ANALYSIS OF BANKING INDUSTRY IN INDIA:

A GLIMPSE OF NPA IN PUBLIC SECTOR BANKS

Presented by Jacqueline Lobo (PGP-EX) Under the guidance of Dr. Deepak Tandon, Professor, LBSIMNew Delhi

INDEX
SECTION I- Introduction to Banking Industry in India Review of literature

Objective and methodology of the

Introduction to the public and private sector Non performing assets and its classification Reason for NPAs in Banks

NPA- Cause of concern in Indian Banking Industry

What are banks doing wrong? SWOT analysis of Banking Sector SECTION II- Introduction to Indian bank Success story of Indian Bank Recommendations

GENERAL BANKING SCENARIO

Glimpse of NPA in public sector banks in India

OBJECTIVES OF THE STUDY

This study focuses on the following major objectives:
To analyze relationship between Net N.P.A. as % of Net

Advances priority sector and non-priority sector lending by public sector banks in India.
To conceptualize NPAs and their impact on the liquidity of

banks.
To analyze the factors attributable to NPAs in public sector

banks.

INTRODUCTION TO THE PUBLIC AND PRIVATE SECTOR

ON ASSET QUALITY, PSBS REPORT SOME DETERIORATION WHILE PRIVATE BANKS SHOW IMPROVEMENT:
SCBs
Gross NPAs (%) FY06 3.3 FY07 2.5 FY08 2.3 FY09 2.3 FY10 2.4 FY11 2.3

Net NPAs (%)

Fresh NPA Generation Rate (%) Net NPAs/Net Worth (%)

1.2
2 10.1 FY06 3.6 1.3 13.1 FY06 2.1 0.9 6.3

1
1.7 9.2 FY07 2.7 1.1 12.1 FY07 2.1 0.9 7.8

1
1.8 7.8 FY08 2.2 1 11.2 FY08 2.4 1.1 6.1

1.1
2.1 8.6 FY09 2 0.9 11.4 FY09 2.9 1.3 7.5

1.1
2.2 9.1 FY10 2.2 1.1 13.5 FY10 2.7 1 5.3

0.9
2 10 FY11 2.3 1.1 13.4 FY11 2.3 0.6 3.2

PSBs
Gross NPA (%) Net NPA (%) Net NPAs/Net Worth (%)

Private Banks
Gross NPA (%) Net NPA (%) Net NPAs/Net Worth (%)

ASSET QUALITY RELATED CHALLENGES AHEAD

1.
2. 3.

Spill-over from restructuring window not over yet

Exposure to State utilities remains an area of concern Credit loss from exposure to micro lending institutions in AP likely

NON-PERFORMING ASSETS

Non Performing Asset means a loan or an account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by RBI.
Earlier assets were declared as NPA after completion of the

period for the payment of total amount of loan and 30 days grace.
In present scenario assets are declared as NPA if none of the

installment is paid till 180 days i.e. six months in respect of a term loan.

CLASSIFICATION OF NPA

Banks classify their assets into the following broad groups, viz.
1. 2.

Standard Assets Sub-standard Assets

3.
4.

Doubtful Assets
Loss Assets

NPA - CAUSE OF CONCERN FOR INDIAN ECONOMY!

WHAT ARE THE BANKS DOING WRONG?

SWOT ANALYSIS OF BANKING SECTOR

Strenths

Section II A CASE ANALYSIS OF INDIAN BANK

Percentage of NPA to advances

20 State Bank Group IDBI Bank Ltd. 19 Vijaya Bank United Bank of India Union Bank of India UCO Bank Syndicate Bank Punjab National Bank Punjab and Sind Bank Oriental Bank of Commerce

12

13

14

15

16

17

18

Indian Overseas Bank

Percentage of NPA to advances Indian Bank Dena Bank

10

11

Corporation Bank
Central Bank of India Canara Bank Bank of Maharashtra Bank of India Bank of Baroda Andhra Bank Allahabad Bank 0.000 2.000 4.000 6.000 8.000 10.000 12.000 14.000

90

80

70

60

50

40 Priority Sector NPAs 30 Non-Priority Sector NPAs

20

10

COMPARING AN APPLE TO AN APPLE:

The Public sector banks in India of are different sizes and have been in existence for different number of years. Since Indian bank has total advances of only $75,249.91 compared to an average of $113,404.25 of other public banks a comparison has been made to compare it to a similar bank. In this case Indian Bank has been compared to State Bank of Travancore.

State Bank of Travancore (SBT) was originally established as Travancore Bank Ltd. in 1945 sponsored by the erstwhile princely state of Travancore. Under a special statute of the Indian Parliament (SBI subsidiary Banks Act 1959) it was made an Associate of the State Bank of India and a member of the State Bank Group, the largest banking group in India. The total advances of State Bank of Travancore (SBT) for FY 2010-2011 was Rs. 46,044 as opposed to Indian bank, which had total advances of Rs. 75,249.91 in the same year. The Net N.P.A. as % of Net Advances State Bank of Travancore is 1.814% and that of Indian Bank 0.957%.

THE SUCCESS STORY OF INDIAN BANK

Operating profit increased to Rs.3291.7 crore as against Rs.2747.4 crore for 2009-10 registering

a growth of 19.8 per cent.

Net profit for 2010-11 crossed the Rs.1700 crore mark and was at Rs.1714.1 crore as compared

to Rs.1555 crore for 2009-10, showing a growth of 10.2 per cent.

Net Interest Margin improved to 3.75 per cent from 3.55 per cent. Return on average assets was at 1.53 per cent. Capital Adequacy Ratio was at 13.56 per cent as compared to 12.71 per cent as of March 2010. Return on Net worth for 2010-11 was at 21.50 per cent. Earnings per share was at Rs.38.79 and Book value per share was Rs.184.44.

THE SUCCESS STORY OF INDIAN BANK

Global Business of the Bank crossed Rs.180,000 crore during the year and was at Rs.181,530

crore, registering a growth of 20.3 per cent.

Total Deposits grew by Rs.17,576 crore to Rs.105,804 crore, a growth of 19.9 per cent for the

year 2010-11.

Gross Advances were at Rs.75,726 crore, registering an increase of Rs.13,068 crore (20.9 per cent) as on 31.3.2011. Overall Credit Deposit ratio was at 71.6 per cent.

Priority Sector Advances at Rs.25,969 crore, grew by Rs.4304 crore (19.9 per cent). Agriculture Credit grew by Rs.1904 crore (20.8 per cent) to Rs.11,048 crore and accounted for

18.57 per cent of Adjusted Net Bank Credit.

Under Financial Inclusion project, a total of 1.53 lakh No-Frill accounts have been opened.

Prime Financial Indicators of Indian Bank as on March2011

Interest NonOperating Return on Business Profit per

Income /
Working Funds

Interest
Income / Working Funds

Profit /
Working Funds

Assets

per
Employee

Employee

12.39

1.56

4.35

1.53%

929.76%

8.88%

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