IRJMSH Volume 4 Issue 2 online ISSN 2277 – 9809

The Integrated Approach To Management Of Npas In Axis Bank

By Mr. Bharatkumar D. Prajapati

Asst. Professor,
S. K. College of Business Management,
Hemchandracharya North Gujarat University,
Patan- 384265

Mr. Bharatbhai M. Prajapati

Para BBA & BCA college,
Asst. Professor,
Mahesana
Abstract:

NPA is a virus affecting the banking sector. It affects liquidity and profitability, in addition
affectation threat on quality of asset and survival of banks. The study explored movement of
virus of indicator; gross NPA, Net NPA addition to NPA, Reduction of NPA and provision
toward NPA and compare it with total advance and total deposit of bank. The study of utilize of
bank group wise performance statistic and post millennium period up to the period ended 31 st
December 2011. The study of utilize growth rate and calculating using AAG rate, correlation and
regression study of analysis the movement of significance of NPA is indicators during the
period. The effect in global financial crisis on the NPA is indicators as well are explained. The
study conclude that NPA still remain that major threat and incremental component explained
through additions NPA creates a great question mark to efficiency of credit risk management of
Bank of India.

The Reserve Bank of india (RBI) has issued prudential norms regarding identification of
nonperforming assets NPAs, asset classification, providing and income recognition on the April
1, 1992 with these norms RBI introduction the concept of the non-perfuming assets NPAs. The
financial committees (1991,1998) chaired by M.Narsimham formar Govenor,RBI specially the
second committee 1998 emphasized management of NPAs in the bank to improve assets quality

International Research Journal of Management Sociology & Humanities Page 1060

http:www.irjmsh.com
IRJMSH Volume 4 Issue 2 online ISSN 2277 – 9809

and make Indian Bank capable to completed successfully in changing global environment. To
Bharati v. Phathak 2008 “Non-performing assets NPAs are loan givan by a bank or a financial
institution wherein the borrower defaults or delays interest or principal payment”.

Keywords: Gross NPA, Net NPA, Additions to NPA, Total advances, Total deposits, AAG rate

Integrated Approach to Management of NPAs

The performing assets of the banks turn into nonperforming assets on account of various internal
and external reasons. The internal reasons or factors include poor credit appraisal system, lack of
proper supervision, and monitoring of loan portfolio, slow recovery, and aggressive strategy
adopted for selling various loan products, lack of managerial competence and professional skills,
tolerance for loss making branches etc. The integrated approach to management of NPAs
involves the following three steps:

1) Precautionary steps: The precautionary steps are like the vaccination system, which
enable banks to see that performing assets do not turn into non-performing assets. These
step including sound credit appraisal system, skills and commitment of bank officers and
emploees, effective supervision and monitoring of borrowal accounts etc.
2) Application of prudential norms, RBI guidlines and Recovery strategy if the perfoming
assets banks and required to implement prudential norms and RBI guidlines regarding
income recognition, asset, classification, provisining and capital adequancy. To manage
NPAs RBI issues guidlines form time to time to the banks. In case industrial sickness
detailed guidlines have been issued to to the banks to take steps for avoiding sickness,
nursing back the sick units etc. As per RBI guidlines the board of directors of the bank
should lay down policies regarding management of NPAs particularly their prommpt
recovery. The Banks should take steps to reduse NPAs througth upgradation,
restructuing and compromise or settlements.
3) Improving Tolerance Power of banks the third step in the process of management of
NPAs in the improving tolerance power of banks. According to the system approach to
management, banking companies also operate in the wide social economic environment
therefore the changes talking place in the micro environment affect the banking

International Research Journal of Management Sociology & Humanities Page 1061

http:www.irjmsh.com
IRJMSH Volume 4 Issue 2 online ISSN 2277 – 9809

companies and the operational efficiency and financial health of banking companies also
affected the social segments and economic sectors of a country. Hence, in spite of best
efforts of the management of bank, the non perfoming assets may occou. For example
recessionary trends affect the banks as well as various sectors of economy, consequently
the industries may find it difficult to repay bank loans.

Research objective

The main objectives of the present study are:

i) To analysis trend of non-performing assets of AXIS Bank (Micro trend analysis) and
private sectors (Micro trend analysis)
ii) To examine the impact of the application of the nitrated approach to management of
the performing assets in the Axis Bank.

Research hypothesis

To analysis the problem of NPAs of the AXIS Bank and the impact of the integrated
approach to management of NPAs the following null hypothesis is being formulated.

“The management of non-performing assets has not been effective in the AXIS bank
during the research period i.e. year 2001-01 to 2010-11

Study period

The study period has been selected from the year 2001-01 to 2010-11 i.e. a span of 10 years.

To analysis and interpret data the study period (2001-01 to 2010-11) has been sub divided into
two segments.

i) First five years of the decade i.e. years 2001-01 to 2005-06 and
ii) Recent five year of the decade i.e. years2006-07 to 20010-11.

Sources of data

To carry out present study the data have been compiled and collected from the following
sources:

International Research Journal of Management Sociology & Humanities Page 1062

http:www.irjmsh.com
IRJMSH Volume 4 Issue 2 online ISSN 2277 – 9809

i) Published annual Reports of the Axis bank

ii) RBI’s reports on trend and progress of banking in India
iii) Website of RBI and AXIS bank.

Hypothesis Testing

To test hypothesis collection data were rearranged, classified tabulated and competed as per
requirements of the study. To analysis trend of non-performing assets in the AXIS Bank and
private sectors banks averages standard deviation and private efficient of variation of calculated.
Further to test manage NPAs implementing integrated approach to management of NPAs were
analyzed in three phase or steps firstly the precautionary steps, which enable do not turn into non
performing assets, secondly the administrative and legal steps, which enable banks implement
prudential norms regarding income recognition, assets classification, provisioning, capital
adequacy and use of managerial and legal tools to recover and reduce non perfuming assets.
Thirdly, improving tolerance power or efficiency of the bank to manage present and potential
NPAs efficiency of the bank the following parameters measuring business and financial
performance were used.

1) Deposited/Advance/Business per employee

2) Deposited/ Advance/ Business per Branch
3) Total Income/interest Income/Non-interest income/ Spread per Employee
4) Total Income/interest Income/ Non-Interest Income/Spread per branch
5) Total expenditure/Operating Expenses/Per employee
6) Total expenditure/Operating Expenses/ Per Branch
7) Gross and Net Profit per Employee
8) Gross and Net Profit per Branch

Some Features of AXIS Bank

The AXIS bank is the largest private sector bank in India. It was incorporated on 1994. It was
promoted by the Unit Trust of India Ltd. In the name of AXIS bank of the India Limited. In the
business community it was popularly know as AXIS Bank corporation Ltd. To the AXIS Bank
with effect from 2003. The organization is structured into the following principal groups.

International Research Journal of Management Sociology & Humanities Page 1063

http:www.irjmsh.com
IRJMSH Volume 4 Issue 2 online ISSN 2277 – 9809

Retail Banking group

Wholesale Banking group
Corporate centre
International banking Group
Globlr Marketing group
Human resource management Group
Customer service group
Informational technology group
Agriculture Loan group
Global infrastructure and Administration group
The managing Director and Chef executive officer of the bank with her term of
managerial personnel and more then 68 thousand employees working in various groups, offices
and branches of the bank put in their expected efforts to achieve the target of the bank. The bank
emphasizes human resource development and provide challenging roles and assignments,
opportunity for personal growth, relevant and time performance supported, training and
motivation environment to its employees on the foundation day of the bank i.e. 5th January, the
bank launched a special campaign for its employed know as " Hum Hai Na "through this
campaign, the bank has clearly and in a transparent manner articulated, what employed can
expect from the organization.
Business and Financoal Perfomance of AXIS Bank
The five year avarage total assets and net profitof the bank have recorded growth of 485.08
percent and 172.22 as on March 31,2011 the variation of in the growth of five year avaragenet
profit and total assets.
Table:1 Selected parameter of Business and Financial performance Of AXIS Bank During
the Year2001-02 to 2010-11 Amount Rupees in Crore.

Average
Average (2001- (2005-06 to
Parameters 2001-02 02 to 2005-06 2010-11 2010-11
Deposits 40113.53 52574.54 141300.22 112514.1
Advance 46034 49849.14 136246 107968.24

International Research Journal of Management Sociology & Humanities Page 1064

http:www.irjmsh.com
IRJMSH Volume 4 Issue 2 online ISSN 2277 – 9809

Total Business 86147.53 102423.68 277546.22 220482.34

Low Cost deposited 4750 13514 87647 73506
In percentage in% 11.84139 25.70445 62.0289 65.33047
Credit-Deposited Ratio in
% 114.7592 94.81612 96.42306 95.9597
Total Assets 49731.12 109577.85 147722.05 180648.85
Interest on Income 1078.23 2585.35 3686.21 5004.49
Non Interest on Income 729.63 1011.11 2896.88 3945.78
Net Profit 485.08 659.03 1815.36 2514.53
Return on Assets in % 1.18% 1.25% 1.44% 1.67%
EPS in Rupees 17.45 23.5 50.61 65.78

Research Findings
NPAs of AXIS Bank: Micro trend analysis
Analysis of Table 2 depicts that gross NPAs as percetage of gross advance /total assets have
shown declineg trend during the first five years of the decade i.e 2001-02 to 2010-11.
Table: 2 Gross and Net Non perfoming Assets of AXIS Bank
(As on 31 st March of Respective Financial year)

Year Gross NPAs Gross NPAs

Amount As % of As % on Amount As % of As % on
Cr. Gross Total Cr. NET Total
advance Assets advance Assets
2001-02 930.12 12.23 6.32 450.44 6.48 3.12
2002-03 815.18 8.76 4.41 437.12 4.32 2.47
2003-04 736.12 7.4 3.72 372.85 3.72 1.52
2004-05 1120.76 9.56 5.74 612.56 4.85 2.65
2005-06 993.81 8.74 4.76 488.75 4.56 1.89
2006-07 1263.85 7.32 3.64 612.45 3.89 1.78
2007-08 2225.92 5.44 2.18 1577.96 2.75 0.98
2008-09 3724.88 7.24 3.46 2244.15 3.49 1.56

International Research Journal of Management Sociology & Humanities Page 1065

http:www.irjmsh.com
IRJMSH Volume 4 Issue 2 online ISSN 2277 – 9809

2009-10 5240.55 8.25 4.12 3841.11 4.28 2.48

2010-11 7579.06 12.24 6.18 4218.34 6.25 2.8
Avaeage 2463.025 8.18 4.53 1485.573 4.46 2.225
Mean 1870.48 6.14 2.51 1840.36 4.86 2.76
S.D 1248.91 3.12 1.89 1238.18 2.19 1.06
C.V. % 51.49 57.31 48.43 47.49 72.21 65.65

In absolute terms five year increase from 1870.48 crore and Rs.1840.36 crore as on march 31,
March 31, 2006 to Rs. 1263.85 crore to 612.45 crore from Net Positon.
NPAs of private Sectors Banks: Macro Trend Analysis
Analysis of table 3 reveals that gross NPAs as a percentage of gross agvance of old, New and all
the private sectors banks have decline from 11.01 percent, 8.87 percent and 9.65 percent as on
march 31, 2002 to 1.97 percent, 2.33 percent and 2.25 percent respectively as on March 31, 2011
Five year avarage gross NPAs to gross advance ratio of old, and New Private sectors Bank
declined from 7.57 percent, 5.38 percent and respectively.
As regards overall avarage of these ratio, gross NPAs as percentage of gross advance were
lowest of new private sectors bankss with mean values of 3.92 percent and 1.97 percent,
respectively. And maximum variations were oberseved in the old private sectors bank with 64.95
percent co-efficient of variation (C.V).
Table-3 Non perfoming Assets of Private Sectors Banks:

Gross NPAs as% of Gross Advances Net NPAs as% of Net Advances
Old New New
private Private Private Old private Private Private
Sectors sectors sectors Sectors sectors sectors
Year Bank Bank Bank Bank Bank Bank
2001-02 11.01 8.87 9.65 7.11 4.94 5.72
2001-06 7.57 5.38 5.97 4.18 2.94 3.28
2010-11 1.97 2.33 2.25 0.53 0.56 0.56
2006-11 2.38 2.46 2.52 0.76 1.00 1.05
Mean 4.97 3.92 4.25 2.47 1.97 2.16

International Research Journal of Management Sociology & Humanities Page 1066

http:www.irjmsh.com
IRJMSH Volume 4 Issue 2 online ISSN 2277 – 9809

S.D 3.22 2.49 2.68 2.31 1.57 1.79

C.V% 64.95 63.63 63.26 93.65 79.98 82.68

Management Of NPAs in AXIS bank: Implementation of Integrated Approach

The overall capital adequency ratio of the AXISh bank has lied with in the range of 12.65
percent to 17 % percent during the years 2010-11. The bank has implemented base on capital
adequacy norms with effect from march 31, 2008 in 15.79% for the highest for last previous
year.
In addition to implementing the NPAs recoury policy approved by the board od directorss
management sale NPA accounts to the securoties of companies. The bank has sold 97488 NPAs
account with aggeregate value of Rs. 5765.22 crore to the assets Reconstruction compay of india
ltd.and other reconstruction companies during the year 2004-05 to 2010-11. And the bank
booked aggeregate loss of Rs. 305.97 crore on these tractions of transfer of assets.
Table-4 Capital Adequacy Ratio of AXIS Bank.

Year Tier-I Capital % Tier-II Capital % Overall %

2001-01 8.25 5.48 13.73
2002-03 6.73 4.84 11.57
2003-04 4.25 6.96 11.21
2004-05 7.12 5.54 12.66
2005-06 5.79 5.29 11.08
2006-07 7.19 6.50 13.69
2007-08 8.22 7.57 15.79
2008-09 6.22 6.43 12.65
2009-10 6.84 6.82 13.66
2010-11 8.56 8.44 17.00

Deposites/Advances?business per Employee and per Brance

Table-5 Business and FINANCIAL Perfomance of Axish bank

Investment InveValuation Ratios 2010-11 2010-09 2009-08 2008-07 2007-06

Face Value 10 10 10 10 10

International Research Journal of Management Sociology & Humanities Page 1067

http:www.irjmsh.com
IRJMSH Volume 4 Issue 2 online ISSN 2277 – 9809

Dividend Per Share 18 16 6 4.5 3.5

Operating Profit Per Share (Rs) 66.33 157.89 56.88 42.36 34.12
Net Operating Profit Per Share (Rs) 580.88 654.06 244.63 193.93 128.98
Free Reserves Per Share (Rs) -- 431.32 208.03 86.6 75.38
Bonus in Equity Capital -- -- -- -- --
Profitability Ratios
Interest Spread -- 3.91 3.77 3.27 3.14
Adjusted Cash Margin(%) 16.39 16.69 14.19 14.11 16.07
Net Profit Margin 15.35 15.51 12.22 12.01 13.47
Return on Long Term Fund(%) 68.55 88.75 71.17 119.74 88.56
Return on Net Worth(%) 15.64 18.59 12.21 19.37 18.28
Adjusted Return on Net Worth(%) 15.64 18.51 12.38 19.45 16.94
Return on Assets Excluding
Revaluations 707.5 551.99 245.13 120.8 103.06
Return on Assets Including
Revaluations 707.5 551.99 245.13 120.8 103.06

Management Efficiency Ratios

Interest Income / Total Funds 8.68 10.23 9.57 8.88 8.22
Net Interest Income / Total Funds 3.09 4.94 4.74 4.01 4.08
Non Interest Income / Total Funds 2.09 0.12 0.02 0.03 0.01
Interest Expended / Total Funds 5.59 5.29 4.83 4.87 4.14
Operating Expense / Total Funds 2.1 2.47 2.51 2.07 1.9
Profit Before Provisions / Total Funds 2.97 2.46 2.07 1.79 1.98
Net Profit / Total Funds 1.65 1.61 1.17 1.07 1.11
Loans Turnover 0.32 0.17 0.18 0.18 0.19
Total Income / Capital Employed(%) 10.77 10.35 9.59 8.92 8.23
Interest Expended / Capital
Employed(%) 5.59 5.29 4.83 4.87 4.14
Total Assets Turnover Ratios 0.09 0.1 0.1 0.09 0.08
Asset Turnover Ratio 0.09 0.11 0.1 0.1 0.09

International Research Journal of Management Sociology & Humanities Page 1068

http:www.irjmsh.com
IRJMSH Volume 4 Issue 2 online ISSN 2277 – 9809

Interest Expended / Interest Earned 64.44 63.55 63.09 65.64 62.68

Other Income / Total Income 19.42 1.14 0.16 0.39 0.18
Operating Expense / Total Income 19.45 23.87 26.2 23.26 23.13
Selling Distribution Cost Composition -- 0.32 0.85 0.54 0.47
Capital Ad90equacy Ratio 17 13.66 13.73 11.57 11.08
Advances / Loans Funds(%) -- 72.29 75.89 69.07 58.5
Debt Coverage Ratios
Credit Deposit Ratio 35.91 76.26 65.94 59.85 52.79
Investment Deposit Ratio 43.77 40.35 41.39 48.96 49.85
Cash Deposit Ratio 5.39 6.01 8.17 7.17 8.18
Total Debt to Owners Fund 7.63 9.65 9.99 17.28 13.97
Financial Charges Coverage Ratio 0.55 0.49 1.46 1.41 1.53
Financial Charges Coverage Ratio Post
Tax 1.32 1.33 1.28 1.26 1.32
Leverage Ratios
Current Ratio 0.77 0.03 0.03 0.03 0.04
Quick Ratio 20.1 21.63 9.23 7.39 6.52

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 19.06 18.15 23.49 22.57 23.2
Dividend Payout Ratio Cash Profit 17.84 16.79 20.47 19.3 19.49
Earning Retention Ratio 80.94 81.77 76.84 77.53 76.88
Cash Earning Retention Ratio 82.16 83.13 79.78 80.78 80.57
Earnings Per Share 110.68 102.67 29.94 23.4 17.41
Book Value 707.5 551.99 245.13 120.8 103.06

Testing of Hyphothesis: Impact of Integrated Approach on Management Of NPAs

As show Table-6 all the parrameters mesuring impact of the integrated approach to management
of NPAs present declining trend. Five year avarage ratio of gross NPAs to gross advnces and Net

Source:
Annual Report of AXIS Bank
International Research Journal of Management Sociology & Humanities Page 1069
http:www.irjmsh.com
IRJMSH Volume 4 Issue 2 online ISSN 2277 – 9809

NPAs to Net advance have declined from 5.79 percent and 3.88 percent as on march31, 2006 to
4.27 percentage and 2.51 percent as on march 31, 2011 recording reduction of 25.20 percent and
35.30 percent respectively.
All the parameters measuring business and financial perfomance have grown during the research
period. To conduct the implementation of the integrated approach enable the bank to manage
NPAs respectively during the research period i.e. year 2001-02 to 2010-11 there for null
hyphpthesis “Management of NPAs has not been effective in the AXIS bank during the research
period” stand rejected.
Table-6 Position of Non perfoming Assets ( NPAs) of AXIS bank

2001-02 to 2006-07 to Increase/Decrease

Non Perfoming Asets 2005-06 2010-11 %
Gross NPAs as percentage of Gross Advance 5.79 4.27 25.20
Net NPAs As percentage of Net Advance 3.88 2.51 35.30
Gross NPAs as percentage of total Assets 2.98 2.17 28.83
Net NPAs as percentage of total Assets 1.37 0.92 32.84
Gross NPAs per Employee 2.47 1.44 41.70
Gross NPAs per Brance 8.25 6.12 25.82
Net NPAs per Employee 1.29 0.87 32.56
Net NPAs per Brance 3.75 2.47 34.14

In May, 2012, RBI has issued final guidlines to indian bank for implementing the base on capital
adequacy ratio on regulations. As per bank these regulation bank would have to maintain a
minimum comen equity capital of 5.50 percent a minimum tier-I capital ratio of 7 percent of risk
weightted assets, a capital conservation buffer of 2.5 comprising only comman equty capital.
Base on regulation would be implementation in phases beginning from january, 2013 and would
be fully implemented by March 31, 2018. To implement these base regulation, the indian bank
required to maintain and improve capital base on financial health. The integrated approach to
management of NPAs will facilitate the bank to achieve these targets.

References

International Research Journal of Management Sociology & Humanities Page 1070

http:www.irjmsh.com
IRJMSH Volume 4 Issue 2 online ISSN 2277 – 9809

1) RBI Report on Trend and Progress of Banking in Inadia 2010-11.

2) Annual Reports of AXIS Bank
3) The Indian financial system, person, Dorling kindersley pvt. New Delhi 2010,

Website
1) http://www.axisbank.com/investor-corner/annual-reports.aspx,accessed on August 15,
2013
2) http://www.rbi.org.in/home.aspx,accessed on August 20, 2013
3) www.moneycontrol.com accessed on August 28, 2013

International Research Journal of Management Sociology & Humanities Page 1071

http:www.irjmsh.com