A PROJECT REPORT ON

A comparative analysis of NPA on HDFC and SBI bank

A project submitted to

University of Mumbai for partial completion of the degree of

Master of Commerce (Advance Accountancy) Semester III

under the faculty of Commerce

By Mohd Rahman Salim Shaikh

Under the Guidance of

DR. E. KUMARA SELVAN

N.E.S RATNAM COLLEGE OF ARTS, SCIENCE & COMMERCE

NES COMPLEX, NES MARG, BHANDUP (W), MUMBAI-400078

ACADEMIC YEAR 2023-24

 A PROJECT REPORT ON

A comparative analysis of NPA on HDFC and SBI bank

A project submitted to

University of Mumbai for partial completion of the degree of

Master of Commerce (Advance Accountancy) Semester III

under the faculty of Commerce

By Mohd Rahman Salim Shaikh

Under the Guidance of

DR. E. KUMARA SELVAN

N.E.S RATNAM COLLEGE OF ARTS, SCIENCE & COMMERCE

NES COMPLEX, NES MARG, BHANDUP (W), MUMBAI-400078

ACADEMIC YEAR 2023-24

 Declaration by learner

I the undersigned Mr. Mohd Rahman Salim Shaikh here by, declare that the
work embodied in this project work titled “A comparative analysis of NPA
on HDFC and SBI bank ", forms my own contribution to the research work
carried out under the guidance of Dr.E. Kumara Selvan is a result of my own
research work and has not been previously submitted to any other University
for any other Degree/ Diploma to this or any other University.
Wherever reference has been made to previous works of others, it has been
clearly indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been
obtained and presented in accordance with academic rules and ethical
conduct.

Certified by Mr. Mohd Rahman Salim

Shaikh
DR. E. KUMARA SELVAN
 NES RATNAM COLLEGE OF ARTS,
SCIENCE & COMMERCE
BHANDUP (W) , MUMBAI – 400078

CERTIFICATE

This is to certify that MR. Mohd Rahman Salim Shaikh Of

Master of Commerce (Advance Accountancy) Semester III
(2023-24) has successfully completed the Project on “A
comparative analysis of NPA on HDFC and SBI bank "
under the guidance of Mr. Dr. E.Kumaraselvan

COURSE COORDINATOR PRINCIPAL

Mr. Rajiv Mishra Dr. (Mrs.) Vinita Dhulia

PROJECT GUIDE / INTERNAL EXAMINER

Mr. Dr. E.Kumaraselvan

External examiner Date

 Acknowledgment

To list who all have helped me is difficult because they are so numerous and
the depth is so enormous.

I would like to acknowledge the following as being idealistic channels and

fresh dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me

chance to do this project.

I would like to thank my Principal, Dr. (Mrs.) Vinita Dhulia for providing
the necessary facilities required for completion of this project.

I take this opportunity to thank our Coordinator Mr. Rajiv Mishra for his
moral support and guidance.

I would also like to express my sincere gratitude towards my project guide

Dr.E. Kumara Selvan whose guidance and care made the project successful.

I would like to thank my College Library. For having provided various

reference books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly
helped me in the completion of the project especially my Parents and Peers
who supported me throughout my project.
Sr. No Chapters Pg No.

1 Introduction 1 - 13

2 Literature Review 14-35

3 Objectives 36-39

4 Hypothesis 40-45

5 Significance 46-49

6 Limitations 50-52

7 Research Methodology 53-71

8 Suggestion 72-73

9 Conclusion 74-79

10 Reference 80-82
COMPARATIVE ANANLYSIS OF HDFC BANK AND SBI
ON NPA
INTRODUCTION
A Bank is a financial institution that is main backbone of
economy for 3 stages of country
1_ Developed economy
2_Developing economy
3_ Under developing economy
Banks play important role for public and government through
providing many facalites to general public like
lending ,deposits,loans,
For government they raise bonds,debt securities,and introducing
many small saving schemes for pubic on behalf of government
Banking system was introduced by old age kings and british
colonels who trade commodities and lend money for interest
As per the Reserve Bank of India (RBI), India’s banking sector
is sufficiently capitalised and well-regulated. The financial and
economic conditions in the country are far superior to any other
country in the world. Credit, market and liquidity risk studies
suggest that Indian banks are generally resilient and have
withstood the global downturn well. Banking refers to a
financial activity to manage and safeguard your hard-earned
money. Banks cater to all sorts of individuals, small businesses,

1
and large corporations. Banks offer financial management
products, including various types of accounts and loans
Banking implies an activity where a licensed financial institution
safeguards your money. You can park your hard-earned money
in Current and . You can also earn attractive interest income by
investing in interest generating term deposits. Banks also offer a
wide variety of loans and overdraft facilities, depending on the
type of account you open. Banks cater to a wide variety of
customers – from retail investors to small and large business
corporations. As a bank customer, you can visit your bank
branch or enjoy remote banking services online through mobile

Banking is an industry that handles cash, credit, and other

financial transactions. Banks provide a Safe place to Store extra
cash and credit.They offer savings accounts, Certificates of
Deposit, and checking accounts. Banks use these deposits to
make loans. These loans include home mortgages, business
loans, and car loans.

A Bank is a financial institution licensed to receive deposits and

make loans. Two of the most common types of banks are
commercial/retail and investment banks. Depending on type, a
bank may also provide various financial services ranging from
providing safe deposit boxes and currency exchange to
retirement and wealth management

Banking can be defined as the business activity of accepting and

safeguarding money owned by other individuals and entities,
and then lending out this money in order to earn a profit.
However, with the passage of time, the activities covered by

2
banking business have widened and now various other services
are also offered by banks. The banking services these days
include issuance of debit and credit cards, providing safe
custody of valuable items, lockers, ATM services and online
transfer of funds across the country / world.

Banks distribute the medium of exchange. Banking is a

business. Banks sell their services to earn money, and they must
market and manage those services in a competitive field. Banks
are financial intermediaries that safeguard, transfer, exchange,
and lend money and like other businesses that must earn a profit
to survive. Understanding this fundamental idea helps you to
understand how banking systems work and helps you understand
many modern trends in banking and finance

From a business structure perspective, most of the Banks are

corporations or cooperative societies and may be owned by
groups of individuals, corporations, or some combination Banks
and money are essential to maintaining economies and they
impact the entire societies and nations. Hence they are closely
regulated and strict procedures and principles are advised to be
followed by the banks by various authorities and governments.
In the United States, banks may be chartered by federal or state
governments and in India government decides the rules for
opening any banks or its branches.

From a business structure perspective, most of the Banks

are corporations or cooperative societies and may be
owned by groups of individuals, corporations, or some
combination of the two. Around the world, banks are
3
supervised by governments to guarantee the safety and
stability of the money supply and of the country.
India is not only the world's largest independent democracy, but
it is also a rapidly growing

economic powerhouse. No country can have a stable economy

without a sound and efficient

banking system. Banks play a critical role in a country's

economic growth. They collect people's

unused savings and make them eligible for investment. They're

in the process of granting loans

and purchasing investment securities, new demand deposits are

also established. Accepting and

discounting bills of exchange allows for trade both within and

outside the country. Banks also

help to improve capital mobility. India's banking system has a

long list of notable

accomplishments over the last three decades. It is no longer

limited to the cities, but has spread

to even the most remote parts of the world. This is one of the
factors behind India's development.

4
The banking industry is now one of India's most important
service industries. The availability of

high-quality services is critical to the economy's success. Banks'

attention has turned away from

customer acquisition to customer retention. The introduction of

Information Technology into the

banking sector has changed the way people work. The banking
sector's policy has undergone

radical transformations, various customer-oriented products,

such as internet banking, are

available. Customer’s workload has been reduced mainly

because of ATM providers,

telebanking, and electronic payments. The internet's

convenience Banking allows a customer to

access and manage his bank account without having to go to the

bank. 'The Customer's options

have been revolutionized by the availability of ATMs and

credit/debit cards.

Indian Banking SectorThe Reserve Bank of India (RBI) claims

that India's banking sector is adequately capitalised and

5
controlled. The country's financial and economic standards are
far superior to those of any other

country on the planet. According to credit, industry, and

liquidity risk studies, Indian banks are

generally resilient and have fared well during the global

downturn.

● Market size

The Indian banking system consists of 12 public sector banks,

22 private sector banks, 46 foreign

banks, 56 regional rural banks, 1485 urban cooperative banks

and 96,000 rural cooperative banks

in addition to cooperative credit institutions. As of September

2020, the total number of ATMs in

India increased to 210,049 and is further expected to increase to

407,000 by 2021. (banking

● Introduction to HDFC BANK

The Housing Development Finance Corporation Limited

(HDFC) Bank is an Indian banking and

financial services company, headquartered in Mumbai,

Maharashtra. HDFC Bank is India’s

6
largest private sector bank by assets and by market capitalization
as of April 2021. It is the third

largest company by market capitalization on the Indian stock

exchanges.

The HDFC Bank Preferred program for high net worth

individualsThe HDFC Bank Plus and The Investment Advisory
Services program have been designed

keeping in mind needs of customers who seek distinct financial

solutions, information and advice

on various investment avenues. The Bank also has a wide array

of retail loan products including

Auto Loans, Loans against marketable securities,

● History

HDFC Bank, a subsidiary of the Housing Development Finance

Corporation, was established in

1994 and is headquartered in Mumbai, Maharashtra, India.

Manmohan Singh, the Union Finance

Minister, inaugurated the company's first corporate office and a

full-service branch at Sandoz

House in Worli.

● Market Reach
7
The Bank's distribution network had 5,500 branches in 2,764
cities as of 30 June 2019. In fiscal

year 2017, the bank also constructed 430,000 point-of-sale

terminals and issued 23,570,000 debit

cards and 12 million credit cards. As of March 21, 2020, it had

1,16,971 permanent staff.

Products and Services OfferedWholesale banking, retail

banking, treasury, auto loans, two-wheeler loans, personal loans,
loans
against land, consumer durable loan, lifestyle loan, and credit
cards are among the products and

services offered by HDFC Bank. Payzapp and SmartBUY are

two other digital products

● Banking regulation

Currently, commercial banks are regulated in most jurisdictions

by government entities and require a special bank license to
operate.

Usually, the definition of the business of banking for the

purposes of regulation is extended to include acceptance of
deposits, even if they are not repayable to the customer's order –

8
although money lending, by itself, is generally not included in
the definition.

Unlike most other regulated industries, the regulator is typically

also a participant in the market, being either publicly or
privately governed central bank. Central banks also typically
have a monopoly on the business of issuing banknotes.
However, in some countries, this is not the case. In the UK, for
example, the Financial Services Authority licenses banks, and
some commercial banks (such as the Bank of Scotland) issue
their own banknotes in addition to those issued by the Bank of
England, the UK government's central bank.

Banking law is based on a contractual analysis of the

relationship between the bank (defined above) and the customer
– defined as any entity for which the bank agrees to conduct an
account.

The law implies rights and obligations into this relationship as

follows:

The bank account balance is the financial position between the

bank and the customer: when the account is in credit, the bank

9
owes the balance to the customer; when the account is
overdrawn, the customer owes the balance to the bank.

The bank agrees to pay the customer's checks up to the amount

standing to the credit of the customer's account, plus any agreed
overdraft limit.

The bank may not pay from the customer's account without a
mandate from the customer, e.g. a cheque drawn by the
customer.

The bank agrees to promptly collect the cheques deposited to the

customer's account as the customer's agent and to credit the
proceeds to the customer's account.

And, the bank has a right to combine the customer's accounts

since each account is just an aspect of the same credit
relationship.

The bank has a lien on cheques deposited to the customer's

account, to the extent that the customer is indebted to the bank.

The bank must not disclose details of transactions through the

customer's account – unless the customer consents, there is a
public duty to disclose, the bank's interests require it, or the law
demands it.

The bank must not close a customer's account without

reasonable notice, since cheques are outstanding in the ordinary
course of business for several days.
10
These implied contractual terms may be modified by express
agreement between the customer and the bank. The statutes and
regulations in force within a particular jurisdiction may also
modify the above terms and/or create new rights, obligations, or
limitations relevant to the bank-customer relationship.

● Banking crisis

Banks are susceptible to many forms of risk which have

triggered occasional systemic crises.[29] These include liquidity
risk (where many depositors may request withdrawals in excess
of available funds), credit risk (the chance that those who owe
money to the bank will not repay it), and interest rate risk (the
possibility that the bank will become unprofitable, if rising
interest rates force it to pay relatively more on its deposits than it
receives on its loans).

Banking crises have developed many times throughout history

when one or more risks have emerged for the banking sector as a
whole. Prominent examples include the bank run that occurred
during the Great Depression, the U.S. Savings and Loan crisis in
the 1980s and early 1990s, the Japanese banking crisis during
the 1990s, and the sub-prime mortgage crisis in the 2000s.

SBI Bank

About SBI

11
STATE BANK OF INDIA is a regulatory body for public sector
banking and financial services

in India, based in Mumbai, Maharashtra. SBI is world's 43rd

largest bank and the only Indian

bank on the Fortune Global 500 list of the world's largest

companies for 2020, ranking 221st.

[eight] It is India's largest public sector bank, with a 23 percent

asset market share and a 25

percent share of the overall loan and deposit market.

● HISTORY
● The Imperial Bank of India was established when the Bank
of Calcutta and the Bank of Bombay
● merged to create the Imperial Bank of India, which later
became the State Bank of India in 1955.
● In 1955, the Indian government took control of the Imperial
Bank of India, with the Reserve
● Bank of India (India's central bank) owning a 60% stake
and renaming the bank State Bank of
● India. (State Bank of India)
● Market Reach
● SBI is one of the largest employers in the country with
209,567 employees as on 31 March
● 2017, out of which 23% were female employees and 3,179
(1.5%) were employees with

12
● disabilities. On the same date, SBI had 37,875 Scheduled
Castes (18%), 17,069 Scheduled Tribes
● (8.1%) and 39,709 Other Backward Classes (18.9%)
employees.
● National
● In India, SBI has over 24000 branches. Its revenue in the
financial year 2012–13 was 2.005
● trillion (US$28 billion), with domestic operations
accounting for 95.35 percent of revenue. In the
● same financial year, domestic activities accounted for 88.37
percent of overall earnings.
● SBI organized 11,300 camps and opened over 3 million
accounts by September under the
● Pradhan Mantri Jan Dhan Yojana, which was launched by
the government in August 2014 and
● included 2.1 million accounts in rural areas and 1.57
million accounts in urban areas.
● International
● As of 2014-15, the bank had 191 overseas offices in 36
countries making it the Indian bank with
● the highest presence in international markets. (State Bank
of India)
● Products and Services Offered
● SBI offers a plethora of products and services such as
savings account, credit cards, fixed
● deposits, personal loan, home loan, business loan, debit
card, loan against property, car loan,

13
● gold loan, mudra loan and more. (State Bank of India,
2020)

14
2: REVIEW OF LITERATURE
INTERNATIONAL REVIEW

Here are several factors that impact the profitability of banks

(Sufian & Habibullah, 2010);

(Dietrich & Wanzenried, 2011). These factors can be broadly

classified as either internal

determinants that originate within the firm such as bank size,

capital, risk management, expenses

management, and diversification (Molyneux & Thornton, 1992);

(BODLA & VERMA, 2006)

or

external determinants that are outside the firm like market

concentration, industry size and

ownership, inflation, interest rates, money supply and Gross

Domestic Product (GDP)

(Athanasoglou, Brissimis, & Delis, 2008); (Chirwa, 2003).

The effect of main internal factors on profitability has been

studied in a number of studies.

(Smirlock & Brown, 1986) investigated the profitability of

demand deposits as a feature of total

15
deposits. Demand deposits seemed to have a substantial positive
relationship with earnings,

according to their results. Loan loss provision and net charge

offs had a major negative impact

on large bank profitability, according to Miller and Noulas

(1997).

These findings revealed that asset and liability composition had

an effect on net charge-offs. As a

result, commercial banks' asset liability portfolio decisions are

likely to have an effect on their

profitability through net charge-offs. As a result, banks with

higher wages and benefits will need

higher net interest margins to stay profitable. (S M Miller , A G

Noulas, 1997)

(Ganesan, 2001) looked at the profitability of India's public

sector banks and discovered that

interest costs, interest income, other income, deposits per

branch, credit to total assets, and the

proportion of priority sector advances were all important

determinants of profitability. (El-

Bannay, 2004) looked into it.

16
Whether or not investment in information technology
infrastructure has an effect on bank

profitability in the United Kingdom. The findings revealed that

a bank's profitability is influenced by the number of automated

teller machines it has built.

(BODLA & VERMA, 2006) attempted to define the core

determinants of profitability of public

sector banks in India, and their findings revealed that non-

interest income, operating expenses,

provision, and capital are all important factors. Net profits are
inextricably linked to

contingencies and spread.

(Naceur, S, & Goaied, 2001)found that banks with relatively

high capital and overhead

expenses have higher net-interest margins and profitability

levels in a study of Tunisian banks

from 1980 to 2000. They also discovered that the size of a bank
has a negative impact on

profitability, moreover the stock exchange. Bank profitability

increased as a result of the

17
expansion. Furthermore, private banks were discovered to be
comparatively

(SUFIAN, 2009) looked at the factors that influenced Malaysian

domestic and foreign

commercial bank profitability from 2000 to 2004. Malaysian

banks with higher credit risk and

loan concentration have lower profitability rate, according to

research. Banks with a higher

capitalization ratio, on the other hand, have a higher risk of

failure.

High running costs and a high proportion of income from non-

interest sources were found to be

comparatively more beneficial.

The effect of macroeconomic variables such as concentration,

expansion, and inflation on bank

profitability is covered by external determinants of bank

profitability (Rajan & Zingales, 1998);

(Athanasoglou, Brissimis, & Delis, 2008); (Chirwa, 2003)

looked into the relationship between

market structure and consumer behavior and profitability of

Malawi's commercial banks using

18
time series data from 1970 to 1994. The investigation
demonstrates a long-term connection

between bank performance and concentration.

(SUFIAN, 2009) discovered that economic growth has a

negative effect on Malaysian bank

profitability. Inflation rates that were higher had a positive effect

on the profitability of these

banks. (Molyneux & Thornton, 1992) studied a survey of

eighteen European countries.

and discovered that the return on equity and the level of interest
rates have a significant positive

relationship on each nation, the concentration of banks, and the

ownership of the government.

● NATIONAL REVIEWS

Avani Ojha and Hemchandra Jha- has conducted studies on the

effect of NPAs on the operations

of the SBI and PNB using various research methods and

analyzed the hypothesis based on the

entire study that NPAs play a significant role. Non-performing

assets have a significant effect on

19
bank profitability because they are closely linked to efficiency.
The profitability and asset

liability management of Indian banks. NPAs are the product of

advances not being recovered or

not being recovered within a certain time frame for a given type
of lending. They suggest that

banks analyze NPAs on a regular basis, by intent, borrower,

country, and so on. Before

sanctioning, there should be methods and proper inspections of

the creditors. (Ojha & Jha,

2018)

Dr. Ganesan and R. Santhanakrishnan has conducted a report on

NPAs at the State Bank of India from 2002-03 to 2011-12 with
the aim of deploying capital, analyzing gross NPAs,

investigating the effects of NPAs, and recommending steps to

monitor NPAs. They calculated

the averages and standard deviations to test the hypothesis, and

the results were based on the

desired outcomes. They put the hypothesis to the test by

estimating averages and standard

20
deviations, and then comparing the results to the desired
outcomes. They discovered that the

banking industry has changed dramatically since the first phase

of economic liberalization, and

that credit management has become increasingly important as a

result. NPAs has increased with

economic growth and aggressive lending practices.

(Santhankrishnan & Ganesan, 2013)

Manisha Raj, Aashita Jain, Shruti Bansal, and Tanya Verma

conducted a report on non-

performing assets (NPAs) and conducted a “A comparative

study of SBI and ICICI Bank from

2014-17.” They primarily conducted a report on nonperforming

assets (NPAs) to examine the

pattern of NPAs at State Bank of India and ICICI Bank over a

four-year period from 2014 to

2017. They also compared overall advances, net benefit, gross

NPAs, and net NP from table to

table. They looked for a linear relationship between net profit

and net NPAs in both banks during

21
the research. After conducting research, they came to the
conclusion that managing

non-performing assets (NPAs) is a difficult challenge for any

bank in the banking industry. After

analyzing the data for the given years, it appears that the biggest
problem for both banks in terms

of liquidity is that NPAs have increased while profitability has

decreased. Despite the fact that

SBI has a higher NPA ratio than ICICI Bank.

Since SBI is a public sector bank, it is more vulnerable to losing

money if it extends loans to the

general public. In the case of ICICI Bank, their investigation

discovered that no significant

benefit or loss has been reported, but that NPAs are periodically
settled against the bank’s

profitability. In the event that SBI’s condition worsens as a

result of rising NPAs. (RAJ, Jain,

Bansal, & Verma, 2018)

Swathi.M.S. and Sridhar.K. conducted a study of non-

performing assets from 2007 to 2013 and

22
analyzed the methods for resolving NPAs for public sector
banks, private sector banks, and other

types of banks. To conclude the analysis, they mostly relied on

secondary data released by banks

at the end of each quarter and year, as well as the RBI annual
reports. They have taken the net

and gross Non-Performing Assets to assess and find the facts

and figures in the analysis using

data derived from secondary sources. They investigated the

causes and factors that influence

NPAs. Willful defaults by customers of various banks is the key

cause, according to the central

light. Other factors they discovered during the study included

lenient lending norms, industrial

crises, fund diversification, higher debt and borrowing costs, and

a sudden stock market

downturn. Lok Adalat, enactment of the SARFAESI Act, Asset

Reconstruction Company,

corporate debt restructuring, and other solutions are also

suggested by them to solve the

problems. (Swathi.M.S & Sridhar., 2019)

23
The first mention of bankers is that of the ‘Shroffs,’ ‘Seths,’
‘Sahukars,’ ‘Mahajans,’

and ‘Chettis,’ who were doing similar work in the past. In her
article on the history of banking,

Srivastava (2001) mentions the presence of these early forms of

bankers.

‘Indian Banking History’ is a book about the history of Indian

banking. She goes on to say that

these small businesses were run by indigenous bankers. Their

activities ranged from small

International Journal of Scientific Research in

Engineering and Management (IJSREM) Volume: 05
Issue: 05 | May - 2021
ISSN: 2582-3930 © 2021, IJSREM |
www.ijsrem.com Page 2 highest position i.e. First on
majority of the CAMEL parameters followed by Bank of
Baroda while United Bank performed the worst and secured the
least position i.e. 26th Kumar and Sharma (2014) analyzed
the banking sector on the basis of the CAMEL Model
(Capital Adequacy, Asset Quality, Management, Earnings
and Liquidity). Eight banks (HDFC, ICICI, SBI, Kotak
Mahindra Bank, AXIS, BOB, BOI, PNB) with the highest
market capitalization have been taken for a period of 6
years from 2007-08 to 2012-13. The study concluded that

24
Kotak Mahindra Bank is on the top position in terms of
Capital Adequacy. SBI has the highest Non – Performing
Assets followed by ICICI bank. Earnings quality of Punjab
National Bank and State Bank of India are in top. Kotak
Mahindra Bank and ICICI are most efficient in managing the
liquidity. Karri, Meghani and Mishra (2015) studied the
financial performance and position of Bank of Baroda and
Punjab National Bank for a period of five years from
2010-2014.

The results of t-test suggest that there is no significant

difference in the financial performance of Bank of Baroda and
Punjab National Bank during the period of study. Sodhi,
Simran and Waraich (2016) conducted fundamental analysis
of three public and two private sector banks in India. The
objective was to analyze the profitability position of the
selected banks with respect to various financial economic and
industrial parameters that influence the risk return of
securities. They examined and compared the various aspects
of performance of selected public and private sector banks in
India for five years starting from 2010-11 to 2014-15.

The results of the study showed that the private sector banks
have performed better than public sector banks in terms of
growth and profitability. Gajera (2016) analyzed the financial
performance of banks on the basis of selected financial
performance parameters which are divided into seven heads
such as Capital Adequacy ratios, Debt Coverage parameters,

25
Balance Sheet parameters, Management Efficiency parameters,
Profitability parameters, Employee ’s Efficiency parameters
and Non-Performing Assets parameters. For analysis CAMEL
Model has been used. Four public 29 parameters 10
parameters showed significant financial difference at all
level of data analysis. Among 10 parameters private sector
bank proved superiority over public sector bank 4 parameters
while public sector banks prove superiority over private sector
banks in remaining 6 parameters. Susmitha & M ouneswari
(2017) examined the financial performance of Syndicate
Bank by applying the CAMEL Model. They analyzed the
performance of the bank for a period of five year from 2013-17.
The results suggested that the performance of Syndicate bank on
the parameters of Capital Adequacy, Asset Quality,
Management Efficiency and Earnings is satisfactory. But the
performance on the parameter of Liquidity is not satisfactory.
Subalakshmi, Grahlakshmi and Manikandan (2018) examined
the asset liability portfolio of SBI and also analyzed the
various aspects like deposit mobilization, investment position,
earnings, profitability and efficiency, loans and advances
and non-performing assets by applying the technique of ratio
analysis. The study covered the period from 2009-2016.The
findings suggested that there has been sufficient improvement in
the performance of the bank in terms of credit deposit ratio,
Deposits to Total Assets ratio, Return on Equity, Profit
Margin. Chaudhuri (2018) conducted a comparative study
on the performance of SBI and ICICI for a period of five

26
years from 2011-12 to 2015-16 using the CAMEL model.
The results concluded that both the banks are complying
the required standards and are profitable. However, the
performance of ICICI is better than SBI on the parameter of
earnings and management efficiency

Jayraj Javheri, Ravindra Gawali (2022) 1 Banks play

a very important role in any Financial System. It is

the backbone of the Indian Financial System. The

Rising NPA’s of the Banks in India for the last 5

years has really posed a threat to the Indian financial

system. Recently Standard & Poor Global Rating

agency has expected the NPA’s of Indian banks to

remain elevated at 11.5%. NPA helps to measure the

Performance of any bank. It is quite evident that the

Recent Covid Pandemic has badly hit not only India

but the entire world to a greater extent. The Public

and Private sector banks in India both have been

adversely affected by the Rising NPA. Through this

research, it has been observed that Public sector

27
banks are more adversely affected than Private

sector banks. My Study Focus on the Trend &

Differences in the Non-Performing Assets of the

Selected Indian Public and Private Sector Banks.

Reetika Verma (2021) 2 The banking sector in any

economy plays a significant role in its growth and

development. This paper is based on financial

performance analysis of two leading banks of India.

This paper aims to evaluate financial performance of

HDFC and SBI bank on the basis of accounting

ratios and also to study the functioning of the Indian

banking system [6]. In this paper different ratios of

both the banks are compared. Capital adequacy

ratio, debt equity ratio, leverage ratios, profit and

loss account ratios, net interest margin ratio, return

on equity and other ratios.

Ripon Bepari, Subhas Chandra Sarkar (2020) 3 The

28
paper attempts to analyse profitability performance

of selected public and private sector banks in India.

It determines the impact of the banks’ internal

factors on profitability (ie net profit). The study

identifies the main internal factors affecting the

profitability. There is a negative effect of net NPAs

on profitability of public sector banks. The analysis

indicates that there is a significant impact of net

NPAs on profitability of public sector banks. On the

other hand, there is a positive impact of net NPAs on

profitability of private sector banks and the impact

is insignificant.

Manisha raj & Shruti Bansal (2019) 4 The paper

reported that Banks are not based on brick and

mortar structure due to development of

technologies. The way of satisfaction and increasing

the number of customers has been changed through

29
the various banking channel. This research tries to

identify several issues or satisfaction through

services is offering by The relationship between government

deficits/debt and credit growth has been widely debated –
whether a rise in government borrowings crowds-in or crowds-
out private sector investment? While the neoclassical school
argues that higher government market borrowings crowd-out the
private sector from the credit market, the Keynesian school
argues that government spending crowds-in private investment
and both are complementary (Alani, 2006). In practice, the
composition of the government spending – whether revenue or
capital spending – and in particular the efficiency of the
spending are perhaps critical determinants of the
crowding-in/out debate. The crowding-out of the private sector
could occur through both banks and non-banks. As for banks,
the bank lending channel posits that if banks invest too much in
government securities, less is left for private borrowers. For
non-banks, in terms of the corporate bond market channel, when
the supply of government bonds increases, non-bank investors
such as mutual funds, pension funds, and insurance companies
may prefer government bonds to even the highest-rated
corporate bonds (Acharya, 2018).

Turning to key determinants of bank credit, deposits are the

primary driver of banks’ lending behaviour (Alihodzic and Eksi,
30
2018; Tan, 2012). Bernanke and Blinder (1992) documented that
tight monetary policy ultimately leads to fewer new loans and
termination of old loans. The adverse impact of contractionary
monetary policy on supply of loans is stronger for banks with
less liquid balance sheets (Kashyap and Stein, 2000). However,
when interest rates are already low, policy rate cuts can
increasingly become less effective in stimulating the supply of
loans (Borio and Gambacorta, 2017). Bank lending improves
with increase in bank capital (Dahir, Mahat, Razak, and Bany-
Ariffin, 2019; Olszak, Pipień, Roszkowska, and Kowalska,
2014). However, Berrospide and Edge (2010) suggested that
capital changes have a modest effect on bank lending.

Reserve requirements and macroprudential policies can address

the procyclicality of the credit cycle by leaning against the wind
(Tovar, Garcia-Escribano, and Martin, 2012). Macroprudential
policies reinforce the effect of monetary policy and vice-versa
(Gambacorta and Murcia, 2019; Gomez, Murcia, Lizarazo, and
Mendoza, 2020). The optimal choice of macroprudential
policies depends on the phase of the business cycle and
monetary policy stance (Budnik, 2020). The effectiveness of the
macroprudential policies may, however, be asymmetric: a
tightening of macroprudential policies may have a stronger
impact than loosening actions and macroprudential policies may
have quantitatively stronger effects in emerging markets relative

31
to advanced economies (Araujo, Patnam, Popescu, Valencia,
and Yao, 2020).

For determinants like asset quality and economic growth, the

direction of causality is ambiguous. According to the
“institutional memory hypothesis”, as time passes by from the
last credit bust, banks ease credit standards and indulge in
excessive lending, leading to procyclicality of loans and non-
performing assets (Berger and Udell, 2003). Banks lower their
credit standards during expansions and tighten standards during
recessions (Rajan, 1994). Loan losses are higher if faster loan
growth is due to a shift in the supply of credit (Keeton, 1999).
Higher credit risk (non-performing loans and loan loss provision
ratio) has a negative impact on bank loan growth (Cucunelli,
2015). On credit-growth nexus, causality results are
inconclusive: credit leads output in the Euro area while it lags
output in the United States (Zhu, 2011). Bank lending rises
during boom periods due to an increase in both credit demand
and supply (as banks lower their credit standards) while in
recession times, both credit demand and supply fall due to credit
rationing (Caruana, 2002).

Higher public debt and its maturity profile impact banks’

lending as well as holdings of government debt. The amount of
maturing public debt is pre-determined by the past borrowing
32
decisions and hence exogenous to the current business cycle
conditions and accordingly provides a better way of assessing
the crowding-out channel (Bouis, 2019; Ongena et al., 2019;
Ariccia, Rabanal, and Sandri, 2018). Banks with better
performing loans get attracted to the loan market and have less
incentive to invest in government securities (Egesa et al., 2015).
Concomitantly, business cycle or economic growth substantially
explains an increase in security holdings (Keeton, 1994;
Rodrigues, 1993). Open market operations and reserve
requirements impact the total reserves of commercial banks, and
hence their credit and investment choices.

On the relationship between the profitability of banks and

investments in government securities, Bouis (2019) reported a
significant positive impact of banks’ claims on the government
securities on RoA but not on NIM. Tan (2012) found that higher
growth, lower inflation, higher reserve requirements, greater
banking sector development, smaller stock markets and lower
government deficits reduce NIM. Hauner (2009) contrasted the
“safe asset” view to “lazy banks” view and emphasised
potentially negative implications of increased public debt in
repressed banking systems. The empirical analysis favours the
“lazy banks” view - an increase in public debt holding by
domestic banks raises their profitability but reduces their
efficiency after a certain threshold.

33
Kohlscheen, Murcia and Contreras (2018) analysed bank
profitability for 19 emerging market economies and found that
loan growth is more important for bank profitability than GDP
growth suggesting that the credit cycle may predict bank
profitability better than the business cycle. For Greek banks,
Zampara, Giannopoulos and Koufopoulos (2017) found that
higher GDP growth and higher share of a bank in total banking
system’s assets improve RoA. For European Union banks,
Petria, Capraru and Ihnatov (2015) found that
competition/market concentration has a significant positive
impact on bank profitability proxied by return on average assets
and return on average equity. Saif (2014) showed that bank size
has a significant positive effect on RoA.

Turning to studies in the Indian context, Muduli and Behera

(2020) found a negative relationship between stressed assets and
loan growth while higher capital to risk weighted assets ratio
(CRAR) is positively associated with loan growth; monetary
tightening reduces credit supply more for highly leveraged
banks. According to Raj, Rath, Mitra and John (2020), asset
quality stress, slowdown in economic activity and moderation in
bank deposits lead to credit growth deceleration while lower
policy rates help cushion the deceleration in credit growth. Low
demand, rather than non-performing loans, explains the credit
growth slowdown, suggesting that demand is the key credit
constraint (Goyal and Verma, 2018). Credit to deposit ratio,

34
bank-size and GDP growth negatively affect RoA (Mohanty and
Krishnankutty, 2018). The corporate sector borrows less when
government borrowings increase and also borrows more short-
term, which can increase financial fragility (Acharya, 2018). In
addition, increased government market borrowing also hampers
the sound transmission of monetary policy.

According to Al-Homaidi, Tabash, Farhan and Almaqtari

(2018), RoA has a positive relationship with assets, bank size,
number of branches and inflation but a negative association with
leverage ratio, interest rate, exchange rate and GDP. Asset size,
capital adequacy, liquidity, asset quality, and financial risk have
a positive effect on NIM while leverage, operating efficiency,
exchange rate, interest rate and GDP have a negative impact on
NIM. Non-performing assets and GDP growth have a significant
negative influence on banks’ profitability (RoA) (Brahmaiah
and Ranajee, 2018). However, John, Mitra, Raj and Rath (2016)
found a significant and positive effect of non-performing assets
on NIM, suggesting that banks charge additional premia to
compensate for the credit risk, which is reflected in their lending
rates. Lower yields and a less steep slope of the yield curve have
a significant positive impact on banks’ trading profits, and
hence, total profitability (RBI, 2020).

35
Finally, the central bank’s market operations and systemic
liquidity provision can help the banking system to meet the
credit requirements of both the private sector and the
government. For example, during 2020-22, given the adverse
impact of the COVID-19 pandemic on the economy, there was a
massive increase in the government’s financing needs. The
Reserve Bank of India ensured ample system liquidity, including
net purchases of government bonds through open market
operations and the secondary market government securities
acquisition programme (G-SAP) to meet the requirements of all
financial market segments and the productive sectors of the
economy. This approach facilitated not only a successful
completion of the elevated government borrowing programme at
record low costs with elongated maturity during 2020-21 but
also a significant amount of private borrowing through corporate
bonds, commercial paper and debentures (RBI, 2021).

Overall, the survey presented above suggests that deposit

growth, economic growth, business cycle phase, monetary
policy stance, capital adequacy, non-performing loans, reserve
requirements, macroprudential measures, government borrowing
requirements, and central bank’s open market operations are
amongst the key factors determining banks’ lending and
investment behaviour. Banks’ profitability can be influenced by
credit growth, economic activity, banking system size and
concentration, asset quality, and spreads.

36
37
Objectives of the Study

To compare and evaluate the financial performance of SBI and

HDFC Bank.

To understand and compare the trends of NPA of both the

banks over the last three years.

To ascertain yearly fluctuations in terms of profitability,

liquidity and efficiency of SBI and

1. To compare and evaluate the financial performance of SBI

and HDFC Bank:

Objective Explanation:

This objective focuses on assessing and comparing the overall

financial performance of State Bank of India (SBI) and Housing
Development Finance Corporation (HDFC) Bank.

Components of Financial Performance:

38
Parameters such as profitability, liquidity, solvency, and
efficiency are likely to be included in the evaluation.

Comparative Analysis:

The study aims to draw comparisons between the financial

health and performance metrics of SBI and HDFC Bank,
providing insights into their relative strengths and weaknesses.

Rationale:

Understanding the financial performance is crucial for

stakeholders, including investors, regulators, and the banks
themselves, to make informed decisions and strategic plans.

2. To understand and compare the trends of NPA of both the

banks over the last three years:

Objective Explanation:

This objective focuses specifically on Non-Performing Assets

(NPA) and aims to analyze and compare the trends of NPA in
SBI and HDFC Bank over a three-year period.

Temporal Analysis:

39
The study intends to observe how NPAs have evolved over time,
identifying patterns, fluctuations, and potential influencing
factors.

Comparative Aspect:

By comparing NPA trends in both banks, the study seeks to

highlight differences or similarities in the management and
control of non-performing assets.

Implications:

Understanding NPA trends is crucial for assessing the asset

quality of banks and their risk management practices.

3. To ascertain yearly fluctuations in terms of profitability,

liquidity, and efficiency of SBI and HDFC:

Objective Explanation:

This objective expands on the first objective by specifying a

focus on yearly fluctuations in key financial indicators, namely
profitability, liquidity, and efficiency.

Granular Analysis:

40
The study aims to break down the overall financial performance
into annual fluctuations, providing a more granular
understanding of changes over time.

Identifying Patterns:

By examining yearly fluctuations, the study can identify

patterns, anomalies, and potential reasons for changes in
profitability, liquidity, and efficiency.

Operational Insights:

Understanding how these financial indicators change annually

provides insights into the operational efficiency and financial
stability of both SBI and HDFC Bank.

Decision-Making Support:

Stakeholders can use this information for making strategic

decisions, such as investment choices or policy adjustments.

41
Hypothesis

Non-performing assets (NPAs) pose a significant challenge for

any banking system, but they hold particular relevance in the
Indian context. This paper dives into a comparative analysis of
NPAs within two of India's major banks: HDFC Bank and SBI
Bank. We will explore the current state of NPAs in both
institutions, analyze the underlying factors contributing to their
differences, and propose potential hypotheses for further
research.
Current State of NPAs:

HDFC Bank: Renowned for its focus on retail and corporate

banking, HDFC Bank boasts consistently lower NPA levels
compared to SBI. As of March 2023, its gross NPA ratio stood
at 0.46%, while the net NPA ratio hovered around 0.17%. These
figures significantly outperform the industry average and
showcase HDFC Bank's robust credit appraisal processes and
risk management practices.
SBI Bank: As the largest public sector bank in India, SBI has a
broader loan portfolio encompassing high-risk sectors like
agriculture and infrastructure. Consequently, its NPA levels are
considerably higher than HDFC Bank's. The gross NPA ratio for
42
SBI as of March 2023 stood at 4.73%, while the net NPA ratio
touched 2.69%. These figures highlight the challenges faced by
SBI in managing its diverse loan portfolio, particularly amid
economic slowdowns.
Factors Contributing to NPA Differences:

Credit Appraisal: HDFC Bank's stringent credit appraisal

process, focusing on financial stability and creditworthiness,
leads to the selection of less risky borrowers. SBI, on the other
hand, faces pressure to fulfill government-driven social
objectives, sometimes leading to loan disbursements in less
creditworthy segments, contributing to higher NPAs.
Focus Areas: HDFC Bank's concentration on low-risk sectors
like retail and corporate banking reduces its exposure to
industries vulnerable to economic downturns, further impacting
NPA accumulation. Conversely, SBI's broader loan portfolio,
including agriculture and infrastructure, makes it more
susceptible to external shocks affecting those sectors.
Risk Management: HDFC Bank actively utilizes proactive risk
management strategies, including early identification and
resolution of potential NPAs. SBI, while implementing similar
methods, faces logistical challenges due to its vast nationwide
network and complex legacy systems, potentially hindering its
NPA resolution efficiency.

43
Hypotheses for Further Research:

H1: The difference in NPA levels between HDFC Bank and SBI
Bank is primarily driven by their differential exposure to high-
risk sectors.
H2: SBI Bank's aggressive NPA resolution strategies, including
write-offs and debt restructuring, will lead to a faster decline in
its net NPA ratio compared to HDFC Bank in the near future.
H3: HDFC Bank's superior use of technological advancements
like AI and data analytics will provide it with a competitive
advantage in NPA identification and resolution compared to SBI
Bank.
H4: The economic slowdown will have a greater impact on SBI
Bank's NPA levels due to its higher dependence on corporate
loans, which are more sensitive to market fluctuations.
H5: Changes in government policies affecting specific sectors
will have a more significant impact on SBI Bank's NPA levels
due to its larger presence in those sectors compared to HDFC
Bank.

44
Hypothsis Conclusion:

A comparative analysis of NPAs in HDFC Bank and SBI Bank

reveals significant differences in their levels and management
strategies. While HDFC Bank's conservative approach and
efficient risk management practices yield lower NPA ratios, SBI
Bank faces challenges due to its diverse loan portfolio and
legacy systems. The proposed hypotheses offer potential
avenues for further research to explore the interplay of various
factors driving NPA accumulation and resolution in these two
crucial banking institutions. Understanding these dynamics is
critical for policymakers, investors, and the Indian banking
system as a whole to navigate the challenges posed by NPAs
and promote financial stability. HDFC Bank.

Research Hypothesis

Ho1 = there is no significant relationship between the gross

NPA ratio of SBI and

HDFC over the last three years.

Ho2 = there is no significant relationship between the net NPA

ratio of SBI and

HDFC over the last three years.

45
3.3 Scope of the Study

In the present study, an attempt has been made to measure,

evaluate and compare the financial

performance of SBI and HDFC. The study is based on

secondary data that has been collected

through annual reports of the respected banks, websites,

journals, documents and other published

information. The study covers the period of 3 years i.e. is from

year 2017-18, 2018-19 and 2019-

20. Ratio analysis was applied to analyze and compare the

trends in financial performance. Mean

and t test have also been deployed to analyze the trends in

banking profitability.

Research Design

DURATION OF STUDY- The period of this study will cover

last 3 years of the

financial data- 2017-18, 2018-19, 2019-20.

DATA COLLECTION PROCEDURE- Secondary Data will be

used in this study

to compare the financial statements of both the banks over the

last three years.
46
 DATA COLLECTION METHODS- Data has been collected
through Ratio Analysis.

STATISTICAL TOOLS AND TESTS USED- The statistical

tool used in the study is

Mean and inferential statistic T-test has been conducted to know

the significant

relation between the NPA Ratios of both the banks.

47
Significance
Understanding the contrasting NPA journeys of HDFC Bank
and SBI Bank holds significant value for various stakeholders
within the Indian banking ecosystem and beyond. Here's a closer
look at the importance of this analysis:

Insights for Policymakers:

Tailored policy interventions: By highlighting the distinct

drivers of NPAs in each bank, the analysis informs policymakers
in crafting targeted interventions. For instance, encouraging
better risk assessment practices in high-risk sectors like
agriculture could be informed by studying SBI's challenges.
Efficacy of existing policies: Evaluating the impact of current
NPA resolution mechanisms on both banks can guide
policymakers in streamlining regulations and refining existing
frameworks.
Promoting overall banking system health: Lowering NPAs
across the sector is crucial for financial stability and economic
growth. Studying how HDFC Bank manages its low NPA levels
and how SBI tackles its higher burden can offer valuable lessons
for the entire system.
Guidance for Investors:

48
Informed investment decisions: Understanding the distinct NPA
risk profiles of these leading banks allows investors to make
informed choices about where to allocate their capital. HDFC
Bank's lower NPA burden might offer greater stability, while
SBI Bank's potential for rapid NPA reduction could present a
turnaround opportunity.
Risk assessment and portfolio diversification: The analysis helps
investors assess the potential risks associated with different loan
portfolios and make informed decisions about diversifying their
investments to mitigate risks.
Gauging overall market health: The NPA levels of major banks
like HDFC and SBI often serve as indicators of the overall
health of the banking sector. Analyzing their trajectories can
provide valuable insights into the sector's resilience and future
prospects.
Benefits for the Banking System:

Benchmarking and best practices: By comparing the contrasting

approaches of HDFC Bank and SBI Bank, other banks can
identify best practices and potential pitfalls in managing NPAs.
This can lead to improved risk management across the sector.
Collaboration and knowledge sharing: Sharing lessons learned
from both banks can foster collaboration and knowledge
exchange within the banking system, leading to more effective
NPA resolution strategies.
49
Building a more resilient banking system: By addressing the
NPA challenge effectively, the entire banking system can
become more resilient to economic shocks and contribute more
positively to economic growth.
Additional Significance:

Macroeconomic implications: High NPA levels can impact

macro-economic stability, impacting credit availability,
investment, and overall economic growth. Analyzing the factors
contributing to NPA growth in both banks can inform policies
aimed at addressing these wider economic concerns.
Public interest: As public institutions play a significant role in
the Indian banking system, understanding how SBI manages its
NPA burden is of public interest. The analysis can inform
discussions about transparency and accountability in public
sector banks.
Setting new standards: HDFC Bank's remarkable success in
maintaining low NPA levels sets a new benchmark for the
industry. Analyzing its strategies can pave the way for other
banks to adopt similar practices and improve their overall
financial health.
In conclusion, a comparative analysis of NPAs in HDFC Bank
and SBI Bank offers valuable insights that can inform policy
decisions, investment strategies, and overall improvement in the
Indian banking system. This analysis holds significance not only
50
for the immediate stakeholders but also for the wider economy
and the public interest. By understanding the drivers of NPA
growth and exploring potential solutions, we can contribute to a
more resilient and financially sound banking system that drives
sustainable economic growth.

51
Limitations of the Study

The study is confined only to the selected and restricted

indicators and the study is

confined only for a period of three years.

As the analysis is entirely based on secondary data, it has its

drawbacks, firms can

cheat and window dress their financial statements.

Ratio analysis metrics do not necessarily represent future

performance of the company

1. Scope and Timeframe:

Limited Indicators: The study focuses on a specific set of

financial indicators, which may not encompass the full picture of
a company's health. Important aspects like qualitative factors,
market dynamics, or unforeseen events could be missed,
potentially leading to incomplete conclusions.

Short Timeframe: Analyzing only three years of data restricts

the ability to understand long-term trends or cyclical patterns. A
longer timeframe would provide a more robust foundation for
drawing conclusions and identifying sustainable trends.
52
2. Data Reliability:

Secondary Data Dependence: Relying solely on secondary data

introduces the risk of inaccuracies or manipulation. Companies
can engage in practices like "window dressing" to temporarily
inflate financial metrics, skewing the analysis and potentially
leading to misleading interpretations.

Data Gaps and Inconsistency: Secondary data sources may have

missing information or inconsistencies in reporting standards,
making it challenging to obtain a complete and comparable
picture across different companies or time periods.

3. Ratio Analysis Limitations:

Future Performance: While ratio analysis provides valuable

insights into a company's current financial standing, it cannot
predict future performance with certainty. External factors,
internal restructuring, or unforeseen events can significantly
impact future outcomes, rendering ratio-based predictions less
reliable.
53
Industry Specificity: Different industries have varying financial
norms and ratios that may not be directly comparable. Applying
generic ratios across diverse industries can lead to
misinterpretations and inaccurate assessments of company
performance.

54
Research Methodology

Type of Research: Quantitative Research

 Definition: Quantitative research is an empirical research method

that deals mainly with the systematic collection and interpretation
of numerical data. It employs statistical techniques to analyze
patterns, relationships, and trends within the data.

 Characteristics:

 Numerical Data: Focuses on data that can be quantified and

expressed in numerical terms.

 Statistical Analysis: Involves the use of statistical tools and

techniques for data analysis.

 Objectivity: Aims for objectivity and neutrality in data

collection and interpretation.

 Applicability to the Study:

 The nature of the study, which involves comparing Non-

Performing Assets (NPA) in HDFC and SBI, requires a
quantitative approach.

 Numerical data related to NPAs, financial ratios, and other

relevant metrics will be systematically collected and
analyzed.

1.2. Objective:

55
  Primary Goal: The primary objective of the research is to conduct
a thorough analysis and comparison of Non-Performing Assets
(NPA) in HDFC and SBI.

 Specific Aims:

 Analyze the NPA levels in both HDFC and SBI.

 Identify trends and patterns in NPA data.

 Compare statistical measures to discern variations between

the two banks.

 Importance:

 The objective is crucial for gaining insights into the financial

health of HDFC and SBI.

 The findings will contribute to understanding how each bank

manages and deals with non-performing assets.

1.3. Rationale:

 Definition: Rationale refers to the underlying justification or

reasoning for choosing a particular research design or approach.

 Rationale for Quantitative Research:

 Quantitative research is chosen for its ability to provide a

rigorous examination of numerical data.

 It enables the researcher to draw statistical inferences and

make generalizations about the population.

 Advantages for the Study:

56
  Rigorous Examination: Numerical data related to NPAs can
be rigorously examined using statistical methods.

 Generalizability: Findings from quantitative analysis can be

generalized to a broader context.

 Alignment with Research Goals:

 Given the goal of analyzing and comparing NPA levels, a

quantitative approach is well-suited for providing precise and
measurable insights.

1.4. Limitations and Considerations:

 Potential Limitations:

 Quantitative research may not capture the richness of

contextual details compared to qualitative approaches.

 The reliance on numerical data may overlook qualitative

aspects of NPAs.

 Mitigation Strategies:

 Complementary Qualitative Data: Consideration might be

given to complementary qualitative research to capture
nuanced insights.

 Robust Analysis: Ensure a comprehensive and robust

statistical analysis to compensate for limitations.

In summary, the choice of quantitative research for this study is rooted

in its ability to systematically analyze numerical data, which is essential
for comparing Non-Performing Assets in HDFC and SBI. The objective

57
is to draw meaningful statistical inferences, and the rationale lies in the
precision and generalizability that quantitative methods offer. However,
it's important to acknowledge potential limitations and consider
strategies to address them.

Data interpretation and analysis

4.1 Data Representation and Interpretation

Ratio analysis of SBI and HDFC bank from its annual reports
for the year 2017-18, 2018-19 and

2019-20 is presented below-:

I NON PERFORMING ASSETS RATIOS-

NON-PERFORMING ASSETS (NPA) are assets for which

interest is overdue for more than 90

days. It includes-

Gross non performing asset ratio

Gross non-performing assets- Gross non-performing assets refer

to the total amount of the debts

that an organization has failed to collect or the people owing the

organization has failed to honor

their contractual obligations of paying both the principal and

interest amount.

58
Gross non-performing loans are the sum of all the loans that
have been defaulted by the

individuals who have acquired loans from the financial

institution. This means that all loans

defaulted are added together to form gross non-performing

assets.

Formula-

Gross NPA Ratio= (A1 + A2 + A3 ……………………. +

An)/Gross Advances

( A1 stands for loans given to person number one, A2 for loans

given to person number

Year SBI HDFC

2017_18 10.91 1.30
2018_19 7.53 1.36
2019_20 6.15 1.26
Average 8.19 1.30

Statistical Information
59
SBI _ blue bar

HDFC_ orange bar

(Graph 1 shows the % of Gross NPAs of SBI and HDFC for last
three years)

Interpretation: The gross NPA ratio of SBI stood at 10.91 in

2017-18 while that of HDFC was

1.30 in the same year. In 2018-19 the ratio of SBI dropped down
to 7.53 and that of HDFC

increased to 1.36. In the year 2019-20 the ratio of SBI further

dropped down to 6.15 while that of

HDFC was 1.26.

So the average Gross NPA ratio of SBI stood at 8.19 while that
of HDFC was much lesser at

1.30, which clearly shows that SBI’s asset quality is in very poor
shape.

2_Net non-performing assets are the amount that is realized after

provision amount has been

deducted from the gross non-performing assets. It is the actual

loss that the organization incurs

60
after loan defaults.

Formula-

Net NPA Ratio = (Total Gross NPA) – (Provision for Unpaid

Debts)/Gross Advances

Year Sbi Hdfc

2017_18 5.73 0.4
2018_19 3.01 0.39
2019_20 2.23 0.36
Average 3.65 0.38

Statistical Information

61
3_Fixed-asset turnover ratio is a type of efficiency ratio that
measures sales to the value of fixed

assets. It indicates how well the business is using its fixed assets
to generate sales. Generally, ahigh fixed assets turnover ratio
indicates better utilization of fixed assets and a low ratio means

inefficient or under-utilization of fixed assets.

Fixed Asset Turnover Ratio = Net Sales / Average Fixed Assets

Year Sbi Hdfc

2017_18 0.08 0.08
2018_19 0.07 0.08
2019_20 0.07 0.08
Average 0.07 0.08

Statistical Information

62
Interpretation: The fixed asset turnover ratio of both SBI and
HDFC stood at 0.08 in the year

2017-18, in 2018-19, the ratio of SBI was at 0.07 while that of

HDFC remained same at 0.08. In

2019-20, the ratio again remained same as 0.07 and 0.08

respectively.

The average Fixed Assets Turnover ratio of SBI was 0.07 and
that of HDFC was 0.08 which

shows that both the banks are inefficiently using their fixed
assets.

4_Debt to Equity Ratio

The debt to equity ratio is a type of leverage ratio that calculates

the weight of total debt and

financial liabilities against shareholders’ equity. The ideal debt

to equity ratio is 2:1 (because the

cost of debt is lower than the cost of equity.)

Debt to equity ratio = Total liabilities / Shareholder’s equity

Year Sbi Hdfc

2017_18 15.79 8.58
2018_19 16.89 6.97

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2019_20 17.08 7.56
Average 16.59 7.70

Statistical Information

Interpretation: In the year 2017-18, the debt to equity ratio of

SBI is very high at 15.79 and that of HDFC is 8.58. In 2018-19,
the DER of SBI increased to 16.89 while that of HDFC
decreased

to 6.97. Lastly in 2019-20, the ratio further increased to 17.08

and 7.56 respectively.

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The average debt to equity of SBI stood at 16.59 and that of
HDFC stood at 7.70. It suggests that

SBI is at higher default risk than HDFC and both of the banks
are financing a significant amount

of their potential growth through borrowing.

5_Results and discussion

1. NPA Ratios- From graph 1 and graph 2 it is clear that over the
last three years,

NPAs of SBI are far more than that of HDFC which clearly
shows that asset quality

and overall financial health of SBI is in poor shape.

Among the last three years 2017-18 has been proved to the
worst year for SBI with

highest NPA ratios and HDFC had highest gross and net NPA
ratios in 2018-19 and

2017-18 respectively.

2. Efficiency Ratios

Fixed Assets Turnover ratio-From table and graph no. 3 it is

found that the average fixed asset
65
turnover ratios of SBI and HDFC were almost same during the
last 3 years which shows that

both the banks were inefficiently using their fixed assets.

3. Leverage Ratios

Debt to equity ratio- It is used to evaluate a company's debt

level which is not

satisfactory of both the banks. The average debt equity of SBI

stood at 16.59 and that of

HDFC stood at 7.70 which shows that SBI is at higher default

risk than HDFC.

Among the last three years it is observed that SBI had highest
debt in 2019-20 whereas

HDFC had the highest in 2017-18.

After the above study on the comparative analysis of SBI and

HDFC it was discovered that

both the banks are managing their ratios to the best of their
abilities within the specified

parameters. However, when we compare the two banks, it

appears that HDFC Bank has an edge

over SBI, reason being HDFC Bank have lower NPAs than the
SBI. HDFC Bank having average
66
Gross NPAs less than 1.5% while SBI having the GNPAs near
about 8.1% as per the annual

report of both banks over the last three years.

HDFC Bank has managed their NPA and profitability ratios in a

very efficient manner and are playing an important role as a
profitable commercial bank, while SBI is controlling its ratios

particularly the current assets ratio but is not as competitive in

terms of net profit and Non

Performing Assets (NPAs).

SBI needs to be more focused on managing the net profits and

NPAs part to be a commercially

successful bank.

During, the comparative study of SBI v/s HDFC Bank it is

found that HDFC Banks has never

gone above 2% in net NPAs during the study period while SBI
has never gone below 6% during

the study period.

This is an eye-opening comparison that demonstrates SBI's need

to concentrate on acquiring

high-quality assets, otherwise they will be compromising

customers' hard-earned money in the
67
future.

In order to study the trends of NPA, t-Test has been used, the
results of which have been shown

in the relevant tables. The comparative analysis of the

profitability of the two banks clearly

reveals that there is no significant relation between the NPA

ratios of both the Banks

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1. What is the primary reason for NPAs in HDFC Bank and SBI Bank?

2. Which sector has the highest proportion of NPAs in HDFC Bank and SBI
Bank?

3. What is the average NPA recovery rate in HDFC Bank and SBI Bank?

69
4. How does HDFC Bank and SBI Bank classify NPAs?

5. What measures do HDFC Bank and SBI Bank take to prevent NPAs?

70
6. What is the primary source of NPAs in HDFC Bank and SBI Bank?

7. How do HDFC Bank and SBI Bank handle NPAs?

71
8. Which bank has a higher NPA ratio, HDFC Bank or SBI Bank?

72
9. How do HDFC Bank and SBI Bank assess the creditworthiness of borrowers?

10. What steps are taken by HDFC Bank and SBI Bank to recover NPAs?

73
Suggestion
Focusing the Research:
 Choose a specific angle: Rather than a broad
overview, consider focusing on a specific aspect of NPA
like sectoral distribution, impact on profitability, or
effectiveness of resolution strategies.
 Set clear research questions: Define focused questions your
analysis will answer, guiding your data collection and
analysis. Examples: To what extent does sectoral
composition influence NPA levels for HDFC and
SBI? How effective are HDFC's NPA resolution strategies
compared to SBI's?
Enhancing Data Collection:
 Utilize readily available data: Start with publicly available
data like annual reports, RBI website, and financial analyst
reports before seeking out more intricate sources.
 Focus on data quality: Ensure data sources are reliable and
comparable, checking for discrepancies or inconsistencies
before analysis.
 Consider supplementing quantitative data: Use news
articles, expert interviews, or case studies to provide
context and qualitative insights.
Strengthening the Analysis:

74
  Visualize data effectively: Create clear and informative
charts and graphs to showcase trends and comparisons
between banks.
 Apply basic statistical tests: Use t-tests, correlations, or
ANOVAs to assess the significance of any observed
differences in NPA levels.
 Interpret findings critically: Don't just report data; explain
the reasons behind your findings and connect them to
relevant factors like risk management practices or market
dynamics.
Presenting the Findings:
 Structure your research logically: Follow a clear
introduction, methodology, results, discussion, and
conclusion format.
 Tailor your presentation: Consider your audience and
purpose when presenting your findings. For academic
presentations, focus on methodological rigor and
evidence, while for business audiences, highlight practical
implications and recommendations.
 Be concise and impactful: Communicate your key findings
clearly and avoid excessive jargon or technical details.

75
Conclusion
Based on available research and data, the conclusion of a
comparative analysis of NPA on HDFC and SBI banks would
likely highlight the following key points:
NPA Ratios:
 HDFC Bank consistently demonstrates significantly lower
NPA ratios compared to SBI. This implies a stronger credit
risk management and collection performance in HDFC.
 SBI's higher NPA ratios can be attributed to various
factors, including its larger loan portfolio, exposure to
diverse borrower segments, and historical legacy issues.
Financial Health:
 HDFC Bank generally exhibits better financial health with
higher provisions coverage ratio, capital adequacy ratio,
and return on assets compared to SBI.
 SBI's larger size and wider branch network offer
advantages in market reach and brand recognition, but also
contribute to operational complexities and potentially
higher operational costs.
Risk Management:
 HDFC Bank's focus on retail and corporate lending with
stricter credit assessment processes translates to lower NPA
risk.

76
  SBI's exposure to agricultural and MSME sectors carries
inherent higher risk due to borrower vulnerability to
external factors.
Overall:
 HDFC Bank appears better positioned in terms of
managing NPAs and overall financial health.
 SBI, while facing higher NPA challenges, possesses
strengths in size, reach, and brand recognition.
Important caveat:
 This conclusion is based on general trends and publicly
available data. A more nuanced analysis would involve
considering specific timeframes, economic conditions, and
individual loan portfolios.
It's important to remember that the financial landscape is
dynamic, and both HDFC and SBI continuously adapt their
strategies. Therefore, staying updated on their latest
developments and performance is crucial for a comprehensive
understanding of their relative strengths and weaknesses.
Beyond Ratios: Drivers of NPA Differences:
1. Lending Focus: HDFC primarily deals with retail and
corporate loans, characterized by stricter credit assessments
and collateralized assets, leading to lower risk and faster
recoveries. SBI has a more diverse portfolio, including
agriculture and MSME loans, inherently prone to higher
77
 risk due to economic fluctuations and borrower
vulnerability.
2. Provisioning Practices: HDFC maintains higher provision
coverage ratios, proactively setting aside funds to cushion
against potential losses. SBI's provisions might be lower
due to its sheer size and historical legacy issues, leaving
them more exposed to NPA shocks.
3. Collection and Recovery Mechanisms: HDFC employs
robust collection strategies with dedicated teams and
technological tools, facilitating faster resolution of stressed
loans. SBI's extensive branch network offers wider
outreach but might lack the agility and focus of HDFC's
specialized collection units.
4. Legal and Regulatory Framework: The effectiveness of
legal proceedings in recovering loan defaults varies across
jurisdictions. While both banks operate under the same
legal framework, differences in local enforcement
efficiency and court processes can impact their recovery
rates.
Implications and Future Considerations:
1. HDFC's NPA advantage translates to higher investor
confidence and potentially lower borrowing
costs. However, their focus on specific segments limits
market reach and potential growth.

78
 2. SBI's challenge lies in managing its diverse portfolio and
improving NPA levels without comprising growth in key
sectors. Streamlining credit risk management, targeted
interventions, and strengthening recovery mechanisms are
crucial.
3. Government initiatives aimed at streamlining legal
frameworks and insolvency resolution processes can
benefit both banks by facilitating faster resolutions and
reducing NPA burdens.
4. Technological advancements like AI-powered risk
assessment and credit scoring can further refine credit
decisions and improve NPA management for both banks.
In conclusion, the comparative analysis of NPA on HDFC and
SBI reveals intricate dynamics shaped by lending focus, risk
management practices, and external factors. While HDFC
enjoys a current advantage, both banks face distinct challenges
and opportunities in addressing NPAs. Technological
advancements, regulatory reforms, and strategic adaptation will
be critical in shaping their future success and the overall health
of the Indian banking system.
1. Specificity with Data and Trends:
 Go beyond gross NPA ratios: Dive deeper into different
NPA categories like net NPAs, restructured loans, and
provisioning coverage ratios for a more nuanced
perspective.

79
  Track historical trends: Analyze how NPA levels have
evolved over the past few years in both banks, identifying
any notable improvements or concerns.
 Compare specific loan segments: Contrast NPA
performance within specific segments like
retail, corporate, or SME lending to understand risk
variations within each bank's portfolio.
2. Insights from External Sources:
 Include expert opinions: Cite research papers, industry
reports, or interviews with banking analysts to provide
additional perspectives and validate your findings.
 Mention relevant news articles: Highlight recent events or
policy changes that may impact NPA management in both
banks, offering real-world context.
 Draw from case studies: Analyze successful NPA
resolution strategies implemented by other banks or
financial institutions, potentially inspiring solutions for
HDFC and SBI.
3. Addressing Future Considerations:
 Discuss expected economic impacts: Analyze how
upcoming economic trends like inflation, interest rate
changes, or sector-specific growth projections might
influence NPA levels in both banks.

80
  Evaluate regulatory implications: Assess the potential
impact of proposed or planned regulatory reforms on NPA
management practices and resolution mechanisms.
 Forecast future strategies: Based on your
analysis, speculate on potential future initiatives or strategic
adjustments that HDFC and SBI might consider to manage
NPAs effectively.
4. Comparative Analysis of Resolution Strategies:
 Compare collection and recovery methods: Analyze the
effectiveness of each bank's collection teams, technological
tools, and legal avenues for loan recovery.
 Evaluate write-off and restructuring policies: Compare the
approaches of both banks in dealing with bad
loans, analyzing their impact on financial stability and
long-term profitability.
 Assess risk mitigation strategies: Compare the proactive
measures taken by both banks to prevent future NPA
formation, like credit assessment processes and early
intervention mechanisms.
By incorporating these options, you can enrich your analysis
with specific data, external insights, and forward-looking
perspectives, resulting in a more comprehensive and insightful
comparison of NPA management between HDFC and SBI.

81
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