year after year. In 2006, the percentage of NPA in priority sector was 53.75 %
in public sector which decreased to 34.69% in 2015.Last, the amount of NPAs recovered through
SARFAESI Act, decreased from 27.1% in 2012-13, to 24.5% in 2014-15. Recovery of NPAs through
Lok Adalats also decreased from 6.1% in 2012-13 to 4.8% in 2014-15. Debt Recovery Tribunals are
also becoming ineffective in recovering NPAs.
In nutshell, it concludes that the issue of NPAs of banks in India still remains unresolved agenda for the
banks of all sectors, particularly for PSBs. NPAs level of countries like Singapore, United States, and
Malaysia is decreasing on year basis. Ratings agency Moody's said (April 25, 2016 | IANS), given the
weak solvency position of many PSBs in India, it will not be easy for them to raise funds from the
market and the government will have to provide them capital support to avoid the risk of downgrade in
their credit profiles. Moreover, for sustaining and growing in the competitive environment, the banks
need to make credit appraisal fairly and monitor the dues outstanding in a judicious and systematic
manner.

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News Papers

 April 26, 2016 | PTI,ET

 April 27, 2016 | Samanwaya Rautray , ET Bureau)
 April 29, 2016 | PTI , ET