A Winter Project Report

on

COMPARATIVE STUDY ON NPA OF PUBLIC SECTOR

BANK AND PRIVATE SECTOR BANK.
Submitted by
GEDIYA MEERA RAMESHBHAI
S.Y.M.B.A
ROLL NO.31
in partial fulfilment for the award of the degree
of
Master of Business Administration
Under the guidance of
Dr.Vatsal Patel
Assistant Professor
Submitted to the

DEPARTMENT OF BUSINESS AND INDUSTRIAL MANAGEMENT

Affiliated to
VEER NARMAD SOUTH GUJRAT UNIVERSITY,
SURAT.

i
 DECLARATION
I, Meera Gediya undersigned, a student of Department of business and
industrial management VNSGU, Surat. declare that the project report
entitled"Comparative study on NPA of public sector bank and private
sector bank"prepared & submitted To Dr. Vatsal Patel Asst. Professor of
Department ofbusiness and industrial management, Surat.

This is my own work & the report prepared there in is based on my study and
experience, during the tenure of my study.

I will not use this project report in future and will not submit the same to any
other university or institute or any other publisher without written permission of
my guide.
I further declare that the result of my findings & research in the subject is
original in nature and has not been previously submitted either in part or in
whole to any other institute or university for any degree. If it is found, I shall be
only responsible for its consequences.

Place: DBIM,Surat Gediya Meera

Date: 19l21 Roll no: 31
 COLLEGE CERTIFICATE
This is to certify that Ms. Gediya Meera. student of MBA Finance. has submitted the
project
report ent it ed Comparative study on NPA of public sector bank and private sector
"
bank in the partial fulfillment of the requirement for the degree of Master of Business
Administration from Department of Bus iness and Industrial
Management. (DBIM). VEER
NARMAD SOUTH GUJARAT UNIVERSITY, Surat.

Dr. Vatsal Patel

Dr. Renuka Garg
(Guide) (Head of the Departmemt)
DBIM, Surat
DBIM. Surat

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 ACKNOWLEDGEMENTS
No good task can be completed without the help of others. After the completion of this
project, I feel it is necessary to think who helped me and cooperated with during the project. I
would like to take an opportunity to express the feeling of gratitude towards Veer Narmad
South Gujarat University as a part of Comprehensive Project Report as a duty of syllabus of
MBA programme. I take opportunity to express my deep sense of gratitude to
Dr.RenukaGarg , professor & Head of department of business & industrial management, for
her indirect but consistent encouragement to the research and development. I express my
profound sense of gratitude to Dr.Vatsal Patel my project guide, who provided me
undeviating encouragement, indefatigable guidance and valuable suggestions throughout the
research project. I am very sincerely & heartily grateful to her for providing me a great break
by selecting me as a researcher under her. Last but not the least, I would like to thank my
family, my friends and respondents for supporting me spiritually throughout writing this
research and my life in general.

GEDIYA MEERA RAMESHBHAI

S.Y MBA

ROLL NO:31

iii
 EXECUTIVE SUMMARY
Banking sectors is exposed to number of risk like market risk, interest rate risk, liquidity risk,
borrower‟s risk, and among these many risk the bank face one of the most critical is the
borrowers risk – the risk of non payment of the disbursed loans and advances. As big chunk
of deposits fund is invested in the form of loans and advances. Hence, parameters for
evaluating the performance of banks have also changed. This study provides an empirical
approach to the analysis of profitability indicators w ith a focal point on non-performing
assets (NPAs) of public and private sector banks. NPAs reflect the performance of banks. The
earning capacity and profitability of the banks are highly affected because of the existence of
NPAs .A high level of NPAs suggests that large number of credit defaults that affect the
profitability and net-worth of banks. Private and public Sector banks are highly affected by
this three letter virus NPA. In this study an effort has been made to evaluate the operational
performance of the selected PSBs & Private bank in India and also analyse how efficiently
Public and Private sector banks can managing NPA.

Non performing assets are one of the major concerns for banks in India. NPAs reveal the
performance of banks. It affects the liquidity and profitability of banks. Growing non
performing assets is a recurrent problem in the Indian banking sector. The NPAs growth has a
direct impact on profitability of banks. It involves the necessity of provisions, which reduces
the overall profits and shareholders‟ value. The problem of NPAs is not only affecting the
banks but also the whole economy. In this article, a comparative study has been made
between NPA of public sector banks and private sector banks in India for the past 5 years.
The factors contributing to NPAs, reasons for high NPAs and their impact on Indian banking
operations, the trend and magnitude of NPAs in Indian banks. The recovery of NPAs in both
public and private sector banks has been analysed.

The major concern for banks in India is Non-performing assets. Performance of the banks is
reflected through NPA. Larger NPA reflects credit non-payments that affect the profitability
and net worth of banks which erodes the value of the asset. Liquidity and profitability of the
banks is affected by high level of NPAs which additional affects the quality and survival of
banks. Serious problem has been faced by banking sector of India due to high and large
NPAs. Profitability of any bank is directly impact by NPAs. Profit and shareholders value is
reduced because NPAs involve necessary provision. Whole Indian economy is affected by
the problem of NPAs. NPAs are the reflection of health and trade of Indian banking sector.

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 TABLE OF CONTENT
CHAPTER: 1 INTRODUCTION..................................................................................... 1
1.1 Types of Non-Performing Assets .............................................................................. 3
1.2 List of Public Sector bank in india ........................................................................... 11
1.3 List of Private Sector bank in india.......................................................................... 11
CHAPTER: 2 LITERATURE REVIEW ....................................................................... 12
CHAPTER: 3RESEARCH METHODOLOGY ............................................................ 14
3.1 Research topic ........................................................................................................ 14
3.2 Significance of study .............................................................................................. 14
3.3 Research problem ................................................................................................... 14
3. 4 Objective .............................................................................................................. 14
3.5 Research Design..................................................................................................... 15
3.6 Sources of data ....................................................................................................... 15
3.7 Population of study................................................................................................. 15
3.8 Sample unit & size ................................................................................................. 15
3.9 Limitation of study ................................................................................................. 15
CHAPTER: 4 DATA ANALYSIS & INTERPRETATION ........................................... 16
4.1COMPARATIVE RATIOS ..................................................................................... 16
4.1.1 Gross NPA‟s Ratio (%) ................................................................................... 16
4.1.2 Net NPA Ratio (%) ......................................................................................... 18
4.1.3 Provisions Ratio (%) ....................................................................................... 20
4.1.4 Comparison of Gross NPA Ratio and Net NPA of Public Sector Bank .............. 22
4.1.5 Comparison of Gross NPA Ratio and Net NPA of Private Sector Bank ............. 23
4.2 COMPOSITION OF LOAN ASSET OF BANKS.................................................... 25
4.2.1 Standard Assets Ratio (%) ............................................................................... 25
4.2.2 Sub-standard Assets Ratio (%) ......................................................................... 27
4.2.3 Doubtful Assets Ratio (%) ............................................................................... 28
4.2.4 Loss Assets Ratio (%)...................................................................................... 29
4.3 IMPACT OF NON-PERFORMING ASSETS ON PROFITABILITY ...................... 30
4.3.1 Correlation between Net Profit & Net NPA of Public Sector Bank .................... 30
4.3.2 Correlation between Net Profit & Net NPA of Private Sector Bank ................... 30
CHAPTER:5 FINDINGS ............................................................................................... 32
Chapter: 6 CONCLUSION ............................................................................................ 33

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 LIST OF TABLES

Table:1 GROSS NPA TO GROSS ADVANCES RATIO .................................................. 16

Table:2 NET NPA TO NET ADVANCES RATIO ............................................................ 18
Table : 3 PROVISION RATIO ......................................................................................... 20
Table :4 Comparison of Gross NPA Ratio and Net NPA of Public Sector Bank .................. 22
Table: 5 Comparison of Gross NPA Ratio and Net NPA of Private Sector Bank ................. 23
Table:6 standard asset ratio of public sector bank and private sector bank........................... 25
Table : 7 substandard asset ratio of public sector bank and private sector bank.................... 27
Table:8 Doubtful asset ratio of public sector bank and private sector bank .......................... 28
Table :9 Loss asset ratio of public sector bank and private sector bank ............................... 29
Table : 10 Correlation between Net Profit & Net NPA of Public Sector Bank ..................... 30
Table : 11 Correlation between Net Profit & Net NPA of Private Sector Bank .................... 30

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 LIST OF FIGURES

Figure :1GROSS NPA TO GROSS ADVANCES RATIO ................................................. 17

Figure:2 NET NPA TO NET ADVANCES RATIO ........................................................... 18
Figure : 3 PROVISION RATIO ........................................................................................ 20
Figure:4 Comparison of Gross NPA Ratio and Net NPA of Public Sector Bank .................. 22
Figure:5 Comparison of Gross NPA Ratio and Net NPA of Private Sector Bank ................. 23
Figure:6standard asset ratio of public sector bank and private sector bank .......................... 25
Figure:7 substandard asset ratio of public sector bank and private sector bank .................... 27
Figure:8 Doubtful asset ratio of public sector bank and private sector bank ......................... 28
Figure : 9 Loss asset ratio of public sector bank and private sector bank ............................. 29

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CHAPTER: 1 INTRODUCTION

The banking industry has undergone a sea change after the first phase of
economic liberalization in 1991 and hence credit management. Asset quality
was not prime concern in Indian banking sector till 1991, but was mainly
focused on performance objectives such as opening wide networks/branches,
development of rural areas, priority sector lending, higher employment
generation, etc. While the primary function of banks is to lend funds as loans to
various sectors such as agriculture, industry, personal loans, housing loans etc.,
but in recent times the banks have become very cautious in extending loans. The
reason being mounting nonperforming assets (NPAs) and nowadays these are
one of the major concerns for banks in India. NPA (non-performing assets) is
related to banking and finance term. When bank or finance company is unable
to recover its lent money from borrower in 90 days than that amount which have
not been recovered will be treated as NPA.

Indian Banking System consists of Commercial Banks (Public and Private

Sector Banks, Foreign Banks), Regional Rural Banks(RRBs), Co-operative
Banks, Payment Banks etc. With the nationalization of 14 banks in 1969 and 6
banks in 1980, the Indian Economy entered into top ten economies of the world.
Non-Performing Assets(NPAs) or bad loans are thoase assets of any bank which
do not perform. If the borrowers don‟t pay either principal/part of principal or
interest or both, then the loan turns into a bad loan. NPAs according to RBI are
those loans, on which interest or principal remains overdue for a period of more
than 90 days, from the end of a particular quarter.

After nationalization, the Indian banking sector has made symbolic

development in three aspects– branch expansion, deposit mobilization and loan
maximization but among the above three management and monitoring of loans
took a back seat. The origination of banking in India took place in the last
decade of the 18th century and private sector and public sector banks are the
essential part of banking system in India. At the present scenario, the Indian
banking system is not only employed in their conventional business of
accepting and lending money but have expanded their activities into advanced
fields of operations like merchant banking, leasing, housing finance, mutual
funds and venture capital Banking institutions, now a days are introducing and
offering a great sum of inventive and innovative schemes for mobilizing

1
deposits. In extension, a lot of beneficial services are also being provided by
banking institutions to their customers such as issuing drafts, traveller‟s
cheques, gift cheques, accepting valuables for safe custody and modern banking
facilities. Banking has undergone critical changes since the process of
liberalization and reform of the financial sector were set in motion in 1991. The
underlying aim to bring reforms and changes in financial sector is to make the
system more combative, able, beneficial and fruitful. For an economy to
flourish, a firm and solid banking sector is very necessary. There is a lot of
injurious impact on other sectors due to the breakdown of banking sector. Non-
performing asset (NPA), now a days has become one of the leading concerns for
banks in India. Sky high NPAs of banking institution advocate high possibility
of a large number of credit blunders that affect the profitability and net worth of
banks and also corrode the value of the asset.
A Non-performing asset can be elucidated as a credit facility in respect of which
the interest and/or installment of principle has remained „past due‟ for a specific
period of time. It refers to a classification for loans on books of financial
institutions that are in default or are in arrears on scheduled payments of
principal or interest.

“An asset should be classified as non-performing, if the interest and/or principle

amount has not been received or remained outstanding for one quarter from the
day such income/ installment have fallen due.”
With a view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt the „90 days‟ over dues norm for
identification of NPAs from the year ending March 31, 2004. Accordingly, with
effect from March 31,2004; a NPA is a loan or an advance where:

Interest and/or installment of principle remain overdue for a period of more than
90 days in respect for a term loan;
The account remains „out of order‟ in respect of an overdraft or cash credit;

The bill remains overdue for a period of more than 90 days in the case of bills
purchased and discounted;

The installment of principle or interest thereon remains overdue for two crop
seasons for short duration crops;

2
The installment of principle or interest remains overdue for one crop season for
long duration crops.

1.1 Types of Non-Performing Assets

Gross NPA: As per RBI guidelines, Gross NPA are the sum total of all loan
assets thatare classified as NPAs as on Balance Sheet date. The nature of the
loans made by banksis reflected by its Gross NPA. It consists of all the non-
standard assets such as substandard, doubtful and loss assets. It can be
calculated with the help of following ratio

Gross NPA = Gross NPAs / Gross Advances

Net NPA: All those type of NPAs in which the bank has deducted the provision
regarding NPAs are called Net NPA. It can be calculated by following:

Net NPA = Gross NPAs - Provisions / Gross Advances – Provisions

Types of Assets

 Standard Assets: If the borrower routinely pays his dues regularly and on
time; bank considers such loan as its “Standard Asset”. All those assets
for which the bank isreceiving interest as well as the principal amount of
the loan regularly from the customer are referred to as Standard Assets.
Such assets carry a normal risk and are not NPA in the real sense. So, no
special provisions are required for Standard Assets.

 Sub-standard Assets: If any loan or advance remains non-performing for

a period of 12 months, it is called as Sub-standard assets.

 Doubtful Assets: With effect from 31 March 2005, if any asset remains
NPA for a period exceeding 12 months, it is to be classified as doubtful.

3
  Loss Assets: All those assets which cannot be recovered are called as
Loss assets.

What can be the possible reasons for NPAs?

 Diversification of funds to unrelated business/fraud.
 Lapses due to diligence.
 Busines losses due to changes in business/regulatory environment.
 Lack of morale, particularly after government schemes which had written off
loans.
 Global, regional or national financial crisis which results in erosion of
margins and profits of companies, therefore, stressing their balance sheet
which finally results into non-servicing of interest and loan payments. (For
example, the 2008 global financial crisis).
 The general slowdown of entire economy for example after 2011 there was a
slowdown in the Indianeconomy which resulted in the faster growth of
NPAs.
 The slowdown in a specific industrial segment, therefore, companies in
that area bear the heat and some may become NPAs.
 Unplanned expansion of corporate houses during the boom period and loan
taken at low rates later being serviced at high rates, therefore, resulting in
NPAs.
 Due to mal-administration by the corporates, for example, willful
defaulters.
 Due to misgovernance and policy paralysis which hampers the timeline and
speed of projects, therefore, loans become NPAs. For example the
Infrastructure Sector.
 Severe competition in any particular market segment. For example the
Telecom sector in India.
 Delay in land acquisition due to social, political, cultural and environmental
reasons.
 A bad lending practice which is a non-transparent way of giving loans.
 Due to natural reasons such as floods, droughts, disease outbreak,
earthquakes, tsunami etc.
 Cheap import due to dumping leads to business loss of domestic companies.
For example the Steel sector in India.

What is the impact of NPAs?

 Lenders suffer a lowering of profit margins.
 Stress in banking sector causes less money available to fund other projects,
therefore, negative impact on the larger national economy.
 Higher interest rates by the banks to maintain the profit margin.

4
  Redirecting funds from the good projects to the bad ones.
 As investments got stuck, it may result in it may result in unemployment.
 In the case of public sector banks, the bad health of banks means a bad return
for a shareholder which means that the government of India gets less money
as a dividend. Therefore it may impact easy deployment of money for social
and infrastructure development and results in social and political cost.
 Investors do not get rightful returns.
 Balance sheet syndrome of Indian characteristics that is both the banks and
the corporate sector have stressed balance sheet and causes halting of the
investment-led development process.
 NPAs related cases add more pressure to already pending cases with the
judiciary.

What are the various steps taken to tackle NPAs?

NPAs story is not new in India and there have been several steps taken by the GOI
on legal, financial, policy level reforms. In the year 1991, Narsimham
committee recommended many reforms to tackle NPAs. Some of them were
implemented.

The Debt Recovery Tribunals (DRTs) – 1993

To decrease the time required for settling cases. They are governed by the
provisions of the Recovery of Debt Due to Banks and Financial Institutions Act,
1993. However, their number is not sufficient therefore they also suffer from time
lag and cases are pending for more than 2-3 years in many areas.

Credit Information Bureau – 2000

A good information system is required to prevent loan falling into bad hands and
therefore prevention of NPAs. It helps banks by maintaining and sharing data of
individual defaulters and willful defaulters.

LokAdalats – 2001

They are helpful in tackling and recovery of small loans however they are limited
up to 5 lakh rupees loans only by the RBI guidelines issued in 2001. They are
positive in the sense that they avoid more cases into the legal system.

Compromise Settlement – 2001

It provides a simple mechanism for recovery of NPA for the advances below Rs.
10 Crores. It covers lawsuits with courts and DRTs (Debt Recovery Tribunals)
however willful default and fraud cases are excluded.

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SARFAESI Act – 2002

The Securitization and Reconstruction of Financial Assets and Enforcement of

Security Interest (SARFAESI) Act, 2002 – The Act permits Banks / Financial
Institutions to recover their NPAs without the involvement of the Court, through
acquiring and disposing of the secured assets in NPA accounts with an outstanding
amount of Rs. 1 lakh and above. The banks have to first issue a notice. Then, on
the borrower‟s failure to repay, they can:

1. Take ownership of security and/or

2. Control over the management of the borrowing concern.
3. Appoint a person to manage the concern.

Further, this act has been amended last year to make its enforcement faster.

ARC (Asset Reconstruction Companies)

The RBI gave license to 14 new ARCs recently after the amendment of the
SARFAESI Act of 2002. These companies are created to unlock value from
stressed loans. Before this law came, lenders could enforce their security interests
only through courts, which was a time-consuming process.

Corporate Debt Restructuring – 2005

It is for reducing the burden of the debts on the company by decreasing the rates
paid and increasing the time the company has to pay the obligation back.

5:25 rule – 2014

Also known as, Flexible Structuring of Long Term Project Loans to

Infrastructure and Core Industries. It was proposed to maintain the cash flow of
such companies since the project timeline is long and they do not get the money
back into their books for a long time, therefore, the requirement of loans at every
5-7 years and thus refinancing for long term projects.

Joint Lende rs Forum – 2014

It was created by the inclusion of all PSBs whose loans have become stressed. It is
present so as to avoid loan to the same individual or company from different banks.
It is formulated to prevent the instances where one person takes a loan from one
bank to give a loan of the other bank.

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Mission Indradhanus h – 2015

The Indradhanush framework for transforming the PSBs represents the most
comprehensive reform effort undertaken since banking nationalization in the year
1970 to revamp the Public Sector Banks (PSBs) and improve their overall
performance by ABCDEFG.

A-

Appointments: Based upon global best practices and as per the guidelines in the
companies act, separate post of Chairman and Managing Director and the CEO
will get the designation of MD & CEO and there would be another person who
would be appointed as non-Executive Chairman of PSBs.

B-Bank Board Bureau: The BBB will be a body of eminent professionals and
officials, which will replace the Appointments Board for the appointment of
Whole-time Directors as well as non-Executive Chairman of PSBs

C-Capitalization: As per finance ministry, the capital requirement of extra capital

for the next four years up to FY 2019 is likely to be about Rs.1,80,000crore out of
which 70000 crores will be provided by the GOI and the rest PSBs will have to
raise from the market.

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 Financial Year Total Amount

FY15-16 25,000 Crore

FY16-17 25,000 Crore

FY17-18 10,000 Crore

FY18-19 10,000 Crore

Total 70,000 Crore

D-DEstressing: PSBs and strengthening risk control measures and NPAs

disclosure.

E-Employment: GOI has said there will be no interference from Government and
Banks are encouraged to take independent decisions keeping in mind the
commercial the organizational interests.

F-Framework of Accountability: New KPI(key performance indicators) which

would be linked with performance and also the consideration of ESOPs for top
management PSBs.

G-Governance Reforms: For Example, GyanSangam, a conclave of PSBs and

financial institutions. Bank board Bureau for transparent and meritorious
appointments in PSBs.

Strategic de bt restructuring (SDR) – 2015

Under this scheme banks who have given loans to a corporate borrower gets the
right to convert the complete or part of their loans into equity shares in the loan

8
taken company. Its basic purpose is to ensure that more stake of promoters in
reviving stressed accounts and providing banks with enhanced capabilities for
initiating a change of ownership in appropriate cases.

Asset Quality Review – 2015

Classify stressed assets and provisioning for them so as the secure the future of the
banks and further early identification of the assets and prevent them from
becoming stressed by appropriate action.

Sustainable structuring of stressed assets (S4A) – 2016

It has been formulated as an optional framework for the resolution of largely
stressed accounts. It involves the determination of sustainable debt level for a
stressed borrower and bifurcation of the outstanding debt into sustainable debt and
equity/quasi-equity instruments which are expected to provide upside to the
lenders when the borrower turns around.

Insolve ncy and Bankruptcy code Act-2016

It has been formulated to tackle the Chakravyuaha Challenge (Economic Survey)
of the exit problem in India. The aim of this law is to promote entrepreneurship,
availability of credit, and balance the interests of all stakeholders by consolidating
and amending the laws relating to reorganization and insolvency resolution of
corporate persons, partnership firms and individuals in a time-bound manner and
for maximization of value of assets of such persons and matters connecte d
therewith or incidental thereto.

Pubic ARC vs. Private ARC – 2017

This debate is recently in the news which is about the idea of a Public Asset
Reconstruction Companies (ARC) fully funded and administered by the
government as mooted by this year‟s Economic Survey Vs. the private ARC as
advocated by the deputy governor of RBI Mr. Viral Acharya. Economic survey
calls it as PARA (Public Asset Rehabilitation Agency) and the recommendation is
based on a similar agency being used during the East Asian crisis of 1997 which
was a success.

Bad Banks – 2017

Economic survey 16-17, also talks about the formation of a bad bank which will
take all the stressed loans and it will tackle it according to flexible rules and
mechanism. It will ease the balance sheet of PSBs giving them the space to fund
new projects and continue the funding of development projects.

9
Summary
The need of the hour to tackle NPAs is some urgent remedial measures. This
should include:

 Technology and data analytics to identify the early warning signals.

 Mechanism to identify the hidden NPAs.
 Development of internal skills for credit assessment.
 Forensic audits to understand the intent of the borrower.

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1.2 List of Public Sector bank in india

Sr. no. Name

1 BANK OF BARODA

2 BANK OF INDIA

3 BANK OF MAHARASHT RA

4 CANARA BANK

5 CENT RAL BANK OF INDIA

6 INDIAN BANK

7 INDIAN OVERSEAS BANK

8 PUNJAB AND SIND BANK

9 PUNJAB NAT IONAL BANK

10 ST AT E BANK OF INDIA

11 UCO BANK

12 UNION BANK OF INDIA

1.3 List of Private Sector bank in india

Sr. no. Name
1 AXIS BANK LIMIT ED

2 BANDHAN BANK LIMIT ED

3 CIT Y UNION BANK LIMIT ED

4 CSB BANK LIMIT ED

5 DCB BANK LIMIT ED

6 FEDERAL BANK LT D

7 HDFC BANK LT D.

8 ICICI BANK LIMIT ED

9 IDBI BANK LIMIT ED

10 IDFC FIRST BANK LIMIT ED

11 INDUSIND BANK LT D

12 JAMMU & KASHMIR BANK LT D

13 KARNAT AKA BANK LT D

14 KARUR VYSYA BANK LT D

15 KOT AK MAHINDRA BANK LT D.

16 LAKSHMI VILAS BANK LT D

17 NAINIT AL BANK LT D

18 RBL BANK LIMITED

19 SOUT H INDIAN BANK LT D

20 T AMILNAD MERCANT ILE BANK LT D

21 T HE DHANALAKSHMI BANK LT D

22 YES BANK LT D.

11
CHAPTER: 2 LITERATURE REVIEW

Mona (2020) in her research titled” COMPARATIVE ANALYSIS OF NON

PERFORMING ASSETS IN PUBLIC SECTOR BANK AND PRIVATE
SECTOR BANK”considers data of public sector bank and private sector bank
of last five years. The research paper attempts to evaluate various ratios of non
performing assets on the basis of secondary data. This research paper gives
conceptual idea about meaning of non performingassets; various ratios related
to non performing assets and lastly, compare non performing assets in public
sector bank and private sector bank.

MeenuBhandari (2019) in her study titled “A Study of Non-Performing Assets

(NPAs) of Public and Private Sector Banks- Comparative Analysis” she
concluded that The problem of NPAs in Indian Banking Sector affects the
market conditions of the economy also. Sometimes, banks feel unwilling to
lend, which may be a totally adverse condition for the growth and development
of the economy. Slowdown in the domestic market as well as drop in the prices
in the global markets may worsen the conditions of NPAs. Gross NPAs of the
Commercial Banks has been increasing over the years. Net NPAs of
Commercial Banks has also increased in the recent trend over the years.

CHAITRA K.S, VASU V (2018) in their research study titled

“COMPARATIVE STUDY ON NON-PERFORMING ASSETS OF
SELECTED PRIVATE AND PUBLIC SECTOR BANKS” is to analyze the
comparative study of the NPA factor and returns on assets of the PSU banks and
private sector for the period of five years i.e., from 2013- 14 to 2017-18. The
study has considered various parameters for measuring the performance.

Dr.A.BalaMurugan, S.Balammal , M.KanthaPriya , R.Kamatchi(2018) in their

research titled “A Comparative Study of NPAS in Public & Private Sector
Banks in India “shows that extent of NPA is comparatively very high in public
sector banks as compared to private banks. Although various steps have been
taken by government to reduce the NPAs but still a lot needs to be done to curb
this problem. The extent of NPAs has comparatively higher in Public sector
banks. To improve the efficiency and profitability, the NPAs have to be
scheduled, various steps have been taken by governments to reduce the NPAs.
The governments should also make more provisions for faster settlements of

12
pending cases and also it should reduce the mandatory lending to priority sector
as the major problem creating area.

Dr.SakshiArora, KritikaGoyal(2017) study entitled “NPA of Public and Private

Banks: A Comparative Study “ their focus of the study is to make the
comparison between the position of NPA in the selected private sector and
public sector banks s one bank each of private sector as well as public sector
banks. Private Sector: Axis Bank Public Sector: Punjab National Bank.

Dutta.A(2014): This paper studied the growth of NPA in the public and private
sector banks in India, and analysed sector wise non-performing assets of the
commercial banks. For the purpose of the study data has been collected from
secondary sources such as report on Trend and Progress of Banking in India,
RBI, Report on Currency and Finance, RBI Economic Surveys of India.
Tripathi, L. K., Parashar, A., Mishra, S. (2014): The present study, with the help
of multiple regression model attempts to investigate the impact of priority sector
advances, unsecured advances and advances made to sensitive sectors by banks
like SBI group and other nationalised banks on Gross NPAs of banks.
Arora, N., Ostwal, N. (2014): The present paper analyses the classification and
comparison of loan assets of public and private sector banks. The study
concluded that NPAs are still a threat for the banks and financial institutions
and public sector banks have higher level of NPAs in comparison to Private
sector banks.

13
CHAPTER: 3RESEARCH METHODOLOGY

3.1 Research topic

Comparative study on NPA of public sector bank and private sector bank.

3.2 Significance of study

This study is very useful to the banks to know their non performing assets as
compared to other banks. Today all the banks are facing the problem of non
performing assets. This analysis of non performing assets is very useful to know
their non performing assets and causes of non performing assets. The main
source of income of any bank is the interest on loan. if any borrowers is not
paying any interest amount and principle amount then it creates non performing
assets. Non performing assets are directly affecting to the income and
profitability.

3.3 Research problem

The main source of income of bank is interest on loan. The performance of any
bank is dependent on the income or profitability. But today the major problem
in any bank is non performing assets. So non performing assets is affecting to
the performance of bank because profitability is dependent on the interest on
loan , and if bank is not able to recover interest amount and principal amount
then it creates non performing assets. Profitability is directly depended on non
performing assets. This research study is based on analysis of non performing
assets in public sector bank and private sector bank.

3. 4 Objective

To compare non performing assets in public sector bank and private sector
bank.
To analyze and compare gross non performing assets in public sector bank and
private sector bank.

To analyze and compare net non performing assets in public sector bank and
private sector bank.

14
To analyze relationship between profit and non performing assets in public
sector bank and private sector bank.

3.5 Research Design

Descriptive research design.

3.6 Sources of data

In this study I used secondary sources of data to analyze and compare non
performing assets in public sector bank and private sector bank.

3.7 Population of study

In this study population includes the all public sector and private sector banks in
India.

3.8 Sample unit & size

In this study I used total 5 years financial data from 2015-16 to 2019-20 of
public sector bank and private sector bank.

3.9 Limitation of study

Since my study is based upon Secondary data, the practical operations as related
to NPAs are adopted by the banks are not learned.

NPAs are changing with the time. The study is done in the present environment
without foreseeing future developments.

The study is based on secondary data as published in various publications of

RBI and other reports. These data are based on historical accounting concept,
which ignores the impact of inflation.
The study, as limitations, is confined only to the selected and restricted
indicators and the study is confined only for the period of five years.

15
CHAPTER: 4 DATA ANALYSIS & INTERPRETATION

To analyse the data, first of all we need to study about what data analysis and
interpretation Is. It is the process by which sense and meaning are made of the
data gathered in qualitative research, and by which the emergent knowledge is
applied to clients' problems. This data often takes the form of records of group
discussions and interviews, but is not limited to this. Through processes of
revisiting and immersion in the data, and through complex activities of
structuring, re-framing or otherwise exploring it, the researcher looks for
patterns and insights relevant to the key research issues and uses these to
address the client's brief.
In this chapter some comparative analysis have been done to achieve the
objectives of the study This is accomplished through various ratios analysis and
correlation between net profits and net NPA's.

4.1COMPARATIVE RATIOS
4.1.1 Gross NPA’s Ratio (%)
Gross NPA Ratio = Gross NPA‟s / Gross Advances *100

Table:1 GROSS NPA TO GROSS ADVANCES RATIO

GROSS NPA TO GROSS ADVANCES RATIO

year public sector bank private sector bank

2014-15 5 2.1
2015-16 9.3 2.8
2016-17 11.7 4.1
2017-18 14.6 4.7
2018-19 11.6 5.3
2019-20 10.25 5.45

16
 Figure :1GROSS NPA TO GROSS ADVANCES RATIO

Gross NPA Ratio

16
14
12
10
8
6
4
2
0
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

public sector bank private sector bank

Interpretation:
This analysis indicates the Gross NPA Ratio of Public Sector Banks and Private
Sector Banks from 2015 till 2020. As we know very well that higher this ratio,
more dangerous position it is for the banks.

From the above chart we can clearly understand that rate of growth of Gross
NPA of Public Sector Banks is increasing since 2015 to 2018 which is 5% to
14.6% and in Private Sector Banks also it is gradually increasing since 2015
from 2.1% to 5.45% in 2020.

But we can say that Gross NPA ratio of Public Sector Banks is decreases in last
two years from 14.6% to 11.6% and 10.25% in 2019 and 2020. whereas in
Private Sector Banks it rises from 4.7% to 5.45% only from year 2018 to 2020.

17
4.1.2 Net NPA Ratio (%)

Net NPA Ratio = Net NPA‟s/ Net Advances*100

Table:2 NET NPA TO NET ADVANCES RATIO

NET NPA TO NET ADVANCES RATIO

year public sector bank private sector bank

2014-15 2.9 0.9

2015-16 5.7 1.4

2016-17 6.9 2.2

2017-18 8 2.4

2018-19 4.8 2

Figure:2 NET NPA TO NET ADVANCES RATIO

Net NPA Ratio

9
8
7
6
5
4
3
2
1
0
2014-15 2015-16 2016-17 2017-18 2018-19

public sector bank private sector bank

18
Interpretation:
This analysis indicates the Net NPA Ratio of Public Sector Banks and Private
Sector Banks from 2014 till 2019. As we know very well that higher this ratio,
more dangerous position it is for the banks.

From the above chart we can clearly understand that rate of growth of Net NPA
of Public and Private Sector Banks is increasing since 2014 to 2018 which is
2.6% to 8% and 0.7% to 2.4% respectively. But in the year 2019 ratio is
decreases in public and private sector banks from 8% to 4.8% and 2.4% to 2%
respectively.

But we can say that increase in Net NPA Ratio of Public Sector Banks is very
alarming which has increased by 2.2% whereas in Private Sector Banks it rises
by 1.3% only from year 2014 to 2019.

19
4.1.3 Provisions Ratio (%)
Provision Ratio = Provisions/ Gross NPA‟s *100
Table : 3 PROVISION RATIO
PROVISION RATIO

year public sector bank private sector bank

2014-15 36.23 90.46
2015-16 28.49 76.13
2016-17 24.89 63.96
2017-18 26.92 53.80
2018-19 29.26 53.87
2019-20 29.54 69.26

FIGURE : 3 PROVISION RATIO

Provision Ratio
100

80

60

40

20

0
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

public sector bank private sector bank

INTERPRETATION:

This analysis indicates the Provision Ratio of Public Sector Banks and Private
Sector Banks from 2016 till 2020. As we know very well that higher this ratio,
more safe position for banks.

From the above chart we can clearly understand that due to increasing rate of
Gross NPA‟s of Public and Private Sector Banks, provisions made by these
banks are decreasing since 2015 to 2017 which is 436.23% to24.89% and
90.46% to 63.96% respectively. After that in public bank Provision ratio is

20
increased but overall it is decreased by 6.69% and in private sector bank also its
is 21.2%

We can say that if provisions are decreasing and private sector banks are having
less NPA‟s as compared to Public Sector Banks even then they are making
more provisions to be on the safer side.

21
4.1.4 Comparison of Gross NPA Ratio and Net NPA of Public Sector Bank

Table :4 Comparison of Gross NPA Ratio and Net NPA of Public Sector Bank

PUBLIC SECTOR BNANKS

year gross npa ratio net npa ratio

2014-15 5 2.9
2015-16 9.3 5.7
2016-17 11.7 6.9
2017-18 14.6 8
2018-19 11.6 4.8

Figure:4 Comparison of Gross NPA Ratio and Net NPA of Public Sector Bank

Public sector bank

16
14
12
10
8
6
4
2
0
2014-15 2015-16 2016-17 2017-18 2018-19

gross npa ratio net npa ratio

Interpretation:

This analysis indicates the relationship between gross NPA ratio and net NPA
ratio. These both are showing increasing trend from 2015 to 2018 in Public
Sector Banks but is declines in last year by 80% and 60% respectively.

22
Above chart shows that gross NPA‟s are more as compared to net NPA, which
means more provisions are made by public sector banks so as to reduce the risk
of non recovery.
4.1.5 Comparison of Gross NPA Ratio and Net NPA of Private Sector Bank

Table: 5 Comparison of Gross NPA Ratio and Net NPA of Private Sector Bank

PRIVATE SECTOR BANKS

Year gross npa ratio net npa ratio

2014-15 2.1 0.9

2015-16 2.8 1.4
2016-17 4.1 2.2
2017-18 4.7 2.4
2018-19 5.3 2

Figure:5 Comparison of Gross NPA Ratio and Net NPA of Private Sector Bank

Private sector bank

6
5
4
3
2
1
0
2014-15 2015-16 2016-17 2017-18 2018-19

gross npa ratio net npa ratio

Interpretation:
This analysis indicates the relationship between gross NPA ratio and net NPA
ratio. These both are showing increasing trend from 2015 to 2018 in Private

23
Sector Banks. But in 2019 net npa ratio is decreased by 0.4 but gross npa ratio is
still increased.

Above chart shows that gross NPA‟s are more as compared to net NPA, which
means more provisions are made by private sector banks so as to reduce the risk
of non recovery.

24
4.2 COMPOSITION OF LOAN ASSET OF BANKS
4.2.1 Standard Assets Ratio (%)
Standard Assets Ratio = Total Standard assets / Gross NPAs
Table:6 standard asset ratio of public sector bank and private sector bank
STANDARD ASSET RATIO

year public sector bank private sector bank

2014-15 19.17 46.18

2015-16 9.79 34.14

2016-17 7.57 23.26

2017-18 5.86 20.10

2018-19 7.63 17.76

2019-20 8.75 17.34

Figure:6standard asset ratio of public sector bank and private sector bank

standard asset ratio

50

40

30

20

10

0
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

public sector bank private sector bank

25
Interpretation:

This analysis indicates the Standard Asset Ratio of Public Sector Banks and
Private Sector Banks from 2015 till 2020. As we know very well that higher this
ratio, more advantageous it is for the banks.

From the above chart we can clearly understand that the Standard Asset Ratio of
Public and Private Sector Banks is decreasing constantly from 2015 to 2020 &
has fallen down to 17.34% from 46.18% for Private Sector Bank & to 8.75%
from 19.17% for Public Sector Bank.

So, overall we can determine that Private Sector bank is in beneficial position
than Public Sector Bank.

26
4.2.2 Sub-standard Assets Ratio (%)
Substandard Assets Ratio = Total sub–standard assets / Gross NPAs
Table : 7 substandard asset ratio of public sector bank and private sector bank
SUB STANDARD ASSET RATIO

year public sector bank private sector bank

2014-15 0.38 0.32
2015-16 0.37 0.33
2016-17 0.25 0.33
2017-18 0.24 0.25
2018-19 0.19 0.24
2019-20 0.20 0.29

Figure:7 substandard asset ratio of public sector bank and private sector bank

Sub standard asset ratio

0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

public sector bank private sector bank

Interpretation:

This analysis indicates the Sub-Standard Asset Ratio of Public Sector Banks
and Private Sector Banks from 2015 till 2020. As we know very well that lower
this ratio, more advantageous it is for the banks.

From the above chart we can clearly understand that the Sub-Standard Asset
Ratio of Public and Private Sector Banks is decreasing constantly from 2015 to
2020 & has fallen down to 0.29% from 0.32% for Private Sector Bank & to
0.20% from 0.38% for Public Sector Bank.

27
So, we can determine that Public Sector bank is in beneficial position than
Private Sector Bank.
4.2.3 Doubtful Assets Ratio (%)
Doubtful Assets Ratio = Total doubtful assets / Gross NPAs
Table:8 Doubtful asset ratio of public sector bank and private sector bank
DOUBTFUL ASSET RATIO

year public sector bank private sector bank

2014-15 0.59 0.52
2015-16 0.60 0.55
2016-17 0.72 0.56
2017-18 0.70 0.68
2018-19 0.71 0.69
2019-20 0.63 0.52

Figure:8 Doubtful asset ratio of public sector bank and private sector bank

Doubtful asset ratio

0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

public sector bank private sector bank

Interpretation:  This analysis indicates the Doubtful Asset Ratio of Public

Sector Banks and Private Sector Banks from 2015 till 2020. As we know very
well that lesser this ratio, more advantageous it is for the banks.

From the above chart we can clearly understand that the Doubtful Asset Ratio
of Public Sector Banks is increasing slightly and Private Sector Banks is
showing constant trend from 2015 to 2019. Since the ratio for both the banks

28
have a marginal difference, therefore the only thing which differentiates the
banks is that this ratio for public and Private it is decreasing in 2020. So, Private
Sector Banks gain advantage from this ratio.
4.2.4 Loss Assets Ratio (%)
Loss Assets Ratio = Total loss assets / Gross NPAs
Table :9 Loss asset ratio of public sector bank and private sector bank
LOSS ASSET RATIO
year public sector bank private sector bank
2014-15 0.04 0.15
2015-16 0.03 0.11
2016-17 0.03 0.10
2017-18 0.06 0.04
2018-19 0.10 0.06
2019-20 0.17 0.19

Figure : 9 Loss asset ratio of public sector bank and private sector bank

Loss asset ratio

0.2

0.15

0.1

0.05

0
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

public sector bank private sector bank

Interpretation:
This analysis indicates the Loss Asset Ratio of Public Sector Banks and Private
Sector Banks from 2015 till 2020. As we know very well that lower this ratio,
more advantageous it is for the banks.

29
From the above chart we can clearly understand that the Loss Asset Ratio of
Private Sector Banks is decreasing constantly from 2015 to 2019 & has fallen
down to 0.04% from 0.15% for Private Sector Bank but it increased in 2020 by
0.13.

Public Sector Banks is increasing constantly from 2015 to 2020 & has rice up to
0.17% from 0.04% .

4.3 IMPACT OF NON-PERFORMING ASSETS ON PROFITABILITY

4.3.1 Corre lation between Net Profit & Net NPA of Public Sector Bank

Table : 10 Correlation between Net Profit & Net NPA of Public Sector Bank
Correlations

NET NPA NET PROFIT

Pearson Correlation 1 -.698

NET NPA Sig. (2-tailed) .123

N 5 5
Pearson Correlation -.698 1

NET PRO FIT Sig. (2-tailed) .123

N 5 5

4.3.2 Corre lation between Net Profit & Net NPA of Private Sector Bank

Table : 11 Correlation between Net Profit & Net NPA of Private Sector Bank
Correlations

NET PROFIT NET NPA

Pearson Correlation 1 -.407
NET PRO FIT Sig. (2-tailed) .424
N 5 5
Pearson Correlation -.407 1

NET NPA Sig. (2-tailed) .424

N 5 5

30
Relationship between Net Profit and Net NPA

To establish relationship between Net Profit and Net NPA Pearson‟s Correlation
has been used. Pearson‟s Correlation for Public Sector Banks is -0.698 and for
Private Sector Banks is -0.407.
Interpretation:
As we can see that correlation for Private Sector Banks is -0.407 and for Public
Sector Bank is -0.698. It means that there is a negative relation between Net
Profits and NPA of Banks. But in public sector banks it stated that strongly
negative relation between net profit and net NPA.
It simply means that as NPA increase and Profit decreases.

31
CHAPTER: 5 FINDINGS

The rate of growth of Gross NPA to gross advances ratio of Public Sector Banks
and private sector banks is increasing over the years .

The rate of growth of Net NPA to Net advances ratio of Public and Private
Sector Banks is increasing over the years.

It states that Private sector banks makes more provisions in gross NPA & gross
advances as compared to Public Sector Banks. But also it is decreased over the
years.

Private Sector bank is in beneficial position than Public Sector Bank in standard
asset ratio.
The sub-standard assets of both the banks are decreasing both the banks are at
same position.
Doubtful assets of Public sector bank and Private Sector Banks are quite same
but private sector banks have more advantageous position than public sector
banks.
Loss assets of both banks are showing increasing trend.

There is a Strong Negative relation between NPA & profits of public sector
banks and Negative relation between NPA & profit of private sector banks.
NPAs reduce the earning capacity banks and badly affect the profitability of
banks.

32
Chapter: 6 CONCLUSION

The NPA is one of the biggest problems that the Indian Banks are facing today.
If the proper management of the NPAs is not undertaken it would hamper the
business of the banks. If the concept of NPAs is taken very lightly it would be
dangerous for the Indian banking sector. The NPAs would destroy the current
profit; interest income due to large provisions of the NPAs, and would affect the
smooth functioning of the recycling of the funds.
Banks also redistribute losses to other borrowers by charging higher interest
rates. Lower deposit rates and higher lending rates repress savings and financial
markets, which hampers economic growth.
Although Public Sector Banks have good substandard assets when compared
with Private Sector banks but Private Sector Banks are more efficient than
public sector banks with regard to all the other factors which give them a good
upper hand.
The Non-Performing Assets have always created a big problem for the banks in
India. It is just not only problem for the banks but for the economy too. The
money locked up in NPAs has a direct impact on profitability of the bank as
Indian banks are highly dependent on income from interest on funds lent.
This study shows that extent of NPA is comparatively very high in public
sectors banks. Although various steps have been taken by government to reduce
the NPAs like S4A (Scheme for Sustainable Structuring of Stressed Assets) and
Indradhanush Scheme but still a lot needs to be done to curb this problem. The
NPAs level of our banks is still high. It is not at all possible to have zero NPAs.
The bank management should speed up the recovery process. The problem of
recovery is not with small borrowers but with large borrowers and a strict policy
should be followed for solving this problem. The government should also make
more provisions for faster settlement of pending cases and also it should reduce
the mandatory lending to priority sector as this is the major problem creating
area. So the problem of NPA needs lots of serious efforts otherwise NPAs will
keep killing the profitability of banks which is not good for the growing Indian
economy at all.

33
BIBLIOGRAPY
https://dbie.rbi.org.in/DBIE/dbie.rbi?site=publications#!4
https://dbie.rbi.org.in/BOE/OpenDocument/1608101727/OpenDocument/opend
oc/openDocument.faces?logonSuccessful=true&shareId=3

https://dbie.rbi.org.in/BOE/OpenDocument/1608101727/OpenDocument/opend
oc/openDocument.faces?logonSuccessful=true&shareId=5

https://dbie.rbi.org.in/BOE/OpenDocument/1608101727/OpenDocument/opend
oc/openDocument.faces?logonSuccessful=true&shareId=6

https://dbie.rbi.org.in/BOE/OpenDocument/1608101727/OpenDocument/opend
oc/openDocument.faces?logonSuccessful=true&shareId=7https://dbie.rbi.org.in
/BOE/OpenDocument/1608101727/OpenDocument/opendoc/openDocument.fa
ces?logonSuccessful=true&shareId=7

https://dbie.rbi.org.in/BOE/OpenDocument/1608101727/OpenDocument/opend
oc/openDocument.faces?logonSuccessful=true&shareId=9
https://www.clearias.com/non-performing-assets-npa/

34
APPENDICES
PUBLIC SECTOR BANKS
Year Gross npa Gross advances

2013-14 228274 5215920

2014-15 278468 5616717
2015-16 539956 5821951
2016-17 684732 5866373
2017-18 895601 6141698
2018-19 739541 6382461
2019-20 678317 6615112

year net npa net advances

2013-14 130635 5101137

2014-15 159951 5476250
2015-16 320376 5593577
2016-17 383089 5557232
2017-18 454473 5697350
2018-19 285123 5926286
2019-20 230917.6

year net npa net profit

2014-15 159951 37539.96

2015-16 320376 -17993
2016-17 383089 -11389
2017-18 454473 -85371
2018-19 285123 -66608
2019-20 230918 -26015

Year standard Sub- Doubtful Loss

Assets standard assets assets
Assets
2014-15 5338249 105416 163049 10003
2015-16 5287543 200463 323229 16264
2016-17 5181641 173079 490371 21283
2017-18 5246097 214624 627712 53265
2018-19 5642920 140759 523538 75245
2019-20 5936795 136851 424829 116638

35
 year provisions gross npa

2014-15 1,00,901 278468

2015-16 153808 539956
2016-17 170411 684732
2017-18 241060 895601
2018-19 216412 739541
2019-20 200405 678317

PRIVATE SECTOR BANKS

year Gross npa Gross advances
2013-14 24542 1360253
2014-15 34106 1607339
2015-16 56186 1972659
2016-17 93209 2266721
2017-18 129335 2725891
2018-19 183604 3442347
2019-20 205848 3776231

year Net npa Net advances

2013-14 8862 1342935
2014-15 14128 1584312
2015-16 26677 1939339
2016-17 47780 2219475
2017-18 64380 2662753
2018-19 67309 3327328
2019-20 55746

year net npa net profit

2014-15 14128 38734.67

2015-16 26677 41313.7
2016-17 47780 42204.05
2017-18 64380 41783.31
2018-19 67309 27621.01
2019-20 55746 19111.37

36
Year standard Sub- Doubtful Loss
Assets standard assets assets
Assets
2014-15 1574957 10835 17636 5228
2015-16 1918387 18588 31086 6179
2016-17 2168500 31100 51800 9008
2017-18 2600028 31831 88586 5446
2018-19 3261474 44232 125914 10726
2019-2020 3570383 59670 107279 38899

year provisions gross npa

2014-15 30851 34106

2015-16 42775 56186
2016-17 59618 93209
2017-18 69581 129335
2018-19 98905 183604
2019-20 142572 205848

37