PROJECT REPORT

SUBMITTED FOR THE DEGREE OF B.COM. (HONOURS) IN ACCOUNTING &

FINANCE UNDER

THE UNIVERSITY OF CALCUTTA

TITLE OF THE PROJECT

A COMPARATIVE STUDY ON NON-PERFORMING ASSETS OF
SBI AND HDFC BANK

SUBMITTED BY
NAME OF THE CANDIDATE: SUVO SAHA

C.U. REGISTRATION NO.: 544-1111-0155-17

C.U. ROLL NO.: 171544-21-0202

NAME OF THE COLLEGE: VIVEKANANDA COLLEGE, THAKURPUKUR

COLLEGE ROLL NO.: CH-163

SUPERVISED BY
NAME OF THE SUPERVISOR: DR. DEBASHIS KUNDU

NAMEOF THE COLLEGE: VIVEKANANDA COLLEGE, THAKURPUKUR

SEPTEMBER, 2020

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 STUDENT’S DECLARATION

I hereby declare that the Project Work with the title A Comparative Study On
Non-Performing Assets Of SBI And HDFC Bank submitted by me for the
partial fulfillment of the degree of B.Com. (Honours) in Accounting & Finance
under the University of Calcutta is my original work and has not been submitted
earlier to any other University/Institution for the fulfillment of the requirement
for any course of study.

I also declare that no chapter of this manuscript in whole or in part has been
incorporated in this report from any earlier work done by others or by me.
However, extracts of any literature which has been used for this report has been
duly acknowledge providing details of such literature in the references.

Place: KOLKATA Signature: Suvo Saha

Date: 24/09/2020 Name: Suvo Saha

Address: 19/3 Naskar Para Road,

Kolkata-700041

C.U. Regn. No. 544-1111-0155-17

C.U. Roll No. 171544-21-0202

Collage Roll No. CH-163

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 SUPERVISOR’S CERTIFICATE

This is to certify that Suvo Saha, a student of B.Com. (Honours) in Accounting

& Finance of Vivekananda College, Thakurpukur under the University of
Calcutta has worked under my supervision and guidance for his Project Work
and prepared a Project Report with the title A Comparative Study On Non-
Performing Assets Of SBI And HDFC Bank.

The project report, which he is submitting, is his genuine and original work to
the best of my knowledge.

Place: KOLKATA Signature:

Date: 24/09/2020 Name: Dr. Debashis Kundu

Designation: Assistant Professor

Name of the College: Vivekananda

College, Thakurpukur,

Kolkata-700063

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 ACKNOWLEDGEMENT

I convey my heartfelt appreciation to Dr. Debashis Kundu without whose

cordial and active supervision the project could not have come into light. I also
extend my thanks to all other teachers of my college for their commendable
efforts to bring out this project in a very short span of time.

Again I am thankful to Dr. Debashis Kundu for reposing confidence on me to

write on this dynamic subject and share his vast knowledge for the completion
of this project.

Moreover, I am also thankful to all other learned members of my college for

valuable suggestions regarding the project.

My sincere thanks to Dr. Tapan Kumar Poddar, Principal of Vivekananda

College, for giving me this opportunity to carry out this project.

DATE : 24/09/2020 Suvo Saha

(Signature of the Student)

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 Table of Contents

CONTENTS PAGE NO.

CHAPTER-I

1 INTRODUCTION 6-8

1.1. BACKGROUND OF THE STUDY 8-10

1.2. REVIEW OF LITERATURE 11-13

1.3. OBJECTIVE OF THE STUDY 14

1.4. METHODOLOGY 15

1.5. LIMITATION OF THE STUDY 16

CHAPTER-II

2 CONCEPTUAL FRAMEWORK 17

2.1. CONCEPT OF NPA 18-19

2.2. BENEFITS AND PROBLEMS 20-23

CHAPTER-III

3 DATA ANALYSIS 24-31

3.1. FINDINGS 32

CHAPTER-IV

4 CONCLUSION AND SUGGESTIONS 33-34

4.1 BIBLIOGRAPHY AND REFERENCES 35

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 CHAPTER - I

1. INTRODUCTION :-

Who are in need of funds? Banks occupy a pivotal place in the payment their funds. Banks
are using the deposits in lending and investment system for Government, business and
households. Thus they play a vital role in the economic and financial life of the country. They
are, therefore RBI as a regulatory authority is issuing from time to time various lending. They
act as financial intermediary between depositors and those is to limit the risk and loss to
depositors and thus maintain public guidelines to the banks and financial institutions for
proper credit confidence as well as prevent collapse of the banking system. Therefore,, Banks
are in the business of accepting deposits for the purpose of and here the primary role of
Government and Reserve Bank of India (RBI) administration, accountable to the
Government, as well as to the public, who are keeping.

http://www.blog.sanasecurities.com/wp-content/uploads/2015/04/non-performing-asset

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▪ HISTORY OF BANKING INDUSTRY OF INDIA :-

Banking was in existence in India from very earlier times. The writing of Manu and kautilya
contained reference to the banking. But modern banking (i.e., banking on western lines)
started in India only from the beginning of the 19th century. The earliest commercial banks
were started in India by the employees of the East India Company. But, the organized
banking was active In India since the establishment of General Bank of India in 1786. After
independence, the Reserve Bank of India (RBI) was established as the Central bank and in
1955, the Imperial Bank of India, the biggest bank at the time, was taken over by the
Government to form state-owned State Bank of India (SBI). RBI had undertaken an exercise
to merge weak banks to strong banks and the total number of banks was reduced from 566 in
1951 to 85 in 1969.With the objective of reaching out to masses and meeting the credit needs
of all sections of people, the Government nationalized 14 large banks in 1969 followed by
another 6 banks in 1980. This period saw enormous growth in the number of branches and
the bank’s branch network became wide enough to reach the weakest section of the society in
a vast country like India. Following the nationalizations in 1969 and 1980, the Government
bank’s share of bank assets jumped from 31 per cent to 91 per cent. The objective of this
strong national influence was to make the banks public instruments of development with the
Government having control over them. The social control of the banks resulted in the gradual
decline in productivity and rise in non-performing assets. In 1991, the problem in the system
reached a critical breaking point and the Government formed a commission led by
Narasimhan to examine the problems and recommend changes. This commission’s report was
the basis of the reforms that took place during the 1990’s and early 2000’s. The deregulations
covered many different aspects of bank deposits. The most important deregulations was that
of interest rates. As per the commission’s suggestion, interest rates were gradually
deregulated, first within broad brands and more recently completely free.

Non- Performing Assets (NPA) The banking industry has undergone a sea change after the
first phase of economic liberalization in 1991 and hence credit management. While the
primary function of banks is to lend funds as loans to various sectors such as agriculture,
industry, personal loans, housing loans etc.,. The banks have become very cautions in
extending loans in recent times. The reason being the mounting Non-Performing Assets
(NPAs). An NPA is defined as a loan asset, which has ceased to generate any income for a

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bank whether in the form of interest or principle repayment. As per the prudential norms
suggested by Reserve Bank of India (RBI), a bank cannot book interest on an NPA on accrual
basis. In other words, such interests can be booked only when it has been actually received.
Therefore, this has become what is called as a ‘critical performance area’ of the banking
sector as the level of NPA affects the profitability of a bank. Therefore, an NPA account not
only reduces profitability of banks by provisioning in the profit and loss account, but their
carrying cost is also increased which results in excess and avoidable management attention.
Apart from this, a high level of NPA also puts strain on a bank’s net worth because banks are
under pressure to maintain a desired level of Capital Adequacy and in the absence of
comfortable profit level; banks eventually look towards their internal financial strength to
fulfill the norms thereby slowly eroding the net worth.

1.1. BACKGROUND OF THE STUDY :-

Banks have become an indispensable part of our economic system. The banking institution
today forms the heart of the financial structure of the country. Indian banking has made a
significant progress after nationalization especially in three aspects viz., branch expansion,
deposit mobilization and loan maximization. Among these, monitoring of loans took a back
seat in an era of mass banking and social banking. In the changing scenario of the banking,
Non-Performing Assets (NPA/NPAs) have been the most vexing problem faced by the banks.
The Reserve Bank of India (RBI) and Government of India (GOI) have initiated various
measures to curb NPA in the post financial sector reforms. But PSBs are still unable to solve
the problem. In the liberalized scenario, the continuation of the NPAs is a menace for the
survival of the banks. Over a decade of implementation of financial sector reforms and
prudential norms, there is a need for a systematic analysis of NPAs. In this context, this study
is an investigation of the trends in NPAs, bank group-wise, sector-wise composition of NPAs,
asset quality diagnosis, socio-economic condition of borrowers and causes of NPAs from the
borrowers’ perception.

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▪ BANK PROFILE :-

❖ STATE BANK OF INDIA (SBI) :-

The Bank of Bombay was the second of the three presidency banks (others being the Bank of
Calcutta and the bank of Madras) of the Ra period. It was established, pursuant to a charter of
British East India Company, on 15 April 1840. The bank’s headquarters were in Bombay,
now called Mumbai. The Bank of Bombay undertook all the normal activities which a
commercial bank was expected to undertook. The Bank of Madras, in the absence of any
central banking authority at that time, also conducted certain functions which are ordinarily a
preserve of a central bank. The Bank of Bombay and two other Presidency banks – the Bank
of Calcutta and the Bank of Madras – were amalgamated and the reorganized banking entity
was named the Imperial Bank of India on 27 January 1921. The Reserve Bank of India,
which is the central banking organization of India, in the year 1955, acquired a controlling
interest in the Imperial Bank of India and the Imperial Bank of India was renamed on 30
April 1955 to State Bank of India.

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❖ HDFC BANK :-

HDFC Bank Ltd. is an Indian banking and financial services company headquartered
in Mumbai, Maharashtra. It has a base of 104154 permanent employees as of 30 June 2019.
HDFC Bank is India’s largest private sector lender by assets. It is the largest bank in India by
market capitalization as of March 2020. It was ranked 60th in 2019 Brand Top 100 Most
Valuable Global Brands. HDFC Bank was incorporated in 1994, with its registered office
in Mumbai, Maharashtra, India. Its first corporate office and a full service branch at Sandoz
House, Worli were inaugurated by the then Union Finance Minister, Manmohan Singh. As of
June 30, 2019, the Bank's distribution network was at 5500 branches across 2,764 cities. The
bank also installed 4.30 Lakhs POS terminals and issued 235.7 Lakhs debit cards and
1.2 crores credit cards in FY 2017. HDFC Bank merged with Times Bank in February 2000.
This was the first merger of two private banks in the New Generation private sector
banks category. In 2008, Centurion Bank was acquired by HDFC Bank. HDFC Bank Board
approved the acquisition of CBoP for 95.1 billion INR in one of the largest mergers in the
financial sector in India. HDFC Bank provides a number of products and services
including wholesale banking, retail banking, treasury, auto loans, two wheeler loans, personal
loans, loans against property, consumer durable loan, lifestyle loan and credit cards. Along
with this various digital products are Payzapp and SmartBUY.

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1.2. REVIEW OF LITERATURE :-

A review of past research studies helps in identifying the conceptual and methodological
issues relevant to the study. This will enable the researcher to collect relevant data, analyze
and interpret the same so as to draw meaningful interpretations. This chapter attempts a brief
review of the relevant studies related to the present study. Keepingin view the objectives of
the study, reviews are presented under the following headings –

1. Trend in Non-Performing Assets (NPA) of public sector banks and private sector banks.
2. Trend in Non-Performing Assets (NPA) of Co-operative credit institutions.
3. NPA Management by the financial Institutions with special reference to Agriculture.

NON-PERFORMING ASSETS : A STUDY OF STATE BANK OF INDIA have made an

attempt to examine the non- performing assets of State Bank of India over the past 10 years
beginning from financial year 2002 to the financial year 2012. The researchers in this paper
aimed to study the sources of deployment of funds for the chosen bank. They examined the
gross and the net NPA of the bank and investigated the impact of NPA on the profitability of
the bank. They have also suggested measures to improve NPA effectively in SBI. They have
made use of both primary and secondary data in this research. SBI annual reports and
bulletins were made use of. The researchers have revealed the sources of working funds for
SBI which include deposits, borrowings, reserves and surpluses & share capital. They have
analyzed the trends of each of the sources over the past 10 years. They have shown the net
and the gross NPA tables and it has been revealed that SBI”s management of gross NPA is
spectacular. The gross NPA slipped down from 9 in 2002-03 to 2.8 in 2008-09 and according
to international standards the gross NPA must not exceed 2 to 3 %. The paper’s results and
conclusion have been in favor of SBI as State of Bank of India has very well managed to
keep its non-performing assets under control. This may be a result of strict watch on various
internal and external factors that could have hampered the overall growth of the bank.

A COMPERATIVE STUDY OF NPA IN HDFC BANK have made an attempt to study the
non- performing assets of HDFC and ICICI bank. Since, both the banks belong to the private
sector of the Indian Banking industry, they aimed at comparing the NPAs and hence the

11
overall growth of the selected banks. This paper aimed to know the operation of the bank in
lending and credit policy and it also suggested the steps that should be taken to reduce NPA
for the banks. Next they gave the introduction of NPA and detailed the reasons behind the
rise in the NPAs. They analyzed the gross and the net NPA of both the banks with the help of
the table and respective graphs. Comparison was based for international standards. On the
other hand, HDFC’s performance was even better as its gross NPA values were near to 1%
and net values of NPA were all less than 1 %. So, the researchers conclude the paper stating
that although both the banks are doing a great job, HDFC bank is doing exceptionally well.

A STUDY ON NON PERFORMING ASSETS OF SELECT PUBLIC AND PRIVATE

SECTOR BANKS IN INDIA aimed to examine and compare the Gross NPA’s and Net
NPA’s of select Public and Private Sector Banks. This paper consists of four Public sector
Banks – State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India and four
Private Sector Banks – ICICI Bank, HDFC Bank, AXIS Bank and Federal Bank. The study is
carried out on the basis of data for the period of 5 years from 2010-11 to 2014-15. Various
statistical tools namely mean, standard deviation and co-efficient of variance were used in the
study. It was realized that Public Sector Banks have higher NPA ratio as compared to Private
Sector Banks over the period of the study. Gross and Net NPAs ratio has shown an increasing
trend in Selected Public Sector Banks over the period of study. It was observed that the Gross
NPA ratio has shown a declining trend in Private Sector Banks. It was observed that Net
NPA ratio has shown an increasing trend in selected private sector banks over the period of
study.

A Study of Non-Performing Assets on Selected Public and Private Sector Banks aimed to
study the trends in NPA Level and to highlight the NPAs position of selected PSB’s and
Private Banks. They are also focused on assessing the comparative position of NPA in
selected PSB’s & Private banks and to assess the variation of NPA ratio in selected PSBs &
Private banks. Selected PSBs are SBI & PNB, selected private banks are HDFC & ICICI
bank. For their study, they focused on secondary data and it has been collected using annual
report of Reserve Bank of India publication. In their study, measures of central tendency,
frequency distribution, Standard Deviation, co efficient of variation and test have been used
to analyze and interpret the data. Their study focused on examining the various aspects of
NPAs in PSBs & Private banks of India (selected banks). Their study covers the period from
2002-03 to 2011-12. To study NPA ratio variation data over the year 2011-12 has been
analyzed. To be concluding, Gross NPAs ratio of PNB is less and it has been reduced over

12
the period in comparison to SBI. On the other side as far as Private Banks are concerned
HDFC has better performance in comparison to ICICI. So, it is very necessary for bank to
keep the level of NPA as low as possible. Because NPA is one kind of obstacle in the success
of bank and affects the performance of banks negatively so, for that the management of NPA
in bank is necessary.

A study of Non-Performing Assets of Commercial Banks and its Recovery in India has aimed
to study the status of Non-Performing Assets of Indian Scheduled Commercial Banks in India
and their impact on the banks. He also tried to uncover the channels through which recovery
of NPA can be done. He provided the readers with some suggestion to manage NPA in near
future effectively. The data collected is mainly secondary in nature. Some of the major
findings were –

• NPAs as a Percentage of Net Advances which was lowest 1.0 % in 2007-08 & 2008-09
and highest 5.5 % in 2001-02. It was 2.2 % in 2013-14.

• The average Percentage of Net NPAs during 2001-02 to 2013-14 was around 2.0 %.
Ineffective recovery, willful defaults and Detective lending process are the important
factors which are responsible for the rise of NPAs in banks.

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1.3. OBJECTIVES OF THE STUDY :-

The major objective of this study is to examine and evaluate the performance of the
scheduled commercial banks in India with reference to the problem of nonperforming assets
both at the All India level and the study at bank level. The specific objectives of this study are
enlisted as shown below:

1) To analyze the trends of NPAs related to scheduled commercial banks in India,

2) To examine and compare the NPA trends of State Bank of India and HDFC Bank,
3) To examine the socio-economic condition of defaulting borrowers in the study area with a
view to understand their correlation to the magnitude of the NPA menace,
4) To identify the factors responsible for NPAs in SBI and HDFC Bank by analyzing the
perceptions of the defaulting borrowers,
5) To offer suggestions for policy issues in dealing with the problem of NPAs,
6) To list the causes of the occurrence of NPA in both the banks.

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1.4. METHODOLOGY :-

Designing of proper methodology is important to carry out as systematic analysis of any

research problem. This chapter deals with the methodology followed in the present study,
which includes the nature and source of data, techniques employed and statistical procedures
followed. The details of each are presented under the following headlines: Selection and
description of the study area sampling framework and data base Analytical tools techniques.

➢ Research Methodology: The research methodology means the way in which we would
complete our prospected task. Before undertaking any task it becomes very essential for
anyone to determine the problem of study. I have adopted the following procedure in
completing my research study.

➢ Selection and description of the study area: The general objective of the study was to
analyze the performance of Non-Performing Assets (NPA) of SBI banks and HDFC
banks.

➢ Data collection: Collection of data very hard work for any types of research. The kind of
data collected and the methods used to collect the data is a very important aspect of
research.

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1.5. LIMITATIONS OF THE STUDY :-

This study is both secondary data based and also empirical in nature. It is for this reason, data
are pooled both from the recorded sources and from the views and impressions of the
borrowers. Studies of this nature, shall be reasonable and justifiable mostly when the
inferences or observations are cross checked with the proper counterparts. Keeping such
established rationalities of research in view the following limitations are identified for this
study.

1) Due to paucity of time and financial resources, the perceptions expressed by the defaulter-
borrowers were not cross checked with the financial bankers.

2) Only SBI is taken for the case study. No control Bank is chosen for the study to cross
check the realities pertaining to the NPAs on comparative basis.

3) For the purpose of the study only nine of the seventy one branches have been randomly
chosen and the perception of the customers/default borrowers of these branches may be
insufficient to be a representative sample.

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 CHAPTER – II

2. CONCEPTUAL FRAMEWORK :-

Soon after independence, as India needed a strong, powerful and efficient financial system to
meet the multifaceted requirements of credit and development. To fulfill this objective it
adopted a mixed pattern of economic development and planned a financial system to support
suchlike development. The rapid growth and development of the banking system in terms of
presence as well as penetration over the two decades immediately preceding nationalization
of banks in 1969 was really impressive. Even as the banking system; branch network was
growing at a fast pace by the beginning of 1990’s, it was realized that the efficiency of the
financial system was not to be measured only by quantitative growth in terms of branch
expansion and growth in deposits/advances but also to be measured by qualitative growth in
terms of fulfilling the social obligations of development of the country. The Banking industry
has passed through a huge change after the very first phase of economic liberalization in 1991
and hence credit management. While the primary function of banks is to lend money to
various sectors such as agriculture, small scale industry, micro credit, education loans,
personal loans, housing loans etc. Providing loans to all these sectors by banks are called
priority sector lending. The economic development of a country is accelerated by the efficient
flow and allocation of financial resources, from surplus units to deficit units. Indian financial
system promotes the process of capital formation by providing a mechanism for
transformation of saving into investment. It serves as a link between savers and investors. It
mobilizes the savings of the scattered savers into productive investment. Financial system
provides an efficient mechanism of payment for the exchange of services and goods.

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2.1. CONCEPTS OF NPA :-

The proverb “A Man without money is like a bird without wings” postulates the importance
of the money. A bank is a financial institution which deals with money. Basic functions of all
the Commercial banks are accepting deposits and lending money. Banks play an important
role in mobilization and allocation of capital for progress and development of an economy.
The modern banking is not only confined to traditional business of the accepting deposits and
lending money but have diversified their activities in providing a variety of financial services
like merchant banking, lease financing, housing financing, bill discounting, hire purchase and
consumer credit, insurance services, factoring, stock broking and depository services, mutual
funds and venture capital. In general, commercial banks have to face many challenges in its
day to day operations. The main challenge confronting by the commercial banks is the
disbursement of funds in quality assets (Loans and advances) or otherwise it becomes Non-
Performing Assets. A bank is said to be efficient when it is able to overtake both its external
and internal challenges and also keeps it self-updated with the technological advancements.
Every country’s economy needs a sound banking system for smooth functioning. The main
function of banking sector is to accept deposits for the purpose of lending. So, it mobilizes
funds and then lends this money to others in the form of loans which becomes the assets for
banks. The assets and liabilities of banks are in the form of claims unlike other forms of
business. The mobilized money is lent in the form of loans and advances which is the main
and primary activity of banking and composes the largest asset in the assets portfolio of the
bank. The money lent are called loans or advances which helps in earning income for the
bank in the form of interest and in addition to this, banks also invests a portion of money in
securities/instruments (both debt and equity) and a minor portion of total funds is invested in
real assets like land and building, office equipment for carrying the operation.

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▪ TYPES OF NPA:-

Types of Non-Performing Assets:-

• Standard Assets: A Standard asset is one in which the borrower fails to make repayment
regularly and on time.

• Sub-Standard Assets: A Sub-Standard asset is one which has been NPA for a period not
exceeding 12 months. It is an assets in which bank has to maintain 15% of its reserves.

• Doubtful Assets: A Doubtful asset is one which has been NPA for more than 12 months.

• Loss Assets: A Loss asset is one where the loss has been identified by the bank, through
the internal or external auditor or by the central bank inspectors. The amount has not been
written off, wholly or partly.

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2.2. BENEFITS AND PROBLEMS :-

❖ BENEFITS OF NPA :

• Better and speedier realization from Non-Performing Assets: Provides a meeting

ground to the lenders, borrowings and the prospective investors to speedily address
the issue of Non-Performing Assets.
• Transparency and visibility of information on NPA: The portal will carry vital
information about NPAs providing easy and transparent access to the prospective
buyers who can then evince their interest in such Non-Performing Assets.
• Better efficiencies in the management of NPAs: While traditionally we used to
avail the services of news media to create awareness about the Non-Performing
Assets, NPAsource.com brings into play the unlimited power of technology for the
lender to undergo due-diligence.
• Robust data collection for use by all lenders across the country: Even lenders will
find it very easy to upload data on the website and take huge advantage of the portal
to release the value of their non-performing assets easily and effectively.
• Attracting prospective investors/buyers from across the globe: Geographical
boundaries will not restrict the resolving of NPAs. Individuals from across the world
will be able to access the portal and avail the benefits.
• List of the NPA and their assets at a single location enabling lenders to take
informed decision: With maximum information available related to NPA, the
prospective investor can take informed decision towards the NPA.
• Revival of a sick unit/industry by infusing required capital through prospective
investors: The portal will help greatly in unlocking huge values and once again
bringing into action the units long lying sick.
• Help from facilitators: Investors, borrowers and lenders can take the service of
facilitators such as Legal Advisors, Financial Advisors, Tax Advisors, Project
Consultants & Valuation Experts thru the portal.

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❖ PROBLEM CAUSED BY NPA :

• Depositors do not get rightful return and many times may lose uninsured deposits.
• Bad loans imply redirecting of funds from good projects to bad ones. Hence, the
economy suffers due to loss of good projects and failure of bad investments.
• When bank do not get loan or interest payments liquidity problem may occur.
• Bank shareholders are adversely affected.

HOW TO SOLVE ISSUE OF RISING NON-PERFORMING ASSETS:

• Public Sector Banks: Public Sector Bank (PSBs) constitute over 70 per cent of the
banking system and are in a state of crisis. Participants believed that fundamental reforms
tended to happen when crisis hit and this was an opportune moment for such reforms and
expressed optimism that this was likely under this government.

• Privatization: Nationalization of banks in the 1970s was undertaken by the Prime

Minister Indira Gandhi. The “original sins” it was called, was considered necessary at the
time, given the collusion between industry and finance then. South Korea is another
example where state-owned banks have disciplined cabals, rather than capitulating to
political pressure. PSBs have led to a financial deepening in the country. That said, the
umbilical cord connecting the PSBs to politicians and bureaucrats, which in turn stems
from the ownership structure of PSB’s has led to several inefficiencies including- (i)
disempowered boards, (ii) Muted incentives for senior management to effect
organizational change, (iii) Cloning of PSBs and the resultant systemic risks due to
continual bureaucratic meddling, (iv) External vigilance enforcement causing paralyzed
decision-making, on the one hand, and widespread frauds and endemic corruption, on the
other hand, (v) opacity at various levels, as well as (vi) distortions in human resource
management. Diversified market ownership could bring market discipline to PSBs.
Options for privatization includes the following:

21
 Bank Holding Company structure: The bank holding company (BHC) structure
recommended by the P. Nyack committee, among others, involves divesting the
government’s shareholding to below 52 per cent and routing it through a holding
company. This one level of distance would not help unless the BHC was itself
professionally managed.
Sovereign Wealth Fund: Rather than the proceeds of privatization going to the
consolidated Fund of India, a sovereign wealth fund could be created which is
professionally managed. This could help “trickle down” good governance practices to
PSBs.

• Hive off social sector lending vehicle: This political economy of privatization remains
complex, at least in part because of social sector lending programmers routed through
PSBs. Accordingly, it may be useful to consider hiving off all agriculture and social
sector lending into a separate entity which mat ne government owned and controlled and
allow the corporate lending part of the PSBs to be privatized. There is an economic
rationale for this as well. PSBs (and indeed all banks) are required to lend 40 per cent of
their assets to “priority sectors”. Priority Sector Lending (PSL) is deemed unprofitable for
several banks leading to a “PSL drag”. On the other hand, microfinance non-performing
finance companies (NBFC MFIs) have a cap on their earnings margins. Accordingly, the
decoupling of PSL and market lending mat allow market distortions in both these sectors
to be corrected.

• “Bad Bank”: The idea of a single bad bank where the NPAs of all PSBs may be
transferred as silver bullet to clean up PSB balance sheets must be rejected. Currently, 11
of 21 listed PSB banks are under RBI’s prompt corrective action framework and simply
consolidating all NPAs would create an additional level of complexity.
The umbilical cord connecting public sector banks to politicians and bureaucrats, which
in turn stems from the ownership structure of these banks, has led to several
inefficiencies.

• Governance reforms: Privatization is, however no panacea. There are multiple other
governance reforms that must be undertaken in PSBs.

22
• Role, purpose and business strategy: PSBs suffer from a severe identity crisis and
require business not just financial, restructuring. They do not operate as commercial
banks and do not have a coherent business strategy or vision. The Ministry of Finance
must ascertain whether this is the best use of public money. It is crucial to clarify the role
and purpose of PSBs and for them to concentrate on specific regions or business
segments. By way of example, it is unclear why certain PSBs have branches in South
Africa, why a Punjab-based PSB has branches in the North-East. The need for existence
of each PSB must be clear and its business and expansion should follow that. This would
also force an evaluation of whether PSL lending has been effective.

• Professional, Incentivize: Incentivize for PSB personnel must be significantly

augmented. The SBI chairman’s salary is equal to that of a fresh business graduate in an
MNC banks, Better incentive structures will attract better talent.

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 CHAPTER – III

3. DATA ANALYSIS :-

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

TOTAL ADV. NET PROFIT GROSS NPA NET NPA

YEAR
SBI HDFC SBI HDFC SBI HDFC SBI HDFC
3
2014-15 1300026 65495.03 13102 10215.92 56725.34 3438.38 27590.58 896.28

2015-16 1463700 464593.96 9951 12296.21 98172.80 4392.83 55807.02 1320.37

2016-17 1571078 554568.20 10484 14549.64 112342.99 5885.66 58277.38 1843.99

2017-18 1934880 658333.09 -6547 17486.73 223427.46 8606.97 110854.70 2601.02

2018-19 2185877 819401.22 862 21078.17 172750.36 11224.16 65894.74 3214.52

TABLE-1

24
 TOTAL ADV.

2500000

2000000

1500000

1000000

500000

0
2014-15 2015-16 2016-17 2017-18 2018-19
TOTAL ADVANCES SBI TOTAL ADVANCES HDFC

NET PROFIT
25000

20000

15000

10000

5000

0
2014-15 2015-16 2016-17 2017-18 2018-19

-5000

-10000

NET PROFIT SBI NET PROFIT HDFC

25
 GROSS NPA
250000

200000

150000

100000

50000

0
2014-15 2015-16 2016-17 2017-18 2018-19

GROSS NPA SBI GROSS NPA HDFC

NET NPA
120000

100000

80000

60000

40000

20000

0
2014-15 2015-16 2016-17 2017-18 2018-19

NET NPA SBI NET NPA HDFC

26
❖ INTERPRETATION OF THE TABLE:-The table is comparing Total advances
with NET profit, Gross NPA & Net NPA of SBI and HDFC Bank. With the help of this
table we can get knowledge about growing performance of both the banks. We can see
that on one side total advances given by SBI and HDFC Bank and Net Profits are
increasing continuously since 2014-15, which shoes that banks are performing very well.
But for SBI, Gross NPA & Net NPA is also increasing such that its gross NPA in 2014-15
has been 56725.345 and in 2018-19 it increased to 172750.36. This shows that SBI’s
performance is declining sue to mismanagement of bank. HDFC bank shows the similar
trends as its gross and net NPAs are increasing as well since 2014-15. But, if we observe
carefully and compare the parameters for both the banks with each other, we see that
HDFC bank is performing much better as compared to SBI as in 2018-19 net NPA for
SBI is 65894.74 and for HDFC bank its mere 3214.52. Similarly, for Gross NPA, SBI
stands at 172750.36 in 2018-19 and at the same time, HDFC is at 11224.16. Secondly, the
examination of the NPA trends for both the banks for last 5 years has been done.

PERCENTAGE OF GROSS NPA

YEAR
SBI% HDFC%

0.90
2014-15 4.25
0.94
2015-16 6.5
1.05
2016-17 6.90
1.30
2017-18 10.91

2018-19 7.53 1.36

TABLE-2

27
 PERCENTAGE OF GROSS NPA

0
2014-15 2015-16 2016-17 2017-18 2018-19

PERCENTAGE OF NET NPA SBI PERCENTAGE OF NET NPA HDFC

❖ INTERPRETATION OF THE TABLE:-

The above table compares the values of gross NPA for both the banks- SBI and HDFC
bank. The x-axis show the years and y-axis amount of net NPA is measured. It is
observed that 5 consecutive financial years-2014-15, 2015-16, 2016-17, 2017-18, 2018-
19, the performance of HDFC bank is showing an upwards trend as compared to that of
SBI. However, again in 2018-19, the net NPA value of HDFC bank increased to 1.36,
SBI being on 7.53. It is also seen that SBI has improved from 2017-18 to 2018-19, it has
managed to reduce its non-performing assets whereas the condition of HDFC bank has
worsened.

PERCENTAGE OF NET NPA

YEAR SBI% HDFC%

2014-15 2.12 0.20
2015-16 3.81 0.28
2016-17 3.71 0.33
2017-18 5.73 0.40
2018-19 3.01 0.39
TABLE-3

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 PERCENTAGE OF NET NPA

0
2014-15 2015-16 2016-17 2017-18 2018-19

PERCENTAGE OF NET NPA SBI PERCENTAGE OF NET NPA HDFC

❖ INTERPRETATION OF THE TABLE:-

The above table compares the values of net NPA for both the banks- SBI and HDFC
bank. The x-axis show the years and y-axis amount of net NPA is measured. It is
observed that for 5 consecutive financial year- 2014-15, 2015-16, 2016-17, 2017-18,
2018-19, the performance of HDFC bank is showing an upwards trend as compared to
that of SBI. However, in 2018-19, the net NPA value of HDFC bank shot up to 0.39
whereas SBI deteriorate from 5.73 in 2017-18 to 3.01 in 2018-19. Thirdly, we would
analyze the different ratios in case of both the banks.

▪ Capital Adequacy Ratio:

Capital Adequacy Ratio can be defined as ratio of the capital of the Bank, to its assets, which
are weighted/adjusted according to risk attached to them i.e.

NAME OF THE BANKS CAPITAL ADEQUACY RATIO

State Bank of India 13

HDFC Bank 17

29
 CAPITAL ADEQUACY RATIO

20

15

10

5
CAPITAL ADEQUACY RATIO

0
STATE BANK OF INDIA HDFC BANK

CAPITAL ADEQUACY RATIO

➢ Interpretation:

Each Bank needs to create the capital Reserve to compensate the Non-Performing Assets.
Here, HDFC Bank has shown Better capital adequacy ratio with 15% as compare to SBI with
13%.So, we can say that HDFC Bank has much power than SBI to compensate for NPAs.

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▪ Provision Ratio:

Provisions are to be made for to keep safety against the NPA, & it directly effect on the gross
profit of the Banks.

NAME OF THE BANKS PROVISION RATIO

State Bank Of India 65.95

HDFC Bank 78.7

PROVISION RATIO

80
70
60 PROVISION RATIO

50
STATE BANK OF INDIA HDFC BANK

PROVISION RATIO

➢ Interpretation:

This Ratio indicates the degree of safety measures adopted by the Banks. It has direct bearing
on the profitability; the highest provision ratio is showed by HDFC Bank with 78.7 % as
compared to State Bank of India with 65.95 %.

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3.1. FINDINGS :-

The following findings were drawn from the above data analysis-

• SBI Bank shows high NPAs Ratio as compare to HDFC Bank.

• High NPAs Ratio shows low credit portfolio of SBI Bank.

• In analysis HDFC low risk profile as compare to SBI in terms of NPAs.

• Study also indicates that major NPA increases because of govt. recommended priority
sectors.

• HDFC have better capital adequacy ratio than SBI.

• The total advances have shown an upwards trend for both SBI and HDFC Bank

• Net profits for SBI have been fluctuating over the years whereas in case of HDFC
Bank. It has largely been consistent to around 10,000 crore.

• In the case of % Gross NPA, performance of Private sector Bank- HDFC is doing better
as compared to Public sector Bank –SBI Bank

• In case of % net NPA also, performance of HDFC is observed to be improving over the
years and hence creation of less non- performing assets as compared to SBI Bank
Percentage net NPA for SBI Bank is observed to be continuously rising.

32
 CHAPTER – IV

4. CONCLUSION AND SUGGESTIONS :-

➢ Conclusion:

The present study concludes that non-performing assets is a biggest challenge faced by both
HDFC Bank and State Bank of India as it leads to downfall in liquidity balance of the Banks
and creates bad debts on them. Profitability is being affected due to the fluctuations in NPA
levels over the years. On comparing the two Banks based on the effect on its profitability,
SBI has higher NPAs as compared to HDFC Bank. Because of its public nature. Since SBI is
a public sector Bank, it is more vulnerable to give up on the returns of the loans extended to
the general public. One other reason for high NPAs can be a sharp rise in the provisioning of
the bad loans. Besides rising NPA, SBI has not managed its profits consistent, which depicts
that the overall management of the resources of the Bank is not better. On the other hand, the
net NPAs for HDFC bank are continuously decreasing since 2014 so, as compared to SBI
they are in a much better condition. The HDFC Bank has also shown good performance in
the last few years. On the other hand SBI Bank is facing the problem of non-performing
assets. The NPAs means those assets which are categorized as bad assets which are not
probably be reverted back to the Banks by the mortgagors. If the precise management of the
Non- performing assets is not acknowledged it would hinder the trade of the Banks. The Non-
performing assets would abolish the recent profit, interest revenue due to large provisions of
the Non-performing assets, and would upset the smooth working of the reutilizing of the
funds. To conclude this study we can say about this report, that-

• SBI Bank shows very much high NPA ratios as compare to HDFC.
• NPAs represent high level of risk & low level of credit appraisal.
• There are some certain guidelines made by RBI for NPAs which are adopted by Banks.
• HDFC is better in all terms than SBI.

33
➢ Suggestions:

• The Banker should take utmost care by ensuring that the enterprise or business for
which a loan is sought is a sound one and the borrower is capable of carrying it out
successfully, he should be a person of high integrity, credibility and good character.

• The Banks, instead of providing loans to small farmers, should make provisions to
grant them insurance policies for crop protection and income security.

• Banker should examine the balance sheet which shows the true picture of business will
be revealed on analysis of profit/loss a/c and balance sheet. While extending loans,
Banks should examine the purpose of the loan.

• The problem should be identified very early so that companies can try their best to stop
an asset or A/C becoming NPA and Bank should try their best to recover NPAs.

• Banks should evaluate the SWOT analysis of the borrowing companies i.e. how they
would face the environmental threats and opportunities with the use of their strength
and weakness, and what will be their possible future growth in concerned to financial
and operational performance.

• Each Bank should have its own independent credit rating agency which should evaluate
the financial capacity of the borrower before than credit facility.

34
4.1. BIBLIOGRAPHY AND REFERENCES:-

❖ Bibliography:

1. Taqi., Mohd, Mustafa., S.M (2018) Financial Analysis of Public and Private Sector Banks
of India: A Comparative Study of Punjab National Bank and HDFC Bank , International
Academic Journal of Business Management,
2. K. Sasi Kumar, N.C.Rajyalakshmi (2016) Financial Analysis of Indian Public Sector and
Private Sector Banks Using CAMELS Approach,
3. Bhatia, K., Chauhan, N. & Joshi, N. (2015). Comparative Study of Performance of Public
and Private Sector Bank. International Journal of Core Engineering & Management,
4. HDFC Bank (2006-2015). Published Annual Reports from 2006-07 to 2015-16. Website
of HDFC Bank. Ibrahim, M. (2014),
5. Singh, A.B. & Tondon, P. (2012). A Study of Financial Performance: A Comparative
Analysis of SBI and ICICI Bank. International Journal of Marketing, Financial Services
& Management Research.

❖ References:

1. www.google.co.in
2. www.rbi.org.com
3. www.kbank.com
4. www.financialexpress.com
5. www.moneycontrol.com
6. www.sbi.co.in
7. www.hdfcbank.in
8. http://en:wikipedia.org

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