Review of Literature

CHAPTER- 2

REVIEW OF LITERATURE

To achieve the objectives of the study, the available literature has been scanned as no research is
complete without a scientific analysis of the literature and scholarly works and thereby, cannot
contribute significantly towards the promotion of knowledge. Scanning of available literature
was done taking the help of abstracts, journals, reviews, books, reports and websites etcThe
purpose of the literature review is to identify research gap and to identify research gap and to
provide a background to and a justification for the research to be undertaken. It is an account of
what has been published on the topic by accredited scholars and researchers and it discusses
published information in a particular subject area and sometimes, within a certain time period.

A number of studies have been conducted on this topic in India and abroad. Review of
all these studies is not possible. In this chapter, an attempt has been made to review the studies
conducted on non performing advances to decipher main gaps in literature. A few of them are
enumerated below:

Kumar and Singh (2000), conducted a study on overdues related to IRDP loans in Milch
Animal Scheme. He found that out of 100 borrowing families, 77 per cent were defaulters and
the number of defaulters was the highest in case of landless labourers. They observed that NPAs
resulted due to lack of appropriate backward and forward linkages as a result of which borrowers
could not augment their income

Taori (2000), in his study titled , “ Problems and Issues Relating to Management of NPAs of
Banks in India”, observed that out of the total loan assets of public sector banks (PSBs)
aggregating Rs.2,25,328 crores, as much as 15.9 per cent were impaired.

Verma and Bhagavan (2000), in their study titled, “Analysis of Causes of Over-dues in
Cooperatives” stressed that defaults could be minimized if the size of credit had been related to
production on a scientific basis, utilization of loans had effectively supervised and the cultivator
had been approached at the right time for repayment. Furthermore study concluded that major
non-wilful causes of NPAs were low market prices for the agriculture produce due to inadequate
linkages and resultant insufficient income of the borrowers. Study concluded that un

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 Review of Literature

remunerative prices, inadequate income, external factors like ineffective recovery tribunals,
willful defaults and change of government policies were the main factors responsible for NPAs.

Kaveri (2001), in their study, “Loan Default and Profitability of Banks” concluded that
prevention of NPAs required an immediate attention because fresh accrual of NPAs had
outpaced recovery efforts. Credit monitoring in banks should be strengthened by creating a
database. Potential NPAs should be identified well in advance through a system of monitoring of
advances on a regular basis and concerned parties should be contacted immediately.

Viswanath (2001), on the basis of the analysis of performance of credit cooperatives and their
overdues in his study “An Analysis of Performance of Agricultural Credit Cooperatives and their
Overdues Problems in India” found that between the period from 1950-51 to 1995-96, total loans
advanced by them increased from Rs.24crores to Rs. 14,201 crores i.e. 587 times, but
unfortunately the increase was followed by a corresponding increase in over dues

Prashanth K. Reddy (2002) conducted a study titled; “A Comparative Study of Non Performing
Assets in India in the Global Context” to ascertain the level of similarity and find out preventive
and remedial measures for NPAs. According to the study, certain reforms had been taken in
Indian financial sector on aspects such as risk based supervision; prudential norms, interest rate
deregulation and many more. The study reflected that liberalizing operational policies for weak
organizations made operational changes difficult to be implemented. Changes and reforms that
were needed to tackle the problem of NPAs had to span the entire gamut of judiciary, polity &
bureaucracy to become effective. This paper also described experiences of other Asian countries
in managing asset quality. It further suggested mechanisms to tackle the problem of NPAs by
drawing on experiences from other countries and implementing them.

Singh (2003), in his study “Banks Continuously Monitoring NPAs”, observed that banks were
continuously monitoring the (bad) accounts as per the guidelines of RBI regarding new assets
classification. He further added that NPAs were in control and most of the PSBs had net NPAs of
4 to 4.5 per cent of their net advances.

Shekhar (2003), conducted a study on “Reduction of NPAs-Key to Banking Reforms” pointed

that in a bid to help banks and financial institutions recover funds, the government enacted the

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 Review of Literature

SARFAESI Act, 2002 with hope that the problem would be resolved amicably for the benefit of
both the banks and the industry, paving the way for easy availability of cheaper credit.

Gujral (2004), in his study titled, “NPA Blues and the Securitization Act” indicated that
considering the gravity of the situation, Reserve Bank of India had taken a number of
constructive steps for arresting the incidence of NPAs like setting up of Lok Adalats, Debt
Recovery Tribunals (DRTs), One Time Settlement Scheme, Corporate Debt Restructuring
(CDR) Scheme and enactment of the SARFAESI Act, 2002. He highlighted the importance of
Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act
(SARFAESI ACT, 2002). He pointed out that the Act will not only help in improving financial
health of the country but also our moral fibre as a society by enforcing the sanctity of contracts.

Yeole (2004), conducted study on “The Problem of NPAs”, found that NPAs in public sector
banks were relatively higher than the international standards. By January 2003, the NPAs of
cooperative banks were Rs.11,471 crores i.e. 22 per cent of total advances. Study further
observed that willful defaults were responsible for the pathetic state of Indian banking system.

Cygnus (2005) conducted a research, according to which, the Indian retail banking was booming
and retail loan portfolio would be biggest segment and would witness a tremendous growth.
Some areas of concern identified in the study were mainly rising NPA in consumer loans,
particularly, the delinquency rates in credit cards and frauds in home loans. Aggressive credit
growth in retail had resulted in increased requirement for measuring and managing its risk. He
suggested that to meet the challenges, Indian banking needed extremely skilled workforce,
highly evolved credit delivery and monitoring processes, transparent and competitive pricing
mechanism and vigilant regulatory authorities.

Kakker (2005), discussed the role of Asset Reconstruction Companies (ARCs) in his study
titled, “NPA Management-Role of Asset Reconstruction Companies” and pointed out that NPAs
lose value over time and the banking system therefore, would stand to gain if NPAs were put on
a recovery path in the early stages either through ARCs or otherwise

NABARD (2005), conducted a study on “Developments in Cooperative Banking”, to ascertain

the financial performance of 1872 urban cooperative banks & 1,06,919 rural cooperative credit

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 Review of Literature

institutions. The findings of the study revealed that in all financial institutions in the rural sector,
percentage of NPAs in sub-standard category declined, while in the doubtful category, NPAs
increased during 2003-04, suggesting deterioration in asset quality. However, all the institutions
were able to meet the necessary provisioning requirements for NPAs. At the end of March 2004,
the NPAs in state cooperative banks stood at 18.5 per cent of demand while in central
cooperative banks, the same stood at 23.2 per cent of demand. It further highlighted that the ratio
of NPAs in CCBs varied significantly across the states from 5 per cent to 68 per cent as on
March 31, 2004. In only 4 states (Haryana, Himachal Pradesh, Punjab and Uttranchal) the NPA
ratio was less than 10 per cent.

Iyer (2005), in his study, “Regulation of Cooperative Banks in India” observed that lack of
professional management and involvement of family in the running of banks often led to related
lending. Friends and relatives of directors were beneficiaries of loans sanctioned without proper
scrutiny of the worth of their projects, resulting in NPAs

Bhaumic (2005), conducted a study on “The Risk Aversion of Banks in Emerging Credit
Markets: Evidence from India”. He suggested that credit disbursal by banks can be facilitated by
regulatory and institutional changes that help banks mitigate the problems associated with
enforcement of debt covenants and treatment of NPAs on balance sheets.

Castelino (2006), observed that the accretion to NPAs was a major problem in the 1990s. Since
then the banks have learned to grapple with the problem of NPAs and consequently gross NPAs
had been on the decline. Net NPAs of public sector banks declined from 2.42 per cent in 2001-02
to 0.95 per cent in 2004-05.Gross NPAs of public sector banks had reduced to 3.80 per cent in
2005-06.

John and Philip (2006), conducted a study on “Non Performing Assets in the Banking Sector: A
Study of Recovery through DRTs”. They stressed that NPAs was the most generally used
yardstick to judge the financial health of the banking system. Since the introduction of the
prudential norms in 1992-93, the NPAs of Indian banks had drastically fallen from 16.58 per
cent on March 31, 1996 to 5.34 per cent on March 31, 2005. In context of managing NPAs, they
further stressed that the normal process of debt recovery through courts was lengthy and time

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consuming and it was not suited for recovery of bank dues. Consequently, „Recovery of Debt
due to Bank and Financial Institution Ordinance, 1993‟ was promulgated on June 24,1993 and a
separate „fast track judicial system‟ for cases related to recovery of banks and financial
institutions was set up in the form of Debt Recovery Tribunals (DRTs) and Debt Recovery
Appellate Tribunals (DRATs) in India. The DRTs followed summary procedure and were guided
by the principles of natural justice

Shiralashetu and Akash (2006), conducted a study on topic, “Management of Non Performing
Assets in Commercial Banks-Some Issues” and observed that NPAs were higher in public sector
banks i.e. 76.61 per cent than in private sector and foreign banks. Making sector-wise
comparison, they concluded that NPAs were more in the non-priority sector (i.e. 55.83% of total)
than in public and priority sectors as on March 31, 2003. Within the priority sector, the SSI
sector had the largest share of NPAs i.e. 41.72 per cent of total NPAs.

Noronha (2006), conducted study on, “Non Performing Asset Management-Key to Robust
Banking System” and outlined causes and impact of NPAs. According to his findings, adverse
agro climatic conditions and floods were the main factors contributing to excessive defaults in
croploans. Second factor accounting for high default rate was inadequate and untimely loans
advanced by the banks. According to study causes of NPAs were large-scale government
involvement in the banking sector and lose control on connected lending.

Pevekar and Ashvine (2006), emphasized the role of public relations personnel in reducing
NPAs. They concluded that public relations people should be sensitized to realize that they were
the key persons in improving relations between banks and customers. It would make the banks
more customer focused and further help in reducing NPAs

Campbell (2007), observed that establishment of internal control systems in accordance with
Basel was essential to ensure minimization of the problem of nonperforming loans (NPLs), but
this could be achieved only after an effective system of prudential regulation and supervision
putting place. This goes beyond simply having in place a regulatory framework. The supervisor
must be provided with adequate enforcement powers and be sufficiently well resourced to
undertake the task effectively. A framework for dealing expeditiously and effectively with

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insolvent banks , needs to be established and this should provide for restructuring where it could
be possible and an effective liquidation process where it was not.

Bhatia (2007), conducted study on the topic, “Non-Performing Assets of Indian Public, Private
and Foreign Sector Banks: An Empirical Assessment”. According to the study one of the
important parameter to evaluate the performance and financial soundness of banks is NPA. The
magnitude of NPAs defines the stability and growth prospects of banks. The study revealed that
the two significant factors that affect NPAs of banks are macroeconomic factors and bank-
specific parameters.

Bhatt (2007), conducted study on “Banking in India” observed that inability to gauge the
importance of transparency, accountability and prudential norms in the operations of the banking
system resulted in an increased burden of non performing assets (NPAs). Low operational
efficiency, unhealthy balance sheets and unsatisfactory customer service further threatened the
very stability of the financial system.

Lakhmana Rao K. (2007), discussed about the stability in the banking system in view of the
level of non-performing assets (NPAs) in his study titled, “Transformation of Public Sector
Banks after Reforms in India. Asset quality of the commercial banking sector on the whole
improved remarkably in spite of gradual tightening of prudential norms and the slowing down of
the economy in recent years. Gross and Net NPAs both as a proportion of Advances/Assets had
declined since early 1990s. The share of NPAs, in gross as well as net terms, declined
significantly during the reform period.

Monteiro and Ananthan (2007), in their study titled, “NPAs in Public Sector Banks: Causes
and Cures, An Analysis of Managers Perception”, opined that the biggest challenge faced by
banking industry was management of NPAs. Branches of Corporation Bank Limited, in two
highly banked districts of Karnataka, were selected for the study. The purpose of the study was
to analyze the possible causes for NPAs and to discuss steps required to control them. They
concluded that, the main reasons for NPAs were willful default, diversion of funds by loanees,
poor monitoring and follow up, improper processing of loan proposals, natural calamities
resulting into crop failure and business failure of loanees. They concluded that, better follow up

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 Review of Literature

mechanisms; active involvement of revenue and government bodies in recovery; SARFAESI

Act, wherever applicable, must be invoked; appointment of recovery agents for collection on
daily basis from transport operators and retail traders; going for compromise settlement rather
than recovery through legal suits and understanding customer difficulties and providing proper
assistance to them will help the banks to reduce NPAs.

Chandra M (2008), recommended that the Finance Ministry should leave the matters relating to
NPAs to RBI without going into the merits of the case. Secondly, by interfering in these matters,
the Finance Ministry is certainly not helping the central bank to exercise effective supervision
over the banking system.

Kilam (2008) suggested that borrowers, who were generally regular in their repayments and just
default occasionally and that too due to circumstances beyond their control, surely need and
deserve the support of law-enforcing agencies to ensure that they were not harassed by the
bankers and their recovery agents. However the recovery process must be tightened for willful
defaulters who misused bank loans for other uses and often fail in their entrepreneurial ventures
because of greed or business blunders

Kumar (2008) in her Doctoral thesis titled, “Management of Non-Performing Advances-A study
of District Central Cooperative Banks of Punjab”, took sample size of 10 DCCBs i.e. five with
high NPAs level and five with low level of NPAs, for the study. It was revealed that despite the
best efforts, Central Cooperative Banks could not succeed in expanding their business. The
NPAs in crop loan were lowest and, in non- farm sector loan, they were found to be the highest.
Step- wise multiple regression method was used and, and, it was found that caste, education
level, amount and adequacy of loans, were the predominant factors affecting repayment
performance of borrowers. She recommended that these banks should create a special cell to
supervise NPAs and should take services of recovery agents.

Srivats (2008) highlighted that the net non performing assets (NPAs) of public sector banks had
declined in absolute terms to Rs.16,433 crores as on December-end 2007 from a level of
Rs.16,663 crores as on September-end, 2007. The net NPAs of Rs.16,433 crores as on
December-end, 2007 including that of State Bank of India (SBI) group was however higher than

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 Review of Literature

the net NPA level of Rs.15,144 crores as on March-end, 2007 and Rs.14,564 crores as on
March-end, 2006.

Pathak (2009) conducted study entitled „The Role of Asset Quality in Financial Health of
Banks‟. With the help of statistical data, the study described that NPA is a serious threat to the
Indian economy, estimated around 9.8% of GDP at constant prices in 2005. The study detailed
the list of those banks whose NPA was greater than their net worth that had posed the significant
question on efficiency of the credit risk management

Kaur (2010) in her thesis titled, “Impact of Business Diversification on Asset Liability Structure
of DCCBs of Punjab”, elucidated that diversification of business in cooperative banks was not
lucrative and, as such, the transfer of funds from agricultural to non-agricultural sector resulted
into huge NPAs. This affected the performance of banks adversely. Problem of NPAs,
unprofessionalism in staff of banks and lack of knowledge about loan rules emerged as the
biggest human resource problems faced by the management in bringing new loan schemes. The
study recommended to enhance advances to non-agricultural sector, promotion of non-farm
sector loans through marketing activities, acceleration of recovery machinery, checking credit
worthiness of the customers, before sanctioning loan to them and training programmes for
enhancing skills of employees.

Chaudhary, Kajal and Sharma, Monika (2011) compared the performance of public sector
and private sector banks in India, and observed that most of the changes in the functioning of
banks had taken place only after introduction of new economic policy i.e. liberalization,
globalization and privatization. The author had compared the trends of NPAs in public and
private sector banks using statistical tools. It was concluded that the economic reforms had
adversely affected the profitability of banks.

Hosmani and Hudagi (2011) undertaken the research titled, “Unearthing the Epidemic of Non
Performing Assets with Reference to Public Sector Banks in India”.The study was descriptive &
empirical in nature that revealed the position and level of public sector banks in India and
identified that there was minute improvement in the asset quality which was reflected by fall in
the diverse NPA %. The study concluded that NPA was an indispensable parameter for

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 Review of Literature

assessment of financial performance and operational soundness of banks in terms of profitability,

stability, growth, liquidity and economies of scale and banks were required to take timely action
against degradation of assets.

Ghosh Debarsh and Ghosh Sukanya (2011) emphasized on management of non-performing

assets in the perspective of the public sector banks in India under strict assets classification
norms, use of latest technological platform based on Core Banking Solution, recovery procedures
and other bank specific indicators in the context of stringent regulatory framework of the
RBI.The Researcher concluded that the reduction of non-performing assets was necessary to
improve profitability of banks and comply with the capital adequacy norms as per the Basel
Accord.

Sahila Chaudhary and Sultan Singh(2011) conducted a study on “Impact of Reforms on the
Asset Quality in Indian Banking”. According to which, assets quality had shown a significant
improvement over the years in all the groups of the banks. It concluded that banking reforms had
indeed transformed Indian banks into strong, stable, profitable and prosperous entities. Indian
banking system could claim that their NPA levels would be of international standards, with
prudential provisioning, classification and an adequate capital base. He suggested that to remain
competitive and enhance soundness, Indian banks should stress upon effective cost management,
recovery management, and technological intensity of banking, governance, risk management and
financial inclusion.

Sukhmani (2011) in her thesis titled, “Performance Evaluation of Central Cooperative Banks: A
Comparative Study of Punjab and Haryana”, elucidated that the profitability and productivity
performance of DCCBs Punjab was more satisfactory than that of the DCCBs in Haryana. The
study also observed that DCCBs of Punjab, not only succeeded in diversifying their business in
commercial loans, but, they were also more organized in recovery management of short-term
agricultural loans. She recommended that the DCCBs in both the states should increase their
resource base at low cost and expand their operations to the high yielding loan portfolios. She
also suggested that separate Act called, “The Punjab Co-operative Credit Societies Act”, should
be enacted taking into consideration the special nature of banking business and dynamic
economic environment.

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 Review of Literature

S. Chaudhary and Singh, S. (2012) studied the impact of post-liberalization banking sector
reforms on asset quality of SCBs in India. The main purpose of the study was to analyze the
impact of reforms on asset quality of public sector, private sector and foreign banks in India. The
study used secondary data on NPAs, classification of assets etc for the time period 1996-07 to
2009-10 (13 years) and used statistical tools such as ratio analysis and ANOVA technique. Based
on the data analysis, the authors concluded that the asset quality had shown a notable
improvement over the period in all bank groups. The findings of the study supported the role of
banking reforms in transforming banks into strong, upgraded, profitable and prosperous entities.

Sandeep and Parul Mital (2012) had conducted the comparative study of non-performing assets
of selected public and private sector banks in India to analyze their performance and efficiency.
Study was based on secondary data collected for the period of ten years. Data was analyzed
using descriptive statistics and ANOVA .It described that every bank attempted to formulate
policies to manage asset quality in the bank. It was found that PNB and HDFC banks were
superior in managing nonperforming assets comparative to SBI and ICICI and furthermore
private sector banks proved to be more efficient in its working, comparative to public sector
banks.

Gurumoorthy T.R. AND SUFHA B, (2012) conducted a study on, “Non-Performing Assets (A
Study With Reference To Public Sector Banks)”. They analyzed the composition of NPAs in
different sectors, classification of loan assets in PSBs, and NPAs position in PSBs. It was
observed that PSBs exercised control measures to lessen the level of NPAs. It was concluded that
NPAs might not turn banks into Non-Performing Banks; instead effective measures should be
taken to convert Non-Performing Assets into Now-Performing Assets. Furthermore it was
observed that a bank could remove old NPAs on its own and sell those assets to AMCs (Asset
Management Companies) to clean up its balance sheet. For prevention of fresh NPAs, the bank
should adopt proper preventive measures. They suggested preventing NPAs at its budding stage
of credit consideration by adoption of appropriate credit appraisal mechanisms. PSBs should be
well versed in selection of credit worthy borrower or project and in analyzing the financial
accounts.

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 Review of Literature

Vivek Srivastava,Deepak Bansal (2012) analyzed “Trends of Non-Performing Assets in

Private Banks in India” to evaluate whether there is upward trend or downward trend of NPAs in
private banking sector. Study was based on secondary data which was collected for period of 5
years i.e. 2007 to 2012 and was analyzed by statistical tools like average & comparative
percentage analysis. It concluded that the situation of non-performing assets was quite alarming
in banks but over the years data reflected little improvement in the assets quality due to reduction
in the NPA percentage. They further added that preventive measures needed to be adopted timely
to avoid degradation of performing assets.

Balasubramaniam C.S .(2012) conducted study on “Non Performing Assets and Profitability of
Commercial Banks In India: Assessment and Emerging Issues”, The paper was divided in four
components. The first one stressed upon concept of NPA, its identification, its impact on
profitability and financial as well as operational soundness of banks in general. The second
component showed a trend analysis of NPAs along with depth analyses of the huge amount of
borrowings from banking sectors that indicated the buildup of sectoral credit booms in general
and also analyzed financial performance and operational soundness of the borrowers. The third
part had considered on the impact of restructuring of advances by banks on the basis of asset
classification. Finally it concluded by raising certain issues and challenges that pose question on
performance of banking sector and financial stability of our economy.

Chandan Chatterjee, Jeet Mukherjee and Ratan Das (2012) conducted study on topic,
“Management of Non Performing Assets - A Current Scenario”. In the study author mainly
stressed on the causes and repercussions of NPAs and policy directives by RBI,Indian
Government policies, NPAs sector wise , bank-group wise and finally the curative and
preventive measures for NPAs adopted in India. The study reflected that there had been notable
improvement in recovery of NPAs in all bank groups. It was analyzed that there was a sharp
decline in gross NPA‟s percent to gross advances was 5.2% in 2005 and it further decreased to
2.25 % in the year 2011 in case of SCBs. Similarly NNPA‟s percentage to net advances was 1.9
in 2005 and it had decreased to 0.97%. The study suggested that considerable efforts were
needed at RBI, Ministry of Finance and the banks to control and curb the menace of NPAs. The
author further suggested that the banks had to play pivotal role to manage NPAs in a time bound
strategic approach to ensure the stability of banking sector.

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Veera kumar (2012) conducted study on topic, “Non-Performing Assets in Priority Sector: A
Threat to Indian Scheduled Commercial Banks”. The study aimed to identify the categories of
priority sector advances that had contributed to the accumulation of total priority sector NPAs .
Data was collected for the period of 10 years between 2001-02 and 2010-11. The researcher
concluded that, the gross NPAs of scheduled commercial banks had been rising each year.
Moreover author found that NPAs in priority sector were more in public sector banks as compare
to private sector banks or foreign banks. The study further revealed that in public sector banks,
NPAs in priority sector had considerable impact on total NPAs, whereas in the private banks,
NPAs in priority sector had no notable impact on total NPAs.

G. Nagaranjan, N Sathyanrayana,A. Asif Ali (2013) conducted a study on “ Non –Performing

Assets is the Threat to India Banking Sector-A Comparative Study of Priority and Non Priority
Sector Lending in Public Sector Banks”. The study aimed at showing the trend of gross NPA and
net NPA of PSBs and to know the impact of priority as well as non priority sector lending on
total NPAs of PSBs .The study revealed that gross NPA% and net NPA% of public sector banks
were in downward trend till the year 2008-09 and started increasing afterwards. Furthermore
study found that the total priority sector credit of PSBs had increased from Rs. 1,99,786 crore to
Rs. 11,30,700 crore. The priority sector NPAs of PSBs had increased from Rs. 24,938.36 crore in
the year ending March, 2003 to Rs. 56,200 crore in the year ending March, 2012

Sikdar and Makkad (2013) in their study titled, “Role of Non Performing Assets in the Risk
Framework of Commercial Banks – A Study of Select Indian Commercial Banks”, attempted to
analyze the contribution of NPAs in risk frame- work of selected Indian commercial banks and
tried to elucidate credit risks from existing levels of NPAs of commercial banks. Furthermore,
the study stressed upon measure taken and policies implemented by various commercial banks,
for recovering bad loans that were covered in NPA bracket. The research was conducted on
secondary data of public sector and private sector commercial banks. For that annual accounts
that were published by Indian Banks Association (IBA) and RBI, were studied. The study
concluded that risk management mechanism is highly needed and to be followed timely and
proper credit assessment was the key to tackle the problem of NPAs in scheduled commercial
banks.

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Z.AHMAD(2013) conducted a study on “Comparative Study on NPA Management of

Nationalized Banks”, The study was undertaken to ascertain the position of NPAs in selected
public sector banks, to know its trend and compare the NPA level of selected nationalized
banks. Data was collected for five years and analyzed by using statistical tools such as CGR,
ANOVA. It was found that in all the nationalized banks, the level of both gross NPA and net
NPA was on upward trend but there was difference in growth rate. Among all the banks first
ranks of average gross and net NPA was of Andhra Bank and Cooperation Bank.The study
concluded that improper management, willful defaults, poor monitoring were main causes of
NPAs . Timely action needed to be taken to cure the problem.

Kumar (2013) had conducted a study on, “ A Comparative Study of NPA of Old Private Sector
Banks and Foreign Banks”. According to him Non-performing Assets (NPAs) were becoming
burden for the Indian banking sector for the past several years. Accumulation of NPAs in the
banks was one of the major challenging issues that had deteriorated the performance of
commercial banks in the late 90s. He further suggested that the quality of loan portfolio was
crucial factor for the soundness and survival of the banks. They concluded that increasing
nonperforming assets had several implications on operations, stability, liquidity, solvency,
capital adequacy, profitability and goodwill of the bank.

Selvarajan & Vadivalagan (2013) conducted a study on ,“ Management of Non-Performing

Assets in Priority Sector reference to Indian Bank and Public Sector Banks (PSBs)” They
stressed upon increasing lending to the priority sector. They further added that Indian Banks had
slippages in controlling NPAs in the early years of decade .Hence, it had become indispensable
for the management of banks to pay special attention towards the NPA management and take
appropriate and preventive measures to stop the creation of new NPAs, besides making
recoveries in already existing NPAs. Timely actions were recommended to ensure growth and
success of the Bank.

Prof Ganesan. D. and Prof Santhanakishnan. R. (2013) had made an attempt to analyze the
sector-wise NPAs, category-wise priority sector NPAs and impact of spread on Gross and Net
NPAs. They also analyzed the reasons for an assets becoming NPA and remedial measures to be

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taken and concluded that due to various steps taken by the Government of India, NPAs had been
reduced to considerable level.

Sulagna Das, Abhijit Dutta (2014) had undertaken study on NPAs in public sector banks in
India. Researcher used secondary data of net non-performing assets of 26 public sector banks for
the period of six years (2008 to 2013). The main aim of the study was to evaluate any mean
variation of selected banks. Study also stressed upon causes of NPAs and its impact on banking
operations. The study resulted that that there was no significant difference between the means of
NPA of the banks at 5% level of significance. Hence they concluded that in the recent years,
banks had similar NPAs irrespective of their operations and management policies.

Satpal (2014) conducted study on the topic , “A Comparative study of Non Performing Assets in
Public and Private Sector Banks in the New Age of Technology”. The study aimed at showing
the past five year‟s trend of NPAs in banks and to conduct comparative study of NPAs in public
and private sector banks. The study revealed that NPAs were very much higher in public sector
banks as compare to private banks. And NPAs in Indian banks were higher than foreign banks.
The study suggested government to make more provisions for quick settlement of cases and the
level of compulsory lending to priority sector should be diminished.

Malhotra.M (2014) analyzed that NPAs pose a notable threat for the Banks in India. Non-
performing assets must be managed properly and certain curative measures should be taken for
the healthy and stable environment of banks in India. They further explained the positive impact
of priority sector lending‟s on NPAs. Recession had been considered another major reason for
rising NPAs in Indian banks.

Narula and Singla (2014) attempted to find out the NPAs of Punjab National Bank and its
impact on its profitability & to evaluate the relationship between Total Advances, Net Profits,
GrossNPAs and Net NPAs. The study was based on secondary data which was collected from
annual reports of Punjab National Bank for the period of six years from (2007-2012) This paper
concluded that there was a positive relation between Net Profit & NPAs of Punjab National
Bank. It was due to mismanagement in the conduct of banking system.

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RBI (2016) : As per baseline scenario projection by the Reserve Bank of India in its Financial
Stability Report , Gross bad loans of commercial banks could rise to 8.5 per cent of total
advances by March 2017, from 7.6 per cent in March 2016, “The macro stress test that under the
baseline scenario, the gross NPA may rise to 8.5 per cent by March 2017,” It stated that if the
macro situation would deteriorate further, then the gross NPA ratio may increase to 9.3 per cent
by March 2017.

CP Chandrashekhar and Jayati Ghosh (2016) highlighted that According to RBI‟s financial
stability report, June, 2016 the problems in banking sector were tremendously rising due to
deteriorated asset quality and decreasing profitability, as systemic risk had increased because of
changes in the nature of bank exposure .

The study showed that restructuring & recapitalization process which were associated with
the post-1991 „reforms‟, had resulted in a sharp decline in the ratio of gross NPAs to gross
advances from 15.7 % in 1996-97 to 2.3 % in the year 2008-09,( the year of the global financial
crisis).However, since then reversal in trend had been noticed , with the NPA ratio increasing to
3.4 % in 2012-13, 4.6 % in 2014-15 and 7.6 per cent in 2015-16.

Vivek Rajbahadur Singh(2016) conducted research on the topic , “ A Study of Non-Performing

Assets of Commercial Banks and it‟s recovery in India”. The research aimed at studying the
status of NPAs and its impact on commercial banks. Study was conducted on secondary data of
14 years (2000-2014). the study resulted that Gross NPAs of scheduled commercial banks had
increased from Rs. 708 Billion in year ending 2001 to Rs 2642 Billion in the year ending 2013
and Net NPAs of scheduled commercial banks had increased from Rs. 355 Billion in the year
2000- 01 to Rs. 986 Billion in the year 2012-13. Furthermore, study revealed that NPAs as a
percentage of net advances was lowest at 1.0 % in the years 2007-08 & 2008-09 and it was the
highest at 5.5 % in the year 2001-02. In the year 2013-14, it was at 2.2%. Author further
suggested the management of banking sector to speed up the recovery process.

Dhawan Annu(2016) in her study ,”Financial Performance of District Cooperative Banks in

Punjab: Application of CAMAL Model,” observed that more than half of DCCBs did not have
the required percentage of capital. The researcher suggested that RBI should develop monitoring

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 Review of Literature

parameters for those banks according to their working conditions. She further suggested the
merger of all DCCBs in the state to form a strong bank.

Perusal of above literature shows that banks had been remained a favorable subject of research
and a lot of work on various aspects of banking has been done. However comparative evaluation
of asset quality in public and private sector has remained unstudied. Working practices of private
and public sector banks differs a lot and always have a bearing upon working of their banks.
Moreover in changing economic environment research is required again and again. Therefore,
we have planned to conduct a study i.e. “Asset Quality Management Practices in Banking Sector,
A comparative Study of Public Sector and Private Sector Banks in India”.

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 Review of Literature

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