A COMPARATIVE STUDY ON (NPA) NON-PEFORMING ASSET, OF INDIAN

PUBLIC AND PRIVAYE BANKS

1
 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

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
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due to the breakdown of banking sector. Nonperforming 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;

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

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 nonstandard 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

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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.

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

Meaning of NPA in the eye of RBI

Lending features of the following are considered as Non-performing Asset.

1) Interest and / or instalment of principal remain overdue for a period of more than 90 days in respect of a
Term Loan.

 2) The account remains 'Out of order' for a period of more than 90 days, in respect of an Overdraft / Cash
Credit (OD/CC).

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

 4) In the case of direct agricultural advances as listed in Annex 1, the overdue norm specified at Para 2.1.5
would be applicable. In respect of agricultural loans, other than those specified in Annex 1, identification of
NPAs would be done on the same basis as non-agricultural advances.

5) Any amount to be received remains overdue for a period of more than 90 days in respect of other
accounts.

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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).

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.

What is the impact of NPAs?

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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

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.

Need of The Study

o The study could suggest measures for the banks to avoid future NPAs & to reduce existing NPAs

o The study may help the government in creating & implementing new strategies to control NPAs.

 o The study will help to select appropriate techniques suited to manage the NPAs and develop a time bound action
plan to check the growth of NPAs.

OBJECTIVES OF THE STUDY

1- Comparison between selected Public and Private Banks

2- What is the impact of NPAs? What are the various steps taken to tackle NPAs?

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RESEARCH METHODOLOGY

Research topic

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

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

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.

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 CHAPTER-2

Review of literature

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 13 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

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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 bank

Kandela (2016) (Differentiation of NPA’s) Studies shows that NPAs is one of the dominant problems for
banking system in India. The contribution of priority sector Non-Performing Assets is more than 50 percent
out of total NPAs till 2011. In short run abbreviating entire NPAs is very difficult for the banks. So, banks
need to identify which group contributes NPAs in priority sector more towards total NonPerforming Assets.
So, that commercial banks and government can make efforts in reducing sectoral NPAs and make the
performance of the banks better in due course of time

JaynalUd, Ahmed (2010) (problem facing by commercial bank in india)   Research studies shows that the
recovery trend in the agriculture sector and other related activities in comparison to other priority sector is
demotivating. With increase in the advances to the primary sector, there has been similar rise in the volume
of the Non-Performing Assets. But it cannot be debated that public sector lending is the one and only factor
in amplifying the size of Non-Performing Assets, other indicators such as credit deposit ratio, Ratio of NPA
to advances, capital adequacy ratio are equally responsible and important at the same time and affecting the
profit of the bank.

Nagarajan asif (2013) (The relationship between recovery and NPA)Another research study shows the
relationship between recovery and NPA. Researcher found out that the reason for Non-Performing Assets
are writing off defective loans. Bad loans are higher in case of Public sector lending than the non-public
sector lending

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 CHAPTER-3

Comparison between selected Public and Private Banks

List of Some Public Sector bank in india

Sr . No. NAME

1 BANK OF BARODA

2 BANK OF INDIA

3 BANK OF MAHARASHTRA

4 CANARA BANK

5 CENTRAL BANK OF INDIA

6 INDIAN BANK

7 INDIAN OVERSEAS BANK

8 PUNJAB AND SIND BANK

9 PUNJAB NATIONAL BANK

10 STATE BANK OF INDIA

11 UCO BANK

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List of Some Private Sector bank in India

Sr . no. Name
1 AXIS BANK LIMITED
2 BANDHAN BANK LIMITED
3 ICICI BANK LIMITED
4 CITY UNION BANK LIMITED
5 CSB BANK LIMITED
6 DCB BANK LIMITED
7 FEDERAL BANK LTD
8 HDFC BANK LTD.
9 IDBI BANK LIMITED
10 IDFC FIRST BANK LIMITED
11 INDUSIND BANK LTD
12 JAMMU & KASHMIR BANK LTD
13 KARNATAKA BANK LTD
14 KARUR VYSYA BANK LTD
15 KOTAK MAHINDRA BANK LTD.
16 LAKSHMI VILAS BANK LTD
17 NAINITAL BANK LTD
18 RBL BANK LIMITED
19 SOUTH INDIAN BANK LTD
20 TAMILNAD MERCANTILE BANK LTD

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3.1 1COMPARATIVE RATIOS

3.1.1 Gross NPA’s Ratio (%)

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

TABLE NO .1 -GROSS NPA TO GROSS ADVANCES RATIO

GROSS NPA TO GROSS ADVANCE RATIO

YEAR PUBLIC SECTOR PRIVTAE SECTOR
BANKS BANKS
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
2020-21 9.1 4.9

Figure :1GROSS NPA TO GROSS ADVANCES RATIO

25
20
15
10
5
0
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

PUBLIC SECTOR BANKS PRIVATE SECTOR BANKS

Interpretation:

This analysis indicates the Gross NPA Ratio of Public Sector Banks and Private Sector Banks from 2015 till
2021. 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 4.9% in 2021

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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 2021

3.1.2. Net NPA Ratio (%)

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

Table:2 NET NPA TO NET ADVANCES RATIO

NET NPA TO NET ADVANCE RATIO
Year Public sector banks Private Sector Banks
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
2019-20 3.7 1.5
2020-21 3.1 1.4

Figure:2 NET NPA TO NET ADVANCES RATIO

12
10
8
6
4
2
0
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

PUBLIC SECTOR PRIVATE SECTOR

Interpretation:

This analysis indicates the Net NPA Ratio of Public Sector Banks and Private Sector Banks from 2015 till
2021 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

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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 2021

3.1.3. 3 Provisions Ratio (%)

Provision Ratio = Provisions/ Gross NPA‟s *100

Table: 3 PROVISION RATIO

PROVISION RATIO

Year Public sector Banks Private Sector Banks

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

140
120
100
80
60
40
20
0
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

PUBLIC SECTOR BANKS PRIVATE SECTOR BANKS

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 0 20 40 60 80 100

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2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 Provision Ratio public sector bank private sector bank
21 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.

3.1.4. 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 BANKS

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
2019-20 13.2 4.8
2021-22 5 6.5

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

25

20

15

10

0
2017-18 2018-19 2019-20 2020-21 2021-22

NET NPA RATIO GROSS 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.

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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.

3.1.5. 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

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

NET NPA Ratio GROSS 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 0 1 2 3 4 5 6 2014-15 2015-16 2016-17 2017-18 2018-19
Private sector bank gross npa ratio net npa ratio 24 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.

3.2. COMPOSITION OF LOAN ASSET OF BANKS

3.2.1. Sub-standard Assets Ratio (%)

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Standard Assets Ratio = Total Standard assets / Gross NPAs

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

SUB STANDARD ASSET RATIO

Year Public Sector Banks Private Sector Banks
2016-17 0.38 0.32
2017-18 0.37 0.33
2018-19 0.25 0.33
2019-20 0.24 0.25
2020-21 0.19 0.24
2021-22 0.20 0.29

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

0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2016-18 2018-19 2019-20 2020-21 2021-22

PUBLIC SECTOR BANKS PRIVATE SECTOR BANKS

Interpretation:

This analysis indicates the Sub-Standard Asset Ratio of Public Sector Banks and Private Sector Banks from
2016 till 2022. 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 2016 to 2022 & has fallen down to 0.29% from 0.32% for
Private Sector Bank & to 0.20% from 0.38% for Public Sector Bank. 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4
2016-17 2017-18 2018-19 ,2019-20 2020-21 2021-22 Sub standard asset ratio public sector bank private
sector bank 28 So, we can determine that Public Sector bank is in beneficial position than Private Sector
Bank

3.2.2. Standard Assets Ratio (%)

17
Standard Assets Ratio = Total Standard assets / Gross NPAs

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

STANDRAD ASSET RATIO

YEAR Public Sector Banks Private Sector Banks
2016-17 19.17 46.18
2017-18 9.79 34.14
2018-19 7.57 23.26
2019-20 5.86 20.10
2020-21 7.36 17.76
2021-22 8.75 17.34

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

70
60
50
40
30
20
10
0
2016-18 2018-19 2019-20 2020-21 2021-22

PUBLIC SECTOR BANKS PRIVATE SECTOR BANKS

Interpretation: This analysis indicates the Standard Asset Ratio of Public Sector Banks and Private
Sector Banks from 2016 till 2022. 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 2016 to 2022 & 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.

3.2.3. Doubtful Assets Ratio (%)

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Doubtful Assets Ratio = Total doubtful assets / Gross NPAs

Table:8 Doubtful asset ratio of public sector bank and private sector bank
DOUBTFULL ASSET RATIO
YEAR Public Sector Banks Private Sector Banks
2016-17 0.59 0.52
2017-18 0.60 0.55
2018-19 0.72 0.56
2019-20 0.70 0.68
2020-21 0.71 0.69
2021-22 0.63 0.52

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

1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2016-18 2018-19 2019-20 2020-21 2021-22

PRIVATE SECTOR BANKS PUBLIC SECTOR BANKS

Interpretation:

This analysis indicates the Doubtful Asset Ratio of Public Sector Banks and Private Sector Banks from 2016
till 2022. 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 2016 to 2022. Since the ratio for
both the banks 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 2016-17 2017-18 2019-20 2020-21 2021-22 2019 Doubtful
asset ratio public sector bank private sector bank 29 have a marginal difference, therefore the only thing
which differentiates the banks is that this ratio for public and Private it is decreasing in 2022. So, Private
Sector Banks gain advantage from this ratio.

3.2.4. Loss Assets Ratio (%)

19
Loss Assets Ratio = Total loss assets / Gross NPAs

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

LOSS ASSEST RATIO

YEAR PUBLIC SECTOR BANKS PRIVATE SECTOR BANKS
2016-17 0.04 0.15
2017-18 0.03 0.11
2018-19 0.03 0.10
2019-20 0.06 0.04
2020-21 0.10 0.06
2021-22 0.17 0.19

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

Chart Title
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
2016-18 2018-19 2019-20 2020-21 2021-22

PUBLIC SECTOR BANKS PRIVATE SECTOR BANKS

Interpretation:

This analysis indicates the Loss Asset Ratio of Public Sector Banks and Private Sector Banks from 2016 till
2022. 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 Loss Asset Ratio of Private Sector Banks is
decreasing constantly from 2016 to 2019 & has fallen down to 0.04% from 0.15% for Private Sector Bank
but it increased in 2022 by 0.13.

Public Sector Banks is increasing constantly from 2016 to 2022 & has rice up to 0.17% from 0.04%

3.3. IMPACT OF NON-PERFORMING ASSETS ON PROFITABILITY

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

Correlation
NET NPA NET PROFIT
Pearson Correlation 1 -698
NET NPA Sig. (2-tailed) .123
N 5 5
Pearson Correlation -698 1
NET PROFIT Sig. (2-tailed) .123
N 5 5

4.3.2. 2 Correlation between Net Profit & Net NPA of Private Sector Bank

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

Correlation
NET PROFIT NET NPA
Pearson correlation 1 -407
NET PROFIT Sig. (2-tailed) .425
N 5 5
Pearson correlation -407 1
NET NPA Sig. (2-tailed) .425
N 5 5

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.

Chapter-4
21
 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.

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

22
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.

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)

he 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.

23
Joint Lenders 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.

Mission Indradhanush – 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.

appointment

Framework of bank board

accountability bureau(BBB)

mission
indradhanush

De-stressing
Empowerment
PSBs

capitalization

A- APPOINTMENT: : 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(BBB) : 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.

24
 FINANCIAL YEAR TOTAL AMOUNTFY

FY117-8 25.000 CRORE

FY18-19 25,000 CRORE

FY19-20 10,000 CRORE

FY20-21 10,000 CRORE

TOTAL 70,000 CRORE

D- Destressing: PSBs and strengthening risk control measures and NPAs disclosure

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.

E- . Framework of Accountability: New KPI(key performance indicators) which would be

linked with performance and also the consideration of ESOPs for top management PSBs.
F- -Governance Reforms: For Example, GyanSangam, a conclave of PSBs and financial

Strategic debt restructuring (SDR) – 2015

25
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 9 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 institutions. Bank board Bureau for transparent and meritorious appointments in PSBs.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.

Insolvency 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 connected 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

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.

26
Summary

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

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

2 . Mechanism to identify the hidden NPAs.

3 . Development of internal skills for credit assessment.

4 . Forensic audits to understand the intent of the borrower

Limitations of the Study

The present study has the following limitations

The study is based on secondary data collected from the money control websites. So the quality of the
study depends purely upon the accuracy, reliability, and quality of the secondary data source.
Approximation and relative measures with respect to the data source might impact the results

The study is limited to covers only for a period of 5 years from 2014 – 2018, therefore, a detailed
analysis covering a lengthy period, which may give slightly different results have not been made.

The study considered only 10 Banks both public and private sector based on the highest NPA and ignore
the other types of banks like foreign and co-operative banks.

Since non-performing assets are critical, bank officials are not willing to part with all the information
with them

Reasons for NPAs and Management of NPAs are changing with the time. The study is done in the
present environment without foreseeing future developments.

The study on management of non-performing assets is limited to the Indian Bank

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 CHAPTER-5

CONCLUSION, SUGGESTION AND REFERENCES

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

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SUGGESTIONS TO CONTROL NPAs

The Banks should adopt the following general strategies to control NPAs. The suggestion are as follows

1. Projects with old technology should not be considered for finance

2. Large expose on big corporate or single projects should be avoided.
3. Operating staffs’ credit skill should be up graduation.
4. There is need to shift bank approach from collateral security to viability of the project and intrinsic
strength of promoters.
5. Timely sanction and or release of loans by the banks is to avoid time and cost overruns.
6. Banks should prevent diversion of funds by the promoters.
7. Operating staff should scrutinize the level of inventories /receivables at the time of assessment of
working capital.
8. The credit section should carefully watch the warning signals viz, non-payment of quarterly
interest , dishonor of check etc.
9. Effective inspection system should be implemented.
10. Identifying for tuming of each account of a branch into NPA is the most important factor for
upgrading the asset quality , as that would help initiated suitable steps to upgrade the accounts.

REFERENCES

Alamelumangai , R, & Sudha,B (2019) . Recovery of NPAs throught Debt Recovery Channels in Indian
Banks -an Analysis . Restaurant Business, 15(8) ,245-254

Boddu , S . N . (2019) . Prevention of NPAs: A Comparative study on Indian Banks . International Journal
of Scientific research Publication , 9(1) , 618-622.

Chaudhary, K , & Sharma, M . (2011). Performance of Indian Public sector Banks and private sector banks:
A comparative study. International journal of innovation management and technology, 2(3), 249.

Das, S, & Dutta, A.(2014). A study on NPAs of public sector banks in India.

Das, S.K., & Uppal, K. (2021). NPAs and profitability in Indian banks: an empirical analysis. Future
Business journal,7(1),1-9.

Joseph,A.L., & Prakash,M.(2014).A study on analyzing the trend of NPA level in private sector banks and
public sector banks . International journal of scientifical and research publication ,4(7), 1-9.

Kaur, h.,& saddy,N.K.,(2011). A Comparative study of NPA of public and private banks. International
journal of Research in commerce and management Research, 8(3), 160-169.

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Kumar, A., jha S., & Grover, S (2021). Impact of NPAs on profitability: A study of selected private and
public sector banks in India. The Empirical Economics Letters, 19 (Special Issue) , 139-138.

Mittal, R.K., Suneja , D (2017). The problems of rising non-performing assets in banking sector in India
comparative analysis of public and private sector banks international journal of management. IT and
Engineering ,7(7),384-398.

BIBLIOGRAPHY

The data collected for this project basically secondary data which is collected from newspapers and internet.
Yes, it is really a very difficult task to take views of higher authorities of any companies in such a less than
an analysis their response.

WEBSITE:

 WWW.SSRN.COM

 WWW.RESEARCHGATE.NET

 WWW.DAILYGUARDIAN.COM

 WWW.ITWGLOBAL.COM

 WWW.BUSINESSSTANDARD.COM

 WWW.LAWBHOOMI.COM

NEWSPAPER

 HINDUSTAN TIMES

 TIMES INDIA

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