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KUNAL SHANKAR
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ACKNOWLEDGEMENTS
There are a number of important people I want to thank, without whose support,
guidance, encouragement, and help this work would not have been possible. I would
also like to give my greatest thanks to God who deserves the ultimate praise and
credit for all good things in my life.
First and foremost, I want to thank………….. (Guide Name), who has been my
advisor and mentor throughout my studies. Without sir’s patient criticism, continual
support, effective teaching, and constant challenge and encouragement to give my
very best efforts to my undertakings, I would not have learned what I needed to nor
been prepared to complete this dissertation and future work. Much of what I have
learned about the craft of research has come from Sir, and I am forever grateful for the
opportunity to have studied under his guidance.
I would not have made it through this research without the support, encouragement,
teaching, and friendship of fellow students in the program.
ABSTRACT
A strong banking sector is important for flourishing economy. The failure of the banking
sector may have an adverse impact on other sectors. Non-performing assets are one of the
major concerns for banks in India.
NPAs reflect the performance of banks. A high level of NPAs suggests high probability of a
large number of credit defaults that affect the profitability and net-worth of banks and also
erodes the value of the asset. The NPA growth involves the necessity of provisions, which
reduces the over all profits and shareholders value.
The issue of Non Performing Assets has been discussed at length for financial system all over
the world. The problem of NPAs is not only affecting the banks but also the whole economy.
In fact high level of NPAs in Indian banks is nothing but a reflection of the state of health of
the industry and trade.
This report deals with understanding the concept of NPAs, its magnitude and major causes for
an account becoming non-performing, projection with special reference to SBI bank.
INDEX
1 CHAPTER 1 Introduction
Bibliography
7
CHAPTER 1
INTRODUCTION
The significant job of bank market analysts in changing the saving money framework in
India. Business analysts must be progressively 'mainstreamed' inside the operational structure
of business banks. Aside from the customary working of full scale examining, the bury
linkages between treasuries, managing rooms and exchanging rooms of banks should be seen
not just with the everyday needs of operational need, yet in addition with systematic
substance and strategy prescience.
Saving money part changes in India has advanced quickly on perspectives like loan fee
deregulation, decrease in statutory save necessities, prudential standards for financing costs,
resource order, salary acknowledgment and provisioning. In any case, it couldn't coordinate
the pace with which it was relied upon to do. The achievement of these standards at the
execution stages without rebuilding the managing an account area in that capacity is making
destruction.
Amid pre-nationalization period and after freedom, the keeping money area stayed in private
hands Large enterprises who had their control in the administration of the banks were using
significant bit of monetary assets of the managing an account framework and subsequently
low need was agreed to need parts. Administration of India nationalized the banks to make
them as an instrument of financial and social change and the command given to the banks
was to extend their systems in rustic zones and to offer advances to need segments, for
example, little scale enterprises, independently employed gatherings, farming and plans
including ladies.
To a specific degree the keeping money part has accomplished this order. Lead Bank Scheme
empowered the saving money framework to grow its system plannedly and make accessible
keeping money arrangement to the expansive number of populace and contact each stratum
of society by stretching out credit to their gainful undertakings. This is obvious from the way
that populace per office of business bank has descended from 66,000 in the year 1969 to
11,000 out of 2016. Thus, offer of advances of open division banks to need part expanded
shape 14.6% in 1969 to 44% of the net bank credit. The quantity of store records of the
saving money framework expanded from more than 3 crores in 1969 to more than 30 crores.
Obtained accounts expanded from 2.50 lakhs to over 2.68 crores.
Without a sound and successful saving money framework in India it can't have a solid
economy. The managing an account arrangement of India ought in addition to the fact that
hassle be free it ought to have the capacity to address new difficulties presented by the
innovation and some other outer and inward factors.
For as far back as three decades India's managing an account framework has a few
remarkable accomplishments surprisingly. The most striking is its broad reach. It is never
again kept to just metropolitans or cosmopolitans in India. Truth be told, Indian saving money
framework has come to even to the remote corners of the nation. This is one of the primary
reasons of India's development procedure.
Money related part change in India has advanced quickly on viewpoints like loan fee
deregulation, decrease for possible later use necessities, boundaries to passage, prudential
standards and hazard based supervision. However, advance on the auxiliary institutional
viewpoints has been much slower and is a reason for concern. The shielding of frail
organizations while changing operational standards of the amusement is rolling out usage of
operational improvements troublesome and incapable. Changes required to handle the NPA
issue would need to traverse the whole range of legal, country and the organization to be
genuinely powerful.
In changing economy keeping money and monetary area get high need. Indian saving money
part of having a significant issue due non performing. The budgetary changes have helped
generally to clean NPA was around Rs. 52,000 crores in the year 2016. The winning limit and
benefit of the bank are exceedingly influenced because of this
Non-Performing Asset implies an advantage or record of borrower, which has been ordered
by a bank or money related establishment as sub-standard, dicey or misfortune resource, as
per the headings or rules identifying with resource arrangement issued by The Reserve Bank
of India. The dimension of NPA go about as a marker demonstrating the investors credit
dangers and productivity of assignment of asset
Banking in India
Banking in India begun in the most recent many years of the eighteenth century. The most
seasoned bank in presence in India is the State Bank of India, a legislature possessed bank
that follows its starting points back to June 1806 and that is the biggest business bank in the
nation. Focal saving money is the obligation of the Reserve Bank of India, which in 1935
formally assumed control over these duties from the then Imperial Bank of India, consigning
it to business saving money capacities. After India's freedom in 1947, the Reserve Bank was
nationalized and given more extensive forces. In 1969 the legislature nationalized the 14
biggest business banks; the administration nationalized the six next biggest in 1980.
Right now, India has 88 planned business banks (SCBs) - 27 open part banks (that is with the
Government of India holding a stake), 29 private banks (these don't have government stake;
they might be freely recorded and exchanged on stock trades) and 31 remote banks. They
have a joined system of more than 53,000 branches and 17,000 ATMs. As per a report by
ICRA Limited, a rating office, general society segment banks hold more than 75 percent of
aggregate resources of the keeping money industry, with the private and remote banks
holding 18.2% and 6.5% individually.
HISTORY
Early history
Managing an account in India began in the most recent many years of the eighteenth century.
The principal banks were The General Bank of India, which began in 1786, and the Bank of
Hindustan, the two of which are currently ancient. The most established bank in presence in
India is the State Bank of India, which began in the Bank of Calcutta in June 1806, which
very quickly turned into the Bank of Bengal. This was one of the three administration banks,
the other two being the Bank of Bombay and the Bank of Madras, every one of the three of
which were built up under sanctions from the British East India Company. For a long time the
Presidency banks went about as semi national banks, as did their successors. The three banks
converged in 1925 to frame the Imperial Bank of India, which, upon India's freedom, turned
into the State Bank of India.
Indian traders in Calcutta built up the Union Bank in 1839, yet it flopped in 1848 as an
outcome of the financial emergency of 1848-49. The Allahabad Bank, set up in 1865 and as
yet working today, is the most seasoned Joint Stock bank in India. It was not the first
however. That respect has a place with the Bank of Upper India, which was built up in 1863,
and which made due until 1913, when it fizzled, with a portion of its benefits and liabilities
being exchanged to the Alliance Bank of Simla.
At the point when the American Civil War halted the supply of cotton to Lancashire from the
Confederate States, advertisers opened banks to back exchanging Indian cotton. With
expansive presentation to theoretical endeavors, the majority of the banks opened in India
amid that period fizzled. The contributors lost cash and lost enthusiasm for keeping stores
with banks. In this way, managing an account in India remained the elite space of Europeans
for next quite a few years until the start of the twentieth century.
Outside banks too began to arrive, especially in Calcutta, during the 1860s. The Comptoire
d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862;
branches in Madras and Pondichery, at that point a French settlement, pursued. HSBC built
up itself in Bengal in 1869. Calcutta was the most dynamic exchanging port in India,
primarily because of the exchange of the British Empire, thus turned into a managing an
account focus.
The primary altogether Indian joint stock bank was the Oudh Commercial Bank, set up in
1881 in Faizabad. It flopped in 1958. The following was the Punjab National Bank, built up
in Lahore in 1895, which has made due to the present and is currently one of the biggest
banks in India.
Around the turn of the twentieth Century, the Indian economy was going through a general
time of dependability. Around five decades had passed since the Indian Mutiny, and the
social, mechanical and other framework had moved forward. Indians had set up little banks,
the majority of which served specific ethnic and religious networks.
The administration banks commanded keeping money in India yet there were additionally
some trade banks and various Indian joint stock banks. Every one of these banks worked in
various fragments of the economy. The trade banks, for the most part claimed by Europeans,
focused on financing remote exchange. Indian joint stock banks were for the most part under
promoted and came up short on the experience and development to contend with the
administration and trade banks. This division let Lord Curzon to watch, "In regard of
managing an account it appears we are obsolete. We resemble some antiquated cruising ship,
partitioned by strong wooden bulkheads into discrete and bulky compartments."
The period somewhere in the range of 1906 and 1911, saw the foundation of banks roused by
the Swadeshi development. The Swadeshi development roused nearby specialists and
political figures to establish banks of and for the Indian people group. Various banks built up
then have made due to the present, for example, Bank of India, Corporation Bank, Indian
Bank, Bank of Baroda, Canara Bank and Central Bank of India.
The period during the First World War (1914-1918) through the end of the Second World War
(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-related
economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in
the following table:
1913 12 274 35
1915 11 56 5
1916 13 231 4
1917 9 76 25
1918 7 209 1
Post-independence
The segment of India in 1947 unfavorably affected the economies of Punjab and West
Bengal, deadening managing an account exercises for a considerable length of time. India's
freedom denoted the finish of a routine of the Laissez-faire for the Indian managing an
account. The Government of India started measures to assume a functioning job in the
monetary existence of the country, and the Industrial Policy Resolution embraced by the
administration in 1948 visualized a blended economy. This came about into more prominent
inclusion of the state in various sections of the economy including managing an account and
back. The significant strides to direct saving money included:
In 1948, the Reserve Bank of India, India's focal keeping money specialist, was
nationalized, and it turned into an organization claimed by the Government of India.
In 1949, the Banking Regulation Act was ordered which engaged the Reserve Bank of
India (RBI) "to manage, control, and review the banks in India."
The Banking Regulation Act likewise given that no new bank or part of a current bank
could be opened without a permit from the RBI, and no two banks could have normal
chiefs.
However, despite these provisions, control and regulations, banks in India except the State
Bank 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.
Nationalisation
By the 1960s, the Indian saving money industry has turned into a critical instrument to
encourage the improvement of the Indian economy. In the meantime, it has risen as a
substantial business, and a discussion has resulted about the likelihood to nationalize the
saving money industry. Indira Gandhi, the-then Prime Minister of India communicated the
aim of the GOI in the yearly gathering of the All India Congress Meeting in a paper entitled
"Stray musings on Bank Nationalization." The paper was gotten with positive excitement.
From there on, her turn was quick and sudden, and the GOI issued a statute and nationalized
the 14 biggest business saves money with impact from the midnight of July 19, 1969.
Jayaprakash Narayan, a national pioneer of India, portrayed the progression as a
"masterstroke of political savvy." Within about fourteen days of the issue of the law, the
Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill,
and it got the presidential endorsement on 9 August, 1969.
The nationalized banks were credited by a few, including Home pastor P. Chidambaram, to
have helped the Indian economy withstand the worldwide money related emergency of 2007-
2009.[1][2]
Liberalization
In the mid 1990s, the then Narsimha Rao government set out on an approach of advancement,
authorizing few private banks. These came to be known as New Generation well informed
banks, and included Global Trust Bank (the first of such new age 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, alongside the fast development in the
economy of India, revived the managing an account part in India, which has seen quick
development with solid commitment from all the three areas of banks, in particular,
government banks, private banks and outside banks.
The following stage for the Indian saving money has been setup with the proposed unwinding
in the standards for Foreign Direct Investment, where every single Foreign Investor in banks
might be given casting a ballot rights which could surpass the present top of 10%,at present it
has run up to 49% with a few confinements.
The new approach shook the Banking division in India totally. Investors, till this time, were
utilized to the 4-6-4 technique (Borrow at 4%; Lend at 6%; Go home at 4) of working. The
new wave introduced a cutting edge viewpoint and technically knowledgeable techniques for
working for customary banks.All this prompted the retail blast in India. Individuals requested
more from their banks as well as gotten more.
As of now (2007), keeping money in India is by and large genuinely develop as far as supply,
item range and reach-despite the fact that span in rustic India still remains a test for the
private segment and remote banks. As far as nature of benefits and capital ampleness, Indian
banks are considered to have perfect, solid and straightforward accounting reports with
respect to different banks in similar economies in its district. The Reserve Bank of India is an
independent body, with negligible weight from the legislature. The expressed arrangement of
the Bank on the Indian Rupee is to oversee instability yet with no settled conversion scale and
this has generally been valid.
As respect the prudential administrative structure for the managing an account framework,
we have made some amazing progress from the regulated financing cost routine to
deregulated loan fees, from the arrangement of Health Codes for an eight-crease, judgmental
credit grouping to the prudential resource characterization dependent on target criteria, from
the idea of basic statutory least capital and capital-store proportion to the hazard delicate
capital ampleness standards – at first under Basel I system and now under the Basel II
routine. There is a lot more noteworthy concentrate presently on enhancing the corporate
administration set up through "fit and legitimate" criteria, on empowering incorporated
hazard the executives frameworks in the banks and on advancing business sector discipline
through more straightforward divulgence norms. The arrangement attempt has from the start
been to benchmark our administrative standards with the worldwide prescribed procedures,
obviously, keeping in view the residential objectives and the nation setting. The consultative
methodology of the RBI in figuring the prudential directions has been the sign of the current
administrative routine which empowers assessing a wide assorted variety of perspectives on
the current issues.
The usage of changes has had an inside and out helpful effect on the budgetary soundness of
the managing an account framework, as confirm by the huge enhancements in various
prudential parameters. Let me quickly feature the enhancements in a couple of striking
money related markers of the managing an account framework.
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 extremely
competitive 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.
· 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. Banks
need 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 are
bound 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 to
adapt 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. The
competency 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.
SBI Group
The Bank of Bengal, which later turned into the State Bank of India. State Bank of India with
its seven partner banks directions the biggest saving money assets in India.
Nationalization
The following critical turning point in Indian Banking occurred in late 1960s when the then
Indira Gandhi government nationalized on nineteenth July 1949, 14 noteworthy business
Indian banks pursued by nationalization of 6 more business Indian banks in 1980.
The expressed explanation behind the nationalization was more control of credit conveyance.
After this, until 1990s, the nationalized banks developed at a relaxed pace of around 4%
additionally called as the Hindu development of the Indian economy.
After the amalgamation of New Bank of India with Punjab National Bank, at present there
are 19 nationalized banks in India.
Liberalization
In the mid 1990's the then Narasimha Rao government set out an approach of progression and
offered licenses to few private banks, which came to be known as New age technically
knowledgeable banks, which included banks like ICICI and HDFC. This move alongside the
quick development of the economy of India, kick began the saving money area in India,
which has seen fast development with solid commitment from every one of the divisions of
banks, in particular Government banks, Private Banks and Foreign banks. Anyway there had
been a couple of hiccups for these new keeps money with numerous either being assumed
control like Global Trust Bank while others like Centurion Bank have discovered the going
extreme.
The following stage for the Indian Banking has been set up with the proposed unwinding in
the standards for Foreign Direct Investment, where every single Foreign Investor in Banks
might be given casting a ballot rights which could surpass the present top of 10%, at present
it has run up to 49% with a few limitations.
The new strategy shook the Banking area in India totally. Investors, till this time, were
utilized to the 4-6-4 strategy (Borrow at 4%; Lend at 6%; Go home at 4) of working. The new
wave introduced a cutting edge viewpoint and well informed techniques for working for
conventional banks. This prompted the retail blast in India. Individuals requested more from
their banks as well as gotten more.
CURRENT SCENARIO
With the development in the Indian economy anticipated that would be solid for a long while
particularly in its administrations division, the interest for managing an account
administrations particularly retail keeping money, home loans and speculation
administrations are required to be solid. M&As, takeovers, resource deals and significantly
more activity (as it is disentangling in China) will occur on this front in India.
In March 2006, the Reserve Bank of India enabled Warburg Pincus to expand its stake in
Kotak Mahindra Bank (a private part bank) to 10%. This is the first run through a speculator
has been permitted to hold over 5% in a private segment bank since the RBI declared
standards in 2005 that any stake surpassing 5% in the private part banks would should be
reviewed by them.
As of now, India has 88 booked business banks (SCBs) - 28 open area banks (that is with the
Government of India holding a stake), 29 private banks (these don't have government stake;
they might be freely recorded and exchanged on stock trades) and 31 outside banks. They
have a joined system of more than 53,000 branches and 21,000 ATMs. As indicated by a
report by ICRA Limited, a rating office, general society segment banks hold more than 75
percent of aggregate resources of the managing an account industry, with the private and
outside banks holding 18.2% and 6.5% respectively.SBI is the main bank comprising 26%
support openly segment banks and 39% cooperation in business banks in India.
Banking in India
Reserve Bank of India is the regulating body for the Indian Banking Industry. It is a mixture
of Public sector, Private sector, Co-operative banks and foreign banks.
Scheduled Banks
Public Sector Banks Private Sector Banks Foreign Banks Regional Rural Banks
Scheduled Urban cooperative Bank
Adjustment world and the necessities of great importance has been one of the qualities of the
Bank, In the post melancholy exe. For example – when business openings turn out to be
amazingly limited, rules set down in the book of guidelines were relined to guarantee that
great business did not go post. However only occasionally did the bank negate its incentive as
withdraw from sound keeping money standards to hold as grow its business. A creative
cluster of office, obscure to the world at that point, was concocted as branches, sub branches,
treasury pay office, pay office, sub pay office and out understudies to misuse the chances of
an extending economy. New business technique was likewise avoided path in 1937 to render
the best managing an account benefit through incite and gracious thoughtfulness regarding
clients.
Advanced administration procedures were likewise especially apparent in the great old day's
prior years corporate administration had turned into a perplexed the banks bound worked
with a high level of duty and worries for the investors. A whole record of benefits and a
genuinely high rate of benefit and genuinely high rate of profit all through guaranteed
fulfillment, prudential administration and resource risk the executives secured the premiums
of the Bank as well as guaranteed that the commitments to clients were not met.
The customs of the past kept on being maintained even right up 'til the present time as the
State Bank years itself to address the developing difficulties of the thousand years.
The blue pointer speak to the theory of the bank that is continually searching for the
development and more current, all the more difficult, additionally encouraging course. The
key opening shows wellbeing and security.
Mission Statement:
To hold the Bank's situation as debut Indian Financial Service Group, with world class
gauges and huge worldwide focused on greatness in client, investor and worker fulfillment
and to assume a main job in growing and broadening monetary administration areas while
containing accentuation on its advancement managing an account rule.
VISION STATEMENT:
VALUES
Integrity
Organization Structure
MANAGING DIRECTOR
G. M G.M G. M G.M G. M
Zonal officers
Functional Heads
Regional officers
SBI acquired the control of seven banks in 1960. They were the seven provincial banks of ex-
Indian regal states. These were renamed, prefixing them with 'State Bank of'. These seven
keeping money establishments were State Bank of Bikaner and Jaipur (SBBJ), State Bank of
Hyderabad (SBH), State Bank of Indore (SBN), State Bank of Mysore (SBM), State Bank of
Patiala (SBP), State Bank of Saurashtra (SBS) and State Bank of Travancore (SBT). Every
single one of these banks got indistinguishable logo from the parent bank, SBI.
The gets ready for making SBI a uber keep money with trillion dollar business by combining
the partner banks began in 2008, and in September that year, SBS converged with SBI. The
precise one year from now, State Bank of Indore (SBN) likewise blended. Around the same
time, a backup named Bharatiya Mahila Bank was shaped. The arrangements for converging
of the 6 relate banks (State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank
of Mysore, State Bank of Patiala, State Bank of Travancore and Bharatiya Mahila Bank) by
gaining their organizations incorporating resources and liabilities with SBI began in 2016.
The merger was affirmed by the Union Cabinet on 15 June 2016. The State Bank of India and
all its partner banks utilized a similar blue Keyhole logo. The State Bank of India wordmark
generally had one standard typeface, yet in addition used different typefaces.
On 15 February 2017, the Union Cabinet affirmed the merger of five connect manages an
account with SBI. What was ignored, in any case, were distinctive annuity obligation
techniques and bookkeeping rules for terrible advances, in light of territorial dangers.
The State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State
Bank of Patiala and State Bank of Travancore, and Bharatiya Mahila Bank were converged
with State Bank of India with impact from 1 April 2017.
Non-banking subsidiaries
Apart from its five associate banks (merged with SBI since April 1, 2017), SBI also has the
following non-banking subsidiaries:
SBI Capital Markets Ltd
SBI Funds Management Pvt Ltd
SBI Factors & Commercial Services Pvt Ltd
SBI Cards & Payments Services Pvt. Ltd. (SBICPSL)
SBI DFHI Ltd
SBI Life Insurance Company Limited
SBI General Insurance
In March 2001, SBI (with 74% of the total capital), joined up with BNP Paribas (with 26%
of the rest capital), to create a joint venture life insurance company called SBI Life Insurance
company Ltd. In 2004, SBI DFHI (Discount and Finance House of India) was founded using
its head office in Mumbai.
Listings and shareholding
As on 31 March 2017, Government of India held around 61.23% equity shares in SBI.
The Life Insurance Corporation of India, itself state-owned, is the largest non-promoter
shareholder in the company with 8.82% shareholding
Shareholders Shareholding
FIIs/GDRs/OCBs/NRIs 11.17%
Others 9.31%
Total 100.0%
The equity shares of SBI are listed on the Bombay Stock Exchange, where it is a constituent
of the BSE SENSEX index, and the National Stock Exchange of India, where it is a
constituent of the CNX Nifty. Its Global Depository Receipts (GDRs) are listed on
the London Stock Exchange
Employees
SBI is one of the largest employers in the country with 209,567 employees as on 31 March
2017, out of which there were 23% female employees and 3,179 (1.5%) employees with
disabilities. On the same date, SBI had 37,875 Scheduled Castes (18%), 17,069 Scheduled
Tribes (8.1%) and 39,709 Other Backward Classes (18.9%) employees. The percentage of
Officers, Associates and Sub-staff was 38.6%, 44.3% and 16.9% respectively on the same
date. Around 13,000 employees have joined the Bank in FY 2016-17. Each employee
contributed a net profit of ₹511,000 (US$7,800) during FY 2016-17
SBI was ranked as the top bank in India based on tier 1 capital by The
Banker magazine in a 2014 ranking.
SBI was ranked 232nd in the Fortune Global 500 rankings of the world's biggest
corporations for the year 2016.
SBI was named the 29th most reputed company in the world according
to Forbes 2009 rankings
SBI was 50th Most Trusted brand in India as per the Brand Trust Report 2013,an
annual study conducted by Trust Research Advisory, a brand analytics company and
subsequently, in the Brand Trust Report 2014, SBI finished as India's 19th Most
Trusted Brand in India.
CHAPTER 2
OBJECTIVE OF THE STUDY
Fundamental point of any individual is the use of cash in the best way since the India is
nation where the greater part of the populace has issue of running the family in the most
productive way. Anyway Indian individuals confronted huge number of issue till the
improvement of the undeniable keeping money part. The Indian managing an account
segment came into the creating nature generally after the 1991 government approach. The
saving money segment has truly helped the Indian individuals to use the single cash in the
best way as they need. Individuals currently have begun putting their cash in the banks and
banks likewise give merchandise returns on the stored sum. The general population presently
have at the most comprehended that banks give them great security to their stores thus
abundance sums are put resources into the banks. In this way, banks have helped the general
population to accomplish their financial goals.
What types of challenges banking industry is facing with special reference to NPA.
How SBI bank cope with NPA and its impact in recent economic crisis.
To analyze the significance of each variable that might affect the NPA level.
To understand what is Non Performing Assets and what are the underlying reasons for
To know what steps are being taken by the Indian banking sector to reduce the NPAs?
To evaluate the comparative ratio of the banks with concerned to the NPAs.
The principle point behind making this report is to realize how open division banks are
working their business and how NPAs assume its job to the activities of people in general
segment banks. The report NPAs are grouped by the part, business, and state savvy. The
present examination additionally centers around the current framework in India to tackle the
issue of NPAs and similar investigation to comprehend which bank is assuming what job with
worried to NPAs. In this way, the examination would help the leaders to comprehend the
budgetary execution and development of open part banks when contrasted with the NPAs.
This report investigates an observational way to deal with the examination of Non-
Performing Assets (NPAs) with unique reference of SBI bank in India. The dimension of
NPAs is one of the drivers of monetary dependability and development of the saving money
area. This report expects to locate the major components which affect NPAs of banks. A
model comprising of two kinds of components, viz., macroeconomic factors and bank-
particular parameters, is created and the conduct of NPAs of the three classes of banks is
watched. The exact examination evaluates how macroeconomic factors and bank-explicit
parameters influence NPAs of a specific classification of banks. The macroeconomic
variables of the model included are GDP development rate and extract obligation, and the
bank-particular parameters are Credit Deposit Ratio (CDR), advance introduction to need
segment, Capital Adequacy Ratio (CAR), and liquidity chance. The outcomes demonstrate
that development in NPAs throughout the years can be clarified well by the elements
considered in the model for general society and private part banks. The other imperative
outcomes got from the investigation incorporate the finding that banks' introduction to need
area loaning lessens NPAs.
banks so the better evaluation of the performance of the banks are not possible.
Since my study is based on the secondary data, the practical operation as related to
Since the Indian banking sector is so wide so it was possible for me to cover all the
Out of order
A record ought to be treated as out of request if the remarkable equalization remains
ceaselessly in overabundance of endorsed limit/drawing power. on the off chance that where
the outstanding equalization in the chief working record is not exactly the authorized
sum/drawing power, however there are no credits consistently for a half year as on the date of
monetary record or credit are insufficient to cover the intrigue charged amid a similar period
these record ought to be treated as 'out of request'.
Overdue
Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on due date
fixed by the bank.
EXTERNAL FACTORS
Ineffective recovery tribunal
The Govt. has set of numbers of recovery tribunals, which works for recovery of loans and
advances. Due to their negligence and ineffectiveness in their work the bank suffers the
consequence of non-recover, their by reducing their profitability and liquidity.
Willful Defaults
There are borrowers who are able to payback loans but are intentionally withdrawing it.
These groups of people should be identified and proper measures should be taken in order to
get back the money extended to them as advances and loans.
Natural calamities
This is the measure factor, which is creating alarming rise in NPAs of the PSBs. every now
and then India is hit by major natural calamities thus making the borrowers unable to pay
back there loans. Thus the bank has to make large amount of provisions in order to
compensate those loans, hence end up the fiscal with a reduced profit.
Mainly ours framers depends on rain fall for cropping. Due to irregularities of rain fall the
framers are not to achieve the production level thus they are not repaying the loans.
Industrial sickness
Improper project handling , ineffective management , lack of adequate resources , lack of
advance technology , day to day changing govt. Policies give birth to industrial sickness.
Hence the banks that finance those industries ultimately end up with a low recovery of their
loans reducing their profit and liquidity.
Lack of demand
Entrepreneurs in India could not foresee their product demand and starts production which
ultimately piles up their product thus making them unable to pay back the money they borrow
to operate these activities. The banks recover the amount by selling of their assets, which
covers a minimum label. Thus the banks record the non recovered part as NPAs and has to
make provision for it.
Change on Govt. policies
With every new govt. banking sector gets new policies for its operation. Thus it has to cope
with the changing principles and policies for the regulation of the rising of NPAs.
The fallout of handloom sector is continuing as most of the weavers Co-operative societies
have become defunct largely due to withdrawal of state patronage. The rehabilitation plan
worked out by the Central govt to revive the handloom sector has not yet been implemented.
So the over dues due to the handloom sectors are becoming NPAs.
Apart from these factors there may be others external factors which can cause of NPA’s, these
factors are:
1. Sluggish legal system - Long legal tangles Changes that had taken place in labour laws
Lack of sincere effort.
2. Scarcity of raw material, power and other resources.
3. Industrial recession.
4. Shortage of raw material, raw material\input price escalation, power shortage, industrial
recession, excess capacity, natural calamities like floods, accidents.
5. Failures, non payment\ over dues in other countries, recession in other countries,
externalization problems, adverse exchange rates etc.
6. Government policies like excise duty changes, Import duty changes etc.,
INTERNAL FACTORS
Defective Lending process
There are three cardinal principles of bank lending that have been followed by the
commercial banks since long.
i. Principles of safety
ii. Principle of liquidity
iii. Principles of profitability
i. Principles of safety
By safety it means that the borrower is in a position to repay the loan both principal and
interest. The repayment of loan depends upon the borrowers:
a. Capacity to pay
b. Willingness to pay
Capacity to pay depends upon: 1. Tangible assets 2. Success in business
Willingness to pay depends on: 1. Character 2. Honest 3. Reputation of borrower
The banker should, there fore take utmost care in ensuring that the enterprise or business for
which a loan is sought is a sound one and the borrower is capable of carrying it out
successfully .he should be a person of integrity and good character.
Inappropriate technology
Due to inappropriate technology and management information system, market driven
decisions on real time basis can not be taken. Proper MIS and financial accounting system is
not implemented in the banks, which leads to poor credit collection, thus NPA. All the
branches of the bank should be computerized.
Improper SWOT Analysis
The improper strength, weakness, opportunity and threat analysis is another reason for rise in
NPAs. While providing unsecured advances the banks depend more on the honesty, integrity,
and financial soundness and credit worthiness of the borrower.
1. Banks should consider the borrowers own capital investment.
2. It should collect credit information of the borrowers from
a. From bankers
b. Enquiry from market/segment of trade, industry, business.
c. From external credit rating agencies. · Analyse the balance sheet
True picture of business will be revealed on analysis of profit/loss a/c and balance sheet.
3. Purpose of the loan
When bankers give loan, he should analyse the purpose of the loan. To ensure safety and
liquidity, banks should grant loan for productive purpose only. Bank should analyse the
profitability, viability, long term acceptability of the project while financing.
Poor credit appraisal system
Poor credit appraisal is another factor for the rise in NPAs. Due to poor credit appraisal the
bank gives advances to those who are not able to repay it back. They should use good credit
appraisal to decrease the NPAs.
Managerial deficiencies
The banker should always select the borrower very carefully and should take tangible assets
as security to safe guard its interests. When accepting securities banks should consider the
1. Marketability
2. Acceptability
3. Safety
4. Transferability
The banker should follow the principle of diversification of risk based on the famous maxim
“do not keep all the eggs in one basket”; it means that the banker should not grant advances
to a few big farms only or to concentrate them in few industries or in a few cities. If a new
big customer meets misfortune or certain traders or industries affected adversely, the overall
position of the bank will not be affected.
Like OSCB suffered loss due to the OTM Cuttack, and Orissa hand loom industries. The
biggest defaulters of OSCB are the OTM (117.77lakhs), and the handloom sector Orissa
hand loom WCS ltd (2439.60 lakhs).
Absence of regular industrial visit
The irregularities in spot visit also increases the NPAs. Absence of regularly visit of bank
officials to the customer point decreases the collection of interest and principals on the loan.
The NPAs due to wilful defaulters can be collected by regular visits.
Re loaning Process
Non remittance of recoveries to higher financing agencies and re loaning of the same have
already affected the smooth operation of the credit cycle. Due to re loaning to the defaulters
and CCBs and PACs, the NPAs of OSCB is increasing day by day.
Apart from these the other internal factors are:
1. Funds borrowed for a particular purpose but not use for the said purpose.
2. Project not completed in time.
3. Poor recovery of receivables.
4. Excess capacities created on non-economic costs.
5. In-ability of the corporate to raise capital through the issue of equity or other debt
instrument from capital markets.
6. Business failures.
7. Diversion of funds for expansion\modernization\setting up new projects\ helping or
promoting sister concerns.
8. Willful defaults, siphoning of funds, fraud, disputes, management disputes, mis-
appropriation etc.,
9. Deficiencies on the part of the banks viz. in credit appraisal, monitoring and follow-ups,
delay in settlement of payments\ subsidiaries by government bodies etc.,
The circumstance changed after 1993, when the Reserve Bank of India (RBI) with the
administration's help, concocted a few choices on overseeing Indian banks that had a healthy
effect, and the future never looked such a great amount in charge hereafter.
There was a huge decrease in the non-performing resources (NPAs) of SCBs in 2011-12, in
spite of selection of multi day misconduct standard from March 31, 2012. The gross NPAs of
SCBs declined from 4.0 percent of aggregate resources in 2010-11 to 3.3 percent in 2011-12.
The comparing decrease in net NPAs was from 1.9 percent to 1.2 percent. Both gross NPAs
and net NPAs declined in outright terms. While the gross NPAs declined from Rs. 68,717
crore in 2010-11 to Rs. 64,787 crore in 2011-12, net NPAs declined from Rs. 32,670 crore to
Rs. 24,617 crore in a similar period. There was additionally a noteworthy decrease in the
extent of net NPAs to net advances from 4.4 percent in 2010-11 to 2.9 percent in 2011-12.
The noteworthy decrease in the net NPAs by 24.7 percent in 2011-12 when contrasted with
8.1 percent in 2010-11 was for the most part because of higher arrangements (up to 40.0
percent) for NPAs made by SCBs.
The decrease in NPAs in 2011-12 was seen over all bank gatherings. The decrease in net
NPAs as an extent of aggregate resources was very critical on account of new private division
banks, trailed by PSBs. The proportion of net NPAs to net advances of SCBs declined from
4.4 percent in 2010-11 to 2.9 percent in 2011-12. Among the bank gatherings, old private area
banks had the most noteworthy proportion of net NPAs to net advances at 3.8 percent pursued
by PSBs (3.0 percent) new private division banks (2.4 percent) and remote banks
(1.5 percent)
An investigation of NPAs by divisions uncovers that in 2011-12, advances to non-need parts
represented main part of the exceptional NPAs on account of PSBs (51.24 percent of
aggregate) and for private segment banks (75.30 percent of aggregate). While the offer of
NPAs in agribusiness part and SSIs of PSBs declined in 2011-12, the offer of other need
divisions expanded. The offer of credits to other need segments in need segment loaning
additionally expanded. Measures taken to diminish NPAs incorporate reschedulement,
rebuilding at the bank level, corporate obligation rebuilding, and recuperation through Lok
Adalats, Civil Courts, and obligation recuperation councils and trade off settlements. The
recuperation the executives got a noteworthy fillip with the sanctioning of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI)
Act, empowering banks to understand their levy without intercession of courts and councils.
The Supreme Court in its judgment dated April 8, 2012, while maintaining the protected
legitimacy of the Act, struck down segment 17 (2) of the Act as illegal and as opposed to
Article 14 of the Constitution of India. The Government changed the applicable arrangements
of the Act to address the worries communicated by the Supreme Court in regards to a
reasonable arrangement to borrowers through a statute dated November 11, 2012. It is normal
that the energy in the recuperation of NPAs will be continued with the revisions to the Act.
The changed rules for trade off settlement of perpetual NPAs of PSBs were issued in January
2011 and were reached out now and again till July 31, 2012. The cases recorded by SCBs in
Lok Adalats for recuperation of NPAs remained at 5.20 lakh including a measure of Rs. 2,674
crore (prov.). The recuperations affected in 1.69 lakh cases added up to Rs. 352 crore (prov.)
as on September 30, 2012. The quantity of cases recorded under water recuperation courts
remained at 64, 941 as on June 30, 2012, including a measure of Rs. 91,901 crore. Out of
these, 29, 525 cases including a measure of Rs. 27,869 crore have been settled. The sum
recuperated was to Rs. 8,593 crore. Under the plan of corporate obligation rebuilding
presented in 2009, the quantity of cases and estimation of advantages rebuilt remained at 121
and Rs. 69,575 crore, individually, as on December 31, 2012. Iron and steel, refinery,
composts and media transmission segments were the real recipients of the plan. These
segments represented more than two-third of the estimations of advantages rebuilt.
Improvement of the lawful plan of action system: This is another critical advance.
Through Debt Recovery Tribunal (DRT), Lok Adalat instrument for little advances,
and One-Time Settlement (OTS) component for focused on advances in 1999, the
national bank guaranteed that there is a snappy tidy up of sticky resources, in order to
empower banks to begin working with a fresh start. The lawful response for sums
loaned has been an imperative supporter of benefit quality enhancement.
Capital implantation: Public banks were permitted to cut down the administration
holding to 51%, in this way empowering stream of new cash for much-required banks
and furthermore reserving in venture enthusiasm from market members. Governing
body presently turned out to be more autonomous, and a blended part of people got
understanding from different fragments of the money related world.
Establishment of CIBIL: Credit Information Bureau of India Ltd was set up in 2000.
This foundation began to keep up a database of borrowers and their record of loan
repayment. This filled in as an exceptionally powerful instrument for advance
endorsing and resource quality upkeep. Banks utilize the database to guarantee credit
does not fall in the hands of a borrower, with a terrible credit record.
Asset Reconstruction Company: ARCs were allowed to work from 2002; these
establishments helped the expulsion of bank's emphasis on terrible resources by
getting their awful advances, in this way fortifying their accounting reports.
Corporate Debt Restructuring, SICA: The CDR system, wiped out enterprises
restoration establishments empowered tending to issues of harried borrowers through
viable hand-holding and bank bolster. This averted further slippage of advantage
quality.
Exposure limits (segment insightful and borrower-wise): The RBI set up strict
presentation limits for keeps money as for delicate parts like land and capital markets.
Also, confines on sums a bank can loan to a particular borrower, or a borrower gather
helped in non-grouping of assets as advances in a couple of hands, consequently
enhancing the danger of default.
Risk the board instruments: The RBI guaranteed that banks have compelling danger
estimation, the executives and control frameworks set up, in order to stay away from
credit stuns. Resource obligation the board (ALM), esteem in danger (VAR), control
on wobbly sheet exposures, credit hazard weightages, and so forth are couple of ideas
that empowered banks to successfully control NPAs.
The 1988 Basel Accord concentrated principally on layaway chance. Bank resources were
arranged into five hazard cans i.e. gathered under five classes as indicated by credit hazard
conveying hazard weights of zero, ten, twenty, fifty and 100%. Resources were to be grouped
into one of these hazard containers dependent on the parameters of counter-party (sovereign,
banks, open area ventures or others), security (e.g. home loans of private property) and
development. By and large, government obligation was sorted at zero percent, bank
obligation at 20%, and other obligation at 100%. 100%. OBS exposures, for example,
execution assurances and letters of credit were brought into the count of hazard weighted
resources utilizing the system of variable credit transformation factor. Banks were required to
hold capital equivalent to 8% of the hazard weighted estimation of advantages. Since 1988,
this system has been logically presented in part nations as well as in every single other nation
having dynamic universal banks. The 1988 accord can be condensed in the accompanying
condition:
Total Capital = 0.08 x Risk Weighted Assets (RWA)
The accord provided a detailed definition of capital. Tier 1 or core capital, which includes
equity and disclosed reserves, and Tier 2 or supplementary capital, which could include
undisclosed reserves, asset revaluation reserves, general provisions & loan–loss reserves,
hybrid (debt/equity) capital instruments and subordinated debt.
The Basel I Accord and the 1996 Amendment thereto have evolved into Basel II, as depicted
in the figure above.
The New Accord (Basel II)
Close on the heels of the 1996 amendment to the Basel I accord, in June 1999 BCBS issued a
proposal for a New Capital Adequacy Framework to replace the 1988 Accord.
The proposed capital framework consists of three pillars: minimum capital requirements,
which seek to refine the standardised rules set forth in the 1988 Accord; supervisory review
of an institution's internal assessment process and capital adequacy; and effective use of
disclosure to strengthen market discipline as a complement to supervisory efforts. The accord
has been finalized May 2004 and the final draft is expected by the end of June 2004. For
banks adopting advanced approaches for measuring credit and operational risk the deadline
has been shifted to 2008, whereas for those opting for basic approaches it is retained at 2006.
PILLAR I:
Minimum Capital Requirements
There is a need to look at proposed changes in the measurement of credit risk and operational
risk.
Credit Risk
Three alternate approaches for measurement of credit risk have been proposed. These are:
• Standardised
• Internal Ratings Based (IRB) Foundation
• Internal Ratings Based (IRB) Advanced
The standardised approach is similar to the current accord in that banks are required to slot
their credit exposures into supervisory categories based on observable characteristics of the
exposures (e.g. whether the exposure is a corporate loan or a residential mortgage loan). The
standardised approach establishes fixed risk weights corresponding to each supervisory
category and makes use of external credit assessments to enhance risk sensitivity compared
to the current accord. The risk weights for sovereign, inter-bank, and corporate exposures are
differentiated based on external credit assessments. An important innovation of the
standardised approach is the requirement that loans considered `past due’ be risk weighted at
150 per cent unless, a threshold amount of specific provisions has already been set aside by
the bank against that loan.
Credit risk mitigants (collaterals, guarantees, and credit derivatives) can be used by banks
under this approach for capital reduction based on the market risk of the collateral instrument
or the threshold external credit rating of recognised guarantors.
Reduced risk weights for retail exposures, small and medium size enterprises (SME) category
and residential mortgages have been proposed. The approach draws a number of distinctions
between exposures and transactions in an effort to improve the risk sensitivity of the resulting
capital ratios.
The IRB approach uses banks’ internal assessments of key risk drivers as primary inputs to
the capital calculation. The risk weights and resultant capital charges are determined through
the combination of quantitative inputs provided by banks and formulae specified by the
Committee. The IRB calculation of risk weighted assets for exposures to sovereigns, banks,
or corporate entities relies on the following four parameters:
Probability of default (PD), which measures the likelihood that the borrower will
default over a given time horizon.
Loss given default (LGD), which measures the proportion of the exposure that will
be lost if a default occurs.
Exposure at default (EAD), which for loan commitment measures the amount of the
facility that is likely to be drawn in the event of a default.
Maturity (M), which measures the remaining economic maturity of the exposure.
Operational Risk
Within the Basel II framework, operational risk is defined as the risk of losses resulting from
inadequate or failed internal processes, people and systems, or external events.
Operational risk identification and measurement is still in an evolutionary stage as
compared to the maturity that market and credit risk measurements have achieved.
As in credit risk, three alternate approaches are prescribed:
• Basic Indicator
• Standardised
• Advanced Measurement (AMA)
PILLAR 2:
Supervisory Review Process
Pillar 2 introduces two critical risk management concepts: the use of economic capital, and
the enhancement of corporate governance, encapsulated in the following four principles:
• Principle 1: Banks should have a process for assessing their overall capital adequacy in
relation to their risk profile and a strategy for maintaining their capital levels.
• Principle 2: Supervisors should review and evaluate banks’ internal capital adequacy
assessments and strategies, as well as their ability to monitor and ensure their compliance
with regulatory capital ratios. Supervisors should take appropriate supervisory action if
they are not satisfied with the result of this process.
• Periodic reporting.
• Principle 3: Supervisors should expect banks to operate above the minimum regulatory
capital ratios and should have the ability to require banks to hold capital in excess of the
minimum.
• Principle 4: Supervisors should seek to intervene at an early stage to prevent capital from
falling below the minimum levels required to support the risk characteristics of a
particular bank and should require rapid remedial action if capital is not maintained or
restored.
Prescriptions under Pillar 2 seek to address the residual risks not adequately covered under
Pillar 1, such as concentration risk, interest rate risk in banking book, business risk and
strategic risk. `Stress testing’ is recommended to capture event risk. Pillar 2 also seeks to
ensure that internal risk management process in the banks is robust enough. The combination
of Pillar 1 and Pillar 2 attempt to align regulatory capital with economic capital
PILLAR 3:
Market Discipline
The focus of Pillar 3 on market discipline is designed to complement the minimum capital
requirements (Pillar 1) and the supervisory review process (Pillar 2). With this, the Basel
Committee seeks to enable market participants to assess key information about a bank’s risk
profile and level of capitalization—thereby encouraging market discipline through increased
disclosure. Public disclosure assumes greater importance in helping banks and supervisors to
manage risk and improve stability under the new provisions which place reliance on internal
methodologies providing banks with greater discretion in determining their capital needs.
CHAPTER 4
RESEARCH METHODOLOGY
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. Though each research study has its own specific
purpose, we may think of research objectives as falling into a number of following broad
categories:
To gain familiarity with a phenomenon or to achieve new insights into it.
To portray accurately the characteristics of a particular individual, situation or a
group.
To determine the frequency with which something occurs or with which it is
associated with something else.
To test a hypothesis of a casual relationship between variables.
Research approach is an approach to deliberately take care of the exploration issue. It might
be comprehended as an art of concentrate how inquire about is done experimentally. In it we
contemplate the different advances that are for the most part embraced by a scientist in
concentrate his exploration issue alongside the rationale behind them.
Research procedure has numerous measurements and research techniques do establish a piece
of the examination philosophy. The extent of research technique is more extensive than that
of research strategies. Along these lines, when we discuss look into system we discussion of
the exploration strategies as well as consider the rationale behind the techniques we use with
regards to our examination ponder and clarify why we are utilizing a specific strategy or
method and why we are not utilizing others so inquire about outcomes are equipped for being
assessed either by the scientist himself or by others. Why an examination think about has
been attempted, what information have been gathered and what specific strategy has been
received, why specific system of breaking down information has been utilized and a large
group of comparable other inquiry are normally addressed when we discuss investigate
procedure concerning an exploration issue or study.
Research is regularly depicted as dynamic; tenacious and methodical procedure of request
went for finding, deciphering and reexamining realities. This scholarly examination delivers a
more noteworthy comprehension of occasions, practices or hypotheses and makes reasonable
application through laws and speculations. At the end of the day we can state, the motivation
behind research is to find answers to the inquiries through the utilization of logical strategies.
The fundamental point of research is to discover reality which is covered up and which has
not been found so far.
Research strategy is an approach to deliberately take care of the examination issue. It might
be comprehended as a study of concentrate how investigate is done logically. In it we
consider the different advances that are by and large embraced by an analyst in concentrate
his examination issue alongside the rationale behind them.
RESEARCH METHODOLOGY
The research methodology means the way in which we would complete our
prospected task. Before undertaking any task it becomes very essential for any one to
determine the problem of study. I have adopted the following procedure in completing my
study report.
1. Formulating the problem
2. Research design
3. Determining the data sources
4. Analysing the data
5. Interpretation
6. Preparing research report
Descriptive research also includes attempts by the researcher to discover causes even when
they cannot control the variables. The methods of research utilized in descriptive research are
survey methods of all kinds.
As no study could be successfully completed without proper tools and techniques, same with
my project. For the better presentation and right explanation I used tools of statistics and
computer very frequently. And I am very thankful to all those tools for helping me a lot.
Capital adequacy
The Bank’s capital adequacy at December 31, 2016 as per Reserve Bank of India’s revised
guidelines on Basel II norms was 15.6% and Tier-1 capital adequacy was 12.1%, well above
RBI’s requirement of total capital adequacy of 9.0% and Tier-1 capital adequacy of 6.0%.
Asset quality
At December 31, 2015, the Bank’s net non-performing asset ratio was 1.95% on an
unconsolidated basis. The consolidated net NPA ratio of the Bank and its subsidiaries was
1.6%. The specific provisions for nonperforming assets (excluding the impact of farm loan
waiver) were Rs. 868 crore (US$ 185 million) in Q2-2016 compared to Rs. 878 crore (US$
187 million) in Q1-2016.
Consolidated net NPA ratio of the Bank and its subsidiaries at 1.6%
Gross retail NPLs of Rs. 69.57 bn and net retail NPLs of Rs. 26.77 bn at September
30, 2015
Comparison
Items 2012- 2013- 2014- 2015- 2016- Group All Banks'
13 14 15 16
Average 17 Average
2016-17 2016-17
No. of offices 419 515 569 716 1268 359 795
No. of employees 13609 18029 25384 33321 40686 7232 11573
Business per 1010. 880.0 905.0 1027. 1008. 717.52 634.09
employee (in Rs. 00 0 0 00 00
lakh)
Profit per employee 12.00 11.00 10.00 9.00 10.00 5.72 4.67
(in Rs. lakh)
Capital and 8360 12900 22556 24663 46820 3973 3994
reserves & surplus
Deposits 68109 99819 16508 23051 24443 29351 42026
3 0 1
Investments 43436 50487 71547 91258 11145 12096 14888
4
Advances 62648 91405 14616 19586 22561 22539 31355
3 6 6
Interest income 9002 9410 14306 21996 30788 3093 3919
Other income 3065 3416 4181 6928 8811 733 751
Interest expended 7015 6571 9597 16358 23484 2108 2633
Operating expenses 2571 3299 5001 6691 8154 881 977
Cost of Funds 3.59 3.02 4.01 5.34 6.40 6.13 5.81
(CoF)
Return on advances 6.94 5.75 4.58 4.08 4.33 4.87 4.11
adjusted to CoF
Wages as % to total 5.70 7.47 7.41 7.01 6.57 10.34 13.96
expenses
Return on Assets 1.31 1.48 1.30 1.09 1.12 1.15 1.16
CRAR 10.36 11.78 13.35 11.69 13.97 14.30 13.00
Net NPA ratio 2.21 1.65 0.72 1.02 1.55 1.09 1.00
The growth-related variables indicate the last 5-year CAGR banks achieved in advances and
deposits. It also carries a ranking of these banks in terms of their latest CASA ratio. Axis
Bank emerges as an out-performer in this category.
On efficiency-related parameters, the cost/income ratio, quality of advances and the extent of
loan loss-loss provision coverage have been reviewed, and banks have been accordingly
ranked.
In the next segment, certain comfort-related yardsticks have been compared. Capital-raising
by banks to bolster future growth, real estate exposure and overseas dependence for the
business have been compared. Although PNB did not raise any fresh capital and ranks last on
that metric, it ranks as the best bank with lower real estate and foreign exposure, which is
critical during a global economic slowdown. Also, we analysed banks that generate the
maximum core interest income as a proportion of total income. SBI Bank and Axis Bank
have greater proportions of their income coming from 'other income' and these segments
might have greater tendency to show slower growth in the current scenario. A detailed
analysis of the above parameters is presented in the ensuing paragraphs.
GROWTH METRIC - LOAN GROWTH COMPARISON
The chart below shows that the last 5 years loan growth achieved by India's major banks.
HDFC Bank showed consistent growth over the last 3 years (even though it shows a slight
falling trend in the 5-year chart). Axis Bank achieved a high compounded annual growth
during this period, followed by SBI Bank.
However, a review of the gross NPA ratio, i.e., GNPA as a percentage of advances indicates
that HDFC Bank and other banks have ensured that the NPA increase is proportionate to that
of the loan growth. In fact, PSU banks have shown tremendous improvement in terms of loan
quality, as the GNPA ratio for these banks fell from average 8-9% levels to less than 3%
levels in the last 5 years. Only SBI Bank has shown deterioration of its loan quality as
reflected in its increasing GNPA ratio. The main reason for this increase is that the bank has
substantial exposure to the retail segment, including huge exposure to the real estate segment
at almost 36% of total loans that includes close to 30% exposure in the form of housing loans.
The retail segment constitutes close to 75% of SBI Bank's NPAs.
Total loan book: Rs. 2,125 bn Total retail loan book: Rs. 1,145 bn
GROSS NPA RATIO
Gross NPA is the ratio of gross NPA to gross advances of the bank. Gross NPA is the
sum of all loan assets that are classified as NPA as per the RBI guidelines. The ratio is to be
counted in terms of percentage and the formula for GNPA is as follows:
The table above indicates the quality of the credit portfolio of the banks. High gross NPA
ratio indicates the low credit portfolio of bank and vice-versa.
Gross NPA of all the banks decrease from year 2013 to 2014. But from year 2014 onwards it
starts increasing. Similiary, GNPA of SBI bank first decrease to 1.5% from 4.7 in year 2015.
But than increasees to the level of 4.14 % in December 2016.
NET NPA RATIO:
The Net NPA ratio is the ratio of net NPA to advances, in which the provision is to be
deducted from the gross advance. The provision is to be made for NPA account. The formula
for that is:
The ratio indicates the degree of risk in the portfolio of the banks. High NPA ratio indicates
the high quantity of risky assets in the banks for which no provision are made.
Here, NNPA ratio decrease from year 2012 to 2017. But in last two years NNPA ratio
increase little bit due to global meltdown. Same is the case with SBI Bank. Whose NNPA
ratio decreases to 72% in year 2014 from 3.5% in year 2012. But it increases to 1.95% in
December 2016.
CAPITAL ADEQUACY RATIO
Capital adequacy ratio can be defined as ratio of the capital of the bank, to its assets,
which are weight/adjusted according to risk attached to them i.e.
As per prudential norms banks were required to achieve 8% CAR, increased to 9% by March
2018.
It is clear from the graph that in last few year CAR increases which indicates that indian
banks are in more strong position than theiar counter parts in rest of the world.
SBI bank also maintains good CAR than required as per norms. Which shows that despite of
exposure of global melt down health of SBI remains unaffect.
EFFICIENCY COMPARISON - COST / INCOME RATIOS OF BANKS
In terms of control over costs, the below table explains cost/income ratios of these banks over
the last 5 years. At the end of FY16, all banks have a similar cost/income ratio averaging
between 48- 50%. However, Bank of India has substantially lower cost-to-income ratio of
42%.
LOAN LOSS COVERAGE RATIO
A not-so-encouraging sign in terms of NPA management of Indian banks is the fact that the
loan loss coverage ratio for banks as a group has reduced over the last 2 years. From 60%
levels, the coverage ratio has fallen to around 55%.
PROVISION COVERAGE OF BANKS
In terms of provision coverage for specific banks, Axis Bank has a low coverage ratio in the
private bank group at around 50%, and the SBI has a ratio of 42%, the lowest in PSU banks
in the comparison chart below.
Q1-FY 2017
CAPITAL ADEQUACY
Table 14 Rupees in billion
Risk area Amount
Credit risk 310.61
Market risk 18.35
Operational risk 18.51
Total capital requirement at 9% 347.47
Total capital funds of the Bank 540.79
Total risk weighted assets 3,860.87
Capital adequacy ratio 14.01%
CHAPTER 6
There are different explanations behind resources turning non-performing and there can be
elective goals techniques. Distinguishing proof of the reasons and convenient activity are the
way to enhanced benefit of money related division middle people. In this unique
circumstance, the subtle elements of the CAMEL demonstrate that RBI presented for
assessing execution of banks and the requirement for this emerged from the foundational age
of extensive volume of NPAs. CAMEL covers capital sufficiency, resource quality, the
executives quality, profit capacity and liquidity.
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 banks and financial institutions in India
hold non-performing assets worth Rs. 1,10,000 crores.
Global Developments and NPAs
The center keeping money business is of activating the stores and using it for loaning to
industry. Loaning business is by and large supported in light of the fact that it has the impact
of assets being exchanged from the framework to beneficial purposes which results into
monetary development.
Anyway loaning additionally conveys credit chance, which emerges from the disappointment
of borrower to satisfy its legally binding commitments either over the span of an exchange or
on a future commitment.
An inquiry that emerges is how much hazard can a bank stand to take ? On the off chance that
after case, these goliath corporates wound up bankrupt and neglected to furnish financial
specialists with clearer and more entire data in this way presenting a level of hazard that
numerous speculators could neither envision nor welcome. The historical backdrop of
monetary establishments additionally uncovers the way that the greatest saving money
disappointments were because of credit chance.
Because of this, banks are limiting their loaning tasks to anchored roads just with satisfactory
security on which to fall back upon in a circumstance of default.
Execution as far as gainfulness is a benchmark for any business endeavor including the
saving money industry. In any case, expanding NPAs directly affect banks productivity as
lawfully banks are not permitted to book pay on such records and in the meantime banks are
compelled to make arrangement on such resources according to the Reserve Bank of India
(RBI) rules.
Hold Bank of India (RBI) has issued rules on provisioning necessity regarding bank
progresses. Regarding these rules, bank propels are chiefly arranged 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.
Doubtful Assets: This has remained in the sub-standard category for a period of 12 months
.Loss Assets: Here loss is identified by the banks concerned or by internal auditors or by
external auditors or by Reserve Bank India (RBI) inspection.
In terms of RBI guidelines, as and when an asset becomes a NPA, such advances would be
first classified as a sub-standard one for a period that should not exceed 12 months and
subsequently as doubtful assets.
It should be noted that the above classification is only for the purpose of computing the
amount of provision that should be made with respect to bank advances and certainly not for
the purpose of presentation of advances in the banks balance sheet.
Provision
Standard Assets – general provision of a minimum of 0.25%
Doubtful Assets – 100% to the extent advance not covered by realizable value of security. In
case of secured portion, provision may be made in the range of 20% to 100% depending on
the period of asset remaining sub-standard
Management of NPA
During initial sage the percentage of NPA was higher. This was due to show ineffective
recovery of bank credit, lacuna in credit recovery system, inadequate legal provision etc.
Various steps have been taken by the government to recover and reduce NPAs. Some of
them are.
Formation of the Credit Information Bureau (India) Limited (CIBIL)
Release of Wilful Defaulter’s List. RBI also releases a list of borrowers with
aggregate outstanding of Rs.1 crore and above against whom banks have filed suits
for recovery of their funds
Reporting of Frauds to RBI
Norms of Lender’s Liability – framing of Fair Practices Code with regard to lender’s
liability to be followed by banks, which indirectly prevents accounts turning into
NPAs on account of bank’s own failure
Risk assessment and Risk management
RBI has advised banks to examine all cases of wilful default of Rs.1 crore and above
and file suits in such cases. Board of Directors are required to review NPA accounts of
Rs.1 crore and above with special reference to fixing of staff accountability.
Reporting quick mortality cases
Special mention accounts for early identification of bad debts. Loans and advances
overdue for less than one and two quarters would come under this category. However,
these accounts do not need provisioning
3. DRT Act
a. The banks and FIs can enforce their securities by initiating recovery proceeding under
the Recovery if Debts due to Banks and FI act, 1993 (DRT Act) by filing an
application for recovery of dues before the Debt Recovery Tribunal constituted under
the Act.
b. On adjudication, a recovery certificate is issued and the sale is carried out by an
auctioneer or a receiver.
c. DRT has powers to grant injunctions against the disposal, transfer or creation of third
party interest by debtors in the properties charged to creditor and to pass attachment
orders in respect of charged properties
d. In case of non-realization of the decreed amount by way of sale of the charged
properties, the personal properties if the guarantors can also be attached and sold.
e. However, realization is usually time-consuming
f. Steps have been taken to create additional benches
7. SARFESI Act
a. SARFESI provides for enforcement of security interests in movable (tangible or
intangible assets including accounts receivable) and immovable property without the
intervention of the court
b. The bank and FI may call upon the borrower by way of a written legal notice to
discharge in full his liabilities within 60 days from the date of notice, failing which
the bank would be entitled to exercise all or any of the rights set out under the Act.
c. Another option available under the Act is to takeover the management of the secured
assets
d. Any person aggrieved by the measures taken by the bank can proffer an appeal to
DRT within 45 days after depositing 75% of the amount claimed in the notice.
e. Chapter II of SARFESI provides for setting up of reconstruction and securitization
companies for acquisition of financial assets from its owner, whether by raising funds
by such company from qualified institutional buyers by issue of security receipts
representing undivided interest in such assets or otherwise.
f. The ARC can takeover the management of the business of the borrower, sale or lease
of a part or whole of the business of the borrower and rescheduling of payments,
enforcement of security interest, settlement of dues payable by the borrower or take
possession of secured assets
g. Additionally, ARCs can act as agents for recovering dues, as manager and receiver.
h. Drawback – differentiation between first charge holders and the second charge
holders
Perceived Impact
Adapting to Basel II will be more demanding for some institutions than for others, based on
factors including current risk management practices, business size, geographical spread, risk
types, specific business, portfolio, and market conditions
Clients will find that they need to adapt to expanded requests for convenient data from banks
that are on IRB approaches. Hazard based valuing of credit items will turn into the standard
as banks start separating clients according to their hazard profiles. More dangerous borrowers
are probably going to discover their acquiring costs going up as well as credit lines taken care
of.
Rating offices may confront more rivalry as the market for them will extend and develop,
which will be a driver for them to be more straightforward in their rating procedure.
Great quality appraised corporates will favor capital markets to banks for their financing.
Securitisation and credit subordinates will progressively be utilized as credit hazard
supporting apparatuses.
Basel II is additionally prone to affect money related organizations that don't need to conform
to it. Non-saving money enterprises, for example, Visa organizations, renting organizations,
car makers and agents, or retailers' financing arms might not need to satisfy the conceivably
broad revelation prerequisites endorsed by Basel II nor make interests in overseeing
operational hazard, which will put them at an upper hand opposite banks.
Impact on emerging markets and smaller banks
In an attempt to assess the impact of Pillar 1 requirements of capital adequacy, BCBS did
undertake a few quantitative impact surveys (QIS), the last of which is referred to as QIS-3.
The results indicated that, in general, banks’ required capital will decrease with respect to
credit risks and increase with respect to operational risks. However, in Asia and other
emerging markets, several factors may raise the required capital even for credit risks, as real
estate continues to be widely used as collateral for business loans, and the standardised
approach, which is the most likely approach for many banks, places a 150 per cent risk
weight on non-performing loans. Basel II will increase the level of capital that is required for
banking institutions in the emerging markets, mainly owing to the new operational risk
charge, which will be higher if the basic indicator approach is used.
By application of differential risk weights on the basis of sovereign rating as a benchmark,
the capital inflows in emerging markets could be seriously affected as most of the borrowers
in such markets will be categorised under the speculative grade.
Smaller banks would find the investments on Basel II compliance too big for their existing
budgets.
SUGGESTION
After all these points, I just want to say that NPA is a big problem of banks. Due to this crisis
the NPA are also increased. That’s why all the banks are facing problems and SBI Bank is top
most in those banks, SBI Bank has a big exposure in that crisis as compare to other banks. So
My Recommendations are:
3. Speed of action- the speedy containment of systematic risk and the domestic
credit crunch problem with the injection of large public fund for bank
5. Maintain required capital adequacy ratio as per basel 2 norms. That means
now the provision for NPL will be more. This may look a conservative