COMPARATIVE ANALYSIS REPORT ON NPA OF PUBIC & PRIVATE

SECTOR BANK

The banking industry has undergone a sea change after the first phase of economic
liberalization in 1991 and hence credit management. While the primary function of
banks is to lend funds as loans to various sectors such as agriculture, industry,
personal loans, housing loans etc., in recent times the banks have become very
cautious in extending loans.
The reason being mounting non-performing assets (NPAs). An NPA is defined as a
loan asset, which has ceased to generate any income for a bank whether in the form
of interest or principal repayment. As per the prudential norms suggested by the
Reserve Bank of India (RBI), a bank cannot book interest on an NPA on accrual
basis. In other words, such interests can be booked only when it has been actually
received.
Therefore, an NPA 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 NPA
also puts strain on a banks 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.
When a borrower, who is under a liability to pay to secured creditors, makes any
default in repayment of secured debt or any installment thereof, the account of
borrower is classified as nonperforming assets (NPA) .NPAs cannot be used for
any productive purposes because they reflect the application of scarce capital and
credit funds. Continued growth in NPA threatens the repayment capacity of the
banks and erodes the confidence reposed by them in the banks. In fact high level of
NPAs has an adverse impact on the financial strength of the banks who in the
present era of globalization, are required to conform to stringent International
Standards. “Non Performing Asset” means an asset or account of a borrower,
which has been classified by bank or financial institution as substandard, doubtful
or loan asset.
Following two banks has been consider for analysis of NPA
 1. Bank of Baroda – Public Sector Bank
2. Yes Bank – Private Sector Bank
 NON PERFORMING ASSET ( NPA )

NPAs refer to loans which are in risk of default. Reserve Bank of India (RBI)
defines NPAs as :

An asset, including a leased asset, becomes non-performing when it ceases to

generate income for the bank.

As per guidelines issued by the RBI, banks classify an account as NPA only if the
interest due and charged on that account during any quarter is not serviced fully
within 90 days from the end of the quarter.

Basis of Classification of Non Performing Asset (NPA)

Banks are required to classify NPAs into the following 3 categories based on how
long do they remain non-performing.

The three categories are – Substandard Assets, Doubtful Assets and Loss Assets.

1. Substandard Assets – If an account remains as NPA for a period less than

or equal to 12 months
2. Doubtful Assets – An asset would be classified as doubtful if it has
remained in the substandard category for 12 months.
3. Loss Asset – A loss Asset is one where loss has been identified by the
bank’s internal or external auditors or upon an RBI inspection.

 NON PERFORMING ASSET RATIO

Net NPAs are calculated by deducting provisions from gross NPAs. The net NPA
to advances (loans) ratio is used as a measure of the overall quality of the bank’s
loan book.

NPA ratio = Net non-performing assets / Advance

A ) GROSS NON PERFORMING ASSET

Gross non-performing assets is a term used by financial institutions to refer to the

sum of all the unpaid loans which are classified as non-performing loans.

Credit institutions offer loans to their customers who fail to be honored and within
ninety days, financial institutions are obligated to classify them as non-performing
assets because they are not receiving either principle or net payments.

B ) NET NON PERFORMING ASSET

Net non-performing assets is a term used by credit institutions to refer to the sum
of the non-performing loans less provision for bad and doubtful debts. Credit
institutions tend to provide a precautionary amount to cover the unpaid debts.
Therefore, if one deducts provision for unpaid debts from the unpaid debts, the
resulting amount refers to the net non-performing assets.

Net non performing assets = Gross NPAs – Provisions

C) YEAR WISE AMOUNT AND PERCENTAGE

i) Gross NPA of Bank of Baroda & Yes Bank Last 3 Year

( Rs in Cr )

Year Bank of Baroda Yes Bank

2018 56,480 2627
2017 42,719 2019
2016 40,521 748
 Gross NPA Amount of BOB & Yes Bank
60000

50000

40000

30000

20000

10000

0
2018 2017 2016

BOB Yes Bank

ii) Net NPA of Bank of Baroda & Yes Bank Last 3 Year

( Rs in Cr )

Year BOB Yes Bank

2018 23483 1313
2017 18080 1072
2016 19047 284
 Net NPA Amount of BOB & YES Bank
25000

20000

15000

10000

5000

0
2018 2017 2016

BOB Yes Bank

iii) Loan & Advances Amount of Bank of Baroda & Yes Bank for Last 3 Year

( Rs in Cr )

Year BOB Yes Bank

2018 427,432 203,534
2017 383,259 132,263
2016 383,770 98,210
 Loan & Advances of BOB & YES Bank
450000

400000

350000

300000

250000

200000

150000

100000

50000

0
2018 2017 2016

BOB Yes Bank

iv) Gross NPA % of Bank of Baroda & Yes Bank for Last 3 Year

Year BOB Yes Bank

2018 12 % 1%
2017 10 % 2%
2016 10 % 1%
 Gross NPA % of BOB & YES Bank
14

12

10

0
2018 2017 2016

BOB Yes Bank

v) Net NPA % of Bank of Baroda & Yes Bank for Last 3 Year

Year BOB Yes Bank

2018 5% 1
2017 5% 1
2016 5% 0
 Net NPA % of BOB & YES Bank
6

0
2018 2017 2016

BOB Yes Bank

D ) ANALYSIS AND INTERPRETATION OF NPA FROM 2016 TO 2018

 After the analysis of NPV we can conclude ,the NPA of Bank of Baroda is
higher than the Yes Bank. It means that NPA is higher in public sector bank
than private sector bank.

 Bank of Baroda NPA has been increased from Rs 40,521 Cr. to Rs 56,480
Cr. whereas Yes Bank NPA increased from Rs 19,047 Cr to Rs 23,483 Cr.
Bank of Baroda NPA % increased from 10 % to 12 %, whereas in case of
Yes Bank it increase from 0 % to 1 % in last 3 years.
 Bank of Baroda higher NPA indicates having the lessor funds to advance i.e
lessor funds on which they can potentially earn interest income & also high
level of provisioning

 Public sector bank in India have performed poorly as compared to Private

sector bank over past few years. For the most part this has been on account
of Non performing Asset ( NPA ) related worries.

 In a slowing economy, it is natural to assume that NPAs will increase but the
primary cause of rising NPAs was not the global slowdown but deficiencies
in the credit and recovery mechanism.

 In fact, there could still be another factor: the procedure followed in

extending and monitoring credit, for which there are significant differences
in the approach of PSBs and private sector banks.

 As per Analysis of NPA we can say that Yes Bank is the best performer as
compared to Bank of Baroda.

 As this brief comparative analysis study suggests, Public sector bank

urgently need to address attitudinal problems to tackle the issue of rising
NPAs. More efficient borrower screening, credit appraisal and post-
disbursement supervision would go a long way towards improving the
commercial performance of these banks.