Since the introduction of economic liberalization and financial sector reforms, Banks are under growing pressure to bring down their NPAs so as to improve their performance and viability. What is bothering the bankers today is the management of Non-performing Assets. Over the period this problem has aggravated alarmingly and therefore needs urgent remedial actions, so in this context a good number of circular instruction/guidelines have been issued by bank/Reserve Bank of India. Three letter ³NPA´ strike terror in banking sector and business circle today. NPA is short form of ³NON PERFORMING ASSETS´ which simply mean: when interest or other due to banks remains unpaid for more than 90 days, then the entire bank loan turn into non performing assets. The recovery of loan has always been problem for banks and financial institutions. Public sector banks figure prominently in the debate not only because they dominate the banking industry, but also since they have much larger NPAs compared with the private banks. This raises a concern in the industry because NPAs reduce the profitability of banks, weakened its financial health and eroded its solvency. To come out of these first we need to think is it possible to avoid NPA, or find out those factors which are responsible for NPA and managing those factors. This research helps the banks, financial institutions and students for further research and management of NPAs. The research design is descriptive as well as exploratory to know the impact of NPAs and solutions of NPAs. The data is use in this research is secondary. This research analyze the GNPA and NNPA of public and private sector banks to know the impact of NPAs on private and public sector banks and their strategies to manage NPAs. The findings and recommendations of this research help the researcher to go into a depth of this problem and provide a suitable action to control NPAs for the economic health of a nation.


This study presents a picture of NPAs in public sector and private sector banks and after analysis it could help to know the effect on the financial health of the banks and to know the draw backs of their strategies adopt to recover the bad debts. It also helps to make new strategies to manage the NPAs. Present study helps me and other students to enhance their knowledge in the field of NPAs and banking industry. Several tools and technique is used to enhance the skills which is important in the field of finance.

An NPA is an advance of borrower account which does not generate income for the bank but they incur various inherent costs like a) Cost of deposit b) Cost of servicing c) provisioning at appropriate rates d) Capital adequacy requirements on these assets and e) Cost of recovery.

Identification of NPAs
Identification of an account as NPA depends upon the nature of borrowable account whether it is a) Operative b) Non operative c) Bills d) Agricultural advances or any other miscellaneous accounts.

A. Operative like cash credit, over draft etc: A cash credit / over draft account will have to be treated as NPA if account remains out of order for more than 180 days. An account shall be out of order if any one of the following conditions exists: The balance outstanding remakes continuously in excess of the sanctioned limit during the last six months prior to balance sheet.  The balance outstanding is within the limit / drawing / drawing power but there is no credit in the account continuously for six months as on the balance sheet date.  There is credit but such credit is not enough to cover the interest debited during the six month as on the date of banks balance sheet. B. Non operative like term loans, borrowable account with repayment programs: If interest / installment of principal remain overdue for a period of more than 180 days. Note: When the prudential norms were introduced in 1992, the concept of µpast due¶ was incorporated and it was classified that an amount should be classified as past due when it remains outstanding for 30 days beyond the due date. However due to improvement in the payment and settlement systems, recovery climate, up gradation of technology in banking systems etc. It has been decided by RBI to dispense with the past due concept with effect from 31st March 2001. Hence to all account to become NPA, cutoff date is September 30th of the Year under audit.

C. Bill purchased / Discounted / Negotiated: A bill purchased / discounted / negotiated becomes NPA, if it remains overdue and unpaid for two quarters or more. For bills discounted, for the unusage period and grace period should be taken to consideration for arriving at the due date. D. Agricultural advances: Agricultural advances where interest and or installments of principal remains unpaid after it has become past due for two harvest season but for a period exceeding to half years should be treated as NPA. E. Miscellaneous accounts Any other credit facility or account should be treated as NPA if any amount to be received in respect of that facility or amount remains unrealized / uncovered for a period of two quarters.

Gross NPA and Net NPA
As per RBI circular gross advance means all outstanding loans and advances for which refinance has been received but excluding rediscounted risks and advances written off at Head Office level. The gross NPA and net NPA are always expressed as a percentage of advances. The

percentage of gross NPA to advances including all Interest Suspense account where the bank is following the accounting practice of debiting interest to the customer account and crediting Interest Suspense account. The following are deducted from gross NPA to arrive at net NPA.  Balance in Interest Suspense account, if applicable;  Deposit Insurance Guarantee Corporation / Export Credit Guarantee Corporation claim receive and pending adjustment;  Part payment received and kept in Suspense account;  Total provisions held excluding technical write off made at Head Office and provision of standard assets. RBI has advised that while reporting banks has to reduce technical write off made at Head Office from gross advance also.

Classification of NPAs Banks are required to classify NPAs further into the following three categories based on the period for which the asset has remained non-performing and the reliability of the dues: i. Sub-standard Assets: 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, or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full. Such assets will have well defined credit weakness that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the bank will sustain a loss. ii. Doubtful Assets: A Doubtful Asset which has remained NPA for a period exceeding 18 months. It has all the weaknesses inherent to a sub-standard asset with the added characteristic that the collection or liquidation in full ± on the basis of currently known facts ± is highly questionable and improbable. iii. Loss Assets: A loss asset is one where a loss has been identified by the bank or, internal or external auditors but the amount has not been written off wholly.

Das (1990) has compared the various efficiency measures of public sector banks by applying data envelopment analysis model and concluded that the level of NPAs significant negative relationship with efficiency estimates.  Verma (1999) has concluded that high level of NPAs leads to operational failure of the bank.  Berger and young (1997) has examined the relationship between problem loan and bank efficiency by employing Granger-causality technique and found that high level of problem loans cause banks of increase spending on monitoring, working out and / or selling off these loans and possibly becomes more diligent in administering the portion of their existing loan portfolio that is currently performing.  Gupta (1997) has also concluded that NPAs on profitability of banks and leads to liquidity crunch and slow down in the growth in GDP etc.  Kaveri (1995) has also examined the impact of NPAs on profitability by taking profit making and six loss making banks and concluded that loss making banks maintained higher NPAs in the loan portfolio which led them to show losses.  Kwan and Eisenbeis (1994) also concluded that there is negative relationship between efficiency and problem loans.  Toor (1994) analyzed that poor recovery management leads to reduction in yield on advanced that poor recovery management leads to reduction in yield on advances, reduced productivity loss in the credibility and put detrimental impact on the policies of the banks.  Murthy (1988) has examined that default bring down the return accruing and to them, reduces effective rate of interest and reduces the funds¶ recalculation and increase their dependence on external sources thereby increasing the costs


The focus of the study is analyzing the data of banks efficiently and correctly which is helpful to give right conclusion. The focus is to enhance the knowledge by putting efforts and reading more and more about the NPA through various books, magazines, journals and researches.


To know the concept and impact of NPAs.  To analyze the financial performance of private and public sector banks at different level of NPA.  To find out effective solutions which help banks and financial institutions to reduce NPAs.

1) Descriptive & Exploratory Research Methodology¶ is adapted for this project work. The present study is descriptive in nature, as it seeks to discover ideas and insight to bring out new relationship. Research design is flexible enough to provide opportunity for considering different aspects of problem under study. It helps in bringing into focus some inherent weakness in enterprise regarding which in depth study can be conducted by management. Exploratory research is investigation of relationships among variables without knowing why they are studied. It borders on an idle curiosity approach, differing from it only in that the investigator thinks there may be a payoff in the application somewhere in the forest of questions. 1) Source of data collection The data collected for the study was secondary data in Nature. 2) Tools use for analysis the data The data collected were analyzed with the help of statistical tools like frequency, percentage and trend analysis. Tables are used to represent the consolidated data. Graphical representation is also used for better comprehension & presentation.

Shortage of time :Time is very short for research, so that is very difficult can get the knowledge about everything.  Information not sufficiently available The source of data collection is secondary so the information available is not sufficient.  No direct source of information available The information is collected from indirect sources so in some information data is not available.  Secondary data:Information is not reliable because of secondary data


The structure of present study is as follows:

Chapter 1 of this study covers the introduction of the study, significance of the study, objectives of the study, focus of the study, conceptualization and plan of the study. The chapter also includes research methodology containing the nature of research.


Chapter 2 explores the significant literature published on the present study reflecting understanding of the relevant theoretical and empirical background of the problem.

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Chapter 3 consists of Industry and Company Profile. Chapter 5 of this study contains recommendations and conclusions providing the end result of the study. The last part gives the limitation of the study.


V. Venugopal ± µPrudential norms for banks and NBFC¶s ± Revised 5th Edition.  Finance India, September 2005 pp-957-961  Charted Financial Analysis, October 2005 pp-64  Annual reports of banks  Indian Financial System, VK publication, pp-100-105 
RBI Bulletin, January 2004 pp-17-19 Website: