Shaffali Agarwal
NON-PERFORMING ASSET: A CRUCIAL ELEMENT IN THE
DEVELOPMENT OF INDIAN PUBLIC & PRIVATE SECTOR BANKS
1
Shaffali Agarwal
Abstract
Bank is an institute in which the general
public, employees and organizations can
deposit their savings and can take loan
as required. It is the back bone of financial
system which strengthens the economy
as a whole. As we know that public,
private and foreign banks are the types of
banks; all have to follow the guidelines of
RBI (Central bank of India). RBI has to keep
a keen eye on the functions of banks.
Borrowings and lending are the main
functions of a bank. A banker should be
very cautious in lending, because banker
does not lend money only out of his own
capital. A major portion of the money lent
comes from the depositors money. At
present NPA is like a termite for the
economy. The bad loans of commercial
banks as on the end of June 2017 were Rs.
8 lakh crores. In this direction the present
paper highlights present level of NPA in
public and private sector banks, and also
compares public and private sector
bank’s NPA with some parameter like
statistically significance, effect of
advances on gross NPA. For analyzing
these parameters, the researcher has
used T-test.
Keywords: Non-performing Assets, Public
banks, Private banks, and RBI.
1. Assistant Professor & Research scholar
IFTM University Moradabad.
10.5958/0974-0945.2019.00009.8
102
Introduction
India's listed commercial bank’s bad loans have
crossed Rs 8 lakh crore in the second quarter that
is after June, 2017. This amount is also called
loan amount given by banking industry that is
around eleven percent of the total loans.
Government is in a massive burden of capital
requirements crisis. In recent years, a major
headache for the government and the Reserve
Bank of India (RBI) is Non-performing assets
(NPAs), both the RBI and government woke up too
late for overcoming this problem.
For which banks are required to have more
provisions. It will affect the working capital of
the banks, if banks keep more provisions for NPAs
with RBI. As RBI has implemented many remedial
actions like Lok Adalat, Asset reconstruction
company many more but all are not in the favor of
the banks and government.
It is also being observed that the banking industry
may consider the substandard assets as standard
that may cause the problem because it is
considered as standard while is not. So this may
create a worse problem in the banking industry.
Now the banks have to keep a keen eye on these
kinds of accounts so that the corrective action
may take at the right time.
"I’ll put the figure around Rs 20 lakh crore. One
should include all troubled loans including
reported bad loans, restructured assets, written
off loans and bad loans that are not yet
recognized," Former RBI deputy governor KC
Chakrabarty.
The Modi government has again blamed the
previous UPA-regime for the bad loan mess, saying
 Pranjana: Vol 22, No 2 Jul-Dec, 2019

NPAs are a legacy issue. It is not yet clear whether the government is seized of the enormity
of the problem. Indeed, the government has taken steps to address the bad loan problem
like the ordinance on NPAs in which central bank has more power than before, in which
banks may direct take the action against loan defaulters and insolvency and Bankruptcy
code.

Objectives
1. To find out the level of gross NPA quarter wise for the period 2013-17.
2. To find out which bank public and private holds higher NPA.
3. To find out whether advances affect gross NPAs level of the banks.

Research Methodology
The data for the study has been collected from one of the reliable sources of secondary
data i.e. RBI bulletins and various reports on Trends and Progress of Banking in India that
is from various issues ranging from 2013 to 2017. This is a descriptive cum analytical
study and is a primary research. In this study researcher focus on public and private
sector banks. The data has been analyzed using T test. Two null and alternate hypotheses
have been designed for the study which are as follows.

Ho 1: There is no statistical significance between the gross NPAs of public and private
sector banks.
H1 1: There is statistical significance between the gross NPAs of public and private sector
banks.
Ho 2: There is no effect of advances on the gross NPAs of public and private sector banks.
H1 2: There is effect of advances on the gross NPAs of public and private sector banks.
The calculated value of T test statistics is compared with the tabulated values of each
group. If T exceeds the tabulated value at some significant level (usually 0.05) it means
that there is evidence to reject the null hypothesis in favor of the alternate hypothesis.

Literature Review
Asha Singh (2013) in “Performance of Non-Performing Assets in Indian commercial banks”
observed that the NPAs of the public sector banks are increasing year by year. On the
contrary, the non-performing assets of private sector banks have been decreasing regularly
year by year except in some years. Generally, reduction in NPAs shows that banks have
strengthened their credit appraisal processes over the years and increased in NPAs shows
the necessity of provisions, which brings down the overall profitability of banks

Ayub Ahamed KS, Vishwanath Panwar (2016) studies on ‘A Comparative Study of Non-
Performing Assets (NPA) in Private Sector Banks and Public Sector Banks in India’ They
stated that NPA kills the profitability, liquidity, and solvency of the banks. It should be
reduced by taking some corrective actions. They also stated that public sector banks have
higher NPAs than private sector banks. In this study banks are suggested to focus on the
higher loan amount, As seen that low amount loans are recovering but not high amount.
So, banks need to focus on the recovery of high amount loan.

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Shaffali Agarwal

Manisha Raj, Aashita Jain, Shruti Bansal, and Tanya Verma (2017) study on ‘Non-Performing
Assets: A Comparative Study of SBI & ICICI’ stated that SBI is facing higher NPAs as compare
to ICICI bank. The reason behind the increase of NPAs of SBI deals with the public interest,
higher loan will create high risk of NPA. ICICI bank is facing continuous increase of NPAs
from 2014 but as part of profitability it is in the much better position than SBI.

Results and Analysis

1. Gross NPAs in Rs crore

Years Total gross NPA in Rs crore

Dec. 13 252,275

March 14 250,643

June14 260,582

Sep.14 278,458

Dec.14 303,055

March15 310,847

June 15 331,127

Sep. 15 351,109

Dec. 15 451,141

March16 595,636

June16 645,227

Sep.16 705,812

Dec.16 732,976

March 17 711,312

June17 829,336

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Data source capital line plus

The Asset Quality Review (AQR) initiated by RBI under former governor Raghuram Rajan
and implemented from Q3 of FY16 resulted in a massive jump in gross NPAs. The figure
more than doubled to Rs 8.29 lakh crore in June 2017 compared with Rs 3.51 lakh crore in
September 2015, an addition of Rs 4.78 lakh crore in just seven quarters. In the first two
quarters of implementation of these guidelines, the sector has seen Rs 2.45 lakh crore
jump in gross NPAs. While in December 2015 quarter, gross NPAs surged by Rs 1 lakh
crore, in March 2016 quarter this portion went up by another Rs 1.44 lakh crore.

2. Comparative analysis on gross NPAs (Public and Private sector banks) in Rs crore
Public sector banks (PSBs), which accounted for 90 percent of the total gross NPAs of the
banking sector, has seen their gross NPAs jumping past Rs 7 lakh crore in June 2017
quarter. In the past seven quarters, it jumped by Rs 4.18 lakh crore or 133 percent to Rs
7.33 lakh crore in June 2017 quarter from Rs 3.14 lakh crore in September 2015 quarter.
Gross NPAs of 17 private banks soared by 161 percent to Rs 96,201 crore in June 2017
quarter from Rs 36,878 crore in September 2015. The bad loan scenario of private banks
as compared to their counterparts in public sector is much better. But, even, there isn't
immunity to the problem.

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Years PSBs Gross NPA in Rs crore Private Banks Gross NPA in Rs crore

Dec. 13 228,244 24031

March 14 227,264 23379

June14 234,583 25999

Sep.14 251,010 27449

Dec.14 272,706 30349

March15 278,468 32379

June 15 296,321 34805

Sep. 15 314,231 36878

Dec. 15 404,667 46474

March16 539,955 55681

June16 592,245 61983

Sep.16 630,320 75492

Dec.16 646,199 86777

March 17 619,210 92102

June17 733,136 96201

Data source capital line plus

Interpretation: There Ho 1 is rejected because P value (2.80) is higher than the tabulated
value (0.05). Hence there is statistically significance between PSBs and private sector
bank’s gross NPAs. Both are different with each other because of its working, advances,
capital, turnover and many more that’s why NPAs are statistical significance.

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3. PSBs Advances effect the Gross NPAs? Rs crore

Name of the Banks PSBs Gross NPAs PSBs Advances

State Bank of India 188068 1,571,078.38

Punjab National Bank 57721 419,493.15

Bank of India 51019 366,481.67

IDBI 50173 190,825.93

Bank of Baroda 46173 383,259.22

Canara Bank 37658 342,008.76

Union Bank 37286 286,466.58

Indian overseas Bank 35443 140,458.62

Central Bank 31398 139,398.77

Uco Bank 25052 119,724.45

Data source capital line plus

Interpretation: There Ho 2 is accepted because T value (0.22) is lower than the tabulated
value (0.05). Hence, Advances given are not affecting the NPAs but willful defaults may be
the reason behind higher NPAs. State Bank of India (SBI) is at the top in the list of bad loan,
the bank has Rs 1.88 lakh crore of gross NPAs as on 30 June 2017 (figures now include
NPAs of five of its associates after the merger). On the second position as bad loan Punjab
National Bank (PNB) stands with Rs 57,721 crore gross NPAs, Bank of India (Rs 51,019
crore), IDBI Bank (Rs 50,173 crore) and Bank of Baroda (Rs 46,173 crore) etc.

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Private sector bank’s Advances effect the Gross NPAs

Banks Private Banks with Higher PSBs with Higher Gross

Gross NPAs NPAs as % to advances
ICICI Bank 43148 464,232.08

Axis Bank 22031 373,069.35

HDFC Bank 7243 554,568.20

J & K Bank 5641 49,816.11

Kotak Mahindra Bank 3727 136,082.13

IDFC Bank 2004 49,401.68

Federal Bank 1868 73,336.27

Karur Vysya Bank 1807 40,907.72

South India Bank 1696 46,389.47

Karnataka bank 1691 37,003.65

Data source capital line plus

Interpretation: There Ho 2 is accepted because T value (0.013) is lower than the tabulated
value (0.05). Hence, advances do not affect the NPAs level of banks. ICICI Bank with Rs
43,148 crore gross NPAs tops the list. Its bad loans soared by 172 percent or Rs 27,290
crore in the past 7 quarters from Rs 15,858 crore in September 2015 to Rs 43,148 crore in
June 2017. Axis Bank stood at second position with Rs 22,031 crore bad loans. HDFC Bank
was the distant third with Rs 7,243 crore of gross NPAs.

Conclusion
Financial performance and financial stability of the nation gets affected by NPAs. Indian
banks are facing this problem of NPA very long. Banking system is the back bone of the
financial system, on which depends is the country’s growth. So, there is an urgent need to
strengthen & rectify it. It is a major cause of concern that recovery of loan should be on
time. The current NPA status is disturbing the banking industry. No tool has been effective
enough to get rid of the problem of NPAs. Day by day NPAs are increasing and affecting the
profitability and liquidity of the banks. For dealing with this problem it has to be
rescheduled. It has to be tackled with some remedial actions. It is also well known that
NPAs can’t be zero percent. In my study too, the results show that NPAs are rising day by
day and public sector banks facing NPA more as the advances given are higher than by
private sector banks.

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References
1. Ayub Ahamed KS, Vishwanath Panwar (2016) studies on ‘A Comparative Study of
NON-PERFORMING ASSETS (NPA) in Private Sector Banks and Public Sector Banks in
India’ IRACST – International Journal of Commerce, Business and Management
(IJCBM), ISSN: 2319–2828 Vol. 5, No.6
2. Manisha Raj, Aashita Jain, Shruti Bansal, and Tanya Verma (2017) study on ‘Non-
Performing Assets: A Comparative Study of SBI & ICICI’ IOSR Journal of Business and
Management (IOSR-JBM) e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 20, Issue 9.
Ver. VII (September. 2018), PP 78-84
3. Malyadri, P., & Sirisha, S. (2011). A Comparative Study of Non-Performing Assets in
Indian Banking Industry. International Journal of Economic Practices and Theories,
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4. Manjule, R. R. (2013). Non-Performing Assets (NPA) - A Challenge for Indian Public
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5. Dr. Krishna Murari (2013) ‘Comparative analysis of public and private sector banks’
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247.

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