International Journal of Research in all Subjects in Multi Languages Vol.

3, Issue: 3, March: 2015

[Author: Kalpesh Gandhi] [Subject: Commerce] (IJRSML) ISSN: 2321 - 2853

Non Performing Assets: A study of State Bank of India

KALPESH GANDHI
Lecturer in Satyaprakash College,
Affiliated with Saurashtra University, Rajkot
Abstract:
After the evolution of banking system, the development and growth has become very prompt as bank
provides a great deal for the better and speedy capital formation in the economy. Banking system has
provided a greater amount of facility for the financial adjustment of the economic activity which is an
important tool for the development and growth. But there are some difficulties too, in the smooth
running of the banking system. One of the biggest difficulties is the non performing assets of a bank.
To grant loan is not a big challenge but the recovery that loan is one of the biggest issues. In the
present paper, the detail, causes and suggestion of the NPA.

Keywords: NPA, Bank, Financial Sector

1. Introduction
India being a developing country has been progressing since independence with the great support of
banking system in the country. The role of commercial bank in the progress of the country is
considered as a benchmark. For the high rate of capital formation the role of commercial bank has no
any other alternative. But yet India needs a great amount of development and growth for the time to
come where again the banking system will become a milestone but the banking system has only one
big issue that is of Non Performing Assets. In general, the non performing assets are found more
comparatively in the public sector banks in comparision to private bank because of liberal rules for the
debt recovery. Now a days the RBI has issued strick guidelines to reduce NPA,s in the banks and due
to that the proportion of NPA,s has reduced up to the extent but not all together. In the present paper a
study is conducted to check the NPA,s of State Bank Of India during 2009 to 2014 and suggestion to
reduce the NPA,s has also been drawn.

2. Objectives of the Study

1. To study gross NPA of SBI for the year 2010 to 2014
2. To study the net NPA of SBI for the year 2010 to 2014
3. To analyse the types of assets and effect of NPA on it.
4. To study the causes of NPA of Banks
5. To study the trends of gross and net NPA during 2010 to 2014

3. Research Methodology
It includes research design, sampling framework, methods of data collection, framework of analysis
and limitations

4. Review of Literature
Kumar (2003) in his paper titled, "The Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act,2002", revealed in detail the need, process, summary, positive as
well as negative aspects of the Act. Pradhan Tanmaya Kumar (2013) observed that “gross advances
and NPA of old private sector banks and foreign banks are rising so RBI initiated several measures
like self appraisal of different risk management system by banks for introduction of BASEL II.”

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 International Journal of Research in all Subjects in Multi Languages Vol. 3, Issue: 3, March: 2015
[Author: Kalpesh Gandhi] [Subject: Commerce] (IJRSML) ISSN: 2321 - 2853
T.R. Gurumoorthy et.al (2012) discussed that “NPA of public sector banks can be reduced by
reviewing loan application on the basis of 5 c‟s. Here 5 c‟s denotes capacity, collateral, condition,
capital and character of borrower.” SIRAJ. K. K & PROF. (DR). P. SUDARSANAN PILLAI
observed that NPA is a virus affecting banking sector. It affects liquidity and profitability, in addition
posing threat on quality of asset and survival of banks. The study concluded that NPA still remains a
major threat and the incremental component explained through additions to NPA poses a great
question mark on efficiency of credit risk management of banks in India.

5. Collection of Data
The secondary data are used in the present study. The secondary data to non-performing assets and the
micro variable from 2009-10 to 2013-14 were collected from various issues of SBI Annual Reports
and RBI Bulletins.

6. Limitations of the Study

1.A deep analysis is made non-performing assets only. The performing assets do not pose any
problems to credit management.
2.This study is only restricted to State Bank of India only.
3.The result of the study may not be applicable to any other banks.
4.Since the part of the study is based on their perceptions, the findings may change over the years in
keeping with changes in environmental factor.
5.The present study does not ascertain the views from the borrowers who are not directly concerned
with management of non-performing assets.

7. Assets Classification and Provisions

Assets Classification and Provisions Banks are required to classify the loan assets (advances) into four
categories viz.
I. Standard assets
II. Sub-standard assets
III. Doubtful assets; and
IV. Loss assets
I. Standard Advances/Assets: are those, which do not disclose any problem and do not carry more
than normal risk attached to the business. Such assets are considered to be performing asset. A general
provision of 0.25% has to be provided on global loan portfolio basis.
II. Sub-Standard Advances: With effect from 31 March 2005, a substandard asset would be one,
Which has remained NPA for a period less than or equal to 12 months. Such an asset will have well
defined credit weaknesses that jeopardize liquidation of the debt and are characterized by distinct
possibility that bank will sustain some loss. Accordingly a general provision of 10% on outstanding
has to be provided on substandard assets.
III. Doubtful assets- These are the assets which have remained NPAs for a period exceeding 12
months and which are not considered as a loss advance. Banks have to provide 100 percent of the
unsecured portion of the outstanding advance after netting realized amount in respect of DICGC
scheme (Deposit Insurance and Credit Guarantee Corporation) and realized/realizable amount of
guarantee cover under ECGC (Export Credit Guarantee Corporation) schemes.
Period for which the Provision requirements (%) advance has remained in Doubtful category
Up to one year 20 %
One to three years 30 %
More than three years
I. Outstanding stock of NPAs - 60 percent with effect from as on March31,2004 March31,2005
-75 percent with effect from March 31, 2006. -100 percent with effect from March31,2007
II. Advances classified as 100 percent with effect from doubtful for more than March 31, 2005
three years on or after April1,2004

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RET Academy for International Journals of Multidisciplinary Research (RAIJMR)
 International Journal of Research in all Subjects in Multi Languages Vol. 3, Issue: 3, March: 2015
[Author: Kalpesh Gandhi] [Subject: Commerce] (IJRSML) ISSN: 2321 - 2853
IV. Loss Assets – Loss assets are those where loss has been identified by the bank or internal /external
auditors or RBI inspectors but the amount has not been written off, wholly or partially. Any NPAs
would get classified as loss assets if they were irrecoverable or marginally collectible and cannot be
classified as bankable asset. Companies have to provide 100% of these outstanding advances.
Note: provision towards standard assets should not be deducted from advances but shown separately
as contingent provisions against standard assets under “Other liabilities and provisions” others in
schedule V of the balance sheet.

8. Reasons for NPAS in Banks

An account does not become an NPA overnight. It gives signals sufficiently in advance that steps can
be taken to prevent the slippage of the account into NPA category. An account becomes an NPA due
to causes attributable to the borrower, the lender and for reasons beyond the control of both. An
internal study conducted by the RBI shows that in the order of prominence, the following factors
contribute to NPAs.
Internal Factors
Diversion of funds for -Expansion/diversification/modernization.-Taking up new projects.-
Helping/promoting associate concerns.
Time/cost overrun during the project implementation.
Inefficient management.
Strained labour relations.
Inappropriate technology/technical problems.
Product obsolescence, etc.
Poor credit Appraisals, monitoring and follow up, improper SWOT analysis on the part of banks.
External Factors
Recession.
Input or power shortage.
Price escalation.
Exchange rate fluctuation.
Accidents and natural calamities.
Changes in government policy such as excise, import and export duties, pollution control order
etc.
Willful defaulters have been there because they knew that legal recourse available to the lenders
is time consuming and slow.
Sickness of the industry also leads to gradual erosion of the liquidity and units start failing to
honour its obligations for the loan payments. Heavy funds are locked up in these units.
Political tool-Directed credit to SSI and Rural sectors has been there
Manipulation by the debtors using political influence has been a cause for high industrial bad
debts.
In the current perspective, the Economic Survey, 2012-13(paragraph 5.32) identifies the following as
the “main” reasons for the growing NPAs:
a) Switchover to a system- based identification of NPAs by PSBs
b) Prevailing macro-economic situation in the country;
c) Increased interest rates in the recent past;
d) Lower economic growth; and
e) Aggressive lending by banks in the past, especially during good times.

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RET Academy for International Journals of Multidisciplinary Research (RAIJMR)
 International Journal of Research in all Subjects in Multi Languages Vol. 3, Issue: 3, March: 2015
[Author: Kalpesh Gandhi] [Subject: Commerce] (IJRSML) ISSN: 2321 - 2853
9. Data Analysis
Table 1: Analysis of Gross N.P.A. (Rs.)
Particulars 2010 2011 2012 2013 2014
Gross N.P.A. 19,534.89 25,326.29 39,676.46 51,189.39 61,605.35
TOTAL 19,534.89 25,326.29 39,676.46 51,189.39 61,605.35

(Source http://www.moneycontrol.com/stocks/company_info/print_main.php)
Above table shows that Gross N.P.A. from the year 2010 to 2014. It is clear from the table that the
amount of gross NPA,s have been rising since 2010 to 2014. It was 19,534.89 crores and it was
61,605.35 crores in the year 2014.
Figure No1. Classification of Data of Gross N.P.A. (Rs.)
70,000.00 61,605.35
60,000.00 Gross NPA (Rs.)51,189.39
50,000.00
39,676.46
40,000.00
30,000.00 25,326.29
19,534.89
20,000.00
10,000.00 Gross NPA
0.00
Mar '10 Mar '11 Mar '12 Mar '13 Mar '14

Table 2. Analysis of Net N.P.A. (Rs.)

Particulars 2010 2011 2012 2013 2014
Net NPA 10,870.17 12,346.89 15,818.85 21,956.48 31,096.07
TOTAL 10,870.17 12,346.89 15,818.85 21,956.48 31,096.07
(Source http://www.moneycontrol.com/stocks/company_info/print_main.php)
Above table shows that Net N.P.A. from the year 2010 to 2014. It is clear from the above table that net
NPAs of the bank has also been increasing from 2010 to 2014. It was 10870.17 crores in the year 2010
while it increased to 31,096.07 in the year 2014.
Figure No. 2. Classification of Data of Net N.P.A. (Rs.)

Net NPA (Rs.)

35,000.00 31,096.07
30,000.00
25,000.00 21,956.48
20,000.00 15,818.85
15,000.00 10,870.17 12,346.89 Net NPA
10,000.00
5,000.00
0.00
Mar '10 Mar '11 Mar '12 Mar '13 Mar '14

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RET Academy for International Journals of Multidisciplinary Research (RAIJMR)
 International Journal of Research in all Subjects in Multi Languages Vol. 3, Issue: 3, March: 2015
[Author: Kalpesh Gandhi] [Subject: Commerce] (IJRSML) ISSN: 2321 - 2853
Table 3. Analysis of Gross N.P.A. (%)
Particulars 2010 2011 2012 2013 2014
% of Gross NPA 3.05 3.28 4.44 4.75 4.95

TOTAL 3.05 3.28 4.44 4.75 4.95

(Source http://www.moneycontrol.com/stocks/company_info/print_main.php)
Above table shows that Gross N.P.A. from the year 2010 to 2014. It is clear from the data above that
gross NPA,s has been increasing in terms of % like it was 3.05% in 2010 while it increased to 4.95%
in 2014.
Figure No.3 Classification of Data of Gross N.P.A. (%)

Gross NPA (%)

6
4.75 4.95
5 4.44
4
3.05 3.28
3
% of Gross
2 NPA

0
Mar '10 Mar '11 Mar '12 Mar '13 Mar '14

Table 4.Analysis of Net N.P.A. (%)

Particulars 2010 2011 2012 2013 2014

% of Net NPA 1.72 1.63 1.82 2.1 2.57
TOTAL 1.72 1.63 1.82 2.1 2.57
(Source http://www.moneycontrol.com/stocks/company_info/print_main.php)
Above table shows that Net N.P.A. from the year 2010 to 2014. It is clear from the above table that
Net NPA,s has also been increasing continuously from 2010 to 2014. It was 1.72% and has increased
to 2.57% in 2014.
Figure No. 4.Classification of Data of Net N.P.A. (%)

Net NPA (%)

3
2.57
2.5 2.1
2 1.72 1.82
1.63
1.5
% of Net
1 NPA
0.5
0
Mar '10 Mar '11 Mar '12 Mar '13 Mar '14

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RET Academy for International Journals of Multidisciplinary Research (RAIJMR)
 International Journal of Research in all Subjects in Multi Languages Vol. 3, Issue: 3, March: 2015
[Author: Kalpesh Gandhi] [Subject: Commerce] (IJRSML) ISSN: 2321 - 2853
10. Findings
1. NPA,s has been increasing whether gross or net in terms of rupees.
2. NPA,s has been increasing whether gross or net in terms of percentage too.
3. Lack of securitization while granting of loan is seen in the bank.

11. Conclusion
Non Performing Assets of SBI is studied in detail for the given time period of 2010 to 2014 with its
factors, types of assets , NPA,s in terms of rupees as well as in percentage terms. Along with this
findings have also been presented. The above paper indicates that NPA,s for the SBI bank has been
rising since 2010 which is a serious note for the bank and bank should take some strick action to avoid
it, Proper system of recovery should be done is expected, Loan portfolio should be revived by the
bank.

References
1. http://rbi.org.in.
2. http://www.statebankofindia.com/
3. NPA Reduction: The New „Mantra‟ of Slippage Management IBA Bulletin, 22.10 (October 2000).
4. Rastogi R. P. (2002). Financial Management, Galgotia Publication, New Delhi.
5. RBI, “Report on Trend and Progress of Banking in India, various issues.”
6. Samir, Deepa Kamra and N.S Rana.(2010). ”Non-Performing Assets(NPAs) impede performance
of Public Sector Banks”, pp.6-13,Vol. 7,No.3 in Masterstroke, The Journal of Master School of
Management, ISSN 0972-9895.
7. Sundharam, K.D.S. and Varshney, P.N. (2000). Banking, and financial System, Sultan Chand &
Sons, Delhi

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