NON-PERFORMING ASSESTS

With reference to

HDFC BANK

Project report submitted to the department of commerce and management studies,

Andhra University, Visakhapatnam in the partial fulfilment of the requirements for the
award of the Degree of

MASTER OF BUSINESS ADMINISTRATION (M.B.A) IN

BANKING AND FINANCE

Submitted By

GANESHULA RAJESH
(Regd. No: 119200238002)

Under the Guidance of

Prof. C. V. KANNAJI RAO Ph.D.

DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES

ANDHRA UNIVERSITY
VISAKHAPATNAM
2019-2021

1
 CERTIFICATE

This is to certify that Mr. GANESHULA RAJESH student of MBA (Banking and
finance) in the department of commerce and management studies in Andhra
University during the academic year 2019-2021 has undergone the project work on
“NON-PERFORMING ASSETS” with reference to HDFC BANK, Hyderabad
under my guidance and supervision and had fulfilled the requirements concerning
project work.

PLACE: Visakhapatnam Prof. C. V. KANNAJI RAO

Date:
(Project Guide)

2
 DECLARATION

I GANESHULA RAJESH hereby declare that the dissertation entitled “NON-

PERFORMING ASSETS” with respect to HDFC BANK is a result of original
research work done by me for the award of degree of MASTER OF BUSINESS
ADMINISTRATION (Banking and Finance) submitted to DEPARTMENT OF COMMERCE
AND MANAGEMENT, ANDHRA UNIVERSITY. I further declare that the dissertation
or any part of it has not been submitted anywhere for any degree or diploma.
All care has been taken to keep this report error free and I sincerely
regret for any unintended discrepancies that might have crept into this report.

Place: Visakhapatnam, GANESHULA RAJESH

REG NO: 119200238002

Date:

3
 ACKNOWLEDGEMENT

I would like to express my sincere thanks and deep gratitude to Prof.

C. V. KANNAJI RAO, Andhra University for her valuable support by providing me
with necessary suggestions for the completion of the project. I would always be
grateful to her for co-operation and support.

I would like to express my sincere and deep gratitude to Principal P.

RAJENDRA KARMARKAR and head of department Prof. C. V. KANNAJI RAO,
Andhra University for his continuous encouragement which helped me in
successfully carrying out the project work.

I am very grateful for Mr. V S N MURTHY (Asst. Manager Finance)

HDFC BANK, HYDERABAD for providing his guidance and sparing his valuable time
for helping me to complete my project work successfully in time.

I would convey my sincere regards to my parents & friends for their valuable
suggestions and for motivating me to successfully complete this dissertation work.

I wish to express my sincere and heartfelt gratitude to those who helped me

in one way or the other for completion of this project.

GANESHULA RAJESH

REGD NO. 119200238002

4
 TABLE OF CONTENTS

CONTENTS Page No

CHAPTER - I
INTRODUCTION 6-13

CHAPTER - II
PRESENT DATA 14-31
Company Profile
Objective of study
Presentation of study
Methodology of study
Limitations of study
CHAPTER - III

Non-performing assets 32-46

CHAPTER – IV
Problems of NPA in HDFC bank 46-80

CHAPTER - V
Summary 81-91
Findings
Suggestions

5
 CHAPTER 1

INTRODUCTION

6
INTRODUCTION:
Modern Banking in India originated in the last decades of the 18th century. The first banks
were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in
1770; both are now defunct. The oldest bank still in existence in India is the State Bank of India,
which originated in the Bank of Calcutta in June 1806, which almost immediately became the
Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of
Bombay and the Bank of Madras, all three of which were established under charters from the
British East India Company. For many years the presidency banks acted as quasi-central banks,
as did their successors. The three banks merged in 1921 to form the Imperial Bank of India,
which, upon India ‘s independence, became the State Bank of India in 1955.

In April 1935, the Reserve Bank of India was established. At the time of first phase the
progress of banking sector was very sluggish. Between 1913 and1948 there were around 1100
small banks in India. To reform the working and activities of commercial banks, the Government
of India came up with the Banking Companies Act, 1949 which was later changed to Banking
Regulation Act 1949 as per amending Act of 1965 (Act No.23 of 1965). Reserve Bank of India
was vested with extensive powers for the supervision of banking in India as a Central Banking
Authority. In 2017, SBI and its associates merged into one. At present 1 SBI, 19 Nationalized
Banks, IDBI Bank, 26 PrivateBanks,43 Private Foreign Banks, 31 State Co- operative Banks and
56 Regional Rural Banks are in commercial banking business.

Indian banking sector has changed tremendously over the past few years. With the advent
of the LPG (Liberalization, Privatization & Globalization) era in 1991, the Indian banking
industry experienced multiple and quick changes. Now the banks are becoming much more
competitive in all terms to have a global presence. But in recent years, the banks are facing
distressing signals on sustainability and durability due to increase in the non-performing assets
(NPAs). A high-level of NPA affects the profitability and net-worth of the banks negatively,
thereby eroding the value of the assets. Asset Quality is considered one the most important
criterion in determining the overall condition of the bank as it reflects the quantum of existing
credit risk associated with the loan and investment portfolios. Management spent a lot of their
time, effort and resources in administering their assets in order to minimize the risk

7
Associated with it. Stress in banking sector causes less money available to fund other projects,
thereby, having a negative impact on the larger national economy.

The definition given by RBI, NPA is a loan or an advance where...

1. Interest and/ or installment of principal remain overdue for a period of more than 90
days in respect of a term loan.
2. The account remains out of order in respect of an Overdraft/Cash Credit (OD/CC).
3. The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted.
4. The installment of principal or interest thereon remains overdue for two crop seasons
for short duration crops.
5. The installment of principal or interest thereon remains overdue for one crop season for
long duration crops.
6. The amount of liquidity facility remains outstanding for more than 90 days, in respect of
a securitization transaction undertaken in terms of guidelines on securitization dated February 1,
2006.

For derivative transactions, the overdue receivables representing positive mark-to-market value
of a derivative contract, if these remain unpaid for a period of 90 days from the specified due
date for payment.

In order to reflect a bank's actual financial health in its balance sheet and as per the
recommendations made by the Committee on Financial System (Chairman Shri. M.
Narasimham), the Reserve Bank has introduced, in a phased manner, prudential norms for
income recognition, asset classification and provisioning for the advances portfolio of the banks.
Broadly, the policy of income recognition should be objective and based on record of recovery
rather than on any subjective considerations. Likewise, the classification of assets of banks has
to be done on the basis of objective criteria, which would ensure a uniform and consistent
application of the norms.

NON-PERFORMING ASSETS (NPA):

An asset becomes non-performing when it ceases to generate income for the bank. Earlier
an asset was considered as non-performing asset (NPA) based on the concept of 'Past Due'. A
non-performing asset (NPA) was defined as credit in respect of which interest and/ or instalment
of principal has remained past due for a specific period of time.

8
An amount is considered as past due, when it remains outstanding for 30 days beyond the due
date. However, with effect from March 31, 2001 the past due concept has been dispensed with
and the period is reckoned from the due date of payment.

With a view to moving towards international best practices and to ensure greater transparency,
'90 days' overdue norms for identification of NPAs have been made applicable from the year
ended March 31, 2004. As such, with effect from March 31, 2004, a non-performing asset shall
be a loan or an advance whereas per RBI

Types of NPAs

It may be classified into:

A. Gross NPAs: It is an advance which is considered as irrecoverable, for whom the bank has
made provisions and still held in the books of accounts.

B. Net NPAs: It is obtained by deducting from Gross NPA items like interest due but not
recovered, part payment received and other income kept in suspense account.

1. STANDARD ASSETS: These are the ones on which the banks are receiving the interest and
the principal amount on regular basis. This is also called as ―performing asset‖.

2. SUB-STANDARD ASSETS: These assets have remained NPA for less than or equal to 12
months and the account holder does not make the payments of three installments due for more
than 90 days and up to 12 months.

3. DOUBTFUL ASSETS: These assets have all the characteristics of the sub-standard assets
and their collection is difficult. It remains in the sub-standard category for 12 months.

4. LOSS ASSETS: The provisions are made by the banks to write-off these accounts at 100%
as there is no chance of recovery and even if recovery is there, it is of a very little value.

Public sector banks are more stressed than their private sector counterparts with the former
figuring among the top 20 banks with the highest gross non-performing asset (GNPA) ratios,
according to CARE Ratings analysis of the first quarter results of 38 banks. Eight PSBs banks
— IDBI Bank, Indian Overseas Bank, UCO Bank, Bank of Maharashtra, Central Bank of India,
Dena Bank, United Bank of India, and Corporation Bank — had a GNPA ratio of over 15
percent as of June 2017.YES Bank is the only bank in the sample of 38 banks with a GNPA
ratio of less than 1.State Bank of India (SBI) accounted for the largest share of about 22.7
percent (or ₹1,88,068 crore) in the total NPAs of 38 banks (aggregating ₹8,29,338 crore) as of

9
June-end 2017.SBI, Punjab National Bank, Bank of India, IDBI Bank, and Bank of Baroda
accounted for 47.4 percent (totaling ₹3,93,154 crore) in the total NPAs as of June-end 2017. The
gross NPA of PNB is 12.53 percent, ₹55,370.45 crores of its total lending.

At the end of March quarter, the bank's fresh slippages stood at ₹22,415 crores as against
₹42,252crores in the same period last year. Among the top 20 banks, according to GNPAs in
absolute terms, 18 are PSBs and only two are private sector banks — ICICI Bank and Axis Bank.
These two private sector banks have a combined share of 7.9 percent in total NPAs. CARE
Ratings said in the April-June quarter (Q1) of FY18, NPAs of a sample of 38 banks increased by
a sharp 34.2 percent on a year-on-year basis. Also, the NPA ratio increased to
10.21 percent in June 2017 from 8.42 percent in June 2016, which is the highest in the last six
quarters. On a quarter-on-quarter basis, the increase in NPAs has been the highest in Q1 FY18
witnessing an increase of about 16.6 percent to reach ₹8, 29,338 crores as of June 2017.

10
OBJECTIVES OF THE STUDY

The main objective of the study is to apply theoretical concepts to the practical situation of
HDFC BANK.

The main objectives of the study are

o To study the NPA trend of selected private banks.

o To make a comparative analysis of the NPAs of selected private sector

commercial banks.

o To study the trend of ROA of the selected private sector banks.

11
METHODOLOGY OF THE STUDY

Methodology is a systematic procedure of collecting information in order to analyze and verify

phenomenon. The collection of information is form two principles sources, those are

Primary data:

It is the information collected directly without any references. As the study is related to analyzing
financial performance, which can be done through audited financial statements and accounts:
there is no scope of primary data.

Secondary data:

The secondary data was collected from already published sources such as, annual reports and
internal records of last five years are collected from accounts department of and also some
study related data are collected from text books and journals relating to financial management.

12
LIMITATIONS OF THE STUDY

➢ The entire data analysis is based on secondary data only. Any biasedness in secondary
data will lead to misleading analysis.

➢ The data has been collected for Private sector banks, which are the representative banks
of their own sector.

➢ The span of the study was limited due time and resources.

13
FRAMEWORK OF THE STUDY
CHAPTER - I
It deals with the study of evaluation of Non-Performing Assets in HDFC Bank Consists Need
for the study, Objective of the study, Methodology and limitations of the study and Framework
of the study.

CHAPTER – II
This chapter is about the Industry Profile and Company Profile of Indian Banking Industry and
HDFC Bank. This chapter includes mission and objectives of the organization and history of
HDFC.

CHAPTER – III
It is a conceptual approach of NPAs and various recovery channels.

CHAPTER - IV
This chapter deals with the analysis of NPAs of HDFC Bank in comparison with peers

CHAPTER – V
This chapter is about Summary, Findings of the study, Suggestions given to organization.

14
 CHAPTER II

THE PRESENT DATA

15
INTRODUCTION:
As per the Reserve Bank of India (RBI), India ‘s banking sector is sufficiently
capitalized and well-regulated. The financial and economic conditions in the country are far
superior to any other country in the world. Credit, market and liquidity risk studies suggest that
Indian banks are generally resilient and have withstood the global downturn well.
Indian banking industry has recently witnessed the roll out of innovative banking models like
payments and small finance banks. RBI ‘s new measures may go a long way in helping the
restructuring of the domestic banking industry.
The digital payments system in India has evolved the most among 25 countries with India ‘s
Immediate Payment Service (IMPS) being the only system at level 5 in the Faster Payments
Innovation Index (FPII).
Market Size:
The Indian banking system consists of 27 public sector banks, 21 private sector banks, 49
foreign banks, 56 regional rural banks, 1,562 urban cooperative banks and 94,384 rural
cooperative banks, in addition to cooperative credit institutions. In FY17-18, total lending
increased at a CAGR of 10.94 per cent and total deposits increased at a CAGR of 11.66 per
cent. India ‘s retail credit market is the fourth largest in the emerging countries. It increased to
US$ 281 billion on December 2017 from US$ 181 billion on December 2014.
Investments/developments:
Key investments and developments in India ‘s banking industry include:
As of September 2018, the Government of India launched India Post Payments Bank (IPPB)
and has opened branches across 650 districts to achieve the objective of financial inclusion.
The total value of mergers and acquisition during 17 in NBFC diversified financial services
and banking was US$ 2,564 billion, US$ 103 million and US$ 79 million respectively. The
biggest merger deal of FY17 was in the microfinance segment of IndusInd Bank Limited and
Bharat Financial Inclusion Limited of US$ 2.4 billion. In May 2018, total equity funding's of
microfinance sector grew at the rate of 39.88 to Rs 96.31 billion (Rs 4.49 billion) in 2017-18
from Rs 68.85 billion (US$ 1.03 billion).
Government Initiatives:
As of September 2018, the Government of India has made the Pradhan Mantri Jan Dhan
Yojana(PMJDY) scheme an open-ended scheme and has also added more incentives.

16
As part of government ‘s capital infusion plan of Rs 65,000 crore (US$ 9.70 billion) in
21public sector banks during FY19, Rs 11,336 crore (US$ 1.69 billion) will be infused in
Punjab National Bank, Andhra Bank, Allahabad Bank, Corporation Bank and Indian
Overseas Bank.
Road Ahead
Enhanced spending on infrastructure, speedy implementation of projects and continuation of
reforms are expected to provide further impetus to growth. All these factors suggest that
India ‘s banking sector is also poised for robust growth as the rapidly growing business
wouldturn to banks for their credit needs. Also, the advancements in technology have
brought themobile and internet banking services to the fore. The banking sector is laying
greater emphasis on providing improved services to their clients and also upgrading their
technologyinfrastructure, in order to enhance the customer ‘s overall experience as well as
give banks acompetitive edge. India ‘s digital lending stood at US$ 75 billion in FY18 and
is estimated toreach US$ 1 trillion by FY2023 driven by the five-fold increase in the digital
disbursements.

Current scenario:
The Indian banking system consists of 27 public sector banks, 21 private sector banks, 49
foreign banks, 56 regional rural banks, 1,562 urban cooperative banks and 94,384 rural
cooperative banks, in addition to cooperative credit institutions. As of Q1 FY19, total credit
extended by commercial banks surged to Rs 86,976.02 billion (US$ 1,297.38 billion) and
deposits grew to Rs 115,070.27 billion (US$ 1,716.44 billion). Assets of public sector banks
stood at US$ 1,557.04 billion in FY18. Indian banks are increasingly focusing on adopting
integrated approach to risk management. Banks have already embraced the international
banking supervision accord of Basel II, and majority of the banks already meet capital
requirements of Basel III, which has a deadline of March 31, 2019. Reserve Bank of India
(RBI) has decided to set up Public Credit Registry (PCR) an extensive database of credit
information which is accessible to all stakeholders. The Insolvency and Bankruptcy Code
(Amendment) Ordinance, 2017 Bill has been passed and is expected to strengthen the banking
sector. Deposits under Pradhan Mantri Jan DhanYojana (PMJDY) increased to Rs 82,039.35
crore (US$ 12.24 billion) and 32.54 million accounts were opened in India. In May2018, the
Government of India provided Rs 6 trillion (US$ 93.1 billion) loans to 120 million beneficiaries
under Mudra scheme. In May 2018, the total number of subscribers was 11 million, under Atal
Pension Yojana. Rising incomes are expected to enhance the need for banking services in
rural areas and therefore drive the growth of the sector.
17
Debit cards have radically replaced credit cards as the preferred payment mode in India, after
demonetization. Debit cards garnered a share of 87.13 per cent of the total card spending. Credit
off-take has been surging ahead over the past decade, aided by strong economic growth, rising
disposable incomes, increasing consumerism & easier access to credit. As of Q3 FY18, total
credit extended surged to US$ 1,288.1 billion. Credit to non-food industries increased by 9.53
per cent reaching US$ 1,120.42 billion in January 2018 from US$ 1,022.98 billion during the
previous financial year. Demand has grown for both corporate & retail loans; particularly the
services, real estate, consumer durables & agriculture allied sectors have led the growth in
credit. The digital payments revolution will trigger massive changes in the way credit is
disbursed in India.
Market size:

TOTAL ASSETS IN US $ BILLIONS

1600
1400 1518
1200 1305 1421 1348
1000 1140

800
600
400 559
488
415
326 370
200 105 123 124 121 126
0
Public Private Foreign

2013 2014 2015 2016 2017

Figure 1

18
INTEREST INCOME GROWTH:

INTEREST INCOME GROWTH

120

100 102 103 111 103 106

80

60
40
20 43
31 31 34 37 8 8 8 8 8
0
1 2 3

2013 2014 2015 2016 2017

Figure 2

BREAK UP OF BANKS IN INDIA (2018) :

BREAK UP OF BANKS IN INDIA (2018)

PUBLIC SECTOR BANKS PRIVATE SECTOR BANKS FOREIGN BANKS REGIONAL RURAL BANKS

18%

38%
14%

30%

FIGURE 3

19
GROWTH IN CREDIT OFF TAKE:

CAGR 11.08%
1400

1200
1224 1228
1000
984 969 994 983 1016
800 864
600 684
587 602
400
426
200

0
1
FY 7 FY 8 FY 9 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18

FIGURE 4

COMPOUND ANNUAL GROWTH RATE

GROWTH IN DEPOSITS:

FIGURE 5

CAGR 11.71%
2000

1803
1500 1715
1456 1476
1311 1298 1332
1000 1190
802 853 970
500
576
474

FY 6 FY 7 FY 8 FY 9 FY 10 FY 11 FY 12
FY 13 FY 14 FY 15 FY 16 FY 17 FY 18

20
 COMPANY PROFILE

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive
an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector,
as part of RBI's liberalization of the Indian Banking Industry in 1994. The bank was incorporated
in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India.
HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995.
PROMOTERS:
HDFC is India's premier housing finance company and enjoys an impeccable track record in India
as well as in international markets. Since its inception in 1977, the Corporation has maintained a
consistent and healthy growth in its operations to remain the market leader in mortgages. Its
outstanding loan portfolio covers well over a million dwelling units. HDFC has developed
significant expertise in retail mortgage loans to different market segments and also has a large
corporate client base for its housing related credit facilities. With its experience in the financial
markets, strong market reputation, large shareholder base and unique consumer franchise, HDFC
was ideally positioned to promote a bank in the Indian environment.

BUSINESS FOCUS:

HDFC Bank's mission is to be a World Class Indian Bank. The objective is to build sound customer
franchises across distinct businesses so as to be the preferred provider of banking services for target
retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent
with the bank's risk appetite. The bank is committed to maintain the highest level of ethical
standards, professional integrity, corporate governance and regulatory compliance. HDFC Bank‘s
business philosophy is based on five core values: Operational Excellence, Customer Focus, Product
Leadership, People and Sustainability.

CAPITAL STRUCTURE:
As on 30 June 2019 the authorized share capital of the Bank is Rs. 650 crore. The paid-up capital
of the Bank as on the said date is Rs 520,83,15,734 /- which is comprising of 260,41,57,867 equity
shares of the face value of Rs 2/- each. The HDFC Group holds 20.86 % of the Bank's equity and
about 18.16 % of the equity is held by the ADS / GDR Depositories (in respect of the bank's
American Depository Shares (ADS) and Global Depository Receipts (GDR) Issues). 33.44
% of the equity is held by Foreign Institutional Investors (FIIs) and the Bank has

21
5,48,942 shareholders. The shares are listed on the BSE Limited and The National Stock Exchange
of India Limited. The Bank's American Depository Shares (ADS) are listed on the New York Stock
Exchange (NYSE) under the symbol 'HDB' and the Bank's Global Depository Receipts (GDRs)
are listed on Luxembourg Stock Exchange under ISIN No US40415F2002.

CBOP AND ITS AMALGAMATION:

On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC Bank was formally
approved by Reserve Bank of India to complete the statutory and regulatory approval process. As
per the scheme of amalgamation, shareholders of CBoP received 1 share of HDFC Bank for every
29 shares of CBoP .The amalgamation added significant value to HDFC Bank in terms of increased
branch network, geographic reach, and customer base, and a bigger pool of skilled manpower.
In a milestone transaction in the Indian banking industry, Times Bank Limited (another new private
sector bank promoted by Bennett, Coleman & Co. / Times Group) was merged with HDFC Bank
Ltd., effective February 26, 2000. This was the first merger of two private banks in the New
Generation Private Sector Banks. As per the scheme of amalgamation approved by the shareholders
of both banks and the Reserve Bank of India, shareholders of Times Bank received 1share of HDFC
Bank for every 5.75 shares of Times Bank.

DISTRBUTION NETWORK:

HDFC Bank is headquartered in Mumbai. As of June 30, 2019, the Bank's distribution network was
at 5,500 branches across 2,764 cities. All branches are linked online on a real-time basis. Customers
across India are also serviced through multiple delivery channels such as Phone Banking, Net
Banking, Mobile Banking, and SMS based banking. The Bank's expansion plans take into account
the need to have a presence in all major industrial and commercial centers, where its corporate
customers are located, as well as the need to build a strong retail customer base for both deposits
and loan products. Being a clearing / settlement bank to various leading stock exchanges, the Bank
has branches in centers where the NSE / BSE have a strong and active member base. The Bank also
has a network of 12,635 ATMs across India. HDFC Bank's ATM network can be accessed by all
domestic and international Visa / MasterCard, Visa Electron / Maestro, Plus / Cirrus and American
Express Credit / Charge cardholders.

22
MANAGEMENT:
HDFC Bank's Board of Directors comprises eminent individuals with a wealth of experience in
public policy, administration, industry and commercial banking. Senior executives representing
HDFC Ltd. are also on the Board. Various businesses and functions in the Bank are headed by
senior executives with work experience in India and abroad. They report to the Managing Director.
The Bank is focused on recruiting and retaining the best talent in the industry as it believes that its
people are a competitive strength.

TECHNOLOGY:
HDFC Bank operates in a highly automated environment in terms of information technology and
communication systems. All the bank‘s branches have online connectivity, which enables the bank
to offer speedy funds transfer facilities to its customers. Multi-branch access is also provided to
retail customers through the branch network and Automated Teller Machines (ATMs)

The Bank has made substantial efforts and investments in acquiring the best technology available
internationally, to build the infrastructure for a world class bank. In terms of core banking software,
the Corporate Banking business is supported by Flex cube, while the Retail Banking business by
Fin ware, both from i-flex Solutions Ltd. The systems are open, scaleable and web- enabled.

The Bank has prioritized its engagement in technology and the internet as one of its key goals and
has already made significant progress in web-enabling its core businesses. In each of its businesses,
the Bank has succeeded in leveraging its market position, expertise and technology to create a
competitive advantage and build market share.
BUSINESSES:
HDFC Bank caters to a wide range of banking services covering commercial and investment
banking on the wholesale side and transactional / branch banking on the retail side. The bank has
three key business segments:
Wholesale Banking:

The Bank's target market is primarily large, blue-chip manufacturing companies in the Indian
corporate sector and to a lesser extent, small & mid-sized corporates and agri-based businesses. For
these customers, the Bank provides a wide range of commercial and transactional banking

23
services, including working capital finance, trade services, transactional services, cash
management, etc. The bank is also a leading provider of structured solutions, which combine cash
management services with vendor and distributor finance for facilitating superior supply chain
management for its corporate customers. Based on its superior product delivery / service levels and
strong customer orientation, the Bank has made significant inroads into the banking consortia of a
number of leading Indian corporates including multinationals, companies from the domestic
business houses and prime public sector companies. It is recognized as a leading provider of cash
management and transactional banking solutions to corporate customers, mutual funds, stock
exchange members and banks.
TREASUARY:
Within this business, the bank has three main product areas - Foreign Exchange and Derivatives,
Local Currency Money Market & Debt Securities, and Equities. With the liberalization of the
financial markets in India, corporates need more sophisticated risk management information, advice
and product structures. These and fine pricing on various treasury products are provided through
the bank's Treasury team. To comply with statutory reserve requirements, the bank is required to
hold 25% of its deposits in government securities. The Treasury business is responsible for
managing the returns and market risk on this investment portfolio.
RETAIL BANKING:
The objective of the Retail Bank is to provide its target market customers a full range of financial
products and banking services, giving the customer a one-stop window for all his/her banking
requirements. The products are backed by world-class service and delivered to customers through
the growing branch network, as well as through alternative delivery channels like ATMs, Phone
Banking, Net Banking and Mobile Banking he HDFC Bank Preferred program for high net worth
individuals, the HDFC Bank Plus and the Investment Advisory Services programs have been
designed keeping in mind needs of customers who seek distinct financial solutions, information and
advice on various investment avenues. The Bank also has a wide array of retail loan products
including Auto Loans, Loans against marketable securities, Personal Loans and Loans for Two-
wheelers. It is also a leading provider of Depository Participant (DP) services for retail customers,
providing customers the facility to hold their investments in electronic form HDFC Bank was the
first bank in India to launch an International Debit Card in association with VISA (VISA Electron)
and issues the MasterCard Maestro debit card as well. The Bank launched its credit card business
in late 2001. By March 2015, the bank had a total card base (debit and credit cards) of over 25
million.The Bank is also one of the leading players in the "merchant acquiring" business

24
With over 235,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at merchant
establishments. The Bank is well positioned as a leader in various net based B2C opportunities
including a wide range of internet banking services for Fixed Deposits, Loans, Bill Payments, etc.
Credit Banking:
HDFC Bank has its deposit programmers rated by two rating agencies - Credit Analysis & Research
Limited. (CARE) and Fitch Ratings India Private Limited. The bank's Fixed Deposit programme
has been rated 'CARE AAA (FD)' [Triple A] by CARE, which represents instruments considered
to be "of the best quality, carrying negligible investment risk‖. CARE has also rated the bank's
Certificate of Deposit (CD) programme "PR 1+" which represents "superior capacity for repayment
of short term promissory obligations". Fitch Ratings India Pvt. Ltd. (100% subsidiary of Fitch Inc.)
has assigned the "tAAA (ind)" rating to the bank's deposit programme, with the outlook on the
rating as "stable". This rating indicates "highest credit quality" where "protection factors are very
high".
HDFC Bank also has its long term unsecured, subordinated (Tier II) Bonds of Rs.4 billion rated
by CARE and Fitch Ratings India Private Limited. CARE has assigned the rating of "CARE AAA"
for the Tier II Bonds while Fitch Ratings India Pvt. Ltd. has assigned the rating "AAA (ind)" with
the outlook on the rating as "stable". In each of the cases referred to above, the ratings awarded
were the highest assigned by the rating agency for those instruments?

Corporate Governance Rating

The bank was one of the first four companies, which subjected itself to a Corporate Governance
and Value Creation (GVC) rating by the rating agency, The Credit Rating Information Services of
India Limited (CRISIL). The rating provides an independent assessment of an entity's current
performance and an expectation on its "balanced value creation and corporate governance practices"
in future. The bank was assigned a 'CRISIL GVC Level 1' rating in January 2007 which indicates
that the bank's capability with respect to wealth creation for all its stakeholders while adopting
sound corporate governance practices is the highest

25
 AWARDS AND ACHEIVEMENTS OF HDFC:

HDFC Bank began operations in 1995 with a simple mission: to be a "World-class Indian
Bank". We realized that only a single-minded focus on product quality and service excellence
would help us get there. Today, we are proud to say that we are well on our way towards that
goal.
It is extremely gratifying that our efforts towards providing customer convenience have been
appreciated both nationally and internationally.

2018

NASSCOM AI Game Changer Innovative Application in AI - Virtual Agent

Awards 2018 Engine

Institutional Investor 2018 All-Asia Ranked in four categories -

Executive Team – Survey

• Best IR Professional: 2nd Rank among

banks in Asia (ex-Japan)

• Best CEO: 2nd Rank

• Best CFO: 1st Rank
• Best IR Company: 3rd Rank

BrandZ's Top 100 Global Brands HDFC Bank featured for the fourth time in
List the BrandZ's Top 100 Global Brands List

14th Visa Asia Pacific Security India and South Asia Champion Security
Summit Award 2018

National Payments Excellence HDFC Bank wins NPCI National Payments

Awards 2018 Excellence Awards

Barron's World's Top 30 CEOs Mr. Aditya Puri in Barron's Top 30

Global
CEOs for 4th year - Growth Leaders
Category

Dun & Bradstreet Corporate Award Best Bank

26
2018

Federation of Indian Export Best Bank : Export Finance - Non MSME

Organisation (FIEO)

Business Today Best Bank Awards Bank of the Year

Best in Innovation
Best Large Bank
Fastest Growing Large Bank

Dun & Bradstreet BFSI Awards India's Leading Bank - Private sector
2018

Euro money Private Banking and - Net-worth-specific services (High Net

Wealth Management survey 2018 Worth Clients US $ 5-30 MN)
- Asset Management
- SRI/Social Impact Investing
- International Clients

10th BW Business world-PwC Best - Fastest Growing Large Bank

Banks' (2017) Survey - Best Large Bank
- Lifetime Achievement Award - Mr.
Aditya Puri

27
2017

Business India 19th Best Bank survey Best Bank for the year 2017 - HDFC
Bank

The Asset Triple A Country Awards Best IPO, India

2017

Fortune HDFC Bank MD Aditya Puri on Fortune

Businessperson of the year list

Forbes Asia's 13th Fab 50 Companies HDFC Bank in Forbes Asia's Top 50 List
List

Forbes' List of 5 Companies That HDFC Bank in Top 5 companies that

Have Shaped Asia, And The World have shaped Asia, and the World

IDRBT Banking Technology 1) Best Bank - Use of Technology for

Excellence Awards 2016-17 Fraud Prevention(Large Banks)
2) Best Bank - Cyber Security and
Defense (Large Banks)
3) Best Bank - Innovative Use of
Technology (Large Banks)

BrandZ Top 50 Most Valuable Indian Ranked India's Most Valuable Brand for
Brands 4th year in a row

Dun & Bradstreet Banking Awards 1. Best Private Sector Bank - Retail
2017 2. Best Private Sector Bank - Digital
Banking (Mobility)
3. Best Private Sector Bank - Asset
Quality
4. Best Private Sector Bank - Overall

The Advertising Club Banking for Best Marketer in Banking sector

Marquees 2017

28
Greenwich Associates study HDFC Bank No. 1 in large corporate
relationships, mid-market penetration

Business world Digital Leadership and - Best Analytics Implementation Award -

CIO Awards 2017 HDFC Bank

The Asian Banker Technology - Best HR System Project

Innovation Awards 2017 - Best Lending Systems Project

CNBC TV 18 Financial Advisor Best P performing Bank - Private Sector

Awards 2016-17

The Asset Triple A Asia Chemical Deal of the Year, India

Infrastructure Awards 2017

Euro money Awards for Excellence a's Best Bank

Indi2017

Asia money Best Brands in Finance Best Banking Brand in India - HDFC
Survey 2017 Bank

Business world India's Best Banks' 1. Best Bank - Overall

survey 2016 2. Fastest Growing Large Bank

Dun & Bradstreet Corporate Award India's Leading Bank - Private Sector
2017

12th BML Munjal Awards 2017 Sustained Excellence in Learning &

Development

The Financial Express India's Best - Profitability: Rank 1

Banks 2016 - Strength & Soundness: Rank 1
Bank of the Yea

Finance Asia poll on Asia's Best Best CEO- Aditya

Companies 2016 Puri Best at Investor Relations- Rank 1
Most Committed to Corporate
Governance- Rank 1
Best Managed Company - Rank 2

29
 Best at CSR - Rank 8
Bank of the Year

National Payments Excellence Best Bank in Cheque Truncation System

Awards 2016 (CTS)
Best Bank in National Automated
Clearing House (NACH)
Best Bank in National Financial Switch
(NFS)
Runner up in Rupay Cards

Asia money India Banking Awards Best Domestic Bank - India

2017

Business Standard Annual Awards Banker of the year - Mr. Aditya Puri
2016

IBA Banking Technology Awards Best IT Risk and Cyber Security

2017 Initiatives

Dun & Bradstreet - India's Leading India's Leading Banks - Private Sector
BFSI Companies & Awards 2017

Outlook Money Awards 2016 Bank of the year

Business Today - KPMG India's Best Bank Of The Year (Private Sector)
Banks 2016
Best Large Size Bank

Fastest Growing Large Bank

The Asset Triple A Country Awards 1. Best IPO, India

2016 2. Best QIP, India

30
2016

Institutional Investor All-Asia Mr. Aditya Puri ranked Best CEO

Executive Team ranking 2016 -HDFC Bank ranked Best Company in Banks
sector of Asia ex-Japan

Asia money FX Poll 2016
-Ranked No. 1 in the Best Domestic Provider
for FX Products and Services in India
-Ranked No.2 in the Best Domestic Provider
of FX Services and for FX Research and
Market Coverage
-Ranked No. 1 in the Best Local Cash
Management Bank in India

BrandZ Top 50 Most Valuable Indian HDFC Bank has been ranked India's most
Brands valuable brand for the 3rd consecutive year

CNBC-TV18 India Business Leader Outstanding Business Leader of the year

Awards (IBLA) 2015-16

The Financial Express India's Best Lifetime Achievement Award to Mr.

Banks Awards Aditya Puri

IDRBT Banking Technology Best Bank in Banking Technology Excellence

Excellence Awards 2016 for the year 2015-16

Cisco-CNBC TV 18 Digitizing India Award for Innovations in the Financial

Awards Industry & Digital Banking

Dun & Bradstreet Corporate Awards HDFC Bank wins Dun & Bradstreet
2016 Corporate Award 2016 in the Banking sector

The Financial Express India's Best - Profitability: Rank 1

Banks Awards 2015 - Efficiency: Rank 1
- Strength & Soundness: Rank 1

Outlook Money Awards 2015 - Best Bank of the year : Runner up

31
 - Winner : Institutional Financial Distributor
of the year

Pension Fund Regulatory and - Best Performing Bank - Maximum APY

Development Authority awards for Atal Subscribers
Pension Yojana - Best Performing Bank in the Private sector
Banks category
- Best Performing Bank : Atal Pension
Yojana Carnivals in Private Sector Banks

Business Today KPMG India's Best Banks 2015 Awards

Barron's World's Top 30 CEOs Mr. AdityaPuri in Barron's Top 30 Global

CEOs for 2nd year

IBA Awards HDFC Bank wins prestigious IBA Banking

Technology Awards

Business Today Best Companies to Work for in India

NABARD Award Best Bank in JLG-Bank Linkage programme

in Assam

Business Today - KPMG India's Best HDFC Bank wins Bank of the year and Best
Bank Digital Banking Initiative awards

NABARD Award - The Best Bank in HDFC Bank wins NABARD Award
SHG Credit Linkage in Tamil Nadu

32
 CHAPTER III
STUDY OF NPA IN HDFC BANK

33
NPA:

It means once the borrower has failed to make interest or principal payments for 90 days, the
loan is considered to be a non-performing asset.

The assets portfolio of the banks is required to be classified as

• Standard assets
• Sub-standard assets
• Doubtful assets and
• Loss assets.

Standard asset is one that does not disclose any problems and which does not carry more than
normal risk attached to the business .An asset which has been classified as NPA for a period
not exceeding 12 months is considered as sub-standard asset .Doubtful asset is one which
has remained NPA for a period exceeding 12 months .An asset which is considered
uncollectable and loss has been identified by the bank or internal or external auditors or the
RBI inspection and the loss has not been written off is regarded as loss asset.

The problem of NPAs in the Indian banking system is one of the foremost and the most
formidable problems that had impact the entire banking system. Higher NPA ratio trembles the
confidence of investors, depositors, lenders etc.

NPA directly have the impact on:

1) Profitability of the bank decreases.

2) It lead to Asset (Credit) contraction.

3) Creates a problem in Liability Management.

4) Problem in Capital Adequacy.

5) Shareholders ‘confidence declines.

6) Public confidence declines.

34
In short, the high incidence of NPA impact on all important financial ratios of the banks viz.,
Net Interest Margin, Return on Assets, Profitability, Dividend Payout, Provision coverage
ratio, Credit contraction etc., which reduces the confidence of stakeholders including
Shareholders, Depositors, Borrowers, Employees and public at large What are the possible
steps which can reduce the NPA?
1) Proper evaluation of credit proposals should be collected.
2) Banks should be equipped with latest credit risk management techniques to protect the
bank funds and minimize insolvency risks.
3) Timely follow up is the key to keep the quality of assets intact and enables the banks to
recover the interest/instalments in time.
4) Selection of right borrowers, viable economic activity, adequate finance and timely
disbursement, end use of funds and timely recovery of loans should be the focus areas for
preventing or minimizing the incidence of fresh NPAs.
Provisioning Norms
General
The primary responsibility for making adequate provisions for any diminution in the value of
loan assets, investment or other assets is that of the bank managements and the statutory
auditors. The assessment made by the inspecting officer of the RBI is furnished to the bank to
assist the bank management and the statutory auditors in taking a decision in regard to making
adequate and necessary provisions in terms of prudential guidelines.
In conformity with the prudential norms, provisions should be made on the non-performing
assets on the basis of classification of assets into prescribed categories as detailed in paragraphs
4 supra. Taking into account the time lag between an account becoming doubtful of recovery,
its recognition as such, the realization of the security and the erosion over time in the value of
security charged to the bank, the banks should make provision against sub- standard assets,
doubtful assets and loss assets as below:
Loss assets
The entire asset should be written off. If the assets are permitted to remain in the books for any
reason, 100 percent of the outstanding should be provided for.
Doubtful assets
100 percent of the extent to which the advance is not covered by the realizable value of the
security to which the bank has a valid recourse and the realizable value is estimated on a
realistic basis.

35
In regard to the secured portion, provision may be made on the following basis, at the rates
ranging from 20 percent to 50 percent of the secured portion depending upon the period for
which the asset has remained doubtful:

Period for which the advance has Pr ovision requirement (%)

been considered as doubtful

Up to one year 20

One to three years 30

More than three years 50

Additional provisioning consequent upon the change in the definition of doubtful assets (vide
para 4.1.2 above) effective from March 31, 2001 has to be made in phases as under:
As on 31.03.2001, 50 percent of the additional provisioning requirement on the assets which
became doubtful on account of new norm of 18 months for transition from sub-standard asset
to doubtful category.
As on 31.03.2002, balance of the provisions not made during the previous year, in addition to
the provisions needed, as on 31.03.2002.
Note: Valuation of Security for provisioning purposes
With a view to bringing down divergence arising out of difference in assessment of the value
of security, in cases of NPAs with balance of Rs. 5 crore and above stock audit at annual
intervals by external agencies appointed as per the guidelines approved by the Board wouldbe
mandatory in order to enhance the reliability on stock valuation. Collaterals such as immovable
properties charged in favors of the bank should be got valued once in three years by valuers
appointed as per the guidelines approved by the Board of Directors.
Sub-standard assets
A general provision of 10 percent on total outstanding should be made without making any
allowance for DICGC/ECGC guarantee cover and securities available.
Standard assets
From the year ending 31.03.2000, the banks should make a general provision of a minimum of
0.25 percent on standard assets on global loan portfolio basis.
The provisions on standard assets should not be reckoned for arriving at net NPAs.
The provisions towards Standard Assets need not be netted from gross advances but shown
separately as 'Contingent Provisions against Standard Assets' under 'Other Liabilities and
Provisions - Others' in Schedule 5 of the balance sheet.

36
Floating provisions
Some of the banks make a 'floating provision' over and above the specific provisions made in
respect of accounts identified as NPAs. The floating provisions, wherever available, could be
set-off against provisions required to be made as per above stated provisioning guidelines.
Considering that higher loan loss provisioning ads to the overall financial strength of the banks
and the stability of the financial sector, banks are urged to voluntarily set apart provisions much
above the minimum prudential levels as a desirable practice.
Provisions on Leased Assets
Sub-standard assets
10 percent of the 'net book value'.
As per the 'Guidance Note on Accounting for Leases' issued by the ICAI, 'Gross book value'
of a fixed asset is its historical cost or other amount substituted for historical cost in the books
of account or financial statements. Statutory depreciation should be shown separately in the
Profit & Loss Account. Accumulated depreciation should be deducted from the Gross Book
Value of the leased asset in the balance sheet of the lessor to arrive at the 'net book value'.

Also, balance standing in 'Lease Adjustment Account' should be adjusted in the 'net book
value' of the leased assets. The amount of adjustment in respect of each class of fixed assets
may be shown either in the main balance sheet or in the Fixed Assets Schedule as a separate
column in the section related to leased assets.
Doubtful assets
100 percent of the extent to which the finance is not secured by the realizable value of the leased
asset. Realisable value to be estimated on a realistic basis. Over and above provision as per
(a) above, the following provision on the net book value of the secured portion should be
made, depending upon the period for which asset has been doubtful:
Period %age of provision

Up to one year 20
One to three years 30
More than three years 50
iii) Loss assets
The entire asset should be written-off. If for any reason, an asset is allowed to remain in
books, 100 percent of the 'net book value' should be provided for.
Guidelines for Provisions under Special Circumstances

37
Government guaranteed advances
With effect from 31 March 2000, in respect of advances sanctioned against State Government
guarantee, if the guarantee is invoked and remains in default for more than two quarters (180
days at present), the banks should make normal provisions as prescribed in paragraph 4.1.2
above.
As regards advances guaranteed by State Governments, in respect of which guarantee stood
invoked as on 31.03.2000, necessary provision was allowed to be made, in a phased manner,
during the financial years ending 31.03.2000 to 31.03.2003 with a minimum of 25 percent each
year. Advances granted under rehabilitation packages approved by BIFR/term lending
institutions
In respect of advances under rehabilitation package approved by BIFR/term lending
institutions, the provision should continue to be made in respect of dues to the bank on the
existing credit facilities as per their classification as sub-standard or doubtful asset.
As regards the additional facilities sanctioned as per package finalized by BIFR and/or term
lending institutions, provision on additional facilities sanctioned need not be made for a period
of one year from the date of disbursement.
In respect of additional credit facilities granted to SSI units which are identified as sick [as
defined in paragraph 5(a) of RPCD circular No. PLNFS.BC.99/06.02.031/92-93 dated
17.04.93] and where rehabilitation packages/nursing programmes have been drawn by the
banks themselves or under consortium arrangements, no provision need be made for a period
of one year.
Advances against term deposits, NSCs eligible for surrender, IVPs, KVPs, and life policies
are exempted from provisioning requirements.
However, advances against gold ornaments, government securities and all other kinds of
securities are not exempted from provisioning requirements. Treatment of interest suspense
account
Amounts held in Interest Suspense Account should not be reckoned as part of provisions.
Amounts lying in the Interest Suspense Account should be deducted from the relative advances
and thereafter, provisioning as per the norms, should be made on the balances after such
deduction.
Advances covered by ECGC/DICGC guarantee
In the case of advances guaranteed by DICGC/ECGC, provision should be made only for the
balance in excess of the amount guaranteed by these Corporations. Further, while arriving at
the provision required to be made for doubtful assets, realisable value of the

38
securities should first be deducted from the outstanding balance in respect of the amount
guaranteed by these Corporations and then provision made as illustrated hereunder:

Example

Outstanding Balance Rs. 4 lakhs

DICGC Cover 50 percent

Period for which the advance has remained doubtful More than 3 years remained
doubtful

Value of security held Rs. 1.50 lakhs

(Excludes worth of Rs.)

Provision required to be made

Outstanding balance Rs. 4.00 lakhs

Less: Value of security held Rs. 1.50 lakhs

Unrealized balance Rs. 2.50 lakhs

Less: DICG Cover Rs. 1.25 lakhs

(50% of unrealizable balance)

Net unsecured balance Rs. 1.25 lakhs

Provision for unsecured portion of advance Rs. 1.25 lakhs (@ 100 percent of
unsecured portion)

Provision for secured portion of advance Rs. 0.75 lakhs (@ 50 percent of secured
portion)

Total provision required to be made Rs. 2.00 lakhs

Advance covered by CGTSI guarantee

In case the advance covered by CGTSI guarantee becomes non-performing, no provision need
be made towards the guaranteed portion. The amount outstanding in excess of the guaranteed
portion should be provided for as per the extant guidelines on provisioning for non-performing
advances. Two illustrative examples are given below:

39
Example-1

Doubtful – More than 3

Asset classification years;
status:
CGTSI Cover 75 of amount
% the
outstandior75% of
ng

the amount
unsecure
d
or Rs.18. lakh,
75
whichever is the least:
Realisable value of Rs.1.50 lakh
Security
Balance Rs.10.00 lakh
outstanding
Less val of Rs. 1.50 lakh
Realisable ue
security
Unsecured amount Rs. 8.50 lakh
Less CGTSI cover Rs. 6.38 lakh
(75%)
Net unsecure an Rs. 2.12 lakh
d d
uncovered
portion:
Provision Required
Secured portion Rs.1.50 lakh Rs. 0.75 lakh (@ 50%)
Unsecured uncov Rs.2.12 lakh Rs. 2.12 lakh (100%)
& ered
portion
Total provision Rs. 2.87 lakh
required

40
Example II

Asset classification status : Doubtful – More than 3

years;

CGTSI Cover 75% of the amount

outstanding or75% of the
unsecured amount or

is the least

Realisable value of Security Rs.10.00 lakh

Balance outstanding Rs.40.00 lakh

Less Realisable value of security Rs. 10.00 lakh

Unsecured amount Rs. 30.00 lakh

Less CGTSI cover (75%) Rs. 18.75 lakh

Net unsecured and uncovered Rs. 11.25 lakh

portion:

Provision Required

Secured portion Rs.10.00 lakh Rs. 5.00 lakh (@ 50%)

Unsecured & uncovered portion Rs.11.25 lakh Rs.11.25 lakh (100%)

Total provision required Rs. 16.25 lakh

41
Take-out finance
The lending institution should make provisions against a 'take-out finance' turning into NPA
pending its take-over by the taking-over institution. As and when the asset is taken-over by
the taking-over institution, the corresponding provisions could be reversed. Reserve for
Exchange Rate Fluctuations Account (RERFA)
When exchange rate movements of Indian rupee turn adverse, the outstanding amount of
foreign currency dominated loans (where actual disbursement was made in Indian Rupee)
which becomes past due, goes up correspondingly, with its attendant implications of
provisioning requirements. Such assets should not normally be revalued. In case such assets
need to be revalued as per requirement of accounting practices or for any other requirement,
the following procedure may be adopted:
The loss on revaluation of assets has to be booked in the bank's Profit & LossAccount.
Besides the provisioning requirement as per Asset Classification, banks should treat the full
amount of the Revaluation Gain relating to the corresponding assets, if any, on account of
Foreign Exchange Fluctuation as provision against the particular assets.
Writing-off of NPAs
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.
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.
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.
Write-off at Head Office Level
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 be made therefor.

42
Major steps taken to solve the problems of Non-Performing Assets in India:-

1. Debt Recovery Tribunals (DRTs)

Narasimham Committee Report I (1991) recommended the setting up of Special Tribunals to

reduce the time required for settling cases. Accepting the recommendations, Debt Recovery
Tribunals (DRTs) were established.

2. Securitisation Act 2002

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act
2002 is popularly known as Securitisation Act. This act enables the banks to issue noticesto
defaulters who have to pay the debts within 60 days. Once the notice is issued the borrower
cannot sell or dispose the assets without the consent of the lender. The Securitisation Act further
empowers the banks to take over the possession of the assets and management of the company.
The lenders can recover the dues by selling the assets or changing the management of the firm.
The Act also enables the establishment of Asset Reconstruction Companies for acquiring NPA.

3. LokAdalats

LokAdalats have been found suitable for the recovery of small loans. According to RBI
guidelines issued in 2001. They cover NPA up to Rs. 5 lakhs, both suit filed and non-suit filed
are covered. LokAdalats avoid the legal process.

4. Compromise Settlement

Compromise Settlement Scheme provides a simple mechanism for recovery of NPA.

Compromise Settlement Scheme is applied to advances below Rs. 10 Crores. It covers suit filed
cases and cases pending with courts and DRTs (Debt Recovery Tribunals). Cases of Willful
default and fraud were excluded.

5. Credit Information Bureau

A good information system is required to prevent loans from turning into a NPA. If a borrower
is a defaulter to one bank, this information should be available to all banks so that they may
avoid lending to him. A Credit Information Bureau can help by maintaining a data bank which
can be assessed by all lending institutions.

43
The Reserve Bank of India defines, these non-performing Assets according to international best
practices of ―90 days overdue‖ norms. According to these norms, a NPA is such a loan or
advance given by a bank where:

• The interest or installment of the principal sum remains overdue for more than 90
days (in respect of a term loan),
• The account remains ‗out of order‘ for more than ninety days (in respect of an

• The bill is overdue for more than 90 days (in the case of bills purchased and
discounted),
• Agricultural loans: The installment or interest of the principal sum remains overdue
for 2 crop seasons( for short duration crops),
• Agricultural loans: The installment or interest of the principal sum remains overdue
for 1 crop seasons( for long duration crops),
• The amount of liquidity facility has been outstanding for more than 90 days, with
respect to a securitisation transaction done according to the terms of guidelines on
securitisation, 2006.
• For derivative transactions, the overdue receivables that represent positive mark-to-
market value of a derivative contract, they remain unpaid for time duration of 90 days from the
specified due date for payment.

External Factors
REASONS RELATED TO THE CORPORATE SECTOR

1. Apart from the slowdown in India, the global economy has also slowed down.
This has adversely impacted the corporate sector in India. Continuing uncertainty in the global
markets has led to lower exports of various products like textiles, engineering goods, leather,
gems etc. It can be noted that imports and exports combined equal to around 40% of India‘s
GDP!
A hurt corporate sector is finding it difficult to pay loans
2. The ban in mining projects, delay in environmental related permits affecting power,
iron and steel sector, volatility in prices of raw material and the shortage in availability of power
have all impacted the performance of the corporate sector. This has affected their ability to pay
back loans.

44
OTHER SECTORS:
Banks in India are highly regulated. Priority sector lending (PSL) is one of these regulations
which require the banks to give a certain % of their loans to certain sections of society. These
are farmers, SCs, STs, IT parks, MSMEs etc.
Naturally one would assume that the weaker sections covered under PSL are the ones to be
blamed for the situation. However, it is not the case.
As per recent news reports, the Standing Committee on Finance will be now examining the
reasons for high NPAS in PSBs.
The data, shared with the Standing Committee, shows that NPAs in the corporate sector are
far higher than those in the priority or agriculture sector.
Within the priority sector, incremental NPAs were more in respect to micro small and medium
enterprises followed by agriculture.
However, even the PSL sector has contributed substantially to the NPAs.
As per the latest estimates by the SBI, education loans constitute 20% of its NPAs!

Internal Factors:
1. Indiscriminate lending by some state-owned banks during the high growth period (2004-
08) is one of the main reasons for the deterioration in asset quality.
2. Bankers say there is a lack of rigour in loan appraisal systems and monitoring of warning
signals at state-run banks. This is particularly true in case of infrastructure projects, many of
which are struggling to repay loans. Besides, these projects go on for 20 to 30 years.
3. Poor recovery and use of coercive techniques by banks in recovering loans
4. The wait and watch approach of banks have been often blamed as the reason for rising NPAs
as banks allow deteriorating asset class to go from bad to worse in the hope of revival and often
offer restructuring option to corporates.
A Parliamentary panel, examining increasing incidents of NPAs, has observed that state- owned
banks should stop ―ever-greening‖ or repeated restructuring of corporate debt to check the
constant bulging of their non-performing assets. Members of the panel were of the view that
NPAs are the result of bad economic situation, but there were also management issue of every-
greening of loans, which could be avoided by not renewing loans, particularly of corporate‖.

45
The steps that can prevent the piling up of NPAs are as follows:
1. CONSERVATISM:
Banks need to be more conservative in granting loans to sectors that have traditionally found
to be contributors in NPAs. Infrastructure sector is one such example. NPAs rise predominantly
because of long gestation period of the projects. Therefore, the infrastructure sector, instead of
getting loans from the banks can be funded from Infrastructure Debt Funds (IDFs) or other
specialized funds for infrastructural development in the country.

2. IMPROVING PROCESSES:
The credit sanctioning process of banks needs to go much more beyond the traditional analysis
of financial statements and analyzing the history of promoters. For example, banks rely more
on the information given by credit bureaus. However, it is often noticed that several defaults
bysome corporate are not registered in their credit history.

3. RELYING LESS ON RESTRUCTURING THE LOANS:

Instead of sitting and waiting for a loan to turn to a bad loan, and then restructure it, the banks
may officially start to work to recover such a loan. This will obviate the need to restructure a
loan and several issues associated with it. One estimate says that by 2013 there will be Rs 2
trillion worth of restructured loans.

4. EXPANDING AND DIVERSIFYING CONSUMER BASE BY INNOVATIVE

BUSINESS MODELS:
Contrary to popular perceptions, the NPA in non-corporate sector is less than that in the
corporate sector. Hence, there is a need to reach out to people in remote areas lacking
connectivity and Accessibility. More and more poor people in rural pockets should be brought
under the banking system by adopting new technologies and electronic means. Innovative
business models will play a crucial role here. Otherwise, the NPAs may increase instead of
decreasing.
As said by the new M.D. of SBI, Mr. Viswanathan proposed ideas such as a single demat
account for all investments and credit cards for school students (above class 8th) to make them
aware with the banking system.

46
Bank, but a principal loss as well. That means, if a bank has lent 100 Crore to a company with
an outstanding loan amount of 60 Crores, then the bank would lose these 60 Crores along with
the future interest payments as well- when the company goes bust. Now this is a serious loss to
the bank and someone has to bear that loss. If the loss is much higher and there is every
possibility that the customer's deposits may get eroded. This is where the risk management and
regulators come into picture. Knowing that the banks would take extra risk in giving the loans,
the regulators decided to put a condition known as provision for bad assets. To elaborate, banks
need to continuously assess their loans and set aside an amount in the beginning itself to
accommodate for any losses.

NET NPA:

• Net NPAs is the amount of gross NPAs less

• Interest debited to borrowal and not recovered and not recognized as

income and kept in interest suspense

• Amount of provisions held in respect of NPAs and

• Amount of claim received and appropriated.

• The Reserve Bank of India defines Net NPA as Net NPA = Gross NPA
– (Balance in Interest Suspense account + DICGC/ECGC claims
received and held pending adjustment + Part payment received and kept
in suspense account + Total provisions held).

47
 CHAPTER IV
PROBLEMS OF NPA IN HDFC BANK

48
SCOPE OF THE STUDY:
NPA is defined as a credit facility in respect of which the interest and or installment of

principal has remained ‗ past due ‘for a specified period of time. An asset including a leased

asset, becomes non-performing when it ceases to generate income for the bank. The banks, in

their books, have different kind of assets, such as cash in hand, balances with other banks,

investment, loans and advances, fixed assets and other assets. The Non-Performing Asset

(NPA) concept is restricted to loans, advances and investments. As long as an asset generates

the income expected from it and does not disclose any unusual risk than normal commercial

risk, it is treated as performing asset, and when it fails to generate the expected income it

becomes a ―Non-Performing Asset‖. In other words, a loan asset becomes a Non Performing

Asset

Why NPA is important in Indian economy & what are the important parameters?

A strong banking sector is important for flourishing economy. The failure of the banking sector

may have an adverse impact on other sectors. Non-performing assets are one of the major

concerns for banks in India. NPAs reflect the performance of banks. A high level of NPAs

suggests high probability of a large number of credit defaults that affect the profitability and

net-worth of banks and also erodes the value of the asset. The NPA growth involves the

necessity of provisions, which reduces the overall profits and shareholders value.The issue of

Non-Performing Assets has been discussed at length for financial system all overthe world.

The problem of NPAs is not only affecting the banks but also the whole economy. In fact high

level of NPAs in Indian banks is nothing but a reflection of the state of health of the industry

and trade.

49
NPA as an important parameter

A strong banking sector is important for flourishing economy. The NPA‘s are considered as an

important parameter to judge the performance and financial health of banks. If a bank has high

NPA ratio then its performance is considered as weak than that of a bank with lower NPA ratio.

It creates a bad effect on good will and equity value of the bank .sometimes the banks also hide

the actual NPA ratio. The failure of the banking sector may have an adverse impact on other

sectors. Non-performing assets (NPA) are one of the major concerns for banks in India. A loan

or lease that is not meeting its stated principal and interest payments is said to be non-

performing assets. Banks usually classify as NPA any commercial loans whichare more than

90 days overdue, and any consumer loans which are more than 180 days overdue. Most of the

rise in NPA is due to problems with commercial loans. A lot of banks and financial institutions

in India are dealing with pending cases of these natures for over many years. The banks are

lending money to get revenue through interest rates along with principal. But NPA has a bad

effect on bank revenue. Non-performing loans epitomize bad investment. They misallocate

credit from good projects, which do not receive funding, to failed projects. These are the

challenges the banks are facing regarding the non-performing assets. The reason investors are

wary of lenders with too many non-performing assets is that with a reduced cash flow, the

company has tighter credit policies. This leads to slower economic growth and economic

development because other businesses won't be able to get a loan.

50
Why the Study of NPA is important?

The higher is the amount of non-performing assets (NPAs), the weaker will be the bank‘s

revenue stream.

In the short-term, many banks have the ability to handle an increase in nonperforming assets

— They might have strong reserves or other capital that can be used to offset the losses.

But after a while, if that capital is used up, nonperforming loans will imperil a bank‘s health.

Think of nonperforming assets as dead weight on the balance sheet. The NPA is one of

the biggest problems that the Banks are facing today. If the proper management of the

NPAs isnot undertaken it would hamper the business of the banks. If the concept of NPAs

is taken very lightly it would be dangerous for the whole banking sector. The NPAs would

destroy the current profit, interest income and would affect the smooth functioning of the

recycling of the funds. Banks also redistribute losses to other borrowers by charging

higherinterest rates, lower deposit rates and higher lending rates repress savings and financial

markets, which hampers economic growth. Public sector banks are more efficient than

private sector &foreign banks with regard to the management of nonperforming assets.

51
 Advances and NPAs of Domestic Banks by Priority and Non-Priority Sectors *
(Amount in ` Billion)
Priority Sector Non-Priority Sector Total
Gross Gross Gross
NPAs NPAs NPAs
as as as
Year Gross Gross Gross Gross Gross Gross
Per Per Per
Advances NPAs Advances NPAs Advances NPAs
Cent Cent Cent
of of of
total total total
Public Sector Banks
2018 19,599.15 1,542.76 24.1 31,823.09 4,867.80 75.9 51,422.24 6,410.56 100
2017 18,737.48 1,281.16 25.5 32,084.08 3,739.52 74.5 50,821.56 5,020.68 100
2016 16,859.54 936.85 35.7 31,593.15 1,690.60 64.3 48,452.69 2,627.45 100
Nationalized Banks**
2018 14,061.51 1,241.83 26.4 20,703.61 3,458.57 73.6 34,765.12 4,700.40 100
2017 13,417.72 988.69 25.5 21,000.28 2,890.16 74.5 34,417.71 3,878.84 100
2016 12,506.58 679.61 35.4 21,717.87 1,239.25 64.6 34,224.45 1,918.86 100
SBI Group
2018 5,537.64 300.93 17.6 11,119.48 1,409.23 82.4 16,657.12 1,710.16 100
2017 5,319.77 292.47 25.6 11,083.79 849.36 74.4 16,403.56 1,141.83 100
2016 4,352.96 257.24 36.3 9,875.27 451.35 63.7 14,228.23 708.59 100
Private Sector Banks
2018 6,520.04 132.93 18 14,528.76 605.49 82 21,048.80 738.42 100
2017 5,619.77 101.39 21 12,297.04 382.41 79 17,916.81 483.8 100
2016 4,427.62 72.11 22.8 9,945.77 243.65 77.2 14,373.39 315.76 100
1. * : Excluding foreign banks.
Notes :
2. ** : Includes IDBI Bank Ltd.
Source: Based on off-site returns (Domestic).

52
Advances and NPAs of Domestic Banks by Priority and Non-Priority Sectors

Priority Sector

Priority Sector means those sectors which the Government of India and Reserve Bank of India

consider as important for the development of the basic needs of the country and are to be given

priority over other sectors. The banks are mandated to encourage the growth of such sectors

with adequate and timely credit. The categories of priority sector area agriculture, micro-small

and medium enterprises, export credit, education, housing, social infrastructure, renewable

energy and others. The RBI guidelines to banks for running this priority sector are 40% of the

total net bank credit as on 31st March should go to priority sector advances, 10%

Of the priority sector advances or 10% of the total net bank credit, whichever is higher should

go to weaker section, 18% of the total net bank credit should go to agricultural advances.

Therefore, from the above table it can be seen that for public sector banks, in the year 2015 the

gross advances are 16,859.54 billions, gross NPAs are 936.85 billion which contributes 35.7%

of total gross NPAs. In the following year, which is in 2016, the gross advances are 18737.48

billion, gross NPAs are 1281.16 billion which contributes 25.5% of total gross NPAs. Similarly

in the year 2017, the gross advances are 19599.15 billion, gross NPAs are 1542.76 billion which

contributes 24.1% of total gross NPAs. This shows an increasing trend in the gross advances

and NPAs due to the reasons such as a result of an increasing number of loan waivers by the

government and the demonetization in more recent memory. A major factor that has contributed

to the amount of NPAs in the agriculture sector is the increasing frequency of farm loan

waivers.

In case of nationalized banks, for the year 2015, the gross advances are 12506.58 billion, gross

NPAs are 679.61 billion contributing to 35.4% of total gross NPAs. In the year 2016, the gross

advances are 13417.72 billion, gross NPAs are 988.69 billion contributing to 25.5%

53
Of total gross NPAs. In the following year that is in 2017, the gross advances are 14061.51

billion, gross NPAs are 1241.83 billion contributing to 26.4% of total gross NPAs. This also

shows an increasing trend due to the ineffective recovery tribunal, willful defaults, defective

lending processes, inappropriate technology etc.

While coming to the SBI group, in the year 2015 the gross advances are 4352.96 billions, gross

NPAs are 257.24 billion which contributes 36.3% of total gross NPAs. In the following year,

which is in 2016, the gross advances are 5319.77 billion, gross NPAs are 292.47 billion which

contributes 25.6% of total gross NPAs. Similarly in the year 2017, the gross advances are

5537.64 billion, gross NPAs are 300.93 billion which contributes 17.6% of total gross NPAs.

One of the main reasons for this increase is when kingfisher was marred in financial crisis, SBI

provided it huge amount of loan which it is not able to recover from it.

We can also see an increasing trend in the gross advances and gross NPAs in private sector

banks that is for the year 2015, the gross advances are 4427.62 billion, gross NPAs are 72.11

billion contributing to 22.8% of total gross NPAs. In the year 2016, the gross advances are

5619.77 billion, gross NPAs are 101.39 billion contributing to 21% of total gross NPAs. In

the following year that is in 2017, the gross advances are 6520.04 billion, gross NPAs are

132.93 billion Contributing to 18% of total gross NPAs. This is due to the economy slowdown

and over leveraging of the private banks.

54
Non-Priority Sector

Non-Priority Sector lending is the sector towards which financial institutions are always ready

to lend credit. It covers all the remaining sectors which are other than priority sector lending.

From the table it can be seen that, for public sector banks, for the year 2015, the gross advances

and gross NPAs are 31593.15 billion and 1690.60 billion respectively which is 64.3% of total

gross NPAs. For the year 2016, the gross advances and gross NPAs are 32084.08 billion and

3739.52 billion respectively which is 74.5% of total gross NPAs. And for the year 2017, the

gross advances and gross NPAs are 31823.09 billion and 4867.80 billion respectively which is

75.9% of total gross NPAs. This is due to the relaxed lending norms especially for corporate

honchos when their financial status and credit rating is not analyzed properly. Also, to face

competition banks are hugely selling unsecured loans which attributes to the level of NPAs.

Five sectors Textile, aviation, mining, Infrastructure contributes to most of the NPA, since most

of the loan given in these sector are by PSB, They account for most of the NPA.

For the nationalized banks, in the year 2015, the gross advances and gross NPAs are 21717.87

billion and 1239.25 billion respectively which is 64.6% of total gross NPAs. For the year 2016,

the gross advances and gross NPAs are 21000.28 billion and 2890.16 billion respectively which

is 74.5% of total gross NPAs. And for the year 2017, the gross advances and gross NPAs are

20703.61 billion and 3458.57 billion respectively which is 73.6% of total gross NPAs. The

reasons for increase in these are due to lack of demand, change in government policies,

improper SWOT analysis, poor credit appraisal system etc.

In case of SBI group, in the year 2015, the gross advances and gross NPAs are 9875.27 billion

and 451.35 billion respectively which is 63.7% of total gross NPAs. For the year

55
2016, the gross advances and gross NPAs are 11083.79 billion and 849.36 billion respectively

which is 74.4% of total gross NPAs. And for the year 2017, the gross advances and gross NPAs

are 11119.48 billion and 1409.23 billion respectively which is 82.4% of total gross NPAs.

Similarly for private sector banks, in the year 2015, the gross advances and gross NPAs are

9945.77 billion and 243.65 billion respectively which is 77.2% of total gross NPAs. For the

year 2016, the gross advances and gross NPAs are 12297.04 billion and 382.41 billion

respectively which is 79% of total gross NPAs. And for the year 2017, the gross advances and

gross NPAs are 14528.76 billion and 605.49 billion respectively which is 82% of total gross

NPAs.

56
 Movement of NPA’s Banks wise

Table 1: Movement of NPAs of HDFC bank

As on As on
March 31 March 31
Addition Write-off
previous Current
Year year During Reduction during Year

2019 58857 129590 69719 32658 86070

2018 43928 71262 32474 23859 58857

2017 34384 57216 28158 19424 43928

2016 29893 47901 24897 18513 34384

The above table reveals the information of NPAs of HDFC Bank. It is observed that the

advances of the bank were increased from year to year and also NPAs were increased parallel.

Where asset quality is concerned, HDFC Bank's gross non-performing assets have stayed

mostly stable quarter-on-quarter-1.29 per cent of gross advances in Q3 FY18 compared to

1.26 per cent as on September 30, 2017. HDFC Bank is on the roll. The net profit growth of

over 20 per cent year-on-year and its net profits stood at Rs 4,642.60 crore for the quarter ended

December 31, 2017 and total income was Rs 24,450.4 crore, up from Rs 20,748.3 crorein the

third quarter (Q3) of the previous fiscal. It is the first Indian bank to cross the Rs 5-lakh crore

market capitalization threshold, and only the third Indian company- after Reliance Industries

and TCS-to make the cut. Continuing with its declared Q3 results, net revenues increased by

23.9 per cent to Rs 14,183.5 crore while net interest income (interest earned less interest

expended) grew by 24.1 per cent to Rs 10,314.3 crore, driven by average asset growthof 16.6

per cent and a core net interest margin for the quarter of 4.3 per cent. Operating expenses have

gone up 18.4 per cent year-on-year, from Rs 4,842.5 crore in

57
Q3 FY17 to Rs 5,732.2 crore this year. The core cost-to-income ratio for the quarter was at

41.2 per cent as against 43.8 per cent for Q3 FY17.

Where asset quality is concerned, HDFC Bank's gross non-performing assets have stayed

mostly stable quarter-on-quarter-1.29 per cent of gross advances in Q3 FY18 compared to

1.26 per cent as on September 30, 2017. But the latest figure of Rs 8,234.88 crore is markedly

higher than Rs 5,232.27 crore posted in Q3 FY17. Net non-performing assets now stand at 0.4

per cent of net advances. The jump in NPAs for India's largest private sector bank could be due

to reported RBI divergence (in asset classification) in three accounts amounting to Rs 2,051

crore as on March 2017. Provisions and contingencies for Q3 FY18, however, stood at Rs

1,351.4 crore against Rs 1476.2 crore for the previous quarter.

HDFC Bank is one of the world's most expensive banks in terms of price-to-book-value and

its total balance sheet size for the quarter under review was Rs 9.49 lakh crore compared to Rs

8.28 lakh crore a year ago.

The announcement of the Q3 results saw HDFC Bank share price go up 1 per cent per cent,

trading at Rs 1,954 around noon today, whereas benchmark BSE Sensex was 0.35 per cent up.

In fact, HDFC Bank stock had already gone up 4 per cent in the previous four trading sessions

after its parent company, mortgage lender HDFC, announced plans to raise up to Rs 13,000

crore via QIP and preference shares. The idea primarily was to maintain its holding in its

banking arm and enter segments such as stressed assets and health insurance. This will be the

first equity raising by the country's largest pure-play mortgage lender in over a decade

To reduce the non-performing assets bank must work efficiently and must have the reasons to

forecast the reasons to cause the non-performing assets on bad loans. The problems for rising

of non-performing divided into three categories, first Is on the initial performance of internal

banking, second the causes arise from the accountability of borrowers were on the borrowers

tend to consider as the main cause for the rise of NPA, third other causes which happens

58
Outside the circumstances of the banking system. Poor credit appraisal skills to lenders have

resulted in a high level of stress over resulting in bad loans over the last five years.

One of the major hinders the non-performing assets management of bank which is inadequate

credit appraisal capacities were the banks that know the only consulting firm and a few other

desks in the selective bank. A loan may be bad because of the selection of wrong borrowers.

The lender may not have the full and true disclose material facts about the borrower since the

data which is not systematically distributed by the financial system. That‘s why the potential

borrower has more information than other to exploit the lender with less information. The

borrowers tend to give misleading information to the lender which make even worse to take a

decision by the lender. So, the challenge faced by the bank is on choosing the right borrower.

In that situation, the bank needs to reject the wrong borrower through better investigation. At

the same time, honest borrowers must be distinguished from the wrong borrowers. Such

borrower engages in high risk of activities which turn the loan into default loan causing

problems to the bank. Moreover, the management does not have enough capacity on its lending

facilities.

Also observed that longer gestation time is held between the transactions with the bank, were

the bank according to its transaction the importance is not equally distributed and hence there

is a lack of management in banks over borrowers. Apart from that the diversion of funds to

unrelated business or fraud lapses in initial borrowers due to the due diligence and inefficiencies

in the monitoring process for the reasons of bad loans in the bank. And there is an inadequate

research and development over the borrower.

59
 TREND PERCENTAGE OF RETURN ON EQUITY AND RETURN ON ASSETS OF
HDFC BANK

The table below shows the trend percentage of return on equity and return on assets of HDFC
bank during the period 2016-2018.
HDFC BANK
Return on
Return on
Equity
YEAR Trend YEAR Assets (%) Trend
(%)
2016 18.26 100% 2016 1.89 100%
2017 17.95 98% 2017 1.88 99%
2018 17.87 98% 2018 1.93 102%

INTERPRETATION:

The table shows that the trend percentage of return on equity in HDFC in India is been

maintained In a consistent growth rate with slight fall i.e. of 2% for the period 2016-18 due to

the Bank‘s total income for the quarter ended September 30, 2016 was 19,970.9 crores up from

17,324.3 crores for the quarter ended September 30, 2015. Profit before tax for the quarter
ended September 30, 2016 grew by 21.0% to 5,275.6 crores from 4,361.6 crores for the

corresponding quarter ended September 30, 2015. After providing 1,820.2 crores for taxation,

the Bank earned a net profit of ` 3,455.3 crores, an increase of 20.4% over the quarter ended

September 30, 2015.

The trend percentage of return of assets in HDFC bank has decrease to 1% in the 16-17 Net

non-performing assets were at 0.3% of net advances as on September 30, 2016. Total

restructured loans were at 0.1% of gross advances as of September 30, 2016 as against 0.1% as
of September 30, 2015 and overcome its fall of ROA by next preceding year by 3% raiseof

trend growth in 17-18 For the half year ended September 30, 2017, the Bank earned a total

income of ` 45,461.6 crore as against 39,293.5 crore in the corresponding period of the previous

year. Net revenues (Net profit for the half year ended September 30, 2017 was ` 8,044.9 crore,

up by 20.2% over the corresponding half year ended September 30, 2016.. It is inferred that the
HDFC are maintaining their standards of performance and providing their best in banking

activities.

60
Peer comparison of NPAs of HDFC Bank year wise

Ratio of Net NPA to Net

Year Bank
Advances

HDFC BANK LTD. 0.4

AXIS BANK LIMITED 3.64

ICICI BANK LIMITED 5.43

2019 INDUSIND BANK LTD 0.51

YES BANK LTD. 0.64

HDFC BANK LTD. 0.33

AXIS BANK LIMITED 2.27

2018 ICICI BANK LIMITED 5.43

INDUSIND BANK LTD 0.39

YES BANK LTD. 0.81

HDFC BANK LTD. 0.28

AXIS BANK LIMITED 0.74

2017 ICICI BANK LIMITED 2.98

INDUSIND BANK LTD 0.36

YES BANK LTD. 0.29

61
INTERPRETATION:
In the above table we are comparing the ratio of net NPA to net advances with peer banks

from that we can observe that from the year 2016-2018 the ratio of net NPA to net advances

of HDFC bank were increased by 0.12 and its peer banks like AXIS bank limited was

increased by 2.9 in the same way ICICI bank was increased by 2.45 and INDUSIND bank as

well as YES bank were grew by 0.15 and 0.35 due to their respective loans and advances

were high but the recovery channels were not performing well during the year 2016-2018.

In the year 2018 ICICI bank has the higher net NPA to Net Advances ratio which is 5.43 and

AXIS bank has the ratio of 3.6 because it have the advances of 4,39,650,31 lakhs and YES bank

has the net NPA to net advances ratio of 0.64 because Advances grew by 53.9% y-o-yto

2,03,533.9 Crores on the back of robust growth across Corporate, MSME and Retail businesses.

Retail Banking Advances grew by 99.1% y-o-y to 12.2% of Advances (up from 9.4% as on

March 31, 2017). And IndusInd bank has the ratio of 0.51 due to Total Advances as on March

31, 2018 is at Rs. 1,44,954 crores as compared to Rs. 1,13,081 crores on March 31, 2017,

recording a growth of 28 %. In the year 2018 HDFC bank has the net NPA to Net advances

ratio of 0.4 due to Total advances as of September 30, 2018 were ` 7,50,838 crore. Domestic

advances grew by 24.2% over September 30, 2017 means that HDFC bank was good in

recovering their protocol that other banks and though HDFC bank has more advancesits Net

NPA to Net advances ratio is low.

In the year 2017 ICICI bank has the ratio of 5.43 and axis bank has the net NPA to net advances

ratio of 2.27 due to it has the total advances of 3,73,069,35 lakhs but its recovery channel is too

weak when comparing with other banks in the same way INDUSIND bank has the NPA to

Advances ratio of 0.39 because of Total Advances as on March 31, 2017 is at Rs. 1,13,081

crores as compared to Rs. 88,419 crores on March 31, 2016, recording a growth of 28 %. And

HDFC bank is with the ratio of 0.33, Total advances as of September 30, 2017 were ` 604,867

crore, an increase of 22.3% over September 30, 2016.

62
During the year 2016 ICICI bank has the higher ratio of net NPA to Net advances ratio which

is 2.98 and Axis bank is at 0.74 and IndusInd bank has the NPA to Net advances ratio of 0.36

and Yes bank has Net NPA to net advances ratio of 0.29 and HDFC bank has the lowest ratio

of net NPA to Net Advances because the banks operating expenses were increases due to

expansion of bank branches and at the same time there was a pressure holding to the bankers

side to achieve their loans target and they will not able to recover the loans the recovery channel

of HDFC is much better when comparing to its peer banks.

63
ICICI Bank:

ICICI Bank reported 49.6 percent year-on-year drop in net profit at Rs 1,020 crore for the

fourth quarter ending March 2019. Net profit for Q4FY17 was Rs 2,024.60 crore.

Profits of the country‘s biggest private sector bank were dragged by an 85-percent spike in

provisions due to a 17-percent rise in bad loans.

The results were in line with estimates. A Reuter‘s poll had estimated net profit at Rs 955.7

crore. NII or net interest income inched up marginally to Rs 6,021.67 crore in the quarter from

Rs 5,962 crore a year ago. It was projected to be marginally lower by about two percent to Rs

5,832 crore, as per the Reuters poll. Non-interest income jumped 88 percent to Rs 5,678.6 crore

(up from Rs 3,017 crore a year ago), supported by a one-time gain of Rs 3,320 crore from the

sale of bank's shareholding in ICICI Securities. NIM or net interest margin increased to 3.24

percent as on end of March 2018, up from 3.14 percent in the quarter ended December 31, 2017

(Q3 FY18).

Slippages into bad loans or gross NPA additions during the quarter was Rs 15,737 crore,

constituting Rs 9,968 crore of loans which were under RBI schemes and were classified as

standard on December 31, 2017. Gross non-performing assets (NPAs) worsened to 8.84 percent

of total loans from 7.82 percent in the December quarter and 7.89 percent in the March quarter

last year. In absolute terms, gross NPAs jumped to Rs 54,063 crore, up from 46,039 crores in

December quarter. Net NPAs also deteriorated to 4.77 percent from

4.20 percent in the previous quarter and 4.89 percent last year. Total domestic loan growth at

15 per cent year-on-year at March 31, 2018, driven by the retail book which grew by 21 per

cent.

Recoveries and upgrades from NPAs during the quarter under review improved substantially

to Rs 4,234 crore, up 282 percent compared to Rs 1,108 crore in the previous quarter and 200

percent jump from Rs 1,413 crore in same quarter last year.

64
Watch list reduces The Bank‘s drill-down list (watch list) or potential list of bad loans

decreased from Rs 44,065 crore at March 31, 2016, to Rs 4,728 crore at March 31, 2018. ICICI

Bank rates them as loans below investment grade exposure in key sectors identified earlier and

promoter entities. "Large part of the slippages were from the drill-down list of accounts and the

sharp reduction in the outstanding troubled assets is a key positive development for the quarter.

Recovery and up gradation also were strong during the quarter and the management intends to

fasten the recovery process. ICICI‘s other income fell 20 per cent to Rs 3,167 crore, from Rs

3,938 crore a year ago, mainly as treasury income was almostwiped out at Rs 66 crore from Rs

893 crore a year earlier after bond yields rose sharply during the quarter. Also, unlike last year,

the lender could not book exchange-rate gains relating to overseas operations because Reserve

Bank of India disallowed such recognition in the profit and loss account.

65
 TREND PERCENTAGE OF RETURN ON EQUITY AND RETURN ON ASSETS OF
ICICI BANK

The table below shows the trend percentage of return on equity and return on assets of ICICI
bank during the period 2016-2018.

ICICI BANK LIMITED

Return on Return of
Equity (%) Trend Assets (%) Trend
YEAR YEAR

2017 11.43 100% 2016 1.49 100%

2018 10.33 90% 2017 1.35 91%

2019 6.61 58% 2018 0.87 58%

The table shows that the trend percentage of return on equity in ICICI Bank has been decreased

gradually i.e. of 9% for the period 2016-17 and in the year 2017-2018 it was decreased to 58%

which is of 32%

The trend percentage of return of assets in ICICI bank has decrease by9% in the 16-17 and again

had drastic decrease of ROA by next preceding year by 36% in 17-18 when compared with 16-

17. It is inferred that the ICICI bank performance was good in the year 2016-2017 with 10%

decrease in return of equity and from 2017-2018 there was a huge drop in return of assets.

66
Axis Bank:

The third largest private sector lender posted a net loss at Rs 2,188.74 crore in the fourth quarter

of FY18, as opposed to a net profit of Rs 1,225.10 crore in the corresponding quarter last year.

Net profit for the financial year 2017-18 shrunk 93 per cent year-on-year (YoY) to end at Rs

276 crore.

The bank saw its provisions and contingencies increase to Rs 7,179.53 crore from Rs 2,581.25

crore seen during the quarter that ended on March 31, 2017, according to a regulatory filing by

Axis Bank. The bank's Net Interest Income in the March quarter stood flat on YoY basis atRs

4,730 crore, the statement added.

Axis Bank also skipped on distributing dividend due to the surprise loss in the March quarter.

"After making mandatory appropriations to Statutory Reserve, Investment Reserve and Capital

Reserve, no profits are available for distribution as dividend for the year ended 31st March

2018. Accordingly, no dividend has been recommended by the Board of Directors for the year

ended 31st March 2018," the lender said in its statement.

The asset quality of Axis Bank also worsened as its gross non-performing assets (NPAs)

reached 6.77 per cent during the fourth quarter of FY18. The same was at 5.28 per cent in the

December quarter last fiscal, and 5.04 per cent in the corresponding period last year. The private

lender saw its net NPAs rise to 3.40 per cent from 2.56 per cent in the previous quarterand 2.11

per cent in the quarter ended March 31, 2017. Axis Bank's gross NPAs stood at Rs 34,249 crore

and its net NPAs at Rs 16,592 crore. Slippages for the quarter under review stood at Rs 16,536

crore, amounting to a four-time jump on YoY basis from Rs 4,811 crore during Q4FY17. More

than Rs 13,900 core in new slippages came from corporate sector, Axis Bank said in its

statement.

67
 Trend percentage of return on equity and return on assets of Axis bank

The table below shows the trend percentage of return on equity and return on assets of AXIS
bank during the period 2016-2018.

AXIS BANK LIMITED

Return on Return of Assets

Trend Trend
YEAR Equity (%) YEAR (%)

2017 16.81 100% 2016 1.72 100%

2018 6.76 40% 2017 0.65 38%

2019 0.46 3% 2018 0.04 2%

INTERPRETATION:

The table shows that the trend percentage of return on equity in Axis Bank has been decreased

drastically i.e. of 40% for the period 2017-18 and in the year 2018-2019 it was decreased to

3%.

The trend percentage of return of assets in Axis bank has decrease by62% in the 16-17 and

again had drastic decrease of ROA by next preceding year by 36% in 17-18 when compared

with 16-17. It is inferred that the Axis bank performance was entirely in the state of down trend

where it needs to focus on the financial activities and providing loans by choosing right

customers.

68
RECOVERY CHANNELS OF NPA’S

• Lok Adalats
• Debt recovery tribunal
• SARFAECI ACT
Performance of Recovery channels
Non-performing assets are those which are not generating income for the banks. It
affects the profitability, liquidity and competitiveness of the banks .The banks should stop it
at the time of credit appraisal rather than try to recover it after it becomes NPA‘S. There are
many recover channels through which the banks recover NPA‘S such as DRTs Lok Adalats.
The purpose of this study was to analyze the various available recovery channel for the
recovery of NPAs and measure the efficiency in terms of amount recovered and number of
cases referred. This study shows that the percentage of recovery in terms of amount involved
and number of cases referred to these channels.
LOK ADALATS

Lok Adalat (People's Court) is one of the Alternative dispute resolution mechanisms

in India, it is a forum where cases pending or at pre litigation stage in a court of law are settled.

They have been given statutory status under the Legal Services Authorities Act, 1987.Under
this Act, the award (decision) made by the Lok Adalats is deemed to be a decree of a civil court

and is final and binding on all parties and no appeal against such an award lies before any court

of law. If the parties are not satisfied with the award of the Lok Adalat (though there is no

provision for an appeal against such an award), they are free to initiate litigation by approaching

the court of appropriate jurisdiction

Lok Adalat is very effective in settlement of money claims. Disputes like partition suits,

damages and matrimonial cases can also be easily settled before Lok Adalat, as the scope for

compromise through an approach of give and take is high in these cases. A Lok Adalat can take
up civil cases (including marriage, and family disputes) and compoundable criminal cases.

Performance of Lok adalats for the last five years can be known by the below table.

69
PERFORMANCE OF LOK ADALATS IN RECOVERY FOR THE PERIOD 2012-17

Recovery performance of LOK ADALATS (Billion’s)

No of cases Amount Amount
Year performance
referred involved Recovered
2014-15 840961 66 4 6.06%

2015-16 1636957 232 14 6.03%

2016-17 2958313 310 10 3.2%

2017-18 4456634 720 32 4.4%

2018-19 2152895 1058 38 3.59%

Performance of Lok Adalats

performance

6.06 6.03

4.44
3.59
3.23

2012-13 2013-14 2014-15 2015-16 2016-17

EXPLANATION:
The above table shows the how the lok adalats are performing in recovery of NPA‘s, Gross
loans and advances. It shows that from the period of 12-13 to 16-17, the performance is
gradually decreased. The cause downfall trend of recovery is effected mostly due to political
and economic factors. Reasons and causes are discussed in the further interpretation.

70
SARFAESI Act, 2002
The SARFAESI Act, 2002 grants the powers of ‗seizure ‘to banks. Under these provisions, the

banks may issue notices in writing to the defaulting borrower insisting the discharge of its

liabilities within 60 days. If the borrower fails to respond to such notice, the concerned bank

may:

• Take possession of the security in lieu of the loan.

• Sell, lease or assign the right over the security.

• The provisions of this Act applies to outstanding loans (above Rs. 1 lakh), which are

classified as Non-Performing Assets (NPA). NPA loan accounts amounting to less

than 20% of the principal and interest are not covered under this

Act this act not applicable for:

• Money or security issued under the Indian Contract Act or the Sale of Goods Act,

1930.

• Any conditional sale, hire-purchase, lease or any other contract in which no security

interest has been created.

• Any rights of the unpaid seller under Section 47 of the Sale of Goods Act, 1930.

• Any properties not liable to attachment or sale under Section 60 of the Code of Civil

Procedure, 1908.

71
PERFORMANCE OF SARFAESI ACT IN RECOVERY FOR THE PERIOD 2012-17

Recovery performance of Sarfaesi act (amount in billions)

No of cases Amount
Year Amount involved performance
referred Recovered
2012-13 190537 681 185 27.17

2013-14 194707 953 253 26.55

2014-15 175355 1568 256 16.33

2015-16 173582 801 132 16.48

2016-17 80076 1131 78 6.90

Performance of Sarfaesi Act

27.17 26.55

16.33 16.48

6.90

2012-13 2013-14 2014-15 2015-16 2016-17

72
Explanation:

The above table shows the recovery performance of SARFAESI act introduced by Narasimham

Committee II has been instrumental to recover the identified NPA without intervention of the

court. It allows the bank to recover the loan by acquiring / possessing the financial assets

pledged or mortgaged with the bankers at the time of availing of loans by borrowers. The

economy of the country also mostly depends on the functioning of banking institutions. As per

RBI Statistics, annual growth of bank credit in India, which had crossed 30% in the boom years

of 2004-2007, has declined to 9.7% in 2014-15 and again the similar percent of decline can be

seen in the year 2016-17 .Demonetization also plays a role in downfall of recovery percent.

The Reasons behind the downtrend and problems facing by sarfaeci act will be clearly

discussed in the interpretation.

73
Debt Recovery Tribunal
Debt Recovery Tribunals were created to facilitate the speedy recovery of debt
payable to banks and other financial institutions by their customers. DRTs was set up after
the passing of Recovery of Debts due to Banks and Financial Institutions Act (RDBBFI),
1993. A person or entity aggrieved by orders of the DRT can appeal against its orders to Debt
Recovery Appellate Tribunal (DRAT). The DRAT will not entertain the appeal until such
person deposits the 75% of the amount of debt so due determined by the DRT. Importance of
DRT
The main objective and role of DRT is the recovery of funds from borrowers which is
payable to banks and financial institutions. The Tribunals power is limited to settle cases
regarding the restoration of the unpaid amount from NPAs as declared by the banks under the
RBI guidelines. The Tribunal has all the powers vested with the District Court. DRT follows
the legal procedure by emphasizing on speedy disposal of the cases and fast implementation
of the final order.
Applicability of the Act
The Debt Recovery Tribunals Act applies to the following entities.
• It applies to all over India except for State of Jammu and Kashmir.
• It applies where the amount of debt due is not less than Rs. 10,00,000/-.
• It applies when the original application for recovery of Debts is filed only by Banks
and Financial Institutions.

74
 PERFORMANCE OF DRT’S IN RECOVERY FOR THE PERIOD 2012-17

Recovery performance of DRT's (Amount in billions)

Year No of cases referred Amount involved Amount Recovered performance

2014-15 13408 310 44 14.19

2015-16 28258 553 53 9.58

2016-17 22004 604 42 6.95

2017-18 24537 693 64 9.24

2018-19 28902 671 164 24.44

Performance of DRT's
performance

24.44

14.19

9.58 9.24

6.95

2014-15 2015-16 2016-17 2017-18 2018-19

75
 OVERALL RECOVERY CHANNEL PEROFORMANCE

OVERALL RECOVERY CHANNEL PERFORMANCE

Recovery Channel Amount involved Amount recovered Percentage

Lok Adalats 2386 98 4.10729254

DRTs 2831 367 12.9636171

SARFAESI Act 5134 904 17.60810284

Percentage of Recovery
2012-17 ,Lok
Adalats, 2012-17 ,DRTs,
12.9636171

2014-19
2014-19
Unrecovered
,
SARFAESI

76
INTERPRETATION:

Before getting in to the analysis of Data, the key points of Recovery channels are to be

studied. Lok Adalats deal with NPAs that fall under ‗doubtful ‘or ‗loss‘categories and cover small

loan amounts till ₹ 10 lakhs. As per the RBI guidelines (2001), both suit filed and non- suit filed

cases can be dealt in Lok Adalats. Though it is not a legal procedure, it is highly effective in settling

disputes for small loans. The SARFAESI Act empowers the lending bank to issuedemand notice

to the borrower along with his/her guarantors for defaults of ₹ 1 lakh or above. Post issuance of

notice through this act, the borrower has to repay the dues (in full) within 60 days. Also, the

borrower can no longer dispose the assets or sell them without the lender‘s consent. It enables banks

to recover NPAs through alternatives such as Asset Reconstruction, Enforcement of Security and

Securitisation without the intervention of court. Debt Recovery Tribunals are special courts that

solely focus on NPA recovery of more than ₹ 20 lakhs. DRTs were set up to speed up the disputes

between lenders and borrowers as compared to ordinary courts, which would otherwise take several

years to give the verdict.

They are also other schemes like Compromise Settlement or the One-time Settlement

Schemes are instances where the borrowers agree to pay the due loan amounts to the banks or

other financial institutions. On the other hand, banks compromise on the total due amount and

agree to accept a lower than due amount, in full and at a single time. It is observed as a loss to

banks in the form of write off/waiver of dues partially, on a one-time basis. CREDIT

INFORMATION BUREAU Credit Information Bureau is the latest tool for NPA recovery

where third-party agencies help banks with information about customers to understand their

financial conditions, repayment capacity, will to repay and more such factors. These agencies

keep a track of defaulters and even the accounts that are prone to becoming delinquent, and

share these reports/data with the banks to enable them in making better lending decisions. There

are more NPA recovery tools that are used by financial institutions across the

77
Country. And, in view of the sincere efforts being implemented by the government of India to

address the rising NPA levels, we may expect more advanced tools to be introduced in future

for productive recovery of bad loans. They are also other factors which effects the recovery

channels they are political, econucalsocial and technical

When there is an increase in the level of NPA‘S categorically it can be stated as bane of the

banking sector. So to decrease the level of NPA recovery channels came into existence but

there are lot of factors which are affecting that recovery process.

There is a drastic change in a negative extent as there is a fall in the process of recovery. The

number of cases referred in 2012-2013 are 840961.66 billions of amount involved in this in

that 4 billion are recovered. If we observe in the table it shows the level of performance as

6.06%it means 93.94% is not yet recovered. We have recovery channels but to recover in the

country like India is a very complicated task for the banking sectors due to certain

circumstances or factors which are affecting the recovery of NPA‘s 2012-13-Reasons/ Causes

(Recovery became an Non- Recovery)

According to M.R. Umarji, Chief Legal Adviser, Indian Banks‘Association, small value

loans up to Rs 20 lakh can be amicably settled between the borrower and the lender using the

forum of Lok Adalats. Being lok adalats is vested with same powers as are vested inthe civil

court under the code of civil procedure. This statement it’s clearly stating that the loans

provided by private banks 20 below Lakhs can be recovered which are mostly vests with

secured portion.

In the year of 2013-14 the LokAdalats maintained the same standards of recovery, But in the

year 2014-15 that‘s a great failure for the recovery system. Which was a drastic fall of recovery

from 6.03 to 3.03 that to the cases and the amount were more than the addition of last two

preceding amount involved and less than the previous recovery.

They are many scams which become reason behind increase of NPA‘s and effect a drastic fall

78
In collection of recovery. In 2014, Mumbai Police filed nine FIRs against a number of public sector

related to a fixed deposit fraud to the tune of Rs 7 billion or Rs 700 crore. In the same year,Electro

herm India, which defaulted payment of Rs 4.36 billion or Rs 436 crore to the Central Bank. Apart

from that, Bipin Vohra, a Kolkata-based industrialist allegedly defrauded the CentralBank of India

by receiving a loan of Rs 14 billion using forged documents.

Besides, another scam that was unfolded in 2014 was the bribe-for-loan scam involving ex-

chairman and MD of Syndicate Bank SK Jain for involvement in sanctioning Rs 80 billion or

Rs 8,000 crore. In 2014, Vijay Millay was also declared a willful defaulter by Union Bank of

India, following which other banks such as SBI and PNB followed suit

In 2015, another fraud that raised eyebrows involved employees of Jain Infraprojects, who

defrauded Central Bank of India to the tune of over Rs two billion. In the same year, employees

of various banks were involved in a foreign exchange scam involving a phony Hong Kong

corporation. They had defrauded the systems to move out Rs 60 billion.

One of the biggest banking frauds of 2016 is the one involving Syndicate Bank, where almost

380 accounts were opened by four people, who defrauded the bank of Rs 10 billion using

fake cheques, LoUs and LIC policies.

In 2017, Mallya's debt - owing to defunct Kingfisher Airlines - rises to Rs 9.5 billion or

Rs 9,500 crore to IDBI and other bank branches. CBI prepares charge sheet but he had fled the

country in 2016. Currently residing in the UK, Mallya's extradition is being sought at the

country's Westminster Court.

In the same year, Winsome Diamonds - also known to be India's second largest

corporate defaulter - came under the scanner after CBI booked six cases against the group and

the companies under it. This case is similar to the one observed in the fresh bank fraud involving

Nirav Modi group: Letters of Undertaking were issued by Indian Banks to Jatin Mehta's

Winsome Diamonds. It may be noted that the gaps were first discovered in 2014.

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From mid- 2013 the group failed to payback its debts, and was declared a willful defaulter by

banks. The total debt amounts to almost Rs 7,000 crore.

Another case that grabbed eyeballs in the same years involved Deccan Chronicle Holdings for

causing a loss of Rs 11.61 billion; CBI registered FIR against five PSBs and six charge sheets

were filed against the company.

A Kolkata business tycoon Nilesh Parekh, a promoter of Shree Ganesh Jewellery

House, was arrested by CBI in 2017 for causing a loss of Rs 22.23 billion to at least 20 banks.

Parekh, arrested at Mumbai airport last year, allegedly defrauded banks by diverting loan

money via shell companies in Hong Kong, Singapore, and the UAE.

In this case, CBI filed a case against the former zonal head of the Bank of Maharashtra and a

director of a private logistics company based in Surat, owing to an alleged scam involving Rs

8.36 billion.

Public Sector Banks in India lost at least 227.43 billion (Rs 22,743 crore) owing to

fraudulent banking activities between 2012 and 2016, that‘s the reason which effected all

recovery channels. This was informed by Electronics and Information-technology minister

Ravi Shankar Prasad in the Parliament, citing Reserve Bank of India (RBI) data.

The banking sector in India is in a crisis with the increase in burden of bad loans

provisioning and the decline in profitability of commercial sector banks particularly Public

sector banks. ―Bankers are the heart and soul of any business. The economy of the country

also mostly depends on the functioning of banking institutions. As per RBI Statistics, annual

growth of bank credit in India, which had crossed 30% in the boom years of 2004-2007, has

declined to 9.7% in 2014-15 and further to 9.4% in the first half of 2015-16. The decline in

credit growth has affect the profitability of scheduled commercial banks, with public sector

banks suffering the most in this profit wring. A breather in the form of SARFAESI ACT 2002

was introduced by the recommendation of Narasimham Committee II has been

80
Instrumental to recover the identified NPA without intervention of the court. It allows the bank

to recover the loan by acquiring / possessing the financial assets pledged or mortgaged with the

bankers at the time of availing of loans by borrowers. This paper attempts to studythe process

and effect of SARFASEI Act 2002 and its impact in recovering the non- performing assets in

public sector banks in India. To ascertain the recovery process of SARFAESI Act with the

other recovery methods adopted viz; Lok Adalats, DRT and CDR inchosen public sector banks.

The study has been made to find out the percentage of recovery made in SARFAESI Act 2002

in compare with Lok Adalat and DRT and also to identify the number of cases referred to the

Lok Adalat, DRT & SARFAESI Act 2002 with respect to the banking sector in India.

It clearly denotes that SARFAESI Act 2002 and DRT does not have larger variations.

Lok Adalats function by amicably settling disputes that are pending in a court of law or at a

pre- litigation stage. This defines that DRTs and SARFAESI Act is much more efficient to

recover the NPAs. While comparing the number of cases referred to Lok Adalats cover almost

80 percent on an average per year. Besides this in terms of amount recovered their performance

is not so good. The reason may be that these court deals with a large number of cases involving

smaller amounts having an individual ceiling. These recovery channels have great importance

in increasing the profitability of the banks. The importance of the recovery channel can be

understood with the help of the above fig. This observation and analysis clearly states that

Recovery channels are showing more interest towards the less fund borrowers with the help of

Sarfaesi act. It also shows that they are trying to recover maximum amount of Loans with

Sarfaesi act. The amount recovered from the Sarfaesi act is more than the other two recovery

channels over the last five years.

81
CHAPTER-V

82
Summary
The banking sector exercises an imperative role in economic growth of a country. By
way of providing services, the banking sector becomes an integral part in creation, allocation,
trade and utilization processes in the economic system. It fosters the flow of funds in an
economy and fuels economic growth. Thus, the efficiency and effectiveness of banking system
determines the swiftness of advancement of an economy. Alike any other business enterprise,
the competence of a bank is evaluated based on profitability and quality of assets it possess.
The Housing Development Finance Corporation Limited (HDFC) was amongst the first to
receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the
private sector, as part of RBI's liberalization of the Indian Banking Industry in 1994. The bank
was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered
office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank
in January 1995.
PROMOTERS:
HDFC is India's premier housing finance company and enjoys an impeccable track record in
India as well as in international markets. Since its inception in 1977, the Corporation has
maintained a consistent and healthy growth in its operations to remain the market leader in
mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has
developed significant expertise in retail mortgage loans to different market segments and also
has a large corporate client base for its housing related credit facilities. With its experience in
the financial markets, strong market reputation, large shareholder base and unique consumer
franchise, HDFC was ideally positioned to promote a bank in the Indian environment.

BUSINESS FOCUS:

HDFC Bank's mission is to be a World Class Indian Bank. The objective is to build sound
customer franchises across distinct businesses so as to be the preferred provider of banking
services for target retail and wholesale customer segments, and to achieve healthy growth in
profitability, consistent with the bank's risk appetite. The bank is committed to maintain the
highest level of ethical standards, professional integrity, corporate governance and regulatory
compliance. HDFC Bank‘s business philosophy is based on five core values: Operational

83
Excellence, Customer Focus, Product Leadership, People and Sustainability.

CAPITAL STRUCTURE:
As on 30 June 2018 the authorized share capital of the Bank is Rs. 650 crore. The paid-up share
capital of the Bank as on the said date is Rs 520,83,15,734 /- which is comprising of
260,41,57,867 equity shares of the face value of Rs 2/- each. The HDFC Group holds 20.86
% of the Bank's equity and about 18.16 % of the equity is held by the ADS / GDR Depositories
(in respect of the bank's American Depository Shares (ADS) and Global Depository Receipts
(GDR) Issues). 33.44 % of the equity is held by Foreign Institutional Investors (FIIs) and the
Bank has 5,48,942 shareholders. The shares are listed on the BSE Limited and The National
Stock Exchange of India Limited. The Bank's American Depository Shares (ADS) are listed
on the New York Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's Global
Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange under ISIN No
US40415F2002.

CBOP AND ITS AMALGAMATION:

On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC Bank was
formally approved by Reserve Bank of India to complete the statutory and regulatory approval
process. As per the scheme of amalgamation, shareholders of CBoP received 1 share of HDFC
Bank for every 29 shares of CBoP .The amalgamation added significant valueto HDFC Bank
in terms of increased branch network, geographic reach, and customer base, and a bigger pool
of skilled manpower.
In a milestone transaction in the Indian banking industry, Times Bank Limited (another new
private sector bank promoted by Bennett, Coleman & Co. / Times Group) was merged with
HDFC Bank Ltd., effective February 26, 2000. This was the first merger of two private banks
in the New Generation Private Sector Banks. As per the scheme of amalgamation approved
by the shareholders of both banks and the Reserve Bank of India, shareholders of Times Bank
received 1 share of HDFC Bank for every 5.75 shares of Times Bank.

On an assessment of Indian banking industry during the pre-liberalization era,

it has been observed that the banking sector suffers from several shortcomings which
in turn lead to reduction in productivity, deterioration in asset quality and efficiency
and increased cost structure due to technological backwardness. Maintenance of the

84
Asset quality is a prime concern for a bank as it impacts various performance
indicators, i.e. profitability, intermediation costs, liquidity, credibility, income
generating capacity and overall functioning of banks. This reduction in asset quality
results in accumulation of Non-Performing Assets (NPAs) which mounted so high
causing a threat to the existence of banking industry. The NPAs has far reaching
implications on the financial health of the banks. The banks are required to make
adequate provisions in their financial statement to account for the losses expected to
arise from non-performing assets. This dents the profitability of the banks for
considerable period of time. Besides that, it also involves allocation of significant task
force in managing, monitoring and recovering the funds tied up in NPAs.
NPAs still pose a significant threat to the banking sector and continues to
damage it. Many researches on NPA depicted the relationship between asset quality
and financial distress and considered management of NPA as a major prerequisite to
counter the recessionary pressures and foster economic development. With this
backdrop, the current research attempts to conduct a study on reduction of non-
performing assets in commercial banks. This research is an attempt to examine the
impact of NPA on bank performance with special reference to Alwar district and also
to evaluate and understand in detail the intensity and propensity of NPA in commercial
banks. Initially a small survey study was conducted in Alwar district to examine the
presence and utility of banking services in Alwar along with the customers‘ profile and
their perception towards the banking services.
The study besides discussing the causes and trend of NPAs of different kind of banks
in India also describes various legal recourses ,such as One time Settlement Scheme,
Debt Recovery Tribunal, Lok Adalats and SARFAESI Act, 2002 ,etc. were also
enacted to facilitate the banks in dealing with the problems of NPAs

85
 FINDINGS

After detail studies regarding NPA‘s in HDFC bank and in comparison with peers the
following findings were observed:

• From the Advances and NPAs of Domestic Banks by Priority and Non-Priority we can
find that in the priority Sectors for public sector banks, in the year 2015 the gross
advances are 16,859.54 billions, gross NPAs are 936.85 billion which contributes 35.7%
of total gross NPAs. In the following year, which is in 2016, the gross advancesare
18737.48 billion, gross NPAs are 1281.16 billion which contributes 25.5% of total gross
NPAs. Similarly in the year 2017, the gross advances are 19599.15 billion, grossNPAs
are 1542.76 billion which contributes 24.1% of total gross NPAs
• In case of nationalized banks, for the year 2015, the gross advances are 12506.58 billion,
gross NPAs are 679.61 billion contributing to 35.4% of total gross NPAs. In the year
2016, the gross advances are 13417.72 billion, gross NPAs are 988.69 billion
contributing to 25.5% of total gross NPAs. In the following year that is in 2017, the
gross advances are 14061.51 billion, gross NPAs are 1241.83 billion contributing to
26.4% of total gross NPAs.
• While coming to the SBI group, in the year 2015 the gross advances are 4352.96 billions,
gross NPAs are 257.24 billion which contributes 36.3% of total gross NPAs. In the
following year, which is in 2016, the gross advances are 5319.77 billion, gross NPAs
are 292.47 billion which contributes 25.6% of total gross NPAs. Similarly in theyear
2017, the gross advances are 5537.64 billion, gross NPAs are 300.93 billion which
contributes 17.6% of total gross NPAs. One of the main reasons for this increase is
when kingfisher was marred in financial crisis, SBI provided it huge amount of loan
which it is not able to recover from it.
• We can also see an increasing trend in the gross advances and gross NPAs in private
sector banks that is for the year 2015, the gross advances are 4427.62 billion, gross
NPAs are 72.11 billion contributing to 22.8% of total gross NPAs. In the year 2016, the
gross advances are 5619.77 billion, gross NPAs are 101.39 billion contributing to 21%
of total gross NPAs. In the following year that is in 2017, the gross advances are 6520.04
billion, gross NPAs are 132.93 billion contributing to 18% of total gross NPAs. This is
due to the economy slowdown and over leveraging of the private banks.
• By taking the non-priority sector for public sector banks into consideration , for the year
2015, the gross advances and gross NPAs are 31593.15 billion and 1690.60

86
 Billion respectively which is 64.3% of total gross NPAs. For the year 2016, the gross
advances and gross NPAs are 32084.08 billion and 3739.52 billion respectively which
is 74.5% of total gross NPAs. And for the year 2017, the gross advances and gross NPAs
are 31823.09 billion and 4867.80 billion respectively which is 75.9% of total gross
NPAs.
• For the nationalized banks, in the year 2015, the gross advances and gross NPAs are
21717.87 billion and 1239.25 billion respectively which is 64.6% of total gross NPAs.
For the year 2016, the gross advances and gross NPAs are 21000.28 billion and 2890.16
billion respectively which is 74.5% of total gross NPAs. And for the year 2017, the gross
advances and gross NPAs are 20703.61 billion and 3458.57 billion respectively which
is 73.6% of total gross NPAs.
• In case of SBI group, in the year 2015, the gross advances and gross NPAs are 9875.27
billion and 451.35 billion respectively which is 63.7% of total gross NPAs. For the year
2016, the gross advances and gross NPAs are 11083.79 billion and 849.36 billion
respectively which is 74.4% of total gross NPAs. And for the year 2017, the gross
advances and gross NPAs are 11119.48 billion and 1409.23 billion respectively which
is 82.4% of total gross NPAs.
• Similarly for private sector banks, in the year 2015, the gross advances and gross NPAs
are 9945.77 billion and 243.65 billion respectively which is 77.2% of total grossNPAs.
For the year 2016, the gross advances and gross NPAs are 12297.04 billion and
382.41 billion Respectively which is 79% of total gross NPAs. And for the year 2017,
the gross advances and gross NPAs are 14528.76 billion and 605.49 billion respectively
which is 82% of total gross NPAs.
• While comparing the ratio of net NPA to net advances with peer banks we can find that
from the year 2016-2018 the ratio of net NPA to net advances of HDFC bank were
increased by 0.12 and its peer banks like AXIS bank limited was increased by
2.9 in the same way ICICI bank was increased by 2.45 and INDUSIND bank as well
as YES bank were grew by 0.15 and 0.35 due to their respective loans and advances
were high but the recovery channels were not performing well during the year 2016-
2018.
• In the year 2018 ICICI bank has the higher net NPA to Net Advances ratio which is
5.43 And AXIS bank has the ratio of 3.6 and YES bank has the net NPA to net
advances ratio of 0.64. IndusInd bank has the ratio of 0.51 due to Total Advances as

87
 On March 31, 2018 is at Rs. 1,44,954 crores as compared to Rs. 1,13,081 crores on
March 31, 2017, recording a growth of 28 %. In the year 2018 HDFC bank has the net
NPA to Net advances ratio of 0.4 . In the year 2017 ICICI bank has the ratio of 5.43 and
axis bank has the net NPA to net advances ratio of 2.27 IndusInd bank has the NPA to
Advances ratio of 0.39 HDFC bank is with the ratio of 0.33
• By making analysis with peer banks we can find that HDFC Bank's gross non-
performing assets have stayed mostly stable quarter-on-quarter-1.29 per cent of gross
advances in Q3 FY18 compared to 1.26 per cent as on September 30, 2017. HDFC Bank
is on the roll. The net profit growth of over 20 per cent year-on-year and its net profits
stood at Rs 4,642.60 crore for the quarter ended December 31, 2017 and total income
was Rs 24,450.4 crore, up from Rs 20,748.3 crore in the third quarter (Q3) of the
previous fiscal.
• It is the first Indian bank to cross the Rs 5-lakh crore market capitalization threshold,
and only the third Indian company-after Reliance Industries and TCS-to make the cut.
Continuing with its declared Q3 results, net revenues increased by 23.9 per cent to Rs
14,183.5 crore while net interest income (interest earned less interest expended) grew
by 24.1 per cent to Rs 10,314.3 crore, driven by average asset growth of 16.6 per cent
and a core net interest margin for the quarter of 4.3 per cent. Operating expenses have
gone up 18.4 per cent year-on-year, from Rs 4,842.5 crore in Q3 FY17 to Rs 5,732.2
crore this year. The core cost-to-income ratio for the quarter was at 41.2 per cent as
against 43.8 per cent for Q3 FY17.

• ICICI Bank reported 49.6 percent year-on-year drop in net profit at Rs 1,020 crore for
the fourth quarter ending March 2018. Net profit for Q4FY17 was Rs 2,024.60 crore.
Profits of the country‘s biggest private sector bank were dragged by an 85-percent
spike in provisions due to a 17-percent rise in bad loans.
• The results were in line with estimates. A Reuters poll had estimated net profit at Rs
955.7 Crore. NII or net interest income inched up marginally to Rs 6,021.67 crore in
the quarter from Rs 5,962 crore a year ago. It was projected to be marginally lower by
about two percent to Rs 5,832 crore, as per the Reuters poll. Non-interest income jumped
88 percent to Rs 5,678.6 crore (up from Rs 3,017 crore a year ago), supported by a one-
time gain of Rs 3,320 crore from the sale of bank's shareholding in ICICI Securities.
NIM or net interest margin increased to 3.24 percent as on end of March 2018, up from
3.14 percent in the quarter ended December 31, 2017 (Q3 FY18).

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• The third largest private sector lender posted a net loss at Rs 2,188.74 crore in the fourth
quarter of FY18, as opposed to a net profit of Rs 1,225.10 crore in the corresponding
quarter last year. Net profit for the financial year 2017-18 shrunk 93 percent year-on-
year (YoY) to end at Rs 276 crore.
• The bank saw its provisions and contingencies increase to Rs 7,179.53 crore from Rs
2,581.25 crore seen during the quarter that ended on March 31, 2017, according to a
regulatory filing by Axis Bank. The bank's Net Interest Income in the March quarter
stood flat on YoY basis at Rs 4,730 crore, the statement added.
• DRT‘s performance is in a increased trend the debt recovery tribunals were performing
to the best , observed by the results which shows increase of 24.55 in the year of 17.The
down trend in the Drt‘s are due to the political factors and the scams occurred in the
period of time.
• The recovery performance of SARFAESI act as per RBI Statistics, annual growth of
bank credit in India, which had crossed 30% in the boom years of 2004-2007, has
declined to 9.7% in 2014-15 and again the similar percent of decline can be seen in the
year 2016-17 .Demonetization also plays a role in downfall of recovery percent. The
Reasons behind the downtrend and problems facing by Sarfaesi act will be clearly
discussed in the interpretation.
• The lok adalats are performing in recovery of NPA‘s, Gross loans and advances. It
shows that from the period of 12-13 to 16-17, the performance is gradually decreased.
The cause downfall trend of recovery is effected mostly due to political and economic
factors. Reasons and causes are discussed in the further interpretation.
• By observing the overall performance the performance of Sarfaesi act is in a good
position as because of low level of amount recovery, the reason for the low performance
of drt‘s is the recovery amount is huge .The success of Sarfaesi act is a best performing
result to economy We can also state the guidelines and Regulations areworking to the
best .This is the success of banks and also the Recovery channels

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 SUGGESTIONS
From the detail analysis of NPA‘s in the previous chapter, the following suggestions were
made to bankers:
• The prior business of banks is to provide loans for the customers because of that they
are focusing more on reaching the targets to increase the advances but they forgot one
thing due to their emphasized schedule i.e. Increase of advances is an asset to the banks
but they are missing that NPA‘s are also bouncing on the same state by choosing wrong
customers and collaterals. So we have to take these points into consideration.
• It is suggested that the personal visit and face-to-face discussion and inspection of the
borrower business will help the banker to know about the problems of the business
and the financial status and there is a chance to identify whether it is a case of willful
default. There is another way to reduce NPA‘s by providing loans only to the Trust
worthy people with proper collateral may be it can diminish the advances but if the
recovery channels are performed constantly in a constructive manner it impacts the
operations of banking system in an optimistic way and shrink the NPA‘s .
• Even though we have different type of Recovery channels on different basis which takes
much period for Recovery, better before getting into Recovery channels if banksare
compromised with the client/ customer on that issue and make an act i.e. applicable to
the cases under certain time period of clients only. To combat with the uncertainty in
the future we have to take some succeeding vigilant steps so that similar kind of
mistakes won‘t be repeated so that we can get the expedite results. This shows greater
possibility of recovery of NPA‘s. The advantage of compromise settlement
o Recycling of Funds.
o Savings of time/expenses involved in legal proceedings.
o Tax relief due to write-off the un-realized portion of outstanding.
• While Comparing HDFC with all other selected banks the level of Net NPA‘s
performance is fabulous still the performance can be in a better way by adapting the
suitable suggestion given in the suggestion box so that it can reach the benchmark
position in maintaining Net NPA‘s performance. If all other selected banks want to be
as best as HDFC they have to follow the norms and strategies of HDFC

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• Banks should have the well-defined policies in respect of their loan portfolio and those
policies should be communicated to the staff at the service points clearly and any
lacunae in this area will jeopardize the interests of the bank to a great extent in thesense,
that the staff servicing the loan accounts on account of lack of knowledge will not be in
a position to adhere to the terms and conditions stipulated for the loan portfolio. Credit
appraisal has to be done branch officials without any bias taking into consideration the
well-defined policies framed for the loan portfolio
• Increase of Outstanding Advances for priority sector are less compared to non-priority
sector , Where as the maximum portion of advances are given to non-priority sector,
while coming to priority sector most of the loans non recoverable are vested with
landlords. I suggested to take

Bad loans are draining the banks of capital and weakening their financial strength. The
huge dimension of this problem requires heavy private capital. It is also as much a
political and a financial issue. Everybody in the field need to have a greater political will
and demonstrate enabling practices to contain the non-performing assets. The banksand
financial institutions should be more proactive to adopt a pragmatic and structured non-
performing assets management policy where prevention of non-performance assets

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 BILOGRAPHY

1. Jain V. (2007). Non-Performing Assets in commercial Banks: Regal Publication, New

Delhi, 1st Edition, pp78-79.

2. Dermine J. (2005). ‘Provisioning practices’ economic & Political Weekly,Vol.XLII.

3. Wiley J. (2005). ‘Banking reform in India’ RBI Bulletin, March.

4. Meeker L. (2002). ‘Predicting Corporate Sickness in India’, A note on non-

performing loans as an indicator of asset quality’

5. LI Peng-yan, (2007): ‘A risk evaluation of non-performing assets securitization on the

basis of analytic hierarchy process’, Oxford University Press, New Delhi.

6. Sathye M. (2003): ‘Efficiency of banks in a developing economy: The case of India’,

Paper presented at the Conference on Money, Risk and Investment held atNottingham
Trent University, November 2003.

7. Yong P. (2004). ‘An Analysis on the Return and Risk Management during
Securitization of Non-Performing Assets-the Effect of Securitization on Originator
Oxford University Press, New Delhi.

8. Reddy P. K. (2002), “A comparative study of Non-Performing Assets in India in the

Global context - similarities and dissimilarities, remedial measures,”Oct, IIM
Ahmedabad, India.

9. Prasad G. V. B. & Veena D. (2011). “NPAs in Indian Banking sector trends and issues
,”Volume 1, Issue 9.

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