A STUDY ON MANAGEMENT OF NON PERFORMING ASSET OF COMMERCIAL

BANK

(CASE STUDY OF SBI & ICICI BANK)

A Project submitted to

University of Mumbai for Partial completion of the degree of

Master in Commerce

Under the Faculty of Commerce

By

Mayur Ashok Ahire

Under the Guidance of

Shaheen Shaikh

Laxmichand Golwala Collage

Of commerce & Economics

M.G Road ,Ghatkopar ( East) Mumbai -400077

Tel -: 022 2102 4264

Dec 2019

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 CERTIFICATE
This is to certify that Mr. Mayur Ashok Ahire has worked and duly completed her/his
project work for the degree of Master In Commerce under Faculty of Commerce in the
subject of Mayur Ashok Ahire and his Project is Entitled ,” A STUDY ON
MANAGEMENT OF NPA OF COMMERCIAL BANK(CASE STUDY OF SBI AND
ICICI BANK)” under my supervision .

I further certify that the entire work has been done by the learner under my guidance and
that no part it has been submitted previously for any degree or Diploma of any University
.

It is her/his own work and fact reported by her and his personal finding and investigation
.

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 Declaration by learner
I the undersigned Mr. Mayur Ashok Ahire here by.declare that the work embodied in this
project Work Titled ,” A STUDY ON MANAGEMENT OF NPA OF COMMERCIAL
BANK(CASE STUDY OF SBI AND ICICI BANK)” .forms any own contribution to the
research work carried out under the guidance of Shaheen Shaikh is a result of my own
research work and has not been previously submitted to any other University for any
other Degree /Diploma to this or any other University .

Whatever refrence has been made in previous work of others,it has been clearly indicated
as such and included In the bibliography

I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

Name and signature of the

learner

Certified by

Name and signature of the Guiding Teacher .

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 Acknowledgement

To list who all have helped me is difficult because they are so numerous and the depth is
so enormous .

I would like to acknowledge the following as being idealistic channel and fresh dimensions
in the completion of this project .

I take this opportunity to thank the University of Mumbai for giving the chance to do this
project .

I would like to thank my principal for providing the necessary facilities

required for completion of this project .

I take this opportunity to thanks our Coordinator for her moral support
and guidance.

I would also like to express my sincere gratitude towards my project guide whose
guidance and care made the project successful.

I would like to thanks my collage Library for having provided various refrence books and
magazines related to my project.

Lastly I would like to thank each and every person who directly or indirectly helped me in
the completion of the project especially my parents and peers who supported me
throughout my project.

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 INDEX
Chapter Sub Title of the Chapter Page No.
No. 1 Point
1 Introduction
1.2 HISTORY TO STATE BANK OF INDIA &

1.3 HISTORY TO ICICI BANK

1.3 SCOPE OF STUDY

1.4 Objective of the study

1.5 Abstract
1.6 Introduction about banking
2 Research Methodology
3 Data analysis &interpretation
4 REVIEW OF LITERATURE
To the study
Industry profile
Executive summary
4.1 Meaning of bank
4.2 Structure of banking
4.3 Banking Reforms in india
4.4 Brief history of NPA
4.4 Meaning of NPA &Defination
4.5 Banking Reform in india
4.6 Reason forNPA
4.7 Classification of asset
4.8 The NPA Problem
4.9 Credit appraisal system
4.10 Credit Risk NPA

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 INDEX
Chapter Sub Title of the Chapter Page No.
No. 1 Point
1 4.11 Measure to tackle NPA
4.12 Problem in loan identification

4.13 Reason for Non performing asset

4.14 Dealing problem in loan
4.15 General method of management of NPA
5 Finding Conclusion &Suggestion

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 Abstract

As banking sector is the prominent sector of Indian economy and plays an important role for
developing economy by providing loan and advances to different sectors. In India both of the
public and private sector banks provides loan to agricultural, industrial, service sector and
among those SBI is top most public sector banks whereas ICICI Bank is top most private sector
bank deals with all banking function. But today’s Indian banking sector faces a serious hurdle
in their growth i.e. an increasing trend of Non Performing Assets (NPA). So, the main aim of
the study is to find out the trend of Gross and Net NPA between SBI and ICICI Bank along
with finding out is there is any significant difference between SBI and ICICI Bank with respect
to their NPA. Independent Sample t-test has been used for the analysis during the period of
study form 2009 to 2018. Based on analysis it has been found that both banks NPA shows an
overall increasing trend and significantly differ with respect to Gross NPA ratio and not
statistically differ in case of Net NPA ratio

Banking sector plays an important role in the development of an economy. This Role of Bank
determines the pace of development of the economy. Hence the stability of banking sector is
pivotal for the development of an economy. The Main function of any bank is to lend funds as
loans to various sectors such as agriculture, industry, personal and housing and other to meet
the productive use of these funds. In recent times the banks have become very cautious in
extending advances, the reason is increasing non-performing assets. With the introduction of
international norms for income recognition, asset classification and provisioning in the banking
sector, managing NPAs has emerged as one of the major challenges facing Indian banks. Non
Performing Asset means an asset on which the interest or principal have not been paid by the
borrower for the specified period in accordance with the directions issued by RBI. In this paper
an attempt has been made to study the trend of Total advances, Net profit, Gross NPA, Net
NPA of SBI and ICICI Bank. During last three years total advances and net profit has shown
growing trend in both the banks but compare to SBI, NPA in ICICI bank has shown downward
trend because of effective NPA management. It also highlights the relationship between Net
Profit and Net NPA, while SBI has shown positive relationship between Net Profit and Net
NPA, negative relationship has been found in ICICI between Net Profit and Net NPA.

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 Introduction

For any flourishing economy there must be a strong banking system. India is one of the
developing economies which need to have well-built banking sector but their progress has been
affected by tremendous growth of Non Performing Assets (NPA). RBI gives a proper definition
for NPAs and as per RBI Master Circular No DBR. No. BP. BC.2/21.04.048/2015-16 dated
July 1, 2015, paragraph 2.1.1 NPA is defined as “An assets, including a leased assets becomes
non-performing when it ceases to generate income for the banks”. NPA have an important
impact on the financial performance of each banking sector whether it was public sector banks
or private sector banks as it decline the profitability of banks as banks are required to maintain
high provision for NPA, it creates assets and liability mismatch, it also affects the liquidity and
solvency position of banks. As there are different internal and external factors responsible for
their occurrence some of them are Diversion of funds, failure of business, willful defaulters,
improper selection of borrowers, defective lending policies, lack of proper appraisal and follow
up, recession in market, mismatch of funds, and failure to recognize EWS among them one of
the important factor is ineffective recovery process (Sagar,2016; Rathi and Kalani, 2015;
Panery, 2014; Goel and Rekhi, 2013; Mohani and Deshmukh,2013). Mostly the public sector
banks NPA increases at high rate as compared to private sector banks because of direct lending
to priority sectors but recently the NPA in private sector banks also increases at high rate. So,
the main aim of the study is to access the trend of NPA in top most public and private sector
banks in India.In any economy banking sector plays a vital role for overall development of
agriculture,small business and different industries. In the pre-nationalisation period bank had
beenmanaged by few people who were serving their vested interest for their personal
gains.Indian banking is the lifeline of the nation and its people. Banking has helped in

developing the vital sectors of the economy and usher in a new dawn of progress on the
Indian horizon. The sector has translated the hopes and aspirations of millions of people
into reality. But to do so, it has had to control miles and miles of difficult terrain, suffer
the indignities of foreign rule and the pangs of partition. Today, Indian banks can
confidently compete with modern banks of the world. For the past three decades India’s
banking system has several outstanding achievements to its credit. The banks are the
main participants of the financial system in India.
The banking sector offers several facilities and opportunities to their customers. The bank
also offers investment and insurance products. As a variety of models for cooperation and
integration among financial industries have emerged, some of the traditional distinctions
between banks, insurance companies, and security firms have diminished. Before the
establishment of banks, the financial activities were handled by money lenders and
individuals. At that time the interest rates were very high. Again there were no security
for public savings and no uniformity regarding loans. So as to overcome such problems
the organized banking sector was established, which was fully regulated by the
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 HISTORY TO STATE BANK OF INDIA

The State Bank of India (SBI Bank) is the biggest bank in India currently. It is a public sector
bank, multinational in nature and is a financial services company. With a market share of 23%
when it comes to assets, it also has a one-fourth share of the deposits and total loans market.

The State Bank of India (SBI Bank) was established in 1806, in Kolkata. Three years after that,
it acquired its charter and was re-designed as Bank of Bengal in 1809. It was the very first joint-
stock bank of India, which the Bengal Government sponsored. Apart from Bank of Bengal, the
Bank of Madras and the Bank of Bombay was also part of this joint stock and remained at the
centre of the modern banking.

Initially, all three banks were Anglo-Indian creations and they came into play due to the
following three reasons-

 Lack of modernization of the Indian economy due to several arbitrary reasons

 Local European commerce needs
and requirements
 Compulsions imperial finance

The transformation or evolution of

the State Bank of India came about
due to the ideas adopted from the
same movements happening in
England and Europe. Another reason that contributed to this evolution was the changes and
modifications in the local trading environment, along with India’s economic relationships with
that of Europe and the global economic structure.

The current position of the State Bank of India (SBI Bank)

The State Bank of India is a giant in its own right, and there are several reasons that contribute
to that. It is the oldest bank in the country currently if you go by the size of its balance sheet.

Additionally, its market capitalization, hundreds of bank branches and the number of profits are
helping it give stiff competition to other private sector banks in the country.

Presently, the bank is getting into a couple of new business with strategic tie-ups, which have
quite a large growth potential. Some of these tie-ups are General Insurance, Pension Funds,
Private Equity, Custodial Services, Mobile Banking, Structured Products, Advisory Services,
and Point of Sale Merchant Acquisition etc.

Additionally, it is concentrating on wholesale banking capacities and the top end of the market,
in order to offer India’s corporate sector with numerous services and products.

Gaining entry in the field of derivative instruments and structured products along with the
consolidation of the global treasury operations is also something they are focusing on now.

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 As of now, the State Bank of India is the biggest arranger responsible for external commercial
borrowings in the country and is the biggest provider of infrastructure debt. In addition, it is the
sole Indian bank to be a part of the Fortune 500 list.

Apart from banking, State Bank of India was also associated with non-profit ventures since
1973, such as Community Services Banking. In such cases, administrative offices and branches
all over the country sponsor and take part in a huge number of social causes and welfare
activities.

Additionally, they had also launched three digital banking facilities, in order to make financial
transaction an easier affair for their customers.

Two of the digital banking facilities specialize in providing their services at the customers’
doorstep by utilizing the method of TAB banking (One for housing loan applicants and the
other for customers looking to open a savings account).

The third banking facility specializes in the (Know Your Customer). The other services, which
are offered by the State Bank of India, are the following-

 Personal Banking
 Rural/ Agriculture
 Small and Medium Enterprise (SME)
 Domestic Treasury
 NRI Services
 International Banking
 Corporate Banking
 Government Business

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 HISTORY OF ICICI BANK

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution,
and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46%
through a public offering of shares in India in fiscal 1998, an equity offering in the form of
ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited
in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to
institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative
of the World Bank, the Government of India and representatives of Indian industry. The
principal objective was to create a development financial institution for providing medium-term
and long-term project financing to Indian businesses.

In the 1990s, ICICI transformed its business from a development financial institution offering
only project finance to a diversified financial services group offering a wide variety of products
and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank.
In 1999, ICICI become the first Indian company and the first bank or financial institution from
non-Japan Asia to be listed on the NYSE.

After consideration of various corporate structuring alternatives in the context of the emerging
competitive scenario in the Indian banking industry, and the move towards universal banking,
the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with
ICICI Bank would be the optimal strategic alternative for both entities, and would create the
optimal legal structure for the ICICI group's universal banking strategy. The merger would
enhance value for ICICI shareholders through the merged entity's access to low-cost deposits,
greater opportunities for earning fee-based income and the ability to participate in the payments
system and provide transaction-banking services. The merger would enhance value for ICICI
Bank shareholders through a large capital base and scale of operations, seamless access to
ICICI's strong corporate relationships built up over five decades, entry into new business
segments, higher market share in various business segments, particularly fee-based services,
and access to the vast talent pool of ICICI and its subsidiaries.

In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of
ICICI and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial
Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was
approved by shareholders of ICICI and ICICI Bank in January 2002, by the High Court of
Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature at Mumbai and the
Reserve Bank of India in April 2002. Consequent to the merger, the ICICI group's financing
and banking operations, both wholesale and retail, have been integrated in a single entity.

11
 ICICI Bank has formulated a Code of Business Conduct and Ethics for its directors and
employees.

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 TO THE STUDY
A study on management of ‘Non Performing Assets’ of commercial bank (A
case study SBI & ICICI) bank near Fort area.
The type of research used for the collection and analysis of the data is “Historical Research
Method”. The main source of data for this study is the past records prepared by the bank. The
focus of the study is to determine the Non Performing Assets of the bank .what is strategy for
reduce NPA
The data regarding bank history and profile are collected through “Exploratory Research
Design” particularly through the study of secondary sources and discussions with individuals.

Title of the Project

“A STUDY ON MANAGEMENT NPA OF COMMERCIAL BANK( A
CASE STUDY SBI & ICICI BANK)”

BACKGROUND OF PROJECT TOPIC

A crucial issue which is engaging the constant attention of the banking industry is the
alarmingly high level of non performing assets (NPA). Another major anxiety before the
banking industry is the high transaction cost of carrying non performing assets in their books.
The resolution of the non performing assets problem requires greater accountability on the part
of the corporate, greater disclosure in the case of defaults, an efficient credit information
sharing system and an appropriate legal framework pertaining to the banking system so that
court procedures can be stream lined and actual recoveries made within an acceptable time
frame.
So the project title A comparative study on ‘Non Performing Assets’ in the two commercial
bank SBI & ICICI bank near Fort area. looks in to the implications of high NPAs and suggests
effective recovery measures for resolving problem loans and thus making the banks NPAs level
healthy. How to control NPA

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 INDUSTRY PROFILE
MEANING OF BANKS:
A banking company in India has been defined in the banking companies Act 1949 as “One
which transacts the business of banking which means the accepting of the purpose of sending or
investment of deposits of money from the public repayable on demand or otherwise and
withdrawal by cheque, draft order or otherwise

NON PERFORMING ASSETS

MEANING OF NPA:
An asset is classified as non-performing asset (NPA) if dues in the form of principal and
interest are not paid by the borrower for a period of 180 days. However with effect from March
2004, default status would be given to a borrower if dues are not paid for 90 days. If any
advance or credit facilities granted by the bank to a borrower becomes non-performing, then the
bank will have to treat all the advances / credit facilities granted to that borrower as non-
performing without having any regard to the fact that there may still exit certain advances /
credit facilities having performing status.

DEFINITION OF NON- PERFORMING ASSEST :

NBE[Supervision of Banking Business Directives (Directive No. SBB/3212002)] defines,
the term Non-performing is, “loans or advances whose credit quality has deteriorated such that
full collection of principal and /or interest in accordance with the contractual repayment terms
of the loan or advances is in question”.

For purposes of this Directive, loans or advances with pre-established repayment programs are
non-performing when principal and or interest is due and uncollectible for 90 days or more
beyond the scheduled payment date or maturity.

A “Non Performing Asset” (NPA) was defined as a credit facility in respect of which the
interest and / or installment of principal as remained ‘Past Due’ for a specified period of time.

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An amount due under any credit facility is treated as “Past Due” when it has not been paid
within 30 days from the due date. Due to the improvement in the payment and settlement
systems, recovery climate, up gradation of technology in the banking system, etc, it was
decided to dispense with ‘Past Due’ concept, with effect from March 31, 2001.

Accordingly, as from that date, a Non Performing Asset (NPA) shall be an advance where
i. Interest or installment of principal remain overdue for a period of more than 180 days in
respect of a Term Loan,
ii. The account remains ‘Out Of Order’ for a period of more than 180 days, in respect of an
overdraft / cash credit (OD / CC),
iii. The bill remains overdue for a period of more than 180 days in the case of bills purchased
and discounted,
iv. Interest and / or installment of principal remains overdue for two harvest seasons but for a
period not exceeding two half years in the case of an advance granted for agriculture
purpose, and
v. Any amount to be received remains overdue for a period of more than 180 days in respect
of other accounts.

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 The Structure of Indian Banking:
The Indian banking industry has Reserve Bank of India as its Regulatory Authority. This is a
mix of the Public sector, Private sector, Co-operative banks and foreign banks. The private
sector banks are again split into old banks and new banks.

Reserve Bank of India

[Central Bank]

Scheduled Banks

Scheduled Scheduled Co-operative Banks

Commercial Banks

Public Sector Private Sector Foreign Regional

Banks Banks
Banks
Rural Banks

Scheduled Urban Scheduled State

Nationalized SBI & its
Co-Operative Co-Operative Banks
Banks Associates
Banks

Old Private Sector Banks New Private Sector Banks

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 BANKING REFORMS IN INDIA

The Nationalization of the major commercial banks in the year 1969 and 1980 had
brought radical changes in the banking system in India. It had brought about major shifts in the
priorities in the banking operations.
Branch expansion policies of banks were tuned up to meet the banking needs of the people
in rural and semi urban centers. For accelerating the socio-economic and rural development
process several Governments sponsored programs were launched and lending in the priority
sector, irrational lending under socio political pressures, mounting levels of bad debts, branch
expansion at non viable centers etc. gradually started affecting the financial health of the
banking sector in the country. Commercial banks were not following uniform accounting
policies camouflaged the true financial position of banks. Quality of loan asset was not a
concern and a high proportion of loan assets started becoming non-performing.
Most of the banks were under capitalized and some of them even with negative worth.
Thus there was a compelling need for a change and various policy corrections had to be taken
with the view of strengthening the economy. Thus the Government of India was forced it
initiate a process of reforming the financial sector which banks constitute a dominant part. The
reforms process includes:

 Introduction of prudential norms.

 Transparency in Balance Sheets.
 Deregulation of interest rates.
 Partial deviation from directed lending.
 Up gradation of technology.
 Entry of new private sector banks.

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  EMERGING BANKING TRENDS:

During the current financial year, the focus of non-going reforms in the banking sector
was on soft interest rates regime, increasing operational efficiency of banks, strengthening
regulatory mechanisms and on technological up-gradation. As a step towards a softer interest
rate regime, RBI in its Annual Policy Statement had advises banks to introduced flexible
interest rate system for new deposits, announce a maximum spread over PLR for all advances
other than consumer credit and to review the present maximum spread over PLR and reduce
them wherever they are unreasonably high.

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 A BRIEF HISTORY OF NPA

The concept of Asset Quality on the books of Public Sector Banks (PSBs) and Financial
Institutions came into being when RBI introduced prudential norms on the recommendations of
the Narasimha Committee in the year 1992-1993. The committee recommended that an asset
may be treated as NPA, if interest or installment of principal remains overdue for a period
exceeding 180 days and that banks and FIs should not take into their income account, the
interest accrued on such NPAs, unless it is actually received or recovered. The committee also
recommended that Assets be classified into four categories:
 Standard,
 Substandard,
 Doubtful and
 Loss Assets.
And that certain specified percentages of the same be held as provision there against.
Before the reform process, banks were booking income on an accrual basis and their balances
sheets did not reflect their true specified financial health. Thus the profit, capital and reserves
were overstated by them.
After 10 years of NPA terror in the banking industry, “Now the Banks Have Teeth”, a
new law lightens the burden of bad loans for Indian Banks. The law that has been the catalyst
for the bad loan cleans up passed India’s Parliament in November 2002. it allows lenders to
more easily foreclose on debtors assets or even demand a change in management. Within
weeks of the law’s passage, banks saw a flood of loans once deemed unrecoverable being
repaid in double time. The Act is The Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 (Also known as the Securitization Act). This
Act enables the setting up of asset management companies for addressing the problems of
NPAs of banks and FIs.

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With a view to moving towards international best practices and to ensure greater transparency,
it has been decided to adopt the ’90 days overdue norm’ for identification of NPAs, from the
year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a NPAs shall be a
loan or an advance where;

i. Interest and / or installment of principal remain overdue for a period of more than 90 days
in respect of a Term Loan,
ii. The account remains ‘Out Of Order’ for a period of more than 90 days, in respect of an
overdraft / cash credit (OD / CC),
iii. The bill remains overdue for a period of more than 90 days in the case of bills purchased
and discounted,
iv. Interest and / or installment of principal remains overdue for two harvest seasons but for a
period not exceeding two half years in the case of an advance granted for agriculture
purpose, and
v. Any amount to be received remains overdue for a period of more than 90 days in respect
of other accounts
As a facilitating measure for smooth transition to 90 days norm, bank has been advised to
more over to charging of interest at monthly rests, by April 1, 2002. However, the date of
classification of an advance as NPA should not be changed on account of charging of interest at
monthly rests. Banks should, therefore, continued to classify an account as NPA only if the
interest charged during any quarter is not serviced fully with 180 days from the end of the
quarter with effect from April 1, 2002 and 90 days from the end of the quarter with effect from
March 31, 2004.

Out Of Order’ Status

An account should be treated as ‘Out Of Order’ if the outstanding balance remains
continuously in excess of the sanctioned limit / drawing power. In cases where the outstanding
balance in the principal operating account is less than the sanctioned limit / drawing power, but
there are no credits continuously for 180 days (to be reduced to 90 days, with effect from March
31, 2004) as on the date of Balance Sheet or credits are not enough to cover the interest debited
the same period, these accounts should be treated as ‘out of order’.

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‘Overdue’
Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due
date fixed by the bank.

Asset Type Percentage of Provision

Sub standard (age up to 18 months) 10%
Doubtful 1 (age up to 2.5 years) 20%
Doubtful 2 (age 4.5 years) 30%
Doubtful 3 (age above 4.5 years) 50%
Loss Asset 100%

INCOME RECOGNITION – POLICY:

The policy of income recognition has to be objective and based on the record of recovery.
Internationally income from NPAs is not recognized on accrual bases but is booked as income
only when it is actually received. Therefore, the bank should not charge and take to income
account interest on any NPA.
However, interest on advances against term deposits, NSCs, VIPs, KVPs and Life
Policies may be taken to income account on the due date, provided adequate margin is available
in the accounts.
Fees and commissions earned by the banks as a result of re-negotiations or rescheduling
of outstanding debts should be recognized on an accrual basis over the period of time covered
by the re-negotiated or rescheduled extension of credit. If Government guaranteed advances
become NPA, the interest on such advances should not to be taken to income account unless the
interest has been realized.

REVERSAL OF INCOME:
If any advance, including bills purchased and discounted, becomes NPA as at the close of any
year, interest accrued and credited to income account in the corresponding previous year,
should be reversed or provided for if the same is not realized. This will apply to Government
guaranteed accounts also.
In respect of NPAs, fees, commissions and similar income that have accrued should
cease to accrue in the current period and should be reversed provided for with respect to past
records, if uncollected.

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 IMPACT OF NPA

At the Macro level, NPAs have chocked off the supply line of credit of the potential
lenders thereby having a deleterious effect on capital formation and arresting the economic
activity in the country.
At the Micro level, unsustainable level of NPAs has eroded current profits of banks and
FIs. They have led to reduction of interest income and increase in provisions and have
restricted and recycling of funds leading to various Asset Liability mismatches. Besides this, it
has led to erosion in their capital base and reduction in competitiveness.
The problem of NPA is not a matter of concern to banks and FIs alone. It is the matter
of grave concern to the country and any bottleneck in the smooth flow of credit is bound to
create adverse repercussion in the economy. The mounting menace of NPAs has raised the cost
of credit, made Indian business man uncompetitive as compared to their counterparts in other
countries.
It has made banks more adverse to risks and squeezed genuine Small and Medium
Enterprises (SMEs) from accessing competitive credit and has throttled their enterprising spirits
as well, to a great extent.
Due to their crippling effect on the operation of the banks, Asser quality has been
considered as one of the most important parameters in the measurement of bank’s performing
under the CAMELS Supervisory Rating System of RBI.

22
 REASONS FOR NPAs:
In priority sector advances:
1. Directed and pre-approved natures of loans sanctioned under sponsored programs.
2. Miss-utilization of loans and subsidies.
3. Diversion of funds.
4. Absence of security.
5. Lack of effective follow-up (Post sanction supervision and control)
6. Absence of Bankruptcy and fore-closure loans.
7. Decrepit legal system.
8. Cost in-effective legal recovery measures.
9. Difficulty in execution of Decrees obtained.

In Non-Priority Sector Advances:

1. Inadequate credit appraisal.
2. Demand recession.
3. Industrial sickness and labour problems.
4. Slow legal system.
5. Diversion of funds.
6. Willful default.
7. Technology obsolescence.
8. Managerial inefficiency.
9. Political compulsion and corrupti

23
WRITING-OFF NPAs:

10. In terms of section 43(D) of the Income Tax Act 1961, income by way of interest in
relation to such categories of bad and doubtful debts as may be prescribed having regard
to the guidelines issued by the RBI in relation to such debts, shall be chargeable to tax in
the previous year in which it is credited to the bank’s profit and loss account or received,
whichever is earlier.

11. This stipulation is not applicable to provisioning required to be made as indicated above.
In other words, amounts set aside for making provision for NPAs as above are not
eligible for tax deductions.
12. Therefore the banks should either make full provision as per the guidelines or write-off
such advances and claim such tax benefits as are applicable, by evolving appropriate
methodology in consultation with their auditors / tax consultants. Recoveries made in
such accounts should be offered for tax purposes as per the rules.
13. WRITE-OFF AT HEAD OFFICE LEVEL:

15. Banks may write-off advances at Head Office Level, even though the relative advances
are still outstanding in the branch books. However, it is necessary that provision is made as
per the classification accorded to the respective accounts. In other words, if an advance is a
loss asset, 100 percent provision will have to make there for.

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 SECURITIZATION ACT

With the enactment of the Securitization and Reconstruction of the financial asses and
Enforcement of Security Interest Act 2002, banks can issue notices to the defaulters to pay up
the dues and the borrowers will have to clear their dues within 60 days. Once the borrower
receives a notice from the concerned bank and the financial institutions, the secured assets
mentioned in the notice cannot be sold or transferred without the consent of the lenders.
The main purpose of this notice is to inform the borrower that either the sum due to the
bank or financial institution is paid by the borrower or else the former will take the action by
way of taking over the possession of assets. Besides assets, bank can also take over the
management of the company. Thus the bankers under the aforementioned Act will have the
much needed authority to either sell the defaulting companies or chare their management.

25
 CLASSIFICATION OF ASSETS:

CATEGORIES OF NPAs:

Banks are required to classify non-performing assets further into the following three
categories based on the period for which the asset has remained non-performing and the
reliability of the dues:

a) Sub-Standard Assets
b) Doubtful Assets
c) Loss Assets.

SUB-STANDARD ASSETS:

A sub-standard asset was one, which was classified as NPA for a period not exceeding
two years. With effect from 31 March 2001, a sub-standard asset is one, which has remained
NPA for a period less than or equal to 18 months. In such cases the current net worth of the
borrower / guarantor or the current market value of the security charged is not enough is not
enough recovery of the dues to the banks in fu;;. In other words, such an asset will have well
defined credit weakness that jeopardize the liquidation of the debt and are characterized by the
distinct possibility that the banks will sustain some loss, if deficiencies are not corrected. With
effect from 31 March 2005, a sub-standard asset would be one, which has remained NPA for a
period less than or equal to 12 months.

DOUBTFUL ASSETS:

A doubtful asset was one, which remained NPA for a period exceeding two years. With
effect from 31 March 2001, as asset is to be classified as doubtful, if it has remained NPA for a
period exceeding 18 months. A loan classified as doubtful has all the weaknesses inherent in
assets that were classified as sub-standard, with the added characteristic that the weaknesses
make collection or liquidation in full; - on the basis of currently know facts, conditions and
values – highly questionable and improbable.

26
LOSS ASSETS:

A loss asset is one where loss has been identified by the bank or internal or external
auditors or the RBI inspection but the amount has not been written off wholly. In other words,
such an asset is considered uncollectible and of such little value that its continuance as a
bankable asset is not warranted although there may be some salvage or recovery value.
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
presentation of advances in the bank balance sheet. The Third Schedule to the banking
regulation act 1949 solely governs presentation of advances in the balance sheet. Banks have
started issuing notices under the securitization act, 2002 directing the defaulter to either pay
back the dues to the bank or else give the possession of the secured assets mentioned in the
notice. However, there is a potential threat to recovery if there is substantial erosion in the value
of security given by the borrower has committed fraud. Under such a situation it will be prudent
to directly classify the advances as a doubtful or loss asset, as appropriate.

RBI GUIDELINES FOR CLASSIFICATION OF ASSETS:

Broadly speaking classification of assets into above categories should be done taking
into account the degree of well-defined credit weaknesses and the extent of dependence on
collateral security for realization of dues.
Banks should establish appropriate internal systems to eliminate the tendency to delay
or postpone the identification of NPAs, especially in respect of high value accounts. The banks
may fix a minimum cut off point to decide what would constitute a high valid account
depending upon their respective business levels. The cut off point should be valid for the entire
accounting year. Responsibility and validation levels for ensuring proper asset classification
due to any reason are settled through specified internal channels within one month from the date
on which the account would have been classified as NPA as per extent guidelines.

27
UPGRADATION OF LOAN ACCOUNTS CLASSIFIED AS NPAs:
If arrears of interest and principal are paid by the borrower in the case of loan accounts
classified as NPAs, the account should no longer be treated as non-performing and may be
classified as ‘standard’ accounts.

Asset Classification to be borrower – wise and not facility –wise:

i. It is difficult to envisage a situation when only one facility to borrower becomes a

problem credit and not others. Therefore, all the facilities granted by a bank to a
borrower will have to be treated as NPAs and not the particular or part thereof which
has become irregular.
ii. If the debts arising out of development of letter of credit or invoked guarantees are
parked in a separate account, the balance outstanding in that account for should be
treated as a part of the borrower’s principal operating account for the purpose of
application of prudential norms on income recognition, asset classification and
provisioning.

Accounts where there is erosion in the value of Security:

i. A NPA need not go through the various stages of classification in cases of serious
credit impairment and such assets should be straightway classified as doubtful or
loss asset as appropriate. Erosion in the value of security can be reckoned as
significant when the realizable value of the security is less than 50 percent of the
value assessed by the bank or accepted by RBI at the time of last inspection, as the
case may be. Such NPAs may be straightaway classified under doubtful category
and provisioning should be made as applicable to doubtful assets.
ii. It the realizable value of the security, as assessed by the bank / approved values /
RBI is less than 10 percent of the outstanding in the borrowal accounts, the existence
of security should be ignored and the asset should be straight away classified as loss
asset. It may be either written off of fully provided for by the bank.

28
RESTRUCTURING / RESCHEDULING OF LOANS:

A standard asset where the terms of the loan agreement regarding interest and principal
have been renegotiated or rescheduled after commencement of production should be classified
as sub-standard and should remain in such category for at least one year of satisfactory
performance under the renegotiated or rescheduled terms. In the case of sub-standard and
doubtful assets also, rescheduling does not entitle a bank to upgrade the quality of advance
automatically unless there is satisfactory performance under the rescheduled / renegotiated
terms. Following representations from banks that the foregoing stipulations deter the banks
from restructuring of standard and sub-standard loan assets were reviewed in March 2001. In
the context of restructuring of the accounts, the following stages at which the restructuring /
rescheduling / renegotiation pf the terms of loan agreement could take place can be identified:
a) Before commencement of commercial production.
b) After commencement of commercial production but before the asset has been classified as
sub-standard.
c) After commencement of commercial production and after the asset has been classified as
sub-standard.

29
 Asset Type Percentage of Provision
Sub standard (age up to 18 months) 10%

Doubtful 1 (age up to 2.5 years) 20%

Doubtful 2 (age 4.5 years) 30%

Doubtful 3 (age above 4.5 years) 50%

Loss Asset 100%

PROVISION REQUIREMENTS:

As and when an asset is classified as an NPA, the bank has to further sub-classify if into
sub-standard, loss and doubtful assets. Based on this classification, bank makes the necessary
provision against these assets.
RBI has issued guidelines on provisioning requirements of bank advances where the
recovery is doubtful. Banks are also required to comply with such guidelines in making
adequate provision to the satisfaction of its auditors before declaring any dividends on its
shares.
In case of loss assets, guidelines specifically require that full provision for the amount
outstanding should be made by the concerned bank. This is justified on the grounds that such an
asset is considered uncollectible and cannot be classified as bankable asset.

30
 THE NPA PROBLEM:

The origin of the problem of burgeoning NPAs lies in the quality of managing credit
risk by the banks which are concerned. What is needed is having adequate preventive measures
in place namely, fixing pre-sanctioning appraisal responsibility and having an effective post-
disbursement supervision. Banks concerned should continuously monitor loans to identify
accounts that have potential to become non-performing.
The performance in terms of profitability is a benchmark for any business enterprise
including the banking industry. However, increasing NPAs have a direct impact on banks
profitability as legally banks are not allowed to books income on such accounts and at the same
time banks are forced to make provision on such assets as per the RBI guidelines. Also, with
increasing deposits made by the public in the banking system, the banking industry cannot
afford defaults by borrowers since NPA affects the repayment capacity of banks.
Further, RBI successfully creates excess liquidity in the system through various rate cuts
and banks fail to utilize this benefit to its advantage due to the fear of burgeoning non-
performing assets.

31
 CREDIT APPRAISAL SYSTEM:

Prevention of standards assets from migrating to non-performing status is most

important in NPA management. This depends on the style of Credit Management Mechanism
available in banks. The quality of credit appraisal and the effectiveness of post credit appraisal
and effectiveness of post credit follow up influences the asset quality of the banks in a big way.
At Pre-Credit Stage:

1. Extensive enquiry about the character and the credit worthiness of the borrower.
2. Viability of the project to be financed is meticulously studied.
3. Adequate coverage of collateral is ensured to the extent possible.
4. Financial statements of the borrower are obtained and poor analysis of their financial
strength is done.
5. Apart from the published financial statements independent enquiries are made with
previous bankers.
6. Pre-Credit inspection of the assets to finance is made.

At Post-Credit Stage:

1. Operations in the account are closely monitored.

2. Unit visit is done at irregular intervals.
3. Asset verification is done on a regular basis.
4. Borrowers Submit control returns regularly.
5. Accounts are periodically to evaluate the financial health of the unit.
6. Early warning signals are properly attended to.
7. Close contract with the borrower is maintained.
8. Potential NPAs are kept under special watch list.
9. Potential viable units are restructured.
10. Repayment Program of accounts with temporary cash flow problem is rescheduled.
Immediate legal action is initiated in cases where the defaults are willful and the intention of
the borrower is bad.

32
 CREDIT MONITORING

Credit Monitoring System is for:

1. Preventing the slipping of quality assets through the monitoring of Standard Assets.
2. Up gradation of quality of impaired loan asset through recoveries by means of legal or
otherwise.
3. Up gradation of loan assets through nursing in deserving and viable cases.

WARNING SIGNALS:

1. Default in servicing periodic installments and interest.

2. Accumulation of stock and non-movement of stock.
3. Operating loss / net loss.
4. Slow turnover of debtors and fall in level of sundry creditors.
5. Return of outward bills for collection / return of cheque.
6. Labour troubles.
7. High turnover of key personnel.
8. Loss of critically important customers.
9. Court cases against the unit.
10. Avoidance of contacts with the bank.
11. Delayed submission of financial statements.
12. Disputes among partners / promoters.

33
 CREDIT RISK NPA:

Quite often credit risk management (CRM) is confused with managing NPAs. However
there is an appreciable difference between the two. NPAs are a result of past action whose
effects are realized in the present. I.e. they represent credit risk that has already materialized and
default has already taken place.
On the other hand, managing credit risk is a much more forward-looking approach and
is mainly concerned with managing the quality of credit portfolio before default takes place. In
other words, an attempt is made to avoid possible default by properly managing credit risk.
Considering the current global recession and unreliable information in financial
statements, there is high credit risk in the banking and lending business.

CREDIT INFORMATION BUREAU (CIB):

It is in this context that the facility of CIB becomes relevant. A CIB provides an
institutional mechanism for sharing of credit information on borrowers and potential borrowers
among banks and FIs. It acts as a facilitator for credit dispensation and helps mitigate the credit
risk involved in lending.

Based on cross country experiences, initiatives have been taken in India to establish a CIB. The
bureaus established in these countries collect information on both individual borrowers (Retail
segment) and the corporate sector.

EXCESS LIQUIDITY:

Now banks are faced with the problem of increasing liquidity in the system. Further,
RBI is increasing the liquidity in the system through various rate cuts. Banks can get a rid of its
excess liquidity by increasing its lending but, often shy away from such an option due to high
risk of default.
In order to promote certain prudential norms for healthy banking practices, most of the
developed economies require all banks to maintain minimum liquid and cash reserves broadly
classified in to Cash Reserve Ratio (CRR) and The Statutory Liquidity Ratio (SLR).
Cash Reserve Ratio is the reserve which the banks have to maintain with itself in the
form of cash reserve or by way of current account with the RBI, computed as a certain

34
percentage of its demand and time liabilities. The objective is to ensure the safety and liquidity
of deposits with the banks.
On the other hand, SLR is one which every banking company shall maintain in India in
the form of cash, gold or unencumbered approved securities, an amount which shall not, at the
close of business on any day be less than such percentage of the total of its demand and time
liabilities in India as on the last Friday of the second proceeding fortnight, as the RBI may
specify from time to time.
A rate cut (For instance, decrease in CRR) results into lesser fund to be locked up in
RBI’s vaults and further infuses greater funds into a system. However, almost all the banks are
facing the problem of bad loans, burgeoning NPA, thinning margins, etc. As a result of which,
banks are little reluctant in granting loans to corporate.
As such, through in its monitory policy RBI announces rate cut but, such news are no
longer warmly greeted by the bankers.

HIGH COST OF FUNDS DUE TO NPA:

Quite often genuine borrowers face the difficulties in raising funds from banks due to
mounting NPAs. Either the bank is reluctant in providing the requisite funds to the genuine
borrowers or if the funds are provided, they come at a very high cost to compensate the lender’s
losses caused due to high level of NPAs.
Therefore, quite often corporate prefer to raise funds through commercial papers (CPs)
where the interest rates on working capital charged by the banks is higher.
The main purpose of this notice is to inform the borrower that either the sum due to the
bank or FIs be paid by the borrower or else the former will take action by way of taking over
the management of the company. Thus the bankers under the aforementioned Act will have the
much needed authority to sell the assets of the defaulting companies or change their
management.
But the protection under the said Act only provides a partial solution. What banks
should ensure is that they should move with speed and charged with momentum in disposing
off the assets. This is because as uncertainty increases with the passage of time, there are all
possibilities that the recoverable value of assets also reduces and it cannot fetch good price.

35
 MEASURES FOR NPA CONTAINMENT:

MEASURES TO TACKLE NPA

Seeing the gravity of the situation, RBI has taken several constructive steps for arresting
the incidence of NPAs. It has also created a regulatory environment to facilitate the recovery of
existing NPAs of banks.

1. Lok Adalats: Lok Adalats have been set up for recovery of dues in accounts falling in
the doubtful and loss category with outstanding balance up to Rs.500000, by way of
compromise settlements. This mechanism has proved to be a quite effective for speedy
justice and recovery of small loans.
2. Debt Recovery Tribunals: DRTs which have been set up by the Government to
facilitate the speedy recovery by banks / DFIs have not been able to make much impact
on loan recovery due to a variety if reasons like inadequate number, lack infrastructure,
under-staffing and frequent adjournment of cases.
It is essential that the DRT mechanism is strengthened and DRTs are vested with a
proper enforcement mechanism to enforce their orders. Non-observance of any order
passed by the Tribunal should amount to contempt proceedings. The DRTs could also
be empowered to sell the assets of the debtor companies and forward the proceeds of the
Winding Up court for distribution among the lenders. Also, DRTs could be set up in
more centers preferably in District Head Quarters with more presiding officers. 22
DRTs have been set up in the country during the half last a decade. DRTs have not been
able to deliver as they got swamped under burden of large number of cases filed with
since their inception.
3. Corporate Debt Restructuring: Corporate Debt Restructuring (CDR) mechanism is an
additional safeguard to protect the interest of the creditors and revive potentially viable
units. The Corporate Debt Restructuring system was set up, in accordance with the
guidelines of RBI evolved in consultation with Government of India. The objective of
the Corporate Debt Restructuring system is to ensure a timely and transparent
mechanism for restructuring of corporate debts for viable entities and to minimize the
losses to the creditors and other stake holders through an orderly and coordinated
restructuring program. With Corporate Debt Restructuring, banks can arrest fresh
slippage of performing assets into the magnitude of the assets. Under the system

36
 standard, sub-standard and doubtful assets can be restructured. The Corporate Debt
Restructuring mechanism is based upon effective coordinate among banks.
4. Asset Reconstruction Companies (ARCs): One of the most effective ways of
removing NPAs from the books of banks / DFIs would be to move these out to a
separate agency which would buy the assets and make its own efforts for recovery. On
this front, the SRES Act has provided a frame work for setting up to ARCs in India. A
pilot company called Asset Reconstruction Company (India) Limited (ARCIL) has been
set up under the sponsorship of IDBI, ICICI bank, SBI and other banks which is likely
to provide an effective mechanism for banks to deal with the defaulting companies. RBI
has already issued final guidelines on the regulatory frameworks for ARCs in April,
2003. However, the success of Arcs will again depend upon the legal framework which
has to be addressed first. Legal provisions are required for transfer of the existing loan
portfolio to the ARCs without the consent of the borrowers, for exercise of the power of
private foreclosure by ARCs, authorizing ARCs to take recourse to the Debt Recovery
Tribunals and granting exemption to ARCs from Income Tax in order to mobilize
resources by issue of bonds and exemptions to ARCs from payment of stamp duty on
conveyance / transfer of loans assets.
5. Reduction in NPAs: The problem of the existing NPAs is currently being tackled in
several ways. Efforts are made through negotiations and discussions with the borrowers
to bring them around to settle the dues. Such settlements in the form of One-Time
Settlement (OTS) and Negotiated Settlement (NS) are now being increasingly used by
banks to reduce the level of NPAs. Under these schemes banks focus on maximum
payment under the settlements being received up-front, and balance within the same
financial year for quicker realization of locked up proceeds. However, despite such
efforts made by the lenders, many defaulting borrowers exhibit reluctance to co-operate,
leaving the banks no option but, to seek the legal route. Here lies the importance of a
transparent legal system. Reforms in the existing legal system will go a long way in
reducing the level and growth of NPAs in the banking system.
6. Legal Reforms: The legal framework sets standards of behavior for market participants,
details the rights and responsibilities of transacting parties, assures that completed
transactions are legally binding and also provides the regulators with the necessary
Teath to enforce Standards and ensure complains and adherence to law. Does the legal
framework is a key element for limiting moral hazards in Indian Banking. As the
problem of NPAs is closely linked with the issue of legal reforms the Government has

37
 taken up initiatives to align the legal set up with the requirements of the banking system.
As early as in 1999 the Andhyarujina Committee set up by the Government of India to
formulate specific proposals to give effect to the suggestions made by the Narasihmam
Committee (1998) recommended amending the recovery of Debts due to the banks and
Financial Institutions Act 1993 and Sick Industrial Companies Act 1995. It also
recommended a new legislation for banks and FIs to take possessions and sale of
securities without the intervention of the court, in respect of both immovable property
and movable assets which resulted in the enactment of SRFAESI Act 2002. The
committee also considered the Securitization as an instrument to tackle the NPA
problem.

7. Securitization: Securitization enables risk sharing and trading of loans where the bas
assets of banks can be securitized and sold at a discount. The lending institution’s
NPAs are hence removed from their balance sheets and are instead funded by investors
through negotiable financial instruments. The security is backed by the expected cash
flows from the assets. With securitization the NPAs in a bank’s balance sheet can be
cash upfront, which could be put to productive use.
High incidence of stamp duties makes securitization transactions unviable. Under
statutory assignment, securitization involves transfer of debt, which can be effected only
by means of an instrument in writing. Every instrument by which property, whether
movable or immovable, is transferred attracts as valorem stamp duty. Also, stamp
duties being a state subject, vary from State to State.

38
RISK MANAGEMENT:
Banking and risk are inseparable and risk management assumes significance as the
banks have to take considerable risks. Analysis of risks also assumes importance as it
determines the pricing for the products. As banking is subject to several types of risks like
market risk, credit risk, liquidity risk, default risk, interest rate risk, investment risk, transaction
risk, forex risk, etc., proper perception and evaluation of risk is extremely important and any
short coming on this score can play havoc on the financial decision. It has been seen that in
banks managing NPAs has been a reactive response rather than a proactive function. In a
market driven environment, volatility and risk have increased considerably in any credit
dispensation. Hence, a proper perception and evaluation of risk becomes essential along with
market intelligence about the industry concerned.

EFFECTIVE APPRAISAL AND MONITORING OF LOANS:

In the present liberalized environment, globalization has a far reaching impact on the
fortunes of the domestic industry and the bankers have to be alert and equip themselves with the
knowledge of the knowledge of the latest global trends and also study on an ongoing basis its
implications on the industries financed by them. Thus, the appraisal and monitoring mechanism
for loans needs to be revamped for control of NPAs. Banks need a robust end to end credit
process.

A robust credit process begins with an in depth appraisal focused on risk inherent in a loan
proposal. Along with the appraisal close monitoring of the loan account is equally important.
It is a well known fact that loans often go bad due to poor monitoring. An account does not
become an NPAs overnight. System should be in place such that the banker should be alert to
catch signals of an account turning in to NPA and quickly react, analyze and take corrective
action.
Bank should have a proper system in place to ensure that to the extent possible the
assets are performing and do not turn in to NPAs. In cases where the problems are of a short
term nature and borrowers agree to clear the over dues within a short time period, temporary
deferment is generally granted by the banks. In cases where the company requires longer time,
depending upon the problems faced and the expected future cash flows, the proposals are
considered for restructuring / re-placement of the dues.

39
 All cases should be reviewed regularly and on the basis of review, ‘stress cases’ are
identified which require more closer and effective monitoring. For these cases it becomes
imperative to keep a close watch on the working of the company by taking up regular visits,
calling for the progress reports with greater frequency, engaging the services of concurrent
auditors / technical consultants to exercise proper supervision and to obtain independent report /
assessment.

ASSETS RECOVERY BRANCH:

Assets Recovery Branches are specified branches for recovering NPAs. The personnel
in the branches are professionally competent to deal with defaulters and ensure repayment. It is
meant for shifting the work of “high problem loans recovery” of main branches to specialized
branches. It gives time to other branches to concentrate more upon branch’s business
development activities.

90 DAYS OVERDUE EFFECT:

As a facilitating measure for smooth transition to 90 days norm, banks have been
advised to move over to charging of interest at monthly rests, by April 1st 2002. However, the
date of classification of an advance as an NPA should not be changed on account of charging of
interests at monthly rests.

Bank should, therefore, continue to classify an account as NPA only if the interest
charged during any quarter is not serviced fully within 180 days from the end of the quarter
with effect from April 1st 2002 and 90 days from the end of the quarter with effect from March
31st 2004.
There are two aspects to the adoption of the ‘90 days’ overdue norm for identification of
the NPAs. The negative aspect is that NPAs will increase in short term. But the positive aspect
is that banks will become proactive in detecting smoke signals about an account becoming bad
and accordingly initiate remedial steps.

40
 PROBLEM IN LOAN IDENTIFICATION:

IDENTIFICATION OF ACCOUNT:
1. Term loan if interest / installments are overdue for 4 months and above.
2. Check on overdue, cash credit account if it is out of order continuously for 4 months.
3. In other loans if overdue 4 months and more.

GENERAL REASONS FOR ASSETS BECOMING NPAs:

A multiplicity of factor is responsible forever increasing size of NPAs in banks. A few
prominent reasons for assets becoming NPAs are as under.
 Poor credit appraisal system.
 Lack of proper monitoring.
 Reckless advances to achieve the budgetary targets.
 There is no or lack of corporate culture in the Bank. In adequate legal provisions on
foreclosure and bankruptcy.
 Change in economic policies/ environment.
 No transparent accounting policy and poor auditing practices.
 Lack of coordination between banks.
 Directed lending to certain sectors.
 Failure on the part of the promoters to bring their portion of equity from their own
source or public issue due to market turning lukewarm.

41
REASONS FOR NON PERFORMANCE IN LOAN ASSETS:
1. Antiquated legal system in the country and the defaulter taking shelter under this.
2. Even DRT cases are not getting settled the way it was envisaged when tribunals were set
up.
3. In agriculture sector poor recovery has been due to various factors – recovery and RPDS
advances have been affected by the sharp fall in rubber prices. Throughout the country
aqua culture miserably failed due to reasons beyond the control of the borrowers we are
not an exception.
4. Poor recovery in schematic loans is mainly due to willful default by the borrowers.
5. Default in share loans has been due to setback in securities market and sharp decline in
the values of equities.

RECOVERY ROUTE:
1. Lok Adalat.
2. Compromise route is the most effective and time consuming procedure, due to the delay
in obtaining a favorable decree, further delay in the execution of the decree, the
securities available to bank may get depreciated or alleviated.

COMPROMISE ROUTE IS POSSIBLE IN THE FOLLOWING CASES:

1. When all the remedies other than filing a suit are exhausted.
2. Activity of the borrower closed / become unviable due to reasons beyond his control and
overdue mounting up due to application of interest / penal interest and other charges and
the recovery of the debt has become doubtful.
3. Legal position of bank is weak.
4. Values of the primary / collateral securities are inadequate.
5. Not a willful defaulter.

42
RECOVERY MANAGEMENT – SUGGESSIONS FOR IMPROVEMENT
1. Recovery camps to be conducted at centers identified as having higher concentration of
irregular loans in the times of revenue recovery camps.
2. Across the table decisions on compromise proposal submitted at the recovery campus.
Officials from corporate office who attend such campus to be delegated with the powers
to arrive at the decisions as above.
3. Asset recovery cells to be strengthened with additional professional man power.
4. At branches where concentration of NPAs is more, one of the members of the award
staff who is well versed with locality and the borrowers should be spared from other
works of the office and asked to facilitate recoveries through personal visits and
assisting the recovery officers in the unit / borrower visits. Conveyance expenses
incurred by such staff members to be reimbursed.

ASSET RECOVERY DEPARTMENT:

1. Asset Recovery Department will conduct a study of banks exposure in different
sector, types of advances and other various parameters viz the NPA position and the
findings will be communicated to all field functionaries initiating corrective action.
2. Efforts shall be taken by branches to speed up the disposal of non-banking assets at
the possession of the bank. The real effect of the continuing menace of NPA will have a
cascading effect on the bottom line because of the higher and higher provisions required
on such accounts. Therefore the management of NPAs calls for a short term and long
term strategy. Prevention from further deterioration and recovery of the existing NPAs
alone are the two alternatives for us to come out of the present problems.

43
DEALING PROBLEMS LOANS:
ASSETS COMING UNDER SMALL VALUE SEGMENTS:
1. Accounts with net balance up to Rs.5000 are identified as small value assets and
considering the huge volume of such accounts, they had taken decisions to shed such
assets coming under priority sector (Loss and doubtful categoryonly) and regional heads
are given delegation to write-off such assets.
2. Now it’s felt that small value bond can be extended up to Rs.10000. Similarly, non
priority sector, small loans identified as loss or doubtful will also have to shed to give
administrative efficiency up to larger NPAs.
3. Recovery policies in this segment shall be more flexible and functionaries at regional
office shall be given complete freedom in the settlement of such accounts. Most of the
accounts under this category come under priority sector and primary / collateral
securities are not generally available and many borrowers are not even available for
contact, there is no such scope for legal action also. Hence recovery done by means of:
 Personal contacts.
 Persuasion.
 Compromise.
 Revenue recovery.

4. Salvage operations are to be intensified for effecting recoveries under loss assets
categories and also in cases where they have already shed assets.
5. Incentives schemes for motivating members of staff are to be built in the recovery
policy of the bank.
Considering the above facts, the department suggests the following measures for the optimum
recovery in the small value bond up to Rs.10000.
1. No legal actions to be initiated against borrowers coming under the small valued bond.
2. In cases of failure of letter personal contact and persuasion fall, go for compromise.
3. Services of approved recovery agents can be considered very discreetly in the recovery
of small value accounts.
4. If all the above efforts fall the regional heads can use their discretion for shedding such
assets.

SUB-STANDARD ASSETS:

44
 This segment is more effort elastic in terms of recovery and hence the bank’s recovery
policy is to be tuned up for maximizing the recoveries from the sub-standard efforts.

NPA RECOVERY ACTION PLAN:

1. Send simple remainder letter in installments / interests debited are not serviced on due
dates.
2. If no results are forthcoming from the remainders, meet the borrower in person and
persuade them to settle the accounts in persons.
3. Officials from the assets recovery cell at the regional office to compulsorily meet the
borrower with Rs.500000 and evaluate the reasons for the non-performance of accounts
and suggest / evolve methods to improve the quality.
4. In cases of sick but viable industries units prospects for rehabilitation are too looked into
a nursing program to be evolved.

DOUBTFUL ASSETS
Slippage of assets from sub-standard category to doubtful necessitates higher
provisions requirements. Depending on the age of the asset, 20% to 50% provision has to be
45
made on such assets on the secured portion and 100% provision is required on the unsecured
provision. Recovery of the doubtful assets in the normal course is difficult; the following
strategies can be adopted in handling doubtful assets:
1. Borrowers are to be met in person to get the accounts settled through persuasion.
2. Ensure that the securities charged to the bank are in tact and are not alienated.
3. Securities are to be inspected at periodic intervals and correct value properly recorded.
4. Legal remedy is the last resort.
5. Most of the accounts coming under this category are either suit field or RR initiated.
Incase of suit field accounts, cases are to be closely followed up with the advocated to
ensure that the decree is obtained within a reasonable time.

LOSS ASSETS:
CHANCES OF RECOVERY IN MOST OF THESE CASES ARE VERY REMOTE:
1. If recovery in the normal course is difficult, they may have to resort to legal remedies
against the borrowers, guarantor, co-obligate, and efforts shall be made to bring them to
a compromise table for the settlement of accounts.
2. Incase of accounts coming under priority sector, recovery through the RR route is to be
resorted too.
3. As per loss assets are concerned they have made 100% provision for loan losses. Hence
there will not be any further impact on bottom line. If these assets are shed, notionally
from the books of the banks. Such notional write-off will help in cleansing the balance
sheet.
4. Even after write-off the branches can continue the recovery efforts thus made and can
improve the bottom line of the bank.
5. Recovery through legal action is time consuming.

GENERAL METHODS OF MANAGEMENT OF NPAS:

The management of NPA is the difficult task in practice. Management of NPAs means,
how to settle the NPAs account in the books. In simple it focuses on the methods of settlement
of NPAs account. The methods are differs from bank to bank. The following paragraph explains
46
some general methods of Management of NPAs by the banks. The same information is shown
below:
General Methods of Management of NPAs

Compromise

Legal remedies

Regular Training Program

Recovery Camps

Write offs

Spot Visit

Rehabilitation of potentially viable units

Other Methods

Compromise:

47
 The dictionary meaning of the term compromise is “settlement of dispute reached by mutual
concessions. The following are the detailed guidelines for compromise/negotiated settlements
of NPAs.
 The compromise should be a negotiated settlement under which the bank should
ensure recovery of its dues to the maximum extent possible of minimum
expenses.
 Proper distinction should be made between willful defaulters and borrowers
defaulting in repayments due to circumstances beyond their control.
 An advantage in settlement cases is that banks can promptly recycle the funds
instead of resorting to expensive recovery proceedings spread over a long period.
 All compromise proposals approved by any functionary should be promptly
reported to the next higher authority for post facto scrutiny.
 Proposal for write off/ compromise should be first by a committee of senior
executives of the bank.

Legal remedies:
The legal remedies are one of the methods of management of NPAs. The banks
observed that the borrower is making willful default; no more time should be lost instituting
appropriate recovery proceedings. The legal remedies are filling of civil suits.

Regular Training Program:

The all levels of executives are compelling to undergrowth the regular training program
on credit and NPA management. It is very useful and helpful to the executives for dealing the
NPAs properly.

Recovery Camps:
The banks should conduct the regular or periodical recovery camps in the bank premises or
some other common places; such type of recovery camps reduces the level of NPAs in the
Banks.

Write offs:

48
 Write offs is also one of the common management techniques of NPAs. The assets are
treated as loss assets, when the bank writes off the balances. The ultimate aim of the write off is
to cleaning the Balance sheet.

Spot Visit:
The bank officials should visit to the borrowers’ business place or borrowers field
regularly or periodically. It is also help full to the bank to control or reduce the NPAs limit.
Rehabilitation of potentially viable units:
The unit is sick due to technical obsolescence’s of inefficient management or financial
irregularities. When the Bank settles the dues, of such, companies through the compromise or
through the legal actions the better is to be followed.
Other Methods:
Persistent phone calls
Media announcement

49
 RESEARCH METHODOLOGY
The qu of the project work depends on the methodology adopted for the study. Methodology,
in turn, depends on the nature of the project work. The use of proper methodology is an
essential part of any research. In order to conduct a study scientifically, suitable methods and
measures are to be followed.

Data collection method

Primary data: Discussion with the manager and officers of the bank to get general information
about the bank and its activities.

 Having face to face discussions with the bank officers.

 By taking guidance from bank guide and departmental guide.
 Ask question both borrower and bank Employee.
 Personnel survey In bank

Secondary data: Collection of data through bank various websites, bank manuals and
other relevant documents. Collection of data through the literature provided by the bank

50
51
 SCOPE OF THE STUDY

 The scope of the study here was confined to the organization only.

 The study covers to find out the strategy required to reduce the NPAs .

 The concentration is given only in understanding the NPAs growth with the SBI&ICICI Bank

 The data is purely based on the secondary data and collected from website and journal.primary
data collected from questionnaire and visit in branch .

 The scope is limited to drawn conclusions from analysis and interpretation of the primary and
secondary data of the SBI Bank and ICICI Bank

52
 OBJECTIVES OF THE STUDY
 To understand the concept of NPA
 To identify the causes of NPA
 To examine and compare the NPA trends of Public Sector Bank and Private Sector Bank
 To suggest strategies to minimize the NPA

53
54
 REVIEW OF LITERATURE

This section of the study provides an overview of the existing research work
which is done on the present study as well the gaps to be fulfilled in the process of researchstudy.
55
Rajeev, Metal, (2010) in his study titled ―A Study on the Composition of Non-
Performing Assets (NPAs) of Scheduled Commercial Banks in India‖ examines the
trends of NPA‘s in India from various dimensions and explains how the recognition of
problem helps for continuous observation and also helps can reduce it to the greater
extent. They also discuss the functions of the joint liability groups or self help groups in
enhancing the loan recovery rate..
KaurandSingh(2011) ―Non-PerformingAssets of public and private sector banks (a
comparative study)‖ stated that NPAs are considered as an important parameter to judge
the performance and financial health of banks. The financial stability and the growth of
the banking sector would greatly influenced by the rate or level of NPA that exists in the
Bank. They also concluded in their research study that the NPA are the Major hindrance
or setback for the growth of Indianeconomy.

C.MPatnaik,I.SatpathyandA.K.Mohapatra(2011)
NPA‘s on Education Loan: A Survey (With Special Reference To Selected
Urban, Rural Areas And Bank Officials of Odisha)‖, have attempted to examine
the causes of NPA‘s in home loans of commercial banks. in this regard
researchers were collected the required data through distributing the
questionnaires to the borrowers of the loans and after the survey the final
suggestions were given to overcome this issue.
K.ChaudharyandM.,Sharma(2011) in their research study titled ―Performance of
Indian Public Sector Banks and Private Sector Banks: A Comparative Study have made
an attempt to analyze how efficiently Public and Private sector banks have been
managing NPA. A statistical tool for projection of trend was used for analysis. The
research has thrown a light on the methodologies used by Public and Private sector banks
in controlling and managing their NPA so as to increase their profitability and liquidity
positionAny amount to be received remains overdue for a period of more than 180 days
in respect of other accounts.

Ali Ataullah (2004) Concluded that there is still room for improvement in the efficiency of
banks in both the countries. A step forward for the liberalization programmer , therefore, is not
only to deregulate interest rates and enhance the level of competition but also to strengthen the
instutional structure to support good practices in the banking industry .

56
Gupta Sumeet&VermaRenu (2008) concluded that management of non-performing assets
and risk emanating from adverse event is the key to higher profitability of the Indian banking.
Transparency and good governance would work as principal guiding force in present scenario.

GhoshSaibal (2009) concluded that with international standards, Indian banks would need to
improve their technological orientation and expand the possibilities for augmenting their
financial activities in order to improve their profit efficiency in the near future.

Dr. Ibrahim Syed M (2011) concluded that this is diagnostic and exploratory in nature and
makes use secondary data. The study finds and concludes that the scheduled commercial banks
in India have significantly improved their operational performance.

Dr. Pardhan Kumar Tanmaya (2012) Concluded that-The study is based on primary data.
The data has been analyzed by Percentage method. The tool used to collect data from the bank
officials was a structured questionnaire. Responses obtained from the 50 Bank managers /
senior officers.

Dr. Dhanabhakyam M &Kavitha M. (2012) studied that banks have to re-orient their
strategies in the light of their own strength and the kind of market in which their likely to
operate on. In the perspective of this domestic and international development, the banking
sector has to chart perfect for development.

Gupta Shipra (2012) concluded that- Public and Private sector banks both are giving good
service in India
.Financial condition of any bank is measured by the help of financial ratio. A leverage ratio
cannot do the job alone it needs to be complemented by other prudential tools or measures to
ensure a comprehensive picture of the buildup of leverage in individual banks or banking
groups as well as in the financial system.

57
Sharma Esha (2012) concluded that- The liberalized policy of the govt. of India permitted
entry to the ICICI in the banking; the industry has witnessed a generation of private players.
That’s why the present paper special emphasis has been laid down on the financial analysis of
the bank by using different research ant statistical tools.

GejalakshamiSandanam& et.al (2012) , Cocluded that the public sector banks performed
remarkably well during the period than that of the private sector banks the overall regression
analysis show that the financial performance of the banking industries strongly .

Goel Cheenu&RekhiBhutaniChitwan (2013) concluded that the analysis supports that new
banks are more efficient than old ones. The public sector banks are as not profitable as other
sectors are. It means that efficiency and profitability are inter related.

Davda V. Nishit (2012) Concluded that a review of fundamental analysis research in

accounting the paper has outlined the development of different accounting valuation model
and reviewed related emperical work .

Dr. KoundalVirender (2012) concluded that although various Reforms have produced
favorable effects on commercial banks in India and because of this transformation is taking
place almost in all categories of the banks.

58
 DATA ANALYSIS& INTERPRETENTION:
1) GENDER-

100% percenta
90%
ge
80%

70%

60%

50%

40%

30%

20%

10%

0%
MALE FEMALE

Male (SBI) 70
Female(ICICI) 30
60
AGE: (SBI &ICICI BANK )

1.Above -18-25
2.25-40
3.40&Above

Sales

18-25 Year
25-40 year
40 &above

61
1) DESIGNATION: (SBI &ICICI BANK )

70

60

50
Column2
40
Column1
30 Series 1

20

10

0
OFFICERSENIOR OFFICERMANAGER

60%
OFFICER
SENIOR OFFICER 30%

MANAGER 10%

62
DO YOU KNOW ABOUT NPA?

1.YES
0%
0%
NPA

YES
NO

100%

2.NO

63
 SB
100%
I

90%
80%
70%
60% Column2
50% Column1
40% PERCENTAGE
30%
20%
10%
0%
YES NO

64
HOW CAN ONE CANTROL NPA ?

Percenta
100%
ge
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
TAKE SELL OR LEASE BOTH 1&2
POSSESSION SECURITY

TAKE POSSESSION 0%
SELL OR LEASE SECURITY 0%
BOTH 1&2 100%

65
HOW NPA AFFECT BANK

90%
80%
70%
60%
50%
40%
30%
20% Series 1
Column2
10% Column1
0% Column1
Column2
Not only Series 1
affect Bank Not only
affect Bank Effect on
but also both bank as
affect the but also
well as
economy as affect the Economy
whole . economy as
whole .

66
WHAT ARE MAJOR REASON FOR NPA

NPA

WILLFUL DEFAULT
LOAN FRAUD
BOTH

LOAN FRAUD 0%
BOTH 1&2 100
%

67
WHICH COMPANY IS HIGHER NPA ?

100%
90%
80%
70%
60% Column1

50% Column2

40% Series 1

30%
20%
10%
0%
SBI ICICI OTHER

SBI BANK 40
%
ICICI BANK 0%
OTHER BANK 60
%

68
In the below section, various parameters related to NPA are compared and analyzed.
Firstly, the total advances, net profits, gross NPA and net NPAs have been compared for both
the banks.

YEAR TOTAL ADV. NET PROFIT GROSS NPA NET NPA

SBI ICICI SBI ICICI SBI ICICI SBI ICICI

2014 1,578,277 338,703 10,891 9,810 61,605 10,506 31,095 3,298

2015 1,692,211 387,522 13,102 11,175 56,725 15,095 27,591 6,256

2016 1,870,261 435,264 9,951 9,726 98,173 25,721 55,807 13,297

2017 1,896,887 464,232 10,484 9,801 112,343 13,297 58,277 25,451

Table-1

INTERPRETATION OF THE TABLE

The table is comparing Total advances with NET Profit, Gross NPA & Net NPA of SBI
and ICICI Bank. With the help of this table we can get knowledge about growing performance
of both the banks. We can see that on one side total advances given by SBI and ICICI Bank and
Net Profits are increasing continuously since 2014, which shows that banks are performing very
well. But for SBI, Gross NPA & Net NPA is also increasing such that its gross NPA in 2014 has
been 61,605 and in 2017 it increased to 112,343. This shows that SBI‟s performance is
declining due to mismanagement of bank. ICICI bank shows the similar trends as its gross and
net NPAs are increasing as well since 2014.

But, if we observe carefully and compare the parameters for both the banks with each other, we
see that ICICI bank is performing much better as compared to SBI as in 2017 net NPA for SBI
is 58,277 and for ICICI bank its mere 25,451. Similarly, for Gross NPA, SBI stands at 112,343
in 2017 and at the same time, ICICI is at 13.297.

Secondly, the examination of the NPA trends for both the banks for the last 4 years has been
done.

YEAR PERCENTAGE OF GROSS NPA

SBI ICICI

MARCH 2014 4.95 3.03

69
MARCH 2015 4.25 3.78

MARCH 2016 6.50 5.21

MARCH 2017 6.90 7.89

70
anking industry plays a significant role in the development of any economy as it caters to the needs for all
the sections of the society.The modern economies of the world have developed primarily by making best
use of the credit availability in their systems. India is on the march; far reaching socio-economic changes
are taking place and Indian banks should come forward to play this role in the process. The role of banks
has been important, but it is going to be even more important in the future. In this context giving due
importance and consideration for the growth of banking sector is considered to be the need of the hour.
Therefore this paper is an attempt to study the importance of both public sector and private sector banks in
the development of Indian economy. The major obstacle for the growth banking sector in the current
scenario is Non-Performing Asset which is posing a huge threat to the Banking Sector which needs
immediate control by the government and the RBI. The present research paper is to analyze the
comparative study of the NPA factor and returns on assets of the PSU banks and private sector for the
period of five years i.e., from 2013- 14 to 2017-18. The study has considered various parameters for
measuring the performance like as Gross NPA %, Net NPA %, return % on assets, growth % of Net NPA
and growth % of return on assets. The data of State Bank of India; Punjab National Bank are used for PSU
banks and HDFC Bank, ICICI Bank are using for private banks. From the research It is conclude that the
results and trends show that NPAs are having a downward trend over the study period, but Non Performing
Assets of public sector banks are still higher than private sector banks. The returns on the assets have also
the downward trends but this is much lower in PSU banks as compared to private banks. Hence, the
performances of PSU banks are not suitableas compared to private sector banks. The t-tests show that the
results are not statistically significant at p <0

71
 NPA, this is due to inappropriate credit appraisal and inefficient recovery mechanism which was adopted
by the Banks. The faulty lending policy and priority lending also contributed to increase in the rate of NPA.
If NPAs are not controlled effectively it will create an huge impact on the earning capacity of assets and
also affect the Return on Investment of the Banks as the cost of capital increases and there would be a
mismatch in the assets and liability increase and higher provisioning requirement on mounting NPAs
adversely affect capital adequacy ratio and banks profitability. The three letters that creates huge panic and
apprehension in the banking and business sector today i.e., nothing but a Non-Performing Assets.

A Non-performing Asset is nothing but assets which would not generate any income to the bank. In other
words Non-Performing Asset means an asset or account of borrower, which has been classified by a bank
or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or
guidelines relating to asset classification issued by Reserve Bank of India.The Gross bad loans at the
commercial banks could increase to 8.5% of total advances by March 2017, from 7.6% in March 2016,
according to a baseline scenario projection by the Reserve Bank of India (RBI) in its Financial Stability
Report. The RBI noted in the report:
.‖ The central bank has been pushing lenders to review the classification of loans given by them as part of
an Asset Quality Review (AQR). The resultant sharp surge in the provisions for the bad debts has eroded
profitability, especially at the state owned banks, in the recent quarters. The gross bad loans of the public
sector banks increased to 9.6% as of March 2016, from about 6% a year earlier, RBI data showed. There
was an almost 80% jump in the gross bad loans in 2015-16, according to the report. Gross bad loans of the
Indian banks widened to 7.6% from 5.1% inSep.

An amount due under any credit facility is created as ―Past due‖ when it has not been paid within 30 days
from the due date. Due to the improvement in the payment and settlement systems, recovery climate, up
gradation technology in the banking system etc., it was decided to dispute with ―past due‖concept, with
effect from 31 March 2001. Accordingly,as from that date, a Non- performing asset (NPA) shall be an
advance where:
1. Interest and/ or installment of principal remain overdue for a period of more than 180 days in respect of a
term loan.
2. The account remains ― out of order‖ for a period of more than 180 days, in respect of an overdraft/ Cash
Credit(OD/CC)
3. The bill remain overdue for a period of more than 180 days in the case of bills purchased and discounted
Interest/ and or installment of Principal remains overdue for two harvest seasons but for a period not
exceeding two half years in the case of an advance granted for agricultural purpose

72
73
74
75
76
77
 Bibliography

 Dr.Baligar.G.B. Banking Law and Practice.

Publisher, Ashok Prakashan 2004

 Singh.s.k. Banking and Financial sector Reforms in

India. Deep & Deep publications 2002

websites
www.shodhgandga.com
www.acdemia.com
www.icicibank.com
www.sbibank.com

78
79
ANNEXURE

80
RESEARCH ON NON PERFORMNG ASSET

 NAME OF RESPONDENT-:
 NAME OF ORGANISATION-:
 EMAIL:-
 GENDER:-
 AGE:-
1) Above 18-25
2) 25-40
3) 40 & above.
 DESIGNATION-
 EXPERIENCE IN CURRENT POSITION

 DO YOU KNOW ABOUT NON PERFORMING ASSET?

1. YES
2. NO

 IS NON PERFORMING ASSET DANGEROUS FOR COMPANY ?

1.YES
2.NO
 HOW CAN ONE CANTROL NON PERFORMING ASSET?
1.TAKE POSSESION

81
 2.SELL OR LEASE SECURITY
3.BOTH 1&2
 HOW NON PERFORMING ASSET A AFFECT BANK ?
1.NPA NOT ONLY AFFECT BANK BUT ALSO AFFECT THE ECONOMY AS
WHOLE.
2.NOT EFFECT ON BANK
3.EFFECT ON BOTH BANK AS WELL AS ECONOMY .
 WHAT ARE MAJOR REASON FOR NPA
1.WILLFUL DEFAULT
2.LOAN FRAUD
3.BOTH
 WHICH COMPANY IS HIGHER NON PERFOMRING ASSET
1.SBI BANK
2.ICICI BANK
3.OTHER BANK

Causes of NPA
One very important reason behind the rising NPA is the relaxed lending norms
especially for corporate honchos when their financial status and credit rating is not
analyzed properly.
Public Sector banks provide around 80% of the credit to industries and it is this part of
the credit distribution that forms a great chunk of NPA.

82
 Public sector lending and extending loans in agriculture sector has a substantial
contribution to the rising NPAs of the banking industry.
Inappropriate project handling, ineffective management, lack of adequate resources,
day to day changing govt. Policies produce industrial sickness. Hence, the banks
finance those industries that ultimately give them a low recovery of their loans
reducing their profit and liquidity.

Findings
The following findings were drawn from the above data analysis:
The total advances have shown an upwards trend for both SBI and ICICI BANK.
Net profits for SBI have been fluctuating over the years whereas in case of ICICI bank
it has largely been consistent to around 9000 crore.
In the case of % Gross NPA, performance of public sector bank- SBI is doing better as
compared to private sector bank –ICICI bank.
In case of % net NPA also, performance of SBI is observed to be improving over the
years and hence creation of less non- performing assets as compared to ICICI bank.
Percentage net NPA for ICICI Bank is observed to be continuously rising.
The coefficient of correlation for SBI was found to be -0.78 that is high negative
correlation between net profit and net NPA of the bank. This means that as NPA is
increasing, the net profit will decrease.
Similarly, coefficient of correlation for ICICI bank was -0.39 that is moderate negative
correlation between net profit and net NPA.
The correlation coefficients were found to be insignificant i.e. there is no linear
relationship between the net profits and net NPA and there are other factors which
impact the net profits of the bank much strongly.

Conclusion

Bibliography

83
  Dr.Baligar.G.B. Banking Law and Practice.

Publisher, Ashok Prakashan 2004

 Singh.s.k. Banking and Financial sector Reforms in

India. Deep & Deep publications 2002

websites
www.shodhgandga.com
www.acdemia.com
www.icicibank.com
www.sbibank.com

84
85
86
ANNEXURE

87